MannKind
Annual Report 2016

Plain-text annual report

MANNKIND CORP FORM 10-K (Annual Report) Filed 03/16/17 for the Period Ending 12/31/16 Address Telephone CIK 25134 RYE CANYON LOOP SUITE 300 VALENCIA, CA 91355 6617755300 0000899460 Symbol MNKD SIC Code Industry 2834 - Pharmaceutical Preparations Biotechnology & Medical Research Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 000-50865 MannKind Corporation(Exact name of registrant as specified in its charter) Delaware 13-3607736(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)25134 Rye Canyon Loop Suite 300Valencia, California 91355(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code(661) 775-5300Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per share The NASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act:None(Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐ Accelerated filer ☒Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒As of June 30, 2016, the aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sale price of such stock as of suchdate on the NASDAQ Global Market, was approximately $372,097,776.As of March 10, 2017, there were 95,776,246 shares of the registrant’s Common Stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive Proxy Statement (the “Proxy Statement”) for the 2017 Annual Meeting of Stockholders to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A not later than May 1, 2017 are incorporated by reference in Part III of this Annual Report on Form 10-K. Table of ContentsMANNKIND CORPORATIONAnnual Report on Form 10-KFor the Fiscal Year Ended December 31, 2016TABLE OF CONTENTS PART I Item 1. Business 1 Item 1A. Risk Factors 16 Item 1B. Unresolved Staff Comments 46 Item 2. Properties 46 Item 3. Legal Proceedings 46 Item 4. Mine Safety Disclosures 47 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 48 Item 6. Selected Financial Data 50 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 51 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 67 Item 8. Financial Statements and Supplementary Data 67 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 80 CONSOLIDATED BALANCE SHEETS 81 CONSOLIDATED STATEMENTS OF OPERATIONS 82 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 83 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT 84 CONSOLIDATED STATEMENTS OF CASH FLOWS 85 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 87 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 67 Item 9A. Controls and Procedures 68 Item 9B. Other Information 72 PART III Item 10. Directors, Executive Officers and Corporate Governance 72 Item 11. Executive Compensation 72 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 72 Item 13. Certain Relationships and Related Transactions, and Director Independence 72 Item 14. Principal Accounting Fees and Services 72 PART IV Item 15. Exhibits. Financial Statement Schedules 73 Signatures 78 Table of ContentsForward-Looking StatementsStatements in this report that are not strictly historical in nature are “forward-looking statements” within the meaning of the federal securities laws made pursuantto the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terms such as“anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” and similarexpressions intended to identify forward-looking statements, though not all forward-looking statements contain these identifying words. These statements may include,but are not limited to, statements regarding: our ability to successfully market, commercialize and achieve market acceptance for Afrezza or any other productcandidates or therapies that we may develop; our ability to manufacture sufficient quantities of Afrezza and obtain insulin supply as needed; our ability to successfullycommercialize our Technosphere drug delivery platform; our estimates for future performance; our estimates regarding anticipated operating losses, future revenues,capital requirements and our needs for additional financing; the timing and amount of our future recognition of deferred product sales from collaboration, costs ofrevenue from collaboration and income from collaboration; the progress or success of our research, development and clinical programs, including the application for andreceipt of regulatory clearances and approvals; our ability to protect our intellectual property and operate our business without infringing upon the intellectual propertyrights of others; and scientific studies and the conclusions we draw from them. These statements are only predictions or conclusions based on current information andexpectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change over time. Actual events or results maydiffer materially from those projected in the forward-looking statements due to various factors, including, but not limited to, those set forth under the caption “RiskFactors” and elsewhere in this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as aresult of new information, future events or otherwise.Afrezza ® , MedTone ® , Dreamboat ® and Technosphere ® are our trademarks in the United States. We have also applied for or have registered companytrademarks in other jurisdictions, including Europe and Japan. This document also contains trademarks and service marks of other companies that are the property oftheir respective owners.PART IItem 1. BusinessUnless the context requires otherwise, the words “MannKind,” “we,” “Company,” “us” and “our” refer to MannKind Corporation and its subsidiaries.MannKind Corporation is a biopharmaceutical company focused primarily on the discovery and development of therapeutic products for diseases such asdiabetes. Our only approved product, Afrezza, is a rapid-acting inhaled insulin that was approved by the U.S. Food and Drug Administration (the “FDA”) on June 27,2014 to improve glycemic control in adult patients with diabetes. Afrezza became available by prescription in United States retail pharmacies in February 2015.According to the Centers for Disease Control and Prevention, approximately 29.1 million people in the United States had diabetes in 2012. Globally, the InternationalDiabetes Federation has estimated that approximately 415.0 million people had diabetes in 2015 and approximately 642.0 million people will have diabetes by 2040.Afrezza is a rapid-acting, inhaled insulin used to control high blood sugar in adults with type 1 and type 2 diabetes. The product consists of a dry powderformulation of human insulin delivered from a small and portable inhaler. Administered at the beginning of a meal, Afrezza dissolves rapidly upon inhalation to the lungand delivers insulin quickly to the bloodstream. Peak insulin levels are achieved within 12 to 15 minutes of administration.On August 11, 2014, we entered into a license and collaboration agreement (the “Sanofi License Agreement”) with Sanofi-Aventis Deutschland GmbH (whichsubsequently assigned its rights and obligations 1Table of Contentsunder the agreement to Sanofi-Aventis U.S. LLC (“Sanofi”)), pursuant to which Sanofi was responsible for global commercial, regulatory and development activitiesfor Afrezza.On January 4, 2016, we received written notification from Sanofi of its election to terminate in its entirety the Sanofi License Agreement. The effective date oftermination was April 4, 2016, which was when we assumed responsibility for worldwide development and commercialization of Afrezza. Under the terms of atransition agreement, Sanofi continued to fulfill orders for Afrezza in the United States until we began distributing MannKind-branded Afrezza product to majorwholesalers in late July 2016. We began recognizing commercial product sales revenue when MannKind-branded Afrezza was dispensed from pharmacies to patients inAugust 2016.On November 9, 2016, we entered into a settlement agreement with Sanofi (the “Settlement Agreement”). Under the terms of the Settlement Agreement, thepromissory note (the “Sanofi Loan Facility”) between us and Aventisub LLC (“Aventisub”), a Sanofi affiliate, was terminated, with Aventisub agreeing to forgive thefull outstanding loan balance of $72.0 million, which includes $0.5 million in the previously uncharged costs. Sanofi also agreed to purchase $10.2 million of insulinfrom us in December 2016 under an existing insulin put option as well as make a cash payment of $30.6 million to us in early January 2017 as acceleration and inreplacement of all other payments that Sanofi would otherwise have been required to make in the future pursuant to the insulin put option, without us being required todeliver any insulin for such payment. We were also relieved of our obligation to pay Sanofi $0.5 million in previously uncharged costs pursuant to the Sanofi LicenseAgreement. We and Sanofi also agreed to a general release of potential claims against each other. As of the date of this filing, we have received $30.6 million and$10.2 million related to this agreement.During our initial transition of the commercial responsibilities from Sanofi, we utilized a contract sales organization to promote Afrezza while we focused ourinternal resources on establishing a channel strategy, entering into distribution agreements and developing co-pay assistance programs, a voucher program, dataagreements and payor relationships. In early 2017, we recruited our own sales force, which included some of the sales representatives that previously were employed bythe contract sales organization. We intend to continue the commercialization of Afrezza in the United States through our internal commercial organization. Our currentstrategy for the future commercialization of Afrezza outside of the United States, subject to receipt of the necessary foreign regulatory approvals, is to seek and establishregional partnerships in foreign jurisdictions where there are appropriate commercial opportunities.As part of the approval of Afrezza, the FDA required us to conduct certain post-marketing studies, including: • An open-label PK and multiple-dose safety and tolerability dose-titration trial of Afrezza in pediatric patients ages 4 to 17 years with type 1 diabetesfollowed by a prospective, open-label, randomized, controlled trial comparing the efficacy and safety of prandial Afrezza to prandial subcutaneous insulinas part used in combination with subcutaneous basal insulin in pediatric patients 4 to 17 years old with type 1 or type 2 diabetes; and • A five-year, randomized, controlled trial in 8,000-10,000 patients with type 2 diabetes to assess the potential serious risk of pulmonary malignancy withAfrezza use.The obligation to complete the pediatric study and to conduct the five-year pulmonary safety study reverted to us when the NDA for Afrezza was transferred backto us in connection with the termination of the Sanofi License Agreement. In addition, we plan to conduct other clinical studies of Afrezza, including dose optimizationstudies in type 1 and type 2 patients and a study of the time that Afrezza patients remain within a desirable glycemic range as determined by continuous glucosemonitoring.Manufacturing and SupplyWe manufacture Afrezza in our Danbury, Connecticut facility, where we formulate the Afrezza inhalation powder, fill it into plastic cartridges and then blisterpackage the cartridges and seal the blister cards inside a foil 2Table of Contentsoverwrap. These overwraps are then packaged into cartons along with inhalers and printed material by a third-party packager. The cartridges and inhalers aremanufactured for us by a third-party plastic-molding company; the cartridges are delivered to our Connecticut facility whereas the inhalers are shipped directly to thepackaging contractor.The quality management systems of our Connecticut facility were certified to be in conformance with the ISO 13485 and ISO 9001 standards. Our facility hasbeen inspected twice by the FDA, once for a pre-approval inspection in the fall of 2009 and once for a regular inspection in May 2013. The FDA is expected to conductadditional inspections of our facility.We believe that our Connecticut facility has enough capacity to satisfy the current commercial demand for Afrezza. In addition, the facility includes expansionspace to accommodate additional filling lines and other equipment, allowing production capacity to be increased based on the demand for Afrezza over the next severalyears.Currently, the only approved source of insulin for Afrezza is manufactured by Amphastar France Pharmaceuticals S.A.S. (“Amphastar”). In April 2014,Amphastar acquired a manufacturing facility from N.V. Organon, a subsidiary of Merck & Co., Inc., where we had previously obtained the insulin that we use to makeAfrezza. On July 31, 2014, we entered into a supply agreement with Amphastar (the “Insulin Supply Agreement”), pursuant to which we agreed to purchase certainannual minimum quantities of insulin for calendar years 2015 through 2019 for an aggregate total purchase price of approximately €120.1 million, of which€93.0 million remained unpurchased as of December 31, 2016. On November 9, 2016, we amended the contract with Amphastar to extend the term over which we arerequired to purchase insulin, by four additional years, without reducing the total amount of insulin we will purchase. Unless earlier terminated, the term of the InsulinSupply Agreement now expires on December 31, 2023 and can be renewed for additional, successive two year terms upon 12 months written notice given prior to theend of the initial term or any additional two year term. We and Amphastar each have normal and customary termination rights, including termination for material breachthat is not cured within a specific time frame or in the event of liquidation, bankruptcy or insolvency of the other party. In addition, we may terminate the Insulin SupplyAgreement upon two years’ prior written notice to Amphastar without cause or upon 30 days prior written notice to Amphastar if a controlling regulatory authoritywithdraws approval for Afrezza, provided, however, in the event of a termination pursuant to either of the latter two scenarios, the provisions of the Insulin SupplyAgreement require us to pay the full amount of all unpaid purchase commitments due over the initial term within 60 calendar days of the effective date of suchtermination.Currently, we purchase the raw material for our proprietary excipient, FDKP (fumaryl diketopiperazine), which is the primary component of our Technospheretechnology platform, from a major chemical manufacturer with facilities in Europe and North America. However, we also have the capability to manufacture FDKP inour Connecticut facility.We have a supply agreement with the contract manufacturer that produces our inhaler and the corresponding cartridges. We expect to be able to qualify anadditional vendor of plastic-molding contract manufacturing services, if warranted by demand.We also have an agreement with the contractor that performs the final packaging of Afrezza overwraps, inhalers and printed material into patient kits. We expectto be able to qualify an additional vendor of packaging services, if warranted by demand.Our third-party suppliers are subject to extensive governmental regulation. We rely on our suppliers to comply with relevant regulatory requirements, includingcompliance with Current Good Manufacturing Practices (“CGMP’s”). 3Table of ContentsTechnosphere Formulation TechnologyAfrezza utilizes our proprietary Technosphere formulation technology; however, the application of this technology is not limited to insulin delivery. We believe itrepresents a versatile drug delivery platform that may allow the oral inhalation of a wide range of therapeutics. We have successfully prepared Technosphereformulations of anionic and cationic drugs, hydrophobic and hydrophilic drugs, proteins, peptides and small molecules. Technosphere powders are based on ourproprietary excipient, FDKP, which is a pH-sensitive organic molecule that self-assembles into small particles under acidic conditions. Certain drugs, such as insulin,can be loaded onto these particles by combining a solution of the drug with a suspension of Technosphere material, which is then dried to powder form. The resultingpowder has a consistent and narrow range of particle sizes with good aerodynamic properties that enable efficient delivery deep into the lungs. Technosphere powdersdissolve extremely fast after inhalation when the particles contact the moist lung surface with its neutral pH, releasing the drug molecules to diffuse across a thin layerof cells into the arterial circulation, bypassing the liver to provide excellent systemic exposure.We have also created an innovative line of breath-powered, dry powder inhalers. Our inhalers are easy to use, cost-effective and can be produced in both areusable (chronic treatment) and a single-use (acute treatment) format. Both the reusable and single use inhaler formats use the same internal air-flow design. Beingbreath-powered, our inhalers require only the patient’s inhalation effort to deliver the powder. To administer the inhalation powder, a patient loads a cartridge into ourinhaler and inhales through the mouthpiece. Upon inhalation, the dry powder is lifted out of the cartridge and broken (or de-agglomerated) into small particles. Theinhalers are engineered to produce an aggressive airstream to de-agglomerate the powder while keeping the powder moving slowly. This slow-moving powdereffectively navigates the patient’s airways for delivery into the lung with minimal deposition at the back of the throat. Our inhalers show very little change inperformance over a wide range of inhalation efforts and produce high bioavailability. In a handling study, pediatric subjects as young as four years old were readily ableto effectively use the inhaler.To aid in the development of our oral inhalation products, we have created a number of innovative development tools and techniques. For example, our BluHaletechnology is a novel inhalation profiling tool that uses miniature sensors to assess the drug delivery process at the level of an individual inhaler. This tool provides real-time insight into patient usage, device system performance and pharmacokinetic effects. We can combine this tool with other development tools, such as patientinhalation simulators and anatomically correct airway models, in order to integrate inhaler performance with formulation development right from the beginning of thedevelopment program. The result is a powder/inhaler combination product customized to the target patient population from the first clinical study.As one example of an additional application of our formulation and delivery technologies, we entered into a collaboration and license agreement with ReceptorLife Sciences (“Receptor”) in January 2016, pursuant to which we performed initial formulation studies on compounds identified by Receptor that treat conditions suchas chronic pain, neurologic diseases and inflammatory disorders. Following the successful completion of these formulation studies, Receptor exercised its option toacquire an exclusive license to develop, manufacture and commercialize inhaled formulations of these compounds utilizing our technology.Our StrategyThe following are the key elements of our strategy:Commercialization and development of Afrezza. Our primary focus is the commercial success of Afrezza. Over the course of the last year, we have transformedfrom a manufacturing-based company into an integrated company with new capabilities in marketing, sales, managed care and market access. During the second half of2016, we undertook a number of initiatives, such as launching a new marketing campaign, expanding the patient assistance program, creating a robust speakersprogram, introducing new product packages that enhance dosing 4Table of Contentsflexibility and securing improved insurance coverage, all of which are expected to increase the promotional responsiveness of Afrezza. Our current priority is thecommercial opportunity for Afrezza in the United States; however, in the future we also intend to seek regional partnerships for the development and commercializationof Afrezza in foreign jurisdictions where there are appropriate commercial opportunities.Capitalize on our proprietary Technosphere and inhaler technology for the delivery of active pharmaceutical ingredients. We believe that Technosphereformulations of active pharmaceutical ingredients have the potential to demonstrate clinical advantages over existing therapeutic options in a variety of therapeuticareas. In addition to our collaboration with Receptor, we are actively exploring other opportunities to out-license our proprietary Technosphere formulation and devicetechnologies. We are also evaluating several product opportunities that we would consider developing as internally and/or externally funded efforts.Intellectual PropertyOur success will depend in large measure on our ability to continue enforcing our intellectual property rights, effectively maintain our trade secrets and avoidinfringing the proprietary rights of third parties. Our policy is to file patent applications on what we deem to be important technological developments that might relateto our product candidates or methods of using our product candidates and to seek intellectual property protection in the United States, Europe, Japan and selected otherjurisdictions for all significant inventions. We have obtained, are seeking, and will continue to seek patent protection on the compositions of matter, methods anddevices flowing from our research and development efforts.Our Technosphere drug delivery platform, including Afrezza, enjoys patent protection relating to the particles, their manufacture, and their use for pulmonarydelivery of drugs. We have additional patent coverage relating to dry powder formulations and the treatment of diabetes using Afrezza. We have been granted patentcoverage for the commercial version of our inhaler and cartridges. We have additional pending patent applications, and expect to file further applications, relating to thedrug delivery platform, methods of manufacture, the Afrezza product and its use, and other Technosphere-based products, inhalers and inhaler cartridges. Overall,Afrezza is protected by over 425 issued patents in the United States and selected jurisdictions around the world and we also have over 250 applications pending that mayprovide additional protection if and when they are allowed. These include composition and inhaler and cartridge patents providing protection for Afrezza with variousexpiration dates, the longer-lived of which will not expire until 2032. In addition, we have certain method of treatment claims that have terms extending into 2031.The field of pulmonary drug delivery is crowded and a substantial number of patents have been issued in these fields. In addition, because patent positions can behighly uncertain and frequently involve complex legal and factual questions, the breadth of claims obtained in any application or the enforceability of issued patentscannot be confidently predicted. Further, there can be substantial delays in commercializing pharmaceutical products, which can partially consume the statutory periodof exclusivity through patents.In addition, the coverage claimed in a patent application can be significantly reduced before a patent is issued, either in the United States or abroad. Statutorydifferences in patentable subject matter may limit the protection we can obtain on some of our inventions outside of the United States. For example, methods of treatinghumans are not patentable in many countries outside of the United States. These and other issues may limit the patent protection we are able to secure internationally.Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patents or, to the extent patents have been issued orwill be issued, whether these patents will be subjected to further proceedings limiting their scope, will provide significant proprietary protection or competitiveadvantage, or will be circumvented or invalidated. Furthermore, patents already issued to us or our pending applications may become subject to disputes that could beresolved against us. In addition, in certain countries, including the United States, applications are generally published 18 months after the application’s priority date. Inany event, because publication of discoveries in scientific or patent literature often trails behind actual discoveries, we cannot be certain that we were the first 5Table of Contentsinventor of the subject matter covered by our pending patent applications or that we were the first to file patent applications on such inventions.Although we own a number of domestic and foreign patents and patent applications relating to Afrezza and our oral inhalation technologies, we have identifiedcertain third-party patents having claims that may trigger an allegation of infringement by virtue of the commercial manufacture and sale of Afrezza. We do not believethat Afrezza infringes on any patents owned by third parties. However, if a court were to determine that the manufacture or sale of Afrezza were infringing any of thesepatent rights, we would have to establish with the court that these patents were invalid in order to avoid legal liability for infringement of these patents. Proving patentinvalidity can be difficult because issued patents are presumed valid. Therefore, in the event that we are unable to prevail in an infringement or invalidity action we willeither have to acquire the third-party patents outright or seek a royalty-bearing license. Royalty-bearing licenses effectively increase costs and therefore may materiallyaffect product profitability. Furthermore, if the patent holder refuses to either assign or license us the infringed patents, it may be necessary to cease manufacturing theproduct entirely and/or design around the patents. In either event, our business would be harmed and our profitability could be materially adversely impacted. If thirdparties file patent applications, or are issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interferenceproceedings in the United States Patent and Trademark Office (“USPTO”) to determine priority of invention. We may also be required to participate in interferenceproceedings involving our issued patents. We also rely on trade secrets and know-how, which are not protected by patents, to maintain our competitive position. Werequire our officers, employees, consultants and advisors to execute proprietary information and invention and assignment agreements upon commencement of theirrelationships with us. These agreements provide that all confidential information developed or made known to the individual during the course of our relationship mustbe kept confidential, except in specified circumstances. These agreements also provide that all inventions developed by the individual on behalf of us must be assignedto us and that the individual will cooperate with us in connection with securing patent protection on the invention if we wish to pursue such protection. There can be noassurance, however, that these agreements will provide meaningful protection for our inventions, trade secrets or other proprietary information in the event ofunauthorized use or disclosure of such information.We also execute confidentiality agreements with outside collaborators. However, disputes may arise as to the ownership of proprietary rights to the extent thatoutside collaborators apply technological information to our projects that are developed independently by them or others, or apply our technology to outside projects,and there can be no assurance that any such disputes would be resolved in our favor. In addition, any of these parties may breach the agreements and disclose ourconfidential information or our competitors might learn of the information in some other way. If any trade secret, know-how or other technology not protected by apatent were to be disclosed to or independently developed by a competitor, our business, results of operations and financial condition could be adversely affected.CompetitionThe pharmaceutical and biotechnology industries are highly competitive and characterized by rapidly evolving technology and intense research and developmentefforts. We compete with companies, including major global pharmaceutical companies, and other institutions that have substantially greater financial, research anddevelopment, marketing and sales capabilities and have substantially greater experience in undertaking preclinical and clinical testing of products, obtaining regulatoryapprovals and marketing and selling biopharmaceutical products. We face competition based on, among other things, product efficacy and safety, the timing and scopeof regulatory approvals, product ease of use and price.Diabetes TreatmentsWe believe that Afrezza has important competitive advantages in the delivery of insulin when compared with currently known alternatives. However, new drugsor further developments in alternative drug delivery 6Table of Contentsmethods may provide greater therapeutic benefits, or comparable benefits at lower cost, than Afrezza. There can be no assurance that existing or new competitors willnot introduce products or processes competitive with or superior to our product candidates.We have set forth below more detailed information about certain of our competitors. The following is based on information currently available to us.Rapid-acting (Injected) InsulinCurrently, there is no approved insulin product that is absorbed into the bloodstream as rapidly as Afrezza, i.e., reaching peak levels within 12 to 15 minutes afteradministration. There are several formulations of “rapid-acting” insulin analogs that reach peak insulin levels within 45 to 90 minutes after injection. The principalproducts in this category are insulin lispro, which is marketed by Eli Lilly & Company, or Lilly; insulin aspart, which is marketed by Novo Nordisk A/S, or NovoNordisk; and insulin glulisine, which is marketed by Sanofi.In January 2017, Novo Nordisk announced that Fiasp ® , a faster formulation of insulin aspart, was approved in Europe and Canada. It is currently undergoingregulatory review in the United States.Inhaled Insulin Delivery SystemsIn January 2006, Exubera ® , developed by Pfizer in collaboration with Nektar Therapeutics, Inc., was approved for the treatment of adults with type 1 and type 2diabetes. Exubera ® was slow to gain market acceptance and, in October 2007, Pfizer announced that it was discontinuing the product. Pfizer subsequently withdrew theNDA for Exubera from the FDA.In January 2008, Novo Nordisk announced that it was halting development of its inhaled insulin product, having reached the conclusion that the product did nothave adequate commercial potential.In March 2008, Lilly announced that it was terminating the development of its AIR ® inhaled insulin system. Lilly stated that this decision resulted fromincreasing uncertainties in the regulatory environment and after a thorough evaluation of the evolving commercial and clinical potential of its product compared toexisting medical therapies.Dance Biopharm, Inc. has completed Phase 2 clinical studies of an inhaled insulin product that utilizes a liquid formulation of human insulin, dispensed through ahandheld electronic aerosol device.Non-insulin MedicationsAfrezza also competes with currently available non-insulin medication products for type 2 diabetes. These products include the following: • GLP-1 agonists, such as exenatide or liraglutide, which mimic a naturally occurring hormone that stimulates the pancreas to secrete insulin when bloodglucose levels are high. • Inhibitors of dipeptidyl peptidase IV, such as sitagliptin or saxagliptin, are a class of drugs that work by blocking the enzyme that normally degradesGLP-1. • Sulfonylureas and meglitinides, which are classes of drugs that act on the pancreatic cells to stimulate the secretion of insulin. • Thiazolidinediones, such as pioglitizone and biguanides, such as metformin, which lower blood glucose by improving the sensitivity of cells to insulin, ordiminishing insulin resistance. • Alpha-glucosidase inhibitors, which lower the amount of glucose absorbed from the intestines, thereby reducing the rise in blood glucose that occurs after ameal. 7Table of Contents • SGLT-2 inhibitors, such as dapagliflozin and canagliflozin, are a class of medications that lower blood glucose by increasing glucose excretion in urine.Government Regulation and Product ApprovalThe FDA and comparable regulatory agencies in state, local and foreign jurisdictions impose substantial requirements upon the clinical development,manufacture and marketing of medical devices and new drug and biologic products. These agencies, through regulations that implement the Federal Food, Drug andCosmetic Act, as amended (“FDCA”), and other regulations, regulate research and development activities and the development, testing, manufacture, labeling, storage,shipping, approval, recordkeeping, advertising, promotion, sale and distribution of such products. In addition, if any of our products are marketed abroad, they will alsobe subject to export requirements and to regulation by foreign governments. The regulatory approval process is generally lengthy, expensive and uncertain. Failure tocomply with applicable FDA and other regulatory requirements can result in sanctions being imposed on us or the manufacturers of our products, including hold letterson clinical research, civil or criminal fines or other penalties, product recalls, or seizures, or total or partial suspension of production or injunctions, refusals to permitproducts to be imported into or exported out of the United States, refusals of the FDA to grant approval of drugs or to allow us to enter into government supplycontracts, withdrawals of previously approved marketing applications and criminal prosecutions.The steps typically required before an unapproved new drug or biologic product for use in humans may be marketed in the United States include: • Preclinical studies that include laboratory evaluation of product chemistry and formulation, as well as animal studies to assess the potential safety andefficacy of the product. Certain preclinical tests must be conducted in compliance with good laboratory practice regulations. Violations of these regulationscan, in some cases, lead to invalidation of the studies, or requiring such studies to be repeated. In some cases, long-term preclinical studies are conductedwhile clinical studies are ongoing. • Submission to the FDA of an investigational new drug application (“IND”), which must become effective before human clinical trials may commence. Theresults of the preclinical studies are submitted to the FDA as part of the IND. Unless the FDA objects and places a clinical hold, the IND becomes effective30 days following receipt by the FDA. • Approval of clinical protocols by independent institutional review boards (“IRBs”) at each of the participating clinical centers conducting a study. TheIRBs consider, among other things, ethical factors, the potential risks to individuals participating in the trials and the potential liability of the institution.The IRB also approves the consent form signed by the trial participants. The IRB of FDA may place a trial on hold at any time if it believes the risks tosubjects outweigh the potential benefits. • Adequate and well-controlled human clinical trials to establish the safety and efficacy of the product. Clinical trials involve the administration of the drugto healthy volunteers or to patients under the supervision of a qualified medical investigator according to an approved protocol. The clinical trials areconducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor participant safety and efficacy or othercriteria to be evaluated. Each protocol is submitted to the FDA as part of the IND. Human clinical trials are typically conducted in the following foursequential phases that may overlap or be combined: • In Phase 1, the drug is initially introduced into a small number of individuals and tested for safety, dosage tolerance, absorption, metabolism,distribution and excretion. Phase 1 clinical trials are often conducted in healthy human volunteers and such cases do not provide evidence ofefficacy. In the case of severe or life-threatening diseases, the initial human testing is often conducted in patients rather than healthy volunteers.Because these patients already have the target disease, these studies may provide initial evidence of efficacy that would traditionally be obtained inPhase 2 clinical trials. Consequently, these types of trials are frequently referred to as Phase 1/2 clinical 8Table of Contents trials. The FDA receives reports on the progress of each phase of clinical testing and it may require the modification, suspension or termination ofclinical trials if it concludes that an unwarranted risk is presented to patients or healthy volunteers. • Phase 2 involves clinical trials in a limited patient population to further identify any possible adverse effects and safety risks, to determine theefficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. • Phase 3 clinical trials are undertaken to further evaluate dosage, clinical efficacy and to further test for safety in an expanded patient population atgeographically dispersed clinical study sites. Phase 3 clinical trials usually include a broader patient population so that safety and efficacy can besubstantially established. Phase 3 clinical trials cannot begin until Phase 2 evaluation demonstrates that a dosage range of the product may beeffective and has an acceptable safety profile. • Phase 4 clinical trials are performed if the FDA requires, or a company pursues, additional clinical trials after a product is approved. These clinicaltrials may be made a condition to be satisfied after a drug receives approval. The results of Phase 4 clinical trials can confirm the effectiveness of aproduct and can provide important safety information to augment the FDA’s voluntary adverse event reporting system. • Concurrent with clinical trials and preclinical studies, companies also must develop information about the chemistry and physical characteristics ofthe drug and finalize a process for manufacturing the product in accordance with the FDA’s current good manufacturing practices (“cGMPs”),requirements for drug products. The manufacturing process must be capable of consistently producing quality batches of the product and themanufacturer must develop methods for testing the quality, purity and potency of the final products. Additionally, appropriate packaging must beselected and tested and chemistry stability studies must be conducted to demonstrate that the product does not undergo unacceptable deteriorationover its shelf-life. • Submission to the FDA of an NDA based on the clinical trials. The results of product development, preclinical studies and clinical trials aresubmitted to the FDA in the form of an NDA for approval of the marketing and commercial shipment of the product. Under the Pediatric ResearchEquity Act, NDAs are required to include an assessment, generally based on clinical study data, of the safety and efficacy of drugs for all relevantpediatric populations. The statute provides for waivers or deferrals in certain situations.In its review of an NDA, the FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefitand interpretation of clinical trial data. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additionaltesting or information. Before approving an NDA, the FDA may inspect the facilities at which the product is manufactured and will not approve the product unless themanufacturing facility complies with cGMPs and will also inspect clinical trial sites for integrity of data supporting safety and efficacy. The FDA will issue either anapproval of the NDA or a Complete Response Letter, detailing the deficiencies and information required in order for reconsideration of the NDA.Medical products containing a combination of new drugs, biological products, or medical devices are regulated as “combination products” in the United States. Acombination product generally is defined as a product comprised of components from two or more regulatory categories (e.g., drug/device, device/biologic,drug/biologic). Each component of a combination product is subject to the requirements established by the FDA for that type of component, whether a new drug,biologic, or device.The testing and approval process requires substantial time, effort and financial resources. Data that we submit are subject to varying interpretations, and the FDAand comparable regulatory authorities in foreign 9Table of Contentsjurisdictions may not agree that our product candidates have been shown to be safe and effective. We cannot be certain that any approval of our investigational productswill be granted on a timely basis, if at all. For an approved product such as Afrezza, we are subject to continuing regulation by the FDA, including post marketing studycommitments or requirements, risk evaluation and mitigation strategies, record-keeping requirements, reporting of adverse experiences with the product, submittingother periodic reports, drug sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing or labeling changes, andcomplying with certain electronic records and signature requirements. Prior to and following approval, if granted, all manufacturing sites are subject to inspection by theFDA and other national regulatory bodies and must comply with cGMP, QSR and other requirements enforced by the FDA and other national regulatory bodies throughtheir facilities inspection program. Foreign manufacturing establishments must comply with similar regulations. In addition, our drug-manufacturing facilities located inDanbury and the facilities of our insulin supplier, the supplier(s) of FDKP and the supplier(s) of our inhaler and cartridges are subject to federal registration and listingrequirements and, if applicable, to state licensing requirements. Failure, including those of our suppliers, to obtain and maintain applicable federal registrations or statelicenses, or to meet the inspection criteria of the FDA or the other national regulatory bodies, would disrupt our manufacturing processes and would harm our business.In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the area of production and quality control toensure full compliance. Numerous device regulatory requirements apply to the device part of a drug-device combination. These include: • product labeling regulations; • general prohibition against promoting products for unapproved or “off-label” uses; • corrections and removals ( e.g ., recalls); • establishment registration and device listing; • general prohibitions against the manufacture and distribution of adulterated and misbranded devices; and • the Medical Device Reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death orserious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.Further, the supplier we contract with to manufacture our inhaler and cartridges is subject to QSRs, which requires manufacturers to follow elaborate design,testing, control, documentation and other quality assurance procedures during the manufacturing process of medical devices, among other requirements.Failure to adhere to regulatory requirements at any stage of development, including the preclinical and clinical testing process, the review process, or at any timeafterward, including after approval, may result in various adverse consequences. These consequences include action by the FDA or another national regulatory body thathas the effect of delaying approval or refusing to approve a product; suspending or withdrawing an approved product from the market; seizing or recalling a product; orimposing criminal penalties against the manufacturer. In addition, later discovery of previously unknown problems may result in restrictions on a product, itsmanufacturer, or the NDA holder, or market restrictions through labeling changes or product withdrawal. Also, new government requirements may be established orcurrent government requirements may be changed at any time, which could delay or prevent regulatory approval of our products under development. We cannot predictthe likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.In addition, the FDA imposes a number of complex regulations on entities that advertise and promote drugs, which include, among other requirements, standardsfor and regulations of direct-to-consumer advertising, off-label promotion, industry sponsored scientific and educational activities, and promotional activities involvingthe Internet. The FDA has very broad enforcement authority under the FDCA, and failure to comply with these 10Table of Contentsregulations can result in penalties, including the issuance of a warning letter requirements for corrective advertising to healthcare providers, a requirement that futureadvertising and promotional materials be pre-cleared by the FDA, and state and federal civil and criminal investigations and prosecutions.Products manufactured in the United States and marketed outside the United States are subject to certain FDA regulations, as well as regulation by the country inwhich the products are to be sold. We also would be subject to foreign regulatory requirements governing clinical trials and drug product sales if products are studied ormarketed abroad. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries usually must beobtained prior to the marketing of the product in those countries. The approval process varies from jurisdiction to jurisdiction and the time required may be longer orshorter than that required for FDA approval.There can be no assurance that the current regulatory framework will not change or that additional regulation will not arise at any stage of our productdevelopment or marketing that may affect approval, delay the submission or review of an application or require additional expenditures by us. There can be noassurance that we will be able to obtain necessary regulatory clearances or approvals on a timely basis, if at all, for any of our product candidates under development,and delays in receipt or failure to receive such clearances or approvals, the loss of previously received clearances or approvals, or failure to comply with existing orfuture regulatory requirements could have a material adverse effect on our business and results of operations.In addition to the foregoing, we are subject to numerous federal, state and local laws relating to such matters as laboratory practices, the experimental use ofanimals, the use and disposal of hazardous or potentially hazardous substances, controlled drug substances, privacy of individually identifiable healthcare information,safe working conditions, manufacturing practices, environmental protection and fire hazard control.Healthcare Regulatory and Pharmaceutical PricingGovernment coverage and reimbursement policies both directly and indirectly affect our ability to successfully commercialize our approved products, and suchcoverage and reimbursement policies will be affected by future healthcare reform measures. Third-party payors, like government health administration authorities,private health insurers and other organizations that provide healthcare coverage, generally decide which drugs they will pay for and establish reimbursement levels forcovered drugs. In particular, in the United States, private third-party payors often provide reimbursement for products and services based on the level at which thegovernment (through the Medicare or Medicaid programs) provides reimbursement for such treatments. In the United States, the European Union and other potentiallysignificant markets for our product candidates, government authorities and other third-party payors are increasingly attempting to limit or regulate the price of medicalproducts and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. Further, the increased emphasis onmanaged healthcare in the United States and on country and regional pricing and reimbursement controls in the European Union will put additional pressure on productpricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. Recently, in the United States there has beenheightened governmental scrutiny of the manner in which drug manufacturers set prices for their marketed products. For example, there have been several recent U.S.Congressional inquiries regarding certain drug manufacturers’ pricing practices and proposed bills designed to, among other things, bring more transparency to drugpricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare and reform government programreimbursement methodologies for drugs. Pricing pressures can arise from rules and practices of managed care organizations, judicial decisions and governmental lawsand regulations related to Medicare, Medicaid, healthcare reform, pharmaceutical reimbursement policies and pricing in general.The United States and some foreign jurisdictions have enacted or are considering a number of additional legislative and regulatory proposals to change thehealthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the U.S. and elsewhere, there is significantinterest 11Table of Contentsin promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, thepharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives, including, most recently, thePatient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “PPACA”), enacted in March 2010. ThePhysician Payments Sunshine Act within PPACA, and its implementing regulations, require certain manufacturers of drugs, devices, biological and medical supplies forwhich payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report information related to certainpayments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of,the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.Further, if a drug product is reimbursed by Medicare, Medicaid or other federal or state healthcare programs, we must comply with, among others, the federalcivil and criminal false claims laws, including the civil False Claims Act, as amended, the federal Anti-Kickback Statute, as amended, and similar state laws. If a drugproduct is reimbursed by Medicare or Medicaid, pricing and rebate programs must comply with, as applicable, the Medicaid rebate requirements of the Omnibus BudgetReconciliation Act of 1990, as amended, and the Medicare Prescription Drug Improvement and Modernization Act of 2003. Additionally, PPACA substantially changedthe way healthcare is financed by both governmental and private insurers. Among other cost containment measures, PPACA established: an annual, nondeductible feeon any entity that manufactures or imports certain branded prescription drugs and biologic agents; a new Medicare Part D coverage gap discount program; and a newformula that increased the rebates a manufacturer must pay under the Medicaid Drug Rebate Program. There have been judicial and Congressional challenges to certainaspects of PPACA. As a result there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the PPACA. In January 2017,President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from, ordelay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, ormanufacturers of pharmaceuticals or medical devices. Further, in January 2017, Congress adopted a budget resolution for fiscal year 2017, or the Budget Resolution,that authorizes the implementation of legislation that would repeal portions of the PPACA. Following the passage of the Budget Resolution, in March 2017, the U.S.House of Representatives introduced legislation known as the American Health Care Act, which, if enacted, would amend or repeal significant portions of the PPACA.Among other changes, the American Health Care Act would repeal the annual fee on certain brand prescription drugs and biologics imposed on manufacturers andimporters, eliminate the 2.3% excise tax on medical devices, eliminate penalties on individuals and employers that fail to maintain or provide minimum essentialcoverage, and create refundable tax credits to assist individuals in buying health insurance. The American Health Care Act would also make significant changes toMedicaid by, among other things, making Medicaid expansion optional for states, repealing the requirement that state Medicaid plans provide the same essential healthbenefits that are required by plans available on the exchanges, modifying federal funding, including implementing a per capita cap on federal payments to states, andchanging certain eligibility requirements. Other legislative changes have been proposed and adopted in the United States since PPACA. For example, through theprocess created by the Budget Control Act of 2011, there are automatic reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect inApril 2013 and, following passage of the Bipartisan Budget Act of 2015, will remain in effect through 2025 unless additional Congressional action is taken. In January2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers.In the future, there are likely to be additional proposals relating to the reform of the U.S. health care system, some of which could further limit the prices we are able tocharge for our products, or the amounts of reimbursement available for our products. If drug products are made available to authorized users of the Federal SupplySchedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and stateconsumer protection and unfair competition laws. 12Table of ContentsIn addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. Thefederal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology and Clinical Health Act(“HITECH”), and their respective implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiablehealth information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates” — independentcontractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity.HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave stateattorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costsassociated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of whichdiffer from each other in significant ways and may not have the same effect, thus complicating compliance efforts.Also, many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, inseveral states, that apply regardless of the payer. Additional state laws require pharmaceutical companies to implement a comprehensive compliance program and/orlimit expenditure for, or payments to, individual medical or health professionals.We may incur significant costs to comply with these laws and regulations now or in the future. If our operations are found to be in violation of any of the federaland state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetarypenalties, damages, fines, individual imprisonment, disgorgement, exclusion of products from reimbursement under government programs, additional reportingrequirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these lawsand the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.Research and Development ExpensesOur research and development expenses totaled $14.9 million, $29.7 million and $100.2 million for the years ended December 31, 2016, 2015 and 2014,respectively.Long-Lived AssetsOur long-lived assets are located in the United States and totaled $28.9 million, $48.7 million and $192.1 million as of December 31, 2016, 2015 and 2014,respectively. Our long-lived assets as of December 31, 2016 do not include an asset held for sale totaling $16.7 million.EmployeesAs of December 31, 2016, we had 153 full-time employees, of which 66 were engaged in manufacturing, 34 in research and development, 30 in general andadministrative and 23 in selling and marketing. Fifteen of these employees had a Ph.D. degree and/or M.D. degree and were engaged in activities relating to researchand development, manufacturing, quality assurance or business development.None of our employees is subject to a collective bargaining agreement. We believe relations with our employees are good.Corporate InformationWe were incorporated in the State of Delaware on February 14, 1991. Our principal executive offices are located at 25134 Rye Canyon Loop Suite 300, Valencia,California 91355, and our telephone number at that 13Table of Contentsaddress is (661) 775-5300. MannKind Corporation and the MannKind Corporation logo are our service marks. Our website address is http://www.mannkindcorp.com.Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available free of charge on our website as soon as reasonably practicable after weelectronically file such material with, or furnish it to, the SEC. The contents of these websites are not incorporated into this Annual Report. Further, our references to theURLs for these websites are intended to be inactive textual reference only.On March 1, 2017, we filed with the Secretary of State of the State of Delaware a Certificate of Amendment to our Amended and Restated Certificate ofIncorporation (the “Charter Amendment”) to (i) implement a one-for-five reverse stock split of our outstanding common stock (the “Reverse Stock Split”), without anychange in par value per share, and (ii) reduce the authorized number of shares of our common stock from 700,000,000 to 140,000,000 shares, as previously authorizedand approved at a special meeting of stockholders on March 1, 2017. The Charter Amendment became effective at 5:01 p.m. Eastern Time on March 2, 2017 (the“Effective Time”). No fractional shares were issued in connection with the Reverse Stock Split. Instead, we issued one full share of the post-Reverse Stock Splitcommon stock to any stockholder of record who was entitled to receive a fractional share as a result of the process.As a result of the Reverse Stock Split, proportionate adjustments were made to the per share exercise price and the number of shares issuable upon the exercise orvesting of all stock options, restricted stock units and warrants issued by us and outstanding immediately prior to the Effective Time, which resulted in a proportionatedecrease in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock units and warrants, and, inthe case of stock options and warrants, a proportionate increase in the exercise price of all such stock options and warrants. In addition, the number of shares authorizedfor future grant under our equity incentive/compensation plans immediately prior to the Effective Time were reduced proportionately.On March 3, 2017, our common stock began trading on The NASDAQ Global Market on a split-adjusted basis. All references to shares of common stock, all pershare data, and all warrant, stock option and restricted stock unit activity for all periods presented in this Annual Report have been adjusted to reflect the Reverse StockSplit on a retroactive basis.Scientific AdvisorsWe seek advice from a number of leading scientists and physicians on scientific, technical and medical matters. These advisors are leading scientists in the areasof pharmacology, chemistry, immunology and biology. Our scientific advisors are consulted regularly to assess, among other things: • our research and development programs; • the design and implementation of our clinical programs; • our patent and publication strategies; • market opportunities from a clinical perspective; • new technologies relevant to our research and development programs; and • specific scientific and technical issues relevant to our business. 