MannKind
Annual Report 2018

Plain-text annual report

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, 2018or☐☐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.)30930 Russell Ranch Road, Suite 300Westlake Village, California 91362(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code(818) 661-5000Securities 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 15(d) of the Securities Exchange Act of 1934. 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 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 bestof the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐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 29, 2018, 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 ofsuch date on the Nasdaq Global Market, was approximately $252,751,851.As of February 14, 2019, there were 187,342,566 shares of the registrant’s Common Stock outstanding.  DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive Proxy Statement (the “Proxy Statement”) for the 2019 Annual Meeting of Stockholders to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A not later than April 30, 2019 are incorporated by reference in Part III of this Annual Report on Form 10-K.  MANNKIND CORPORATIONAnnual Report on Form 10-KFor the Fiscal Year Ended December 31, 2018TABLE OF CONTENTS PART IItem 1. Business 2Item 1A. Risk Factors 13Item 1B. Unresolved Staff Comments 35Item 2. Properties 35Item 3. Legal Proceedings 35Item 4. Mine Safety Disclosures 35PART IIItem 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 36Item 6. Selected Financial Data 37Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 39Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50Item 8. Financial Statements and Supplementary Data 51 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 62 CONSOLIDATED BALANCE SHEETS 63 CONSOLIDATED STATEMENTS OF OPERATIONS 64 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 65 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT 66 CONSOLIDATED STATEMENTS OF CASH FLOWS 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 68Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 51Item 9A. Controls and Procedures 51Item 9B. Other Information 52PART IIIItem 10. Directors, Executive Officers and Corporate Governance 53Item 11. Executive Compensation 53Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 53Item 13. Certain Relationships and Related Transactions, and Director Independence 53Item 14. Principal Accounting Fees and Services 53PART IVItem 15. Exhibits. Financial Statement Schedules 54Signatures 60  Forward-Looking StatementsStatements in this report that are not strictly historical in nature are “forward-looking statements” within the meaning of the federal securities lawsmade pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-lookingstatements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,”“should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, though not all forward-looking statements contain theseidentifying words. These statements may include, but are not limited to, statements regarding: our ability to successfully market, commercialize and achievemarket acceptance for Afrezza or any other product candidates or therapies that we may develop; our ability to manufacture sufficient quantities of Afrezzaand obtain insulin supply as needed; our ability to successfully commercialize our Technosphere drug delivery platform; our estimates for futureperformance; our estimates regarding anticipated operating losses, future revenues, capital requirements and our needs for additional financing; the progressor success of our research, development and clinical programs, including the application for and receipt of regulatory clearances and approvals; our ability toprotect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and scientific studies and theconclusions we draw from them. These statements are only predictions or conclusions based on current information and expectations and involve a number ofrisks and uncertainties. The underlying information and expectations are likely to change over time. Actual events or results may differ materially from thoseprojected in the forward-looking statements due to various factors, including, but not limited to, those set forth under the caption “Risk Factors” andelsewhere in this report. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. Thesestatements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for suchstatements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiryinto, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely uponthese statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result ofnew information, future events or otherwise.Afrezza ® and Technosphere ® are our trademarks in the United States. We have also applied for or have registered company trademarks in otherjurisdictions. This document also contains trademarks and service marks of other companies that are the property of their respective owners. 1  PART IItem 1. BusinessUnless the context requires otherwise, the words “MannKind,” “we,” “Company,” “us” and “our” refer to MannKind Corporation and its subsidiaries.We are a biopharmaceutical company focused on the development and commercialization of inhaled therapeutic products for patients with diseasessuch as diabetes and pulmonary arterial hypertension. Our only approved product, Afrezza (insulin human) Inhalation Powder, is a rapid-acting inhaledinsulin that was approved by the U.S. Food and Drug Administration (“FDA”) in June 2014. Afrezza became available by prescription in U.S. retailpharmacies in February 2015. According to the Centers for Disease Control and Prevention, 30.3 million people in the United States had diabetes in 2015.Globally, the International Diabetes Federation has estimated that approximately 425.0 million people had diabetes in 2017 and approximately629.0 million people will have diabetes by 2045.AfrezzaAfrezza is a rapid-acting inhaled insulin used to improve glycemic control in adults with diabetes. The product consists of a dry powder formulation ofhuman insulin delivered from a small portable inhaler. Administered at the beginning of a meal, Afrezza dissolves rapidly upon inhalation to the lung anddelivers insulin quickly to the bloodstream. The first measurable effects of Afrezza occur approximately 12 minutes after administration.From August 2014 until April 2016, Sanofi-Aventis U.S. LLC (“Sanofi”)) was responsible for commercial, regulatory and development activitiesassociated with Afrezza pursuant to a license and collaboration agreement between us and Sanofi (the “Sanofi License Agreement”). The Sanofi LicenseAgreement terminated effective April 2016 and, after a transition period during which Sanofi continued to fulfill orders for Afrezza, we assumedresponsibility for worldwide development and commercialization of Afrezza in July 2016.Currently, we promote Afrezza to endocrinologists and certain high-prescribing primary care physicians through our specialty sales force. To supportour sales efforts, we have implemented several patient and physician support programs, including a co-pay assistance and product savings program, directpurchase and our MannKind Cares program that supports providers and patients who have questions about insurance coverage, prescription cost and productuse. We have also entered into a number of rebate or other agreements with various payors and pharmacy benefit managers that are intended to facilitate morefavorable insurance coverage for Afrezza.In the future, we may seek to supplement our sales force through a co-promotion arrangement with a third party that has an underutilized primary caresales force, that can be used to promote Afrezza to greater number of primary care physicians in the United States. Internationally, our strategy is to establishregional partnerships in foreign jurisdictions where there are commercial opportunities, subject to receipt of the necessary foreign regulatory approvals. InMay 2017 we entered into a supply and distribution agreement with Biomm S.A. to pursue regulatory approval and commercialization of Afrezza in Brazil. InMay 2018, we entered into a similar agreement with Cipla Ltd. (“Cipla”) for the regulatory approval and commercialization of Afrezza in India. Our partnershave not yet commenced commercialization in their respective territories.We continue to conduct clinical studies of Afrezza, including an open-label pharmacokinetics (PK) and multiple-dose safety and tolerability dose-titration trial of AFREZZA in pediatric patients with type 1 diabetes. The first cohort (patients aged 13-17) in this study was completed in September 2018.Patients in the second cohort (ages 8-12) are currently being recruited and dosed. During the past year, we also supported a collaborative clinical trial withinvestigators at the Barbara Davis Center for Diabetes, University of Colorado Denver that examined the effect of Afrezza on post-prandial glucoseexcursions and glucose time-in-range using continuous glucose monitors. We have additional collaborative clinical studies that are underway at this time. Aspart of the approval of Afrezza, the FDA required us to conduct a five-year, randomized, controlled trial in 8,000-10,000 patients with type 2 diabetes toassess the potential serious risk of pulmonary malignancy with AFREZZA use. We have not yet agreed with the FDA on the final study design for this long-term study.Technosphere PlatformWe believe there are additional opportunities for our proprietary Technosphere and inhaler technologies for the delivery of active pharmaceuticalingredients (“API”). We believe that our proprietary Technosphere formulation technology represents a versatile drug delivery platform that may allow theoral inhalation of a wide range of API. We have successfully prepared Technosphere formulations of anionic and cationic drugs, hydrophobic andhydrophilic drugs, proteins, peptides and small molecules. Technosphere powders are based on our proprietary excipient, fumaryl diketopiperazine, which isa pH-sensitive organic molecule that self-assembles into small particles under acidic conditions. Certain drugs, such as insulin or treprostinil, can be loadedonto these particles by combining a solution of the drug with a solution or suspension of Technosphere material, which is then dried to powder form. Theresulting powder has a consistent and narrow range of particle sizes with good aerodynamic properties that enable efficient delivery deep into the lungs.Technosphere powders dissolve quickly when the particles contact the moist lung surface with its neutral pH, releasing the drug molecules to diffuse across athin layer of cells into the arterial circulation, bypassing the liver to provide excellent systemic exposure. 2  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 inboth a reusable (chronic treatment) and a single-use (acute treatment) format. Both the reusable and single use inhaler formats use the same internal air-flowdesign. Being breath-powered, our inhalers require only the patient’s inhalation effort to deliver the powder. To administer the inhalation powder, a patientloads a cartridge into our inhaler and inhales through the mouthpiece. Upon inhalation, the dry powder is lifted out of the cartridge and broken (or de-agglomerated) into small particles. The inhalers are engineered to produce an aggressive airstream to de-agglomerate the powder while keeping the powdermoving slowly. This slow-moving powder effectively navigates the patient’s airways for delivery into the lung with minimal deposition at the back of thethroat. Our inhalers show very little change in performance (i.e., efficient cartridge emptying) over a wide range of inhalation efforts.We advanced an inhaled formulation of treprostinil (internally designated “TreT”) into clinical development, completing a Phase 1 dose-escalationstudy in June 2018. In September 2018, we announced a license and collaboration agreement with United Therapeutics Corporation (“United Therapeutics”or “UT”), pursuant to which UT became responsible for global development, regulatory and commercial activities with respect to TreT (the “UT LicenseAgreement”). We will manufacture clinical supplies and initial commercial supplies of TreT, whereas long-term commercial supplies may be manufactured byUT. In September 2018, we also signed a research agreement with UT (the “UT Research Agreement”) pursuant to which we will evaluate the feasibility ofpreparing a dry powder formulation of an additional API for the treatment of pulmonary hypertension. In addition to our activities under the UT LicenseAgreement and the UT Research Agreement, we intend to advance additional dry-powder candidates into formulation feasibility and preclinical studiesduring the next 12-18 months. Our internal product development efforts are supplemented by a collaboration and license agreement with Receptor LifeSciences (“Receptor”), which we entered into in January 2016, pursuant to which Receptor is responsible for the development, manufacture andcommercialization of inhaled formulations of certain cannabinoid compounds utilizing our technology. To date, Receptor has conducted formulation studieswith a range of different API and has informed us of their plans to commence preclinical development of the most promising powder candidate(s) during2019.To aid in the development of our oral inhalation products, we have created a number of innovative tools such as a novel inhalation profiling apparatusthat uses miniature sensors to assess the drug delivery process at the level of an individual inhaler. This apparatus provides real-time data regarding patientusage and delivery system performance that is transmitted to a user interface, such as a smartphone application. We are currently evaluating the desirability ofdeveloping this apparatus further for use as a training tool in physician offices or as a connected care device that will allow patients to integrate dosinginformation with other health data, such as blood glucose levels from a self-managed glucose meter or a continuous glucose monitor. Manufacturing and SupplyWe manufacture Afrezza in our Danbury, Connecticut facility, where we formulate the Afrezza inhalation powder, fill it into plastic cartridges and thenblister package the cartridges and seal the blister cards inside a foil overwrap. These overwraps are then packaged into cartons along with inhalers and printedmaterial by a third-party packager.The quality management systems of our Connecticut facility have been certified to be in conformance with the ISO 13485 and ISO 9001 standards.Our facility is inspected on a regular basis by the FDA, most recently in June 2018. We were also inspected by ANVISA (Brazil National Health SurveillanceAgency) in May 2018. Neither of the regulatory inspections in 2018 gave rise to any inspectional observations (known as “483s” in the United States). TheFDA and other foreign jurisdictions are expected to conduct additional inspections of our facility from time to time.We believe that our Connecticut facility has enough capacity to satisfy the current commercial demand for Afrezza. In addition, the facility includesexpansion space to accommodate additional filling lines and other equipment, allowing production capacity to be increased based on the reasonablyforeseeable demand for Afrezza over the next several years. We are also utilizing some of this expansion space to create production space for TreT in order tosupply UT.Currently, the only source of insulin that we have qualified for Afrezza is manufactured by Amphastar France Pharmaceuticals S.A.S. (“Amphastar”). InApril 2014, we entered into a supply agreement with Amphastar (the “Insulin Supply Agreement”) to purchase certain annual minimum quantities with aninitial aggregate purchase commitment of €120.1 million which, after taking into account contract amendments, extends through December 31, 2024 withthe ability to renew for an additional two years with certain restrictions. On December 24, 2018 we amended the agreement to extend the term for anadditional one year through December 31, 2024 with certain restrictions. As of December 31, 2018, there was €85.8 million remaining in aggregate purchasecommitments under this agreement. See additional information in Note 14 – Commitments and Contingencies to the consolidated financial statements forfurther information related to the Insulin Supply Agreement. Currently, we purchase the raw material for our proprietary excipient, FDKP (fumaryl diketopiperazine), which is the primary component of ourTechnosphere technology platform, from a major chemical manufacturer with facilities in Europe and North America.We have a supply agreement with the contract manufacturer that produces the plastic-molded parts for our inhaler and the corresponding cartridges.We expect to be able to qualify an additional vendor of plastic-molding contract manufacturing services, if warranted by demand. We assemble the inhalersat our Connecticut facility. 