14Table of ContentsExecutive Officers of the RegistrantThe following table sets forth our current executive officers and their ages: Name Age Position(s)Matthew J. Pfeffer 59 Chief Executive Officer, Chief Financial Officer and DirectorMichael E. Castagna, Pharm.D. 40 Corporate Vice President, Chief Commercial OfficerJoseph Kocinsky 53 Corporate Vice President, Chief Technology OfficerDavid B. Thomson, Ph.D., J.D. 50 Corporate Vice President, General Counsel and SecretaryStuart A. Tross, Ph.D. 50 Corporate Vice President, Chief People OfficerRaymond W. Urbanski, M.D., Ph.D. 57 Corporate Vice President, Chief Medical OfficerRosabel R. Alinaya 56 Senior Vice President, Principal Accounting OfficerMatthew J. Pfeffer has served as our Chief Executive Officer and one of our directors since January 2016 and as our Chief Financial Officer since April 2008.Mr. Pfeffer also served as our Corporate Vice President from April 2008 until January 2016. Previously, Mr. Pfeffer served as Chief Financial Officer and Senior VicePresident of Finance and Administration of VaxGen, Inc. from March 2006 until April 2008, with responsibility for finance, tax, treasury, human resources, IT,purchasing and facilities functions. Prior to VaxGen, Mr. Pfeffer served as CFO of Cell Genesys, Inc. During his nine year tenure at Cell Genesys, Mr. Pfeffer served asDirector of Finance before being named CFO in 1998. Prior to that, Mr. Pfeffer served in a variety of financial management positions at other companies, includingroles as Corporate Controller, Manager of Internal Audit and Manager of Financial Reporting. Mr. Pfeffer began his career at Price Waterhouse. Mr. Pfeffer graduatedfrom the University of California, Berkeley and is a Certified Public Accountant.Michael E. Castagna, Pharm.D. has been our Corporate Vice President, Chief Commercial Officer since March 2016. From November 2012 until he joined us,Dr. Castagna was at Amgen, Inc., where he initially served as Vice President, Global Lifecycle Management and was most recently Vice President, Global CommercialLead for Amgen’s Biosimilar Business Unit. From 2010 to 2012, he was Executive Director, Immunology, at Bristol-Myers Squibb Co. Before BMS, Dr. Castagnaserved as Vice President & Head, Biopharmaceuticals, North America, at Sandoz. He has also held positions with commercial responsibilities at EMD (Merck) Serono,Pharmasset and DuPont Pharmaceuticals. He received his pharmacy degree from University of the Sciences-Philadelphia College of Pharmacy, a Doctor of Pharmacyfrom Massachusetts College of Pharmacy & Sciences and an MBA from The Wharton School of Business at the University of Pennsylvania.Joseph Kocinsky has been our Corporate Vice President, Chief Technology Officer since October 2015 . Mr. Kocinsky has over 28 years of experience in thepharmaceutical industry in technical operations and product development. Prior to joining us in 2003, he held a variety of technical and management positions withincreased responsibility at Schering-Plough Corp. Mr. Kocinsky holds a bachelor’s degree in chemical engineering and a master’s degree in Biomedical Engineeringfrom New Jersey Institute of Technology and a master’s degree in business administration from Seton Hall University.David B. Thomson, Ph.D., J.D. has been our Corporate Vice President, General Counsel and Corporate Secretary since January 2002. Prior to joining us, hepracticed corporate/commercial and securities law at a major Toronto law firm. Earlier in his career, Dr. Thomson was a post-doctoral fellow at the RockefellerUniversity. Dr. Thomson obtained his bachelor’s degree, master’s degree and Ph.D. from Queens University and obtained his J.D. from the University of Toronto.Stuart A. Tross, Ph.D. has been our Corporate Vice President, Chief People Officer since December 2016, with responsibilities for human resources, informationtechnology and west coast facilities. From 2006 to 2016 he served in various roles of increasing responsibility at Amgen, Inc., most recently as Senior Vice Presidentand Chief Human Resources Officer responsible for human resources and security on a global basis. From 1998 to 2006 he served in a series of leadership roles atBristol-Myers Squibb Co, most recently as Vice President and 15Table of ContentsGlobal Head of Human Resources for Mead Johnson Company. Stuart received a B.S. degree from Cornell University and M.S. and Ph.D. degrees in Industrial-Organizational Psychology from the Georgia Institute of Technology.Raymond W. Urbanski, M.D., Ph.D. has been our Chief Medical Officer since August 2015. Prior to joining us, he served as Chief Medical Officer at Mylan, Inc.from September 2012 to September 2014 and Chief Medical Officer at Metabolex, Inc. from October 2011 to June 2012. From June 2004 to October 2011, Dr. Urbanskiheld several positions with Pfizer Inc. most recently as Vice President and Medical Head of the Established Products Business Unit. He also served as Vice President ofResearch and Development and Chief Medical Officer at Suntory Pharmaceutical, Inc. Dr. Urbanski earned both his M.D. and Ph.D. in pharmacology and toxicology atthe University of Medicine and Dentistry of New Jersey. He completed his residency and fellowship training at Thomas Jefferson University Hospital in Philadelphia.Ros abel R. Alinaya has been our Senior Vice President, Principal Accounting Officer since January 2016 with responsibility for finance, accounting, tax,treasury, investor relations and risk management. Previously, she was our Vice President, Finance since March 2011 after serving as our Corporate Controller since June2003. Ms. Alinaya began her career at Deloitte & Touche LLP, graduating from California State University, Northridge and is a Certified Public Accountant. She is alsoa member of the American Institute of Certified Public Accountants and a member of the California Society of Certified Public Accountants.Executive officers serve at the discretion of our Board of Directors. There are no family relationships between any of our directors and executive officers.Item 1A. Risk FactorsYou should consider carefully the following information about the risks described below, together with the other information contained in this Annual Reportbefore you decide to buy or maintain an investment in our common stock. We believe the risks described below are the risks that are material to us as of the date of thisAnnual Report. Additional risks and uncertainties that we are unaware of may also become important factors that affect us. If any of the following risks actually occur,our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, themarket price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.RISKS RELATED TO OUR BUSINESSWe will need to raise additional capital to fund our operations, and our inability to do so could raise substantial doubt about our ability to continue as a goingconcern.This report includes disclosures stating that our existing cash resources and our accumulated stockholders’ deficit raise substantial doubt about our ability tocontinue as a going concern. We will need to raise additional capital, whether through the sale of equity or debt securities, additional strategic business collaborations,the establishment of other funding facilities, licensing arrangements, asset sales or other means, in order to support our ongoing activities, including thecommercialization of Afrezza and the development of our product candidates, and to avoid defaulting under the covenant in our facility agreement with DeerfieldPrivate Design Fund II, L.P. (“Deerfield Private Design Fund”) and Deerfield Private Design International II, L.P. (collectively, “Deerfield”) dated July 1, 2013 (asamended, the “Facility Agreement”), which requires us to maintain at least $25.0 million in cash and cash equivalents or available borrowings under the loanarrangement, dated as of October 2, 2007, between us and The Mann Group LLC (as amended, restated, or otherwise modified as of the date hereof, “The Mann GroupLoan Arrangement”), as of the last day of each fiscal quarter. It may be difficult for us to raise additional funds on favorable terms, or at all. As of December 31, 2016,we had cash and cash equivalents of $22.9 million and a stockholders’ deficit of $183.6 million, which raises concerns about our 16Table of Contentssolvency and ability to continue as a going concern. The extent of our additional funding requirements will depend on a number of factors, including: • the degree to which Afrezza is commercially successful; • the degree to which we are able to generate revenue from our Technosphere drug delivery platform; • the costs of developing and commercializing Afrezza on our own in the United States, including the costs of building our commercialization capabilities; • the costs of finding regional collaboration partners for the development and commercialization of Afrezza in foreign jurisdictions; • the demand by any or all of the holders of the 5.75% Convertible Senior Subordinated Exchange Notes due 2018 (the “2018 notes”), the 9.75% SeniorConvertible Notes due 2019 issued to Deerfield (the “2019 notes”), and the 8.75% Senior Convertible Notes due 2019 issued to Deerfield (the “Tranche Bnotes”) to require us to repay or repurchase such debt securities if and when required; • our ability to repay or refinance existing indebtedness, and the extent to which the 2018 notes or any other convertible debt securities we may issue areconverted into or exchanged for shares of our common stock; • the rate of progress and costs of our clinical studies and research and development activities; • the costs of procuring raw materials and operating our manufacturing facilities; • our obligation to make milestone payments pursuant to the milestone rights issued to Deerfield Private Design Fund and Horizon Santé FLML SÁRL(collectively, the “Milestone Purchasers”) and pursuant to the Milestone Rights Purchase Agreement dated July 1, 2013 (the “Milestone Agreement”); • our success in establishing strategic business collaborations or other sales or licensing of assets, and the timing and amount of any payments we mightreceive from any such transactions; • actions taken by the FDA and other regulatory authorities affecting Afrezza and our product candidates and competitive products; • the emergence of competing technologies and products and other market developments; • the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights or defending against claims ofinfringement by others; • the level of our legal and litigation expenses; and • the costs of discontinuing projects and technologies, and/or decommissioning existing facilities, if we undertake any such activities.We have raised capital in the past through the sale of equity and debt securities and we may in the future pursue the sale of additional equity and/or debtsecurities, or the establishment of other funding facilities including asset-based borrowings. There can be no assurances, however, that we will be able to raise additionalcapital on acceptable terms, or at all. Issuances of additional debt or equity securities or the conversion of any of our currently outstanding convertible debt securitiesinto shares of our common stock or the exercise of our currently outstanding warrants for shares of our common stock could impact the rights of the holders of ourcommon stock and will dilute their ownership percentage. Moreover, the establishment of other funding facilities may impose restrictions on our operations. Theserestrictions could include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, paydividends, redeem our stock or make investments. We also will need to raise additional capital by pursuing opportunities for the licensing or sale of certain intellectualproperty and other assets. We cannot offer assurances, however, that any strategic collaborations, sales of securities or sales or licenses of assets will be available to uson a timely basis or on acceptable terms, if at all. We may be required to enter into relationships 17Table of Contentswith third parties to develop or commercialize products or technologies that we otherwise would have sought to develop independently, and any such relationships maynot be on terms as commercially favorable to us as might otherwise be the case.In the event that sufficient additional funds are not obtained through strategic collaboration opportunities, sales of securities, funding facilities, licensingarrangements and/or asset sales on a timely basis, we may be required to reduce expenses through the delay, reduction or curtailment of our projects, or furtherreduction of costs for facilities and administration. Moreover, if we do not obtain such additional funds, there will be substantial doubt about our ability to continue as agoing concern and increased risk of insolvency and loss of investment to the holders of our securities. As of the date hereof, we have not obtained a solvency opinion orotherwise conducted a valuation of our properties to determine whether our debts exceed the fair value of our property within the meaning of applicable solvency laws.If we are or become insolvent, holders of our common stock or other securities may lose the entire value of their investment.We cannot provide assurances that changed or unexpected circumstances will not result in the depletion of our capital resources more rapidly than we currentlyanticipate, in which case we will be required to raise additional capital. There can be no assurances that we will be able to raise additional capital on favorable terms, orat all. If we are unable to raise adequate additional capital we will be required to reduce expenses through the delay, reduction or curtailment of our projects, or furtherreduction of costs for facilities and administration, and there will continue to be substantial doubt about our ability to continue as a going concern.Our prospects are heavily dependent on the successful commercialization of our only approved product, Afrezza. The continued commercialization and developmentof Afrezza will require substantial capital that we may not be able to obtain.We have expended significant time, money and effort in the development of our only approved product, Afrezza. We anticipate that in the near term ourprospects and ability to generate significant revenues will heavily depend on our ability to successfully commercialize Afrezza in the United States. We anticipate thatour near term revenues will also, to a much lesser extent, depend on our ability to enter into licensing arrangements for our Technosphere platform technology thatinvolve license, milestone, royalty or other payments to us.We assumed responsibility for worldwide commercialization of Afrezza in April 2016, prior to which time Sanofi was responsible for global commercialactivities for Afrezza. We began distributing Afrezza in the United States in late July 2016, and intend to continue the commercialization of Afrezza in the United Statesthrough our own commercial organization. Successful commercialization of Afrezza is subject to many risks and there are many factors that could cause thecommercialization of Afrezza to be unsuccessful, including a number of factors that are outside our control. We ultimately may be unable to gain market acceptance ofAfrezza for a variety of reasons, including the treatment and dosage regimen, potential adverse effects, relative pricing compared with alternative products, theavailability of alternative treatments and lack of coverage or adequate reimbursement.We have never, as an organization, launched or commercialized a product other than Afrezza, and there is no guarantee that we will be able to successfully do sowith Afrezza. There are numerous examples of unsuccessful product launches, second launches that underperform original expectations and other failures to fullyexploit the market potential of drug products, including by pharmaceutical companies with more experience and resources than us. During our initial transition of thecommercial responsibilities from Sanofi, we utilized a contract sales organization to promote Afrezza while we focused our internal resources on establishing a channelstrategy, entering into distribution agreements and developing co-pay assistance programs, a voucher program, data agreements and payor relationships. In early 2017,we recruited our own sales force, which included some of the sales representatives that previously were employed by the contract sales organization. We intend tocontinue the commercialization of Afrezza in the United States through our internal commercial organization. We will need to maintain and continue to build ourcommercialization capabilities in order to successfully commercialize Afrezza in the United States, and we may not have sufficient resources to do so. The market forskilled 18Table of Contentscommercial personnel is highly competitive, and we may not be able to retain and find and hire all of the personnel we need on a timely basis or retain them for asufficient period. In addition, Afrezza is a novel insulin therapy with a distinct profile and non-injectable administration, and we are therefore required to expendsignificant time and resources to train our sales force to be credible, persuasive and compliant with applicable laws in marketing Afrezza for the treatment diabetes tophysicians and to ensure that a consistent and appropriate message about Afrezza is being delivered to our potential customers. If we are unable to effectively train oursales force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers about the benefits ofAfrezza and its proper administration, our efforts to successfully commercialize Afrezza could be put in jeopardy, which would negatively impact our ability to generateproduct revenues.If we are unable to maintain coverage of, and adequate payment levels for Afrezza, physicians may limit how much or under what circumstances they willprescribe or administer Afrezza. As a result, patients may decline to purchase Afrezza, which would have an adverse effect on our ability to generate revenues.We are responsible for the NDA for Afrezza and its maintenance. Prior to the termination of the Sanofi License Agreement in April 2016, we had no experiencewith the maintenance of an NDA and may fail to comply with maintenance requirements, including timely submitting required reports. Furthermore, we are responsiblefor the conduct of the remaining required post-approval trials of Afrezza. Our financial and other resource constraints may result in delays or adversely impact thereliability and completion of these trials.Maintaining and further building the internal infrastructure to further develop and commercialize Afrezza is costly and time-consuming, and we may not besuccessful in our efforts or successful in obtaining financing to support those efforts.If we fail to successfully commercialize Afrezza in the United States, our business, financial condition and results of operations will be materially and adverselyaffected.We expect that our results of operations will fluctuate for the foreseeable future, which may make it difficult to predict our future performance from period toperiod.Our operating results have fluctuated in the past and are likely to do so in future periods. Some of the factors that could cause our operating results to fluctuatefrom period to period include the factors that will affect our funding requirements described above under “Risk Factors — We will need to raise additional capital tofund our operations, and our inability to do so could raise substantial doubt about our ability to continue as a going concern.”We believe that comparisons from period to period of our financial results are not necessarily meaningful and should not be relied upon as indications of ourfuture performance.If we do not obtain regulatory approval of Afrezza in foreign jurisdictions, we will not be able to market Afrezza in any jurisdiction outside of the United States,which could limit our commercial revenues. We may not be successful in establishing regional partnerships or other arrangements with third parties for thecommercialization of Afrezza outside of the United States.While Afrezza has been approved in the United States by the FDA for glycemic control in adult patients with diabetes, we have not yet sought approval in anyother jurisdiction. In order to market Afrezza outside of the United States, we must obtain regulatory approval in each applicable foreign jurisdiction, and we may neverbe able to obtain such approvals. The research, testing, manufacturing, labeling, approval, sale, import, export, marketing, and distribution of pharmaceutical productsoutside the United States are subject to extensive 19Table of Contentsregulation by foreign regulatory authorities, whose regulations differ from country to country. We will be required to comply with different regulations and policies ofthe jurisdictions where we seek approval for Afrezza, and we have not yet identified all of the requirements that we will need to satisfy to submit Afrezza for approvalfor other jurisdictions. This will require additional time, expertise and expense, including the potential need to conduct additional studies or development work for otherjurisdictions beyond the work that we have conducted to support the NDA for Afrezza.Our current strategy for the future commercialization of Afrezza outside of the United States, subject to receipt of the necessary regulatory approvals, is to seekand establish regional partnerships in foreign jurisdictions where there are appropriate commercial opportunities. It may be difficult to find collaboration partners thatare able and willing to devote the time and resources necessary to successfully commercialize Afrezza. Collaborations with third parties may require us to relinquishmaterial rights, including revenue from commercialization, agree to unfavorable terms or assume material ongoing development obligations that we would have to fund.These collaboration arrangements are complex and time-consuming to negotiate, and if we are unable to reach agreements with third-party collaborators, we may fail tomeet our business objectives and our financial condition may be adversely affected. We may also face significant competition in seeking collaboration partners,especially in the current market, and may not be able to find a suitable collaboration partner in a timely manner on acceptable terms, or at all. Any of these factors couldcause delay or prevent the successful commercialization of Afrezza in foreign jurisdictions and could have a material and adverse impact on our business, financialcondition and results of operations and the market price of our common stock and other securities could decline.We may not be successful in our efforts to develop and commercialize our product candidates.We have sought to develop our product candidates through our internal research programs. All of our product candidates will require additional research anddevelopment and, in some cases, significant preclinical, clinical and other testing prior to seeking regulatory approval to market them. Accordingly, these productcandidates will not be commercially available for a number of years, if at all. Further research and development on these programs will require significant financialresources. Given our limited financial resources and our focus on development and commercialization of Afrezza, we will not be able to advance these programs unlesswe are able to enter into collaborations with third parties to fund of these programs or to obtain funding to enable us to continue these programs.A significant portion of the research that we have conducted involves new technologies, including our Technosphere platform technology. Even if our researchprograms identify product candidates that initially show promise, these candidates may fail to progress to clinical development for any number of reasons, includingdiscovery upon further research that these candidates have adverse effects or other characteristics that indicate they are unlikely to be effective. In addition, the clinicalresults we obtain at one stage are not necessarily indicative of future testing results. If we fail to develop and commercialize our product candidates, or if we aresignificantly delayed in doing so, our ability to generate product revenues will be limited to the revenues we can generate from Afrezza.We have a history of operating losses, we expect to incur losses in the future and we may not generate positive cash flow from operations in the future.We have never been profitable or generated positive cash flow from cumulative operations to date. Historically, we have reported negative cash flow fromoperations other than for the nine months ended September 30, 2014, for the year ended December 31, 2014, and for the three months ended March 31, 2015 as a resultof our receipt of an upfront payment and milestone payments from Sanofi. As of December 31, 2016, we had an accumulated deficit of $2.7 billion. The accumulateddeficit has resulted principally from costs incurred in our research and development programs, the write-off of goodwill and general operating expenses. We expect tomake substantial expenditures and to incur increasing operating losses in the future in order to continue the 20Table of Contentscommercialization of Afrezza. In connection with our quarterly assessment of impairment indicators and inventory valuation for the quarter ended December 31, 2015,we identified an impairment of our long-lived assets and inventory, which resulted in charges of $140.4 million and $36.1 million, respectively, in such quarter. Inaddition, under the amended Insulin Supply Agreement with Amphastar, we agreed to purchase certain annual minimum quantities of insulin for calendar years 2017through 2023 for an aggregate total remaining purchase price of €93.0 million at December 31, 2016. We may not have the necessary capital resources on hand in orderto service this contractual commitment.Our losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets and stockholders’ equity. As of December 31,2016, we had stockholders’ deficit of $183.6 million. Our ability to achieve and sustain positive cash flow from operations and profitability depends heavily uponsuccessfully commercializing Afrezza, and we cannot be sure when, if ever, we will generate positive cash flow from operations or become profitable.We have a substantial amount of debt pursuant to the 2018 notes, 2019 notes, Tranche B notes and The Mann Group Loan Arrangement, and we may be unable tomake required payments of interest and principal as they become due.As of December 31, 2016, we had $152.1 million principal amount of outstanding debt, consisting of: • $27.6 million principal amount of 2018 notes bearing interest at 5.75% per annum and maturing on August 15, 2018; • $55.0 million principal amount of 2019 notes bearing interest at 9.75% per annum, $15.0 million of which is due and payable in July 2017, $15.0 millionof which is due and payable in July 2018 and $25.0 million of which is due and payable in July and December 2019; • $20.0 million principal amount of Tranche B notes bearing interest at 8.75% per annum, $5.0 million of which is due and payable in each of May 2017,2018 and 2019, and $5.0 million of which is due and payable in December 2019; and • $49.5 million principal amount of indebtedness under The Mann Group Loan Arrangement bearing interest at 5.84% and maturing and due on January 5,2020.We may borrow an additional $30.1 million under The Mann Group Loan Arrangement. The available borrowings may be used to capitalize accrued interest intoprincipal upon mutual agreement of the parties, as accrued interest becomes due and payable under The Mann Group Loan Arrangement. As of December 31, 2016 theaccrued and unpaid interest under The Mann Group Loan Arrangement was $9.3 million.There can be no assurance that we will have sufficient resources to make any required repayments of principal under the terms of our indebtedness whenrequired. Further, if we undergo a fundamental change, as that term is defined in the indentures governing the terms of the 2018 notes, or certain Major Transactions asdefined in the Facility Agreement in respect of the 2019 notes and the Tranche B notes, the holders of the respective debt securities will have the option to require us torepurchase all or any portion of such debt securities at a repurchase price of 100% of the principal amount of such debt securities to be repurchased plus accrued andunpaid interest, if any. The 2018 notes bear interest at the rate of 5.75% per year on the outstanding principal amount, payable in cash semiannually in arrears onFebruary 15 and August 15 of each year. The 2019 notes bear interest at the rate of 9.75% per year on the outstanding principal amount and the Tranche B notes bearinterest at the rate of 8.75% on the outstanding principal amount, with accrued interest on each payable in cash quarterly in arrears on the last business day of March,June, September and December of each year. Loans under The Mann Group Loan Arrangement accrue interest at a rate of 5.84% per annum, due and payable quarterlyin arrears on the first day of each calendar quarter for the preceding quarter, or at such other time as we and The Mann Group mutually agree. While we have been ableto timely make our required interest payments to date, we cannot guarantee that we will be able to do so in the future. If we fail to pay interest on the 2018 notes, 2019notes, or 21Table of ContentsTranche B notes, or if we fail to repay or repurchase the 2018 notes, 2019 notes, Tranche B notes, or the loans under The Mann Group Loan Arrangement whenrequired, we will be in default under the instrument for such debt securities or loans, and may also suffer an event of default under the terms of other borrowingarrangements that we may enter into from time to time. Any of these events could have a material adverse effect on our business, results of operations and financialcondition, up to and including the note holders initiating bankruptcy proceedings or causing us to cease operations altogether.The agreements governing our indebtedness contain covenants that we may not be able to meet and place restrictions on our operating and financial flexibility.Our obligations under the Facility Agreement, including any indebtedness under the 2019 notes and the Tranche B notes, and the Milestone Agreement aresecured by substantially all of our assets, including our intellectual property, accounts receivables, equipment, general intangibles, inventory (excluding the insulininventory) and investment property, and all of the proceeds and products of the foregoing. Our obligations under the Facility Agreement and the Milestone Agreementare also secured by a certain mortgage on our facility in Danbury, Connecticut. The Facility Agreement includes customary representations, warranties and covenants byus, including restrictions on our ability to incur additional indebtedness, grant certain liens, engage in certain mergers and acquisitions, make certain distributions andmake certain voluntary prepayments. Events of default under the Facility Agreement include: our failure to timely make payments due under the 2019 notes or theTranche B notes; inaccuracies in our representations and warranties to Deerfield; our failure to comply with any of our covenants under any of the Facility Agreement,Milestone Agreement or certain other related security agreements and documents entered into in connection with the Facility Agreement, subject to a cure period withrespect to most covenants; our insolvency or the occurrence of certain bankruptcy-related events; certain judgments against us; the suspension, cancellation orrevocation of governmental authorizations that are reasonably expected to have a material adverse effect on our business; the acceleration of a specified amount of ourindebtedness; our cash and cash equivalents, including amounts available to us under The Mann Group Loan Arrangement, falling below $25.0 million as of the last dayof any fiscal quarter. If we fail to timely pay accrued interest under The Mann Group Loan Arrangement when required, we will be in default under The Mann GroupLoan Arrangement. During any such time as an event of default is continuing under The Mann Group Loan Arrangement, The Mann Group will not be obligated tomake additional borrowings available to us. If an event of default is continuing under The Mann Group Loan Arrangement as of the last day of a fiscal quarter, we maybe in breach of the financial covenant under the Facility Agreement that requires us to maintain cash and cash equivalents (including available borrowings under TheMann Group Loan Arrangement) of at least $25.0 million if our other cash and cash equivalents on hand do not equal or exceed $25.0 million. If one or more events ofdefault under the Facility Agreement occurs and continues beyond any applicable cure period, the holders of the 2019 notes and Tranche B notes may declare all or anyportion of the 2019 notes and Tranche B notes to be immediately due and payable. The Milestone Agreement includes customary representations and warranties andcovenants by us, including restrictions on transfers of intellectual property related to Afrezza. The milestones are subject to acceleration in the event we transfer ourintellectual property related to Afrezza in violation of the terms of the Milestone Agreement.There can be no assurance that we will be able to comply with the covenants under any of the foregoing agreements, and we cannot predict whether the holders ofthe 2019 notes or Tranche B notes would demand repayment of the outstanding balance of the 2019 notes or the Tranche B notes as applicable or exercise any otherremedies available to such holders if we were unable to comply with these covenants. The covenants and restrictions contained in the foregoing agreements couldsignificantly limit our ability to respond to changes in our business or competitive activities or take advantage of business opportunities that may create value for ourstockholders and the holders of our other securities. In addition, our inability to meet or otherwise comply with the covenants under these agreements could have anadverse impact on our financial position and results of operations and could result in an event of default under the terms of our other indebtedness, including ourindebtedness under the 2018 notes. In the event of certain future defaults under the foregoing agreements for which we are not able to obtain waivers, the holders of the2018 notes, 2019 notes and Tranche B notes may 22Table of Contentsaccelerate all of our repayment obligations, and, with respect to the 2019 notes and Tranche B notes, take control of our pledged assets, potentially requiring us torenegotiate the terms of our indebtedness on terms less favorable to us, or to immediately cease operations. If we enter into additional debt arrangements, the terms ofsuch additional arrangements could further restrict our operating and financial flexibility. In the event we must cease operations and liquidate our assets, the rights ofany holders of our outstanding secured debt would be senior to the rights of the holders of our unsecured debt and our common stock to receive any proceeds from theliquidation.If we do not achieve our projected development goals in the timeframes we expect, our business, financial condition and results of operations will be harmed andthe market price of our common stock and other securities could decline.For planning purposes, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, which wesometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical studies and the submission ofregulatory filings. From time to time, we publicly announce the expected timing of some of these milestones. All of these milestones are based on a variety ofassumptions. The actual timing of the achievement of these milestones can vary dramatically from our estimates, in many cases for reasons beyond our control,depending on numerous factors, including: • the rate of progress, costs and results of our clinical studies and preclinical research and development activities; • our ability to identify and enroll patients who meet clinical study eligibility criteria; • our ability to access sufficient, reliable and affordable supplies of components used in the manufacture of our product candidates; • the costs of expanding and maintaining manufacturing operations, as necessary; • the extent to which our clinical studies compete for clinical sites and eligible subjects with clinical studies sponsored by other companies; and • actions by regulators.In addition, if we do not obtain sufficient additional funds through sales of securities, strategic collaborations or the license or sale of certain of our assets on atimely basis, we may be required to reduce expenses by delaying, reducing or curtailing our development of product candidates. If we fail to commence or complete, orexperience delays in or are forced to curtail, our proposed clinical programs or otherwise fail to adhere to our projected development goals in the timeframes we expect(or within the timeframes expected by analysts or investors), our business, financial condition and results of operations will be harmed and the market price of ourcommon stock and other securities may decline.Afrezza or our product candidates may be rendered obsolete by rapid technological change.A number of established pharmaceutical companies have or are developing technologies for the treatment of unmet medical needs.The rapid rate of scientific discoveries and technological changes could result in Afrezza or one or more of our product candidates becoming obsolete ornoncompetitive. Our competitors may develop or introduce new products that render our technology or Afrezza less competitive, uneconomical or obsolete. Forexample, in January 2017, Novo Nordisk announced that Fiasp ® , a faster formulation of insulin aspart, was approved in Europe and Canada. It is currently undergoingregulatory review in the United States. Our future success will depend not only on our ability to develop our product candidates but to improve them and keep pace withemerging industry developments. We cannot assure you that we will be able to do so. 23Table of ContentsWe also expect to face competition from universities and other non-profit research organizations. These institutions carry out a significant amount of research anddevelopment in various areas of unmet medical need. These institutions are becoming increasingly aware of the commercial value of their findings and are more activein seeking patent and other proprietary rights as well as licensing revenues.Continued testing of Afrezza or our product candidates may not yield successful results, and even if it does, we may still be unable to commercialize our productcandidates.Forecasts about the effects of the use of drugs, including Afrezza, over terms longer than the clinical studies or in much larger populations may not be consistentwith the earlier clinical results. For example, with the approval of Afrezza, the FDA has required a five-year, randomized, controlled trial in 8,000 — 10,000 patientswith type 2 diabetes, the primary objective of which is to compare the incidence of pulmonary malignancy observed with Afrezza to that observed in a standard of carecontrol group. If long-term use of a drug results in adverse health effects or reduced efficacy or both, the FDA or other regulatory agencies may terminate our or anyfuture marketing partner’s ability to market and sell the drug, may narrow the approved indications for use or otherwise require restrictive product labeling or marketing,or may require further clinical studies, which may be time-consuming and expensive and may not produce favorable results.Our research and development programs are designed to test the safety and efficacy of our product candidates through extensive nonclinical and clinical testing.We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or impact commercialization of any of our productcandidates, including the following: • safety and efficacy results obtained in our nonclinical and early clinical testing may be inconclusive or may not be predictive of results that we may obtainin our future clinical studies or following long-term use, and we may as a result be forced to stop developing a product candidate or alter the marketing ofan approved product; • the analysis of data collected from clinical studies of our product candidates may not reach the statistical significance necessary, or otherwise be sufficientto support FDA or other regulatory approval for the claimed indications; • after reviewing clinical data, we or any collaborators may abandon projects that we previously believed were promising; and • our product candidates may not produce the desired effects or may result in adverse health effects or other characteristics that preclude regulatory approvalor limit their commercial use once approved.As a result of any of these events, we, any collaborator, the FDA, or any other regulatory authorities, may suspend or terminate clinical studies or marketing ofthe drug at any time. Any suspension or termination of our clinical studies or marketing activities may harm our business, financial condition and results of operationsand the market price of our common stock and other securities may decline.If our suppliers fail to deliver materials and services needed for the production of Afrezza in a timely and sufficient manner or fail to comply with applicableregulations, and if we fail to timely identify and qualify alternative suppliers, our business, financial condition and results of operations would be harmed and themarket price of our common stock and other securities could decline.For the commercial manufacture of Afrezza, we need access to sufficient, reliable and affordable supplies of insulin, our Afrezza inhaler, the related cartridgesand other materials. Currently, the only approved source of insulin for Afrezza is manufactured by Amphastar. We must rely on our suppliers, including Amphastar, tocomply with relevant regulatory and other legal requirements, including the production of insulin and FDKP in accordance with the FDA’s cGMP for drug products,and the production of the Afrezza inhaler and related cartridges in accordance with QSRs. The supply of any of these materials may be limited or any of the 24Table of Contentsmanufacturers may not meet relevant regulatory requirements, and if we are unable to obtain any of these materials in sufficient amounts, in a timely manner and atreasonable prices, or if we encounter delays or difficulties in our relationships with manufacturers or suppliers, the production of Afrezza may be delayed. Likewise, ifAmphastar ceases to manufacture or is otherwise unable to deliver insulin for Afrezza, we will need to locate an alternative source of supply and the production ofAfrezza may be delayed. If any of our suppliers is unwilling or unable to meet its supply obligations and we are unable to secure an alternative supply source in a timelymanner and on favorable terms, our business, financial condition, and results of operations may be harmed and the market price of our common stock and othersecurities may decline.If we fail as an effective manufacturing organization or fail to engage third-party manufacturers with this capability, we may be unable to supportcommercialization of this product.We use our Danbury, Connecticut facility to formulate Afrezza inhalation powder, fill plastic cartridges with the powder, package the cartridges in blister packs,and place the blister packs into foil pouches. We utilize a contract packager to assemble the final kits of foil-pouched blisters containing cartridges along with inhalersand the package insert. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advancedmanufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, especially in scaling up initialproduction. These problems include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel, as well ascompliance with strictly enforced federal, state and foreign regulations. If we engage a third-party manufacturer, we would need to transfer our technology to that third-party manufacturer and gain FDA approval, potentially causing delays in product delivery. In addition, our third-party manufacturer may not perform as agreed or mayterminate its agreement with us.Any of these factors could cause us to delay or suspend production, could entail higher costs and may result in our being unable to obtain sufficient quantities forthe commercialization of Afrezza at the costs that we currently anticipate. Furthermore, if we or a third-party manufacturer fail to deliver the required commercialquantities of the product or any raw material on a timely basis, and at commercially reasonable prices, sustainable compliance and acceptable quality, and we wereunable to promptly find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volume and qualityon a timely basis, we would likely be unable to meet demand for Afrezza and we would lose potential revenues.If Afrezza or any other product that we develop does not become widely accepted by physicians, patients, third-party payors and the healthcare community, we maybe unable to generate significant revenue, if any.Afrezza and other products that we may develop in the future may not gain market acceptance among physicians, patients, third-party payors and the healthcarecommunity. Failure to achieve market acceptance would limit our ability to generate revenue and would adversely affect our results of operations.The degree of market acceptance of Afrezza and other products that we may develop in the future depends on many factors, including the: • approved labeling claims; • effectiveness of efforts by us or any future marketing partner to educate physicians about the benefits and advantages of Afrezza or our other products andto provide adequate support for them, and the perceived advantages and disadvantages of competitive products; • willingness of the healthcare community and patients to adopt new technologies; • ability to manufacture the product in sufficient quantities with acceptable quality and cost; 25Table of Contents • perception of patients and the healthcare community, including third-party payors, regarding the safety, efficacy and benefits compared to competingproducts or therapies; • convenience and ease of administration relative to existing treatment methods; • coverage and pricing and reimbursement relative to other treatment therapeutics and methods; and • marketing and distribution support.Because of these and other factors, Afrezza and any other product that we develop may not gain market acceptance, which would materially harm our business,financial condition and results of operations.If third-party payors do not cover Afrezza or any of our product candidates for which we receive regulatory approval, Afrezza or such product candidates might notbe prescribed, used or purchased, which would adversely affect our revenues.Our future revenues and ability to generate positive cash flow from operations may be affected by the continuing efforts of government and other third-partypayors to contain or reduce the costs of healthcare through various means. For example, in certain foreign markets the pricing of prescription pharmaceuticals is subjectto governmental control. In the United States, there has been, and we expect that there will continue to be, a number of federal and state proposals to implement similargovernmental controls. We cannot be certain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and servicesmay take in response to any drug pricing and reimbursement reform proposals or legislation. Such reforms may limit our ability to generate revenues from sales ofAfrezza or other products that we may develop in the future and achieve profitability. Further, to the extent that such reforms have a material adverse effect on thebusiness, financial condition and profitability of any future marketing partner for Afrezza, and companies that are prospective collaborators for our product candidates,our ability to commercialize Afrezza and our product candidates under development may be adversely affected.In the United States and elsewhere, sales of prescription pharmaceuticals still depend in large part on the availability of coverage and adequate reimbursement tothe consumer from third-party payors, such as governmental and private insurance plans. Third-party payors are increasingly challenging the prices charged for medicalproducts and services. The market for Afrezza and our product candidates for which we may receive regulatory approval will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included insuch formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug intheir formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. In addition, because eachthird-party payor individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming and costly process.We may be required to provide scientific and clinical support for the use of any product to each third-party payor separately with no assurance that approval would beobtained. This process could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results. Even if wesucceed in bringing more products to market, we cannot be certain that any such products would be considered cost-effective or that coverage and adequatereimbursement to the consumer would be available. Patients will be unlikely to use our products unless coverage is provided and reimbursement is adequate to cover asignificant portion of the cost of our products.In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. Insome non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing varywidely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which theirnational health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific pricefor the 26Table of Contentsmedicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. Wemay face competition for Afrezza or any of our other product candidates that receives marketing approval from lower-priced products in foreign countries that haveplaced price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with our own products, which could negativelyimpact our profitability.If we or any future marketing partner is unable to obtain coverage of, and adequate payment levels for, Afrezza or any of our other product candidates thatreceive marketing approval from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer them and patientsmay decline to purchase them. This in turn could affect our and any future marketing partner’s ability to successfully commercialize Afrezza and our ability tosuccessfully commercialize any of our other product candidates that receives regulatory approval and impact our profitability, results of operations, financial condition,and prospects.Healthcare legislation may make it more difficult to receive revenues.In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals in recent years to change thehealthcare system in ways that could impact our ability to sell our products profitably. For example, in March 2010, PPACA became law in the United States. PPACAsubstantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the healthcare industry. Among the provisionsof PPACA of importance to us are the following: • an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among theseentities according to their market share in certain government healthcare programs; • a 2.3% medical device excise tax on certain transactions, including many U.S. sales of medical devices, which currently includes and we expect willcontinue to include U.S. sales of certain drug-device combination products; • an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the averagemanufacturer price for most branded and generic drugs, respectively; • a licensure framework for follow-on biological products; • expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, andenhanced penalties for noncompliance; • a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices ofapplicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered underMedicare Part D; • extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; • expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals withincome at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaid rebate liability; • expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; • new requirements to report annually to the Centers for Medicare & Medicaid Services (“CMS”) certain financial arrangements with physicians andteaching hospitals, as defined in PPACA and its implementing regulations, including reporting any “payments or transfers of value” made or distributed toprescribers, teaching hospitals and other healthcare providers and reporting any ownership and 27Table of Contents investment interests held by physicians and their immediate family members and applicable group purchasing organizations during the preceding calendaryear; • a new requirement to annually report drug samples that certain manufacturers and authorized distributors provide to physicians; and • a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along withfunding for such research.The medical device excise tax has been suspended by the Consolidated Appropriations Act of 2016 (the “CAA”) through December 31, 2017. Absent furtherCongressional action, the excise tax will be reinstated for medical device sales beginning January 1, 2018. The CAA also temporarily delays implementation of othertaxes intended to help fund PPACA programs.Further, there have been judicial and Congressional challenges to other aspects of PPACA. As a result there have been delays in the implementation of, andaction taken to repeal or replace, certain aspects of the PPACA. In January 2017, President Trump signed an Executive Order directing federal agencies with authoritiesand responsibilities under the PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal orregulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further, in January 2017,Congress adopted a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of thePPACA. Following the passage of the Budget Resolution, in March 2017, the U.S. House of Representatives introduced legislation known as the American Health CareAct, which, if enacted, would amend or repeal significant portions of the PPACA. Among other changes, the American Health Care Act would repeal the annual fee oncertain brand prescription drugs and biologics imposed on manufacturers and importers, eliminate the 2.3% excise tax on medical devices, eliminate penalties onindividuals and employers that fail to maintain or provide minimum essential coverage, and create refundable tax credits to assist individuals in buying health insurance.The American Health Care Act would also make significant changes to Medicaid by, among other things, making Medicaid expansion optional for states, repealing therequirement that state Medicaid plans provide the same essential health benefits that are required by plans available on the exchanges, modifying federal funding,including implementing a per capita cap on federal payments to states, and changing certain eligibility requirements. While it is uncertain when or if the provisions inthe American Health Care Act will become law, or the extent to which any changes may impact our business, it is clear that concrete steps are being taken to repeal andreplace certain aspects of the PPACA.In addition, other legislative changes have been proposed and adopted since PPACA was enacted. For example, on August 2, 2011, the Budget Control Act of2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeteddeficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction toseveral government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013, and, followingpassage of the Bipartisan Budget Act of 2015, will stay in effect through 2025 unless additional Congressional action is taken. On January 2, 2013, President Obamasigned into law the American Taxpayer Relief Act of 2012 (the “ATRA”), which, among other things, reduced Medicare payments to several providers, includinghospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers fromthree to five years. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products.Specifically, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing,reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government programreimbursement methodologies for drugs. These new laws and initiatives may result in additional reductions in Medicare and other healthcare funding, which could havea material adverse effect on our customers and accordingly, our financial operations. 28Table of ContentsWe expect that PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and inadditional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenues. Any reduction in reimbursementfrom Medicare or other government programs may result in a similar reduction in payments from private third-party payors. The implementation of cost containmentmeasures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.If we or any future marketing partner fails to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and securitylaws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.As a biopharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations, including those pertaining to fraud and abuse and patients’ rights are and will be applicable to ourbusiness. For example, we could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which weconduct our business. The laws that may affect our ability to operate include, among others: • the federal Anti-Kickback Statute (as amended by PPACA, which modified the intent requirement of the federal Anti-Kickback Statute so that a person orentity no longer needs to have actual knowledge of the Statute or specific intent to violate it to have committed a violation), which constrains our businessactivities, including our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities byprohibiting, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in returnfor, either the referral of an individual or the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such asthe Medicare and Medicaid programs; • federal civil and criminal false claims laws, including without limitation the civil False Claims Act, and civil monetary penalties laws, which prohibit,among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or otherfederal healthcare programs that are false or fraudulent, and knowingly making, or causing to be made, a false record or statement material to a false orfraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government, and under PPACA, the government may assert that aclaim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of thefederal false claims laws; • HIPAA, which created new federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud anyhealthcare benefit program or falsifying, concealing, or covering up a material fact in connection with the delivery of or payment for health care benefits; • HIPAA, as amended by HITECH, and their respective implementing regulations, which imposes certain requirements relating to the privacy, security andtransmission of individually identifiable health information on entities subject to the law, such as healthcare providers, health plans, and healthcareclearinghouses and their respective business associates that perform services for them that involve the creation, use, maintenance or disclosure of,individually identifiable health information; • the federal physician sunshine requirements under PPACA, which requires certain manufacturers of drugs, devices, biologics, and medical supplies toreport annually to the CMS information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals,and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and • state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or servicesreimbursed by any third-party payor, including commercial insurers, and state and foreign laws governing the privacy and security of health 29Table of Contents information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicatingcompliance efforts; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicablecompliance guidance promulgated by the federal government that otherwise restricts certain payments that may be made to healthcare providers andentities; and state laws that require drug manufacturers to report information related to payments and other transfer of value to physicians and otherhealthcare providers and entities.Because of the breadth of these laws and the narrowness of available statutory and regulatory exceptions, it is possible that some of our business activities couldbe subject to challenge under one or more of such laws. To the extent that Afrezza or any of our product candidates that receives marketing approval is ultimately soldin a foreign country, we may be subject to similar foreign laws and regulations. If we or our operations are found to be in violation of any of the laws described above orany other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, individual imprisonment,disgorgement, exclusion of products from reimbursement under U.S. federal or state healthcare programs, additional reporting requirements and/or oversight if webecome subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring ofour operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and ourfinancial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirelyeliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert ourmanagement’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraudlaws may prove costly.If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in the UnitedStates, we could be subject to additional reimbursement requirements, fines, sanctions and exposure under other laws which could have a material adverse effect onour business, results of operations and financial condition.We participate in the Medicaid Drug Rebate Program, as administered by CMS, and other federal and state government pricing programs in the United States,and we may participate in additional government pricing programs in the future. These programs generally require us to pay rebates or otherwise provide discounts togovernment payors in connection with drugs that are dispensed to beneficiaries/recipients of these programs. In some cases, such as with the Medicaid Drug RebateProgram, the rebates are based on pricing that we report on a monthly and quarterly basis to the government agencies that administer the programs. Pricing requirementsand rebate/discount calculations are complex, vary among products and programs, and are often subject to interpretation by governmental or regulatory agencies and thecourts. The requirements of these programs, including, by way of example, their respective terms and scope, change frequently. Responding to current and futurechanges may increase our costs, and the complexity of compliance will be time consuming. Invoicing for rebates is provided in arrears, and there is frequently a time lagof up to several months between the sales to which rebate notices relate and our receipt of those notices, which further complicates our ability to accurately estimate andaccrue for rebates related to the Medicaid program as implemented by individual states. Thus, there can be no assurance that we will be able to identify all factors thatmay cause our discount and rebate payment obligations to vary from period to period, and our actual results may differ significantly from our estimated allowances fordiscounts and rebates. Changes in estimates and assumptions may have a material adverse effect on our business, results of operations and financial condition.In addition, the Office of Inspector General of the Department of Health and Human Services and other Congressional, enforcement and administrative bodieshave recently increased their focus on pricing requirements for products, including, but not limited to the methodologies used by manufacturers to calculate averagemanufacturer price (“AMP”) and best price (“BP”) for compliance with reporting requirements under the 30Table of ContentsMedicaid Drug Rebate Program. We are liable for errors associated with our submission of pricing data and for any overcharging of government payors. For example,failure to submit monthly/quarterly AMP and BP data on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the submission is latebeyond the due date. Failure to make necessary disclosures and/or to identify overpayments could result in allegations against us under the False Claims Act and otherlaws and regulations. Any required refunds to the U.S. government or responding to a government investigation or enforcement action would be expensive and timeconsuming and could have a material adverse effect on our business, results of operations and financial condition. In addition, in the event that the CMS were toterminate our rebate agreement, no federal payments would be available under Medicaid or Medicare for our covered outpatient drugs.If product liability claims are brought against us, we may incur significant liabilities and suffer damage to our reputation.The testing, manufacturing, marketing and sale of Afrezza and any clinical testing of our product candidates expose us to potential product liability claims. Aproduct liability claim may result in substantial judgments as well as consume significant financial and management resources and result in adverse publicity, decreaseddemand for a product, injury to our reputation, withdrawal of clinical studies volunteers and loss of revenues. We currently carry worldwide product liability insurancein the amount of $10.0 million. Our insurance coverage may not be adequate to satisfy any liability that may arise, and because insurance coverage in our industry canbe very expensive and difficult to obtain, we cannot assure you that we will seek to obtain, or be able to obtain if desired, sufficient additional coverage. If losses fromsuch claims exceed our liability insurance coverage, we may incur substantial liabilities that we may not have the resources to pay. If we are required to pay a productliability claim our business, financial condition and results of operations would be harmed and the market price of our common stock and other securities may decline.If we lose any key employees or scientific advisors, our operations and our ability to execute our business strategy could be materially harmed.We face intense competition for qualified employees among companies in the biotechnology and biopharmaceutical industries. Our success depends upon ourability to attract, retain and motivate highly skilled employees. We may be unable to attract and retain these individuals on acceptable terms, if at all. In addition, inorder to commercialize Afrezza successfully, we may be required to expand our work force, particularly in the areas of manufacturing and sales and marketing. Theseactivities will require the addition of new personnel, including management, and the development of additional expertise by existing personnel, and we cannot assureyou that we will be able to attract or retain any such new personnel on acceptable terms, if at all.The loss of the services of any principal member of our management and scientific staff could significantly delay or prevent the achievement of our scientific andbusiness objectives. All of our employees are “at will” and we currently do not have employment agreements with any of the principal members of our management orscientific staff, and we do not have key person life insurance to cover the loss of any of these individuals. Replacing key employees may be difficult and time-consuming because of the limited number of individuals in our industry with the skills and experience required to develop, gain regulatory approval of andcommercialize products successfully.We have relationships with scientific advisors at academic and other institutions to conduct research or assist us in formulating our research, development orclinical strategy. These scientific advisors are not our employees and may have commitments to, and other obligations with, other entities that may limit theiravailability to us. We have limited control over the activities of these scientific advisors and can generally expect these individuals to devote only limited time to ouractivities. Failure of any of these persons to devote sufficient time and resources to our programs could harm our business. In addition, these advisors are not prohibitedfrom, and may have arrangements with, other companies to assist those companies in developing technologies that may compete with Afrezza or our product candidates. 31Table of ContentsIf our internal controls over financial reporting are not considered effective, our business, financial condition and market price of our common stock and othersecurities could be adversely affected.Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of eachfiscal year, and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report on Form 10-K for thatfiscal year. Section 404 also requires our independent registered public accounting firm to attest to, and report on, our internal controls over financial reporting.Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls over financial reporting willprevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the controlsystem’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must beconsidered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all controlissues and instances of fraud involving a company have been, or will be, detected. The design of any system of controls is based in part on certain assumptions about thelikelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controlsmay become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations ina cost-effective control system, misstatements due to error or fraud may occur and not be detected. A material weakness in our internal controls has been identified inthe past, and we cannot assure you that we or our independent registered public accounting firm will not identify a material weakness in our internal controls in thefuture. A material weakness in our internal controls over financial reporting would require management and our independent registered public accounting firm toevaluate our internal controls as ineffective. If our internal controls over financial reporting are not considered effective, we may experience a loss of public confidence,which could have an adverse effect on our business, financial condition and the market price of our common stock and other securities.We may undertake internal restructuring activities in the future that could result in disruptions to our business or otherwise materially harm our results ofoperations or financial condition.From time to time we may undertake internal restructuring activities as we continue to evaluate and attempt to optimize our cost and operating structure in lightof developments in our business strategy and long-term 32Table of Contentsoperating plans. These activities may result in write-offs or other restructuring charges. There can be no assurance that any restructuring activities that we undertake willachieve the cost savings, operating efficiencies or other benefits that we may initially expect. Restructuring activities may also result in a loss of continuity, accumulatedknowledge and inefficiency during transitional periods and thereafter. In addition, internal restructurings can require a significant amount of time and focus frommanagement and other employees, which may divert attention from commercial operations. If we undertake any internal restructuring activities and fail to achieve someor all of the expected benefits therefrom, our business, results of operations and financial condition could be materially and adversely affected.We and certain of our executive officers and directors have been named as defendants in ongoing securities class action lawsuits that could result in substantialcosts and divert management’s attention.Following the public announcement of Sanofi’s election to terminate the Sanofi License Agreement and the subsequent decline in our stock price, severalcomplaints were filed in the U.S. District Court for the Central District of California (the “District Court”) against MannKind and certain of our officers and directors onbehalf of certain purchasers of our common stock, which were consolidated into a single action. The amended complaint alleged that MannKind and certain of ourofficers and directors violated federal securities laws by making materially false and misleading statements regarding the prospects for Afrezza, thereby artificiallyinflating the price of MannKind’s common stock. We and the other defendants brought a motion to dismiss the class action that was pending against MannKind and twoof our executives, which the District Court granted without leave to amend the complaint. The lead plaintiff appealed that decision to the Ninth Circuit Court ofAppeals. On March 2, 2017, the lead plaintiff filed a voluntary motion to dismiss his appeal, which the Court of Appeals granted on March 9, 2017.We and certain of our directors and executive officers have also been named in similar lawsuits filed in Israel. In November 2016, the court in Israel dismissedone of the actions without prejudice. In the remaining action, a hearing is scheduled for May 2017 to determine whether Israeli or U.S. law is applicable before the casecan be certified as a class action. We intend to vigorously defend against these claims. If we are not successful in our defense, we could be forced to make significantpayments to or other settlements with our stockholders and their lawyers, and such payments or settlement arrangements could have a material adverse effect on ourbusiness, operating results or financial condition. Even if such claims are not successful, the litigation could result in substantial costs and significant adverse impact onour reputation and divert management’s attention and resources, which could have a material adverse effect on our business, operating results and financial condition.Our operations might be interrupted by the occurrence of a natural disaster or other catastrophic event.We expect that at least for the foreseeable future, our manufacturing facility in Danbury, Connecticut will be the sole location for the manufacturing of Afrezza.This facility and the manufacturing equipment we use would be costly to replace and could require substantial lead time to repair or replace. We depend on our facilitiesand on collaborators, contractors and vendors for the continued operation of our business, some of whom are located in other countries. Natural disasters or othercatastrophic events, including interruptions in the supply of natural resources, political and governmental changes, severe weather conditions, wildfires and other fires,explosions, actions of animal rights activists, terrorist attacks, volcanic eruptions, earthquakes and wars could disrupt our operations or those of our collaborators,contractors and vendors. We might suffer losses as a result of business interruptions that exceed the coverage available under our and our contractors’ insurance policiesor for which we or our contractors do not have coverage. For example, we are not insured against a terrorist attack. Any natural disaster or catastrophic event could havea significant negative impact on our operations and financial results. Moreover, any such event could delay our research and development programs or causeinterruptions in our commercialization of Afrezza. 33Table of ContentsWe deal with hazardous materials and must comply with environmental laws and regulations, which can be expensive and restrict how we do business.Our research and development and commercialization of Afrezza work involves the controlled storage and use of hazardous materials, including chemical andbiological materials. In addition, our manufacturing operations involve the use of a chemical that may form an explosive mixture under certain conditions. Ouroperations also produce hazardous waste products. We are subject to federal, state and local laws and regulations (i) governing how we use, manufacture, store, handleand dispose of these materials (ii) imposing liability for costs of cleaning up, and damages to natural resources from past spills, waste disposals on and off-site, or otherreleases of hazardous materials or regulated substances, and (iii) regulating workplace safety. Moreover, the risk of accidental contamination or injury from hazardousmaterials cannot be completely eliminated, and in the event of an accident, we could be held liable for any damages that may result, and any liability could fall outsidethe coverage or exceed the limits of our insurance. Currently, our general liability policy provides coverage up to $1.0 million per occurrence and $2.0 million in theaggregate and is supplemented by an umbrella policy that provides a further $20.0 million of coverage; however, our insurance policy excludes pollution liabilitycoverage and we do not carry a separate hazardous materials policy. In addition, we could be required to incur significant costs to comply with environmental laws andregulations in the future. Finally, current or future environmental laws and regulations may impair our research, development or production efforts or have an adverseimpact on our business, results of operations and financial condition. When we purchased the facilities located in Danbury, Connecticut in 2001, a soil and groundwaterinvestigation and remediation was being conducted by a former site operator (the responsible party) under the oversight of the Connecticut Department ofEnvironmental Protection. During the construction of our expanded manufacturing facility, we excavated contaminated soil under the footprint of our buildingexpansion location. The responsible party reimbursed us for our increased excavation and disposal costs of contaminated soil in the amount of $1.6 million. It hasconducted at its expense all work and will make all filings necessary to achieve closure for the environmental remediation conducted at the site, and has agreed toindemnify us for any future costs and expenses we may incur that are directly related to the final closure. If we are unable to collect these future costs and expenses, ifany, from the responsible party, our business, financial condition and results of operations may be harmed.We are increasingly dependent on information technology systems, infrastructure and data security.We are increasingly dependent upon information technology systems, infrastructure and data security. Our business requires manipulating, analyzing and storinglarge amounts of data. In addition, we rely on an enterprise software system to operate and manage our business. Our business therefore depends on the continuous,effective, reliable and secure operation of our computer hardware, software, networks, Internet servers and related infrastructure. The multitude and complexity of ourcomputer systems and the potential value of our data make them inherently vulnerable to service interruption or destruction, malicious intrusion and random attack.Likewise, data privacy or security breaches by employees or others may pose a risk that sensitive data including intellectual property, trade secrets or personalinformation belonging to us or our customers or other business partners may be exposed to unauthorized persons or to the public. Our systems are also potentiallysubject to cyber-attacks, which can be highly sophisticated and may be difficult to detect. Such attacks are often carried out by motivated, well-resourced, skilled andpersistent actors including nation states, organized crime groups and “hacktivists.” Cyber-attacks could include the deployment of harmful malware and key loggers, adenial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our informationtechnology systems, infrastructure and data. Our key business partners face similar risks and any security breach of their systems could adversely affect our securitystatus. While we continue to invest in the protection of our critical or sensitive data and information technology, there can be no assurance that our efforts will preventor detect service interruptions or breaches in our systems that could adversely affect our business and operations and/or result in the loss of critical or sensitiveinformation, which could result in financial, legal, business or reputational harm to us. 34Table of ContentsRISKS RELATED TO GOVERNMENT REGULATIONOur product candidates must undergo costly and time-consuming rigorous nonclinical and clinical testing and we must obtain regulatory approval prior to the saleand marketing of any product in each jurisdiction. The results of this testing or issues that develop in the review and approval by a regulatory agency may subject usto unanticipated delays or prevent us from marketing any products.Our research and development activities, as well as the manufacturing and marketing of Afrezza and our product candidates, are subject to regulation, includingregulation for safety, efficacy and quality, by the FDA in the United States and comparable authorities in other countries. FDA regulations and the regulations ofcomparable foreign regulatory authorities are wide-ranging and govern, among other things: • product design, development, manufacture and testing; • product labeling; • product storage and shipping; • pre-market clearance or approval; • advertising and promotion; and • product sales and distribution.The requirements governing the conduct of clinical studies and manufacturing and marketing of Afrezza and our product candidates outside the United Statesvary widely from country to country. Foreign approvals may take longer to obtain than FDA approvals and can require, among other things, additional testing anddifferent clinical study designs. Foreign regulatory approval processes include essentially all of the risks associated with the FDA approval processes. Some of thoseagencies also must approve prices of the products. Approval of a product by the FDA does not ensure approval of the same product by the health authorities of othercountries. In addition, changes in regulatory policy in the United States or in foreign countries for product approval during the period of product development andregulatory agency review of each submitted new application may cause delays or rejections.Clinical testing can be costly and take many years, and the outcome is uncertain and susceptible to varying interpretations. We cannot be certain if or whenregulatory agencies might request additional studies, under what conditions such studies might be requested, or what the size or length of any such studies might be. Theclinical studies of our product candidates may not be completed on schedule, regulatory agencies may order us to stop or modify our research, or these agencies may notultimately approve any of our product candidates for commercial sale. The data collected from our clinical studies may not be sufficient to support regulatory approvalof our product candidates. Even if we believe the data collected from our clinical studies are sufficient, regulatory agencies have substantial discretion in the approvalprocess and may disagree with our interpretation of the data. Our failure to adequately demonstrate the safety and efficacy of any of our product candidates would delayor prevent regulatory approval of our product candidates, which could prevent us from achieving profitability.Questions that have been raised about the safety of marketed drugs generally, including pertaining to the lack of adequate labeling, may result in increasedcautiousness by regulatory agencies in reviewing new drugs based on safety, efficacy, or other regulatory considerations and may result in significant delays inobtaining regulatory approvals. Such regulatory considerations may also result in the imposition of more restrictive drug labeling or marketing requirements asconditions of approval, which may significantly affect the marketability of our drug products.The FDA and other regulatory authorities impose significant restrictions on approved products through regulations on advertising, promotional and distributionactivities. This oversight encompasses, but is not limited to, direct-to-consumer advertising, healthcare provider-directed advertising and promotion, sales representativecommunications to healthcare professionals, promotional programming and promotional activities involving the 35Table of ContentsInternet. Regulatory authorities may also review industry-sponsored scientific and educational activities that make representations regarding product safety or efficacyin a promotional context. The FDA and other regulatory authorities may take enforcement action against a company for promoting unapproved uses of a product or forother violations of its advertising and labeling laws and regulations. Enforcement action may include product seizures, injunctions, civil or criminal penalties orregulatory letters, which may require corrective advertising or other corrective communications to healthcare professionals. Failure to comply with such regulations alsocan result in adverse publicity or increased scrutiny of company activities by the U.S. Congress or other legislators. Certain states have also adopted regulations andreporting requirements surrounding the promotion of pharmaceuticals. Failure to comply with state requirements may affect our ability to promote or sell our productsin certain states.If we do not comply with regulatory requirements at any stage, whether before or after marketing approval is obtained, we may be fined or forced to remove aproduct from the market, subject to criminal prosecution, or experience other adverse consequences, including restrictions or delays in obtaining regulatorymarketing approval.Even if we comply with regulatory requirements, we may not be able to obtain the labeling claims necessary or desirable for product promotion. We may also berequired to undertake post-marketing studies. For example, as part of the approval of Afrezza, the FDA required that we complete a clinical trial to evaluate the potentialrisk of pulmonary malignancy with Afrezza. To date, we have not enrolled any subjects in this trial.In addition, if we or other parties identify adverse effects after any of our products are on the market, or if manufacturing problems occur, regulatory approvalmay be withdrawn and a reformulation of our products, additional clinical studies, changes in labeling of, or indications of use for, our products and/or additionalmarketing applications may be required. If we encounter any of the foregoing problems, our business, financial condition and results of operations will be harmed andthe market price of our common stock and other securities may decline.We are subject to stringent, ongoing government regulation.The manufacture, marketing and sale of Afrezza are subject to stringent and ongoing government regulation. The FDA may also withdraw product approvals ifproblems concerning the safety or efficacy of a product appear following approval. We cannot be sure that FDA and United States Congressional initiatives or actionsby foreign regulatory bodies pertaining to ensuring the safety of marketed drugs or other developments pertaining to the pharmaceutical industry will not adverselyaffect our operations. For example, stability failure of Afrezza could lead to product recall or other sanctions.We also are required to register our establishments and list our products with the FDA and certain state agencies. We and any third-party manufacturers orsuppliers must continually adhere to federal regulations setting forth requirements, known as cGMP (for drugs) and QSR (for medical devices), and their foreignequivalents, which are enforced by the FDA and other national regulatory bodies through their facilities inspection programs. In complying with cGMP and foreignregulatory requirements, we and any of our potential third-party manufacturers or suppliers will be obligated to expend time, money and effort in production, record-keeping and quality control to ensure that our products meet applicable specifications and other requirements. QSR requirements also impose extensive testing, controland documentation requirements. State regulatory agencies and the regulatory agencies of other countries have similar requirements. In addition, we will be required tocomply with regulatory requirements of the FDA, state regulatory agencies and the regulatory agencies of other countries concerning the reporting of adverse events anddevice malfunctions, corrections and removals (e.g., recalls), promotion and advertising and general prohibitions against the manufacture and distribution of adulteratedand misbranded devices. Failure to comply with these regulatory requirements could result in civil fines, product seizures, injunctions and/or criminal prosecution ofresponsible individuals and us. Any such actions would have a material adverse effect on our business, financial condition and results of operations. 36Table of ContentsFDA and comparable foreign regulatory authorities subject Afrezza and any approved drug product to extensive and ongoing regulatory requirements concerningthe manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping. Theserequirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPrequirements for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems, including adverse events of unanticipated severityor frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: • restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market, or voluntary or mandatory productrecalls; • fines, warning letters or holds on clinical trials; • refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of approvals; • product seizure or detention, or refusal to permit the import or export of our product candidates; and • injunctions or the imposition of civil or criminal penalties.The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delayregulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation oradministrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements orpolicies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustainprofitability.Our suppliers are subject to FDA inspection.We depend on suppliers for insulin and other materials that comprise Afrezza, including our Afrezza inhaler and cartridges. Each supplier must comply withrelevant regulatory requirements and is subject to inspection by the FDA. Although we conduct our own inspections and review and/or approve investigations of eachsupplier, there can be no assurance that the FDA, upon inspection, would find that the supplier substantially complies with the QSR or cGMP requirements, whereapplicable. If we or any potential third-party manufacturer or supplier fails to comply with these requirements or comparable requirements in foreign countries,regulatory authorities may subject us to regulatory action, including criminal prosecutions, fines and suspension of the manufacture of our products.If we are required to find a new or additional supplier of insulin, we will be required to evaluate the new supplier’s ability to provide insulin that meets regulatoryrequirements, including cGMP requirements as well as our specifications and quality requirements, which would require significant time and expense and could delaythe manufacturing and commercialization of Afrezza.Reports of side effects or safety concerns in related technology fields or in other companies’ clinical studies could delay or prevent us from obtaining regulatoryapproval for our product candidates or negatively impact public perception of Afrezza or any other products we may develop.If other pharmaceutical companies announce that they observed frequent adverse events in their studies involving insulin therapies, we may be subject to classwarnings in the label for Afrezza. In addition, the public perception of Afrezza might be adversely affected, which could harm our business, financial condition andresults of operations and cause the market price of our common stock and other securities to decline, even if the concern relates to another company’s products orproduct candidates. 37Table of ContentsThere are also a number of clinical studies being conducted by other pharmaceutical companies involving compounds similar to, or potentially competitive with,our product candidates. Adverse results reported by these other companies in their clinical studies could delay or prevent us from obtaining regulatory approval ornegatively impact public perception of our product candidates, which could harm our business, financial condition and results of operations and cause the market priceof our common stock and other securities to decline.RISKS RELATED TO INTELLECTUAL PROPERTYIf we are unable to protect our proprietary rights, we may not be able to compete effectively, or operate profitably.Our commercial success depends, in large part, on our ability to obtain and maintain intellectual property protection for our technology. Our ability to do so willdepend on, among other things, complex legal and factual questions, and it should be noted that the standards regarding intellectual property rights in our fields are stillevolving. We attempt to protect our proprietary technology through a combination of patents, trade secrets and confidentiality agreements. We own a number ofdomestic and international patents, have a number of domestic and international patent applications pending and have licenses to additional patents. We cannot assureyou that our patents and licenses will successfully preclude others from using our technologies, and we could incur substantial costs in seeking enforcement of ourproprietary rights against infringement. Even if issued, the patents may not give us an advantage over competitors with alternative technologies.Moreover, the term of a patent is limited and, as a result, the patents protecting our products expire at various dates. For example, some patents providingprotection for Afrezza inhalation powder have terms extending into 2020, 2026, 2028, 2029, and 2030. In addition, patents providing protection for our inhaler andcartridges have terms extending into 2023, 2031 and 2032, and we have method of treatment claims that extend into 2026, 2029, 2030 and 2031. As and when thesedifferent patents expire, Afrezza could become subject to increased competition. As a consequence, we may not be able to recover our development costs.An issued patent is presumed valid unless it is declared otherwise by a court of competent jurisdiction. However, the issuance of a patent is not conclusive as toits validity or enforceability and it is uncertain how much protection, if any, will be afforded by our patents. A third party may challenge the validity or enforceability ofa patent after its issuance by various proceedings such as oppositions in foreign jurisdictions, or post grant proceedings, including, oppositions, re-examinations or otherreview in the United States. In some instances we may seek re-examination or reissuance of our own patents. If we attempt to enforce our patents, they may bechallenged in court where they could be held invalid, unenforceable, or have their breadth narrowed to an extent that would destroy their value.Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow thescope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries inthe scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensors were the first to make the invention claimed in our owned andlicensed patents or pending applications, or that we or our licensor were the first to file for patent protection of such inventions. Assuming the other requirements forpatentability are met, in the United States prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while outside the United States, thefirst to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act (“AIA”), or the Leahy-Smith Act, enacted onSeptember 16, 2011, the United States moved to a first inventor to file system. The Leahy-Smith Act also includes a number of significant changes that affect the waypatent applications will be prosecuted and may also affect patent litigation. The full effects of these changes are currently unclear. In general, the Leahy-Smith Act andits implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issuedpatents, all of which could have a material adverse effect on our business and financial condition. 38Table of ContentsMoreover, patent law continues to evolve. Several further changes to patent law are before Congress. The United States Supreme Court has exhibited anincreased interest in patent law and several of its recent decisions have tended to narrow the scope of patentable subject matter related to medical products and methods.These and recent decisions of lower courts and guidelines issued by the USPTO call into question the patentability of biological inventions that had previously beenconsidered patentable. While none of this has had an immediately apparent impact on our core technology and patents, the full and ultimate effect of these developmentsis not yet known. We also rely on unpatented technology, trade secrets, know-how and confidentiality agreements. We require our officers, employees, consultants andadvisors to execute proprietary information and invention and assignment agreements upon commencement of their relationships with us. These agreements provide thatall inventions developed by the individual on behalf of us must be assigned to us and that the individual will cooperate with us in connection with securing patentprotection on the invention if we wish to pursue such protection. We also execute confidentiality agreements with outside collaborators. There can be no assurance,however, that our inventions and assignment agreements and our confidentiality agreements will provide meaningful protection for our inventions, trade secrets,know-how or other proprietary information in the event of unauthorized use or disclosure of such information. If any trade secret, know-how or other technology notprotected by a patent were to be disclosed to or independently developed by a competitor, our business, results of operations and financial condition could be adverselyaffected.If we become involved in lawsuits to protect or enforce our patents or the patents of our collaborators or licensors, we would be required to devote substantial timeand resources to prosecute or defend such proceedings.Competitors may infringe our patents or the patents of our collaborators or licensors. To counter infringement or unauthorized use, we may be required to fileinfringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or isunenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover its technology. A court may alsodecide to award us a royalty from an infringing party instead of issuing an injunction against the infringing activity. An adverse determination of any litigation ordefense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.Interference proceedings brought by the USPTO, may be necessary to determine the priority of inventions with respect to our pre-AIA patent applications orthose of our collaborators or licensors. Additionally, the Leahy-Smith Act has greatly expanded the options for post-grant review of patents that can be brought by thirdparties. In particular Inter Partes Review (“IPR”), available against any issued United States patent (pre - and post-AIA), has resulted in a higher rate of claiminvalidation, due in part to the much reduced opportunity to repair claims by amendment as compared to re-examination, as well as the lower standard of proof used atthe USPTO as compared to the federal courts. With the passage of time an increasing number of patents related to successful pharmaceutical products are beingsubjected to IPR. Moreover, the filing of IPR petitions has been used by short-sellers as a tool to help drive down stock prices. We may not prevail in any litigation,post-grant review, or interference proceedings in which we are involved and, even if we are successful, these proceedings may result in substantial costs and be adistraction to our management. Further, we may not be able, alone or with our collaborators and licensors, to prevent misappropriation of our proprietary rights,particularly in countries where the laws may not protect such rights as fully as in the United States.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of ourconfidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be publicannouncements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative,the market price of our common stock and other securities may decline. 39Table of ContentsIf our technologies conflict with the proprietary rights of others, we may incur substantial costs as a result of litigation or other proceedings and we could facesubstantial monetary damages and be precluded from commercializing our products, which would materially harm our business and financial condition.Biotechnology patents are numerous and may, at times, conflict with one another. As a result, it is not always clear to industry participants, including us, whichpatents cover the multitude of biotechnology product types. Ultimately, the courts must determine the scope of coverage afforded by a patent and the courts do notalways arrive at uniform conclusions.A patent owner may claim that we are making, using, selling or offering for sale an invention covered by the owner’s patents and may go to court to stop us fromengaging in such activities. Such litigation is not uncommon in our industry.Patent lawsuits can be expensive and would consume time and other resources. There is a risk that a court would decide that we are infringing a third party’spatents and would order us to stop the activities covered by the patents, including the commercialization of our products. In addition, there is a risk that we would haveto pay the other party damages for having violated the other party’s patents (which damages may be increased, as well as attorneys’ fees ordered paid, if infringement isfound to be willful), or that we will be required to obtain a license from the other party in order to continue to commercialize the affected products, or to design ourproducts in a manner that does not infringe a valid patent. We may not prevail in any legal action, and a required license under the patent may not be available onacceptable terms or at all, requiring cessation of activities that were found to infringe a valid patent. We also may not be able to develop a non-infringing product designon commercially reasonable terms, or at all.Moreover, certain components of Afrezza may be manufactured outside the United States and imported into the United States. As such, third parties could filecomplaints under 19 U.S.C. Section 337(a)(1)(B) (a “337 action”) with the International Trade Commission (the “ITC”). A 337 action can be expensive and wouldconsume time and other resources. There is a risk that the ITC would decide that we are infringing a third party’s patents and either enjoin us from importing theinfringing products or parts thereof into the United States or set a bond in an amount that the ITC considers would offset our competitive advantage from the continuedimportation during the statutory review period. The bond could be up to 100% of the value of the patented products. We may not prevail in any legal action, and arequired license under the patent may not be available on acceptable terms, or at all, resulting in a permanent injunction preventing any further importation of theinfringing products or parts thereof into the United States. We also may not be able to develop a non-infringing product design on commercially reasonable terms, or atall.Although we own a number of domestic and foreign patents and patent applications relating to Afrezza, we have identified certain third-party patents havingclaims that may trigger an allegation of infringement in connection with the commercial manufacture and sale of Afrezza. If a court were to determine that Afrezza wasinfringing any of these patent rights, we would have to establish with the court that these patents are invalid or unenforceable in order to avoid legal liability forinfringement of these patents. However, proving patent invalidity or unenforceability can be difficult because issued patents are presumed valid. Therefore, in the eventthat we are unable to prevail in a non-infringement or invalidity action we will have to either acquire the third-party patents outright or seek a royalty-bearing license.Royalty-bearing licenses effectively increase production costs and therefore may materially affect product profitability. Furthermore, should the patent holder refuse toeither assign or license us the infringed patents, it may be necessary to cease manufacturing the product entirely and/or design around the patents, if possible. In eitherevent, our business, financial condition and results of operations would be harmed and our profitability could be materially and adversely impacted.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of ourconfidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public 40Table of Contentsannouncements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative,the market price of our common stock and other securities may decline.In addition, patent litigation may divert the attention of key personnel and we may not have sufficient resources to bring these actions to a successful conclusion.At the same time, some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantiallygreater resources. An adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing andselling our products or result in substantial monetary damages, which would adversely affect our business, financial condition and results of operations and cause themarket price of our common stock and other securities to decline.We may not obtain trademark registrations for our potential trade names.We have not selected trade names for some of our product candidates in our pipeline; therefore, we have not filed trademark registrations for such potential tradenames for our product candidates, nor can we assure that we will be granted registration of any potential trade names for which we do file. No assurance can be giventhat any of our trademarks will be registered in the United States or elsewhere, or once registered that, prior to our being able to enter a particular market, they will notbe cancelled for non-use. Nor can we give assurances, that the use of any of our trademarks will confer a competitive advantage in the marketplace.Furthermore, even if we are successful in our trademark registrations, the FDA has its own process for drug nomenclature and its own views concerningappropriate proprietary names. It also has the power, even after granting market approval, to request a company to reconsider the name for a product because ofevidence of confusion in the marketplace. We cannot assure you that the FDA or any other regulatory authority will approve of any of our trademarks or will not requestreconsideration of one of our trademarks at some time in the future.RISKS RELATED TO OUR COMMON STOCKWe may not be able to generate sufficient cash to service all of our indebtedness. We may be forced to take other actions to satisfy our obligations under ourindebtedness or we may experience a financial failure.Our ability to make scheduled payments on or to refinance our debt obligations will depend on our financial and operating performance, which is subject to thecommercial success of Afrezza, the extent to which we are able to successfully develop and commercialize our Technosphere drug delivery platform and any otherproduct candidates that we develop, prevailing economic and competitive conditions, and to certain financial, business and other factors beyond our control. We cannotassure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on ourindebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sellassets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, thatthese actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our futuredebt agreements. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of materialassets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or obtain sufficient proceeds from thosedispositions to meet our debt service and other obligations when due.Future sales of shares of our common stock in the public market, or the perception that such sales may occur, may depress our stock price and adversely impact themarket price of our common stock and other securities.If our existing stockholders or their distributees sell substantial amounts of our common stock in the public market, the market price of our common stock coulddecrease significantly. The perception in the public market 41Table of Contentsthat our existing stockholders might sell shares of common stock could also depress the market price of our common stock and the market price of our other securities.Any such sales of our common stock in the public market may affect the price of our common stock or the market price of our other securities.In the future, we may sell additional shares of our common stock to raise capital. In addition, a substantial number of shares of our common stock is reserved for:issuance upon the exercise of stock options, warrant exercises, and the vesting of restricted stock unit awards; the purchase of shares of common stock under ouremployee stock purchase program; and the issuance of shares upon exchange or conversion of the 2018 notes or any other convertible debt we may issue. We cannotpredict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance or sale of substantial amounts ofcommon stock, or the perception that such issuances or sales may occur, could adversely affect the market price of our common stock and other securities.As a result of the death of Alfred E. Mann, our founder and former largest stockholder, the stock that he previously controlled is currently controlled by atrust, and we cannot assure you of the manner in which the trustees will manage the holdings.At February 1, 2017, the estate of Alfred E. Mann beneficially owned approximately 23.7% of our outstanding shares of capital stock, including shares held in theAlfred E. Mann Living Trust and The Mann Group LLC (collectively, the “Mann Affiliated Entities”).Mr. Mann passed away on February 25, 2016. All of the shares beneficially owned by Mr. Mann in his individual capacity, the Alfred E. Mann Living Trust andThe Mann Group LLC are controlled by the Alfred E. Mann Living Trust. The trustees of the Alfred E. Mann Living Trust are Mr. Mann’s wife and two other trustees.The trustees have the power to sell the shares or deal with them as an owner. Relatives, other individuals and charities may receive bequests of shares under the trust.The residuary beneficiary of the trust is the Alfred E. Mann Family Foundation, a charitable organization under section 501(c)(3) of the Internal Revenue Code that is aprivate foundation under section 509 of the Code. The same three trustees control the Alfred E. Mann Family Foundation. The Alfred E. Mann Family Foundation willhave the power to sell the shares or deal with them as an owner.We have been informed by the trustees for the Mann Affiliated Entities that the trustees may seek to dispose of some or all of the shares beneficially owned bythe Mann Affiliated Entities, pursuant to distributions to trust beneficiaries, one or more trading plans under Rule 10b5-1 of the Exchange Act or otherwise. Any sales orother disposition of our common stock by the Mann Affiliated Entities, or the perception that such sales may occur, including the entry into any such trading plans,could have a material adverse effect on the trading price of our common stock and could make it more difficult for us to raise capital through the sale of our commonstock or securities convertible into or exercisable for our common stock, which could have a material adverse effect on our business and financial condition.Our stock price is volatile and may affect the market price of our common stock and other securities.Since January 1, 2014, our closing stock price as reported on The NASDAQ Global Market has ranged from $1.89 to $54.80 (giving retroactive effect to ourrecently completed 1-for-5 reverse stock split). The trading price of our common stock is likely to continue to be volatile. The stock market, particularly in recent years,has experienced significant volatility particularly with respect to pharmaceutical and biotechnology stocks, and this trend may continue.The volatility of pharmaceutical and biotechnology stocks often does not relate to the operating performance of the companies represented by the stock. Ourbusiness and the market price of our common stock may be influenced by a large variety of factors, including: • the progress of our recent commercial launch of Afrezza in the United States and other events or circumstances that we or others estimate will impact thefuture commercial success of Afrezza; 42Table of Contents • our ability to obtain marketing approval for Afrezza outside of the United States and to find collaboration partners for the commercialization of Afrezza inforeign jurisdictions; • our future estimates of Afrezza sales, prescriptions or other operating metrics; • our ability to successful commercialize our Technosphere drug delivery platform; • the progress of preclinical and clinical studies of our product candidates and of post-approval studies of Afrezza required by the FDA; • the results of preclinical and clinical studies of our product candidates; • general economic, political or stock market conditions; • legislative developments; • announcements by us, our collaborators, or our competitors concerning clinical study results, acquisitions, strategic alliances, technological innovations,newly approved commercial products, product discontinuations, or other developments; • the availability of critical materials used in developing and manufacturing Afrezza or other product candidates; • developments or disputes concerning our relationship with any of our current or future collaborators or third party manufacturers; • developments or disputes concerning our patents or proprietary rights; • the expense and time associated with, and the extent of our ultimate success in, securing regulatory approvals; • announcements by us concerning our financial condition or operating performance; • changes in securities analysts’ estimates of our financial condition or operating performance; • general market conditions and fluctuations for emerging growth and pharmaceutical market sectors; • sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders; • our ability, or the perception of investors of our ability, to continue to meet all applicable requirements for continued listing of our common stock on TheNASDAQ Stock Market, and the possible delisting of our common stock if we are unable to do so; • the status of any legal proceedings or regulatory matters against or involving us or any of our executive officers and directors; and • discussion of Afrezza, our other product candidates, competitors’ products, or our stock price by the financial and scientific press, the healthcarecommunity and online investor communities such as chat rooms. In particular, it may be difficult to verify statements about us and our investigationalproducts that appear on interactive websites that permit users to generate content anonymously or under a pseudonym and statements attributed to companyofficials may, in fact, have originated elsewhere.Any of these risks, as well as other factors, could cause the market value of our common stock and other securities to decline.If we fail to continue to meet all applicable listing requirements, our common stock may be delisted from The NASDAQ Global Market, which could have anadverse impact on the liquidity and market price of our common stock.Our common stock is currently listed on The NASDAQ Global Market, which has qualitative and quantitative listing criteria. If we are unable to meet any of theNASDAQ listing requirements in the future, such 43Table of Contentsas the corporate governance requirements, the minimum closing bid price requirement, or the minimum market value of listed securities requirement, NASDAQ coulddetermine to delist our common stock. A delisting of our common stock could adversely affect the market liquidity of our common stock, decrease the market price ofour common stock, adversely affect our ability to obtain financing for the continuation of our operations and result in the loss of confidence in our company. OnSeptember 14, 2016, we received notice from the Listing Qualifications Department of the NASDAQ Stock Market indicating that, for the previous 30 consecutivebusiness days, the bid price for our common stock closed below the minimum $1.00 per share required for continued inclusion on The NASDAQ Global Market. Thenotification letter stated that we would be afforded 180 calendar days, or until March 13, 2017, to regain compliance with the minimum bid price requirement. In orderto regain compliance, shares of our common stock must maintain a minimum bid closing price of at least $1.00 per share for a minimum of 10 consecutive businessdays. On March 1, 2017, our board of directors and stockholders approved the Charter Amendment to effect the Reverse Stock Split. On March 3, 2017, our commonstock began trading on The NASDAQ Global Market on a split-adjusted basis at a ratio of 1 share for 5. As of the date of this filing, the shares of our common stockhave maintained a minimum bid closing price of at least $1.00 per share for 10 consecutive business days. Accordingly, we expect to receive a notice from the ListingQualifications Department of the NASDAQ Stock Market indicating that we have regained compliance with the minimum closing bid price requirement. Despiteeffecting the Reverse Stock Split, there can be no assurance that the market price per share of our common stock will remain in excess of the $1.00 minimum closingbid price requirement in the future. The continuing effect of the Reverse Stock Split on the market price of our common stock cannot be predicted with any certainty,and the history of similar stock split combinations for companies in like circumstances is varied.If other biotechnology and biopharmaceutical companies or the securities markets in general encounter problems, the market price of our common stock and othersecurities could be adversely affected.Public companies in general, including companies listed on The NASDAQ Global Market, have experienced price and volume fluctuations that have often beenunrelated or disproportionate to the operating performance of those companies. There has been particular volatility in the market prices of securities of biotechnologyand other life sciences companies, and the market prices of these companies have often fluctuated because of problems or successes in a given market segment orbecause investor interest has shifted to other segments. These broad market and industry factors may cause the market price of our common stock and other securities todecline, regardless of our operating performance. We have no control over this volatility and can only focus our efforts on our own operations, and even these may beaffected due to the state of the capital markets.In the past, following periods of large price declines in the public market price of a company’s securities, securities class action litigation has often been initiatedagainst that company. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which would hurt our business.Any adverse determination in litigation could also subject us to significant liabilities.The future sale of our common stock, the exchange or conversion of our 2018 notes into common stock or the exercise of our warrants for common stock couldnegatively affect the market price of our common stock and other securities.As of March 10, 2017, we had 95,776,246 shares of common stock outstanding. Substantially all of these shares are available for public sale, subject in somecases to volume and other limitations or delivery of a prospectus. If our common stockholders sell substantial amounts of common stock in the public market, or themarket perceives that such sales may occur, the market price of our common stock and other securities may decline. Likewise the issuance of additional shares of ourcommon stock upon the exchange or conversion of some or all of our 2018 notes or upon the exercise of outstanding warrants, could adversely affect the market price ofour common stock and other securities. In addition, the existence of these notes and warrants may encourage short selling of our common stock by market participants,which could adversely affect the market price of our common stock and other securities. 44Table of ContentsIn addition, we will need to raise substantial additional capital in the future to fund our operations. If we raise additional funds by issuing equity securities oradditional convertible debt, the market price of our common stock and other securities may decline.Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, moredifficult and may prevent attempts by our stockholders to replace or remove our current management.We are incorporated in Delaware. Certain anti-takeover provisions under Delaware law and in our certificate of incorporation and amended and restated bylaws,as currently in effect, may make a change of control of our company more difficult, even if a change in control would be beneficial to our stockholders or the holders ofour other securities. Our anti-takeover provisions include provisions such as a prohibition on stockholder actions by written consent, the authority of our board ofdirectors to issue preferred stock without stockholder approval, and supermajority voting requirements for specified actions. In addition, we are governed by theprovisions of Section 203 of the Delaware General Corporation Law, which generally prohibits stockholders owning 15% or more of our outstanding voting stock frommerging or combining with us in certain circumstances. These provisions may delay or prevent an acquisition of us, even if the acquisition may be considered beneficialby some of our stockholders. In addition, they may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making itmore difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.Because we do not expect to pay dividends in the foreseeable future, you must rely on stock appreciation for any return on any investment in our common stock.We have paid no cash dividends on any of our capital stock to date, and we currently intend to retain our future earnings, if any, to fund the development andgrowth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future, and payment of cash dividends, if any, will also depend on ourfinancial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Pursuant to the FacilityAgreement, we are subject to contractual restrictions on the payment of dividends. There is no guarantee that our common stock will appreciate or maintain its currentprice. You could lose the entire value of any investment in our common stock.We have a limited number of unreserved shares available for future issuance, which may impair our ability to conduct future financing and other transactions.Our amended and restated certificate of incorporation, as amended on March 1, 2017 to effect the Reverse Stock Split, currently authorizes us to issue up to140,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of March 10, 2017, we had a total of 44,223,754 shares of common stock that wereauthorized but unissued, and we have currently reserved a significant number of these shares for future issuance pursuant to outstanding equity awards, outstandingwarrants, our equity plans and our 2018 notes. As a result, our ability to issue shares of common stock other than pursuant to existing arrangements will be limited untilsuch time, if ever, that we are able to amend our amended and restated certificate of incorporation to further increase our authorized shares of common stock or sharescurrently reserved for issuance otherwise become available (for example, due to the termination of the underlying agreement to issue the shares).If we are unable to enter into new arrangements to issue shares of our common stock or securities convertible or exercisable into shares of our common stock, ourability to complete equity-based financings or other transactions that involve the potential issuance of our common stock or securities convertible or exercisable into ourcommon stock, will be limited. In lieu of issuing common stock or securities convertible into our common stock in any future equity financing transactions, we mayneed to issue some or all of our authorized but unissued shares of preferred stock, which would likely have superior rights, preferences and privileges to those of ourcommon stock, or we may need to issue debt that is not convertible into shares of our common stock, which 45Table of Contentsmay require us to grant security interests in our assets and property and/or impose covenants upon us that restrict our business. If we are unable to issue additionalshares of common stock or securities convertible or exercisable into our common stock, our ability to enter into strategic transactions such as acquisitions of companiesor technologies, may also be limited. If we propose to amend our amended and restated certificate of incorporation to increase our authorized shares of common stock,such a proposal would require the approval by the holders of a majority of our outstanding shares of common stock, and we cannot assure you that such a proposalwould be adopted. If we are unable to complete financing, strategic or other transactions due to our inability to issue additional shares of common stock or securitiesconvertible or exercisable into our common stock, our financial condition and business prospects may be materially harmed.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesIn 2001, we acquired a facility in Danbury, Connecticut that included two buildings comprising approximately 190,000 square feet encompassing 17.5 acres. InSeptember 2008, we completed the construction of approximately 140,000 square feet of new manufacturing space providing us with two buildings totalingapproximately 328,000 square feet, housing our research and development, administrative and manufacturing functions for Afrezza. We believe the Connecticut facilitywill have sufficient space to satisfy commercial demand for Afrezza.As of December 31, 2016, we owned approximately 142,000 square feet of laboratory, office and warehouse space in Valencia, California. On February 17,2017, we sold certain parcels of real estate in Valencia, California and certain related improvements, personal property, equipment, supplies and fixtures, including theaforementioned space, to Rexford Industrial Realty, L.P. for $17.3 million.Our obligations under the Facility Agreement and the Milestone Agreement are secured by certain mortgages on our facility in Danbury, Connecticut.We also lease approximately 12,500 square feet of office space in Valencia, California pursuant to a lease that expires in April 2017. The facility contains ourprincipal executive offices.Item 3. Legal ProceedingsFollowing the public announcement of Sanofi’s election to terminate the Sanofi License Agreement and the subsequent decline in our stock price, severalcomplaints were filed in the U.S. District Court for the Central District of California (the “District Court”) against MannKind and certain of our officers and directors onbehalf of certain purchasers of our common stock, which were consolidated into a single action. The amended complaint alleged that MannKind and certain of ourofficers and directors violated federal securities laws by making materially false and misleading statements regarding the prospects for Afrezza, thereby artificiallyinflating the price of MannKind’s common stock. We and the named defendants brought a motion to dismiss the class action, which the District Court granted in August2016 without leave to amend the complaint. The lead plaintiff appealed that decision to the Ninth Circuit Court of Appeals. On March 2, 2017, the lead plaintiff filed avoluntary motion to dismiss his appeal, which the Court of Appeals granted on March 9, 2017.Following the public announcement of Sanofi’s election to terminate the Sanofi License Agreement and the subsequent decline in our stock price, two motionswere submitted to the district court at Tel Aviv, Economic Department for the certification of a class action against MannKind and certain of our officers and directors.In general, the complaints allege that MannKind and certain of our officers and directors violated Israeli and U.S. securities laws by making materially false andmisleading statements regarding the prospects for Afrezza, 46Table of Contentsthereby artificially inflating the price of its common stock. The plaintiffs are seeking monetary damages. In November 2016, the district court dismissed one of theactions without prejudice. In the remaining action, a hearing is scheduled for May 2017 to determine whether Israeli or U.S. law is applicable before the case can becertified as a class action. We will vigorously defend against the claims advanced.We are also subject to legal proceedings and claims which arise in the ordinary course of our business. As of the date hereof, we believe that the final dispositionof such matters will not have a material adverse effect on our financial position, results of operations or cash flows. We maintain liability insurance coverage to protectour assets from losses arising out of or involving activities associated with ongoing and normal business operations.Item 4. Mine Safety DisclosuresNot applicable. 47Table of ContentsPART IIItem 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesCommon Stock Market PriceOur common stock has been traded on The NASDAQ Global Market under the symbol “MNKD” since July 28, 2004. The following table sets forth for thequarterly periods indicated, the high and low sales prices for our common stock as reported by The NASDAQ Global Market (adjusted for the Reverse Stock Spliteffective March 3, 2017). High Low Year ended December 31, 2016 First quarter $11.20 $3.20 Second quarter $10.15 $4.25 Third quarter $6.05 $2.75 Fourth quarter $4.35 $2.05 Year ended December 31, 2015 First quarter $39.40 $25.15 Second quarter $36.60 $17.30 Third quarter $29.00 $15.00 Fourth quarter $18.95 $6.90 The closing sales price of our common stock on The NASDAQ Global Market was $1.95 on March 10, 2017 and there were 171 registered holders of record asof that date.Performance Measurement ComparisonThe material in this section is not “soliciting material,” is not deemed “filed” with the SEC and shall not be incorporated by reference by any general statementincorporating by reference this Annual Report on Form 10-K into any of our filings under the Securities Act, or the Exchange Act, except to the extent we specificallyincorporate this section by reference.The following graph illustrates a comparison of the cumulative total stockholder return (change in stock price plus reinvested dividends) of our common stockwith (i) The NASDAQ Composite Index and (ii) The NASDAQ Biotechnology Index. The graph assumes a $100 investment, on December 31, 2010, in (i) our commonstock, (ii) the securities comprising The NASDAQ Composite Index and (iii) the securities comprising The NASDAQ Biotechnology Index. 48Table of ContentsThe comparisons in the graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock. Dividend PolicyWe have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in theoperation and expansion of our business. Accordingly, we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any futuredetermination to pay dividends will be at the discretion of our board of directors. In addition, under the terms of the Facility Agreement, we are restricted fromdistributing any of our assets or declaring and distributing a dividend to our stockholders.Recent Sales of Unregistered SecuritiesNone. 49Table of ContentsItem 6. Selected Financial DataThe following data has been derived from our audited financial statements, including the consolidated balance sheets at December 31, 2016 and 2015 and therelated consolidated statements of operations for each of the three years ended December 31, 2016 and related notes appearing elsewhere in this report. The consolidatedstatement of operations data for the years ended December 31, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014, 2013 and 2012 arederived from our audited consolidated financial statements that are not included in this report. The selected financial data set forth below should be read in conjunctionwith “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements, and the notesthereto, and other financial information included herein this Annual Report on Form 10-K. Year Ended December 31, 2016 2015 2014 2013 2012 (In thousands, except per share amounts) Statement of Operations Data: Revenue: Net revenue — collaboration $171,965(1) $— $— $— $35 Net revenue — commercial product sales 1,895 — — — — Revenue — bulk insulin sales 898 — — — — Total net revenue 174,758 — — — 35 Expense: Costs of revenue — collaboration 32,971(1) — — — — Cost of goods sold 17,121 64,745 — — — Research and development 14,917 29,674 100,244 109,719 101,522 Selling, general and administrative 46,928 40,960 79,383 59,682 45,473 Property and equipment impairment 1,259(2) 140,412(2) — — — (Gain) loss on foreign currency translation (3,433) $2,697 — — — (Gain) loss on purchase commitments (2,265)(3) 66,167(3) — — — Total expense 107,498 344,655 179,627 169,401 146,995 Income (loss) from operations 67,260 (344,655) (179,627) (169,401) (146,960) Other income (expense): Change in fair value of warrant liability 5,369(4) — — — — Interest income 85 18 9 8 7 Interest expense on notes (15,576) (21,231) (17,549) (15,153) (11,139) Interest expense on note payable to principal stockholder (2,901) (2,894) (2,894) (6,309) (10,491) Gain (loss) on extinguishment of debt 72,024(5) (1,049)(5) — — — Other (expense) income (597) 1,366 1,679 (635) (1,191) Total other income (expense) 58,404 (23,790) (18,755) (22,089) (22,814) Income (loss) before benefit from income taxes 125,664 (368,445) (198,382) (191,490) (169,774) Income tax benefit — — — — 408 Net income (loss) $125,664 $(368,445) $(198,382) $(191,490) $(169,366) Basic net income (loss) per share $1.37 $(4.54) $(2.57) $(3.20) $(4.68) diluted net income (loss) per share $1.36 $(4.54) $(2.57) $(3.20) $(4.68) Shares used to compute basic net income (loss) per share 92,053 81,233 77,045 59,918 36,171 Shares used to compute diluted net income (loss) per share 92,085 81,233 77,045 59,918 36,171 50Table of Contents December 31, 2016 2015 2014 2013 2012 (In thousands) Balance Sheet Data: Cash and cash equivalents $22,895 $59,074 $120,841 $70,790 $61,840 Total assets 107,063 126,412 394,439 258,646 251,314 Facility financing obligation 71,339 74,582 72,995 102,300 — Note payable to principal stockholder 49,521 49,521 49,521 49,521 119,635 Accrued interest — note payable to principalstockholder 9,281 6,380 3,486 592 2,170 Senior convertible notes 27,635 27,613 99,355 98,439 212,026 Sanofi loan facility and loss share obligation — 62,371(5) 3,034 — — Accumulated deficit (2,737,565) (2,863,229) (2,494,784) (2,296,402) (2,104,912) Total stockholders’ deficit (183,593) (350,329) (73,770) (30,713) (110,679) (1)The amount of revenue recognized in 2016 totaled $172.0 million, which consisted of an upfront payment of $150.0 million and two milestone payments of$25.0 million each, net of $64.9 million of net loss share with Sanofi, as well as $17.5 million in sales of Afrezza and $19.4 million related to a sale of bulkinsulin, both to Sanofi. These payments and sales were made pursuant to the contractual terms of the agreements with Sanofi. Costs of revenue — collaborationrepresents the costs of product manufactured and sold to Sanofi, as well as certain direct costs associated with a firm purchase commitment entered into inconnection with the collaboration with Sanofi.