3  We also have an agreement with the contractor that performs the final packaging of Afrezza overwraps, inhalers and printed material into patient kits.We expect to be able to qualify an additional vendor of packaging services, if warranted by demand.Intellectual PropertyOur success will depend in large measure on our ability to continue enforcing our intellectual property rights, effectively maintain our trade secretsand avoid infringing the proprietary rights of third parties. Our policy is to file patent applications on what we deem to be important technologicaldevelopments that might relate to our product candidates or methods of using our product candidates and to seek intellectual property protection for allinventions in the United States, Europe, Japan and, depending on the nature of the invention, selected other jurisdictions. We have obtained, are seeking, andwill continue to seek patent protection on the compositions of matter, methods and devices flowing from our research and development efforts.Our Technosphere drug delivery platform, including Afrezza, enjoys patent protection relating to the powder, its manufacture, and its use forpulmonary delivery of drugs. We have additional patent coverage relating to the treatment of diabetes using Afrezza. We have also been granted patentcoverage for our inhalers and associated cartridges. Overall, Afrezza is protected by over 570 issued patents in the United States and selected jurisdictionsaround the world, the longest-lived of which will expire in 2032. We also have over 160 applications pending that may provide additional protection forAfrezza if and when they are allowed. Our entire portfolio consists of approximately 930 issued patents and 280 patent applications that provide protectionfor our drug delivery platform, Technosphere-based products, the inhalation-profiling apparatus and development tools. Currently, our longest-lived issuedpatent will expire in 2034. We expect to file further patent applications as our research and development efforts continue. The field of pulmonary drug delivery is crowded and a substantial number of patents have been issued in these fields. In addition, because patentpositions can be highly uncertain and frequently involve complex legal and factual questions, the breadth of claims obtained in any application or theenforceability of issued patents cannot be confidently predicted. Further, there can be substantial delays in commercializing pharmaceutical products, whichcan partially consume the statutory period of 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.Statutory differences 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 treating humans are not patentable in many countries outside of the United States. These and other issues may limit the patent protection we areable to secure internationally. Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patentsor, to the extent patents have been issued or will be issued, whether these patents will be subjected to further proceedings limiting their scope, will providesignificant proprietary protection or competitive advantage, or will be circumvented or invalidated. Furthermore, patents already issued to us or our pendingapplications may become subject to disputes that could be resolved against us. In addition, in certain countries, including the United States, applications aregenerally published 18 months after the application’s priority date. In any event, because publication of discoveries in scientific or patent literature oftentrails behind actual discoveries, we cannot be certain that we were the first inventor of the subject matter covered by our pending patent applications or thatwe were the first to file patent applications on such inventions.If third parties file patent applications, or are issued patents claiming technology also claimed by us in pending applications, we may be required toparticipate in interference proceedings in the United States Patent and Trademark Office (“USPTO”) to determine priority of invention. We may also berequired to participate in interference proceedings involving our issued patents. We also rely on trade secrets and know-how, which are not protected bypatents, to maintain our competitive position. We require our officers, employees, consultants and advisors to execute proprietary information and inventionand assignment agreements upon commencement of their relationships with us. These agreements provide that all confidential information developed ormade known to the individual during the course of our relationship must be kept confidential, except in specified circumstances. These agreements alsoprovide that all inventions developed by the individual on behalf of us must be assigned to us and that the individual will cooperate with us in connectionwith securing patent protection on the invention if we wish to pursue such protection. There can be no assurance, however, that these agreements will providemeaningful protection for our inventions, trade secrets or other proprietary information in the event of unauthorized 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 theextent that outside collaborators apply technological information to our projects that are developed independently by them or others, or apply ourtechnology 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 maybreach the agreements and disclose our confidential 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 a patent were to be disclosed to or independently developed by a competitor, our business, results ofoperations and financial condition could be adversely affected. 4  CompetitionThe pharmaceutical and biotechnology industries are highly competitive and characterized by rapidly evolving technology and intense research anddevelopment efforts. We compete with companies, including major global pharmaceutical companies, and other institutions that have substantially greaterfinancial, research and development, marketing and sales capabilities and have substantially greater experience in undertaking preclinical and clinicaltesting of products, obtaining regulatory approvals and marketing and selling biopharmaceutical products. We face competition based on, among otherthings, product efficacy and safety, the timing and scope of 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 drugs or further developments in alternative drug delivery methods may provide greater therapeutic benefits, or comparable benefits at lower cost, thanAfrezza. There can be no assurance that existing or new competitors will not introduce products or processes competitive with or superior to our productcandidates.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, we believe that Afrezza has a unique pharmacokinetic profile, i.e., with the first measureable effects occurring approximately 12 minutesafter administration, reaching peak effects within 35 or 45 minutes after administration of a 4 or 12 unit dose, respectively. There are several formulations of“rapid-acting” insulin analogs that reach their maximum glucose-lowering effect within one to three hours after injection. The principal products in thiscategory are insulin lispro, which is marketed by Eli Lilly & Company as Humalog® and by Sanofi as Admelog®; insulin aspart, which is marketed by NovoNordisk A/S as Novolog® and as Fiasp ®; and insulin glulisine, which is marketed by Sanofi as Apidra®.Inhaled Insulin Delivery SystemsOur drug delivery platform competes with other inhaled delivery systems, including the Dance-501 being developed by Dance Biopharm. HoldingsInc. Dance-501 is a liquid formulation of recombinant human insulin for administration with a small handheld electronic inhaler that is currently beingstudied in Phase 2 trials. 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 and Cosmetic 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 ourproducts are marketed abroad, they will also be subject to export requirements and to regulation by foreign governments. The regulatory approval process isgenerally lengthy, expensive and uncertain. Failure to comply with applicable FDA and other regulatory requirements can result in sanctions being imposedon us or the manufacturers of our products, including hold letters on clinical research, civil or criminal fines or other penalties, product recalls, or seizures, ortotal or partial suspension of production or injunctions, refusals to permit products to be imported into or exported out of the United States, refusals of theFDA to grant approval of drugs or to allow us to enter into government supply contracts, withdrawals of previously approved marketing applications andcriminal 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 potentialsafety and efficacy of the product. Certain preclinical tests must be conducted in compliance with good laboratory practice regulations.Violations of these regulations can, in some cases, lead to invalidation of the studies, or requiring such studies to be repeated. In some cases,long-term preclinical studies are conducted while clinical studies are ongoing. •Submission to the FDA of IND (Investigational New Drug Application), which must become effective before human clinical trials maycommence. The results 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 effective 30 days following receipt by the FDA, although the FDA may place trials on hold at any time if it believes the risksto subjects outweigh the potential benefits. 5  •Approval of clinical protocols by independent institutional review boards (“IRBs”) at each of the participating clinical centers conducting astudy. The IRBs consider, among other things, ethical factors, the potential risks to individuals participating in the trials and the potentialliability of the institution. The IRB also approves the consent form signed by the trial participants. •Adequate and well-controlled human clinical trials to establish the safety and efficacy of the product. Clinical trials involve the administrationof the drug to healthy volunteers or to patients under the supervision of a qualified medical investigator according to an approved protocol. Theclinical trials are conducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor participantsafety and efficacy or other criteria to be evaluated. Each protocol is submitted to the FDA as part of the IND. Human clinical trials are typicallyconducted in the following four sequential 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 notprovide evidence of efficacy. In the case of severe or life-threatening diseases, the initial human testing is often conducted in patientsrather than healthy volunteers. Because these patients already have the target disease, these studies may provide initial evidence ofefficacy that would traditionally be obtained in Phase 2 clinical trials. Consequently, these types of trials are frequently referred to asPhase 1/2 clinical trials. The FDA receives reports on the progress of each phase of clinical testing and it may require the modification,suspension or termination of clinical 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, todetermine the efficacy 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 patientpopulation at geographically dispersed clinical study sites. Phase 3 clinical trials usually include a broader patient population so thatsafety and efficacy can be substantially established. Phase 3 clinical trials cannot begin until Phase 2 evaluation demonstrates that adosage range of the product may be effective 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. Theseclinical trials may be made a condition to be satisfied after a drug receives approval. The results of Phase 4 clinical trials can confirm theeffectiveness of a product 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 physicalcharacteristics of the drug and finalize a process for manufacturing the product in accordance with the FDA’s current good manufacturingpractices (“cGMPs”), requirements for drug products as well as the quality system regulation for medical devices, or QSR. The manufacturingprocess must be capable of consistently producing quality batches of the product and the manufacturer must develop methods for testing thequality, purity and potency of the final products. Additionally, appropriate packaging must be selected and tested and chemistry stabilitystudies must be conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf-life. •Submission to the FDA of a new drug application (“NDA”) based on the clinical trials. The results of product development, preclinical studiesand clinical trials are submitted to the FDA in the form of an NDA for approval of the marketing and commercial shipment of the product. Underthe Pediatric Research Equity Act, NDAs are required to include an assessment, generally based on clinical study data, of the safety and efficacyof drugs for all relevant pediatric 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,benefit and interpretation of clinical trial data. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDArequires additional testing or information. Before approving an NDA, the FDA may inspect the facilities at which the product is manufactured and will notapprove the product unless the manufacturing facility complies with cGMPs and will also inspect clinical trial sites for integrity of data supporting safety andefficacy. The FDA will issue either an approval of the NDA or a Complete Response Letter, detailing the deficiencies and information required in order forreconsideration of the NDA.Medical products containing a combination of new drugs, biological products, or medical devices are regulated as “combination products” in theUnited States. A combination 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 aresubject to varying interpretations, and the FDA and comparable regulatory authorities in foreign jurisdictions may not agree that our product candidates havebeen shown to be safe and effective. We cannot be certain that any approval of our investigational products will be granted on a timely basis, if at all. For anapproved product such as Afrezza, we are subject to continuing regulation by the FDA, including post marketing study commitments or requirements, record-keeping requirements, reporting of adverse experiences with the product, submitting other periodic reports, drug sampling and distribution requirements,notifying the FDA and gaining its approval of certain manufacturing or labeling changes, and complying with certain electronic records and signaturerequirements. Prior to and following approval, if granted, all manufacturing sites are subject to inspection by the FDA 6  and other national regulatory bodies and must comply with cGMP, QSR and other requirements enforced by the FDA and other national regulatory bodiesthrough their facilities inspection program. In addition, our drug-manufacturing facilities located in Connecticut and the facilities of our insulin supplier, thesupplier(s) of FDKP and the supplier(s) of our cartridges are subject to federal registration and listing requirements and, if applicable, to state licensingrequirements. A failure, including those of our suppliers, to obtain and maintain applicable federal registrations or state licenses, or to meet the inspectioncriteria of the FDA or the other national regulatory bodies, would disrupt our manufacturing processes and would harm our business. In complying withstandards set forth in these regulations, manufacturers must continue to expend time, money and effort in the area of production and quality control to ensurefull 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 toa death or serious 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 elaboratedesign, testing, control, documentation and other quality assurance procedures during the manufacturing process of medical devices, among otherrequirements.Failure to adhere to regulatory requirements at any stage of development, including the preclinical and clinical testing process, the review process, orat any time afterward, including after approval, may result in various adverse consequences. These consequences include action by the FDA or anothernational regulatory body that has the effect of delaying approval or refusing to approve a product; suspending or withdrawing an approved product from themarket; seizing or recalling a product; or imposing criminal penalties against the manufacturer. In addition, later discovery of previously unknown problemsmay result in restrictions on a product, its manufacturer, or the NDA holder, or market restrictions through labeling changes or product withdrawal. Also, newgovernment requirements may be established or current government requirements may be changed at any time, which could delay or prevent regulatoryapproval of our products under development. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise fromfuture 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,standards for and regulations of direct-to-consumer advertising, industry sponsored scientific and educational activities, and promotional activities involvingthe Internet, and restrictions on off-label promotion. The FDA has very broad enforcement authority under the FDCA, and failure to comply with theseregulations can result in penalties, including the issuance of a warning letter requirements for corrective advertising to healthcare providers, a requirementthat future advertising 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 thecountry in which the products are to be sold. We also would be subject to foreign regulatory requirements governing clinical trials and drug product sales ifproducts are studied or marketed abroad. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities offoreign countries usually must be obtained prior to the marketing of the product in those countries. The approval process varies from jurisdiction tojurisdiction and the time required may be longer or shorter 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 beno assurance 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 underdevelopment, and delays in receipt or failure to receive such clearances or approvals, the loss of previously received clearances or approvals, or failure tocomply with existing or future 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 experimentaluse of animals, the use and disposal of hazardous or potentially hazardous substances, controlled drug substances, privacy of individually identifiablehealthcare information, safe working conditions, manufacturing practices, environmental protection and fire hazard control. 7  Healthcare Regulatory and Pharmaceutical PricingGovernment coverage and reimbursement policies both directly and indirectly affect our ability to successfully commercialize our approved products,and such coverage and reimbursement policies will be affected by future healthcare reform measures. Third-party payors, like government healthadministration authorities, private health insurers and other organizations that provide healthcare coverage, generally decide which drugs they will pay forand establish reimbursement levels for covered drugs. In particular, in the United States, private third-party payors often provide reimbursement for productsand services based on the level at which the government (through the Medicare or Medicaid programs) provides reimbursement for such products andservices. In the United States, the European Union and other potentially significant markets for our product candidates, government authorities and otherthird-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative productsand therapies, which has resulted in lower average selling prices. Further, the increased emphasis on managed healthcare in the United States will putadditional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. Recently, inthe United States there has been heightened governmental scrutiny of the manner in which drug manufacturers set prices for their marketed products. Pricingpressures can arise from rules and practices of managed care organizations, judicial decisions and governmental laws and 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 tochange the healthcare 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 significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/orexpanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by majorlegislative initiatives, including, most recently, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education ReconciliationAct (collectively, “PPACA”), enacted in March 2010.The PPACA substantially changed the way healthcare is financed by both governmental and private insurers. Among other cost containment measures,PPACA established: an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents; a newMedicare Part D coverage gap discount program; and a new formula that increased the rebates a manufacturer must pay under the Medicaid Drug RebateProgram. There have been judicial and congressional challenges to certain aspects of PPACA, as well as recent efforts by the Trump administration to repealor replace certain aspects of the PPACA. President Trump has signed two Executive Orders and other directives designed to delay the implementation ofcertain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA. Concurrently, Congress hasconsidered legislation that would repeal portions or repeal and replace all or part of the PPACA. While Congress has not passed comprehensive repeallegislation, two bills affecting the implementation of certain taxes under the PPACA have been signed into law. The Tax Cuts and Jobs Act of 2017 (“TaxAct”) includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individualswho fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. On January 22, 2018,President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain PPACA-mandated fees,including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providersbased on market share, and the medical devise excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among otherthings, amends the PPACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceuticalmanufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. InJuly 2018, CMS published a final rule permitting further collections and payments to and from certain PPACA qualified health plans and health insuranceissuers under the PPACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determinethis risk adjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the PPACA is unconstitutional in its entirety because the“individual mandate” was repealed by Congress as part of the Tax Act. While the Texas U.S. District Court Judge, as well as the Trump administration andCMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and otherefforts to repeal and replace the PPACA will impact the PPACA.Other legislative changes have been proposed and adopted in the United States since PPACA. For example, through the process created by the BudgetControl Act of 2011, there are automatic reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and,following passage of the BBA, will remain in effect through 2027 unless additional Congressional action is taken. In January 2013, President Obama signedinto law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers. In the future, thereare 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 to charge forour 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 andstate consumer protection and unfair competition laws. 8  Moreover, in the United States, there have been several congressional inquiries and proposed and enacted federal and state legislation designed to,among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reformgovernment program reimbursement methodologies for products. For example, at the federal level, the Trump administration released a “Blueprint” to lowerdrug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating powerof certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug productspaid by consumers. Although a number of these, and other proposed measures will require authorization through additional legislation to become effective,Congress and the Trump administration have stated that they continue to seek new legislative and/or administrative measures to control drug costs. At thestate level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing,including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparencymeasures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.Further, if a drug product is reimbursed by Medicare, Medicaid or other federal or state healthcare programs, we must comply with, among others, thefederal civil and criminal false claims laws, including the civil False Claims Act, as amended, the federal Anti-Kickback Statute, as amended, and similar statelaws. Similarly, if a drug product is reimbursed by Medicare or Medicaid, pricing and rebate programs must comply with, as applicable, the Medicaid rebaterequirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Medicare Prescription Drug Improvement and Modernization Act of2003.The Physician Payments Sunshine Act within PPACA, and its implementing regulations, require certain manufacturers of drugs, devices, biologicaland medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to (i)report information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individualsat the request of, or designated on behalf of, the physicians and teaching hospitals and (ii) report annually certain ownership and investment interests held byphysicians and their immediate family members.In 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.The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology and Clinical HealthAct (“HITECH”), and their respective implementing regulations, imposes certain requirements relating to the privacy, security and transmission ofindividually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “businessassociates” — independent contractors or agents of covered entities, which include certain healthcare providers, health plans, and healthcare clearinghouses,that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil andcriminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general newauthority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuingfederal civil actions. State laws also govern the privacy and security of health information in certain circumstances, many of which differ from each other insignificant ways and may not have the same effect, thus complicating compliance efforts. The recently adopted European General Data ProtectionRegulation, or GDPR, contains new provisions specifically directed at the processing of health information, higher sanctions and extra-territoriality measuresthat are intended to bring non-EU companies under the data security and privacy legal framework specified in the regulation. We anticipate that over time wemay expand our business operations to include operations in the EU, including potentially conducting preclinical and clinical trials. With such expansion,we would be subject to increased governmental regulation in the EU countries in which we might operate, including the GDPRAdditionally, California recently enacted legislation that has been dubbed the first “GDPR-like” law in the United States. Known as the CaliforniaConsumer Privacy Act (“CCPA”), it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increasedprivacy and security obligations on entities handling personal data of consumers or households. When it goes into effect on January 1, 2020, the CCPA willrequire covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of personalinformation, and allow for a new cause of action for data breaches. Legislators have stated that amendments will be proposed to the CCPA before it goes intoeffect, but it remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted. As currently written, the CCPA willlikely impact (possibly significantly) our business activities and exemplifies the vulnerability of our business to not only cyber threats but also the evolvingregulatory environment related to personal data and protected health information.Also, many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs,or, in several states, that apply regardless of the payer. Additional state laws require pharmaceutical companies to implement a comprehensive complianceprogram and/or limit 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 ofthe federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including significantcriminal, civil and administrative penalties, damages, fines, individual imprisonment, disgorgement, exclusion from government healthcare programs,additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business andour results of operations. 