(2)In 2016, property and equipment impairment was a result of impairment charges of $695 thousand and $564 thousand for property, plant and equipment and assetheld for sale, respectively. In 2015, in connection with our quarterly assessment of impairment indicators and inventory valuation, we identified an impairment ofour long-lived assets which resulted in charges of $140.4 million in the fourth quarter of 2015.(3)In 2016, the $2.3 million gain on purchase commitments was related to a renegotiation of certain of our purchase commitments. In 2015, the $66.2 millionrecognized loss on purchase commitments resulted from our assessment of excess inventory as a result of lower than expected sales of Afrezza as well as a lowerof cost or net realizable value adjustment due to estimated conversion costs in excess of our estimated selling price of Afrezza.(4)In 2016, we recognized a change in fair value of warrant liability of $5.4 million to reflect the fair value adjustments of the warrant liability from May 12, 2016,the date certain warrants were issued in connection with a registered public offering.(5)The $72.0 million gain from extinguishment of debt in 2016 was a result of the termination of the Sanofi License Agreement on November 9, 2016 andforgiveness of the full outstanding loan balance on the Sanofi Loan Facility. The $1.0 million loss in 2015 was from extinguishment of debt driven by thesettlement of the 5.75% Senior Convertible Notes due 2015 through the payment of cash and issuance of new debt.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notesthereto included in this Annual Report on Form 10-K.OverviewWe are a biopharmaceutical company focused on the discovery and development of therapeutic products for diseases such as diabetes. Our only approvedproduct, Afrezza, is a rapid-acting inhaled insulin that was approved by the FDA on June 27, 2014 to improve glycemic control in adult patients with diabetes. Afrezzabecame available by prescription in United States retail pharmacies in February 2015.As of December 31, 2016, we had an accumulated deficit of $2.7 billion and a stockholders’ deficit of $183.6 million. We had net income (losses) ofapproximately $125.7 million, ($368.4) million and ($198.4) 51Table of Contentsmillion in the years ended December 31, 2016, 2015 and 2014, respectively. We have funded our operations primarily through the sale of equity securities andconvertible debt securities, borrowings under the Facility Agreement with Deerfield, borrowings under The Mann Group Loan Arrangement, receipt of upfront andmilestone payments under the Sanofi License Agreement and borrowings under the Sanofi Loan Facility to fund our portion of the loss share. As discussed below in“Liquidity and Capital Resources”, if we are unable to obtain additional funding, there will be substantial doubt about our ability to continue as a going concern.Our business is subject to significant risks, including but not limited to our need to raise additional capital to fund our operations, our ability to successfullycommercialize Afrezza and manufacture sufficient quantities of Afrezza and the risks inherent in our ongoing clinical trials and the regulatory approval process for ourproduct candidates. Additional significant risks also include the results of our research and development efforts, competition from other products and technologies anduncertainties associated with obtaining and enforcing patent rights.Critical Accounting PoliciesThe preparation of our consolidated financial statements is in accordance with accounting principles generally accepted in the United States. The preparation ofour consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, andexpenses and related disclosure of contingent assets and liabilities. We consider an accounting estimate to be critical to the consolidated financial statements if (i) theestimate is complex in nature or requires a high degree of judgment and (ii) different estimates and assumptions were used, the results could have a material impact onthe consolidated financial statements. On an ongoing basis, we evaluate our estimates and the application of our policies. We base our estimates on historicalexperience, current conditions and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. The policies that we believe are critical to the preparation of the consolidated financial statements are presented below.The following critical accounting policies are more fully described in Note 2 — Summary of Significant Accounting Policies of the Notes to ConsolidatedFinancial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.Revenue — Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists; (2) deliveryhas occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. When the accounting requirements forrevenue recognition are not met, we defer the recognition of revenue by recording deferred revenue on the balance sheet until such time that all criteria are met.We have entered into a Commercial Outsourcing Services Agreement with Integrated Commercialization Solutions, Inc. (“ICS”), a third party logistics provider,under which ICS distributes our product to wholesalers on our behalf. To enable us to distribute product in all necessary jurisdictions, on July 1, 2016, we entered into afirst amendment to our contract with ICS for an interim period. Under this amendment, ICS, through Integrated Commercialization Solutions Direct (ICS Direct),purchased product from us and title and risk of loss transferred to ICS Direct. However, we did not recognize revenue upon transfer of product to ICS Direct because(1) we were required to indemnify and hold harmless ICS for all accounts receivable arising out of product sales under the first amendment that were not collected fromthe customers according to payment terms, and (2) ICS Direct could return product to us under the right of return.On September 26, 2016, we provided notice to ICS of our election to terminate the interim period agreement effective December 15, 2016. After that date, ICS nolonger took title to inventory. However, the Commercial Outsourcing Services Agreement continues to be in effect and ICS continues to distribute our product towholesalers on our behalf. 52Table of ContentsWe invoice our customers upon shipment of Afrezza to them and record an accounts receivable, with a corresponding liability for deferred revenue equal to thegross invoice price net of estimated gross-to-net adjustments. Given our limited sales history for Afrezza, we cannot reliably estimate expected returns of the product atthe time of shipment. Accordingly, we defer recognition of revenue on Afrezza product shipments until the right of return no longer exists, which occurs at the earlier ofthe time Afrezza is dispensed through patient prescriptions or expiration of the right of return. We recognize revenue based on Afrezza patient prescriptions dispensedas estimated by syndicated data provided by a third party. We also analyze additional data points to ensure that such third-party data is reasonable, including data relatedto inventory movements within the channel and ongoing prescription demand. In addition, the costs of Afrezza associated with the deferred revenue are recorded asdeferred costs until such time as the related deferred revenue is recognized.Estimated gross-to-net adjustments for Afrezza include wholesaler distribution fees, prompt pay discounts, rebates and patient discount and co-pay assistanceprograms, and are based on estimated amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with ourcustomers and the levels of inventory within the distribution and retail channels that may result in future rebates or discounts taken. In certain cases, such as patientsupport programs, we recognize the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, we may need to adjustthese estimates, which could have an effect on product revenue in the period of adjustment. We record product sales deductions in the statement of operations at thetime product revenue is recognized.Product Returns — We do not provide a reserve for product refunds for sales of Afrezza due to our revenue recognition policy of deferring recognition ofrevenue on product shipments of Afrezza until the right of return no longer exists.Deferred Costs — Deferred costs from collaboration represents the cost of product manufactured and sold to Sanofi as well as certain direct costs associated witha firm purchase commitment entered into in connection with the Sanofi License Agreement. At December 31, 2016, deferred costs from commercial product salesrepresented the cost of product shipped to ICS and wholesale distributors, but not sold through by pharmacies to patients. Cost of goods sold related to commercialproduct sales for the twelve months ended December 31, 2016 included $0.3 million of cost related to product sold through from pharmacies to patients.As of December 31, 2015, deferred costs from collaboration of $13.5 million represented the costs of product manufactured and sold to Sanofi. During the thirdquarter of 2016, the costs related to the Sanofi product sales were recognized as costs of revenue — collaboration in the consolidated statements of operations, as therelated revenue was recognized at that time.License and Collaboration Agreements — We analyzed consideration received under the Sanofi License Agreement to determine whether the consideration, or aportion thereof, could be recognized as revenue. In arrangements involving the delivery of more than one element, each required deliverable is evaluated to determinewhether it qualifies as a separate unit of accounting. This determination is generally based on whether the deliverable has “stand-alone value” to the customer. Thearrangement’s consideration that is fixed and determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable.The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-partyevidence of selling price and (iii) best estimate of selling price (BESP). The BESP reflects our best estimate of what the selling price would be if the deliverable wasregularly sold by us on a stand-alone basis. In general, the consideration allocated to each unit of accounting is recognized as the related goods or services are delivered,limited to the consideration that is not contingent upon future deliverables.The assessment of multiple element arrangements requires judgment in order to determine the appropriate units of accounting and the points in time that, orperiods over which, revenue should be recognized. Due to the proprietary nature of the manufacturing services to be provided by us, we determined that all of thesignificant 53Table of Contentsdeliverables should be combined into a single unit of accounting. During the term of the Sanofi License Agreement, worldwide profits and losses were determined basedon the difference between the net sales of Afrezza and the costs and expenses incurred by us and Sanofi that were specifically attributable or related to the development,regulatory filings, manufacturing, or commercialization of Afrezza. These profits and losses were shared 65% by Sanofi and 35% by us. Prior to December 31, 2015, wedid not have the ability to estimate the amount of costs that would potentially be incurred under the loss sharing provision of the Sanofi License Agreement, andaccordingly we believed the fixed and determinable fee requirement for revenue recognition was not met.In the first and second quarters of 2016, after we received notice of termination from Sanofi, we evaluated whether the criteria had been met. We determined thatthe requirement had not been met because Sanofi had not finalized necessary adjustments to the profit and loss share provision statements and Sanofi had not yettransferred all of the information to enable us to commercialize Afrezza on our own. Therefore, we were still unable to estimate the costs to be incurred under theagreement with Sanofi. During the third quarter of 2016, Sanofi provided us with enough information to enable us to reasonably estimate the remaining costs under theSanofi License Agreement and the Sanofi Supply Agreement. Accordingly, the fixed or determinable fee requirement for revenue recognition was met and there wereno future obligations to Sanofi. Therefore, we recognized $172.0 million of net revenue — collaboration for the year ended December 31, 2016. The revenue recognizedincludes the upfront payment of $150.0 million and the two milestone payments of $25.0 million each, net of $64.9 million of net loss share with Sanofi, as well as$17.5 million in sales of Afrezza and $19.4 million from sales of bulk insulin, both to Sanofi. These payments and sales were made pursuant to the contractual terms ofthe agreements with Sanofi.On November 9, 2016, we entered into the Settlement Agreement with Sanofi. The accounting for this agreement is described in Note 8 — CollaborationArrangements of the Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”On January 20, 2016, we entered into the CLA with Receptor pursuant to which we performed initial formulation studies on compounds identified by Receptor.Following successful completion of the studies, Receptor exercised its option to acquire an exclusive license to develop, manufacture and commercialize inhalationformulations of these compounds utilizing our technology. See Note 8 — Collaboration Arrangements of the Notes to Consolidated Financial Statements included in“Part II, Item 8 — Financial Statements and Supplementary Data” for additional information related to the accounting for the CLA.Inventories — Inventories are stated at the lower of cost or net realizable value. We determine the cost of inventory using the first-in, first-out (“FIFO”) method.We capitalize inventory costs associated with Afrezza based on management’s judgment and the future economic benefit expected to be realized; otherwise, such costsare expensed in the period incurred. In addition, Afrezza is subject to strict quality control and monitoring, which we perform throughout the manufacturing process. Ifcertain batches of Afrezza inhalation powder, the inhaler or cartridges no longer meet quality specifications or become obsolete due to expiration, we will record acharge to write down such unmarketable inventory to its estimated realizable value.We analyzed our inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value. We performed an assessmentof projected sales to evaluate the lower of cost or net realizable value and the potential excess inventory on hand at December 31, 2016 and 2015. As a result of theseassessments, we recorded a $0.2 million charge at December 31, 2016 to write-off inventory that will expire prior to sale. At December 31, 2015, we recorded a chargeof $36.1 million to record the raw materials inventory on hand at the lower of cost or net realizable value and inventory expiry, and $3.2 million related to the write-offof prepaid deposits related to the purchase of inventory.Recognized Loss on Purchase Commitments — At December 31, 2016 and 2015, in connection with the projected sales assessment, we also evaluated ourinventory purchase commitments totaling $101.0 million and 54Table of Contents$116.2 million, respectively, for potential impairment. As a result of these assessments, we recorded $101.0 million and $66.2 million, respectively, to the liability forrecognized loss on purchase commitments both from a lower of cost or net realizable value and excess inventory perspective. Prior to December 31, 2016, therecognized loss on purchase commitments was reduced to reflect our expectation that a portion was recoverable from Sanofi. At December 31, 2016 the recognized losson purchase commitments no longer reflects recoverability from Sanofi because it was recognized as a receivable from Sanofi due to the Settlement Agreement.Impairment of Long-Lived Assets — Assessing long-lived assets for impairment requires us to make assumptions and judgments regarding the carrying value ofthese assets. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not berecoverable. The assets are considered to be impaired if we determine that the carrying value may not be recoverable.If we believe an asset to be impaired, the impairment we recognize is the amount by which the carrying value of the asset exceeds the fair value of the asset. Fairvalue is determined using market, income or cost approaches, as appropriate for the asset. Any write-downs would be treated as permanent reductions in the carryingamount of the asset and an operating loss would be recognized. In addition, we base the useful lives and related amortization or depreciation expense on our estimate ofthe useful lives of the assets. If a change were to occur in any of the above-mentioned factors or estimates, our reported results could materially change.In connection with our quarterly assessment of impairment indicators, we evaluated the continued lower than expected sales of Afrezza as reported by Sanofithroughout the fourth quarter of 2015, revised forecasts for sales of Afrezza provided by Sanofi in the fourth quarter of 2015 and level of commercial production in thefourth quarter of 2015, as well as the uncertainty associated with Sanofi’s announcement during the fourth quarter of their intent to reorganize their diabetes business.These factors indicated potentially significant changes in the timing and extent of cash flows, and we therefore determined that an impairment indicator existed in thefourth quarter of 2015.As disclosed more fully in Note 4 — Property and Equipment of the Notes to Consolidated Financial Statements included in “Part II, Item 8 — FinancialStatements and Supplementary Data”, based on the above impairment factors in 2015, we identified an impairment charge of $1.8 million related to our Valenciaproperty, which was previously our corporate headquarters, as well as a $138.6 million impairment charge to our Danbury manufacturing facility, which currentlyperforms all manufacturing of Afrezza. As disclosed in Note 20 — Subsequent Events of the Notes to Consolidated Financial Statements included in “Part II, Item 8 —Financial Statements and Supplementary Data”, in 2016 we also recorded an additional $1.2 million impairment charge related to facilities of which $0.5 million isassociated with the Valencia property, when it became probable that the property would be sold within one year.To date, we have had cumulative operating losses, and the recoverability of our long-lived assets is contingent upon executing our business plan. If we are unableto execute our business plan, we may require additional write downs of the value of our long-lived assets in future periods.Milestone Rights Liability — In addition to the Facility Financing Obligation, we also issued certain rights to receive payments of up to $90.0 million uponoccurrence of specified strategic and sales milestones (the “Milestone Rights”). These rights are not reflected in the Facility Financing Obligation. The estimated fairvalue of the Milestone Rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjusted forboth the expected timing and the probability of achieving the milestones discounted to present value using a selected market discount rate (Level 3 in the fair valuehierarchy). The expected timing and probability of achieving the milestones, starting in 2014, was developed with consideration given to both internal data, such as ourforecast, progress made to date towards meeting the milestones, and assessment of criteria required for achievement, and external data, such as market research studies.The discount rate (14.5%) was selected based on an estimation of required rate of returns for similar 55Table of Contentsinvestment opportunities using available market data. As of December 31, 2016, the carrying value of the Milestone Rights is $8.9 million, classified as a long-termliability and the fair value is estimated at $18.4 million. The fair value measurement of the liability is sensitive to the discount rate and the timing and probability ofmaking milestone payments. If the achievement of each of the milestones which require payments were to be 12 months earlier or later than in our current forecast, thefair value of the liability would increase by 15 percent or decrease by 14, respectively. If the probability of achieving each milestones was increased or decreased by 5percent, the fair value of the liability would increase or decrease by 17 percent, respectively. If the discount rate were to increase or decrease by 1 percent, the fair valueof the liability would increase or decrease by 2 percent, respectively. Over the long term, these inputs are interrelated because if our performance improves, the timingof meeting the milestones would likely be earlier, the probability of making payments on the milestones would likely be higher, and the discount rate would likelydecrease, all of which would increase the fair value of the liability. The inverse is also true.Clinical Trial Expenses — Our clinical trial accrual process seeks to account for expenses resulting from our obligations under contract with vendors,consultants, and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations which vary fromcontract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Ourobjective is to reflect the appropriate trial expenses in our financial statements by matching period expenses with period services and efforts expended. We account forthese expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimatesthrough discussions with internal clinical personnel and outside service providers as to the progress or state of completion of trials, or the services completed. Serviceprovider status is then compared to the contractual obligated fee to be paid for such services. During the course of a clinical trial, we adjust our rate of clinical expenserecognition if actual results differ from our estimates. In the event that we do not identify certain costs that have begun to be incurred or we underestimate oroverestimate the level of services performed or the costs of such services, our reported expenses for a period would be too low or too high. The date on which certainservices commence, the level of services performed on or before a given date and the cost of the services are often judgmental. We make these judgments based uponthe facts and circumstances known to us in accordance with generally accepted accounting principles.Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of servicesperformed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particularperiod.Stock-Based Compensation — All share-based payments to employees, including grants of stock options, restricted stock units, performance-based awards andthe compensatory elements of employee stock purchase plans, are recognized in the consolidated income statements based upon the fair value of the awards at the grantdate. We use the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options and the compensatory elements of employeestock purchase plans. Option valuation models require inputs, including the stock price, the exercise price, the expected life of the stock-based awards, the estimatedstock price volatility, the risk-free interest rate, and the expected dividend yield. The expected volatility assumption is based on an assessment of the historical volatility,with consideration of implied volatility, derived from an analysis of historical trade activity. Restricted stock units are valued based on the market price on the grantdate. We evaluate stock awards with performance conditions as to the probability that the performance conditions will be met and estimate the date at which theperformance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period.Warrants — We account for our warrants as either equity or liabilities based upon the characteristics and provisions of each instrument and evaluation ofsufficient authorized shares available to satisfy the obligations. Warrants classified as derivative liabilities are recorded on our consolidated balance sheets at their fairvalue on the date of issuance and are revalued at each subsequent balance sheet date, with fair value changes recognized as increases or decreases in other income(expense) in the consolidated statements of operations. The Company estimates the fair value of its derivative liabilities using a third party valuation analysis thatutilizes a Monte 56Table of ContentsCarlo pricing valuation model and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, such as probabilityof a dilutive issuance, as well as expected volatility, expected life, yield and a risk-free interest rate. The expected volatility assumption is primarily based on anassessment of the historical volatility, with consideration of implied volatility, derived from an analysis of historical trade activity. Warrants classified as equity arerecorded within additional paid in capital at the issuance date and are not remeasured in subsequent periods, unless the underlying assumptions change to trigger liabilityaccounting.Accounting for Income Taxes — Our management must make judgments when determining our provision for income taxes, our deferred tax assets and liabilitiesand any valuation allowance recorded against our net deferred tax assets. At December 31, 2016 and December 31, 2015, respectively, we had established a valuationallowance of $914.5 million and $962.6 million against all of our net deferred tax asset balances, due to uncertainties related to the realizability of our deferred taxassets as a result of our history of operating losses. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and theperiod over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods,we may need to change the valuation allowance, which could materially impact our financial position and results of operations.Results of OperationsYears ended December 31, 2016 and 2015RevenuesThe following table provides a comparison of the revenue categories for the years ended December 31, 2016 and 2015 (dollars in thousands): Twelve Months Ended December 31, 2016 2015 $ Change % Change Revenue: Net revenue — collaboration $171,965 $— $171,965 100% Net revenue — commercial product sales: Gross revenue from commercial product sales 2,714 — 2,714 100% Gross-to-net adjustments: Wholesale distribution fees and prompt pay discounts (489) — (489) 100% Patient discount and co-pay assistance programs (196) — (196) 100% Rebates (134) — (134) 100% Net revenue — commercial product sales 1,895 — 1,895 100% Revenue — bulk insulin sales 898 — 898 100% Total net revenue $174,758 $— $174,758 100% In 2016, we derived a significant amount of revenue from our collaboration with Sanofi under which we had to perform certain obligations and we receivedperiodic payments. During the year ended December 31, 2016, we recognized net revenue from our collaboration with Sanofi of $172.0 million. The recognizedcollaboration revenue relates to payments for activities from prior periods which were previously deferred as the transactions did not meet the criteria for revenuerecognition until 2016. In the third quarter of 2016, due to the termination of the Sanofi License Agreement, we determined the costs related to the collaboration withSanofi were reasonably estimable, resulting in the recognition of revenue as there were no future obligations to Sanofi. The amount of revenue recognized was theupfront payment of $150.0 million and two milestone payments of $25.0 million each, offset by $64.9 million of net loss share with Sanofi, as well as $17.5 million insales of Afrezza and $19.4 million in sales of bulk insulin, both to Sanofi. During the year ended December 31, 2015, we did not recognize any revenues fromcollaboration. 57Table of ContentsWe began distributing MannKind-branded Afrezza product to wholesalers through ICS Direct during the week of July 25, 2016. We recognize commercialproduct revenue based on Afrezza prescriptions dispensed to patients. During the year ended December 31, 2016, we recognized net revenue from commercial productsales of $1.9 million. During the year ended December 31, 2015, we did not recognize any revenues from commercial product sales. At December 31, 2016, year to datetotal gross-to-net adjustments were approximately 30% of gross revenue from product sales.In the fourth quarter of 2016 we sold $0.9 million of bulk insulin to a third party. During the year ended December 31, 2015, we did not sell any bulk insulin.ExpensesThe following table provides a comparison of the expense categories for the year ended December 31, 2016 and 2015 (dollars in thousands): Twelve Months Ended December 31, 2016 2015 $ Change % Change Expenses: Costs of revenue — collaboration $32,971 $— $32,971 100% Cost of goods sold 17,121 64,745 (47,624) (74)% Research and development 14,917 29,674 (14,757) (50)% Selling and marketing 19,854 1,587 18,267 1,151% General and administrative 27,074 39,373 (12,299) (31)% Property and equipment impairment 1,259 140,412 (139,153) (99)% (Gain) loss on foreign currency translation (3,433) 2,697 (6,130) (227)% (Gain) loss on purchase commitments (2,265) 66,167 (68,432) (103)% Total expenses $107,498 $344,655 $(237,157) (69)% Costs of revenue from collaboration represents the costs of product manufactured and sold to Sanofi, as well as certain direct costs associated with a firmpurchase commitment entered into in connection with the collaboration with Sanofi. During the year ended December 31, 2016, we recognized $33.0 million of costs ofrevenue from collaboration, which consists of $13.5 million in Afrezza manufacturing costs for product sold to Sanofi, and $19.5 million related to the cost of bulkinsulin sold to Sanofi. The Afrezza manufacturing costs were previously deferred on the consolidated balance sheet at December 31, 2015. During the year endedDecember 31, 2015, we did not recognize any costs of revenue from collaboration.Cost of goods sold includes the costs related to Afrezza product dispensed by pharmacies to patients as well as under-absorbed labor and overhead and inventorywrite-offs, which are recorded as expenses in the period in which they are incurred, rather than as a portion of the inventory cost. The decrease in cost of goods sold of$47.6 million for the year ended December 31, 2016 compared to the same period in the prior year is primarily due to $36.1 million of inventory impairment write offsand $3.2 million in deposit write offs, which were recorded in other assets, related to impairment in 2015 that did not recur in 2016 and a $8.6 million decrease in under-absorbed labor and overhead due to the reduction in force and decreased depreciation following the fixed asset impairment write-down in 2015. These decreases areoffset by $0.3 million cost of goods attributable to commercial product sales, which consists of the manufacturing costs for Afrezza dispensed to patients. This$0.3 million attributable to commercial product sales only includes conversion cost as we wrote off the cost of our raw materials held in inventory at the end of 2015.Historically our research and development expenses have consisted mainly of costs associated with research and development of our product candidates,including associated clinical trials and manufacturing process development. This includes the salaries, benefits and stock-based compensation of research anddevelopment 58Table of Contentspersonnel, raw materials, laboratory supplies and materials, facility costs, costs for consultants and related contract research, licensing fees and depreciation ofequipment. The decrease in research and development expense of $14.8 million for the year ended December 31, 2016 compared to the same period in the prior year isdue to the expense associated with the 2015 reduction in force exceeding the expense associated with the 2016 reduction in force by $6.2 million, as well as decreases infacility spending of $3.3 million due to the reduction in force and lower depreciation expense following the write-off of property, plant and equipment in 2015; inresearch and development project costs of $3.1 million due to completion of projects in 2015; in clinical trial expenses of $2.1 million due to completion of Afrezzatrials in 2015; in stock-based compensation expense of $1.1 million due to fewer employees as a result of the reduction in force and lower stock price; and the receipt of$0.4 million research and development reimbursement payment from Receptor in 2016, which was offset against expense. These decreases were partially offset by anincrease in FDA fees for the 2016 filing of a supplemental new drug application for $1.0 million and a $0.9 million reduction in our research and development tax creditas a result of lower qualifying expenses coupled with a transition to commercial sales activity.Our selling and marketing expenses are driven by salaries, benefits and stock-based compensation for sales and marketing support personnel. The increase inselling and marketing expenses of $18.3 million for the year ended December 31, 2016 compared to the same period in the prior year is due to an increase in costs forthe support of sales and marketing of Afrezza as a result of our assuming responsibility for these activities which were previously the responsibility of Sanofi. Includedin these costs are salaries of $2.9 million, contracted sales force and diabetic educators of $7.6 million, travel of $0.4 million, and consultants and related expenses forsales and marketing of $7.4 million.Our general and administrative expenses are driven by salaries, benefits and stock-based compensation for administrative, finance, business development, humanresources, legal and information systems support personnel. In addition, general and administrative expenses include professional service fees and business insurancecosts. The decrease in general and administrative expenses of $12.3 million for the year ended December 31, 2016 compared to the same period in the prior year isprimarily due to a decrease in costs associated with the 2015 reduction in force of $6.4 million; stock-based compensation expense of $2.6 million due to lower stockprice and fewer employees; professional fees of $1.7 million due to lower internal communications, information technology, legal and outside service expenses due toconcerted efforts to conserve cash; and facility spending of $1.7 million due to a lower operating cost as a result of the reduction in force and move to the leasedValencia offices, which helped save on facility costs.Property and equipment impairment decreased $139.2 million for the year ended December 31, 2016 compared to year ended December 31, 2015. In the fourthquarter of 2015 and the first quarter of 2016, factors indicated the existence of impairment in connection with the lower than expected sales of Afrezza and the Sanofitermination. The property and equipment impairment in 2015 and the first quarter of 2016 reduced the carrying amount of our real property and machinery andequipment to fair value based on our impairment assessments. In the fourth quarter of 2016 we recorded a $0.5 million impairment charge associated with the Valenciaproperty when it became probable that the property would be sold within one year.Under the Insulin Supply Agreement with Amphastar, which is denominated in Euros, we were required to record the foreign currency translation impact of theU.S. dollar to euro exchange rate associated with the recognized loss on purchase commitments in 2016. We were also required to record the foreign currencytranslation impact of the U.S. dollar to euro exchange rate associated with the deposit we made with Amphastar on this agreement in 2015. The gain on foreign currencytranslation for the year ended December 31, 2016 was $3.4 million as compared to a loss in 2015 of $2.7 million, resulting in a $6.1 million net variance.(Gain) loss on purchase commitments changed by $68.4 million as a result of a gain recorded in 2016 compared to a loss in 2015. The $2.3 million gain onpurchase commitments in 2016, related to a renegotiation of certain of our purchase commitments (primarily the reduction in cancellation fees under the Amphastaragreement). The $66.2 million loss on purchase commitments in 2015 resulted from our assessment of excess inventory as a result of lower than expected sales ofAfrezza as well as a lower of cost or net realizable value adjustment due to estimated conversion costs in excess of our estimated selling price of Afrezza. 59Table of ContentsOther Income (Expense)The following table provides a comparison of the other income (expense) categories for the years ended December 31, 2016 and 2015 (dollars in thousands): Twelve Months Ended December 31, 2016 2015 $ Change % Change Change in fair value of warrant liability $5,369 $— $5,369 100% Interest income 85 18 67 372% Interest expense on notes (15,576) (21,231) 5,655 (27%) Interest expense on note payable to principal stockholder (2,901) (2,894) (7) 0% Gain (loss) on extinguishment of debt 72,024 (1,049) 73,073 (6,966%) Other (expense) income (597) 1,366 (1,963) (144%) Total other income (expense) $58,404 $(23,790) $82,194 (346%) During the year ended December 31, 2016 we recorded a $5.4 million change in the fair value of the warrant liability from May 12, 2016, the date that certainwarrants were issued in connection with a registered public offering. There was no warrant liability for the twelve months ended December 31, 2015.The decrease of $5.7 million in the interest expense on notes for the year ended December 31, 2016 compared to the same period in the prior year was primarilydue to interest expense paid in 2015 for the achievement and re-measurement of the second milestone under the Milestone Agreement. There was no such payment in2016.The $72.0 million gain from extinguishment of debt in 2016 was a result of the Settlement Agreement with Sanofi and forgiveness of the full outstanding loanbalance of the Sanofi Loan Facility. The $1.0 million loss in 2015 was from extinguishment of debt driven by the settlement of the 5.75% Senior Convertible Notes due2015 through payment of cash and issuance of new debt.The change in other (expense) income of $2.0 million for the year ended December 31, 2016 compared to the same period in the prior year was primarily due to aone-time adjustment in 2015 for patents we sold to a third party.Years ended December 31, 2015 and 2014RevenuesDuring the years ended December 31, 2015 and 2014, we did not recognize any revenue.ExpensesThe following table provides a comparison of the expense categories for the years ended December 31, 2015 and 2014 (dollars in thousands): Year Ended December 31, 2015 2014 $ Change % Change Expenses: Cost of goods sold $64,745 $— $64,745 100% Research and development 29,674 100,244 (70,570) (70%) Selling and marketing 1,587 3,556 (1,969) (55%) General and administrative 39,373 75,827 (36,454) (48%) Property and equipment impairment 140,412 — 140,412 100% Loss on foreign currency translation 2,697 — 2,697 100% Loss on purchase commitments 66,167 — 66,167 100% Total expenses $344,655 $179,627 $165,028 92% 60Table of ContentsCost of goods sold was $64.7 million for the year ended December 31, 2015, resulting from product manufacturing costs associated with Afrezza product sales,which could not be capitalized due to excess capacity as well as inventory write-offs. We had no cost of goods sold for the year ended December 31, 2014, aspre-commercial manufacturing costs associated with Afrezza were accounted for as research and development expenses. Cost of goods sold represents under-absorbedlabor and overhead of $21.4 million which is expensed in the period in which it is incurred and inventory write-offs of $36.1 million and $3.2 million in write-offs ofdeposits placed with inventory suppliers, which were previously included in other assets in the accompanying consolidated balance sheets.Historically our research and development expenses have consisted mainly of costs associated with research and development of our product candidates,including associated clinical trials and manufacturing process development. This includes the salaries, benefits and stock-based compensation of research anddevelopment personnel, raw materials, laboratory supplies and materials, facility costs, costs for consultants and related contract research, licensing fees anddepreciation of equipment. The decrease in research and development expenses of $70.6 million for the year ended December 31, 2015 compared to the year endedDecember 31, 2014 was primarily due to a decrease of $36.0 million in manufacturing process development expenses resulting from the shift to commercial productionof Afrezza, a $19.3 million decrease in stock-based compensation expense as a result of a non-recurring modification of the settlement terms of certain performance-based restricted stock units recorded in 2014 and the achievement of performance-based grants in 2014 and the first quarter of 2015, and a decrease in clinical trialrelated expenses of $16.0 million, primarily resulting from the completion of the Phase 3 clinical trials.Our selling, general and administrative expenses are driven by salaries, benefits and stock-based compensation for sales, administrative, finance, businessdevelopment, human resources, legal and information systems support personnel. In addition, selling, general and administrative expenses include professional servicefees and business insurance costs. The decrease in selling, general and administrative expenses of $38.4 million for the year ended December 31, 2015 compared to theyear ended December 31, 2014 was primarily due to decreased stock-based compensation expense of $20.6 million, resulting from the modification and achievement ofperformance-based grants in 2014 and the first quarter of 2015, as described above. Additionally, the decrease is also attributable to professional fees of $13.8 millionrelated to the Sanofi License Agreement incurred in the third quarter of 2014 and decreased expenses of $3.2 million following the completion of restructuring activitiesand decreased personnel costs in early 2015.Property and equipment impairment increased $140.4 million for the year ended December 31, 2015 compared to the year ended December 31, 2014. Inconnection with the lower than expected sales of Afrezza and the termination of the Sanofi License Agreement, factors indicated the existence of impairment in thefourth quarter of 2015. A property and equipment impairment was recorded which reduced the carrying amount of our real property and machinery and equipment tofair value based on our impairment assessment in the fourth quarter of 2015.Under our Insulin Supply Agreement with Amphastar, which is denominated in Euros, we were required to record the foreign currency translation impact of theU.S. dollar to euro exchange rate associated with the deposit on this agreement. The loss on foreign currency translation for the year ended December 31, 2015 was$2.7 million. There was no gain or loss in the prior year because we did not have amounts on deposit with Amphastar in 2014.Inventory purchase commitments were analyzed in 2015 for potential impairment. Loss on purchase commitments increased $66.2 million for the year endedDecember 31, 2015 compared to the year ended December 31, 2014. The loss on purchase commitments was related to the recognized loss on future purchasecommitments resulting from our assessment of excess inventory as a result of lower than expected sales of Afrezza as well as a lower of cost or net realizable valueadjustment due to estimated conversion costs in excess of our estimated selling price of Afrezza. 61Table of ContentsOther Income (Expense)The following table provides a comparison of the other income (expense) categories for the years ended December 31, 2015 and 2014 (dollars in thousands): Year Ended December 31, 2015 2014 $Change % Change Interest income $18 $9 $9 100% Interest expense on notes (21,231) (17,549) (3,682) 21% Interest expense on note payable to principal stockholder (2,894) (2,894) — — % Loss on extinguishment of debt (1,049) — (1,049) (100%) Other income 1,366 1,679 (313) (19%) Total other income (expense) $(23,790) $(18,755) $(5,035) 27% Interest expense on notes increased $3.7 million from $17.5 million for the year ended December 31, 2014 to $21.2 million for the year ended December 31,2015. The increase was primarily due to $5.8 million interest expense associated with the milestone payment resulting from the achievement and re-measurement of thesecond milestone under the Milestone Agreement in the first quarter of 2015 compared to the $1.9 million interest expense from the payment of the first milestone in2014. The increase was also due to an increase of $1.7 million related to the Sanofi Loan Facility and $0.8 million in interest for 2018 notes, which was offset by adecrease in interest expense of $2.7 million resulting from the maturity of the 5.75% Senior Convertible Notes due 2015.Loss on extinguishment of debt was $1.0 million for the year ended December 31, 2015 compared to no loss on extinguishment of debt for the year endedDecember 31, 2014. The loss on extinguishment is due to the settlement of the 5.75% Senior Convertible Notes due 2015 through payment of cash and issuance of newdebt.Other income for the year ended December 31, 2015 was $1.4 million resulting from the relief of an accrual for potential expenses associated with the sale ofintellectual property related to oncology in 2014, which was subsequently resolved without payment in the first quarter of 2015. For the year ended December 31, 2014,other income was $1.7 million resulting primarily from the sale of intellectual property related to oncology in the third quarter of 2014 in the amount of $7.9 million,partially offset by a $6.4 million non-cash charge recognized upon the conversion of 2019 notes into equity.Liquidity and Capital ResourcesTo date, we have funded our operations through the sale of equity securities and convertible debt securities, borrowings under The Mann Group LoanArrangement, borrowings under the Facility Agreement with Deerfield, receipt of upfront and milestone payments under the Sanofi License Agreement, and borrowingsunder the Sanofi Loan Facility.As of December 31, 2016, we had $152.1 million principal amount of outstanding debt, consisting of: • $27.6 million principal amount of 2018 notes bearing interest at 5.75% per annum and maturing on August 15, 2018; • $55.0 million principal amount of 2019 notes bearing interest at 9.75% per annum, $15.0 million of which is due and payable in July 2017, $15.0 millionof which is due and payable in July 2018 and $25.0 million of which is due and payable in July and December 2019; • $20.0 million principal amount of Tranche B notes bearing interest at 8.75% per annum, $5.0 million of which is due and payable in each of May 2017,2018 and 2019, and $5.0 million of which is due and payable in December 2019; and • $49.5 million principal amount of indebtedness under The Mann Group Loan Arrangement bearing interest at 5.84% and maturing and due on January 5,2020. 62Table of ContentsAs of December 31, 2016, the amount available for future borrowings under The Mann Group Loan Arrangement was $30.1 million. A portion of these availableborrowings may be used to capitalize accrued interests into principal, upon mutual agreement of the parties, as it becomes due and payable. As of December 31, 2016,the accrued and unpaid interest under The Mann Group Loan Arrangement was $9.3 million.Outstanding debt is more fully described in Note 6 — Related-Party Arrangements, Note 7 — Borrowings, Note 9 — Fair Value of Financial Instruments andNote 13 — Commitments and Contingencies.There can be no assurance that we will have sufficient resources to make any required repayments of principal under the 2018 notes, 2019 notes, Tranche Bnotes, or The Mann Group Loan Arrangement when required. Further, if we undergo a fundamental change, as that term is defined in the indentures governing the termsof the 2018 notes, or certain Major Transactions as defined in the Facility Agreement in respect of the 2019 notes and the Tranche B notes, the holders of the respectivedebt securities will have the option to require us to repurchase all or any portion of such debt securities at a repurchase price of 100% of the principal amount of suchdebt securities to be repurchased plus accrued and unpaid interest, if any. The 2018 notes bear interest at the rate of 5.75% per year on the outstanding principal amount,payable in cash semiannually in arrears on February 15 and August 15 of each year. The 2019 notes bear interest at the rate of 9.75% per year on the outstandingprincipal amount and the Tranche B notes bear interest at the rate of 8.75% on the outstanding principal amount, with accrued interest on each payable in cash quarterlyin arrears on the last business day of March, June, September and December of each year. Loans under the Mann Group Loan Arrangement accrue interest at a rate of5.84% per annum due and payable quarterly in arrears on the first day of each calendar quarter for the preceding quarter, or at such other time as we and The MannGroup LLC mutually agree. While we have been able to timely make our required interest payments to date, we cannot guarantee that we will be able to do so in thefuture. If we fail to pay interest on the 2018 notes, 2019 notes, or Tranche B notes, or if we fail to repay or repurchase the 2018 notes, 2019 notes, Tranche B notes, orborrowings under the Mann Group Loan Arrangement when required, we will be in default under the applicable instrument for such indebtedness, and may also sufferan event of default under the terms of other borrowing arrangements that we may enter into from time to time. Any of these events could have a material adverse effecton our business, results of operations and financial condition, up to and including the note holders initiating bankruptcy proceedings or causing us to cease operationsaltogether.In connection with the execution of the Facility Agreement, on July 1, 2013, we issued Milestone Rights to the Milestone Purchasers. The Milestone Rightsprovide the Milestone Purchasers certain rights to receive payments of up to $90.0 million upon the occurrence of specified strategic and sales milestones, including thefirst commercial sale of an Afrezza product and the achievement of specified net sales figures. In addition, the Facility Agreement includes customary representations,warranties and covenants, including a restriction on the incurrence of additional indebtedness, and a financial covenant which requires our cash and cash equivalents,which includes available borrowings under The Mann Group Loan Arrangement, on the last day of each fiscal quarter to not be less than $25.0 million. See Note 13 —Commitments and Contingencies and Note 7 — Borrowings for further information related to the Facility Agreement.On July 31, 2014, we entered into the Insulin Supply Agreement, pursuant to which we agreed to purchase certain annual minimum quantities of insulin. SeeNote 13 — Commitments and Contingencies for further information related to the Insulin Supply Agreement.Pursuant to the Sanofi License Agreement, we received an initial upfront payment of $150.0 million and milestone payments totaling $50.0 million in the firstquarter of 2015 upon satisfaction of certain manufacturing milestones specified in the Sanofi License Agreement. As a result of the termination of the Sanofi LicenseAgreement, we will not receive any additional milestone payments from Sanofi under the agreement. In addition, on November 9, 2016, in connection with theSettlement Agreement, we and Aventisub LLC, an affiliate of Sanofi, agreed to terminate the Sanofi Loan Facility and the Security Agreement (the “SecurityAgreement”). In 63Table of Contentsconnection with such termination, Aventisub LLC agreed to forgive the full outstanding loan balance on the Sanofi Loan Facility of $72.0 million owed by us andagreed to release its security interests encumbering our assets. Sanofi also agreed to make a cash payment of $30.6 million to the Company, which was received in earlyJanuary 2017 as acceleration and in replacement of all other payments that Sanofi would otherwise have been required to make in the future pursuant to the insulin putoption, without the Company being required to deliver any insulin for such payment. See Note 8 — Collaboration Arrangements for further information related to theSanofi agreements.In May 2016, we sold in a registered public offering (the “May 2016 Offering”) 9,708,737 shares of our common stock, together with certain warrants exercisablefor up to an aggregate of 7,281,553 shares of our common stock and certain warrants exercisable for up to an aggregate of 2,427,184 shares of our common stock. Netproceeds from this offering were approximately $47.3 million after deducting placement agent fees and expenses and paying for offering expenses, and excluding anyfuture proceeds from the exercise of the warrants. See Note 16 — Warrants for further information related to the May 2016 Offering.Cash used in operating activities, which consists of net income adjusted for the various non-cash included in income, changes in working capital and changes incertain other balance sheet accounts, totaled $78.1 million in 2016. Operating activities used $57.2 million and provided $4.1 million of cash in 2015 and 2014,respectively.Cash used in operating activities in 2016 of $78.1 was primarily driven by an excess of cash used in operations of approximately $105.1 million over cashreceived from operations of approximately $29.4 million. Cash received of approximately $29.4 million represented $19.4 million from sales of insulin to Sanofi,$4.8 million from Afrezza product sales, $2.7 million from sales of insulin to a third party, $1.4 million from our collaboration with Receptor and $1.1 million fromother sources. Cash used in operations of approximately $105.1 million represented by $69.5 million in cash used for selling, general and administrative expenses, costof goods sold, and research and development, a $12.1 million decrease in accounts payable between December 31, 2015 and December 31, 2016, $11.6 million inpurchases of inventory from Amphastar, $9.0 million in interest paid and a $2.5 million increase in inventory between December 31, 2015 and December 31, 2016.During the year ended December 31, 2015, we used $57.2 million of cash for operating activities as a result of our net loss of $368.4 million, adjusted by noncashcharges of $273.1 million and a net change in operating assets and liabilities of $38.1 million. The non-cash charges included $206.6 million of impairment charges,$22.0 million of depreciation and accretion and stock-based compensation, $1.7 million interest accrued through borrowings under Sanofi Loan Facility, $1.0 millionfor the loss on extinguishment of debt, with the remainder due to an adjustment for foreign currency transaction losses. The change in net assets and liabilities waspredominately due to the net decreases in receivables from collaboration from the $50.0 million received in milestone payments and $13.5 million due to the decrease inprepaids and other current assets at December 31, 2015 compared to December 31, 2014 primarily due to prepayment on insulin in 2014, which did not occur in 2015.This was offset by net decreases in inventory as we purchased significant inventory in 2014 related to Amphastar, which did not occur in 2015.During the year ended December 31, 2014, cash provided by operations was $4.l million as a result of our net loss of $198.4 million, adjusted by non-cashcharges of $71.6 million and a net change in operating assets and liabilities of $130.9 million. The non-cash charges were predominately related to depreciation andaccretion and stock-based compensation. The change in net assets and liabilities was predominately due to the net increases in receivables and deferred payments fromcollaboration of $150.0 million related to the fee associated with the Sanofi License Agreement, partially offset by the $15.0 million deposit to Amphastar asprepayment for 2015 quantities of insulin as part of the Insulin Supply Agreement.Cash used in investing activities decreased by $9.1 million for the year ended December 31, 2016 versus December 31, 2015, which is primarily a result ofdecreasing expenditures on property and equipment to conserve cash. Cash used in investing activities in 2016 was primarily comprised of purchases of property andequipment of $1.1 million. Investing activities used $10.2 million and $24.1 million of cash in 2015 and 2014, respectively, which primarily comprised of purchases ofproperty and equipment. 64Table of ContentsCash provided by financing activities, which mainly accounts for external activities that allow us to raise capital, primarily represents proceeds of $47.3 million(net of related issuance costs) from the May 2016 Offering, offset by $5.0 million from payments of notes payable in 2016. Financing activities provided $5.7 millionand $70.1 million of cash in 2015 and 2014, respectively.As of December 31, 2016, we had $22.9 million in cash and cash equivalents. We expect to expend our capital resources primarily for the manufacturing, salesand marketing of Afrezza and to develop our other product candidates. We also intend to use our capital resources for general corporate purposes.If we enter into strategic business collaborations with respect to our other product candidates, we would expect, as part of the transaction, to receive additionalcapital. In addition, we expect to pursue the sale of equity and/or debt securities, or the establishment of other funding facilities. Issuances of debt or additional equitycould impact the rights of our existing stockholders, dilute the ownership percentages of our existing stockholders and may impose restrictions on our operations. Theserestrictions could include limitations on additional borrowing, specific restrictions on the use of our assets as well as prohibitions on our ability to create liens, paydividends, redeem our stock or make investments. We also may seek to raise additional capital by pursuing opportunities for the licensing, sale or divestiture of certainintellectual property and other assets, including our Technosphere technology platform. There can be no assurance, however, that any strategic collaboration, sale ofsecurities or sale or license of assets will be available to us on a timely basis or on acceptable terms, if at all. If we are unable to raise additional capital, we may berequired to enter into agreements with third parties to develop or commercialize products or technologies that we otherwise would have sought to developindependently, and any such agreements may not be on terms as commercially favorable to us.We cannot provide assurances that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidlythan we currently anticipate. If planned operating results are not achieved or we are not successful in raising additional capital, if needed, through equity or debtfinancing or entering business collaborations, we may be required to reduce expenses through the delay, reduction or curtailment of our projects, or further reduction ofcosts for facilities and administration, and there will continue to be substantial doubt about our ability to continue as a going concern.Off-Balance Sheet ArrangementsAs of December 31, 2016, we did not have any off-balance sheet arrangements. 65Table of ContentsContractual ObligationsOur contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent liabilities for which wecannot reasonably predict future payments. Accordingly, the table below excludes contractual obligations relating to milestone and royalty payments due to third parties,all of which are contingent upon certain future events. The expected timing of payment of the obligations presented (excluding payments in respect of the MilestoneRights) below are estimated based on current information. Future payments relate to operating lease obligations, the 2018 notes, the facility financing obligation, openpurchase order and supply commitments, and contractual minimum purchase commitments under the Insulin Supply Agreement with Amphastar consisted of thefollowing at December 31, 2016 (in thousands): Payments Due in Contractual Obligations Less ThanOne Year 1-3 Years 4-5 Years More Than5 Years Total Open purchase order and commitments (1) $5,943 $1,535 $483 $— $7,961 Senior convertible notes — long term (2) 1,614 29,441 — — 31,055 Note payable to principal stockholder (3) — 67,523 — — 67,523 Facility financing obligation (4) 26,138 61,576 — — 87,714 Insulin supply agreement (5) 4,227 38,895 36,673 20,374 100,169 Other (6) 866 — — — 866 Operating lease obligations 120 6 — — 126 Total contractual obligations $38,908 $198,976 $37,156 $20,374 $295,414 (1)The amounts included in open purchase order and supply commitments are subject to performance under the purchase order or contract by the supplier of thegoods or services and do not become our obligation until such performance is rendered. The amount shown is principally for the purchase of materials forcommercial operations or sales and marketing efforts.(2)The amounts include future interest payments at fixed rates of 5.75% and payment of the 2018 notes in full upon maturity in 2018.(3)The obligation for the note payable to the principal stockholder includes future principal and interest payments related to the $49.5 million of borrowings as ofDecember 31, 2016. Interest is accrued based on a fixed rate of 5.84% and the outstanding principal amount and all accrued interest thereon will be due onJanuary 5, 2020.(4)The facility financing obligation includes future principal and interest payments on $55.0 million aggregate principal amount of 2019 notes issued in the first andfourth tranches under the Facility Agreement, and on $15.0 million aggregate principal amount of Tranche B notes, payable in accordance with the provisions ofthe Facility Agreement, as amended. Interest accrues on the 2019 notes at a fixed rate of 9.75% per annum and on the Tranche B notes at a fixed rate of 8.75%per annum.(5)On July 31, 2014, we entered into the Insulin Supply Agreement, pursuant to which we originally agreed to purchase certain annual minimum quantities ofinsulin for calendar years 2015 through 2019 for an aggregate total purchase price of approximately €120.1 million The Insulin Supply Agreement specifies thatAmphastar will be deemed to have satisfied its obligations with respect to quantity, if the actual quantity supplied is within plus or minus ten percent (+/- 10%) ofthe quantity set forth in the applicable purchase order. On November 9, 2016, we amended the Insulin Supply Agreement to lower the annual minimum quantitiespurchased of insulin for calendar year 2017 through 2023 to an aggregate total remaining purchase price of €93.0 million at December 31, 2016. Future paymentsdue were converted to U.S. dollars using the December 31, 2016 euro-to-dollar exchange. In addition, the aggregate cancellation fees that we would incur in theevent that certain insulin quantities are not purchased was lowered from $5.3 million to $3.4 million.(6)The amount relates to purchase orders for inhalers in 2017. 66Table of ContentsRelated Party TransactionsFor a description of our related party transactions see Note 6 — Related-Party Arrangements of the Notes to Consolidated Financial Statements included in “PartII, Item 8 — Financial Statements and Supplementary Data”.Recent Accounting PronouncementsSee Note 2 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in “Part II, Item 8 — FinancialStatements and Supplementary Data”, for information regarding accounting standards we adopted in 2016 and other new accounting standards that have been issued bythe FASB but are not effective until after December 31, 2016.Item 7A. Quantitative and Qualitative Disclosures about Market RiskInterest Rate RiskDue to the fixed interest rates of our debt, we currently do not have an exposure to changes in our interest expense as a result of changes in interest rates. Theinterest rate on amounts borrowed under The Mann Group Loan Arrangement is fixed at 5.84%. As of December 31, 2016, the total principal amount outstanding underThe Mann Group Loan Arrangement was $49.5 million. As of December 31, 2016, we also had debt related to the 2018 notes at a fixed interest rate of 5.75%, debtrelated to the 2019 notes at a fixed interest rate of 9.75% and debt related to the Tranche B notes at a fixed interest rate of 8.75%.Our current policy requires us to maintain a highly liquid short-term investment portfolio consisting mainly of U.S. money market funds and investment-gradecorporate, government and municipal debt. None of these investments are entered into for trading purposes. Our cash is deposited in and invested through highly ratedfinancial institutions in North America.If a change in interest rates equal to 10% of the interest rates on December 31, 2016 were to have occurred, this change would not have had a material effect onthe value of our short-term investment portfolio.Foreign Currency Exchange RiskWe incur and will continue to incur significant expenditures for insulin supply obligations under our supply agreement with Amphastar. Such obligations aredenominated in euros. At the end of each reporting period, these liabilities, if any, are converted to U.S. dollars at the then-applicable foreign exchange rate. As a result,our business is affected by fluctuations in exchange rates between the U.S. dollar and foreign currencies. We have not entered into foreign currency hedging transactionsto mitigate our exposure to foreign currency exchange risks, but may enter into foreign currency hedging transactions in the future. Exchange rate fluctuations mayadversely affect our expenses, results of operations, financial position and cash flows. During the year ended December 31, 2016, associated with our requirement topurchase insulin contemplated under our supply agreement with Amphastar, if a change in the U.S. dollar to euro exchange rate equal to 10% of the U.S. dollar to euroexchange rate on December 31, 2016 were to occur, this change would have resulted in a foreign currency impact to our pre-tax income (losses) of approximately$9.8 million.Item 8. Financial Statements and Supplementary DataThe 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 DisclosureNone. 67Table of ContentsItem 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresAs required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation under thesupervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of theCompany’s disclosure controls and procedures. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its managementrecognize that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and thecircumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance ofachieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, the Company’s management was required toapply its reasonable judgment.Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as ofDecember 31, 2016.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined inRule 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 asreplacing consulting resources with permanent personnel or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed theeffectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, the Company’s management used the criteria set forthby 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, 2016, our internal control over financial reporting is effective based on thosecriteria.Remediation Steps Taken to Address Prior Material WeaknessesAs of December 31, 2015 our management concluded that our internal control over financial reporting was not effective based on the COSO criteria. In makingthis assessment, the Company’s management used the criteria set forth by the 2013 COSO Framework. A “material” weakness is defined as a deficiency, or acombination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interimfinancial statements will not be prevented or detected on a timely basis.The following is a description of the material weakness previously identified in our internal control over financial reporting: In connection with the preparation ofour annual report on Form 10-K for the year ended December 31, 2015 we did not maintain sufficient internal control over financial reporting due to the lack ofoperating effectiveness of our controls over the impairment testing that we performed in accordance with ASC 360-10 , Impairment and Disposal of Long-Lived Assetsand ASC 330-10, Inventories , as of December 31, 2015. Specifically, our review controls did not operate at a sufficient level of precision to identify certain errors,which management has determined constituted a material weakness.As soon as we learned of the material weakness as of December 31, 2015, we began taking steps intended to remediate this material weakness and improve ourcontrol processes and procedures with respect to operating 68Table of Contentseffectiveness regarding our controls over impairment and disposal of long–lived assets and inventories. The following activities have been implemented as part of ourefforts to become compliant with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002: • Improved the design of and increased the level of precision in which documentation of review controls related to the review of the asset impairmentassessment and impairment and disposal of long-lived assets and inventories so these controls would operate effectively to identify errors; • Held training sessions with relevant personnel and developed specific review procedures regarding the review of impairment assessments; and • Developed checklists to ensure that all appropriate accounting principles were being applied during the accounting for these transactions and to facilitatethe review of the accounting of these transactions by knowledgeable accounting personnel.In addition to the material weakness noted above, as of June 30, 2016 our management concluded that our internal control over financial reporting was noteffective based on the COSO criteria. In making this assessment, the Company’s management used the criteria set forth by the 2013 Framework.The following is a description of the material weakness previously identified in our internal control over financial reporting: In connection with the preparation ofour quarterly report on Form 10-Q for the quarter ended June 30, 2016 we identified a material weakness in our internal control over significant non-routinetransactions. Specifically, this deficiency in operation of internal controls resulted in an inadequate evaluation of the underlying accounting guidance for transactionsentered into during the quarter and insufficient review of underlying analyses.As soon as we learned of the material weakness as of June 30, 2016, we began taking steps intended to remediate this material weakness and improve our controlprocesses and procedures with respect to operating effectiveness regarding our controls over significant and non-routine transactions. The following activities have beenimplemented as part of our efforts to become compliant with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002: • Enhanced the design of the existing controls related to significant non-routine transactions; • Conduct weekly meetings with relevant personnel so that significant non-routine transactions are identified and addressed in a timely manner; and • Hired consultants with accounting expertise to review the accounting for significant non-routine transactions to ensure that the accounting for thesetransactions are proper.In particular, our remediation steps, noted above, were designed and implemented to ensure that the recording of the impairment of long-lived assets andinventories is appropriate and that adequate evaluations of the underlying accounting guidance for significant non-routine transactions are appropriate, sufficientlyreviewed and addressed in a timely manner. The newly implemented controls have also been tested by management and concluded to be operating effectively.Management believes that as of December 31, 2016, the remediation steps implemented during 2016 successfully remediated the material weaknesses in 2015 and thequarter ended June 30, 2016.Changes in Internal Control over Financial ReportingExcept as described above related to the remediation of the material weaknesses, there were no changes in internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fourth quarter of 2016 that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting. 69Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of MannKind CorporationValencia, CaliforniaWe have audited the internal control over financial reporting of MannKind Corporation and subsidiaries (the “Company”) as of December 31, 2016, based oncriteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. TheCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal controlover financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinionon the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Ouraudit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign 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.A company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principalfinancial officers, or persons performing similar functions, and effected by the Company’s board of directors, management, and other personnel to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures ofthe Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regardingprevention 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of theinternal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteriaestablished in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements as of and for the year ended December 31, 2016 of the Company and our report dated March 16, 2017 expressed an unqualified opinion on those financialstatements and includes explanatory paragraphs relating to the Company’s ability to continue as a going concern and the effects of a reverse stock split./s/ DELOITTE & TOUCHE LLPStamford, ConnecticutMarch 16, 2017 70Table of ContentsItem 9B. Other Information.None.PART IIIItem 10. Directors, Executive Officers and Corporate Governance.(a) Executive Officers — For information regarding the identification and business experience of our executive officers, see “Executive Officers of theRegistrant” 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 willbe contained in the section entitled “Proposal 1 — Election of Directors” and “Corporate Governance Principles and Board and Committee Matters” in our definitiveproxy statement for our 2017 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the SEC on or before May 1, 2017, and is incorporated hereinby reference.Additional information required by this Item will be set forth in the Proxy Statement under the section entitled “Section 16(a) Beneficial Ownership ReportingCompliance,” 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, principalfinancial officer, principal accounting officer and controller), and have posted the text of the policy on our website ( www.mannkindcorp.com ) in connection with“Investors” 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 executiveofficer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including animplicit 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 thewaiver, to the extent any such waiver is required to be disclosed pursuant to the rules and regulations of the SEC.Item 11. Executive CompensationThe information required by this Item will be set forth under the caption “Executive Compensation,” “Compensation of Directors,” “Compensation CommitteeInterlocks and Insider Participation” 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 MattersThe information required by this Item will be set forth under the captions “Security Ownership of Certain Beneficial Owners and Management” and “SecuritiesAuthorized for Issuance under Equity Compensation Plans” in the Proxy Statement, and is incorporated herein by reference.Item 13. Certain Relationships, Related Transactions and Director IndependenceThe information under the caption “Certain Transactions” and “Corporate Governance Principles and Board and Committee Matters” in the Proxy Statement isincorporated herein by reference.Item 14. Principal Accounting Fees and ServicesThe 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 Statementshall 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 ofDirectors” in the Proxy Statement is not incorporated by reference. 71Table of ContentsPART IVItem 15. Exhibits, 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 StatementSchedules and Report of Independent Registered Public Accounting Firm are included in a separate section of this report beginning on page 81: Report of Independent Registered Public Accounting Firm 81 Consolidated Balance Sheets 82 Consolidated Statements of Operations 83 Consolidated Statements of Comprehensive Income (Loss) 84 Consolidated Statements of Stockholders’ Deficit 85 Consolidated Statements of Cash Flows 86 Notes to Consolidated Financial Statements 88 All financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submissionof 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: ExhibitNumber Description of Document 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to MannKind’s Quarterly Report on Form 10-Q (FileNo. 000-50865), filed with the SEC on August 9, 2016). 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to MannKind’s Current Report on Form8-K (File No. 000-50865), filed with the SEC on March 2, 2017). 3.3 Amended and Restated Bylaws (incorporated by reference to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC onNovember 19, 2007). 4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3. 4.2 Form of common stock certificate. 4.3 Form of 9.75% Senior Secured Convertible Promissory Note due 2019 (incorporated by reference to MannKind’s Current Report on Form 8-K (FileNo. 000-50865), filed with the SEC on July 1, 2013). 4.4 Form of Amended and Restated 9.75% Senior Secured Convertible Promissory Note due 2019 (incorporated by reference to Exhibit 4.7 toMannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 3, 2014). 4.5 Form of Tranche B Senior Secured Note due 2019 (incorporated by reference to Exhibit 4.8 to MannKind’s Quarterly Report on Form 10-Q (FileNo. 000-50865), filed with the SEC on May 12, 2014). 72Table of ContentsExhibitNumber Description of Document 4.6 Milestone Rights Purchase Agreement, dated as of July 1, 2013, by and among MannKind, Deerfield Private Design Fund II, L.P. and Horizon SantéFLML SÁRL (incorporated by reference to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on July 1, 2013). 4.7 Guaranty and Security Agreement, dated as of July 1, 2013, by and among MannKind, MannKind LLC, Deerfield Private Design Fund II, L.P.,Deerfield Private Design International II, L.P. and Horizon Santé FLML SÁRL (incorporated by reference to MannKind’s Current Report on Form8-K (File No. 000-50865), filed with the SEC on July 1, 2013). 4.8 Facility Agreement, dated as of July 1, 2013, by and among MannKind, Deerfield Private Design Fund II, L.P. and Deerfield Private DesignInternational II, L.P (incorporated by reference to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on July 1, 2013). 4.9 First Amendment to Facility Agreement and Registration Rights Agreement, dated as of February 28, 2014, by and among MannKind, DeerfieldPrivate Design Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 10.39 to MannKind’s AnnualReport on Form 10-K (File No. 000-50865), filed with the SEC on March 3, 2014). 4.10 Second Amendment to Facility Agreement and Registration Rights Agreement, dated as ofAugust 11, 2014, by and among MannKind, Deerfield Private Design Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated byreference to Exhibit 4.14 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on November 10, 2014). 4.11 Indenture, by and between MannKind and U.S. Bank (as successor trustee to Wells Fargo Bank, N.A.), dated August 10, 2015 (incorporated byreference to Exhibit 4.18 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on August 10, 2015). 4.12 Form of 5.75% Convertible Senior Subordinated Exchange Note due 2018 (included in Exhibit 4.11 as Exhibit A thereto) (incorporated by reference toExhibit 4.19 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on August 10, 2015). 4.13 Form of Warrant to Purchase Common Stock issued November 16, 2015 (incorporated by reference to Exhibit 4.17 to MannKind’s Annual Report onForm 10-K (File No. 000-50865), filed with the SEC on March 15, 2016). 4.14 Form of Series A Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to MannKind’s Current Report on Form 8-K (FileNo. 000-50865), filed with the SEC on May 10, 2016). 4.15 Form of Series B Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to MannKind’s Current Report on Form 8-K (FileNo. 000-50865), filed with the SEC on May 10, 2016). 4.16 Form of Securities Purchase 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 May 10, 2016).10.1 Amended and Restated Promissory Note made by MannKind in favor of The Mann Group LLC, dated October 18, 2012 (incorporated by reference toMannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on October 19, 2012).10.2 Agreement, dated September 13, 2006, between MannKind and Torcon, Inc. (incorporated by reference to MannKind’s Quarterly Report on Form10-Q (File No. 000-50865), filed with the SEC on August 9, 2007).10.3 Securities Purchase Agreement, dated August 2, 2005 by and among MannKind and the purchasers listed on Exhibit A thereto (incorporated byreference to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 5, 2005). 73Table of ContentsExhibitNumber Description of Document10.4** Supply Agreement, dated December 31, 2004, between MannKind and Vaupell, Inc. (incorporated by reference to MannKind’s Current Report onForm 8-K (File No. 000-50865), filed with the SEC on February 23, 2005).10.5* Form of Indemnity Agreement entered into between MannKind and each of its directors and officers (incorporated by reference to MannKind’sRegistration Statement on Form S-1 (File No. 333-115020), filed with the SEC on April 30, 2004, as amended).10.6* Description of Officers’ Incentive Program (incorporated by reference to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed withthe SEC on March 16, 2006).10.7* Executive Severance Agreement, dated October 10, 2007, between MannKind and David Thomson (incorporated by reference to MannKind’sCurrent Report on Form 8-K (File No. 000-50865), as amended, filed with the SEC on October 17, 2007).10.8* Separation Agreement, dated March 11, 2016, by and between MannKind and Juergen Martens (incorporated by reference to Exhibit 10.8 toMannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 15, 2016).10.9* Executive Severance Agreement, dated April 21, 2008, between MannKind and Matthew J. Pfeffer (incorporated by reference to MannKind’sCurrent Report on Form 8-K (File No. 000-50865), as amended, filed with the SEC on October 17, 2007).10.10* Change of Control Agreement, dated October 10, 2007, between MannKind and David Thomson (incorporated by reference to MannKind’s CurrentReport on Form 8-K (File No. 000-50865), as amended, filed with the SEC on October 17, 2007).10.11* Change of Control Agreement, dated April 21, 2008, between MannKind and Matthew J. Pfeffer (incorporated by reference to MannKind’s CurrentReport on Form 8-K (File No. 000-50865), as amended, filed with the SEC on October 17, 2007).10.12* 2004 Equity Incentive Plan, as amended (incorporated by reference to MannKind’s proxy statement on Schedule 14A (File No. 000-50865), filedwith the SEC on April 6, 2012).10.13* Form of Stock Option Agreement under the 2004 Equity Incentive Plan (incorporated by reference to MannKind’s Registration Statement on FormS-1 (File No. 333-115020), originally filed with the SEC on April 30, 2004, as amended).10.14* Form of Phantom Stock Award Agreement under the 2004 Equity Incentive Plan (incorporated by reference to MannKind’s Current Report on Form8-K (File No. 000-50865), filed with the SEC on December 14, 2005).10.15* 2004 Non-Employee Directors’ Stock Option Plan and form of stock option agreement there under (incorporated by reference to MannKind’sAnnual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2006).10.16* 2004 Employee Stock Purchase Plan and form of offering document there under (incorporated by reference to MannKind’s Registration Statementon Form S-1 (File No. 333-115020), originally filed with the SEC on April 30, 2004, as amended).10.17** Letter Agreement, dated June 4, 2011, between MannKind and N.V. Organon (incorporated by reference to MannKind’s Current Report on Form8-K (File No. 000-50865), filed with the SEC on July 1, 2013).10.18** Insulin Maintenance and Call-Option Agreement, dated June 19, 2009, by and among Pfizer Manufacturing Frankfurt GmbH, Pfizer Inc. andMannKind (incorporated by reference to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on May 4, 2009). 74Table of ContentsExhibitNumber Description of Document10.19* Acknowledgment and Agreement, dated as of October 31, 2013, by and between MannKind and The Mann Group LLC (incorporated by referenceto MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on November 4, 2013).10.20* Non-Employee Director Compensation Program (incorporated by reference to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865),filed with the SEC on August 9, 2013).10.21* MannKind Corporation 2013 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to MannKind’s Quarterly Report onForm 10-Q (File No. 000-50865), filed with the SEC on August 9, 2016).10.22* Form of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise under the MannKind 2013 Equity Incentive Plan (incorporatedby reference to MannKind’s registration statement on Form S-8 (File No. 000-188790), filed with the SEC on May 23, 2013).10.23* Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the MannKind 2013 Equity Incentive Plan(incorporated by reference to MannKind’s registration statement on Form S-8 (File No. 000-188790), filed with the SEC on May 23, 2013).10.24 Facility Agreement, dated as of July 1, 2013, by and among MannKind, Deerfield Private Design Fund II, L.P. and Deerfield Private DesignInternational II, L.P. (incorporated by reference to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on July 1,2013).10.25 First Amendment to Facility Agreement and Registration Rights Agreement, dated as of February 28, 2014, by and among MannKind, DeerfieldPrivate Design Fund II, L.P., and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 10.39 to MannKind’s AnnualReport on Form 10-K (File No. 000-50865), filed with the SEC on March 3, 2014).10.26** Supply Agreement, dated as of July 31, 2014, by and between MannKind and Amphastar France Pharmaceuticals S.A.S. (incorporated by referenceto Exhibit 10.3 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on November 10, 2014).10.27 Sublease Agreement, dated May 1, 2015, by and between MannKind and the Alfred Mann Foundation for Scientific Research (incorporated byreference 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).10.28* Offer Letter, dated March 9, 2016, by and between MannKind and Michael Castagna (incorporated by reference to Exhibit 10.38 to MannKind’sAnnual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 15, 2016).10.29 At Market Issuance Sales Agreement, by and between MannKind and FBR Capital Markets & Co., dated April 26, 2016 (incorporated by referenceto MannKind’s Current Report on Form 8-K filed with the SEC on April 26, 2016).10.30 Engagement Letter, dated May 8, 2016, by and between MannKind and H.C. Wainwright & Co. LLC (incorporated by reference to Exhibit 99.2 toMannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on May 10, 2016).10.31 Settlement Agreement, dated November 9, 2016, by and among MannKind, Technosphere International C.V., MannKind Netherlands B.V. andSanofi-Aventis U.S. LLC.10.32 First Amendment to Supply Agreement, dated October 31, 2014, by and between MannKind and Amphastar France Pharmaceuticals, S.A.S. andAmphastar Pharmaceuticals, Inc.10.33** Second Amendment to Supply Agreement, dated November 9, 2016, by and between MannKind and Amphastar Pharmaceuticals, Inc. 75Table of ContentsExhibitNumber Description of Document 10.34 Agreement of Purchase and Sale and Joint Escrow Instructions, dated January 6, 2017, by and between MannKind and Rexford Industrial Realty, L.P.(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 January 12, 2017). 10.35 First, Second and Third Amendments to Agreement of Purchase and Sale and Joint Escrow Instructions, dated February 7, 2017, February 10, 2017 andFebruary 15, 2017, respectively, by and between MannKind and Rexford Industrial Realty, L.P. 10.36* Offer Letter dated December 22, 2016, by and between MannKind and Stuart Tross. 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Power of Attorney (see signature page hereto). 31 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of1934, as amended. 32 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of1934, as amended and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).101 Interactive Data Files pursuant to Rule 405 of Regulation S-T. *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. 76Table of ContentsSIGNATURESPursuant 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 bythe undersigned, thereunto duly authorized. M ANN K IND C ORPORATIONBy: /s/ Matthew J. Pfeffer Matthew J. Pfeffer Chief Executive Officer, Chief Financial Officer, andDirectorDated: March 16, 2017POWER OF ATTORNEYKNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Matthew J. Pfeffer and David Thomson, andeach of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her 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 allexhibits 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 andperform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do inperson, 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 bedone 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 andin the capacities and on the dates indicated. Signature Title Date/s/ Matthew J. PfefferMatthew J. Pfeffer Chief Executive Officer, Chief FinancialOfficer and Director(Principal Executive Officer and PrincipalFinancial Officer) March 16, 2017/s/ Rosabel R. AlinayaRosabel R. Alinaya Senior Vice President, Finance(Principal Accounting Officer) March 16, 2017/s/ Kent KresaKent Kresa Chairman of the Board of Directors March 16, 2017/s/ Ronald J. ConsiglioRonald J. Consiglio Director March 16, 2017/s/ Michael FriedmanMichael Friedman, M.D. Director March 16, 2017/s/ David H. MacCallumDavid H. MacCallum Director March 16, 2017 77Table of ContentsSignature Title Date/s/ Henry L. NordhoffHenry L. Nordhoff Director March 16, 2017/s/ James S. ShannonJames S. Shannon Director March 16, 2017 78Table of ContentsMANNKIND CORPORATION AND SUBSIDIARIESINDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 81 Consolidated Balance Sheets 82 Consolidated Statements of Operations 83 Consolidated Statements of Comprehensive Income (Loss) 84 Consolidated Statements of Stockholders’ Deficit 85 Consolidated Statements of Cash Flows 86 Notes to Consolidated Financial Statements 88 79Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of MannKind CorporationValencia, CaliforniaWe have audited the accompanying consolidated balance sheets of MannKind Corporation and subsidiaries (the “Company”) as of December 31, 2016 and 2015and the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit, and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MannKind Corporation and subsidiaries asof December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, inconformity with accounting principles generally accepted in the United States of America.The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 tothe consolidated financial statements, the Company’s available cash resources and continuing cash needs raise substantial doubt about its ability to continue as a goingconcern. Management’s plans concerning these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements donot include any adjustments that might result from the outcome of these uncertainties.As discussed in Note 1 to the consolidated financial statements, on March 1, 2017, the Company approved a reverse stock split with a ratio of 1-for-5. As a result,common stock share amounts included in these consolidated financial statements have been retrospectively adjusted.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control overfinancial reporting as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated March 16, 2017 expressed an unqualified opinion on the Company’s internal control overfinancial reporting./s/ DELOITTE & TOUCHE LLPStamford, ConnecticutMarch 16, 2017 80Table of ContentsMANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, 2016 2015 (In thousands, exceptshare data) ASSETS Current assets: Cash and cash equivalents $22,895 $59,074 Accounts receivable 302 — Receivable from Sanofi 30,557 23 Inventory 2,331 — Asset held for sale 16,730 — Deferred costs from commercial product sales 309 — Deferred costs from collaboration — 13,539 Prepaid expenses and other current assets 4,364 4,018 Total current assets 77,488 76,654 Property and equipment — net 28,927 48,749 Other assets 648 1,009 Total assets $107,063 $126,412 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $3,263 $15,599 Accrued expenses and other current liabilities 7,937 7,929 Facility financing obligation 71,339 74,582 Deferred revenue — net 3,419 — Deferred payments from collaboration 1,000 140,231 Deferred sales from collaboration — 17,503 Recognized loss on purchase commitments — current 5,093 12,475 Total current liabilities 92,051 268,319 Note payable to principal stockholder 49,521 49,521 Accrued interest — note payable to principal stockholder 9,281 6,380 Senior convertible notes 27,635 27,613 Sanofi loan facility and loss share obligation — 62,371 Recognized loss on purchase commitments — long term 95,942 53,692 Warrant liability 7,381 — Milestone rights liability and other liabilities 8,845 8,845 Total liabilities 290,656 476,741 Commitments and contingencies (Note 13) Stockholders’ deficit: Undesignated preferred stock, $0.01 par value — 10,000,000 shares authorized; no shares issued or or outstanding at December 31,2016 and 2015 — — Common stock, $0.05 par value — 140,000,000 and 110,000,000 shares authorized at December 31, 2016 and 2015, respectively;95,680,831 and 85,734,188 shares issued and outstanding at December 31, 2016 and 2015, respectively 4,784 4,287 Additional paid-in capital 2,549,212 2,508,633 Accumulated other comprehensive loss (24) (20) Accumulated deficit (2,737,565) (2,863,229) Total stockholders’ deficit (183,593) (350,329) Total liabilities and stockholders’ deficit $107,063 $126,412 See notes to consolidated financial statements. 81Table of ContentsMANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2016 2015 2014 (In thousands, except per share data) Revenue: Net revenue — collaboration $171,965 $— $— Net revenue — commercial product sales 1,895 — — Revenue — bulk insulin sales 898 — — Total net revenue 174,758 — — Expenses: Costs of revenue — collaboration 32,971 — — Cost of goods sold 17,121 64,745 — Research and development 14,917 29,674 100,244 Selling, general and administrative 46,928 40,960 79,383 Property and equipment impairment 1,259 140,412 — (Gain) loss on foreign currency translation (3,433) 2,697 — (Gain) loss on purchase commitments (2,265) 66,167 — Total expenses 107,498 344,655 179,627 Income (loss) from operations 67,260 (344,655) (179,627) Other income (expense): Change in fair value of warrant liability 5,369 — — Interest income 85 18 9 Interest expense on notes (15,576) (21,231) (17,549) Interest expense on note payable to principal stockholder (2,901) (2,894) (2,894) Gain (loss) on extinguishment of debt 72,024 (1,049) — Other (expense) income (597) 1,366 1,679 Total other income (expense) 58,404 (23,790) (18,755) Income (loss) before benefit for income taxes 125,664 (368,445) (198,382) Income tax benefit — — — Net income (loss) $125,664 $(368,445) $(198,382) Net income (loss) per share — basic $1.37 $(4.54) $(2.57) Net income (loss) per share — diluted $1.36 $(4.54) $(2.57) Shares used to compute basic net income (loss) per share 92,053 81,233 77,045 Shares used to compute diluted net income (loss) per share 92,085 81,233 77,045 See notes to consolidated financial statements. 82Table of ContentsMANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2016 2015 2014 (In thousands) Net income (loss) $125,664 $(368,445) $(198,382) Other comprehensive loss: Cumulative translation loss (4) (6) (10) Comprehensive income (loss) $125,660 $(368,451) $(198,392) See notes to consolidated financial statements. 83Table of ContentsMANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT Common Stock Additional Paid-In Capital Accumulated Other ComprehensiveLoss AccumulatedDeficit Total Shares Amount (In thousands) BALANCE, JANUARY 1, 2014 73,878 $3,697 $2,261,996 $(4) $(2,296,402) $(30,713) Exercise of stock options 650 35 10,943 — — 10,978 Issuance of common shares from the release of restricted stock units 799 38 (26,946) — — (26,908) Issuance of common shares pursuant to warrant exercises 2,315 115 27,664 — — 27,779 Issuance of common shares under Employee Stock Purchase Plan 65 2 1,361 — — 1,363 Stock-based compensation expense — — 25,660 — — 25,660 Issuance of common shares pursuant to debt conversions by Deerfield 3,505 174 93,327 — — 93,501 Remeasurement of performance based grants pursuant to the modification of terms — — 22,962 — — 22,962 Cumulative translation loss — — — (10) — (10) Net loss — — — — (198,382) (198,382) BALANCE, DECEMBER 31, 2014 81,212 4,061 2,416,967 (14) (2,494,784) (73,770) Exercise of stock options 340 17 3,241 — — 3,258 Issuance of common shares from the release of restricted stock units 144 7 (7) — — — Issuance of common shares pursuant to warrant exercises 843 42 10,081 — — 10,123 Issuance of common shares under Employee Stock Purchase Plan 54 3 884 — — 887 Stock-based compensation expense — — 8,725 — — 8,725 Restricted stock units taxes paid in cash — — (1,856) — — (1,856) Capital contribution — — 40 — — 40 Issuance of common shares pursuant to conversions of certain 2015 notes 375 19 7,907 — — 7,926 Issuance of common stock for lender financing fees 8 — 160 — — 160 Discount on notes-for-stock exchange — — 169 — — 169 Issuance of common stock pursuant to TASE stock sale 2,771 139 34,571 — — 34,710 Return of loaned common stock (1,800) (90) 90 — — — Issuance of common stock pursuant to at-the-market issuances 1,788 89 27,754 — — 27,843 Issuance of warrant liability — — (202) — — (202) Reclassification of warrant liability to equity — — 109 — — 109 Cumulative translation loss — — — (6) — (6) Net loss — — — — (368,445) (368,445) BALANCE, DECEMBER 31, 2015 85,735 4,287 2,508,633 (20) (2,863,229) (350,329) Exercise of stock options 55 3 464 — — 467 Issuance of common shares from the release of restricted stock units 131 7 (7) — — — Issuance of common shares under Employee Stock Purchase Plan 51 2 424 — — 426 Stock-based compensation expense — — 5,135 — — 5,135 Restricted stock units taxes paid in cash — — (165) — — (165) Issuance of direct placement — common stock and warrants 9,709 485 49,515 — — 50,000 Issuance costs associated with direct placement — — (2,037) — — (2,037) Proceeds allocated to warrant liabilities — — (12,750) — — (12,750) Cumulative translation loss — — — (4) — (4) Net income — — — — 125,664 125,664 BALANCE, DECEMBER 31, 2016 95,681 $4,784 $2,549,212 $(24) $(2,737,565) $(183,593) See notes to consolidated financial statements. 84Table of ContentsMANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2016 2015 2014 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $125,664 $(368,445) $(198,382) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation, amortization and accretion 4,158 13,276 18,575 Stock-based compensation expense 5,135 8,725 48,622 Change in fair value of warrant liability (5,369) — — (Gain) loss on foreign currency translation (3,433) 2,697 (10) (Gain) loss on extinguishment of debt (72,024) 1,049 — Interest incurred through borrowings under Sanofi Loan Facility 4,478 1,652 — Interest on note payable to principal stockholder 2,901 2,894 2,894 Series A Warrant issuance costs 653 — — Other, net 19 — — Loss on sale, abandonment/disposal or impairment of property and equipment 1,259 140,582 97 (Gain) loss on purchase commitments (2,265) 66,167 — Write-off of inventory — 36,104 — Write-off of Tranche B commitment asset — — 1,753 Write-off of derivative liability — — (363) Changes in operating assets and liabilities: Accounts receivable (302) — — Receivable from Sanofi (30,534) — — Inventory (2,331) (26,434) (9,670) Receivables from collaboration — 50,413 (50,436) Deferred costs from commercial product sales (309) — — Deferred costs from collaboration 13,539 (13,539) — Prepaid expenses and other current assets (346) 13,481 (14,734) Other assets 361 150 (615) Accounts payable (12,118) 8,413 3,622 Accrued expenses and other current liabilities 348 (12,467) 2,276 Deferred revenue 3,419 — — Deferred payments from collaboration (134,056) 950 200,436 Deferred sales from collaboration (17,503) 17,067 — Recognized loss on purchase commitments 40,566 — — Milestone rights liability and other liabilities — 33 21 Net cash (used in) provided by operating activities (78,090) (57,232) 4,086 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,144) (10,285) (24,097) Proceeds from sale of property and equipment 17 82 — Net cash used in investing activities (1,127) (10,203) (24,097) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from direct placement of common stock and warrants 50,000 — — Issuance costs associated with direct placement (2,690) — — Payment of notes payable to Deerfield (5,000) — — Payment of employment taxes related to vested restricted stock units (165) (1,858) (26,908) Proceeds from issuance of common stock 893 4,146 12,341 Proceeds from issuance of common stock under Tel Aviv Stock Exchange — 36,142 — Issuance costs associated with the Tel Aviv Stock Exchange — (1,432) — Exercise of warrants for common stock — 10,123 27,779 Payment of 2015 notes — (64,287) — Payment of debt issuance costs on 2018 notes — (831) — Proceeds from issuance of facility financing obligation and milestone rights — — 40,000 Proceeds from issuance of Tranche B of the facility financing obligation — — 20,000 Milestone payment — (4,219) (3,150) Proceeds from issuance of common stock pursuant to at-the-market issuance — 28,392 — Issuance costs of at-the-market transactions — (548) — Other — 40 — Net cash provided by financing activities 43,038 5,668 70,062 85Table of ContentsMANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Year Ended December 31, 2016 2015 2014 (In thousands) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $(36,179) $(61,767) $50,051 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 59,074 120,841 70,790 CASH AND CASH EQUIVALENTS, END OF PERIOD $22,895 $59,074 $120,841 SUPPLEMENTAL CASH FLOWS DISCLOSURES: Interest paid in cash, net of amounts capitalized to construction in progress $8,991 $13,355 $11,218 NON-CASH INVESTING AND FINANCING ACTIVITIES: Payment of 2015 notes and interest through issuance of common stock $— $8,253 $— Issuance of common stock pursuant to debt conversion by Deerfield $— $— $93,500 Non-cash construction in progress and property and equipment $588 $— $1,768 Reclassification of deferred payments from collaboration to Sanofi loan facility and loss share obligation $5,174 $59,337 $3,034 Reclassification of property and equipment to asset held for sale $17,294 $— $— See notes to consolidated financial statements. 86Table of ContentsMANNKIND CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Description of BusinessBusiness — MannKind Corporation and subsidiaries (the “Company”) is a biopharmaceutical company focused on the discovery and development of therapeuticproducts for diseases such as diabetes. The Company’s only approved product, Afrezza, (insulin human [rDNA origin]) inhalation powder, is a rapid-acting inhaledinsulin that was approved by the U.S. Food and Drug Administration (the “FDA”) on June 27, 2014 to improve glycemic control in adult patients with diabetes.Basis of Presentation — On August 11, 2014, the Company entered into a license and collaboration agreement (the “Sanofi License Agreement”) with Sanofi-Aventis Deutschland GmbH (which subsequently assigned its rights and obligations under the agreement to Sanofi-Aventis U.S. LLC (“Sanofi”)), pursuant to whichSanofi was responsible for Afrezza global commercial, regulatory and development activities for Afrezza.On January 4, 2016, the Company received written notification from Sanofi of its election to terminate in its entirety the Sanofi License Agreement. The effectivedate of termination (the “Termination Date”) was April 4, 2016, which was when the Company assumed responsibility for worldwide development andcommercialization of Afrezza. Under terms of a transition agreement, Sanofi continued to fulfill orders for Afrezza in the United States until the Company begandistributing MannKind-branded Afrezza product to major wholesalers in late July 2016. The Company began recognizing commercial product sales revenue whenMannKind-branded Afrezza was dispensed from pharmacies to patients in August 2016.On November 9, 2016, the Company entered into a settlement agreement with Sanofi (the “Settlement Agreement”). Under the terms of the SettlementAgreement, the promissory note (the “Sanofi Loan Facility”) between the Company and Aventisub LLC (“Aventisub”), a Sanofi affiliate, was terminated, withAventisub agreeing to forgive the full outstanding loan balance of $72.0 million, which includes $0.5 million of previously uncharged costs pursuant to the SanofiLicense Agreement. Sanofi also agreed to purchase $10.2 million of insulin from the Company in December 2016 under an existing insulin put option as well as make acash payment of $30.6 million to the Company in early January 2017 as acceleration and in replacement of all other payments that Sanofi would otherwise have beenrequired to make in the future pursuant to the insulin put option, without the Company being required to deliver any insulin for such payment. The Company and Sanofialso agreed to a general release of potential claims against each other.During their initial transition of the commercial responsibilities from Sanofi, the Company utilized a contract sales organization to promote Afrezza while theCompany focused its internal resources on establishing a channel strategy, entering into distribution agreements and developing co-pay assistance programs, a voucherprogram, data agreements and payor relationships. In early 2017, the Company recruited their own sales force, which included some of the sales reps that previouslywere employed by the contract sales organization. The Company intend to continue the commercialization of Afrezza in the United States through their own commercialorganization. The Company’s current strategy for the future commercialization of Afrezza outside of the United States, subject to receipt of the necessary foreignregulatory approvals, is to seek and establish regional partnerships in foreign jurisdictions where there are appropriate commercial opportunities.It has been costly to develop our therapeutic product, conduct clinical studies, and market and sell Afrezza. As of and for the year ended December 31, 2016, theCompany has reported an accumulated deficit of $2.7 billion and has reported negative cash flow from operations for each year since inception, except for 2014, whenthe Company received the $150.0 million upfront payment from Sanofi.At December 31, 2016, the Company’s capital resources consisted of cash and cash equivalents of $22.9 million. The Company expects to continue to incursignificant expenditures to support commercial 87Table of Contentsmanufacturing and sales and marketing of Afrezza and the development of other product candidates. The facility agreement (the “Facility Agreement”) with DeerfieldPrivate Design Fund II, L.P. (Deerfield Private Design Fund) and Deerfield Private Design International II, L.P. (collectively, “Deerfield”) and the First Amendment toFacility Agreement and Registration Rights Agreement (the “First Amendment”) that resulted in additional sales of an additional tranche of notes (the “Tranche Bnotes”) (see Note 7 — Borrowings) requires the Company to maintain at least $25.0 million, which can be comprised of cash and cash equivalents and availableborrowings under the loan arrangement, dated as of October 2, 2007, between the Company and The Mann Group LLC (as amended, restated, or otherwise modified asof the date hereof, “the Mann Group Loan Arrangement”), as of the last day of each fiscal quarter.Additional funding sources that are, or in certain circumstances may be available to the Company, include approximately $30.1 million principal amount ofavailable borrowings under The Mann Group Loan Arrangement. A portion of these available borrowings may be used to capitalize accrued interest into principal, uponmutual agreement of the parties, as it becomes due and payable under The Mann Group Loan Arrangement (see Note 6 — Related-party Arrangements). The Companycannot provide assurances that its plans will not change or that changed circumstances will not result in the depletion of its capital resources more rapidly than itcurrently anticipates. The Company will need to raise additional capital, whether through a sale of equity or debt securities, a strategic business collaboration with apharmaceutical company, the establishment of other funding facilities, licensing arrangements, asset sales or other means, in order to continue the commercialization ofAfrezza and development of other product candidates and to support its other ongoing activities. The Company cannot provide assurances that such additional capitalwill be available on acceptable terms or at all. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statementsdo not include any adjustments that might result from the outcome of this uncertainty.On September 14, 2016, the Company received notice from the Listing Qualifications Department of the NASDAQ Stock Market indicating that, for the previous30 consecutive business days, the bid price for the common stock closed below the minimum $1.00 per share required for continued inclusion on The NASDAQ GlobalMarket. The notification letter stated that the Company would be afforded 180 calendar days, or until March 13, 2017, to regain compliance with the minimum bid pricerequirement. In order to regain compliance, shares of the Company’s common stock must maintain a minimum bid closing price of at least $1.00 per share for aminimum of 10 consecutive business days.Reverse Stock Split — On March 1, 2017, following stockholder approval, the Company’s board of directors approved a reverse stock split ratio of1-for-5. On March 1, 2017, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of the Company’s Amended andRestated Certificate of Incorporation to effect the 1-for-5 reverse stock split of the Company’s outstanding common stock and to reduce the authorized number of sharesof the Company’s common stock from 700,000,000 to 140,000,000 shares. The Company’s common stock began trading on The NASDAQ Global Market on a split-adjusted basis when the market opened on March 3, 2017. See Note 20 — Subsequent Events for further information. As a result, all common stock share amountsincluded in these consolidated financial statements have been retroactively reduced by a factor of five, and all common stock per share amounts have been increased bya factor of five, with the exception of the Company’s common stock par value.Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompanybalances and transactions have been eliminated.Segment Information — Operating segments are identified as components of an enterprise about which separate discrete financial information is available forevaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed itsoperations and manages its business as one segment operating in the United States of America. 88Table of Contents2. Summary of Significant Accounting PoliciesFinancial Statement Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States ofAmerica (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actualresults could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies, and in developing the estimates andassumptions that are used in the preparation of the financial statements. Management must apply significant judgment in this process. The more significant estimatesreflected in these accompanying consolidated financial statements include revenue recognition, assessing long-lived assets for impairment, accrued expenses, includingclinical study expenses, inventory recoverability, valuation of the facility financing obligation, loss on purchase commitment, warrant liability, milestone rights, stock-based compensation and the determination of the provision for income taxes and corresponding deferred tax assets and liabilities and any valuation allowance recordedagainst net deferred tax assets.Reclassifications — Certain amounts from previous periods have been reclassified to conform to the 2016 presentation. Specifically, accrued interest — notepayable to principal stockholder has been reclassified from the previously reported classification of other liabilities in the accompanying consolidated balance sheets.Additionally, the remaining balance from the previously reported classification of other liabilities is now identified as milestone rights liability, and is disclosed as aseparate line item on the consolidated statements of cash flows. Additionally, on the consolidated statement of operations, product manufacturing has been renamed tocost of goods sold. The Company also reclassified (gain) loss on foreign currency translation from the previously reported classification of product manufacturing in theaccompanying consolidated statements of operations. Additionally, certain balances from prepaid expenses and other current assets were reclassed to (gain) loss onforeign currency translation in the consolidated statements of cash flows.Revenue Recognition — Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists;(2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. When the accountingrequirements for revenue recognition are not met, the Company defers the recognition of revenue by recording deferred revenue on the consolidated balance sheets untilsuch time that all criteria are met. To date, the Company has had revenue from collaborations, commercial sales of Afrezza, and from sales of bulk insulin, which aredescribed more fully below.Revenue Recognition — Net Revenue — Collaborations — The Company enters into collaborations under which we must perform certain obligations andwe receive periodic payments. We evaluate the collaborations under the multiple element revenue recognition accounting guidance. Revenue arrangements withmultiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered elements have stand-alone value to thecustomer. When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price of eachdeliverable and the appropriate revenue recognition principles are applied to each unit.The assessment of multiple element arrangements requires judgment in order to determine the appropriate units of accounting and the points in time that,or periods over which, revenue should be recognized. The terms of and the accounting for the Company’s collaborations are described more fully in Note 8 —Collaboration Arrangements.Revenue Recognition — Net Revenue — Commercial Product Sales — Between July 1, 2016 and December 15, 2016, the Company sold Afrezza toIntegrated Commercialization Solutions Direct (ICS) and title and risk of loss transferred to ICS upon shipment. After December 15, 2016, ICS became a thirdparty logistics provider and stopped taking title and risk of loss upon shipment of Afrezza to ICS. The Company sells Afrezza in the United States to wholesalepharmaceutical distributors through ICS, and ultimately to retail pharmacies, which are collectively referred to as “customers”. 89Table of ContentsThe Company provides the right of return to ICS (through December 15, 2016) and its wholesale distributors and, through them, to its retail pharmacycustomers for unopened product for a period beginning six months prior to and ending twelve months after its expiration date. Once the product has beenprescribed and dispensed to the patient, any right of return ceases to exist.Given the Company’s limited sales history for Afrezza, the Company cannot reliably estimate expected returns of the product at the time of shipment intothe distribution channel. Accordingly, the Company defers recognition of revenue on Afrezza product shipments until the right of return no longer exists, whichoccurs at the earlier of the time Afrezza is dispensed from pharmacies to patients or expiration of the right of return. The Company recognizes revenue based onAfrezza patient prescriptions dispensed as estimated by syndicated data provided by a third party. The Company also analyzes additional data points to ensurethat such third-party data is reasonable including data related to inventory movements within the channel and ongoing prescription demand.For the year ended December 31, 2016, net revenue from commercial product sales consisted of $1.9 million of net sales of Afrezza dispensed to patients.As of December 31, 2016, the Company recorded $3.4 million in deferred revenue on its consolidated balance sheet, of which $1.6 million (net of estimatedgross-to-net adjustments) represents product shipped to the Company’s third-party logistics provider and wholesale distributors, but not yet dispensed to patients.The difference represents deferred revenue from bulk insulin sales, which is described more fully under the heading Revenue Recognition — Revenue — BulkInsulin Sales below.Gross-to-net Adjustments — Estimated gross-to-net adjustments for Afrezza include wholesaler distribution fees, prompt pay discounts, estimated rebatesand patient discount and co-pay assistance programs, and are based on estimated amounts owed or to be claimed on the related sales. These estimates take intoconsideration the terms of the Company’s agreements with its customers and the levels of inventory within the distribution and retail channels that may result infuture rebates or discounts taken. In certain cases, such as patient support programs, the Company recognizes the cost of patient discounts as a reduction ofrevenue based on estimated utilization. If actual future results vary, the Company may need to adjust these estimates, which could have an effect on productrevenue in the period of adjustment. The Company records product sales deductions in the consolidated statements of operations at the time product revenue isrecognized. At December 31, 2016, year to date total gross-to-net adjustments were approximately $0.8 million, which represents 30% of gross revenue fromproduct sales.Wholesaler Distribution Fees — The Company pays distribution fees to certain wholesale distributors based on contractually determined rates. TheCompany accrues the distribution fees on shipment to the respective wholesale distributors and recognizes the distribution fees as a reduction of revenue inthe same period the related revenue is recognized.Prompt Pay Discounts — The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment.The Company accounts for cash discounts by reducing accounts receivable by the prompt pay discount amount and recognizes the discount as a reductionof revenue in the same period the related revenue is recognized.Rebates — The Company participates in federal and state government-managed Medicare and Medicaid rebate programs and intends to pursueparticipation in certain other qualifying federal and state government programs whereby discounts and rebates are provided to participating federal andstate government entities. Rebates provided through these other qualifying programs are included in the Medicaid and Medicare rebate accrual. TheCompany accounts for these rebates by establishing an accrual equal to the estimate of rebate claims attributable to a sale and determines its estimate of therebates accrual based on historical payor data provided by a third-party vendor along with additional data including a forecasted participation rate forMedicare and Medicaid. From that data, as well as input received from MannKind’s commercial team, an estimated participation rate for Medicare andMedicaid is determined and applied at the mandated rate for those sales. Any new information regarding changes in the programs’ regulations andguidelines or any changes in the Company’s 90Table of Contentsgovernment price reporting calculations that would impact the amount of the rebates will also be taken into account in determining or modifying theappropriate reserve. The time period between the date the product is sold into the channel and the date such rebates are paid ranges from approximately sixto nine months. As such, continuous monitoring of these estimates are performed on a periodic basis and if necessary, adjusted to reflect new facts andcircumstances. Rebates are recognized as a reduction of revenue in the period the related revenue is recognized.Patient Discount and Co-Pay Assistance Programs — The Company offers discount card programs to patients for Afrezza in which patients receivediscounts on their prescriptions or a reduction in their co-pay amounts that are reimbursed by the Company. The Company estimates the total amount thatwill be redeemed based on levels of inventory in the distribution and retail channels and recognizes the discount as a reduction of revenue in the sameperiod the related revenue is recognized.Product Returns — The Company does not provide a reserve for product returns of sales of Afrezza due to its revenue recognition policy ofdeferring recognition of revenue on product shipments of Afrezza until the right of return no longer exists.Revenue Recognition — Revenue — Bulk Insulin Sales — In 2016, revenue from bulk insulin sales was recognized after delivery and customer acceptance of thebulk insulin. When the accounting requirements for revenue recognition of bulk insulin sales are not met, the Company defers recognition of revenue by recordingdeferred revenue on the balance sheet until such time that all criteria are met.Deferred revenue includes $1.8 million received from a sale of surplus bulk insulin to a third party that was delivered prior to, but accepted after, December 31,2016. No deferred cost was recognized related to this sale because the inventory was written off on December 31, 2015.Deferred Costs from Collaboration — Deferred costs from collaboration represents the costs of product manufactured and sold to Sanofi, as well as certain directcosts associated with a firm purchase commitment entered into in connection with the collaboration with Sanofi. During the third quarter of 2016, the costs related to theSanofi product sales were recognized as costs of revenue — collaboration in the consolidated statements of operations, as related revenue was recognized at that time.Deferred Costs from Commercial Product Sales — Deferred costs from commercial product sales represents the cost of product (including labor, overhead andcosts to ship to third party logistics) shipped to ICS and wholesale distributors, but not yet dispensed by pharmacies to patients.Cost of Goods Sold — Cost of goods sold includes the costs related to Afrezza product dispensed by pharmacies to patients as well as under-absorbed labor andoverhead and inventory write-offs, which are recorded as expenses in the period in which they are incurred, rather than as a portion of the inventory cost.Cash and Cash Equivalents — The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the time ofpurchase, that are readily convertible into cash to be cash equivalents. As of December 31, 2016 and 2015, cash equivalents were comprised of money market accountswith maturities less than 90 days from the date of purchase.Concentration of Credit Risk — Financial instruments which potentially subject the Company to concentration of credit risk consist of cash and cash equivalents.Cash and cash equivalents are held in high credit quality institutions. Cash equivalents consist of interest-bearing money market accounts, which are regularly monitoredby management.Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable are recorded at the invoiced amount and are not interest bearing. TheCompany maintains an allowance for doubtful accounts for 91Table of Contentsestimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability of itsaccounts receivable in its calculation of the allowance for doubtful accounts. As of December 31, 2016 and 2015, there was no allowance for doubtful accounts.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, orFIFO, method. The Company capitalizes inventory costs associated with the Company’s products based on management’s judgment that future economic benefits areexpected to be realized; otherwise, such costs are expensed as cost of goods sold. The Company periodically analyzes its inventory levels to identify inventory that mayexpire 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 tostrict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet qualityspecifications or 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 analyzed its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value. The Companyperformed 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, 2016 and2015. As a result of these assessments, the Company recorded a $0.2 million charge at December 31, 2016 to write-off inventory that will expire prior to sale. AtDecember 31, 2015, the Company recorded a charge of $39.3 million to record the inventory raw materials on hand at the lower of cost or net realizable value,inventory expiry and write-off other inventory related assets.State Research and Development Credit Exchange Receivable — The State of Connecticut provides certain companies with the opportunity to exchange certainresearch and development income tax credit carryforwards for cash in exchange for foregoing the carryforward of the research and development credits. The programprovides for an exchange of research and development income tax credits for cash equal to 65% of the value of corporation tax credit available for exchange. Estimatedamounts receivable under the program are recorded as a reduction of research and development expenses. These amounts are included in prepaid expenses and othercurrent assets on the consolidated balance sheets.Prepaid Expenses and Other Current Assets — As of December 31, 2016 and 2015, prepaid expenses and other current assets primarily consist of prepaidexpenses for goods and services to be received and includes a certificate of deposit for $350,000 as collateral as required by an agreement with the bank.Sale of intellectual property — On July 18, 2014, the Company entered into an assignment agreement with a third party whereby the third party acquired allproprietary rights, technology and know-how that related to a small molecule inhibitor compound and all pre-clinical data and results related thereto. Under the terms ofthe assignment agreement, the Company received total consideration of $9.3 million and accrued $1.4 million in expense for a net amount of $7.9 million recorded asother income. In 2015, the Company recorded other income of $1.4 million related to the relief of the $1.4 million accrual for expenses associated with the sale ofintellectual property related to oncology in 2014, which was subsequently resolved without payment.Assets Held for Sale — The Company classifies long-lived assets anticipated to be sold within one year as held for sale at the lower of their carrying value or fairvalue less estimated selling costs.Property and Equipment — Property and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets. Leaseholdimprovements are amortized over the term of the lease or the service lives of the improvements, whichever is shorter. Maintenance and repairs are expensed as incurred.Assets under construction are not depreciated until placed into service.Impairment of Long-Lived Assets — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that thecarrying value of an asset may not be recoverable. Assets are considered to be impaired if the carrying value may not be recoverable. 92Table of ContentsIf 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 theasset. 