9  Ethical Business Practices and SustainabilitySafety of Clinical Trial ParticipantsSafe clinical trials play a crucial role in the development of new products and our continuing prosperity. We take numerous steps to maximize thesafety of our clinical trial participants. The health of subjects in clinical trials is a priority for us and we are committed to conducting clinical trials according to uniformly high ethicalstandards. We apply those standards to trials that we sponsor and conduct directly as well as those conducted on our behalf by clinical research organizations.We conduct trials in accordance with all applicable laws, the standards of International Conference on Harmonisation of Technical Requirements forRegistration of Pharmaceuticals for Human Use (ICH) Guidelines and following the ethical principles that have their origin in the Declaration of Helsinki. We require that a three-stage informed consent process be implemented in all trials to ensure that participants understand the risks and benefits of theprocedures, how personal medical data is collected and used, and that participation in the trial is voluntary, among other information. We retaindocumentation that all participants in our trials have provided informed consent.We monitor clinical trials through audits and inspections conducted by us and by third parties. These inspections verify that our policies, goodclinical practices and applicable laws are being adhered to. Our ability to ensure the safety of clinical trial participants is critical to securing regulatory approval and continued product development success.Moreover, our inability to conduct safe and effective clinical trials could increase our development costs over time. We will continue to hold ourselves tohigh standards in our oversight and management of clinical trials. Ethical MarketingWe require that our employees abide by our Code of Business Conduct and Ethics, our policy on interactions with healthcare professionals andpatients, U.S. federal and state laws and applicable foreign laws. We are committed to protecting the health and well-being of patients by ensuring thatmedically sound knowledge of the benefits and risks of our products is understood and communicated thoroughly and accurately to patients, physicians andglobal health authorities. Our policy on interactions with healthcare professionals and patients prohibits off-label promotion of our products. All sales staff received compliancetraining upon hire and on an annual basis. We also routinely monitor sales calls. Any case where we promote off-label use of our products has the potential tohave a material adverse effect on our reputation, sales and liabilities. We expect that consistent enforcement of, and training on, our Code of BusinessConduct and Ethics and our policy on interactions with healthcare professionals and patients will help us to limit the incidence of off-label promotion. Drug SafetyThe safety of our products at all stages – from clinical trials to the administration and use and through to safe disposal – is a key area of attention forus. We acknowledge, however, that there are inherent risks associated with the use of drug products. We attempt to minimize these through stringentadherence to quality control procedure and proactive recall processes whenever a safety concern is identified. To date, we have not issued a recall for anyproduct. In addition, by mid-2018, all sales packs of Afrezza that we placed in the distribution chain are serialized in accordance with the requirements of theDrug Quality and Security Act (“DQSA”). The Drug Supply Chain Security Act (“DSCSA”), included in the DQSA, requires drug manufacturers to assign aunique identifier to each sales pack (and each aggregate of such sales pack, such as a case or pallet), which then remains on such pack or aggregate throughthe whole supply chain until its consumption or destruction. This system is intended to improve detection and removal of drugs that may be counterfeit,stolen, contaminated, or otherwise harmful from the drug supply chain.Corruption and BriberyOur Code of Business Conduct and Ethics includes clear guidelines on anti-bribery and anti-corruption practices. Currently, we have very limitedoperations outside the United States; however, as we expand our global reach through collaborations or through our own growth, we acknowledge thatcertain regions may pose a higher risk for corrupt practices. We intend to continue our internal training programs and oversight over collaborators on anti-bribery, anti-corruption and other unethical practices in order to reduce these risks.Bribing healthcare professionals to use or recommend our products can create adverse publicity and damage our ability to use a critical channel ofinfluence. We have adopted and implement PhRMA’s Code on Interactions with Healthcare Professionals as part of our policy on interactions with healthcareprofessionals and patients. We believe that training on, and enforcement of, these codes will limit the incidence of unethical interactions between ourpersonnel and healthcare professionals. 10  Long-Lived AssetsOur long-lived assets are located in the United States and totaled $25.6 million and $26.9 million as of December 31, 2018 and 2017, respectively.EmployeesOur human capital helps us develop and commercialize new products, conduct clinical trials and navigate government regulations. Our ability torecruit, develop and retain highly skilled talent is a significant determinant of our success. Our Code of Business Conduct and Ethics codifies ourcommitment to diversity and to providing equal opportunity and a positive working environment in all aspects of employment. We also have policies settingforth our expectations for nondiscrimination and a harassment-free work environment. As of December 31, 2018, we had 225 full-time employees, of which 79 were engaged in manufacturing, 19 in research and development, 39 in generaland administrative and 88 in selling and marketing. Seventeen of these employees had a Ph.D. degree and/or M.D. degree and were engaged in activitiesrelating to research and development, manufacturing, quality assurance or business development.None of our employees are subject to a collective bargaining agreement. We believe relations with our employees are good.Occupational Health and SafetyHazardous materials are inherent in our operations, and it is not possible to eliminate completely the risk of accidental exposure from ouroperations. We have established procedures to comply with governmental regulations regarding workplace safety, including training employees to enablethem to recognize risks and empower them to learn, discover, work safely, and to minimize injuries, illnesses, environmental impact and regulatory risks. In2018, our total illness and injury incidence rate was 0.9 compared to the 2017 industry average of 1.6, as reported by the U.S. Department of Labor, and ourDART (days away/restricted or job transfer) incident rate was 0.9 per 100 employees compared to the 2017 industry average of 1.0. We will continue ourefforts to ensure a high level of workplace safety. Corporate InformationWe were incorporated in the State of Delaware on February 14, 1991. Our principal executive offices are located at 30930 Russell Ranch Road, Suite300, Westlake Village, California 91362, and our telephone number at that address is (818) 661-5000. MannKind Corporation and the MannKindCorporation logo are our service marks and trademarks. Our website address is http://www.mannkindcorp.com. Our Annual Reports on Form 10-K, QuarterlyReports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of1934, as amended, or the Exchange Act, are available free of charge on our website as soon as reasonably practicable after we electronically file such materialwith, or furnish it to, the SEC. The contents of these websites are not incorporated into this Annual Report. Further, our references to the URLs for thesewebsites are intended to be inactive textual reference only.Scientific AdvisorsWe seek advice from a number of leading scientists and physicians on scientific, technical and medical matters. These advisors are leading scientists inthe areas of 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.A current listing of our scientific advisors is maintained on our corporate website at www.mannkindcorp.com. 11  Executive Officers of the RegistrantThe following table sets forth our current executive officers and their ages: Name Age Position(s)Michael E. Castagna, Pharm.D. 42 Chief Executive OfficerSteven B. Binder 56 Chief Financial OfficerDavid M. Kendall, M.D 57 Chief Medical OfficerJoseph Kocinsky 55 Chief Technology OfficerJames P. McCauley, Jr. 53 Chief Commercial OfficerElizabeth G. Ingram 53 Chief Marketing OfficerStuart A. Tross, Ph.D. 52 Chief People and Workplace OfficerDavid B. Thomson, Ph.D., J.D. 52 General Counsel and SecretaryRosabel R. Alinaya 58 Senior Vice President, Investor Relations and TreasuryCourtney Barton 36 Vice President, Chief Compliance and Privacy Officer Michael E. Castagna, Pharm.D. has been our Chief Executive Officer since May 2017 and was our Chief Commercial Officer from March 2016 untilMay 2017. From November 2012 until he joined us, Dr. Castagna was at Amgen, Inc., where he initially served as Vice President, Global LifecycleManagement and was most recently Vice President, Global Commercial Lead for Amgen’s Biosimilar Business Unit. From 2010 to 2012, he was ExecutiveDirector, Immunology, at Bristol-Myers Squibb Company (“BMS”), an innovative global biopharmaceutical company. Before BMS, Dr. Castagna served asVice President & Head, Biopharmaceuticals, North America, at Sandoz, a division of Novartis. He has also held positions with commercial responsibilities atEMD (Merck) Serono, Pharmasset and DuPont Pharmaceuticals. He received his pharmacy degree from the University of the Sciences-Philadelphia College ofPharmacy, a Pharma D. from Massachusetts College of Pharmacy & Sciences and an MBA from The Wharton School of Business at the University ofPennsylvania.Steven B. Binder has been our Chief Financial Officer since July 2017. Before joining us, since 2013 Mr. Binder served as Vice President and ChiefFinancial Officer of the International Group of Stryker Corporation, a leading global medical technology company, based in Singapore. Prior to Stryker, Mr.Binder served in a series of senior leadership roles at BMS. His last four positions at BMS were Vice President, Finance roles over different geographicoperating units: United States (2012-2013), Europe (2008-2011), AsiaPacific (2005-2007), and Japan (2003-2005). Prior to his international experience, Mr.Binder served in three senior leadership roles for Oncology Therapeutics Network, a U.S. based independent subsidiary of BMS: Vice President, StrategicDevelopment (2001-2003), Vice President, Customer Operations (2000-2001), and Chief Financial Officer (1997-2000). Before Oncology TherapeuticsNetwork, Mr. Binder progressed through three finance and accounting roles for BMS Worldwide Medicines Group after joining the company in 1992. BeforeBMS, he worked for Deloitte & Touche LLP in a series of auditing roles with increasing responsibility over an eight year period beginning in 1984. Mr.Binder received a B.S. degree in Accounting and Business Administration from Muhlenberg College and is a Certified Public Accountant. David M. Kendall, M.D. has been our Chief Medical Officer since February 2018. His career includes over 30 years of experience in diabetes andmetabolism research, clinical management, research, and policy advocacy. Most recently, he served as Research Physician and Vice President of GlobalMedical Affairs for Lilly Diabetes from 2011 to 2018, and during that time was responsible for all medical affairs activities and guided research anddevelopment strategy across multiple geographies. In this role, he worked to re-establish Lilly Diabetes as a world class medical organization and added tohis extensive experience with both injected and mealtime insulins, as well as devices and continuous glucose monitors. Prior to joining Eli Lilly, Dr. Kendallserved as Chief Scientific and Medical Officer at the American Diabetes Association, where he was responsible for all medical affairs, medical education,research, outcomes, and medical policy activities. Earlier in his career, Dr. Kendall served as Medical Director at the International Diabetes Center (1997-2009), Executive Director of Medical Affairs at Amylin Pharmaceuticals from 2005 to 2008, and as a consultant in endocrinology at the Park Nicollet Clinic(1994-1997). He received his M.D. and completed his Post Graduate Medical Training at the University of Minnesota, and earned a B.A. in Biology from St.Olaf College.Joseph Kocinsky has been our Chief Technology Officer since October 2015. Mr. Kocinsky has over 30 years experience in the pharmaceuticalindustry 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 an master’s degree in BiomedicalEngineering from New Jersey Institute of Technology and an master’s degree in Business Administration from Seton Hall University. 12  James P. McCauley, Jr. has been our Chief Commercial Officer since July 2017. Prior to joining us, he spent twelve years at Astellas Pharma in a seriesof senior sales and compliance leadership roles of increasing responsibility. Prior to Astellas, Mr. McCauley was a member of the U.S. commercializationteam and held a sales leadership role with Yamanouchi Pharma before the merger of Yamanouchi and Fujisawa Pharma to create Astellas in 2005. Before that,Mr. McCauley spent thirteen years with DuPont Pharmaceuticals and one year with BMS which acquired DuPont Pharmaceuticals in 2001. At DuPont andBMS, Mr. McCauley held a series of leadership roles across the sales, contracting and pricing, and clinical areas. Throughout his various career moves, Mr.McCauley has developed deep commercial expertise serving both specialty and primary care healthcare providers. He received an MBA from the KelloggSchool of Management at Northwestern University, a J.D. from the South Texas College of Law, and a B.A. in Economics from the University of Notre Dame. Elizabeth G. Ingram has been our Chief Marketing Officer since June 2018. Her career includes over twenty years of experience in marketing andmarket access, delivering strategic planning, and execution of contract, health economics, sales and marketing programs. Most recently, she served as SeniorVice President — Managed Market at Dexcom in 2017, Vice President —Head of Market Access at Sanofi from 2014 to 2016, Vice President – MarketAccess Strategy at Bristol Myers Squib from 2012 to 2014, and various roles of increasing responsibility at Novo Nordisk Pharmaceuticals from 2006 to2012. Ms. Ingram obtained a Bachelor of Science degree from East Carolina University and a Master’s degree from University of South Carolina-Columbia. Stuart A. Tross, Ph.D. has been our Chief People and Workplace Officer since December 2016, with responsibilities for human resources, informationtechnology, corporate communications and west coast facilities. From 2006 to 2016 he served in various roles of increasing responsibility at Amgen, Inc.,most recently as Senior Vice President and Chief Human Resources Officer responsible for human resources and security on a global basis. From 1998 to2006 he served in a series of leadership roles at BMS, most recently as Vice President and Global Head of Human Resources for Mead Johnson Company.Stuart received a B.S. degree from Cornell University and M.Sc. and Ph.D. degrees in Industrial-Organizational Psychology from the Georgia Institute ofTechnology. David B. Thomson, Ph.D., J.D. has been our General Counsel and Corporate Secretary since January 2002. Prior to joining us, he practicedcorporate/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 B.S degree, M Sc. degree and Ph.D. from Queens University and obtained his J.D. from the University of Toronto. Rosabel R. Alinaya has been our Senior Vice President, Investor Relations and Treasury since July 2017. Ms. Alinaya also served as PrincipalAccounting Officer from January 2016 to July 2017 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 June 2003. Ms. Alinaya began her career atDeloitte & Touche LLP, graduating from California State University, Northridge with a B.S. in Accounting Information Systems. Ms. Alinaya is also amember of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants.Courtney Barton has been our Vice President, Chief Compliance Officer since March 2017. From December 2015 until she joined us, she served asChief Compliance Officer for Anacor Pharmaceuticals, Inc. Prior to that, Ms. Barton served in compliance and privacy roles for Kythera Biopharmaceuticals,Inc. from November 2014 to November 2015, Allergan, Inc. from September 2013 to October 2014, Bausch & Lomb, Inc. from September 2006 to September2013 and Winn-Dixie Stores, Inc. from August 2003 to August 2006. She has also held positions with Merrill Lynch and Janus, including an internationalappointment. Ms. Barton holds B.A. degrees in Political Science and International Relations from Syracuse University and is a Certified Compliance andEthics Professional (CCEP) and Certified Information Privacy Professional (CIPP US/E).Item 1A. Risk FactorsYou should consider carefully the following information about the risks described below, together with the other information contained in thisAnnual Report before you decide to buy or maintain an investment in our common stock. We believe the risks described below are the risks that are materialto us as of the date of this Annual Report. Additional risks and uncertainties that we are unaware of, may also become important factors that affect us. If anyof the following risks actually occur, our business, financial condition, results of operations and future growth prospects would likely be materially andadversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of the money you paid to buyour common stock. 13  RISKS RELATED TO OUR BUSINESSWe will need to raise additional capital to fund our operations, and there is substantial doubt about our ability to continue as a going concern.This report includes disclosures stating that our existing cash resources and our accumulated stockholder’s deficit raise substantial doubt about ourability to continue as a going concern. We will need to raise additional capital, whether through the sale of equity or debt securities, additional strategicbusiness collaborations, the establishment of other funding facilities, licensing arrangements, asset sales or other means, in order to support our ongoingactivities, including the commercialization of Afrezza and the development of our product candidates, and to avoid defaulting under the financial covenantin our Facility Agreement with Deerfield Private Design Fund II, L.P. and Deerfield Private Design International II, L.P. (collectively, “Deerfield”) dated July1, 2013 (as amended, the “Facility Agreement”), which requires us to maintain at least $25.0 million in cash and cash equivalents as of the last day of eachfiscal quarter (other than December 31, 2018, when we were required to have at least $20.0 million in cash and cash equivalents). It may be difficult for us toraise additional funds on favorable terms, or at all. As of December 31, 2018, we had cash and cash equivalents of $71.2 million and a stockholders’ deficit of$175.1 million. 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, including through our collaborations; •the costs of developing and commercializing Afrezza on our own in the United States, including the costs of expanding our commercializationcapabilities; •the demand by any or all of the holders of our debt instruments 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 our notes with conversion options or any other convertible debtsecurities we may issue are converted 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 facility; •our obligation to make milestone payments to Deerfield; •our success in establishing additional strategic business collaborations or other sales or licensing of assets, and the timing and amount of anypayments we might receive 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 againstclaims of infringement 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/ordebt securities, or the establishment of other funding facilities including asset-based borrowings. There can be no assurances, however, that we will be able toraise additional capital in the future on acceptable terms, or at all. Issuances of additional debt or equity securities or the issuance of common stock uponconversion of outstanding convertible debt securities or upon the exercise of our currently outstanding warrants for shares of our common stock could impactthe rights of the holders of our common stock and will dilute their ownership percentage. Moreover, the establishment of other funding facilities may imposerestrictions on our operations. These restrictions could include limitations on additional borrowing and specific restrictions on the use of our assets, as well asprohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. We may also raise additional capital by pursuingopportunities for the licensing or sale of certain intellectual property and other assets. We cannot offer assurances, however, that any strategic collaboration,sales of securities or sales or licenses of assets will be available to us on a timely basis or on acceptable terms, if at all. We may be required to enter intorelationships with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop independently, andany such relationships may not be on terms as commercially favorable to us as might otherwise be the case. 14  In the event that sufficient additional funds are not obtained through strategic collaboration opportunities, sales of securities, funding facilities,licensing arrangements, borrowing arrangements and/or asset sales on a timely basis, we may be required to reduce expenses through the delay, reduction orcurtailment of our projects, or further reduction of costs for facilities and administration. Moreover, if we do not obtain such additional funds, there willcontinue to be substantial doubt about our ability to continue as a going concern and increased risk of insolvency and up to total loss of investment to ourstockholders and other security holders. As of the date hereof, we have not obtained a solvency opinion or otherwise conducted a valuation of our propertiesto determine whether our debts exceed the fair value of our property within the meaning of applicable solvency laws. If we are or become insolvent, holdersof 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 wecurrently anticipate. There can be no assurances that we will be able to raise additional capital in sufficient amounts or on favorable terms, or at all. If we areunable to raise adequate additional capital when required or in sufficient amounts or on terms acceptable to us, we may have to delay, scale back ordiscontinue one or more product development programs, curtail our commercialization activities, significantly reduce expenses, sell assets (potentially at aloss), enter into relationships with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop orcommercialize independently, cease operations altogether, pursue an acquisition of our company at a price that may result in up to a total loss on investmentfor our stockholders, file for bankruptcy or seek other protection from creditors, or liquidate all of our assets. In addition, if we default under the FacilityAgreement, Deerfield could foreclose on substantially all of our assetsOur prospects are heavily dependent on the successful commercialization of our only approved product, Afrezza. The continued commercializationand development of 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 termour prospects and ability to generate significant revenues will heavily depend on our ability to successfully commercialize Afrezza in the United States. Inaddition, we anticipate that revenues from our existing or future licensing arrangements for our Technosphere platform technology that involve license,milestone, royalty or other payments to us will depend on our ability to achieve the performance obligations specified in such arrangements.Successful commercialization of Afrezza is subject to many risks, including some that are outside our control. There are numerous examples ofunsuccessful product launches, second launches that underperform original expectations and other failures to fully exploit the market potential of drugproducts, including by pharmaceutical companies with more experience and resources than us. 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,the availability of alternative treatments and lack of coverage or adequate reimbursement. We will need to maintain and enhance our commercializationcapabilities in order to successfully commercialize Afrezza in the United States, and we may not have sufficient resources to do so. The market for skilledcommercial 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 themfor a sufficient period. In addition, Afrezza is a novel insulin therapy with a distinct time-action profile and non-injectable administration, and we aretherefore required to expend significant time and resources to train our sales force to be credible, persuasive and compliant with applicable laws in marketingAfrezza for the treatment diabetes to physicians and to ensure that a consistent and appropriate message about Afrezza is being delivered to our potentialcustomers. If we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help theminform and educate potential customers about the benefits of Afrezza and its proper administration, our efforts to successfully commercialize Afrezza could beput in jeopardy, which would negatively impact our ability to generate product revenues.If we are unable to maintain payor coverage of, and adequate reimbursement for Afrezza, physicians may limit how much or under what circumstancesthey will prescribe or administer Afrezza. As a result, patients may decline to purchase Afrezza, which would have an adverse effect on our ability to generaterevenues.We are responsible for the NDA for Afrezza and its maintenance. We may fail to comply with maintenance requirements, including timely submittingrequired reports. Furthermore, we are responsible for the conduct of the remaining required post-approval trials of Afrezza. Our financial and other resourceconstraints may result in delays or adversely impact the reliability and completion of these trials.If we fail to achieve commercialize success with Afrezza in the United States, our business, financial condition and results of operations will bematerially and adversely affected.We expect that our results of operations will fluctuate for the foreseeable future, which may make it difficult to predict our future performance from periodto period.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 tofluctuate from period to period include the factors that will affect our funding requirements described above under “Risk Factors — We will need to raiseadditional capital to fund our operations, and there is substantial doubt about our ability to continue as a going concern.” 15  We believe that comparisons from period to period of our financial results are not necessarily meaningful and should not be relied upon as indicationsof our future 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 UnitedStates, which could limit our commercial revenues. We may not be successful in establishing or maintaining regional partnerships or other arrangementswith third parties for the commercialization 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 obtainedapproval in any other jurisdiction. In order to market Afrezza outside of the United States, we must obtain regulatory approval in each applicable foreignjurisdiction, and we may never be able to obtain such approvals. The research, testing, manufacturing, labeling, approval, sale, import, export, marketing, anddistribution of pharmaceutical products outside the United States are subject to extensive regulation by foreign regulatory authorities, whose regulationsdiffer from country to country. We will be required to comply with different regulations and policies of the 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 approval for other jurisdictions. This will requireadditional time, expertise and expense, including the potential need to conduct additional studies or development work for other jurisdictions beyond thework 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, isto seek and establish regional partnerships in foreign jurisdictions where there are commercial opportunities. It may be difficult to find or maintaincollaboration partners that are able and willing to devote the time and resources necessary to successfully commercialize Afrezza. Collaborations with thirdparties may require us to relinquish material rights, including revenue from commercialization, agree to unfavorable terms or assume material ongoingdevelopment obligations that we would have to fund. These collaboration arrangements are complex and time-consuming to negotiate, and if we are unableto reach agreements with third-party collaborators, we may fail to meet our business objectives and our financial condition may be adversely affected. Wemay also face significant competition in seeking collaboration partners, especially in the current market, and may not be able to find a suitable collaborationpartner in a timely manner on acceptable terms, or at all. Any of these factors could cause delay or prevent the successful commercialization of Afrezza inforeign jurisdictions and could have a material and adverse impact on our business, financial condition and results of operations and the market price of ourcommon 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 additionalresearch and development and, in some cases, significant preclinical, clinical and other testing prior to seeking regulatory approval to market them.Accordingly, these product candidates will not be commercially available for a number of years, if at all. Further research and development on these programswill require significant financial resources. Given our limited financial resources and our focus on development and commercialization of Afrezza, we willlikely not be able to advance these programs unless we are able to enter into collaborations with third parties to fund these programs or to obtain funding toenable 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 ourresearch programs identify product candidates that initially show promise, these candidates may fail to progress to clinical development for any number ofreasons, including discovery upon further research that these candidates have adverse effects or other characteristics that indicate they are unlikely to beeffective. In addition, the clinical results we obtain at one stage are not necessarily indicative of future testing results. If we fail to develop and commercializeour product candidates, or if we are significantly delayed in doing so, our ability to generate product revenues will be limited to the revenues we can generatefrom 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 are not currently profitable and have rarely generated positive net cash flow from operations. As of December 31, 2018, we had an accumulateddeficit of $2.9 billion. The accumulated deficit has resulted principally from costs incurred in our research and development programs, the write-off ofgoodwill, inventory and property, plant and equipment, and general operating expenses. We expect to make substantial expenditures and to incur increasingoperating losses in the future in order to continue the commercialization of Afrezza. In addition, under the amended Insulin Supply Agreement withAmphastar, we agreed to purchase certain annual minimum quantities of insulin through 2024. As of December 31, 2018, there was €85.8 million remainingin aggregate purchase commitments under this agreement. We may not have the necessary capital resources on hand in order to service this contractualcommitment.Our losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets and stockholders’ equity. Our abilityto achieve and sustain positive cash flow from operations and profitability depends heavily upon successfully commercializing Afrezza, and we cannot besure when, if ever, we will generate positive cash flow from operations or become profitable. 