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 thecarrying amount of the asset and an operating loss would be recognized.The Company recorded an asset impairment of $1.3 million and $140.4 million for the years ended December 31, 2016 and 2015, respectively. No assetimpairment was recognized during the year ended December 31, 2014 (see Note 4 — Property and Equipment and Note 20 — Subsequent Events).Recognized Loss on Purchase Commitments — The Company assesses whether losses on long term purchase commitments should be accrued. Losses that areexpected to arise from firm, non-cancellable, commitments for the future purchases of inventory items are recognized unless recoverable. The recognized loss onpurchase commitments is reduced as inventory items are purchased. Changes in estimates are recorded in the relevant period in (gain) loss on purchase commitments.During the year ended December 31, 2015, the Company recorded a loss on purchase commitments amounting to $116.2 million offset by $50 million expectedto be recovered from Sanofi, primarily due to a long term purchase commitment for insulin raw materials. During the year ended December 31, 2016, the balance wasadjusted for the recovery received from Sanofi, current purchases on the contracts and a reduction in the recognized loss related to amendments to purchase contracts.No new contracts were identified in 2016 requiring a new loss on purchase commitment accrual.Milestone Rights Liability — On July 1, 2013, in conjunction with the execution of the Facility Agreement, the Company issued Milestone Rights to Deerfieldwhereby the Company agreed to provide Deerfield with pre-specified Milestone Payments upon the achievement of 13 specific Milestone Events related to thecommercial release and future cumulative net sales of Afrezza. The Company analyzed the Milestone Rights and determined that the agreement does not meet thedefinition of a freestanding derivative. Since the Company has not elected to apply the fair value option to the Milestone Rights Purchase Agreement, the Companyrecorded the Milestone Rights at their estimated initial fair value and accounted for the Milestone Rights as a liability.The initial fair value estimate of the Milestone Rights was calculated using the income approach in which the cash flows associated with the specified contractualpayments were adjusted for both the expected timing and the probability of achieving the milestones and discounted to present value using a selected market discountrate. The expected timing and probability of achieving the milestones was developed with consideration given to both internal data, such as progress made to date andassessment of criteria required for achievement, and external data, such as market research studies. The discount rate was selected based on an estimation of requiredrate of returns for similar investment opportunities using available market data. The Milestone Rights liability will be remeasured as the specified milestone events areachieved. Specifically, as each milestone event is achieved, the portion of the initially recorded Milestone Rights liability that pertains to the milestone event beingachieved, will be remeasured to the amount of the specified related milestone payment. The resulting change in the balance of the Milestone Rights liability due toremeasurement will be recorded in the Company’s consolidated statements of operations as interest expense. Furthermore, the Milestone Rights liability will be reducedupon the settlement of each milestone payment. As a result, each milestone payment would be effectively allocated between a reduction of the recorded MilestoneRights 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). As of December 31, 2016, the remaining liability balance is $8.9 million.Fair Value of Financial Instruments — The Company utilizes fair value measurement guidance to value its financial instruments. The guidance includes adefinition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expandsdisclosures about the use of fair value measurements. The valuation techniques utilized are based upon observable and 93Table of Contentsunobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. Thesetwo types of inputs create the following fair value hierarchy: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 thecumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Deferred income tax assets and liabilities aremeasured 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 valuationallowance is recorded to reduce net deferred income tax assets to amounts that are more likely than not to be realized.Income tax positions are considered for uncertainty. The Company believes that its income tax filing positions and deductions will be sustained on audit and doesnot anticipate any adjustments that will result in a material change to its financial position. Therefore, no liabilities for uncertain income tax positions have beenrecorded. If a tax position does not meet the minimum statutory threshold to avoid payment of penalties, the Company recognizes an expense for the amount of thepenalty in the period the tax position is claimed in the tax return of the Company. The Company recognizes interest accrued related to unrecognized tax benefits inincome tax expense, if any. Penalties, if probable and reasonably estimable, are recognized as a component of income tax expense.Significant management judgment is involved in determining the provision for income taxes, deferred tax assets, deferred tax liabilities, and any valuationallowance recorded against deferred tax assets. Due to uncertainties related to the realization of the Company’s deferred tax assets as a result of its history of operatinglosses, a full valuation allowance has been established against the total deferred tax asset balance. The valuation allowance is based on management’s estimates oftaxable income by jurisdiction in which the Company operates and the period over which deferred tax assets will be recoverable. In the event that actual results differfrom these estimates or the Company adjusts these estimates in future periods, a change in the valuation allowance may be needed.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 canbe reasonably estimated. These accruals represent management’s best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a losswill 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 ofeach significant matter and assesses its potential financial exposure. Significant judgment is required in both the determination of probability and the determination as towhether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. Asadditional information becomes available, the Company reassesses the potential liability related to pending claims and litigation and may revise its estimates.Stock-Based Compensation — As of December 31, 2016, the Company had three active stock-based compensation plans, which are described more fully in Note12 — Stock Award Plans. The Company accounts for all share-based payments to employees, including grants of stock awards and the compensatory elements of theemployee stock purchase plan. All share-based payments to employees, including grants of stock options, restricted stock units, performance-based awards and thecompensatory elements of employee stock purchase plans, are recognized in the consolidated statements of operations based upon the fair value of the awards at the 94Table of Contentsgrant date. The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options and the compensatory elementsof employee stock purchase plans. Option valuation models require the input of assumptions, including the expected life of the stock-based awards, the estimated stockprice volatility, the risk-free interest rate and the expected dividend yield. The expected volatility assumption is based on an assessment of the historical volatility, withconsideration of implied volatility, derived from an analysis of historical trade activity. Restricted stock units are valued based on the market price on the grant date. TheCompany evaluates stock awards with performance conditions as to the probability that the performance conditions will be met and estimates the date at which theperformance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period.Warrants — The Company has issued warrants to purchase shares of its common stock. The Company accounts for its warrants as either equity or liabilitiesbased upon the characteristics and provisions of each instrument and evaluation of sufficient authorized shares available to satisfy the obligations. Warrants classified asderivative liabilities are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and are revalued at each subsequent balancesheet date, with fair value changes recognized in the consolidated statements of operations. The Company estimates the fair value of its derivative liabilities using athird party valuation analysis that utilizes a Monte Carlo pricing valuation model and assumptions that are based on the individual characteristics of the warrants orinstruments on the valuation date, as well as expected volatility, expected life, yield and a risk-free interest rate. The expected volatility assumption is primarily basedon an assessment of the historical volatility, with consideration of implied volatility, derived from an analysis of historical trade activity. Warrants classified as equityare recorded within additional paid in capital at the issuance date and are not re-measured in subsequent periods, unless the underlying assumptions change to triggerliability accounting.Comprehensive Income (Loss) — Other comprehensive income (loss) requires that all components of comprehensive income (loss) to be reported in the financialstatements in the period in which they are recognized. Other comprehensive income (loss) includes certain changes in stockholders’ equity that are excluded from netincome (loss). Specifically, the Company includes unrealized gains and losses on foreign exchange translation in accumulated other comprehensive loss on theconsolidated balance sheets.Research and Development Expenses — Research and development expenses consist of costs associated with the clinical trials of the Company’s productcandidates, manufacturing supplies and other development materials, compensation and other expenses for research and development personnel, costs for consultantsand related contract research, facility costs, and depreciation. Research and development costs, which are net of any tax credit exchange recognized for the Connecticutstate research and development credit exchange program, are expensed as incurred. The Company began commercial manufacturing in the latter part of the fourthquarter of 2014. Commercial manufacturing costs incurred in the fourth quarter of 2014 were included in research and development expense and were immaterial for theyear ended December 31, 2014.State Research and Development Credit Exchange Receivable — The State of Connecticut provides certain companies with the opportunity to exchange certainresearch and development income tax credit carryforwards for cash in exchange for forgoing the carryforward of the research and development income tax credits. Theprogram provides for an exchange of research and development income tax credits for cash equal to 65% of the value of corporation tax credit available for exchange.Estimated amounts receivable under the program are recorded as a reduction of research and development expenses. During the years ended December 31, 2016, 2015and 2014, research and development expenses were offset by research and development tax credits of $246,000, $743,000 and $816,000, respectively.Clinical Trial Expenses — Clinical trial expenses, which are reflected in research and development expenses in the accompanying consolidated statements ofoperations, result from obligations under contracts with vendors, consultants and clinical site agreements in connection with conducting clinical trials. The financialterms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over whichmaterials or services are provided to the Company under 95Table of Contentssuch contracts. The appropriate level of trial expenses are reflected in the Company’s consolidated financial statements by matching period expenses with periodservices and efforts expended. These expenses are recorded according to the progress of the trial as measured by patient progression and the timing of various aspects ofthe trial. Clinical trial accrual estimates are determined through discussions with internal clinical personnel and outside service providers as to the progress or state ofcompletion of trials, or the services completed. Service provider status is then compared to the contractually obligated fee to be paid for such services. During the courseof a clinical trial, the Company may adjust the rate of clinical expense recognized if actual results differ from management’s estimates.Interest Expense — Interest costs are expensed as incurred, except to the extent such interest is related to construction in progress, in which case interest iscapitalized. Interest cost capitalized for the years ended December 31, 2015 and 2014 was $0.1 million and $0.8 million, respectively. There were no capitalized interestcosts for the year ended December 31, 2016.Net Income (Loss) Per Share of Common Stock — Basic net income (loss) per share excludes dilution for potentially dilutive securities and is computed bydividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share reflects the potentialdilution under the treasury method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For periodswhere 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 antidilutive.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 ofrecently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial position or results of operations uponadoption.In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which requires an entityto recognize the amount of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to bereceived for those goods or services. This new guidance supersedes previous revenue recognition requirements, along with most existing industry-specific guidance. InAugust 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which delayed the effective date ofthe new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In2016 the FASB has issued additional ASUs which clarify certain aspects of the new guidance.The Company will adopt the new guidance for the year beginning January 1, 2018. The Company has the option to either apply the new guidance retrospectivelyfor all prior reporting periods presented (full retrospective) or retrospectively with the cumulative effect of initially applying the guidance recognized at the date ofinitial application (modified retrospective). The Company currently anticipates it will apply the new guidance using the modified retrospective approach with thecumulative effect of initial application recognized as of January 1, 2018. The Company plans to continue analyzing the potential impacts of the application throughout2017 and, depending on factors that may impact the results, could elect to apply the new guidance on a full retrospective basis.Currently, for commercial sales of Afrezza, the Company has limited sales and returns history, and as such, is unable to reliably estimate expected returns of theproduct at the time of shipment into the distribution channel. Accordingly, the Company defers recognition of revenue on Afrezza product shipments until the right ofreturn no longer exists, which occurs at the earlier of the time Afrezza is dispensed from pharmacies to patients or expiration of the right of return. The Companyrecognizes revenue based on Afrezza patient prescriptions dispensed, a sell-through model, as estimated by syndicated data provided by a third party. The Company alsoanalyzes additional data points to ensure that such third-party data is reasonable, including data related to inventory movements within the channel and ongoingprescription demand. 96Table of ContentsUpon adoption of the new guidance, the Company expects that it will move from its current sell-through model to a sell-to model for revenue related tocommercial sales of Afrezza and will record revenue at the time title and risk of loss passes to its distributors (generally at shipment or delivery to the distributors) alongwith an estimate of potential returns as variable consideration. The Company also anticipates that its ability to estimate potential returns will improve with an additional12 months of sales history that it will have obtained by January 1, 2018.In addition, the Company has historically entered into collaborative agreements with third-parties under which periodic payments have been received. Revenuerecognition for certain payments received has been deferred until the price is fixed and determinable. Further, revenue for certain payments to be received in the futurehas been prohibited from recognition until received. The Company expects that some of these amounts will be considered variable consideration and may be able to berecognized earlier under the new guidance.The Company has begun its evaluation of the impact of adoption and plans to continue its evaluation throughout 2017. The financial impact upon adoption willbe dependent upon a number of factors including; the amount of revenue that has been deferred under the sell-through model for Afrezza, the amount of the revenuedeferred under collaborative arrangements and the Company’s estimates of variable consideration at the date of adoption. At this time, the Company has not completedits evaluation of the inputs, assumptions and methodologies that will be used to recognize revenue related to variable consideration under the new guidance.In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Topic 330 currently requires an entity tomeasure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profitmargin. The amendments indicate that after adoption an entity should measure inventory within the scope of this ASU at the lower of cost or net realizable value. Theamendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be appliedprospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 will have no impact onthe Company’s annual consolidated financial statements because the Company currently measures inventory at the lower of cost or net realizable value.In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern , which requires management of an entity toevaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern withinone year after the date that the financial statements are issued or available to be issued. This update was effective for annual periods ending after December 15, 2016.The adoption of this standard did not have a material impact on its consolidated financial statements.In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assetsand Financial Liabilities. The update is intended to improve the recognition and measurement of financial instruments. The update is effective for fiscal years beginningafter December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact the adoption of ASU 2016-01 will have on itsconsolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The new standard requires that a lessee recognize the assets and liabilities that arisefrom operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use assetrepresenting its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policyelection by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases atthe beginning of the earliest period presented using a modified retrospective approach. The new standard will be effective on January 1, 2019. The Company isevaluating the impact the adoption of ASU No. 2016-02 will have on its consolidated financial statements. 97Table of ContentsIn March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting . The new standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification ofawards as either equity or liabilities and classification on the statement of cash flows. For public business entities, the amendments in this standard are effective forannual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has evaluated the effect that this guidance will haveon its consolidated financial statements and related disclosures and has determined it will not result in a material impact.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . Thenew standard seeks to reduce diversity in practice related to the classification of certain transactions in the statement of cash flows. For public business entities, theamendments in this standard are effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The amendmentsshould be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues,the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is evaluating the impact the adoption of ASUNo. 2016-15 will have on its consolidated financial statements.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires that the reconciliation of thebeginning-of-period and end-of-period amounts shown in the statement of cash flows include cash and restricted cash equivalents. ASU 2016-08 is effective for fiscalyears beginning after December 15, 2018, including interim periods within those periods, using a retrospective transition method to each period presented. TheCompany has evaluated the effect that this guidance will have on its consolidated financial statements and related disclosures and has determined it will not result in amaterial impact.3. InventoriesInventories consist of the following (in thousands): December 31, 2016 2015 Raw materials $— $— Work-in-process 2,120 — Finished goods 211 — Total Inventory $2,331 $— As of December 31, 2015, the Company recorded a write-off of all of its inventory. There were no raw materials as of December 31, 2016 because purchases ofraw materials in 2016 were recorded at zero value because they had been accrued at December 31, 2015 through the loss on purchase commitment. Work-in-process andfinished goods as of December 31, 2016 include conversion costs but not materials cost because the materials used in its production were previously written off. 98Table of Contents4. Property and EquipmentProperty and equipment consist of the following (in thousands): Estimated Useful Life(Years) December 31, 2016 2015 Land — $875 $3,435 Buildings 39-40 17,389 21,590 Building improvements 5-40 34,957 60,584 Machinery and equipment 3-15 62,992 68,434 Furniture, fixtures and office equipment 5-10 3,556 4,114 Computer equipment and software 3 8,531 9,519 Construction in progress 202 586 128,502 168,262 Less accumulated depreciation (99,575) (119,513) Total property and equipment, net $28,927 $48,749 Depreciation and amortization expense related to property and equipment for the years ended December 31, 2016, 2015 and 2014, was $2.4 million,$11.0 million and $9.8 million, respectively.The December 31, 2016 amounts do not include the Valencia property because it is classified as held for sale as of that date.In connection with the Company’s quarterly assessment of impairment indicators, the Company evaluated the continued lower than expected sales of Afrezza asreported by Sanofi throughout the fourth quarter of 2015, revised forecasts for sales of Afrezza provided by Sanofi in the fourth quarter of 2015 and level of commercialproduction in the fourth quarter of 2015, as well as the uncertainty associated with Sanofi’s announcement during the fourth quarter of their intent to reorganize theirdiabetes business. These factors indicated potentially significant changes in the timing and extent of cash flows, and the Company therefore determined that animpairment indicator existed in the fourth quarter of 2015 and recorded an impairment for the year ended December 31, 2015. No such indications were identified in thecurrent year ended December 31, 2016.The Company identified two primary asset groups to be evaluated for impairment: the Danbury manufacturing facility, which currently performs all themanufacturing of Afrezza, and the Valencia facility, which was previously the Company’s corporate headquarters. The Danbury manufacturing facility was the primaryasset group that was impacted by the impairment indicators noted above but the Company also evaluated the Valencia facility for potential impairment given thecircumstances and identified an impairment charge of $1.8 million based on a valuation utilizing a combination of market, income and cost approaches. Within theDanbury manufacturing facility, the Company identified the machinery and equipment as the primary assets within the asset group as they are associated with theproduction of Afrezza. As such, the Company performed the fixed asset impairment test and performed the first step to test for recoverability of the Danburymanufacturing facility by utilizing two undiscounted cash flow projections and applying a probability weighted average to those cash flow projections. The firstundiscounted cash flow projection was developed under a scenario assuming Sanofi would continue to sell and market Afrezza as the termination of the arrangement bySanofi was not known as of the balance sheet date. The second undiscounted cash flow projection assumed Sanofi would terminate the Sanofi License Agreement andthat the Company would manufacture, sell and market Afrezza independently.Based on the evaluation performed, the probabilities assigned to the two undiscounted cash flows were not significant to the evaluation due to the projectednegative cash flows over the estimation period, and it was determined that the probability weighted undiscounted cash flows were not sufficient to recover the carrying 99Table of Contentsvalue of the Danbury manufacturing facility. As such, the Company was required to determine the fair value of the Danbury manufacturing facility to recognize animpairment loss if the carrying amount exceeds its fair value. The Company determined the fair value of the Danbury manufacturing facility by applying the highest andbest use valuation concept and utilizing the market approach valuation technique to value the machinery and equipment and a combination of the market approach andcost approach in valuing the land, buildings and building improvements. As a result of this assessment, the Company recorded, as of December 31, 2015, an impairmentcharge of $138.6 million for the Danbury manufacturing facility.The December 31, 2015 balances have been reclassified to the current year presentation by allocating an impairment of $140.4 million, which was previouslydisclosed in total, to the individual asset groups. An additional impairment of $0.7 million was charged to the individual asset groups for the year ended December 31,2016, which is included in property and equipment impairment in the accompany consolidated statements of operations, additionally with a $0.6 million impairmentcharge related to assets held for sale.5. Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities are comprised of the following (in thousands): December 31, 2016 2015 Salary and related expenses $3,814 $2,634 Restructuring 1,376 3,028 Sales and marketing services 144 — Professional fees 875 931 Discounts and allowances for commercial product sales 754 — Accrued interest 619 615 Other 355 483 Construction in progress — 238 Accrued expenses and other current liabilities $7,937 $7,929 6. Related-Party ArrangementsIn October 2007, the Company entered into The Mann Group Loan Arrangement, which has been amended from time to time. On October 31, 2013, thepromissory note underlying The Mann Group Loan Arrangement was amended to, among other things, extend the maturity date of the loan to January 5, 2020, extendthe date through which the Company can borrow under The Mann Group Loan Arrangement to December 31, 2019, increase the aggregate borrowing amount underThe Mann Group Loan Arrangement from $350.0 million to $370.0 million and provide that repayments or cancellations of principal under The Mann Group LoanArrangement will not be available for reborrowing.As of December 31, 2016, the total principal amount outstanding under The Mann Group Loan Arrangement was $49.5 million, and the amount available forfuture borrowings is $30.1 million. Interest, at a fixed rate of 5.84%, is due and payable quarterly in arrears on the first day of each calendar quarter for the precedingquarter, or at such other time as the Company and The Mann Group mutually agree. All or any portion of accrued and unpaid interest that becomes due and payable maybe paid-in-kind and capitalized as additional borrowings at any time upon mutual agreement of the parties, and has been classified as non-current. The Mann Group canrequire the Company to prepay up to $200.0 million in advances that have been outstanding for at least 12 months, less approximately $105.0 million aggregateprincipal amount that has been cancelled in connection with two common stock purchase agreements. If The Mann Group exercises this right, the Company will have 90days after The Mann Group provides written notice, or the number of days to maturity of the note if less than 90 days, to prepay such advances. However, pursuant to aletter agreement entered into in August 2010, The Mann Group has agreed to not require the Company to prepay amounts outstanding under the amended and 100Table of Contentsrestated promissory note if the prepayment would require the Company to use its working capital resources. In addition, The Mann Group entered into a subordinationagreement with Deerfield pursuant to which The Mann Group agreed with Deerfield not to demand or accept any payment under The Mann Group Loan Arrangementuntil the Company’s payment obligations to Deerfield under the Facility Agreement have been satisfied in full. Subject to the foregoing, in the event of a default underThe Mann Group Loan Arrangement, all unpaid principal and interest either becomes immediately due and payable or may be accelerated at The Mann Group LLC’soption, and the interest rate will increase to the one-year LIBOR rate calculated on the date of the initial advance or in effect on the date of default, whichever is greater,plus 5% per annum. All borrowings under The Mann Group Loan Arrangement are unsecured. The Mann Group Loan Arrangement contains no financial covenants.As of December 31, 2016 and 2015, the Company had accrued and unpaid interest related to the above note of $9.3 million and $6.4 million, respectively, andhad $30.1 million of available borrowings. Interest expense on the Company’s note payable to the Company’s principal stockholder for each of the years endedDecember 31, 2016, 2015 and 2014 was $2.9 million.In May 2015, the Company entered into a sublease agreement with the Alfred Mann Foundation for Scientific Research (the “Mann Foundation”), a CaliforniaNot-For-Profit Corporation. The lease is for approximately 12,500 square feet of office space in Valencia, California and expires in April 2017. The office spacecontains the Company’s principal executive offices. Lease payments to the Mann Foundation for the year ended December 31, 2016 and 2015 were $268,000 and$175,000, respectively. There were no lease payments to the Mann Foundation for the year ended December 31, 2014.In connection with certain meetings of the Company’s board of directors and on other occasions when the Company’s business necessitated air travel for theCompany’s principal stockholder and other Company employees, the Company utilized the principal stockholder’s private aircraft, and the Company paid the chartercompany that manages the aircraft on behalf of the Company’s principal stockholder approximately $18,000 and $79,000 for the years ended December 31, 2015 and2014, respectively, on the basis of the corresponding cost of commercial airfare. There were no payments to the principal stockholder related to the usage of the aircraftduring the year ended December 31, 2016.The Company has entered into indemnification agreements with each of its directors and executive officers, in addition to the indemnification provided for in itsamended and restated certificate of incorporation and amended and restated bylaws (see Note 13 — Commitments and Contingencies).7. BorrowingsBorrowings consist of the following (in thousands): December 31, 2016 2015 Facility Financing Obligation (2019 Notes) Principal amount $75,000 $80,000 Unamortized debt discount (3,661) (5,418) Net carrying amount $71,339 $74,582 Senior Convertible Notes (2018 Notes) Principal amount $27,690 $27,690 Unamortized premium 426 660 Unaccreted debt issuance costs (481) (737) Net carrying amount $27,635 $27,613 Note payable to principal stockholder — net carrying amount $49,521 $49,521 101Table of ContentsFacility Financing Obligation (2019 Notes) — As of December 31, 2016, there were $55.0 million principal amount of 2019 notes and $20.0 million principalamount of Tranche B notes outstanding. As of December 31, 2015, there were $60.0 million principal amount of 2019 notes and $20.0 million principal amount ofTranche B notes outstanding. The 2019 notes accrue interest at annual rate of 9.75% and the Tranche B notes accrue interest at an annual rate of 8.75%. Interest is paidquarterly in arrears on the last day of each March, June, September and December. The Facility Financing Obligation principal repayment schedule is comprised ofannual payments beginning on July 1, 2016 and ending December 9, 2019. Future principal payments for the years ended December 31, 2017, 2018 and 2019 are$20.0 million, $20.0 million and $35.0 million, respectively.In conjunction with the Facility Agreement, the Company entered into a Milestone Rights Agreement with Deerfield which requires the Company to makecontingent payments to Deerfield, totaling up to $90.0 million, upon the Company achieving specified commercialization milestones. The Milestone Rights wereinitially recorded as a short-term liability equal to $3.2 million included in accrued expenses and other current liabilities in the accompanying consolidated balancesheets and a long-term liability equal to $13.1 million included in other liabilities. During the first quarter of 2015, a milestone triggering event was achieved followingthe Company’s product launch on February 3, 2015, which resulted in a $5.8 million incremental charge to interest expense due to the increase in carrying value of theliability to the required $10.0 million payment made in February of 2015. During the year ended December 31, 2014, the first milestone triggering event was achievedfollowing the Company’s entry into the Sanofi License Agreement, which resulted in a $1.9 million incremental charge to interest expense due to the increase incarrying value of the liability to the required $5.0 million payment, which was paid to Deerfield pursuant to the terms of the Milestone Agreement. As of December 31,2016 and 2015, the remaining liability balance of $8.9 million is classified as a long-term liability.As of December 31, 2016, the unamortized debt discount and debt issuance costs were $3.7 million and $0.1 million, respectively.Accretion of debt issuance cost and debt discount in connection with the Deerfield financing during the years ended December 31, 2016, 2015 and 2014 are asfollows (in thousands): December 31, 2016 2015 2014 Accretion expense — debt issuance cost $35 $35 $326 Accretion expense — debt discount $1,722 $1,553 $7,550 The Facility Agreement includes customary representations, warranties and covenants, including, a restriction on the incurrence of additional indebtedness, and afinancial covenant which requires the Company’s cash and cash equivalents, which includes available borrowings on the note payable to principal stockholder, on thelast day of each fiscal quarter to not be less than $25.0 million. As discussed in Note 1 — Description of Business, the Company will need to raise additional capital tosupport its current operating plans. Due to the uncertainties related to maintaining sufficient resources to comply with the aforementioned covenant, the 2019 notes andthe Tranche B notes have been classified as current liabilities in the accompanying consolidated balance sheets as of December 31, 2016 and 2015. In the event ofnon-compliance, Deerfield may declare all or any portion of the 2019 notes and/or Tranche B notes to be immediately due and payable.Milestone Rights — The Milestone Agreement includes customary representations and warranties and covenants by the Company, including restrictions ontransfers of intellectual property related to Afrezza. The Milestone Rights are subject to acceleration in the event the Company transfers its intellectual property relatedto Afrezza in violation of the terms of the Milestone Agreement. The Company has initially recorded the Milestone Rights at their estimated fair value — See Note 2 —Summary of Significant Accounting Policies under Milestone Rights Liability.In determining the fair value of the Milestone Rights, the 13 individual milestone payments were adjusted for both (i) the expected timing and (ii) the probabilityof achieving the milestones, and then discounted to 102Table of Contentspresent value using a discount rate of 14.5%. Once the initial valuation of each specified milestone payment was determined, the individual milestone payments werethen aggregated to arrive at a total fair value of $18.4 million. The discount rate was based on the estimated cost of equity which was derived using the capital assetpricing model. In addition, a 5% risk premium was added to the computation of the cost of equity to adjust for non-systemic risk factors, such as the Company’s lack ofproduct diversification and history of financial losses, which were not captured in other model inputs.Security Agreement — In connection with the Facility Agreement, the Company and its subsidiary, MannKind LLC, entered into a Guaranty and SecurityAgreement (the “Security Agreement”) with Deerfield and Horizon Sante FLML SA’RL (collectively, the “Purchasers”), pursuant to which the Company andMannKind LLC each granted the Purchasers a security interest in substantially all of their respective assets, including respective intellectual property, accounts,receivables, equipment, general intangibles, inventory and investment property, and all of the proceeds and products of the foregoing. The Security Agreement includescustomary covenants by the Company and MannKind LLC, remedies of the Purchasers and representations and warranties by the Company and MannKind LLC. Thesecurity interests granted by the Company and MannKind LLC will terminate upon repayment of the 2019 notes and Tranche B notes, if applicable, in full. TheCompany’s obligations under the Facility Agreement and the Milestone Agreement are also secured by the mortgage on the Company’s facilities in Danbury,Connecticut, which has a carrying value of $28.7 million.Embedded Derivatives — The Company identified and evaluated a number of embedded features in the notes issued under the Facility Agreement to determine ifthey represented embedded derivatives that are required to be separated from the notes and accounted for as freestanding instruments. In 2014, the Company analyzedthe Tranche B notes and identified embedded derivatives which required separate accounting. However, all of the embedded derivatives were determined to have a deminimis value at December 31, 2016 and 2015.Conversion Option — During 2014, Deerfield elected to convert a total of $93.5 million of principal, which consisted of $20.0 million, $33.5 million, and$40.0 million of Tranche 1 notes, Tranche 2 notes, and Tranche 3 notes, respectively, into an aggregate 3,464,616 shares of common stock. In conjunction with theconversion by Deerfield, we recorded an aggregate expense of $6.4 million for the difference between the principal amount of the notes converted and their carryingamount (which included unamortized discount and debt issuance costs) which consisted of $1.2 million, $3.0 million, and $2.2 million related to the Tranche 1 notes,Tranche 2 notes, and Tranche 3 notes, respectively. Further, upon Deerfield converting $40.0 million of Tranche 3 notes and $20.0 million of Tranche 1 notes, Deerfieldhas reached the conversion limits (i.e., “Applicable Limits”) with respect to the Facility Agreement and therefore, no additional amount of the 2019 notes is convertible.Issuance of new 5.75% Convertible Senior Subordinated Exchange Notes Due 2018 in Exchange for 2015 Notes — On July 28, 2015, the Company entered intoprivately-negotiated exchange agreements (the “Note Exchange Agreements”) with a select holder of the Company’s 5.75% Senior Convertible Notes due 2015 (the“2015 notes”), pursuant to which the Company agreed to issue $27.7 million aggregate principal amount of new 5.75% Convertible Senior Subordinated ExchangeNotes due 2018 (the “2018 notes”) to such holders in exchange for the delivery to the Company of the same principal amount of 2015 notes. The 2018 notes were issuedat the closing of the exchange on August 10, 2015. The Company analyzed this exchange and concluded that the exchange represents an extinguishment of the 2015notes and a new issuance of 2018 notes and recorded such notes at fair value, which resulted in a premium of $0.7 million.The 2018 notes are the Company’s general, unsecured, senior obligations, except that the 2018 notes were subordinated to the Sanofi Loan facility prior to theextinguishment of the facility on November 9, 2016. The 2018 notes rank equally in right of payment with the Company’s other unsecured senior debt. The 2018 notesbear interest at the rate of 5.75% per year on the principal amount, payable semiannually in arrears in cash on February 15 and August 15 of each year, beginningFebruary 15, 2016, with interest accruing from August 15, 2015. The 2018 notes mature on August 15, 2018. Accrued interest related to these notes is recorded inaccrued expenses and other current liabilities on the accompanying consolidated balance sheets. 103Table of ContentsThe 2018 notes are convertible, at the option of the holder, at any time on or prior to the close of business on the business day immediately preceding the statedmaturity date, into shares of the Company’s common stock at an initial conversion rate of 29 shares per $1,000 principal amount of the 2018 notes, which is equal to aconversion price of approximately $34.00 per share, the same conversion price as that of the 2015 notes on the date of exchange. The conversion rate is subject toadjustment under certain circumstances described in an indenture governing the 2018 notes dated August 10, 2015 with Wells Fargo, National Association, including inconnection with a make-whole fundamental change.If certain fundamental changes occur, the Company will be obligated to pay a fundamental change make-whole premium on any 2018 notes converted inconnection with such fundamental change by increasing the conversion rate on such 2018 notes. In such instances, the amount of the fundamental change make-wholepremium will be based on the Company’s common stock price and the effective date of the applicable fundamental change. If the Company undergoes certainfundamental changes, except in certain circumstances, each holder of 2018 notes will have the option to require the Company to repurchase all or any portion of thatholder’s 2018 notes. The fundamental change repurchase price will be 100% of the principal amount of the 2018 notes to be repurchased plus accrued and unpaidinterest, if any.On or after the date that is one year following the original issue date of the 2018 notes, the Company will have the right to redeem for cash all or part of the 2018notes if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for 20 or more trading days during the 30 consecutivetrading day period ending on the trading day immediately prior to the date of the redemption notice. The redemption price will equal the sum of 100% of the principalamount of the 2018 notes to be redeemed, plus accrued and unpaid interest. Under the terms of the 2018 Note Indenture, the conversion option can be net-share settledand the maximum number of shares that could be required to be delivered under the indenture, including the make-whole shares, is fixed and less than the number ofauthorized and unissued shares less the maximum number of shares that could be required to be delivered during the term of the 2018 notes under existingcommitments. Applying the Company’s sequencing policy, the Company performed an analysis at the time of the offering of the 2018 notes and each reporting datesince and has concluded that the number of available authorized shares at the time of the offering and each subsequent reporting date was sufficient to deliver thenumber of shares that could be required to be delivered during the term of the 2018 notes under existing commitments.The 2018 notes provide that upon an acceleration of certain indebtedness, including the 9.75% Senior Convertible Notes due in 2019 (the “2019 notes”) and the8.75% Senior Convertible Notes due in 2019 (the “Tranche B notes”) issued to Deerfield pursuant to the Facility Agreement, the holders may elect to accelerate theCompany’s repayment obligations under the notes if such acceleration is not cured, waived, rescinded or annulled. There can be no assurance that the holders would notchoose to exercise these rights in the event such events were to occur.The Company incurred approximately $0.8 million in issuance costs, which are recorded as an offset to the 2018 notes in the accompanying consolidated balancesheets. These costs are being accreted to interest expense using the effective interest method over the term of the 2018 notes.Accretion of debt issuance expense in connection with the 2018 notes during the years ended December 31, 2016 and 2015 was $257,000 and $93,000,respectively. Amortization of the 2018 notes premium during the years ended December 31, 2016 and 2015 was $234,000 and $86,000, respectively.Issuance of Common Stock in Exchange for the 2015 Notes — On July 28, 2015, the Company entered into separate, privately-negotiated exchange agreements(the “Stock-for-Note Exchange Agreements”) with certain holders of the 2015 notes pursuant to which the Company agreed to issue shares of its common stock to suchholders in exchange for the delivery to the Company of up to $56.9 million aggregate principal amount of the 2015 notes. 104Table of ContentsPursuant to the Stock-for-Note Exchange Agreements, the parties agreed to price the exchange transactions over a 10 trading day period spanning from July 29,2015 to and including August 11, 2015. Between July 28, 2015 and August 10, 2015, the Company issued an aggregate of 380,000 shares of common stock to suchholders in exchange for such holders’ delivery to the Company of $8.0 million aggregate principal amount of the 2015 notes, resulting in a weighted-average exchangeprice of $110.00 per share.Issuance of New 5.75% Convertible Senior Subordinated Exchange Notes Due 2015 in Exchange for the 2015 Notes — On August 14, 2015, the Companyexchanged $32.1 million aggregate principal amount of newly issued, 5.75% Convertible Senior Subordinated Exchange Notes due 2015 (the “Exchange Notes”) for thesame principal amount of the Company’s previously outstanding 2015 notes. The Exchange Notes, payable at maturity on September 30, 2015, were convertible, at theoption of each holder thereof, at any time on or prior to the close of business on the business day immediately preceding the stated maturity date. The holders of theExchange Notes did not elect to convert any of the outstanding principal amount of the Exchange Notes into shares of the Company’s common stock. As a result, onSeptember 30, 2015, the Company paid $32.1 million to settle the Exchange Notes.Settlement of 2015 Notes and Exchange Notes — On August 17, 2015, the Company paid $32.2 million to settle the remaining 2015 notes. As of September 30,2015, all 2015 notes, including the Exchange Notes, have been settled resulting in a total loss on extinguishment of debt equal to $1.0 million. The loss onextinguishment of debt resulted from the write-off of debt discount and debt issuance costs associated with the 2015 notes and Exchange Notes and the differencebetween the principal amounts being exchanged for shares of the Company’s common stock, pursuant to the various Stock-for-Note Exchange Agreements, and the fairmarket value of the Company’s common stock issued in exchange for such reduction in principal.Accretion of debt issuance costs in connection with the 2015 notes during the years ended December 31, 2015 and 2014 was $0.6 million and $0.9 million,respectively.Refer to Note 6 — Related-Party Arrangements for information regarding the Note payable to principal stockholder.8. Collaboration ArrangementsReceptor Collaboration and License Agreement — On January 20, 2016, the Company entered into a Collaboration and License Agreement (the “CLA”) withReceptor Life Sciences, Inc. (“Receptor”) pursuant to which the Company performed initial formulation studies on compounds identified by Receptor. Followingsuccessful completion of the studies, Receptor obtained the option to acquire an exclusive license to develop, manufacture and commercialize certain products that useMannKind’s technology to deliver the compounds via oral inhalation.The Company received $0.4 million in nonrefundable payments in 2016 prior to Receptor exercising the option. On December 30, 2016, Receptor exercised theoption and paid the Company a $1.0 million nonrefundable option exercise and license fee. Under the CLA, the Company may receive the following additionalpayments: • Nonrefundable milestone payments upon the completion of certain technology transfer activities and the achievement of specified sales targets. • Royalties upon Receptor’s and its sublicensee’s sale of the product. • Milestones upon total worldwide sales reaching certain agreed upon levels.The Company evaluated the accounting for the payments received in 2016 under the multiple element accounting guidance and determined that the $0.4 millionin payments received prior to Receptor exercising its 105Table of Contentsoption are separable from the other elements of the agreement and represented payments to offset costs incurred. Therefore, those payments reduced the Company’sresearch and development expense in 2016. The $1.0 million license fee received in 2016 does not have standalone value from the follow-on transfer of technology.Therefore, the license fee was recorded in deferred payments from collaboration at December 31, 2016 and will be recognized in net revenue — collaboration over fouryears. See Note 2 — Summary of Significant Accounting Policies for additional information on the Company’s accounting for multiple element arrangements.Sanofi License Agreement and Sanofi Supply Agreement and Loan Facility — On August 11, 2014, the Company executed a license and collaboration agreement(the “Sanofi License Agreement”) with Sanofi-Aventis Deutschland GmbH (which subsequently assigned its rights and obligations under the agreement to Sanofi-Aventis U.S. LLC (Sanofi)), pursuant to which Sanofi was responsible for global commercial, regulatory and development activities for Afrezza. The Companymanufactured Afrezza at its manufacturing facility in Danbury, Connecticut to supply Sanofi’s demand for the product pursuant to a supply agreement dated August 11,2014 (the “Sanofi Supply Agreement”).During the term of the Sanofi License Agreement, worldwide profits and losses were determined based on the difference between the net sales of Afrezza and thecosts and expenses incurred by the Company and Sanofi that were specifically attributable or related to the development, regulatory filings, manufacturing, orcommercialization of Afrezza. These profits and losses were shared 65% by Sanofi and 35% by the Company. On January 4, 2016 the Company received a 90-daynotification from Sanofi of its election to terminate in its entirety the Sanofi License Agreement. The effective date of termination (the “Termination Date”) was April 4,2016. On April 5, 2016 the Company assumed responsibility for the worldwide development and commercialization of Afrezza from Sanofi. Under the terms of thetransition agreement, Sanofi continued to fulfill orders for Afrezza in the United States until the Company began distributing MannKind-branded Afrezza product tomajor wholesalers during the week of July 25, 2016.The Company analyzed the agreements entered into with Sanofi at their inception to determine whether the consideration, paid or payable to the Company, or aportion thereof, could be recognized as revenue. Under the terms of the Sanofi License Agreement, the Sanofi Supply Agreement and the Sanofi Loan Facility, theCompany determined that the arrangement contained significant deliverables including (i) licenses to develop and commercialize Afrezza and to use the Company’strademarks, (ii) development activities, and (iii) manufacture and supply services for Afrezza. Due to the proprietary nature of the manufacturing services to be providedby the Company, the Company determined that all of the significant deliverables should be combined into a single unit of accounting. The Company believed that themanufacturing services are proprietary due to the fact that since the late 1990’s, the Company has developed proprietary knowledge and patented equipment and toolsthat are used in the manufacturing process of Afrezza. Due to the complexities of particle formulation and the specialized knowledge and equipment needed to handlethe Afrezza powder, neither Sanofi nor, to the Company’s knowledge, any third-party contract manufacturing organization currently possesses the capability ofmanufacturing Afrezza.In order for revenue to be recognized, the seller’s price to the buyer must be fixed or determinable. Prior to December 31, 2015, because the Company did nothave the ability to estimate the amount of costs that would potentially be incurred under the loss share provision related to the Sanofi License Agreement and the SanofiSupply Agreement, the Company believed this requirement for revenue recognition had not been met. Therefore, the Company had recorded the $150.0 millionup-front payment and the two milestone payments of $25.0 million each as deferred payments from collaboration. In addition, as of December 31, 2015 the Companyhad recorded $17.5 million in Afrezza product shipments to Sanofi as deferred sales from collaboration and recorded $13.5 million as deferred costs from collaboration.Deferred costs from collaboration represented the costs of product manufactured and shipped to Sanofi, as well as certain direct costs associated with a firm purchasecommitment entered into in connection with the collaboration with Sanofi.In the first and second quarters of 2016, after the Company received notice of termination from Sanofi, the Company evaluated whether the revenue recognitioncriteria had been met. The Company determined that the 106Table of Contentsrequirement had not been met because Sanofi had not finalized necessary adjustments to the profit and loss share provision statements and Sanofi had not yet transferredall of the information to enable the Company to commercialize Afrezza on its own. Therefore, the Company was still unable to estimate the costs to be incurred underthe agreement with Sanofi. During the three months ended September 30, 2016, Sanofi provided enough information to the Company to enable it to reasonably estimatethe remaining costs under the Sanofi License Agreement and the Sanofi Supply Agreement. Accordingly, the fixed or determinable fee requirement for revenuerecognition was met and there were no future obligations to Sanofi. Therefore, the Company recognized $172.0 million of net revenue — collaboration for the yearended December 31, 2016. The revenue recognized includes the upfront payment of $150.0 million and the two milestone payments of $25.0 million each, net of$64.9 million of net loss share with Sanofi, as well as $17.5 million in sales of Afrezza and $19.4 million from sales of bulk insulin, both to Sanofi. These payments andsales were made pursuant to the contractual terms of the agreements with Sanofi.Sanofi Loan Facility — On September 23, 2014, the Company entered into the Sanofi Loan Facility, consisting of a senior secured revolving promissory note anda guaranty and security agreement (the “Security Agreement”) with an affiliate of Sanofi, which provided the Company with a secured loan facility of up to$175.0 million to fund the Company’s share of net losses under the Sanofi License Agreement.The obligations of the Company under the Sanofi Loan Facility were guaranteed by the Company’s wholly-owned subsidiary, MannKind LLC, and were securedby a first priority security interest in certain insulin inventory located in the United States and any contractual rights and obligations pursuant to which the Companypurchases or has purchased such insulin, and a second priority security interest in the Company’s assets that secure the Company’s obligations under the FacilityAgreement, as amended. In addition, the Company granted to Sanofi, as additional security for the obligations under the Sanofi Loan Facility, a first priority mortgageon the Company’s facility in Valencia, California, which had a carrying value of $17.9 million as of December 31, 2015.Advances under the Sanofi Loan Facility bore interest at a rate of 8.5% per annum and were payable in-kind and compounded quarterly and added to theoutstanding principal balance under the Sanofi Loan Facility. The Company was required to make mandatory prepayments on the outstanding loans under the SanofiLoan Facility from its share of any profits (as defined in the Sanofi License Agreement) under the Sanofi License Agreement within 30 days of receipt of its share ofany such profits.The Company’s total portion of the loss sharing was $57.7 million for the year ended December 31, 2015, of which $44.5 million was borrowed under the SanofiLoan Facility as of December 31, 2015. Subsequent to December 31, 2015, the Company borrowed $17.9 million under the Sanofi Loan Facility to finance the portionof the Company’s loss for the quarter ended December 31, 2015. The total amount owed to Sanofi at December 31, 2015 was $62.4 million, which includes $1.7 millionof paid-in-kind interest.On November 9, 2016, the Company entered into a settlement agreement with Sanofi (the “Settlement Agreement”). Under the terms of the SettlementAgreement, the promissory note between the Company and Aventisub LLC (“Aventisub”), a Sanofi affiliate, was terminated, with Aventisub agreeing to forgive the fulloutstanding loan balance of $72.0 million. Sanofi also agreed to purchase $10.2 million of insulin from the Company in December 2016 under an existing insulin putoption as well as make a cash payment of $30.6 million to the Company in early January 2017 as acceleration and in replacement of all other payments that Sanofiwould otherwise have been required to make in the future pursuant to the insulin put option, without the Company being required to deliver any insulin for suchpayment. The Company was also relieved of its obligation to pay Sanofi $0.5 million in previously uncharged costs pursuant to the Sanofi License Agreement. TheCompany and Sanofi also agreed to a general release of potential claims against each other.The forgiveness of the full outstanding loan balance on the Sanofi Loan Facility and the previously uncharged costs related to the collaboration were accountedfor in (gain) loss on extinguishment of debt in the 107Table of Contentsaccompanying consolidated statements of operations. The $10.2 million sale of insulin was accounted for as net revenue — collaboration, consistent with the Company’sales of insulin to Sanofi in the third quarter of 2016 (see Note 2 — Summary of Significant Accounting Policies — Revenue Recognition — Net Revenue —Collaboration ). The $30.6 million accelerated put option payment was recognized as a receivable from Sanofi at December 31, 2016 and an increase in the recognizedloss on purchase commitments as the purchase commitment obligation had previously been reduced to reflect the Company’s expectation that amounts associated withpurchases of insulin were recoverable (see Note 2 — Summary of Significant Accounting Policies — Inventories ).9. Fair Value of Financial InstrumentsThe carrying amounts reported in the accompanying consolidated financial statements for cash, accounts receivable, accounts payable and accrued expenses andother current liabilities approximate their fair value due to their relatively short maturities. The fair value of the cash equivalents, note payable to principal stockholder,senior convertible notes, the Facility Financing Obligation (as defined below), the Milestone Rights (as defined below) and warrant liability are discussed below.Cash Equivalents — As of December 31, 2016 and 2015, the Company held $20.5 million and $55.8 million, respectively, of cash equivalents, consisting ofmoney market funds. The fair value of these money market funds was determined by using quoted prices for identical investments in an active market (Level 1 in thefair value hierarchy).Note Payable to Principal Stockholder — The fair value of the note payable to the Company’s principal stockholder cannot be reasonably estimated as theCompany would not be able to obtain a similar credit arrangement in the current economic environment. Therefore, the fair value is based upon carrying value.Financial Liabilities — The following tables set forth the fair value of the Company’s financial instruments (in millions): As of December 31, 2016 Carrying Value Level 1 Level 2 Level 3 Total Financial liabilities: Senior convertible notes $27.6 $— $— $22.9 $22.9 Facility Financing Obligation 71.3 — — 74.5 74.5 Milestone Rights 8.9 — — 18.4 18.4 Warrant liability (at recurring fair values) 7.4 — — 7.4 7.4 Total financial liabilities $115.2 $— $— $123.2 $123.2 As of December 31, 2015 Carrying Value Level 1 Level 2 Level 3 Total Financial liabilities: Senior convertible notes $27.6 $— $— $21.3 $21.3 Facility Financing Obligation 74.6 — — 78.4 78.4 Milestone Rights 8.9 — — 14.4 14.4 Sanofi Loan Facility 44.5 — — 36.5 36.5 Total financial liabilities $155.6 $— $— $150.6 $150.6 108Table of ContentsThe following table provides a roll forward of the fair values of financial assets and liabilities that are carried at fair value (in millions): Warrants Assets Held forSale Fair value, January 1, 2015 $— $— Additions — — Changes in fair value — — Payments — — Fair value, December 31, 2015 $— $— Additions 12.8 17.3 Changes in fair value (5.4) (0.6) Payments — — Fair value, December 31, 2016 $7.4 $16.7 Senior Convertible Notes — The estimated fair value of the 2018 notes was calculated based on model-derived valuations where inputs were observable, such asthe Company’s stock price and yields on U.S. Treasury notes and actively traded bonds, and non-observable, such as the Company’s longer-term historical volatility,and estimated yields implied from any available market trades of the Company’s issued debt instruments. As there is no current active and observable market for the2018 notes, the Company determined the estimated fair value using a convertible bond valuation model within a lattice framework. The convertible bond valuationmodel combined expected cash flows based on terms of the notes with market-based assumptions regarding risk-free rate, risk-adjusted yields (20%), stock pricevolatility (111%) and recent price quotes and trading information regarding Company issued debt instruments and shares of common stock into which the notes areconvertible.Facility Financing Obligation — As discussed in Note 7 — Borrowings, in connection with the Facility Agreement, the Company issued 2019 notes andsubsequently issued Tranche B notes (the “Facility Financing Obligation”). As there is no current observable market for the Facility Financing Obligation, the Companydetermined the estimated fair value using a bond valuation model based on a discounted cash flow methodology. The bond valuation model combined expected cashflows associated with principal repayment and interest based on the contractual terms of the debt agreement discounted to present value using a selected market discountrate. On December 31, 2016 the market discount rate was recalculated at 12.0% for the Facility Financing Obligation. Under the terms of the Facility Agreement, theCompany is restricted from distributing any of its assets or declaring and distributing a dividend to its stockholders.Milestone Rights Liability — In addition to the Facility Financing Obligation, the Company also issued certain rights to receive payments of up to $90.0 millionupon occurrence of specified strategic and sales milestones (the “Milestone Rights”). These rights are not reflected in the Facility Financing Obligation. The estimatedfair value of the Milestone Rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjustedfor both the expected timing and the probability of achieving the milestones discounted to present value using a selected market discount rate (Level 3 in the fair valuehierarchy). The expected timing and probability of achieving the milestones, starting in 2014, was developed with consideration given to both internal data, such as theCompany’s forecast, progress made to date towards meeting the milestones, and assessment of criteria required for achievement, and external data, such as marketresearch studies. The discount rate (14.5%) was selected based on an estimation of required rate of returns for similar investment opportunities using available marketdata. As of December 31, 2016, the carrying value of the Milestone Rights is $8.9 million, classified as a long-term liability and the fair value is estimated at$18.4 million.Warrant Liability — Warrant liabilities are measured at fair value using a Monte Carlo pricing valuation model and various assumptions. The significantunobservable input used in measuring the fair value of the common stock warrant liabilities is the expected volatility. Significant increases in volatility would result in ahigher fair value measurement (Level 3 in the fair value hierarchy). See Note 16 — Warrants for further discussion of the valuation technique and inputs used in the fairvalue measurement. 109Table of ContentsSanofi Loan Facility — As discussed in Note 8 — Collaboration Arrangements, the Sanofi Loan Facility consisted of a senior secured revolving promissory noteand a guaranty and security agreement with an affiliate of Sanofi which provided the Company with a secured loan facility of up to $175.0 million to fund theCompany’s share of net losses under the Sanofi License Agreement. The estimated fair value was determined using a discounted cash flow model where timeoutstanding and discount rate were primary variables. This method considered the key elements of the contractual terms of the Sanofi Loan Facility, market-basedestimated cost of capital, and time value of money, namely the amount of time to settlement and the estimated discount rate (11%) appropriate for the liability (Level 3in the fair value hierarchy). The Sanofi Loan Facility was forgiven on November 9, 2016.There were no transfers of assets or liabilities between the fair value measurement levels during the twelve months ended December 31, 2016, 2015 and 2014.Assets and Liabilities Measured at Fair Value on a Non-recurring Basis — Land, buildings, and machinery and equipment, with a carrying amount of$189.2 million, were written down to a fair value of $48.8 million, resulting in an impairment charge of $140.4 million, which is included in our consolidated statementsof operations for the year ended December 31, 2015. See Note 4- Property and Equipment for further discussion of the valuation technique and inputs used in the fairvalue measurement.An additional impairment of $0.7 million was charged for the year ended December 31, 2016. At that time, an analysis of the lower of carrying value to fairvalue, which was deemed to be the sales price of the property, less selling costs determined a loss of $0.6 million, which is included in property and equipmentimpairment on the consolidated statement of operations for 2016.Our assessment of the real property includes Level 3 inputs, and was based on a combination of the income, market and cost approaches and the market approachwas used for machinery and equipment which required Level 3 inputs.Embedded Derivatives — The Company identified and evaluated a number of embedded features in the notes issued under the Facility Agreement to determine ifthey represented embedded derivatives that are required to be separated from the notes and accounted for as freestanding instruments. The Company analyzed theTranche B notes and identified embedded derivatives, which required separate accounting. However, all of the embedded derivatives were determined to have a deminimis value at December 31, 2016 and 2015.10. Common and Preferred StockOn March 1, 2017, the Company effected a 1-for-5 reverse stock split of the Company’s outstanding common stock. As a result, all common stock share amountsincluded in these consolidated financial statements have been retroactively reduced by a factor of five, and all common stock per share amounts have been increased bya factor of five, with the exception of the Company’s common stock par value. See Note 1 — Description of Business.The Company is authorized to issue 140,000,000 shares of common stock, par value $0.05 per share, and 10,000,000 shares of undesignated preferred stock, parvalue $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 ofDecember 31, 2016 and 2015, 95,680,831 and 85,734,188 shares of common stock, respectively, were issued and outstanding and no shares of preferred stock wereoutstanding.As more fully described in Note 16 — Warrants, in May 2016, the Company sold in a registered offering an aggregate of 9,708,737 shares of common stocktogether with certain warrants exercisable for up to an aggregate of 7,281,553 shares of common stock (“A Warrants”) and certain warrants exercisable for up to anaggregate of 2,427,184 shares of common stock (“B Warrants”) in a direct offering for proceeds of $50.0 million.On November 9, 2015, the Company entered into a series of stock purchase agreements to sell up to an aggregate of 10,000,000 shares of its common stock in aregistered direct offering to selected investment funds in Israel that hold securities included within certain stock indexes of the Tel Aviv Stock Exchange (the “TASE”).Pursuant to the agreements, the shares of common stock were sold at a price per share equal to 97% of the 110Table of Contentsclosing price of the Company’s common stock on the TASE on November 12, 2015. During November 2015, the Company sold 2,770,487 shares of common stock foran aggregate price of approximately $34,710,000, or $13.05 per share, which is net of $1,432,000 of issuance costs.The Company engaged Sunrise Securities Corporation as its exclusive placement agent in connection with the offering of the 10,000,000 shares. In connectionwith the services provided, the Company issued to Sunrise Securities Corporation, or its designee, restricted warrants to purchase a number of shares of the Company’scommon stock in an aggregate equal to 1.15% of the aggregate shares sold in the offering, which totaled 31,860 shares on November 16, 2015. The warrants areexercisable for a five year period at an exercise price of $13.05, the price paid per share in connection with the offering. The Company had an obligation to register thecommon stock that may be issued pursuant to the exercise of the warrants, which resulted in their initial classification as liability and were deemed immaterial. OnDecember 15, 2015 the warrants were reclassified to equity as the Company registered the common stock pursuant to a registration statement and continue to beclassified in equity as of December 31, 2016.Included in the common stock outstanding as of December 31, 2014 is 1,800,000 shares of common stock loaned to Bank of America under a share lendingagreement in connection with the offering of the $100.0 million aggregate principal amount of the 2015 notes. Bank of America was obligated to return the borrowedshares (or, in certain circumstances, the cash value thereof) to the Company on or about the 45th business day following the date as of which the entire principal amountof the 2015 notes ceases to be outstanding, subject to extension or acceleration in certain circumstances or early termination at Bank of America’s option. OnOctober 23, 2015, the 1,800,000 shares of common stock loaned to Bank of America were returned, as the Company settled all payments and deliveries in respect ofsuch convertible notes on August 17, 2015. The Company did not receive any proceeds from the sale of the borrowed shares by Bank of America, but the Company didreceive a nominal lending fee of $0.05 per share from Bank of America for the use of borrowed shares.On February 8, 2012, the Company sold 7,187,500 units in an underwritten public offering, including 937,500 units sold pursuant to the full exercise of an over-allotment option granted to the underwriters, with each unit consisting of one share of common stock and a warrant to purchase 0.1 of a share of common stock. All ofthe securities were offered by the Company at a combined price to the public of $12.00 per unit and the underwriters purchased the units at a price of $11.28 per unit.Net proceeds from this offering were approximately $80.6 million, excluding any warrant exercises. The 4,312,500 shares of common stock underlying the warrants areexercisable at $12.00 per share and expire four years from the date of the issuance.For the years ended December 31, 2015 and 2014, the Company received $10.1 million and $27.8 million in proceeds, respectively, from the exercise of theFebruary 2012 public offering warrants. There were no warrant exercises during the year ended December 31, 2016 and any unexercised February 2012 public offeringwarrants expired on February 8, 2016.11. Net Income (Loss) per Common ShareOn March 1, 2017, the Company effected a 1-for-5 reverse stock split of the Company’s outstanding common stock. As a result, all common stock share amountsincluded in these consolidated financial statements have been retroactively reduced by a factor of five, and all common stock per share amounts have been increased bya factor of five, with the exception of the Company’s common stock par value. See Note 1 — Description of Business.Basic net income (loss) per share excludes dilution for potentially dilutive securities and is computed by dividing net income (loss) by the weighted averagenumber of common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution under the treasury method that could occur ifsecurities or other contracts to issue common stock were exercised or converted into common stock. For periods where the Company has presented a net loss, potentiallydilutive securities are excluded from the computation of diluted net loss per share as they would be antidilutive. During 2015, 1,800,000 shares of the Company’s 111Table of Contentscommon stock, which were loaned to Bank of America pursuant to the terms of a share lending agreement, were issued and outstanding, with the holder of the borrowedshares having all the rights of a holder of the Company’s common stock. As the share borrower was required to return all borrowed shares to the Company, theborrowed shares were not considered outstanding for the purpose of computing and reporting basic or diluted loss per share during the period presented for 2015. Theseshares were returned to the Company in the third quarter of 2015.The following tables summarize the components of the basic and diluted net income (loss) per common share computations: Year Ended December 31, 2016 2015 2014 (In thousands, except per share data) Basic EPS: Net income (loss) (numerator) $125,664 $(368,445) $(198,382) Weighted average common shares (denominator) 92,053 81,233 77,045 Net income (loss) per share $1.37 $(4.54) $(2.57) Diluted EPS: Net income (loss) (numerator) $125,664 $(368,445) $(198,382) Weighted average common shares 92,053 81,233 77,045 Effect of dilutive securities — common shares issuable 32 — — Adjusted weighted average common shares (denominator) 92,085 81,233 77,045 Net income (loss) per share $1.36 $(4.54) $(2.57) Common shares issuable represents incremental shares of common stock which consist of stock options, restricted stock units, warrants, and shares that could beissued upon conversion of the senior convertible notes.Potentially dilutive securities outstanding that are considered antidilutive are summarized as follows (in shares): December 31, 2016 2015 2014 Exercise of common stock options 5,530,256 3,955,845 4,308,332 Conversion of senior convertible notes into common stock 814,561 814,561 3,464,616 Exercise of common stock warrants 9,740,597 814,919 1,997,575 Vesting of restricted stock units 702,867 360,924 522,144 16,788,281 5,946,249 10,292,667 12. Stock Award PlansOn March 1, 2017, the Company effected a 1-for-5 reverse stock split of the Company’s outstanding common stock. As a result, all common stock share amountsincluded in these consolidated financial statements have been retroactively reduced by a factor of five, and all common stock per share amounts have been increased bya factor of five, with the exception of the Company’s common stock par value. See Note 1 — Description of Business.On May 23, 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”) as the successor to and continuation of the 2004 Equity Incentive Plan(the “2004 Plan”). The 2013 Plan consists of 4.3 million additional shares and the number of unallocated shares remaining available for grant for new awards under the 112Table of Contents2004 Plan. The 2013 Plan provides for the granting of stock awards including stock options and restricted stock units, to employees, directors and consultants. The 2013Plan also provides for the automatic, non-discretionary grant of options to the Company’s non-employee directors. No additional awards will be granted under the 2004Plan or under the 2004 Non-Employee Directors’ Stock Option Plan (the “NED Plan”) as all future awards will be made out of the 2013 Plan.The following table summarizes information about the Company’s stock-based award plans as of December 31, 2016: Outstanding Options Outstanding Restricted Stock Units Shares Available for Future Issuance 2004 Equity Incentive Plan 2,052,345 14,203 97,574 2013 Equity Incentive Plan 3,399,245 723,763 3,743,013 2004 Non-Employee Directors’ Stock Option Plan 78,666 — — Total 5,530,256 737,966 3,840,587 In March 2004, as part of the 2004 Plan, the Company’s board of directors approved the Employee Stock Purchase Plan (“ESPP”), which became effective uponthe closing of the Company’s initial public offering. Initially, the aggregate number of shares that could be sold under the 2004 Plan was 400,000 shares of commonstock. On January 1 of each year, for a period of ten years beginning January 1, 2005, the share reserve automatically increased by the lesser of: 140,000 shares, 1% ofthe total number of shares of common stock outstanding on that date, or an amount as may be determined by the board of directors. However, under no event can theannual increase cause the total number of shares reserved under the ESPP to exceed 10% of the total number of shares of capital stock outstanding on December 31 ofthe prior year. On January 1, 2013 and 2014 the ESPP share reserve was increased each year by 140,000 shares. There was no ESPP share reserve increases during 2015or 2016. As of December 31, 2016, 445,782 shares were available for issuance under the ESPP. For the years ended December 31, 2016, 2015 and 2014, the Companysold 104,758, 64,245 and 61,015 shares, respectively, of its common stock to employees participating in the ESPP. The ESPP purchase of 43,672 shares for the periodending December 31, 2016 was initiated prior to year-end but did not settle until January 5, 2017. As a result, the shares sold are reflected in the ESPP share reserves butare excluded from common stock outstanding as of December 31, 2016.The Company’s board of directors determines eligibility, vesting schedules and criteria and exercise prices for stock awards granted under the 2013 Plan. Optionsand restricted stock unit awards under the 2013 Plan expire not more than ten years from the date of the grant and are exercisable upon vesting. Stock options that vestover 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 amonthly basis over a period of 36 months thereafter. Restricted stock units with time-based vesting generally vest at a rate of 25% per year over four years withconsideration satisfied by service to the Company. The Company also issues stock awards with performance conditions. The 2013 Plan provides for full acceleration ofvesting if an employee is terminated within three months of a change in control, as defined in the 2013 Plan.Share-based payment transactions are recognized as compensation cost based on the fair value of the instrument on the date of grant. The Company accounts fornon-employee stock-based compensation expense based on the estimated fair value of the options, which is determined using the Black-Scholes option valuation modeland amortizes such expense on a straight-line basis over the service period for time-based awards and over the expected dates of achievement for performance-basedawards. These awards are subject to re-measurement until service is complete. As of December 31, 2016, there were options to purchase 100,697 shares of commonstock outstanding to consultants.During the years ended December 31, 2016, 2015 and 2014 the Company recorded stock-based compensation expense of $5.1 million, $8.7 million and$48.6 million, respectively. 113Table of ContentsTotal stock-based compensation expense recognized in the accompanying consolidated statements of operations is as follows (in thousands): Year Ended December 31, 2016 2015 2014 Employee-related $5,135 $8,407 $48,622 Consultant-related — 318 — Total $5,135 $8,725 $48,622 Total stock-based compensation expense recognized in the accompanying consolidated statements of operations is included in the following categories (inthousands): Year Ended December 31, 2016 2015 2014 Cost of goods sold $695 $— $— Research and development 1,309 3,029 22,357 Selling, general and administrative 3,131 5,696 26,265 Total $5,135 $8,725 $48,622 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 optiongranted is based on combining historical exercise data with expected weighted time outstanding. Expected weighted time outstanding is calculated by assuming thesettlement of outstanding awards is at the midpoint between the remaining weighted average vesting date and the expiration date.The expected volatility assumption is based on an assessment of the historical volatility, with consideration of implied volatility, derived from an analysis ofhistorical 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 theoptions were granted. Additionally, the Company uses historical data and management judgment to estimate stock option exercise behavior and employee turnover ratesto estimate the number of stock option awards that will eventually vest. The Company calculated the fair value of employee stock options granted during the yearsended December 31, 2016, 2015 and 2014 using the following assumptions: Year Ended December 31, 2016 2015 2014Risk-free interest rate 1.18% — 1.80% 1.61% —1.86% 1.64% — 2.11%Expected lives 5.13 — 5.82 years 5.79 — 5.86 years 5.77 — 6.09 yearsVolatility 77.57% — 82.75% 69.76% — 71.84% 73.98% — 84.85%Dividends — — — The following table summarizes information about stock options outstanding: Number of Shares Weighted Average ExercisePrice per Share Aggregate Intrinsic Value ($000) Outstanding at January 1, 2016 3,955,845 $22.70 $— Granted 2,236,693 4.50 Exercised (55,231) 8.45 Forfeited (407,161) 13.60 Expired (199,890) 23.65 Outstanding at December 31, 2016 5,530,256 $16.10 $2 Vested and expected to vest at December 31, 2016 5,399,777 $16.35 $2 Exercisable at December 31, 2016 3,414,586 $22.50 $— 114Table of ContentsThe weighted average grant date fair value of the stock options granted during the years ended December 31, 2016, 2015 and 2014 was $3.05, $12.80 and $23.80per option, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $0.1 million, $6.2 million and$14.9 million, respectively. Intrinsic value is measured using the fair market value at the date of exercise for options exercised or at December 31 for outstandingoptions, less the applicable exercise price.Cash received from the exercise of options during the years ended December 31, 2016, 2015 and 2014 was approximately $0.5 million, $3.3 million and$11.0 million, respectively. The weighted-average remaining contractual terms for options outstanding, vested and expected to vest and exercisable at December 31,2016 was 5.31 years, 5.22 years and 2.93 years, respectively.A summary of restricted stock unit activity for the year ended December 31, 2016 is presented below: Number of Shares Weighted Average Grant DateFair Valueper Share Outstanding at January 1, 2016 360,924 $24.25 Granted 800,530 4.50 Vested (131,000) 21.70 Forfeited (292,488) 11.60 Outstanding at December 31, 2016 737,966 $8.40 The total restricted stock units expected to vest as of December 31, 2016 was 629,424 with a weighted average grant date fair value of $8.60 per share. The totalintrinsic value of restricted stock units expected to vest as of December 31, 2016 was $2.0 million. Intrinsic value of restricted stock units expected to vest is measuredusing the closing share price at December 31, 2016.Total intrinsic value of restricted stock units vested during the years ended December 31, 2016, 2015 and 2014 was $0.6 million, $5.2 million and $62.7 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 ofrestricted stock units vested during the years ended December 31, 2016, 2015 and 2014 was $2.6 million, $5.5 million and $36.4 million, respectively.As of December 31, 2016, there was $4.0 million and $4.8 million of unrecognized compensation expense related to options and restricted stock units withperformance conditions, respectively, which is expected to be recognized over the weighted average vesting period of 2.9 years. The Company evaluates stock awardswith performance conditions as to the probability that the performance conditions will be met and uses that information to estimate the date at which those performanceconditions will be met in order to properly recognize stock-based compensation expense over the requisite service period.As of December 31, 2016, the Company reviewed the probability of achieving the performance conditions for each of the four vesting tranches of theperformance-based stock options and determined that it was probable that the Company would achieve the first vesting tranche in December 2017. Therefore, theCompany recorded a non-material cumulative catchup of the expense from the grant date through December 31, 2016 and will record the unrecognized compensationcost related to the first tranche in the amount of $0.3 million through December 31, 2017. The Company further determined that no compensation costs would berecognized for the second, third and fourth vesting tranches as it had not been determined that it was probable that the performance conditions related to these trancheswould be achieved.During the year ended December 31, 2015, there was $1.6 million of stock compensation expense related to certain executives who entered into severanceagreements which resulted in a modification to the terms of their 115Table of Contentsawards. The severance agreements generally allowed for the separated executives to continue to vest under their original award terms for a stated period of time withoutproviding substantive services. There were no modifications in 2016.13. Commitments and ContingenciesOperating Leases — The Company leases its executive offices in Valencia, California and certain equipment under various operating leases, which expire atvarious dates through 2017 and beyond. Future payments are insignificant.Rent expense under all operating leases, including office space and equipment, for the years ended December 31, 2016, 2015 and 2014 was approximately$373,000, $426,000 and $737,000, respectively.Guarantees and Indemnifications — In the ordinary course of its business, the Company makes certain indemnities, commitments and guarantees under which itmay be required to make payments in relation to certain transactions. The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifiesits 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 suchcapacity. 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 fairvalue of these indemnification agreements is minimal. The Company has not recorded any liability for these indemnities in the accompanying consolidated balancesheets. However, the Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when futurepayment 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, 2016, the Companybelieves that the final disposition of such matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of theCompany and no accrual has been recorded. The Company maintains liability insurance coverage to protect the Company’s assets from losses arising out of or involvingactivities associated with ongoing and normal business operations. The Company records a provision for a liability when it is both probable that a liability has beenincurred and the amount of the loss can be reasonably estimated. The Company’s policy is to accrue for legal expenses in connection with legal proceeding and claimsas they are incurred.Following the public announcement of Sanofi’s election to terminate the Sanofi License Agreement and the subsequent decline of the price of its common stock,several complaints were filed in the U.S. District Court for the Central District of California against the Company and certain of its officers and directors on behalf ofcertain purchasers of its common stock, which were consolidated into a single action. The amended complaint alleged that the Company and certain of its officers anddirectors violated federal securities laws by making materially false and misleading statements regarding the prospects for Afrezza, thereby artificially inflating the priceof its common stock. The Company and the named defendants brought a motion to dismiss the class action that was pending against them, which the District Courtgranted in August 2016 without leave to amend the complaint. The lead plaintiff appealed that decision to the Ninth Circuit Court of Appeals. On March 2, 2017, thelead plaintiff filed a voluntary motion to dismiss his appeal, which the Court of Appeals granted on March 9, 2017.Following the public announcement of Sanofi’s election to terminate the Sanofi License Agreement and the subsequent decline of the price of its common stock,two motions were submitted to the District Court at Tel Aviv, Economic Department for the certification of a class action against the Company and certain of its officersand directors. In general, the complaints allege that the Company and certain of its officers and directors violated Israeli and U.S. securities laws by making materiallyfalse and misleading statements regarding the prospects for Afrezza, thereby artificially inflating the price of its common stock. The plaintiffs are seeking monetary 116Table of Contentsdamages. In November 2016, the district court dismissed one of the actions without prejudice. In the remaining action, a hearing is scheduled for May 2017 to determinewhether Israeli or U.S. law is applicable before the case can be certified as a class action. The Company will vigorously defend against these claims.Subsequent to the filing of the federal securities class action against the Company, two shareholder derivative complaints were filed in the Superior Court for theState of California, County of Los Angeles against certain of the Company’s directors and officers. The complaints allege breaches of fiduciary duties by the defendantsand other violations of law. Among other allegations, the complaints allege that the defendants caused the Company to make false and misleading statements oromissions of material fact regarding the Company’s business and the prospects for sales of Afrezza, thereby artificially inflating the price of the Company’s commonstock. Following the dismissal of the federal securities class action, each derivative complaint was voluntarily dismissed by its plaintiff.Contingencies — In connection with the Facility Agreement, on July 1, 2013 the Company also entered into a Milestone Rights Purchase Agreement (the“Milestone Agreement”) with Deerfield Private Design Fund and Horizon Santé FLML SÁRL (collectively, the “Milestone Purchasers”), pursuant to which theCompany sold the Milestone Purchasers the Milestone Rights to receive payments up to $90.0 million upon the occurrence of specified strategic and sales milestones,including the first commercial sale of an Afrezza product in the United States and the achievement of specified net sales figures (see Note 7 — Borrowings).Commitment — On July 31, 2014, the Company entered into a supply agreement (the “Insulin Supply Agreement”) with Amphastar France PharmaceuticalsS.A.S., a French corporation (Amphastar), pursuant to which Amphastar will manufacture for and supply to the Company certain quantities of recombinant humaninsulin for use in Afrezza. Under the terms of the Insulin Supply Agreement, Amphastar will be responsible for manufacturing the insulin in accordance with theCompany’s specifications and agreed-upon quality standards. The Company had agreed to purchase annual minimum quantities of insulin for calendar years 2015through 2019 under the Insulin Supply Agreement of an aggregate total of approximately €120.1 million. The Company could have requested to purchase additionalquantities of insulin over such annual minimum quantities with a cancellation fee.On November 9, 2016, the supply agreement with Amphastar was amended to extend the term over which the Company is required to purchase insulin, withoutreducing the total amount of insulin to be purchased. Under the amendment, annual minimum quantities of insulin to be purchased for calendar years 2017 through 2023total an aggregate purchase price of €93.0 million at December 31, 2016. The Insulin Supply Agreement specifies that Amphastar will be deemed to have satisfied itsobligations with respect to quantity, if the actual quantity supplied is within plus or minus ten percent (+/- 10%) of the quantity set forth in the applicable purchaseorder. In addition, the aggregate cancellation fees that the Company would incur in the event that the above insulin quantities are not purchased was lowered from$5.3 million for the period October 1, 2016 through 2018 to $3.4 million over the same period. The annual purchase requirements under the contract are as follows: 2017 €2.7 million 2018 €8.9 million 2019 €11.6 million 2020 €15.5 million 2021 €15.5 million 2022 €19.4 million 2023 €19.4 million Unless earlier terminated, the term of the Insulin Supply Agreement expires on December 31, 2023 and can be renewed for additional, successive two year termsupon 12 months’ written notice given prior to the end of the 117Table of Contentsinitial term or any additional two year term. The Company and Amphastar each have normal and customary termination rights, including termination for material breachthat 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 theInsulin Supply Agreement upon two years’ prior written notice to Amphastar without cause or upon 30 days’ prior written notice to Amphastar if a controllingregulatory authority withdraws approval for Afrezza, provided, however, in the event of a termination pursuant to either of the latter two scenarios, the provisions of theInsulin 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 theeffective date of such termination.The Company also has another firm commitment with another supplier for an aggregate of $0.9 million.14. Employee Benefit PlansThe Company administers a 401(k) savings retirement plan (the “MannKind Retirement Plan”) for its employees. For the years ended December 31, 2016, 2015and 2014, the Company contributed $418,000, $593,000 and $623,000, respectively, to the MannKind Retirement Plan.15. Income TaxesAt December 31, 2016, 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 itshistory of losses. There is no provision for income taxes in 2015 or 2014 because the Company had incurred operating losses since inception. Accordingly, the netdeferred tax assets have been fully reserved. The provision for income taxes consists of the following (in thousands): Year Ended December 31, 2016 2015 2014 Current U.S. federal $— $— $— U.S. state — — — Non-U.S. — — — Total current — — — Deferred U.S. federal (43,814) 109,512 57,873 U.S. state (4,311) (29,394) 7,631 Non-U.S. — — — Total deferred (48,125) 80,118 65,504 Valuation allowance 48,125 (80,118) (65,504) Total $— $— $— 118Table of ContentsDeferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income taxpurposes. 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 thenet deferred tax assets as of December 31, 2016 and 2015, are as follows (in thousands): December 31, 2016 2015 Deferred tax assets: Net operating loss carryforwards $712,124 $721,588 Research and development credits 77,998 73,646 Capitalized research 5,117 5,872 Payments from collaboration — 52,484 Milestone Rights 3,242 3,242 Accrued expenses 440 251 Loss on purchase commitment 36,775 24,084 Non-qualified stock option expense 17,331 16,941 Capitalized patent costs 8,781 8,574 Other 7,380 7,186 Depreciation 45,310 48,755 Total net deferred tax assets 914,498 962,623 Valuation allowance (914,498) (962,623) Net deferred tax assets $— $— The table of deferred tax assets and liabilities does not include certain deferred tax assets as of December 31, 2016, that arose directly from tax deductions relatedto equity compensation which are greater than the compensation recognized for financial reporting. Equity would be increased by $11.6 million if and when suchdeferred tax assets are ultimately realized. The Company considers certain realization requirements when excess tax benefits have been realized.The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2016, 2015 and 2014: December 31, 2016 2015 2014 Federal tax benefit rate 35.0% 35.0% 35.0% Permanent items (1.9) — 0.9 Intercompany transfer of intellectual property 0.9 (1.0) (4.1) Valuation allowance (34.0) (34.0) (31.8) Effective income tax rate — % — % — % Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management hasconcluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company may not realize the benefit of its deferred tax assets.Accordingly, the net deferred tax assets have been fully reserved. Management reevaluates the positive and negative evidence on an annual basis. During the yearsended December 31, 2016, 2015 and 2014, the change in the valuation allowance was $(48.1) million, $80.1 million and $65.5 million, respectively, for income taxes.At December 31, 2016, the Company had federal and state net operating loss carryforwards of approximately $1.9 billion and $1.3 billion available, respectively,to reduce future taxable income. The federal 119Table of Contentsnet operating loss carryforwards will expire at various dates beginning in 2018 and the state net operating loss carryforwards have started expiring, starting in the currentyear through various future dates. As a result of the Company’s initial public offering, an ownership change within the meaning of Internal Revenue Code Section 382occurred in August 2004. As a result, federal net operating loss and credit carry forwards of approximately $216.0 million are subject to an annual use limitation ofapproximately $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 382limitation for those years. The federal net operating losses generated subsequent to the Company’s initial public offering in August 2004 are currently not subject to anysuch limitation as there have been no ownership changes since August 2004 within the meaning of Internal Revenue Code Section 382. At December 31, 2016, theCompany had research and development credits of $53.0 million and $38.5 million for federal and state purposes, respectively. The federal credits begin to expire in2024, and the state credits may be carried forward indefinitely.The Company has evaluated the impact of uncertainty related to income taxes on its consolidated financial statements. The evaluation of an uncertain tax positionis a two-step process. The first step is recognition: the enterprise determines whether it is more-likely-than-not that a tax position will be sustained upon examination,including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met themore-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that would have fullknowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured todetermine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percentlikely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in thefirst subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognitionthreshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company believes that its income taxfiling positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its consolidated financialposition. Therefore, no liabilities for uncertain income tax positions have been recorded. Tax years since 2012 remain subject to examination by the major taxjurisdictions in which the Company is subject to tax.16. WarrantsIn May 2016, the Company sold in a registered offering an aggregate of 9,708,737 shares of common stock together with A Warrants exercisable for up to anaggregate of 7,281,553 shares of common stock and B Warrants exercisable for up to an aggregate of 2,427,184 shares of common stock with a total fair value of$44.7 million. Each of the warrants has an exercise price of $7.50 per share. The A Warrants became exercisable upon issuance and will expire two years thereafter. TheB Warrants will become exercisable beginning in May 2017 and will expire 30 months after the date of issuance. The shares of common stock and the warrants areimmediately separable and issued separately. There have been no warrants exercised as of December 31, 2016.The Company determined that the A Warrants require liability classification primarily due to a price-protection clause that applies in the event of certain dilutivefinancings. The fair value of the A Warrants was recorded as warrant liability in the consolidated balance sheet at issuance and is adjusted to fair value at each reportingperiod until exercise or expiration. The Company determined that the B Warrants met the criteria for equity classification and has accounted for such warrants inadditional paid in capital.As of December 31, 2016 and May 12, 2016, the fair value of the A Warrants liability was $7.4 million and $12.8 million, respectively. As of May 12, 2016, thefair value of the B Warrants at issuance was $5.0 million. The fair value of the A Warrants liability as of December 31, 2016 was estimated using a Monte Carlovaluation pricing model with the following underlying assumptions: (a) a risk-free interest rate of 1.1%; (b) an assumed dividend yield of zero percent; (c) an expectedterm of 1.4 years; and (d) an expected volatility of 118%. The fair 120Table of Contentsvalue of the A Warrants liability as of May 12, 2016, was estimated using a Monte Carlo valuation pricing model with the following underlying assumptions: (a) a risk-free interest rate of 0.76%; (b) an assumed dividend yield of zero percent; (c) an expected term of 2.0 years; and (d) an expected volatility of 95%. The Companyassumed a probability of a dilutive financing event or an equity event, as defined in the agreement, of 10% for the each of the measurement periods.For the year ended December 31, 2016, the Company recognized a change in fair value of warrant liability of $5.4 million in the consolidated statements ofoperations to reflect the fair value adjustments of the A Warrant liability from the date of issuance.17. Selling, General and Administrative ExpensesSelling, general and administrative expenses consist of the following (in thousands): Year Ended December 31, 2016 2015 2014 Selling and marketing $19,854 $1,587 $3,556 General and administrative 27,074 39,373 75,827 Total selling, general and administrative $46,928 $40,960 $79,383 18. Restructuring ChargesIn September 2016, the Company initiated a restructuring of its organization in order to conserve resources for commercial sales and marketing of Afrezza and toalign cost of goods sold in support of these commercial efforts (2016 Restructuring). In connection with the 2016 Restructuring, the Company reduced its totalworkforce by approximately 18% to 155 employees. The Company recorded charges of approximately $1.5 million, primarily for employee severance as well as otherrelated termination benefits. The $1.5 million of costs associated with the 2016 Restructuring are included in cost of goods sold, research and development and selling,general and administrative in the consolidated statements of operations as $0.4 million, $0.7 million and $0.4 million, respectively, for the year ended December 31,2016. The Company substantially paid out the obligation for the 2016 Restructuring in the fourth quarter of 2016, resulting in a remaining accrual balance for the 2016Restructuring of $0.2 million at December 31, 2016. The Company expects to substantially pay out the remainder of this obligation by the first quarter of 2017.In 2015, the Company initiated a restructuring of the organization as a result of its shift to commercial production of Afrezza (“2015 Restructuring”). Inconnection with the 2015 Restructuring, the Company reduced its total workforce by approximately 26% to 198 employees. The Company recorded charges ofapproximately $6.0 million, primarily for employee severance as well as other related termination benefits. The $6.0 million of costs associated with the 2015Restructuring are included in operating expenses for cost of goods sold, research and development and selling, general and administrative in the consolidated statementsof operations as $1.4 million, $1.3 million and $3.3 million, respectively, for the year ended December 31, 2015. As of December 31, 2016 and 2015, the Company hada remaining accrual balance for the 2015 Restructuring of $1.2 million and $3.0 million, respectively. Certain of the severance arrangements for executives in the 2015Restructuring were long-term, which the Company expects to substantially pay out the remainder of this obligation by the third quarter of 2017. 121Table of ContentsA reconciliation of beginning and ending liability balances for the 2016 and 2015 Restructuring charges, which is included in accrued expenses and other currentliabilities, is as follows (in thousands): Description 2016 Restructuring 2015 Restructuring Total Accrual — January 1, 2015 $— $— $— Costs incurred and charged to expense — 6,040 6,040 Costs paid or settled — (3,012) (3,012) Accrual — December 31, 2015 — 3,028 3,028 Costs incurred and charged to expense 1,475 560 2,035 Costs paid or settled (1,266) (2,421) (3,687) Accrual — December 31, 2016 $209 $1,167 $1,376 19. Selected quarterly financial data (unaudited)Summarized quarterly financial data for the years ended December 31, 2016 and 2015, are set forth in the following tables: March 31 June 30 September 30 December 31 (In thousands, except per share data) 2016 Net revenues $— $— $162,354 $12,404 Net income (loss) $(24,873) $(29,959) $126,520 53,976 Net income (loss) per share — basic $(0.29) $(0.33) $1.32 $0.56 Net income (loss) per share — diluted $(0.29) $(0.33) $1.31 $0.56 Weighted average common shares used to compute basic net income (loss) per share 85,771 91,061 95,627 95,676 Weighted average common shares used to compute diluted net income (loss) per share 85,771 91,061 96,548 96,510 2015 Net loss $(30,658) $(28,910) $(31,857) $(277,020) Net loss per share — basic and diluted $(0.38) $(0.36) $(0.39) $(3.30) Weighted average common shares used to compute basic and diluted net loss per share 79,783 80,203 81,039 83,862 Impairment charges of $242.7 million were recorded in the fourth quarter of 2015 related to long-lived assets, inventory and loss on purchase commitments.In the third quarter of 2016, the Company recognized net revenue-collaboration of $161.8 million attributable to collaboration with Sanofi (See Note 8 —Collaboration Arrangements).In the fourth quarter of 2016, the Company recognized net revenue-collaboration of $10.2 million attributable to collaboration with Sanofi and $72.0 million gainon extinguishment of debt (See Note 8 — Collaboration Arrangements)20. Subsequent EventsReverse Stock Split — On September 14, 2016, NASDAQ notified the Company that the bid price of the Company’s common stock had closed below therequired $1.00 per share for 30 consecutive trading days, and, 122Table of Contentsaccordingly, the Company did not comply with the applicable NASDAQ minimum bid price requirement. The Company was provided 180 calendar days by NASDAQ,or until March 13, 2017, to regain compliance with this requirement.On March 1, 2017, the Company held a Special Meeting of Stockholders at which the Company’s stockholders approved a proposal to amend the Company’sAmended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s outstanding common stock at a ratio to be determined in thediscretion of the Company’s board of directors and with such reverse stock split to be effected at such time and date as determined by the Company’s board of directorsin its sole discretion, and to reduce the number of authorized shares of the Company’s common stock in a corresponding proportion to the reverse stock split, rounded tothe nearest whole share.On March 1, 2017, following stockholder approval of the reverse split proposal, the Company’s board of directors approved a reverse stock split ratio of1-for-5. On March 1, 2017, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of the Company’s Amended andRestated Certificate of Incorporation to effect the 1-for-5 reverse stock split of the Company’s outstanding common stock and to reduce the authorized number of sharesof the Company’s common stock from 700,000,000 to 140,000,000 shares. The Company’s common stock began trading on The NASDAQ Global Market on a split-adjusted basis when the market opened on March 3, 2017.As of the date of this filing, the shares of the Company’s common stock have maintained a minimum bid closing price of at least $1.00 per share for 10consecutive business days. Accordingly, the Company expects to receive a notice from the Listing Qualifications Department of the NASDAQ Stock Market indicatingthat the Company has regained compliance with the minimum closing bid price requirement.Sale of Valencia Facility — On January 6, 2017, the Company and Rexford Industrial Realty, L.P. (“Rexford”) entered into an Agreement of Purchase and Saleand Joint Escrow Instructions (the “Purchase Agreement”), pursuant to which the Company agreed to sell and Rexford agreed to purchase certain parcels of real estateowned by the Company in Valencia, California and certain related improvements, personal property, equipment, supplies and fixtures (collectively, the “Property”) for$17.3 million. The sale and purchase of the aforementioned Property for $17.3 million pursuant to the terms of the Purchase Agreement, as amended, was completed onFebruary 17, 2017. Net proceeds were approximately $16.7 million after deducting broker’s commission and other fees of approximately $624,000 paid by theCompany. In the fourth quarter of 2016 the property met the requirements for reclassification from property and equipment, net to asset held for sale when it becameprobable that the property would be sold within one year. At that time, an analysis of the lower of carrying value which was deemed to be the sales price of the property,to fair value less selling costs determined a loss of $564,000, which was recorded as a property and equipment impairment on the consolidated statement of operationsfor 2016. At December, 31 2016, this property had a carrying value of $16.7 million and was classified as held for sale. The sale of this property will be reflected in theconsolidated financial statements for the quarter ended March 31, 2017. 123Exhibit 4.2 MANNKIND CORPORATION THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH AUTHORIZED CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, TO THE EXTENT THAT THE SAME HAVE BEEN FIXED, AND OF THE AUTHORITY OF THE BOARD OF DIRECTIONS TO DESIGNATE THE SAME WITH RESPECT TO ANY SHARES. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR TO ITS TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - (Cust) under Uniform Gifts to Minors Act UNIF TRF MIN ACT - (Cust) (Minor) Custodian (Minor) (State) Custodian (until age) under Uniform Transfers to Minors Act (State) Additional abbreviations may also be used though not in the above list. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE For value received, ____________________________hereby sell, assign and transfer unto (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) Shares of the stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated: __________________________________________20 Signature(s) Guaranteed: Medallion Guarantee Stamp THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15. Signature: Signature: Notice: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever. The IRS requires that the named transfer agent (“we”) report the cost basis of certain shares or units acquired after January 1, 2011. If your shares or units are covered by the legislation, and you requested to sell or transfer the shares or units using a specific cost basis calculation method, then we have processed as you requested. If you did not specify a cost basis calculation method, then we have defaulted to the first in, first out (FIFO) method. Please consult your tax advisor if you need additional information about cost basis. If you do not keep in contact with the issuer or do not have any activity in your account for the time period specified by state law, your property may become subject to state unclaimed property laws and transferred to the appropriate state. 1234567ZQ|CERT#|COY|CLS|RGSTRY|ACCT#|TRANSTYPE|RUN#|TRANS# COMMON STOCK PAR VALUE $0.01 COMMON STOCK THIS CERTIFICATE IS TRANSFERABLE IN CANTON, MA, JERSEY CITY, NJ AND COLLEGE STATION, TX MannKind Corporation Certificate Number ZQ00000000 MANNKIND CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE Shares * * 000000 * * * * * * * * * * * * * * * * * * * * * 000000 * * * * * * * * * * * * * * * * * * * * * 000000 * * * * * * * * * * * * * * * * * * * * * 000000 * * * * * * * * * * * * * * * * * * * * * 000000 * * * * * * * * * * * * * * THIS CERTIFIES THAT MR. SAMPLE & MRS. SAMPLE & ** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample MR. SAMPLE & MRS. SAMPLE is the owner of CUSIP 56400P 70 6 SEE REVERSE FOR CERTAIN DEFINITIONS *** ZERO HUNDRED THOUSAND **000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares*** *000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****0 00000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****00 0000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000 000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****0000 00**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****00000 0**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000000 **Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000000* *Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000000** Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000000**S ZERO HUNDRED AND ZERO*** FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF MANNKIND CORPORATION Transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless duly countersigned by the Transfer Agent and registered by the Registrar. In WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed in facsimile by its duly authorized officers and the facsimile corporate seal to be duly affixed hereto. CEO, CFO and Director MANNKIND CORPORATION CORPORATE SEAL DELAWARE DATED DD-MMM-YYYY COUNTERSIGNED AND REGISTERED: COMPUTERSHARE INC. TRANSFER AGENT AND REGISTRAR, Secretary SECURITY INSTRUCTIONS ON REVERSE By AUTHORIZED SIGNATURE CUSIP Holder ID Insurance Value Number of Shares DTC Certificate Numbers 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 Total Transaction XXXXXX XX X XXXXXXXXXX 1,000,000.00 123456 12345678 123456789012345 Total Num/No. Denom. MannKind Corporation PO BOX 43004, Providence, RI 02940-3004 MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 1234567 Printed by DATA BUSINESS FORMSExhibit 10.31C ONFIDENTIAL S ETTLEMENT C OMMUNICATIONS UBJECT T O LCA S ECTION 14.2, FRE 408, CPLR 4547 AND E QUIVALENT L AWSEXECUTION VERSION SETTLEMENT AGREEMENTTHIS SETTLEMENT AGREEMENT (this “ Agreement ”) is made effective as of November 9, 2016 (the “ Effective Date ”) by and among:MannKind Corporation , a Delaware corporation (“ MannKind ”), together with Technosphere International C.V. , a Dutch limited partnership (“ TICV ”),and MannKind Netherlands B.V. , a Dutch limited liability company (“ BV ,” and together with MannKind, TICV, and their respective Affiliates, the “ MKEntities ”); andsanofi-aventis U.S. LLC , a Delaware limited liability company (“ Sanofi ” and together with its Affiliates, the “ Sanofi Entities ”).For the purposes of this Agreement, each of the MK Entities, on the one hand, and the Sanofi Entities, on the other hand, are referred to individually as a “ Party ” andcollectively as the “ Parties .”RECITALSWHEREAS, Sanofi-Aventis Deutschland GmbH (“ Sanofi GmbH ”), MannKind, BV and TICV entered into that certain License and Collaboration Agreement,dated August 11, 2014 (the “ LCA ”, and together with the Letter Agreement and Supply Agreement (each as defined below), the “ License and Supply Arrangement ”),pursuant to which MannKind, TICV and BV granted Sanofi certain exclusive rights and licenses to Develop and Commercialize Product (each as defined in the LCA);WHEREAS , pursuant to that certain Assignment, dated September 19, 2014, by and between Sanofi GmbH and Sanofi, Sanofi GmbH assigned the License andSupply Arrangement to Sanofi;WHEREAS, pursuant to that certain letter, dated January 1, 2016 (and received by MannKind on January 4, 2016), from Sanofi to MannKind (the “ TerminationLetter ”), Sanofi notified MannKind of its decision to terminate the License and Supply Arrangement;WHEREAS , pursuant to that certain Transition Agreement, dated April 4, 2016, by and between Sanofi and MannKind (the “ Transition Agreement ”), theParties transferred certain responsibilities for the Product to MannKind in accordance with Section 13.3(c) of the LCA;WHEREAS, MannKind has made certain assertions and allegations about Sanofi relating to the License and Supply Arrangement and Sanofi’s performancethereunder in letters dated February 4, 2016, August 5, 2016, and October 23, 2016;WHEREAS, Sanofi has responded to and denied such assertions and allegations in letters dated February 12, 2016, September 20, 2016, October 13, 2016, andOctober 30, 2016;WHEREAS, MannKind’s letter dated August 5, 2016 provided Sanofi “Notice of Dispute” and formally invoked the dispute resolution procedure set forth inSection 14.1 of the LCA;CONFIDENTIAL WHEREAS, executives from Sanofi and MannKind met on September 29, 2016 to “meet and attempt to resolve the dispute in face-to-face negotiations” asrequired by Section 14.1 of the LCA;WHEREAS , the MK Entities and the Sanofi Entities have determined that it is in their mutual benefit to resolve the matters discussed in the letters referred toabove (the Dispute ”);WHEREAS , in connection with the settlement of the Dispute, Sanofi’s Affiliate, Aventisub LLC (“ Aventisub ”) has agreed to release MannKind from itsobligation to pay Aventisub $71,562,138.31 under the Promissory Note and release certain security interests encumbering MannKind’s assets; and Sanofi has agreed toaccelerate certain payments owed by Sanofi to MannKind under the Supply Agreement;WHEREAS , the payments by Sanofi and release of financial obligations and encumbrances by MannKind are anticipated by MannKind to make availablesubstantial current liquidity and facilitate MannKind’s future financing activities; andWHEREAS , the MK Entities agree that the benefits provided by the Sanofi Entities hereunder and in the Pay-Off Letter provide at least reasonably equivalentvalue for the release of claims by the MK Entities hereunder.NOW, THEREFORE, in accordance with the foregoing Recitals, and in consideration of the mutual covenants contained herein, the Parties hereto agree asfollows: 1.Defined Terms . For purposes of this Agreement, the following capitalized terms are defined in this Section 1 and shall have the meaning specified herein.Capitalized terms which are used in this Agreement but not defined in this Section 1 or elsewhere in this Agreement shall have the meanings given to them in theLicense and Supply Arrangement. (a)“ Affiliate ” of a Party means any Person that, directly or indirectly, through one or more intermediaries, now or hereafter controls, is controlledby, or is under common control with such Person as of such date. As used herein, the term “ control ” (including the terms “ controlling ,” “controlled by ” and “ under common control with ”) means the possession, directly or indirectly, of the power to direct or cause the direction of themanagement and policies of a Person, whether through ownership of voting securities or other interests, by contract or otherwise (b)“ Claims ” means any and all of the following arising under the laws of the United States or any foreign jurisdiction: claims, counterclaims, cross-claims, demands, causes of action, Liabilities, lawsuits, arbitrations, proceedings, third-party interventions, or any other form of claim, whether ornot fixed, contingent or absolute, matured or unmatured, direct or indirect, liquidated or unliquidated, accrued or unaccrued, known or unknown,whether or not required to be reflected in financial statements or disclosed in the notes thereto. (c)“ Letter Agreement ” means that certain Letter Agreement, dated August 11, 2014, by and among MannKind, TICV, BV and Sanofi GmbH. SETTLEMENT AGREEMENT PAGE 2 CONFIDENTIAL (d)“ Liabilities ” means debts, liabilities, losses, damages, attorneys’ fees, court costs, obligations, expenses, or any other form of cost orcompensation, whether or not fixed, contingent or absolute, matured or unmatured, direct or indirect, liquidated or unliquidated, accrued orunaccrued, known or unknown, whether or not required to be reflected in financial statements or disclosed in the notes thereto. (e)“ Pay-Off Letter ” means that certain Pay-Off Letter, dated as of even date herewith, by and between Aventisub and MannKind. (f)“ Potential Claims ” means any and all Claims arising or accruing prior to or as of the Effective Date against any Sanofi Entity or any MK Entity(or any Related Party thereof) of any nature, including those arising from, relating to, based upon, or in connection with the Dispute, the Licenseand Supply Arrangement, or the Transition Agreement. (g)“ Promissory Note ” means that certain Senior Secured Revolving Promissory Note, dated as of September 23, 2014, between MannKind andAventisub. (h)“ Related Parties ” means, with respect to each of the MK Entities or the Sanofi Entities, such entity’s predecessors, successors, assigns, agents,representatives, directors, officers and employees, solely, in each case, with respect to such Person’s representative capacity as such. (i)“ Security Agreement ” means that certain Guaranty and Security Agreement, dated as of September 23, 2014, by and among MannKind,MannKind LLC, and Aventisub. (j)“ Supply Agreement ” means that certain Supply Agreement, dated August 11, 2014, by and between MannKind and Sanofi, as assignee of SanofiGmbH. 2.Promissory Note and Security Agreement . In consideration of the execution of this Agreement and the mutual release of obligations contained herein,Aventisub and MannKind are terminating the Promissory Note and the Security Agreement pursuant to the Pay-Off Letter attached hereto as Exhibit A . 3.Insulin Payments and Put Options . (a)Purchase of Insulin . By no later than December 3, 2016, Sanofi shall purchase $10,184,504.07 worth of Amphastar Insulin from MannKind, andMannKind shall sell and provide Sanofi with such amount of Insulin, in accordance with the terms of the Supply Agreement and on termsconsistent with Sanofi’s purchases prior to the Effective Date of Amphastar Insulin pursuant to the Insulin Put Option. (b)Satisfaction and Termination of Insulin Put Option . Sanofi and the MK Entities hereby confirm and agree to terminate the Insulin Put Option as ofthe Effective Date, and do hereby terminate the Insulin Put Option subject to Sanofi’s final purchase and MannKind’s final sale referred to inSection 3(a) above. Within sixty (60) days after the Effective Date, Sanofi shall pay MannKind $30,553,512.21 as acceleration, and inreplacement, of all other payments Sanofi would otherwise have been required to make in the future pursuant to the Insulin Put Option. Sanofireleases MannKind from its obligation to sell, and MannKind releases Sanofi from any obligation to purchase, any additional Insulin. SETTLEMENT AGREEMENT PAGE 3 CONFIDENTIAL 4.Forgiveness of RSM Audit Money . Sanofi (on behalf of itself and its Affiliates) hereby releases the MK Entities from any obligation to pay Sanofi (or any ofits Affiliates) the $461,649.00 in uncharged costs identified in that certain September 28, 2016 audit performed by RSM US LLP. 5.Mutual Releases and Covenants Not to Sue or Assist . (a)MannKind Release and Covenant Not to Sue . The MK Entities, on behalf of themselves, and all of their Related Parties, hereby fully and forever,irrevocably and unconditionally: (i) release, acquit and forever discharge all their Potential Claims against any Sanofi Entity or any of its RelatedParties; and (ii) covenant and agree never to bring, assert, pursue, maintain, or join in any such Potential Claim. (b)MannKind Covenant Not to Assist . The MK Entities, on behalf of themselves and all of their Related Parties, hereby fully and forever,irrevocably and unconditionally covenant and agree never to directly or indirectly finance, fund, encourage, solicit, assist, or otherwise supportany Potential Claim brought against any Sanofi Entity and any of its Related Parties by any other Person (including any Related Party of the MKEntities, or any third Person). (c)Sanofi Release and Covenant Not to Sue . The Sanofi Entities, on behalf of themselves and all of their Related Parties, hereby fully and forever,irrevocably and unconditionally: (i) release, acquit and forever discharge all of their Potential Claims against each MK Entity and each of itsRelated Parties; and (ii) covenant and agree never to bring, assert, pursue, maintain, or join in any such Potential Claim. (d)Sanofi Covenant Not to Assist . The Sanofi Entities, on behalf of themselves and all of their Related Parties, hereby fully and forever, irrevocablyand unconditionally covenant and agree never to directly or indirectly finance, fund, encourage, solicit, assist, or otherwise support any PotentialClaim brought against any MK Entity and any of its Related Parties by any other Person (including any Related Party of the Sanofi Entities, or anythird Person). (e)Waiver of Statutory Provisions . The Parties (on behalf of themselves, their Affiliates, and their Related Parties) expressly waive any right orbenefit that may be available under Section 1542 of the California Civil Code or any similar laws of any other jurisdiction. Section 1542 of theCalifornia Civil Code provides: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release,which if known by him must have materially affected his settlement with the debtor.” (f)No Release of Certain Transition Agreement Obligations . The releases and covenants granted by the MK Entities in this Section 5 will not releaseSanofi’s remaining obligations under the Transition Agreement specifically listed on Exhibit D of this Agreement, to be completed by the datesspecified therein. SETTLEMENT AGREEMENT PAGE 4 CONFIDENTIAL 6.No Admission of Liability . It is understood and agreed by the Parties that the execution of this Agreement, the mutual releases contained herein, and theperformance by the Parties of their obligations contained in this Agreement (including the payments made, and releases of indebtedness granted, by the SanofiEntities) do not constitute an admission of any wrongdoing or liability whatsoever. This Agreement is a compromise in settlement of disputed claims, and is notto be construed as an admission for any purpose other than as necessary to enforce the terms of this Agreement. Neither this Agreement, nor the statementscontained herein, nor any act foregone or performed pursuant to or in furtherance of this Agreement, is or may be deemed to be or may be used as an admissionof, or evidence of, the validity of any right, claim or defense, or in any way referred to for any reason as against any of the Parties hereto in any proceeding in anycourt or tribunal; provided, however, that once signed, the Parties may refer to this Agreement as evidence of, and to effectuate, the terms and conditions of thisAgreement and the protections granted hereunder, and to enforce or otherwise effectuate the terms of this Agreement. 7.Confidentiality . The Parties hereby acknowledge and agree that the provisions of the LCA and Transition Agreement with respect to obligations regardingconfidentiality and Confidential Information shall remain in effect. 8.Press Releases . As soon as practicable following the execution of this Agreement, MannKind may issue a press release announcing the existence of thisAgreement and the transactions contemplated herein, but such press release must be in the form attached to this Agreement as Exhibit B . Except as required byApplicable Laws, including disclosure requirements of the SEC, the NASDAQ stock exchange or any other stock exchange on which securities issued by a Partyor its Affiliates are traded, neither Party shall make any published announcement concerning this Agreement or the transactions contemplated herein without theprior written consent of the other, which shall not be unreasonably withheld or delayed; provided, that it shall not be unreasonable for a Party to withhold consentwith respect to any published announcement containing any of such Party’s Confidential Information. In the event of a required published announcement, to theextent practicable under the circumstances, the Party making such announcement shall provide the other Party with a copy of the proposed text of suchannouncement sufficiently in advance of the scheduled release to afford such other Party a reasonable opportunity to review and comment upon the proposed text.In the event MannKind receives any third party inquiries regarding the License and Supply Arrangement, the Transition Agreement, the Promissory Note, theSecurity Agreement, this Agreement, or its relationship with the Sanofi Entities, MannKind shall only reply to such inquiries using a form materially similar asattached to this Agreement as Exhibit C or in a form approved by written consent of Sanofi (such consent not to be unreasonably withheld or delayed). 9.Bankruptcy Event . The Parties hereby agree that in the event MannKind becomes a debtor under the Bankruptcy Laws, and this Agreement is rejected oravoided in accordance with Bankruptcy Laws with the result that Sanofi loses the benefits of sections 5(a) and 5(b) hereunder, then the parties shall be returned totheir pre-settlement positions and Sanofi shall be entitled to damages resulting from MannKind’s breach of the Agreement. SETTLEMENT AGREEMENT PAGE 5 CONFIDENTIAL 10.Advice of Counsel . The Parties acknowledge that they have consulted with sophisticated attorney(s) of their own choosing regarding the rights, obligations, andother terms of this Agreement, that they have entered into this Agreement knowingly, freely and voluntarily without coercion or undue influence, and that theyhave negotiated such terms at arm’s length and that they intend to be bound hereby. Each Party has undertaken such independent investigation and evaluation asit deems appropriate and is entering this Agreement in reliance on the Party’s own investigation and advice, and not in reliance on any advice, disclosure,representation, or information provided by or expected from any other Party or Party’s lawyers, except as expressly stated in this Agreement. Each Party assumesthe risk that the facts or law may be other than it believes, and as such each Party agrees that no misunderstanding or misinformation of fact or law shall be aground for rescission hereof. 11.Representations, Warranties and Covenants . (a)MK Entities . As of the Effective Date, the MK Entities signing this Agreement represent, warrant and covenant to the Sanofi Entities that: (i)they have all requisite legal right, power and authority to execute, deliver and perform this Agreement and grant the releases, covenants andother rights granted by the applicable parties in this Agreement, without restriction or requirement of consent of any other Person; (ii)no MK Entity nor any of its respective Related Parties have assigned any Potential Claims to any third party; (iii)no MK Entity has granted, and no MK Entity shall grant, any rights to any Person that would conflict with, or prevent, the grant of thereleases, covenants, and other rights granted hereunder; (iv)there are no liens, conveyances, mortgages, assignments, encumbrances, or other contracts that would prevent or impair their full andcomplete performance of the terms and conditions of this Agreement; (v)the MK Entities are not aware of any third Person who has asserted or intends to assert a Potential Claim; (vi)they have the authority to settle and compromise all of the MK Entities’, and their Related Parties’, Potential Claims without the necessityof obtaining the consent of any other Person; (vii)the transactions contemplated by this Agreement and the Pay-Off Letter constitute the exchange of reasonable equivalent value for thebenefits provided by each Party to the other Party; (viii)the MK Entities are generally able to pay their debts and satisfy their obligations as they come due; and SETTLEMENT AGREEMENT PAGE 6 CONFIDENTIAL (ix)the MK Entities have not been, and as of the Effective Date are not presently engaged in, discussions with any creditors relating to anyfilings by MannKind under any Bankruptcy Laws or similar proceedings. (b)Sanofi . As of the Effective Date, Sanofi represents, warrants and covenants to the MK Entities that: (i)the Sanofi has all requisite legal right, power and authority to execute, deliver and perform this Agreement and grant the releases, covenantsand other rights granted by the applicable parties in this Agreement, without restriction or requirement of consent of any other Person; (ii)no Sanofi Entity nor any of its respective Related Parties have assigned any Potential Claims to any third party; (iii)no Sanofi Entity has granted, and no Sanofi entity shall grant, any rights to any Person that would conflict with, or prevent, the grant of thereleases, covenants, and other rights granted hereunder; (iv)there are no liens, conveyances, mortgages, assignments, encumbrances, or other contracts that would prevent or impair its full andcomplete performance of the terms and conditions of this Agreement; (v)the Sanofi Entities are not aware of any third Person who has asserted or intends to assert a Potential Claim; (vi)it has the authority to settle and compromise all of the Sanofi Entities’, and the Sanofi Entities’ Related Parties’, Potential Claims withoutthe necessity of obtaining the consent of any other Person; and (vii)the transactions contemplated by this Agreement and the Pay-Off Letter constitute the exchange of reasonable equivalent value for thebenefits provided by each Party to the other Party. 12.Indemnification . Except as provided in this Agreement, the Parties agree that the indemnification obligations under the License and Supply Arrangement andTransition Agreement are terminated as of the Effective Date. For the avoidance of doubt, Sanofi hereby waives any right it has to indemnification by the MKEntities under any and all product liability lawsuits pending as of the Effective Date, and the MK Entities hereby waive any right they have to indemnification bythe Sanofi Entities under any and all product liability lawsuits pending as of the Effective Date . 13.Dispute Resolution . In the event of any dispute arising out of or relating to this Agreement or either Party’s rights or obligations hereunder, the provisions ofArticle 14 of the LCA shall apply and govern the procedure and resolution of any such dispute. In the event multiple disputes arise out of or relating to anycombination of this Agreement, the Parties may join any or all such disputes, and the provisions of Article 14 of the LCA shall continue to apply and govern theprocedure and resolution of any such dispute. SETTLEMENT AGREEMENT PAGE 7 CONFIDENTIAL 14.General Provisions . (a)Intervening Events . If the performance of any part of this Agreement by either Party (other than making payment when due) is prevented,restricted, interfered with or delayed by any reason or cause beyond the reasonable control of such Party (including: fire, flood, embargo, powershortage or failure, acts of war, insurrection, riot, terrorism, strike, lockout or other labor disturbance (save where such strike, lockout, or otherlabor disturbance is initiated by the employees of the Party which seeks to rely on this clause), acts of God or any acts, omissions or delays inacting of the other Party) (an “ Intervening Event ”), the Party so affected shall, upon giving written notice to the other Party, be excused fromsuch performance to the extent of such Intervening Event, provided that the affected Party shall use its substantial efforts to avoid or remove suchcauses of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed. If either Party becomesaware that such an Intervening Event has occurred, is imminent or likely, it will immediately notify the other Party. The Party which is subject tosuch Intervening Event shall exert all reasonable efforts to overcome it. Such Party will keep the other informed as to the progress of overcomingsuch Intervening Event. (b)Performance by Affiliates/Related Parties . To the extent that this Agreement imposes obligations on Affiliates or Related Parties of a Party, suchParty agrees to cause its Affiliates or Related Parties to perform such obligation. Either Party may use one or more of its Affiliates or RelatedParties to perform its obligation hereunder, provided that the Parties will remain liable hereunder for the prompt payment and performance of alltheir respective obligations hereunder. (c)Modification . No amendment or modification of any provision of this Agreement shall be effective unless in a prior writing signed by all ofMannKind and Sanofi. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing orperformance or any other matter not set forth in an agreement in writing and signed by the Parties hereto. (d)No Circumvention of this Agreement . The Parties, on behalf of themselves and all of their Affiliates and Related Parties, agree that none of themshall enter into any arrangements, formal or informal, with the purpose of circumventing the intent of the terms and conditions of this Agreement. (e)Third Party Beneficiaries . The Parties agree that each Sanofi Entity, each MK Entity and each of their respective Related Parties are intendedthird party beneficiaries of the releases and covenants provided under this Agreement. (f)Incorporation of Recitals . The Parties hereby incorporate each of the Recitals stated above as material provisions of this Agreement. (g)Language . The language of this Agreement and all activities to be pursued under this Agreement is English. Any and all documents proffered byone Party to the other in fulfillment of any provision of this Agreement shall only be in compliance if in English. Any translation of thisAgreement in another language shall be deemed for convenience only and shall never prevail over the original English version. This Agreement isestablished in the English language. SETTLEMENT AGREEMENT PAGE 8 CONFIDENTIAL (h)Interpretation . The captions to this Agreement are not a part of this Agreement but are included for convenience of reference and shall not affectits meaning or interpretation. In this Agreement: (a) the word “including” shall be deemed to be followed by the phrase “without limitation” orlike expression; (b) the word “or” means “and/or” unless the context dictates otherwise because the subject of the conjunction are mutuallyexclusive; (c) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to anyparticular Article or Section or other subdivision; (d) references in this Agreement to “days” shall mean calendar days; (e) the singular shallinclude the plural and vice versa; and (f) masculine, feminine and neuter pronouns and expressions shall be interchangeable. Each accounting termused herein that is not specifically defined herein shall have the meaning given to it under IFRS, or if not defined by IFRS, the meaning applied toit by Sanofi in preparing its publicly reported financial statements, in each case, consistently applied, but only to the extent consistent with itsusage and the other definitions in this Agreement. (i)Counterparts; Electronic or Facsimile Signatures . This Agreement may be executed in any number of counterparts, each of which shall be anoriginal, but all of which together shall constitute one instrument. This Agreement may be executed and delivered electronically or by facsimileand upon such delivery such electronic or facsimile signature will be deemed to have the same effect as if the original signature had been deliveredto the other Party. (j)Taxes . Each Party shall bear its own tax liability in connection with this Agreement and shall make any report, payment or withholding asinstructed or required by any regulatory or taxing authority. (k)Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard toprinciples of conflicts of law. (l)Notices . Any notice or communication required or permitted under this Agreement shall be in writing in the English language, deliveredpersonally, sent by facsimile (and promptly confirmed by personal delivery, registered or certified mail or overnight courier), sent byinternationally-recognized courier or sent by registered or certified mail, postage prepaid to the following addresses of the Parties (or such otheraddress for a Party as may be at any time thereafter specified by like notice):If to MannKind, as follows :MannKind Corporation25134 Rye Canyon Loop, Suite 300Valencia, CA 91355Facsimile: 661-775-2081Attention: General Counsel SETTLEMENT AGREEMENT PAGE 9 CONFIDENTIAL with a copy to:Quinn Emanuel Urquhart & Sullivan LLP865 S. Figueroa St., 10 th FloorLos Angeles, CA 90017Facsimile: 213-443-3100Attention: Joseph M. Paunovich, Esq.If to Sanofi, as follows :sanofi-aventis U.S. LLC55 Corporate DriveMailstop: 55A-515ABridgewater, NJ 08807Facsimile: 908-927-8623Attention: General Counsel, NAStacy Silkworth, Esq.Christopher Liwski, Esq.with a copy to:Weil, Gotshal & Manges LLP767 Fifth AvenueNew York, NY 10153Facsimile: (212) 310-8000Attention: Yehudah L. Buchweitz, Esq.Jeffrey D. Osterman, Esq.Any such notice shall be deemed to have been given: (a) when delivered if personally delivered; (b) on the next Business Day after dispatch if sent byconfirmed facsimile or by internationally-recognized overnight courier; or (c) on the third Business Day following the date of mailing if sent by mail ornationally recognized courier.[S IGNATURE P AGE F OLLOWS ] SETTLEMENT AGREEMENT PAGE 10 IN WITNESS WHEREOF , the Parties have caused this Agreement to be duly executed and delivered by their respective duly authorized representatives on the dayand year first above written.sanofi-aventis U.S. LLC By: /s/ Susan A. ManardoName: Susan A. ManardoTitle: VP & Head, N.A. Litigation & Investigations[Signature Page to Settlement Agreement] IN WITNESS WHEREOF , the Parties have caused this Agreement to be duly executed and delivered by their respective duly authorized representatives on the dayand year first above written.MannKind Corporation By: /s/ Matthew PfefferName: Matthew PfefferTitle: Chief Executive OfficerTechnosphere International C.V.By: MannKind Corporation, its General Partner By: /s/ Matthew PfefferName: Matthew PfefferTitle: Chief Executive OfficerMannKind Netherlands B.V. By: /s/ Matthew PfefferName: Matthew PfefferTitle: Managing Director[Signature Page to Settlement Agreement] EXHIBIT APay-Off Letter[ Attached ] EXHIBIT BForm of Press Release Company Contact:Rose AlinayaSVP, Finance661-775-5300ralinaya@mannkindcorp.comMANNKIND AND SANOFI REACH AGREEMENT ON AFREZZA ®VALENCIA, Calif., November 9, 2016 (GLOBE NEWSWIRE) — MannKind Corporation (NASDAQ and TASE:MNKD) today announced that MannKind andSanofi have entered into an agreement with the following terms: • The promissory note and security agreement between MannKind and Aventisub LLC, a Sanofi affiliate, are terminated, with Aventisub agreeing to forgivethe full outstanding loan balance of $71.56 million. • MannKind is also relieved from its obligation to pay $0.5 million in previously uncharged costs related to the collaboration. • Sanofi will purchase $10.2 million worth of insulin from MannKind in early December as part of its preexisting commitment to purchase insulin followingtermination of the collaboration and MannKind’s exercise of a “put” option. • The balance of the insulin “put” option ($30.6 million) is accelerated with Sanofi completing the cash payment of $30.6 million to MannKind byJanuary 9, 2017. This payment will be made without MannKind being required to deliver any insulin to Sanofi. • All issues arising out of the license and collaboration agreement, the supply agreement, the promissory note, the security agreement and the transitionagreement are resolved.About MannKind CorporationMannKind Corporation (NASDAQ and TASE: MNKD) focuses on the discovery, development and commercialization of therapeutic products for patients with diseasessuch as diabetes. MannKind maintains a website at http://www.mannkindcorp.com to which MannKind regularly posts copies of its press releases as well as additionalinformation about MannKind. Interested persons can subscribe on the MannKind website to e-mail alerts that are sent automatically when MannKind issues pressreleases, files its reports with the Securities and Exchange Commission or posts certain other information to the website. EXHIBIT CAgreed Form of StatementOn November 9, 2016, MannKind and Sanofi reached an agreement to resolve all the outstanding contractual issues related to Afrezza. We refer you to the press releasedated November 9, 2016.If MannKind is asked about claims, disputes or liabilities:The parties have mutually released one another from any and all potential claims arising out of the license and collaboration agreement, the supply agreement, thepromissory note, the security agreement and the transition agreement. EXHIBIT DOutstanding Transition Agreement Deliverables/Transition Activities Transition AgreementReference Deliverable/Transition Activity Delivery/Completion DeadlineExhibit C, Deliverable Number 30 Regulatory Reporting of Sample Distribution(XML files) reporting period up to and includingApril 4th, 2016 filed to the NDA. April 30, 2017Exhibit E, Transition Service Number 11 Sanofi to honor 2016 Sanofi Savings Cards forpatients who have registered with Sanofi on orbefore April 4, 2016 until December31, 2016. December 31, 2016Exhibit E, Transition Service Number 28 Sanofi to work with Veteran Affairs (VA) toremove the Sanofi Afrezza NDCs from the FederalSupply Schedule (FSS). January 1, 2017 Exhibit 10.32FIRST AMENDMENT TO SUPPLY AGREEMENTThis first amendment (“First Amendment”) to the Supply Agreement by and between MannKind Corporation (“MannKind”) and Amphastar FrancePharmaceuticals S.A.S. (“AFP”), dated July 31, 2014 (the “Agreement”), is hereby made as of the 31st day of October, 2014, by and between MannKind on the onehand, and on the other hand, AFP and Amphastar Pharmaceuticals, Inc., a Delaware Corporation, having its principal office and place of business at 11570 6th Street,Rancho Cucamonga, CA 91730 (“Amphastar”).RECITALS :WHEREAS, MannKind and AFP entered into the Agreement pursuant to which AFP is to manufacture and supply the Product to MannKind, and MannKind is topurchase certain minimum quantities of the Product;WHEREAS MannKind and AFP, together with Amphastar, the parent company of AFP, have determined it to be mutually beneficial to amend the Agreement asset forth herein.NOW, THEREFORE, for good and valuable consideration, MannKind and AFP, together with Amphastar, hereby agree to amend the Agreement as follows:1. Definitions . Unless otherwise defined herein, each of the capitalized terms used in this First Amendment shall have the definition and meaning ascribed to itin the Agreement.2. Amendments to the Agreement .2.1 All references to “AFP” in the Agreement are replaced with “Amphastar.” For avoidance of doubt, Amphastar shall replace AFP as a party to the Agreement,and AFP shall no longer be a party to the Agreement.2.2 For avoidance of doubt, Amphastar shall assume all of AFP’s rights and obligations under the Agreement.2.3 With respect to Amphastar’s obligations under the Agreement, Amphastar either shall perform, or shall cause AFP to perform, all such obligations under theAgreement.2.4 Section 4.4 of the Agreement is amended and replaced in its entirety with the following:“ 4.4 Audits. Upon MannKind’s written request to Amphastar, which shall be not less than thirty (30) days in advance, MannKind, or a mutuallyagreed upon independent third party representative on behalf of MannKind’s licensee(s) identified in such a written request (“Licensee’s Representative”),shall have the right to visit Amphastar’s facility located at Usine Saint Charles, 60590 Eragny-sur-Epte, France, during normal business hours to reviewand inspect Amphastar’s manufacturing operations and quality systems related to the Product and to discuss any related issues with Amphastar’smanufacturing and management personnel. Such audits of Amphastar shall not exceed one (1) time per calendar year for MannKind and shall not exceedone (1) time per calendar year for MannKind’s Licensee’s Representative. For the avoidance of doubt, only two (2) audits in total are allowed per calendaryear. MannKind, or the Licensee’s Representative will be entitled to perform additional audits, upon shorter notice, if Non-conforming Products areproduced by Amphastar or complaints or other inquiries by regulatory authorities relating to the Products produced hereunder are received by either Party,or for any additional reasons where good cause is articulated in writing by MannKind. - 1 -2.5 The following sentence in section 6.1 of the Agreement:“All amounts due under this § 6.1 shall be due and payable by MannKind to AFP in EUR in accordance with § 6.2.”is amended and replaced in its entirety with the following:“All amounts due under this § 6.1 shall be due and payable by MannKind to Amphastar in U.S. dollars, and the conversion of the Purchase Price fromeuros (EUR) to U.S. dollars shall be made using the exchange rate at the close (Eastern time) of the last business day immediately prior to the shipmentdate, as reported by the Bloomberg Currency Spot Exchange Rate ( http://www.bloomberg.com/quote/EURUSD:CUR ), and otherwise in accordance with§ 6.2.”2.6 Section 11.1 of the Agreement is amended by adding the following sentence at the end of section 11.1: “MannKind’s obligations under this section 11.1 shallapply to Confidential Information MannKind receives from Amphastar or Amphastar’s Affiliates.”3. Final Agreement .From and after the execution of this First Amendment, all references in the Agreement (or in the First Amendment) to “this Agreement,” “hereof,” “herein,”“hereto,” and similar words or phrases shall mean and refer to the Agreement as amended by this First Amendment. The Agreement as amended by this FirstAmendment constitutes the entire agreement by and between the Parties as to the subject matter hereof. Except as expressly modified by this First Amendment, all otherterms and conditions of the Agreement shall remain in full force and effect. - 2 -IN WITNESS WHEREOF, each of MannKind, AFP, and Amphastar has caused this First Amendment to be executed by their duly authorized officers. MannKind CorporationBy: /s/ Kathleen M. FarleyName: Kathleen M. FarleyTitle: V.P. Strategic OperationsAmphastar France Pharmaceuticals S.A.S.By: /s/ Franck VitaliName: Franck VitaliTitle: Plant ManagerAmphastar Pharmaceuticals, Inc.By: /s/ Jason ShandellName: Jason ShandellTitle: President - 3 -Exhibit 10.33***Text Omitted and Filed Separatelywith the Securities and Exchange Commission.Confidential Treatment RequestedUnder 17 C.F.R. Sections 200.80(b)(4)and 240.24b-2.SECOND AMENDMENT TO SUPPLY AGREEMENTThis second amendment (“Second Amendment”) to the Supply Agreement by and between MannKind Corporation (“MannKind”) and AmphastarPharmaceuticals, Inc. (“Amphastar”), originally dated July 31, 2014 and as previously amended on October 31, 2014 (collectively, the “Agreement”), is hereby made asof the 9 th day of November, 2016, by and between MannKind on the one hand, and on the other hand, Amphastar.RECITALS :WHEREAS, MannKind and Amphastar entered into the Agreement pursuant to which Amphastar is to manufacture and supply the Product to MannKind, andMannKind is to purchase certain minimum quantities of the Product;WHEREAS, MannKind and Amphastar are concurrently entering into a first amendment to the Insulin Purchase Option Agreement originally dated January 1,2015 (the “Option Amendment”) andWHEREAS MannKind and Amphastar have determined it to be mutually beneficial to amend the Agreement as set forth herein.NOW, THEREFORE, for good and valuable consideration, MannKind and Amphastar, hereby agree to amend the Agreement as follows:1. Definitions . Unless otherwise defined herein, each of the capitalized terms used in this Second Amendment shall have the definition and meaning ascribed to itin the Agreement.2. Amendments to the Agreement .2.1 The following sentence in Section 5.1 of the Agreement:“Upon delivery to MannKind, AFP shall ensure Product will have a remaining expiry date of not less than four (4) years.”Is amended and replaced in its entirety with the following:“In calendar year 2017 and 2018, upon delivery to MannKind, Amphastar shall ensure that Product will have a remaining expiry date of not lessthan two (2) years. In calendar year 2019 and the remainder of the term of the Agreement, Amphastar shall ensure Product will have a remainingexpiry date of not less than three (3) years.”2.2 The following sentence in Section 6.1 of the Agreement:“Purchase Commitment and Purchase Price . MannKind shall purchase from AFP the minimum quantities of Product (the “ Purchase CommitmentQuantities ”) at the purchase price per gram (the “ Purchase Price ”) in each calendar year as provided in the table set forth below. In the event thatMannKind fails to meet the Purchase Commitment Quantities in any given calendar year, MannKind shall pay AFP for the difference in the amount of thePurchase Commitment Quantities and the actual amount purchased for the corresponding calendar year (such difference, the “ Purchase CommitmentDifference ”). AFP shall issue an invoice and MannKind shall pay the Purchase Commitment Difference no later than thirty (30) days after the close of thecorresponding calendar year.”is amended and replaced in its entirety with the following:Purchase Commitment and Purchase Price . MannKind shall purchase from Amphastar the minimum quantities of Product (the “ PurchaseCommitment Quantities ”) at the purchase price per gram (the “ Purchase Price ”) in each calendar year as provided in the table set forth below. Thisannual Purchase Commitment Quantities will be divided into four (4) equal quarterly commitments (the “ Quarterly Commitment ”). In the event thatMannKind fails to meet the Quarterly Commitment in any given calendar quarter, MannKind shall pay Amphastar for the difference in the amount of theQuarterly Commitment and the actual amount purchased for the corresponding calendar quarter (such difference, the “ Payment Commitment Difference”). Amphastar shall issue an invoice and MannKind shall pay the Payment Commitment Difference no later than thirty (30) days after the close of thecorresponding calendar quarter. Notwithstanding the foregoing, the parties hereby agree that the Purchase Commitment Quantities for 2017 shall not bedivided into four (4) equal quarterly payments but rather MannKind shall take receipt of the entire [ * …***…] Kgs of Product in the fourth (4 th ) quarterof 2017 but no later than November 15, 2017.2.3 The table in Section 6.1 of the Agreement is amended and replaced in its entirety with the following: Calendar Year Purchase Commitment Quantities (kg) Purchase Price (per gram) Delivery and Payment2014 [***] EUR [***] 2015 [***] EUR [***] 2016 [***] EUR [***] 2017 [***] EUR [***] 100% of the Purchase Commitment Quantities Payment shall be paid no later than November 5, 20172018 [***] EUR [***] 25% of the Purchase Commitment Quantities shall be paid on a Quarterly basis2019 [***] EUR [***] 25% of the Purchase Commitment Quantities shall be paid on a Quarterly basis2020 [***] EUR [***] 25% of the Purchase Commitment Quantities shall be paid on a Quarterly basis2021 [***] EUR [***] 25% of the Purchase Commitment Quantities shall be paid on a Quarterly basis2022 [***] EUR [***] 25% of the Purchase Commitment Quantities shall be paid on a Quarterly basis2023 [***] EUR [***] 25% of the Purchase Commitment Quantities shall be paid on a Quarterly basis ***Confidential Treatment Requested - 2 -2.4 Section 6.2 of the Agreement shall be amended and replaced in its entirety with the following:6.2 Payment. In calendar year 2017 and 2018, MannKind shall pre-pay Amphastar for the Product at least ten (10) days prior to the estimated deliverydate. For the avoidance of doubt, Amphastar shall not ship the Product to MannKind until such payment is received. Beginning in 2019 and for theremainder of the term of the Agreement, MannKind shall pay Amphastar for the Product within forty-five (45) days from shipment date of the Product.Amphastar shall submit an invoice electronically to MannKind, Attention: Account Payable, valenciaap@mannkindcorp.com . If any portion of an invoiceis disputed then MannKind shall pay the undisputed amount and the Parties shall use good faith efforts to reconcile the disputed amount as soon aspracticable.2.5 A new Section 6.5 shall be added to the Agreement as follows:6.5 Right of First Refusal in China. In consideration of the amendments contained in this Second Amendment and in the Option Amendment, MannKindhereby grants Amphastar the right of first refusal to participate in the development and commercialization of Afrezza in China through a collaborativearrangement. Specifically, Amphastar and MannKind agree that MannKind will not commence the process of obtaining approval of Afrezza in Chinawithout first providing Amphastar with (i) at least ninety (90) days prior written notice of MannKind’s intention to commence the process of obtainingapproval of Afrezza in China, and (ii) if Amphastar confirms its interest in collaborating in the development or commercialization of Afrezza in China inwriting within thirty (30) days of receipt of MannKind’s notice, then the Parties shall reserve sixty (60) days to negotiate in good faith the terms of such acollaborative arrangement for Afrezza in China. In the event that the Parties are unable to agree on commercial terms for a collaborative agreement afterthe sixty (60) day negotiation period, then MannKind shall have the right to negotiate a collaborative agreement with another party (“Competing Terms”).MannKind shall present the Competing Terms to Amphastar in writing, and within sixty (60) days of receipt of the Competing Terms, Amphastar shallhave the option to either (i) decline to match the Competing Terms, or (ii) agree to match the same Competing Terms and enter into a collaborativeagreement with MannKind in China.2.6 Section 10.1 of the Agreement shall be extended until December 31, 2023. All other terms and conditions in paragraph 10.1 shall remain in full forceand effect.3. Final Agreement .From and after the execution of this Second Amendment, all references in the Agreement (or in the Second Amendment) to “this Agreement,” “hereof,” “herein,”“hereto,” and similar words or phrases shall mean and refer to the Agreement as amended by this Second Amendment. The Agreement as amended by this SecondAmendment constitutes the entire agreement by and between the Parties as to the subject matter hereof. Except as expressly modified by this Second Amendment, allother terms and conditions of the Agreement shall remain in full force and effect. - 3 -IN WITNESS WHEREOF, each of MannKind and Amphastar has caused this Second Amendment to be executed by their duly authorized officers. MannKind CorporationBy: /s/ Matthew PfefferName: Matthew PfefferTitle: CEOAmphastar Pharmaceuticals, Inc.By: /s/ Jason ShandellName: Jason ShandellTitle: President - 4 -Exhibit 10.35FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALEAND JOINT ESCROW INSTRUCTIONSTHIS FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS (this “ First Amendment ”) is madeand entered into as of February 7, 2017, by and between MANNKIND CORPORATION, a Delaware corporation (“ Seller ”), and REXFORD INDUSTRIALREALTY, L.P., a Maryland limited partnership (“ Buyer ”).A. Seller and Buyer entered into that certain Agreement of Purchase and Sale and Joint Escrow Instructions dated for reference purposes as of January 6, 2017(the “ Original Agreement ”), relating to certain real property located in the City of Valencia, County of Los Angeles, State of California, more particularly describedin the Original Agreement.B. Seller and Buyer now desire to amend the terms of the Original Agreement as provided in this First Amendment.NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby amend theOriginal Agreement as follows:1. Recitals; Definitions . The recitals set forth above are not merely recitals, but form an integral part of this First Amendment. All capitalized terms used and nototherwise defined in this First Amendment shall have the meanings respectively assigned to them in the Original Agreement.2. Contingency Date . The parties agree that the Contingency Date shall be extended to, and all references to “Contingency Date” in the Agreement shall meanand refer to, 5:00 p.m. Pacific Time on February 10, 2017.3. Equipment . Notwithstanding anything in the Original Agreement to the contrary, Exhibit B and Exhibit 2 to Exhibit E attached to the Original Agreement arehereby deleted in their entirety and replaced with Exhibit B attached hereto. Additionally, without limitation of Section 7.9 of the Original Agreement, Buyer and itsagents and designees shall have the right, prior to Closing, to enter onto the Property from time to time, subject to the terms and conditions of Section 14 of the OriginalAgreement, to confirm there has been no Material Change to the Property, including, without limitation, the removal of, or damage to, any of the Equipment. Withoutlimitation of Buyer’s other rights and remedies in the Original Agreement, in the event of any Material Change under this provision, Buyer shall have the right to deferthe Closing until such Material Change is remedied or addressed to Buyer’s reasonable satisfaction.4. Allocation of Purchase Price . The parties agree that the allocation of the Purchase Price is $215,000.00 for the Equipment and $17,060,000.00 for the RealProperty. The parties further agree that the sale is indivisible notwithstanding the fact that the amounts have been allocated separately. No party to this Agreement shallfile any tax return, filing or report or take a position with any tax authority (whether federal, state or local) that is inconsistent with such allocation. Each of the parties tothis Agreement shall cooperate with the other in the filing of any forms with any taxing authority with respect to the reporting of the allocation of the Purchase Price.Seller represents and warrants to, and covenants with, Buyer that as of the Closing, including the sale to Buyer, Seller shall not have made more than two (2) sales oftangible personal property during the twelve (12) month period immediately prior to Closing. Seller shall be responsible for any and all sales tax in connection with thetransfer of the Equipment to Buyer. 15. Removal of Certain Hazardous Substances . Seller has engaged Clean Harbors, Inc. (Nasdaq symbol “CLH”) (“ Clean Harbors ”) to remove certainHazardous Substances stored at, on or upon the Property, as well as any and all containers storing same. Seller shall (a) prior to the Contingency Date provide Buyer, areasonably detailed summary or list of the Hazardous Substances, containers and locations thereof that are to be removed prior to Closing and scope of any other workto be performed by Clean Harbors, as well as a list of any chemicals or Hazardous Materials identified by Clean Harbors or Seller that are not being cleaned, removed ortreated by Clean Harbors, and (b) prior to Closing, shall (i) cause such removal to be completed in accordance with all applicable laws and in a good and workmanlikemanner, and (ii) provide Buyer a manifest executed by Clean Harbors describing the Hazardous Materials and containers that Clean Harbors has removed. Additionally,without limitation of Section 7.9 of the Original Agreement, Buyer and its agents and designees shall have the right, prior to Closing, to enter onto the Property fromtime to time, subject to the terms and conditions of Section 14 of the Original Agreement, to confirm the removal of such Hazardous Substances has been completed inaccordance with the terms of this Section. Seller’s obligations in this provision shall be a condition precedent to Buyer’s obligation to consummate the transactioncontemplated by the Agreement, and without limitation of Buyer’s other rights and remedies in the Original Agreement, Buyer shall have the right to defer the Closinguntil the foregoing condition(s) are satisfied.6. Assumed Contracts . The Service Contracts listed on Schedule 1 attached hereto shall be deemed to be the “Assumed Contracts” as described in the OriginalAgreement. Pursuant to the Original Agreement, at Closing, Seller shall, at its sole cost, terminate all other Service Contracts other than the Assumed Contracts.7. Miscellaneous . Except as otherwise expressly provided in this First Amendment, the provisions of the Original Agreement shall be and remain unmodified andin full force and effect (such Original Agreement being hereby ratified, reaffirmed and confirmed by Buyer and Seller), and if any provision of this First Amendmentconflicts with the Original Agreement, then the provisions of this First Amendment shall prevail. Except as otherwise expressly provided in this First Amendment,nothing contained in this First Amendment shall operate to waive the rights of Buyer or Seller under the Original Agreement. This First Amendment may be executed inone or more counterparts (by original, facsimile or electronic PDF signatures), each of which shall be deemed to constitute an original, but all of which, when takentogether, shall constitute one and the same instrument.[END OF TEXT; SIGNATURES ON FOLLOWING PAGE] 2IN WITNESS WHEREOF, Seller and Buyer have executed this First Amendment as of the date first set forth above. “BUYER” REXFORD INDUSTRIAL REALTY, L.P.,a Maryland limited partnership By: Rexford Industrial Realty, Inc., a Maryland corporation, Its General Partner By: /s/ Howard Schwimmer Name: Howard Schwimmer Its: Co-CEO “SELLER” MANNKIND CORPORATION,a Delaware corporation By: /s/ David Thomson Name: David Thomson Its: Vice President 3EXHIBIT “B”LIST OF EQUIPMENTINCLUDED ITEMSOUTSIDESpectrum Int. Combustion Mod. R163-7K36, 1115 KW Diesel Generator, Detroit Diesel 16-Cycle Engine, Turbo Charged, After Cooled w/ Arco 7000 Series TransferSwitch in Elec. Room w/ Wire.(3) Cleaver Brooks Mod. FLX700-450 Flex Water Tube Boilers w/ Arleta Mod. CSB50 Controllers, Still & PumpsU.S. Filter D.I. Unit Mod. 90/01096-607 w/ (2) R.O. Systems.(2006) Kaesar Mod. AS20, Rotary Screw Air Compressor w/ Receiver. S/N 1156(2) (2001 & 2008) McQuay Mod. E2612BE2-A, 300 Ton Chillers w/ Electrical & Microtech Controllers.(2) Evapco Cooling Towers.Armstong Water Re-Circulation System w/ Pumps & ElectricalQuincy Twin Stage 5 H.P. Air CompressorsPCH Twin Stage Vacuum Pump System.(2)Quincy QRD 30 H.P. High Pressure Air CompressorsMagliner Aluminum Dock Ramp.INSIDE(2) Metallurgical Microscope Per Images belowLOBBYReception Desk w/ Chairs, Sofa.WAIKIKI ROOMChairs & Furniture.Lunch Room w/ Microwaves, Ref, Tables & Chair.ROOMS #136, #131, #132, #134, #122, #123, #130, #129, #128, #1102, #1104, #1105, #1107Fisher Scientific Isotemp Oven.Heraeus Megafuge 2.0, Centrifuge.Packard Cobra II, Auto. Gama.(4)Baker Sterligard VBM500, S.S. Fume Hoods.Kodiak X-Omat 2000A, Developer. EXHIBIT “B”(5) Fisher Hamilton Safeaire Fume Hoods.Castle 8666, Washer Disinfector.(2001) Gettinge Mod. GE2609AR1, Steam Washer-Dryer.(4) New Brunswick Hot Plate Stirrers.(2) Room #125—R.W. Smith 12’ x 15’ Modular Controlled Environmental Rooms.Gas Tech 128, Monitor.(8) NuAire Class II Type A/B3, S.S. Bio. Safety Cabinets.Napco CO2 Environmental Ovens.(2) Western Innovator Industrial Manifolds.(3) Thermo Forma Class II, A2 Bio. Safety Cabinets.(3) New Brunswick Classic C25 & C24, Incubator Shakers.Justrite Flammable Storage Cabinet.Beckman Coulter Microplate Carousel.Isotemp 20T, Bath.Lab Line III, Incubator.(20) Lab Benches: 6’ x 24’ w/ Sink, Gas Lines, Electrical Outlets, Chairs.Supply Cabinets w/ Glass Doors.Olympus BX41 Met. Microscope.(2) Eppendorf 5415, Centrifuges.Leica 090-135-001, Stereo Zoom Microscope.(3) VWR Wash.Bio Tek ELX50.MJ PTC100, Prog. Thermal Controller.Varian Pro Star Chromatography System w/ (2) Solvent Delivery Modules, UV-VIS Detector w/ PC.Gemini Twin Shaking Water Bath.(2) Savant Speed Vac Centrifuges.Lab Line Orbit Environ-Shaker.(6) Steel Supply Cabinets.(1) Hanson Fume Hood.(2) Titer Plate Shakers.Branson 8510, Ultrasonic Cleaner.Port. S.S. Cart.(2) New Brunswick Biofold 3000, Batch Cont. Bio. Reactors.(2) Thermo Scientific Class II A/B3, Biological Safety Cabinets.(4) Forma Scientific CO2 Water Jacketed Incubators.(3) Newport Lab. Tables.Beckman Coulter System Gold 128, Solvent Module.Aurora Discovery.Molecular Device Mod. 0310-3895, Chemilluminescence Imaging Plate Reader w/ 600 Camera Controller.S/N CL-115Digital Analysis Lab. Treat LT-50, Ph Adjustment System w/ Effluent Monitor.Steam Generator. EXHIBIT “B”ROOM #142 (5)Scientek S.S. Downdraft Necropsy Tables, 2’ x 8’ w/ Hoods.TSI Fluidized Bed Aerosol Generator w/ Bias Flow Generator.Scientek Mod. SBS-48, Lab. Table w/ Fume Hood.(2)Port. S.S. Carts.(6)Scientek S.S. Backdraft Work Benches & Sins.Gettinge MTP 1800 S.S. Cage & Bottle Washer.(2) Gettinge Vivarium Autoclave II, Vacuum Steam Sterilizers w/ 4’ x 4’ x 4’ Wheel-In Cart Chamber w/ PACS 2000 Controller, Dbl. End.WAREHOUSE (7)Revo Ultima II, Freezers.ELECTRICAL (3)Square ‘D’ 2000 Amp., 480/277 Volts Breakers & Wire.(2)GE Zenith Transfer Switches & Wire.(2)Square ‘D’ Mod. 6, M.C.C. Panels & Wire.Crown 3000 Lb. Elec. Forklift w/ Legacy Charger.(2)Hyd. Pallet Jacks.Genie AWP-30S, Elec. Manlift.Harris Refrigerator.(2)Thermo Orion CO2 Incubators, Water Jacketed,Presto Die Lift. Cart.(10)Freezers. (Hallway)Fisher Scientific Lab. Ref.Lincoln Arc Welder.Port. A-Frame Hoist.(3)Beckman Coulter 25R, Centrifuge. (13)Fire King Fire Proof Cabinets.Powerwave 9390, U.P.S. w/ New Batteries & Capacitors.Misc. Office Furniture & Cubicles. EXHIBIT “B”EXCLUDED ITEMS12’ Single Axle Equipment TrailerPraxair Liquid Nitrogen Tank, Approx. 300 Gal.Equipment In Rooms #1109, #1110 & #1112 (including Hanson fume hood).Lab. Benches from Rooms #1109, #1110 and #1112.Lab. Sink in general lab area.Fume Hood in general lab area.Keurig Coffee Maker EXHIBIT “B”SCHEDULE 1ASSUMED CONTRACTS 1.Fire Protection Systems Annual Testing Proposal/Agreement with Red Hawk Fire & Security dated September 28, 2015. 2.Standard Landscape Maintenance Agreement with American Landscape Maintenance dated June 6, 2001. SCHEDULE 1SECOND AMENDMENT TO AGREEMENT OF PURCHASE AND SALEAND JOINT ESCROW INSTRUCTIONSTHIS SECOND AMENDMENT TO AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS (this “ Second Amendment ”) ismade and entered into as of February 10, 2017, by and between MANNKIND CORPORATION, a Delaware corporation (“ Seller ”), and REXFORD INDUSTRIALREALTY, L.P., a Maryland limited partnership (“ Buyer ”).A. Seller and Buyer entered into that certain Agreement of Purchase and Sale and Joint Escrow Instructions dated for reference purposes as of January 6, 2017(the “ Original Agreement ”), as modified by that certain First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated February 7, 2017(the “ First Amendment ”; together with the Original Agreement, the “ Amended Agreement ”), relating to certain real property located in the City of Valencia,County of Los Angeles, State of California, more particularly described in the Original Agreement.B. Seller and Buyer now desire to amend the terms of the Amended Agreement as provided in this Second Amendment.NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby amend theAmended Agreement as follows:1. Recitals; Definitions . The recitals set forth above are not merely recitals, but form an integral part of this Second Amendment. All capitalized terms used andnot otherwise defined in this Second Amendment shall have the meanings respectively assigned to them in the Amended Agreement.2. Approval of Certain Matters . Buyer hereby waives any and all contingencies that are scheduled to expire as of the Contingency Date.3. Closing Date . Notwithstanding anything in the Amended Agreement to the contrary, the Closing Date shall be February 17, 2017.4. Letter from MannKind LLC . At least one (1) business day prior to the Close of Escrow, Seller shall cause Mannkind LLC, a Delaware limited liabilitycompany, to deliver to Escrow Holder a duly executed original letter in the form of Exhibit “A” attached hereto. Upon the Close of Escrow, Escrow Holder shall deliverthe original of such letter to Buyer in accordance with Section 12.4 of the Original Agreement.5. UCC-3 . At least one (1) business day prior to the Close of Escrow, Seller shall cause to be completed a UCC-3 statement in the form of Exhibit “B” attachedhereto and deliver same to Escrow Holder for filing by Escrow Holder, or Buyer (at Buyer’s request), with the appropriate secretary of state, such that Buyer shallreceive the Equipment and Personal Property free and clear of liens at Closing.6. Miscellaneous . Except as otherwise expressly provided in this Second Amendment, the provisions of the Amended Agreement shall be and remain unmodifiedand in full force and effect (such Amended Agreement being hereby ratified, reaffirmed and confirmed by Buyer and Seller), and if any provision of this SecondAmendment conflicts with the Amended Agreement, then the provisions of this Second Amendment shall prevail. Except as otherwise expressly provided in thisSecond Amendment, nothing contained in this Second Amendment shall operate to waive the rights of Buyer or Seller under the Amended Agreement. This SecondAmendment may be executed in one or more counterparts (by original, facsimile or electronic PDF signatures), each of which shall be deemed to constitute an original,but all of which, when taken together, shall constitute one and the same instrument. 1IN WITNESS WHEREOF, Seller and Buyer have executed this Second Amendment as of the date first set forth above. “BUYER” REXFORD INDUSTRIAL REALTY, L.P.,a Maryland limited partnership By: Rexford Industrial Realty, Inc.,a Maryland corporation,Its General Partner By: /s/ Howard Schwimmer Name: Howard SchwimmerIts: Co-CEO “SELLER” MANNKIND CORPORATION,a Delaware corporation By: /s/ David Thomson Name: David Thomson Its: Vice President 2EXHIBIT “A”FORM OF LETTER FROM MANNKIND LLCFebruary , 2017Rexford Industrial Realty, L.P.11620 Wilshire Blvd., Suite 1000Los Angeles, California 90025Re: Acquisition of Property in Valencia, CATo Whom It May Concern:Reference is hereby made to that certain Agreement of Purchase and Sale and Joint Escrow Instructions dated as of January 6, 2017, by and between MannKindCorporation, a Delaware corporation (“ MannKind Corp ”) and Rexford Industrial Realty, L.P., a Maryland limited partnership (“ Rexford ”), as amended by thatcertain First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of February 7, 2017 (collectively, together with any additionalamendments thereto, the “ Agreement ”), respecting the sale of certain parcels of land located at 28901-03 N. Avenue Paine, in the City of Valencia, County of LosAngeles, State of California, as more particularly described in the Agreement (the “ Property ”). The undersigned hereby certifies that it owns no tangible property,furniture, fixtures or equipment physically located at or used in connection with MannKind Corp’s business operations at the Property and further certifies that it has nobusiness operations at the Property. The undersigned recognizes that Rexford and its successors and assigns are relying on this letter and the accuracy of the informationcontained herein. Sincerely,MANNKIND LLC,a Delaware limited liability companyBy: Name: Its: EXHIBIT “A”EXHIBIT “B”UCC-3See attached Exhibit “B” Exhibit “B”ANNEX IEXHIBIT “B”LIST OF EQUIPMENTINCLUDED ITEMSOUTSIDESpectrum Int. Combustion Mod. R163-7K36, 1115 KW Diesel Generator, Detroit Diesel 16-Cycle Engine, Turbo Charged, After Cooled w/ Arco 7000 Series TransferSwitch in Elec. Room w/ Wire.(3) Cleaver Brooks Mod. FLX700-450 Flex Water Tube Boilers w/ Arleta Mod. CSB50 Controllers,Still & PumpsU.S. Filter D.I. Unit Mod. 90/01096-607 w/ (2) R.O. Systems.(2006) Kaesar Mod. AS20, Rotary Screw Air Compressor w/ Receiver. S/N 1156(2) (2001 & 2008) McQuay Mod. E2612BE2-A, 300 Ton Chillers w/ Electrical & Microtech Controllers.(2) Evapco Cooling Towers.Armstong Water Re-Circulation System w/ Pumps & ElectricalQuincy Twin Stage 5 H.P. Air CompressorsPCH Twin Stage Vacuum Pump System.(2) Quincy QRD 30 H.P. High Pressure Air CompressorsMagliner Aluminum Dock Ramp.INSIDE(2) Metallurgical Microscope Per Images below LOBBYReception Desk w/ Chairs, Sofa. Exhibit “B”WAIKIKI ROOMChairs & Furniture.Lunch Room w/ Microwaves, Ref, Tables & Chair.ROOMS #136, #131, #132, #134, #122, #123, #130, #129, #128, #1102, #1104, #1105, #1107Fisher Scientific Isotemp Oven.Heraeus Megafuge 2.0, Centrifuge.Packard Cobra II, Auto. Gama.(4) Baker Sterligard VBM500, S.S. Fume Hoods.Kodiak X-Omat 2000A, Developer.(5) Fisher Hamilton Safeaire Fume Hoods.Castle 8666, Washer Disinfector.(2001) Gettinge Mod. GE2609AR1, Steam Washer-Dryer.(4) New Brunswick Hot Plate Stirrers.(2) Room #125 - R.W. Smith 12’ x 15’ Modular Controlled Environmental Rooms.Gas Tech 128, Monitor.(8) NuAire Class II Type A/B3, S.S. Bio. Safety Cabinets.Napco C02 Environmental Ovens.(2) Western Innovator Industrial Manifolds.(3) Thermo Forma Class II, A2 Bio. Safety Cabinets.(3) New Brunswick Classic C25 & C24, Incubator Shakers.Justrite Flammable Storage Cabinet.Beckman Coulter Microplate Carousel.Isotemp 20T, Bath.Lab Line III, Incubator.(20) Lab Benches: 6’ x 24’ w/ Sink, Gas Lines, Electrical Outlets, Chairs.Supply Cabinets w/ Glass Doors.Olympus BX41 Met. Microscope.(2) Eppendorf 5415, Centrifuges.Leica 090-135-001, Stereo Zoom Microscope.(3) VWR Wash.Bio Tek ELX50.MJPTC100, Prog. Thermal Controller.Varian Pro Star Chromatography System w/ (2) Solvent Delivery Modules, UV-VIS Detector w/ PC.Gemini Twin Shaking Water Bath.(2) Savant Speed Vac Centrifuges.Lab Line Orbit Environ-Shaker.(6) Steel Supply Cabinets.(1) Hanson Fume Hood.(2) Titer Plate Shakers. Exhibit “B”Branson 8510, Ultrasonic Cleaner.Port. S.S. Cart.(2) New Brunswick Biofold 3000, Batch Cont. Bio. Reactors.(2) Thermo Scientific Class II A/B3, Biological Safety Cabinets.(4) Forma Scientific CO2 Water Jacketed Incubators.(3) Newport Lab. Tables.Beckman Coulter System Gold 128, Solvent Module.Aurora Discovery.Molecular Device Mod. 0310-3895, Chemilluminescence Imaging Plate Reader w/ 600 Camera Controller. S/N CL-115Digital Analysis Lab. Treat LT-50, Ph Adjustment System w/ Effluent Monitor.Steam Generator.ROOM #142(5) Scientek S.S. Downdraft Necropsy Tables, 2’ x 8’ w/ Hoods.TSI Fluidized Bed Aerosol Generator w/ Bias Flow Generator.Scientek Mod. SBS-48, Lab. Table w/ Fume Hood.(2) Port. S.S. Carts.(6) Scientek S.S. Backdraft Work Benches & Sins.Gettinge MTP 1800 S.S. Cage & Bottle Washer.(2) Gettinge Vivarium Autoclave II, Vacuum Steam Sterilizers w/ 4’ x 4’ x 4’ Wheel-In Cart Chamber w/ PACS 2000Controller, Dbl. End.WAREHOUSE(7) Revo Ultima II, Freezers.ELECTRICAL(3) Square ‘D’ 2000 Amp., 480/277 Volts Breakers & Wire.(2) GE Zenith Transfer Switches & Wire.(2) Square ‘D’ Mod. 6, M.C.C. Panels & Wire.Crown 3000 Lb. Elec. Forklift w/ Legacy Charger.(2) Hyd. Pallet Jacks.Genie AWP-30S, Elec. Manlift.Harris Refrigerator.(2) Thermo Orion CO2 Incubators, Water Jacketed,Presto Die Lift. Cart.(10) Freezers. (Hallway)Fisher Scientific Lab. Ref.Lincoln Arc Welder.Port. A-Frame Hoist.(3) Beckman Coulter 25R, Centrifuge.(13) Fire King Fire Proof Cabinets.Powerwave 9390, U.P.S. w/ New Batteries & Capacitors.Misc. Office Furniture & Cubicles. Exhibit “B”THIRD AMENDMENT TO AGREEMENT OF PURCHASE AND SALEAND JOINT ESCROW INSTRUCTIONSTHIS THIRD AMENDMENT TO AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS (this “ Third Amendment ”) ismade and entered into as of February 15, 2017, by and between MANNKIND CORPORATION, a Delaware corporation (“ Seller ”), and REXFORD INDUSTRIALREALTY, L.P., a Maryland limited partnership (“ Buyer ”).A. Seller and Buyer entered into that certain Agreement of Purchase and Sale and Joint Escrow Instructions dated for reference purposes as of January 6, 2017(the “ Original Agreement ”), as modified by that certain First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated February 7, 2017(the “ First Amendment ”) and the Second Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated February 10, 2017 (the “ SecondAmendment ”; together with the Original Agreement and the First Amendment, the “ Amended Agreement ”), relating to certain real property located in the City ofValencia, County of Los Angeles, State of California, more particularly described in the Original Agreement.B. Seller and Buyer now desire to amend the terms of the Amended Agreement as provided in this Third Amendment.NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby amend theAmended Agreement as follows:1. Recitals; Definitions . The recitals set forth above are not merely recitals, but form an integral part of this Third Amendment. All capitalized terms used and nototherwise defined in this Third Amendment shall have the meanings respectively assigned to them in the Amended Agreement.2. Purchase Price . Section VIII of the Basic Provisions of the Original Agreement is hereby deleted in its entirety and replaced with the following:“The sum of Seventeen Million Two Hundred Seventy-Three Thousand and 00/100 Dollars ($17,273,000) (the “ Purchase Price ”).”All references in the Amended Agreement to the “Purchase Price” shall mean such term as amended hereby.3. Allocation of Purchase Price . The first sentence of Section 4 of the First Amendment is hereby deleted in its entirety and replaced with the following:“The parties agree that the allocation of the Purchase Price is $213,000.00 for the Equipment and $17,060,000.00 for the Real Property.”4. Equipment . The list of Equipment set forth in Exhibit B to the First Amendment is hereby amended by deleting the following equipment:“TSI Fluidized Bed Aerosol Generator w/ Bias Flow Generator.”5. Assumed Contracts . The list of Assumed Contracts set forth in Schedule 1 to the First Amendment is hereby amended by deleting the following contract:“Fire Protection Systems Annual Testing Proposal/Agreement with Red Hawk Fire & Security dated September 28, 2015.” 1All references in the Amended Agreement to the “Assumed Contracts” shall mean such term as amended hereby.6. UCC-3 . The form UCC-3 statement attached as Exhibit “B” to the Second Amendment is hereby amended by deleting the following equipment therefrom:“TSI Fluidized Bed Aerosol Generator w/ Bias Flow Generator.”7. Miscellaneous . Except as otherwise expressly provided in this Third Amendment, the provisions of the Amended Agreement shall be and remain unmodifiedand in full force and effect (such Amended Agreement being hereby ratified, reaffirmed and confirmed by Buyer and Seller), and if any provision of this ThirdAmendment conflicts with the Amended Agreement, then the provisions of this Third Amendment shall prevail. Except as otherwise expressly provided in this ThirdAmendment, nothing contained in this Third Amendment shall operate to waive the rights of Buyer or Seller under the Amended Agreement. This Third Amendmentmay be executed in one or more counterparts (by original, facsimile or electronic PDF signatures), each of which shall be deemed to constitute an original, but all ofwhich, when taken together, shall constitute one and the same instrument. 2IN WITNESS WHEREOF, Seller and Buyer have executed this Third Amendment as of the date first set forth above. “BUYER” REXFORD INDUSTRIAL REALTY, L.P., a Maryland limited partnership By: Rexford Industrial Realty, Inc.,a Maryland corporation,Its General Partner By: /s/ Howard Schwimmer Name: Howard SchwimmerIts: Co-CEO “SELLER” MANNKIND CORPORATION,a Delaware corporation By: /s/ David Thomson Name: David Thomson Its: Vice President 3Exhibit 10.36 One Casper StreetDanbury, CT 06810Main: 203-798-8000Fax: 203-798-7740www.mannkindcorp.comDecember 22, 2016Mr. Stuart A. Tross, Ph.D.1024 Cheshire Hills CourtWestlake Village, CA 91361Dear Stuart,Congratulations! The MannKind team has been very impressed with your background and credentials, and we are genuinely pleased to offer you full-time employmentwith MannKind Corporation, in the exempt position Chief People Officer Officer located in Valencia CA. In this position you will initially report directly to Matthew J.Pfeffer, Chief Executive Officer and CFO.We will target your employment to commence on December 23, 2016. Please be advised that continued employment is contingent upon satisfactory reference andbackground checks and receipt of results of a satisfactory drug screening test. You will receive an email with information regarding the test, contact and locationinformation for the laboratory as well as the hours of operation. This screening test must be completed within two weeks from the date of this letter.You will be paid on a bi-weekly basis, on regular payroll schedule, in the amount of $14,038.47, equating to an annualized amount of $365,000.22. You will be eligibleto participate in the MannKind Discretionary Bonus Plan, with a target bonus opportunity of 50% of annual earnings.Additionally, you will receive a one-time sign-on bonus in the gross amount of $35,000.00, less appropriate withholdings and other payroll deductions, payable as alump sum on the first pay period at the end of the first ninety (90) days of your employment. By accepting this offer, you agree that, in the event that you voluntarilyleave the Company, or if you are terminated by the Company for “cause”, within the twelve (12) months following receipt of payment, you will repay the full amount ofthe payment, net any with-holdings within thirty (30) days after the last day of your employment. By accepting this offer, you further agree that the Company maydeduct this amount from any other amounts The Company owes you should you be obligated to repay this amount.You will be eligible to participate in MannKind’s Equity Incentive Plan, under which stock options and restricted stock will be awarded to you at a future date, asapproved by the Board of Directors. At the next quarterly Board meeting after your hire date, we will recommend that you be granted an equity award of 400,000 stockoptions and 100,000 restricted stock units which is comparable to grants made for other individuals in similar level positions throughout the company. You will also beeligible for 400,000 stock options for Performance Grants. This is not a guarantee for a specific number of restricted stock units, but is only intended to provide youwith an understanding of grant guidelines for your position. If your start date is less than two weeks prior to the next quarterly Board meeting, the recommendation willbe submitted in the following quarter. Grants will begin vesting based on your hire date. You will also be eligible for an annual equity grant.Stuart A. Tross, page two We have a substantial list of fringe benefits, including the following: 20 days PTO annually, which accrues on a bi-weekly basis; short term and long term disabilityinsurance; company–paid life insurance; a 401(k) tax deferred savings program; flexible spending accounts; health, vision and dental insurance, Executive MedicalReimbursement plan and paid holidays which includes a full week in July and December for the holiday break. The holidays and other time off benefits will be proratedbased on your date of hire. All benefits, policies and rules are subject to change from time to time at the Company’s discretion. All benefits outlined in this offer letterare contingent on your continuing employment with MannKind Corporation in a benefit eligible status.Shortly after we are in receipt of your acceptance, you will receive a welcome email from our onboarding manager, with a link to your personalized onboarding portal.Through this portal you will have access to most of the required MannKind policies and agreements that will require your signature such as, the Employee ProprietaryInformation and Inventions Agreement, an Arbitration Agreement, a Policy Against Insider Trading, Code of Business Conduct and Ethics, and an EmployeeAcknowledgement Form, required after reading the MannKind Employee Sourcebook. Of course, the company may require additional policies or agreements to besigned and acknowledged in the future.Employment at MannKind is at will, which means that either you or MannKind can end the employment relationship at any time, and for any reason or for no reason,with or without cause or notice. The employment terms in this letter supersede any other agreements or promises made to you by anyone, whether oral or written, andcannot be modified or amended except in writing by an officer of the company. As required by law, this offer is subject to satisfactory proof of your right to work in theUnited States. This at will employment relationship cannot be changed except in writing as approved by the Board of Directors of MannKind.We appreciate the energy and enthusiasm you demonstrated during our interview and selection process and we look forward to a favorable response to our offer. Wehave many exciting challenges ahead and believe you can make a significant contribution to MannKind.At your earliest convenience, please sign and date this letter and return it to Diana Champagne, Director, Compensation and Benefits and HRIS (dchampagne@mannkindcorp.com ) to indicate your acceptance of this written offer of employment. Please also include proof of your annual compensation in the formof a recent pay stub or W2/1099.If you should have any questions, please don’t hesitate to contact me.Sincerely,/s/ Matthew J. PfefferMatthew J. PfefferChief Executive Officer and CFO Stuart A. Tross, page three I have carefully read and understand all of the terms of the above letter and freely and voluntarily accept and agree to all of its terms. I represent that, in agreeing to thisoffer letter, I am not relying on any representations or promises of any kind other than set forth in this letter. /s/ Stuart A. TrossStuart A. Tross, Ph.D.December 22, 2016Date SignedDecember 23, 2016Confirmed Start Date Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-117811, 333-127876, 333-137332, 333-149049, 333-160225, 333-176409,333-182457, 333-188790 and 333-213366 on Form S-8 of our reports dated March 16, 2017, relating to the consolidated financial statements of MannKind Corporationand subsidiaries (“MannKind Corporation”) (which report expresses an unqualified opinion and includes explanatory paragraphs relating to the Company’s ability tocontinue as a going concern and the effects of a reverse stock split), and the effectiveness of MannKind Corporation’s internal control over financial reporting,appearing in this Annual Report on Form 10-K of MannKind Corporation for the year ended December 31, 2016./s/ DELOITTE & TOUCHE LLPStamford, ConnecticutMarch 16, 2017Exhibit 31RULE 13a-14(a)/15d-14(a) CERTIFICATIONI, Matthew J. Pfeffer, certify that:1. I have reviewed this Annual Report on Form 10-K of MannKind Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internalcontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly duringthe period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. /s/ Matthew J. PfefferMatthew J. PfefferChief Executive Officer andChief Financial OfficerDate: March 16, 2017Exhibit 32CERTIFICATION 1Pursuant to the requirement set forth in Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), andSection 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Matthew J. Pfeffer, Chief Executive Officer and Chief Financial Officer ofMannKind Corporation (the “Company”), hereby certifies that, to the best of his knowledge:1. The Company’s Annual Report on Form 10-K for the period ended December 31, 2016, to which this Certification is attached as Exhibit 32 (the“Annual Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.In Witness Whereof, the undersigned has set his hand hereto as of the 16th day of March, 2017. /s/ Matthew J. PfefferMatthew J. PfefferChief Executive Officer and Chief Financial Officer 1 This certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not tobe incorporated by reference into any filing of MannKind Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, asamended (whether made before or after the date of the Annual Report on Form 10-K to which this certification relates), irrespective of any general incorporationlanguage contained in such filing.

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