16  We have a substantial amount of debt, and we may be unable to make required payments of interest and principal as they become due.As of December 31, 2018, we had $101.7 million principal amount of outstanding debt, consisting of: •$18.7 million principal amount of senior convertible notes bearing interest at 5.75% per annum, with interest payable in cash semiannually inarrears on February 15 and August 15 of each year, and maturing on October 23, 2021; •$9.0 million principal amount of Facility Financing Obligation due and payable in July 2019 and bearing interest at 9.75% per annum (the“2019 notes”). Interest is payable in cash quarterly in arrears in the last business day of March, June, September and December of each year;$2.5 million principal amount of Facility Financing Obligation due and payable in May 2019 and bearing interest at 8.75% per annum (the “Tranche B notes”, and together with the 2019 notes, the “Facility Financing Obligation”). Interest is payable in cash quarterly in arrears on the last business day of March, June, September and December of each year; and •$71.5 million principal amount of indebtedness under a loan arrangement (“the Mann Group Loan Arrangement”) bearing interest at a fixed rateof 5.84% per annum compounded quarterly beginning April 1, 2018 and maturing on July 1, 2021, all of which is convertible at a conversionprice per share of $4.00. Interest is due and payable quarterly in arrears on the first day of each calendar quarter for the preceding quarter, exceptthat interest payments are subject to deferral under a subordination agreement with Deerfield until our payment obligations to Deerfield havebeen satisfied in full.There can be no assurance that we will have sufficient resources to make any required repayments of principal under the terms of our indebtednesswhen required. Further, if we undergo a fundamental change, as that term is defined in the indentures governing the terms of the senior convertible notes, orcertain Major Transactions as defined in the Facility Agreement in respect of the Facility Financing Obligation, the holders of the respective debt securitieswill 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 such debtsecurities to be repurchased plus accrued and unpaid interest, if any. While we have been able to timely make our required interest payments to date, wecannot guarantee that we will be able to do so in the future. If we fail to pay interest on the senior convertible notes, 2019 notes, or Tranche B notes, or if wefail to repay or repurchase the senior convertible notes, 2019 notes, Tranche B notes, or the loans under The Mann Group Loan Arrangement when required,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 andfinancial condition, 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 financialflexibility.Our obligations under the Facility Agreement, including any indebtedness under the Facility Financing Obligation, and the Milestone RightsPurchase Agreement (the “Milestone Agreement”) with Deerfield and Horizon Santé FLML SÁRL (collectively, the “Milestone Purchasers”) are secured bysubstantially all of our assets, including our intellectual property, accounts receivables, equipment, general intangibles, inventory (excluding insulininventory) and investment property, and all of the proceeds and products of the foregoing. The Facility Agreement includes customary representations,warranties and covenants by us, including restrictions on our ability to incur additional indebtedness, grant certain liens, engage in certain mergers andacquisitions, make certain distributions and make certain voluntary prepayments. Events of default under the Facility Agreement include: our failure totimely make payments due under the Facility Financing Obligation; inaccuracies in our representations and warranties to Deerfield; our failure to complywith any of our covenants under any of the Facility Agreement, Milestone Agreement or certain other related security agreements and documents entered intoin connection with the Facility Agreement, subject to a cure period with respect to most covenants; our insolvency or the occurrence of certain bankruptcy-related events; certain judgments against us; the suspension, cancellation or revocation of governmental authorizations that are reasonably expected to havea material adverse effect on our business; the acceleration of a specified amount of our indebtedness; our cash and cash equivalents falling below $25.0million as of the end of each fiscal quarter after December, 31, 2018. There have been no events of default under the Facility Financing Obligation. If we failto timely pay accrued interest under The Mann Group Loan Arrangement when required, we will be in default under The Mann Group Loan Arrangement. Ifone or more events of default under the Facility Agreement occurs and continues beyond any applicable cure period, the holders of the Facility FinancingObligation may declare all or any portion of the Facility Financing Obligation to be immediately due and payable. The Milestone Agreement includescustomary representations and warranties and covenants by us, including restrictions on transfers of intellectual property related to Afrezza. The milestonesare subject to acceleration in the event we transfer our intellectual 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 theholders of the Facility Financing Obligation would demand repayment of the outstanding balance of the Facility Financing Obligation as applicable orexercise any other remedies available to such holders if we were unable to comply with these covenants. The covenants and restrictions contained in theforegoing agreements could significantly limit our ability to respond to changes in our business or competitive activities or take advantage of businessopportunities that may create value for our stockholders and the holders of our other securities. In addition, our inability to meet or otherwise comply withthe covenants under these agreements could have an adverse impact on our financial position and results of operations and could result in an event of defaultunder the terms of our other indebtedness, including our indebtedness under the senior convertible notes. In the event of certain future defaults under theforegoing agreements for which we are not able to obtain waivers, the holders of the senior convertible notes and Facility Financing Obligation mayaccelerate all of our repayment obligations, and, with respect to the Facility Financing Obligation, take control of our pledged assets, potentially requiring usto renegotiate 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 of such additional arrangements could further restrict our operating and financial flexibility. In the event we must cease operations and liquidateour assets, the rights of any holders of our outstanding secured debt would be senior to the rights of the holders of our unsecured debt and our common stockto receive any proceeds from the liquidation. 17  If we do not achieve our projected development goals in the timeframes we expect, our business, financial condition and results of operations will beharmed and the 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 we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical studies and thesubmission of regulatory filings. From time to time, we publicly announce the expected timing of some of these milestones. All of these milestones are basedon a variety of assumptions. The actual timing of the achievement of these milestones can vary dramatically from our estimates, in many cases for reasonsbeyond 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 ourassets on a timely basis, we may be required to reduce expenses by delaying, reducing or curtailing our development of product candidates. If we fail tocommence or complete, or experience delays in or are forced to curtail, our proposed clinical programs or otherwise fail to adhere to our projecteddevelopment goals in the timeframes we expect (or within the timeframes expected by analysts or investors), our business, financial condition and results ofoperations will be harmed and the market price of our common stock and other securities may decline.Afrezza or our product candidates may be rendered obsolete by rapid technological change.The rapid rate of scientific discoveries and technological changes could result in Afrezza or one or more of our product candidates becoming obsoleteor noncompetitive. Our competitors may develop or introduce new products that render our technology or Afrezza less competitive, uneconomical orobsolete. Our future success may depend not only on our ability to develop our product candidates, but also our ability to improve them and to improveAfrezza in order to keep pace with emerging industry developments. We cannot assure you that we will be able to do so.We also expect to face competition from universities and other non-profit research organizations. These institutions carry out a significant amount ofresearch and development in various areas of unmet medical need. These institutions are becoming increasingly aware of the commercial value of theirfindings and are more active in 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 ourproduct candidates.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 beconsistent with the earlier clinical results. For example, with the approval of Afrezza, the FDA has required a five-year, randomized, controlled trial with type2 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 ouror any future marketing partner’s ability to market and sell the drug, may narrow the approved indications for use or otherwise require restrictive productlabeling 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 andclinical testing. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or impact commercialization ofany of our product candidates, 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 wemay obtain in our future clinical studies or following long-term use, and we may as a result be forced to stop developing a product candidate oralter the marketing of an approved product; •the analysis of data collected from clinical studies of our product candidates may not reach the statistical significance necessary, or otherwise besufficient to 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 precluderegulatory approval or limit their commercial use once approved. 18  As a result of any of these events, we, any collaborator, the FDA, or any other regulatory authorities, may suspend or terminate clinical studies ormarketing of the drug at any time. Any suspension or termination of our clinical studies or marketing activities may harm our business, financial conditionand results of operations and 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 withapplicable regulations, and if we fail to timely identify and qualify alternative suppliers, our business, financial condition and results of operations wouldbe harmed and the market 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 relatedcartridges and other materials. Currently, the only source of insulin that we have qualified for Afrezza is manufactured by Amphastar. We must rely on oursuppliers, including Amphastar, to comply with relevant regulatory and other legal requirements, including the production of insulin and FDKP inaccordance with the FDA’s cGMP for drug products, and the production of the Afrezza inhaler and related cartridges in accordance with QSRs. The supply ofany of these materials may be limited or any of the manufacturers may not meet relevant regulatory requirements, and if we are unable to obtain any of thesematerials in sufficient amounts, in a timely manner and at reasonable prices, or if we encounter delays or difficulties in our relationships with manufacturers orsuppliers, the production of Afrezza may be delayed. Likewise, if Amphastar ceases to manufacture or is otherwise unable to deliver insulin for Afrezza, wewill need to locate an alternative source of supply and the production of Afrezza may be delayed. If any of our suppliers is unwilling or unable to meet itssupply obligations and we are unable to secure an alternative supply source in a timely manner and on favorable terms, our business, financial condition, andresults of operations may be harmed and the market price of our common stock and other securities 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 inblister packs, and place the blister packs into foil pouches. We utilize a contract packager to assemble the final kits of foil-pouched blister packs along withinhalers and the package insert. The manufacture of pharmaceutical products requires significant expertise and capital investment, including thedevelopment of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties inproduction, especially in scaling up initial production. These problems include difficulties with production costs and yields, quality control and assuranceand shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. If we engage a third-partymanufacturer, we would need to transfer our technology to that third-party manufacturer and gain FDA approval, potentially causing delays in productdelivery. In addition, our third-party manufacturer may not perform as agreed or may terminate 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 sufficientquantities for the commercialization of Afrezza at the costs that we currently anticipate. Furthermore, if we or a third-party manufacturer fail to deliver therequired commercial quantities of the product or any raw material on a timely basis, and at commercially reasonable prices, sustainable compliance andacceptable quality, and we were unable to promptly find one or more replacement manufacturers capable of production at a substantially equivalent cost, insubstantially equivalent volume and quality on 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 may be 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 thehealthcare community. 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 support and educate physicians about the benefits and advantages of Afrezza orour other products, 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; •Perception of patients and the healthcare community, including third-party payors, regarding the safety, efficacy and benefits compared tocompeting products or therapies; •Convenience and ease of administration relative to existing treatment methods; •Coverage and reimbursement, as well as pricing relative to other treatment therapeutics and methods; and •Marketing and distribution support. 19  Because of these and other factors, Afrezza and any other product that we develop may not gain market acceptance, which would materially harm ourbusiness, 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 candidatesmight not be 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-party payors to contain or reduce the costs of healthcare through various means. For example, in certain foreign markets the pricing of prescriptionpharmaceuticals is subject to governmental control. In the United States, there have been several congressional inquiries and proposed and enacted federaland state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturerpatient programs, and reform government program reimbursement methodologies for products. At the federal level, the Trump administration released a“Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase thenegotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costsof drug products paid by consumers. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use steptherapy for Part B drugs beginning January 1, 2019. Although a number of these, and other proposed measures will require authorization through additionallegislation to become effective, Congress and the Trump administration have stated that they will continue to seek new legislative and/or administrativemeasures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to controlpharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access andmarketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Weexpect that there will continue to be a number of federal and state proposals to implement similar and/or additional governmental controls. We cannot becertain what legislative proposals will be adopted or what actions federal, state or private third-party payors may take in response to any drug pricing andreimbursement reform proposals or legislation. Such reforms may limit our ability to generate revenues from sales of Afrezza or other products that we maydevelop in the future and achieve profitability. Further, to the extent that such reforms have a material adverse effect on the business, financial condition andprofitability of any future marketing partner for Afrezza, and companies that are prospective collaborators for our product candidates, our ability tocommercialize 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 adequatereimbursement to the consumer from third-party payors, such as government health administration authorities and private insurance plans. Third-party payorsare increasingly challenging the prices charged for medical products and services. The market for Afrezza and our product candidates for which we mayreceive regulatory approval will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payorsprovide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures onpharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access toa branded drug when a less costly generic equivalent or other alternative is available. In addition, because each third-party payor individually approvescoverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming and costly process. We may be required to providescientific and clinical support for the use of any product to each third-party payor separately with no assurance that approval would be obtained. This processcould delay the market acceptance of any product and could have a negative effect on our future revenues and operating results. Even if we succeed inbringing 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 adequateto cover a significant portion of the cost of our products.In addition, in many foreign countries, the pricing of prescription drugs is subject to government control. In some non-U.S. jurisdictions, the proposedpricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. Forexample, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurancesystems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinalproduct 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 thathave placed price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with our own products, whichcould negatively impact our profitability.If we or any future marketing partner is unable to obtain coverage of, and adequate payment levels reimbursement for, Afrezza or any of our otherproduct candidates that receive marketing approval from third-party payors, physicians may limit how much or under what circumstances they will prescribeor administer them and patients may decline to purchase them. This in turn could affect our and any future marketing partner’s ability to successfullycommercialize Afrezza and our ability to successfully commercialize any of our other product candidates that receives regulatory approval and impact ourprofitability, results of operations, financial condition, and prospects. 20  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 changethe healthcare system in ways that could impact our ability to sell our products profitably. For example, in March 2010, the Patient Protection and AffordableCare Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, (“PPACA”) became law in the United States.PPACA substantially changed the way healthcare is financed by both governmental and private insurers and significantly affects the healthcare industry.Among the provisions of 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, apportionedamong these entities 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 expectwill continue to include U.S. sales of certain drug-device combination products, which has been suspended for calendar years 2016 through2019; •An increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of theaverage manufacturer 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 federal Anti-Kickback Statute, new governmentinvestigative powers, and enhanced penalties for noncompliance; •A Medicare Part D coverage gap discount program, in which manufacturers must agree to now offer 70% point-of-sale discounts off negotiatedprices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatientdrugs to be covered under Medicare Part D; •Extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed careorganizations; •Expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additionalindividuals with income at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaid rebateliability; •Expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; •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 ordistributed to prescribers, teaching hospitals and other healthcare providers and reporting any ownership and investment interests held byphysicians and their immediate family members and applicable group purchasing organizations during the preceding calendar year; •A requirement to annually report drug samples that certain manufacturers and authorized distributors provide to physicians; and •A Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, alongwith funding for such research.Some of the provisions of the PPACA have yet to be fully implemented, while certain provisions have been subject to judicial and congressionalchallenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the PPACA. President Trump has signed two Executive Ordersand other directives designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for healthinsurance mandated by the PPACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA.While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the PPACA have been signedinto law. The Tax Cuts and Jobs Act of 2017 (“Tax Act”) includes a provision repealing, effective January 1, 2019, the tax-based shared responsibilitypayment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred toas the “individual mandate”. On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed theimplementation of certain PPACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annualfee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The BipartisanBudget Act of 2018, or the BBA, among other things, amended the PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans.In July 2018, CMS published a final rule permitting further collections and payments to and from certain PPACA qualified health plans and health insuranceissuers under the PPACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determinethis risk adjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the PPACA is unconstitutional in its entirety because the“individual mandate” was repealed by Congress as part of the Tax Act. While the Texas U.S. District Court Judge, as well as the Trump administration andCMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and otherefforts to repeal and replace the PPACA will impact the PPACA and our business. 21  In addition, other legislative changes have been proposed and adopted since PPACA was enacted. For example, on August 2, 2011, the BudgetControl Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked withrecommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering thelegislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% perfiscal year, starting in 2013, and, following passage of the BBA, will stay in effect through 2027 unless additional Congressional action is taken. OnJanuary 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the “ATRA”), which, among other things, reduced Medicarepayments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for thegovernment to recover overpayments to providers from three to five years. In addition, recently there has been heightened governmental scrutiny over themanner in which manufacturers set prices for their marketed products. Specifically, there have been several recent U.S. Congressional inquiries and proposedand enacted legislation 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 program reimbursement methodologies for drugs. Thesenew laws and initiatives may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on ourcustomers and accordingly, our financial operations.Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to TryAct, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug productsthat have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seektreatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for apharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.We expect that PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria andin additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenues. Any reduction inreimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors. Theimplementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, orcommercialize 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 privacyand security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adverselyaffected.As a biopharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid orother third-party payors, certain federal and state healthcare laws and regulations, including those pertaining to fraud and abuse and patients’ rights are andwill be applicable to our business. For example, we could be subject to healthcare fraud and abuse and patient privacy regulation by both the federalgovernment and the states in which we conduct 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 aperson or entity no longer needs to have actual knowledge of the Statute or specific intent to violate it to have committed a violation), whichconstrains our business activities, including our marketing practices, educational programs, pricing policies, and relationships with healthcareproviders or other entities by prohibiting, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration,directly or indirectly, to induce, or in return for, either the referral of an individual or the purchase or recommendation of an item or servicereimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; •Federal civil and criminal false claims laws, including without limitation the False Claims Act, and civil monetary penalties laws, whichprohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare,Medicaid, or other federal healthcare programs that are false or fraudulent, and knowingly making, or causing to be made, a false record orstatement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government, and underPPACA, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statuteconstitutes a false or fraudulent claim for purposes of the federal false claims laws; •HIPAA, which created new federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraudany healthcare benefit program or falsifying, concealing, or covering up a material fact in connection with the delivery of or payment for healthcare benefits; •HIPAA, as amended by HITECH, and their respective implementing regulations, which imposes certain requirements relating to the privacy,security and transmission of individually identifiable health information on entities subject to the law, such as certain healthcare providers,health plans, and healthcare clearinghouses and their respective business associates that perform services for them that involve the creation, use,maintenance or disclosure of, individually identifiable health information. In addition, in May 2018, the European Union, or EU,adopted European General Data Protection Regulation, or GDPR, which contains new 22  provisions specifically directed at the processing of health information, higher sanctions and extra-territoriality measures intended to bring non-EU companies under the regulation. We anticipate that over time we may expand our business operations to include additional operations in theEU, including potentially conducting preclinical and clinical trials. With such expansion, we would be subject to increased governmentalregulation in the EU countries in which we might operate, including the GDPR; •California recently enacted legislation that has been dubbed the first “GDPR-like” law in the United States. Known as the California ConsumerPrivacy Act (“CCPA”), it will create new individual privacy rights for consumers (as that word is broadly defined in the law) and place increasedprivacy and security obligations on entities handling personal data of consumers or households. When it goes into effect on January 1, 2020,the CCPA will require covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out ofcertain sales of personal information, and allow for a new cause of action for data breaches. Legislators have stated that amendments will beproposed to the CCPA before it goes into effect, but it remains unclear what, if any, modifications will be made to this legislation or how it willbe interpreted. As currently written, the CCPA will likely impact (possibly significantly) our business activities and exemplifies thevulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data and protectedhealth information; •The federal Physician Payments Sunshine Act under PPACA, which requires certain manufacturers of drugs, devices, biologics, and medicalsupplies to report annually to CMS information related to payments and other transfers of value to physicians, other healthcare providers, andteaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate familymembers; •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 orservices reimbursed by any third-party payor, including commercial insurers, and state and foreign laws governing the privacy and security ofhealth information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA,thus complicating compliance efforts; state laws that require pharmaceutical companies to comply with the industry’s voluntary complianceguidelines and the applicable compliance guidance promulgated by the federal government that otherwise restricts certain payments that maybe made to healthcare providers and entities; state and local laws that require the registration of pharmaceutical sales representatives; and statelaws that require drug manufacturers to report information related to payments and other transfer of value to physicians and other healthcareproviders and entities.Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of ourbusiness activities could be subject to challenge under one or more of such laws. To the extent that Afrezza or any of our product candidates that receivesmarketing approval is ultimately sold in a foreign country, we may be subject to similar foreign laws and regulations. If we or our operations are found to bein violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil,criminal and administrative penalties, damages, fines, individual imprisonment, disgorgement, exclusion from U.S. federal or state healthcare programs,additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of ouroperations could materially adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the riskof investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even ifwe successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of ourbusiness. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws 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 theUnited States, we could be subject to additional reimbursement requirements, fines, sanctions and exposure under other laws which could have a materialadverse effect on our 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 UnitedStates, and we may participate in additional government pricing programs in the future. These programs generally require us to pay rebates or otherwiseprovide discounts to government payors in connection with drugs that are dispensed to beneficiaries/recipients of these programs. In some cases, such as withthe Medicaid Drug Rebate Program, the rebates are based on pricing that we report on a monthly and quarterly basis to the government agencies thatadminister the programs. Pricing requirements and rebate/discount calculations are complex, vary among products and programs, and are often subject tointerpretation by governmental or regulatory agencies and the courts. The requirements of these programs, including, by way of example, their respectiveterms and scope, change frequently. Responding to current and future changes may increase our costs, and the complexity of compliance will be timeconsuming. Invoicing for rebates is provided in arrears, and there is frequently a time lag of up to several months between the sales to which rebate noticesrelate and our receipt of those notices, which further complicates our ability to accurately estimate and accrue for rebates related to the Medicaid program asimplemented by individual states. Thus, there can be no assurance that we will be able to identify all factors that may cause our discount and rebate paymentobligations to vary from period to period, and our actual results may differ significantly from our estimated allowances for discounts and rebates. Changes inestimates and assumptions may have a material adverse effect on our business, results of operations and financial condition. 23  In addition, the Office of Inspector General of the Department of Health and Human Services and other Congressional, enforcement and administrativebodies have recently increased their focus on pricing requirements for products, including, but not limited to the methodologies used by manufacturers tocalculate average manufacturer price (“AMP”) and best price (“BP”) for compliance with reporting requirements under the Medicaid 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 submitmonthly/quarterly AMP and BP data on a timely basis could result in a civil monetary penalty. Failure to make necessary disclosures and/or to identifyoverpayments could result in allegations against us under the False Claims Act and other laws and regulations. Any required refunds to the U.S. governmentor responding to a government investigation or enforcement action would be expensive and time consuming and could have a material adverse effect on ourbusiness, results of operations and financial condition. In addition, in the event that the CMS were to terminate our rebate agreement, no federal paymentswould 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 liabilityclaims. A product liability claim may result in substantial judgments as well as consume significant financial and management resources and result in adversepublicity, decreased demand for a product, injury to our reputation, withdrawal of clinical studies volunteers and loss of revenues. We currently carryworldwide product liability insurance in the amount of $10.0 million. Our insurance coverage may not be adequate to satisfy any liability that may arise, andbecause insurance coverage in our industry can be very expensive and difficult to obtain, we cannot assure you that we will seek to obtain, or be able toobtain if desired, sufficient additional coverage. If losses from such claims exceed our liability insurance coverage, we may incur substantial liabilities thatwe may not have the resources to pay. If we are required to pay a product liability claim our business, financial condition and results of operations would beharmed 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 dependsupon our ability to attract, retain and motivate highly skilled employees. We may be unable to attract and retain these individuals on acceptable terms, if atall. In addition, in order to commercialize Afrezza successfully, we may be required to expand our work force, particularly in the areas of manufacturing andsales and marketing. These activities will require the addition of new personnel, including management, and the development of additional expertise byexisting personnel, and we cannot assure you 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, commercial and scientific staff could significantly delay or prevent theachievement of our scientific and business objectives. All of our employees are “at will” and we currently do not have employment agreements with any ofthe principal members of our management, commercial or scientific staff, and we do not have key person life insurance to cover the loss of any of theseindividuals. Replacing key employees may be difficult and time-consuming because of the limited number of individuals in our industry with the skills andexperience required to develop, gain regulatory approval of and commercialize products successfully.We have relationships with scientific advisors at academic and other institutions to conduct research or assist us in formulating our research,development or clinical strategy. These scientific advisors are not our employees and may have commitments to, and other obligations with, other entitiesthat may limit their availability to us. We have limited control over the activities of these scientific advisors and can generally expect these individuals todevote only limited time to our activities. Failure of any of these persons to devote sufficient time and resources to our programs could harm our business. Inaddition, these advisors are not prohibited from, and may have arrangements with, other companies to assist those companies in developing technologies thatmay compete with Afrezza or our product candidates.If our internal controls over financial reporting are not considered effective, our business, financial condition and market price of our common stock andother securities 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 ofeach fiscal year, and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report on Form10-K for that fiscal year. Section 404 also requires our independent registered public accounting firm to attest to, and report on, our internal controls overfinancial reporting. 24  Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our internal controls over financialreporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud involving a company have been, or will be, detected. The design of any system ofcontrols is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving itsstated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degreeof compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud mayoccur and not be detected. A material weakness in our internal controls has been identified in the past, and we cannot assure you that we or our independentregistered public accounting firm will not identify a material weakness in our internal controls in the future. A material weakness in our internal controls overfinancial reporting would require management and our independent registered public accounting firm to evaluate our internal controls as ineffective. If ourinternal controls over financial reporting are not considered effective, we may experience a loss of public confidence, which could have an adverse effect onour business, financial condition and the market price of our common stock and other securities. Changes or modifications in financial accounting standards, including those related to revenue recognition, may harm our results of operations. From time to time, the Financial Accounting Standards Board (“FASB”), either alone or jointly with other organizations, promulgates new accountingprinciples that could have an adverse impact on our financial position, results of operations or reported cash flows. In May 2014, the FASB issuedAccounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was subsequently clarified by additionalASUs. The standard requires a company to recognize revenue to depict the transfer of goods or services when transferred to customers in the amount thatreflects the consideration it expects to be entitled to receive in exchange for those goods or services. We adopted the new standard for the year beginningJanuary 1, 2018. We had the option to apply the new standard either retrospectively for all prior reporting periods presented (full retrospective) orretrospectively with the cumulative effect of initially applying the new standard recognized at the date of initial application (modified retrospective). Wehave elected to apply the new standard using the modified retrospective approach with the cumulative effect of initial application recognized as of January 1,2018 and the cumulative effect adjustment was a $1.7 million decrease to the opening balance of accumulated deficit. Any difficulties in implementing thisstandard, or in adopting or implementing any other new accounting standard, and to update or modify our internal controls as needed on a timely basis, couldresult in our failure to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. Finally, if wewere to change our critical accounting estimates, including those related to the recognition of collaboration revenue and other revenue sources, our operatingresults could be significantly affected.Our ability to use net operating losses to offset future taxable income may be subject to limitations.As of December 31, 2018, we had federal and state net operating loss carryforwards of $2.1 billion and $2.4 billion, respectively. The federal and statenet operating loss carryforwards have begun to expire. These net operating loss carryforwards could expire unused and be unavailable to offset future incometax liabilities. Under the newly enacted federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forwardindefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the newlyenacted federal tax law. In addition, under Section 382 of the Code and corresponding provisions of state law, if a corporation undergoes an “ownershipchange,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to useits pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. As a result of ourinitial public offering, an ownership change within the meaning of Section 382 occurred in August 2004. As a result, federal net operating loss and creditcarry forwards of approximately $216.0 million and are subject to an annual use limitation of approximately $13.0 million. The annual limitation iscumulative and therefore, if not fully utilized in a year, can be utilized in future years in addition to the Section 382 limitation for those years. We have notcompleted an IRC Section 382 analysis regarding the limitation of net operating loss carryforwards and other tax attributes since the August 2004 change inownership in connection with our initial public offering. There is a risk that changes in ownership have occurred since our initial public offering. If a changein ownership were to have occurred after the initial public offering, net operating loss carryforwards and other tax attributes could be further limited orrestricted. If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operatingresults by effectively increasing our future tax obligations.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 operatingstructure in light of developments in our business strategy and long-term operating plans. These activities may result in write-offs or other restructuringcharges. There can be no assurance that any restructuring activities that we undertake will achieve the cost savings, operating efficiencies or other benefitsthat we may initially expect. Restructuring activities may also result in a loss of continuity, accumulated knowledge and inefficiency during transitionalperiods and thereafter. In addition, internal restructurings can require a significant amount of time and focus from management and other employees, whichmay divert attention from commercial operations. If we undertake any internal restructuring activities and fail to achieve some or all of the expected benefitstherefrom, our business, results of operations and financial condition could be materially and adversely affected. 25  We and certain of our executive officers and directors have been named as defendants in ongoing securities lawsuits that could result in substantial costsand 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, twomotions were submitted to the district court at Tel Aviv, Economic Department for the certification of a class action against MannKind and certain of ourofficers and directors. In general, the complaints allege that MannKind and certain of our officers and directors violated Israeli and U.S. securities laws bymaking materially false and misleading statements regarding the prospects for Afrezza, thereby artificially inflating the price of its common stock. Theplaintiffs are seeking monetary damages. In November 2016, the district court dismissed one of the actions without prejudice. In the remaining action, thedistrict court ruled in October 2017 that U.S. law will apply to this case. The plaintiff has appealed this ruling, and following an oral hearing before theSupreme Court of Israel, has decided to withdraw his appeal. Subsequently, in November 2018, Mannkind filed a motion to dismiss the certification motion.At a case conference in February 2019, the court directed the parties to negotiate a procedure for determining whether the plaintiff can distinguish the claimsin the Israeli litigation from those in a U.S. case against us based on the same events (which was dismissed by the U.S. district court for the Central District ofCalifornia in August 2016). We will continue to vigorously defend against the claims advanced. If we are not successful in our defense, we could be forced tomake significant payments to or other settlements with our stockholders and their lawyers, and such payments or settlement arrangements could have amaterial adverse effect on our business, operating results or financial condition. Even if such claims are not successful, the litigation could result insubstantial costs and significant adverse impact on our reputation and divert management’s attention and resources, which could have a material adverseeffect 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 ofAfrezza. It will also serve as the initial production facility for TreT. This facility and the manufacturing equipment we use would be costly to replace andcould require substantial lead time to repair or replace. We depend on our facilities and on collaborators, contractors and vendors for the continued operationof our business, some of whom are located in other countries. Natural disasters or other catastrophic events, including interruptions in the supply of naturalresources, political and governmental changes, severe weather conditions, wildfires and other fires, explosions, actions of animal rights activists, terroristattacks, volcanic eruptions, earthquakes and wars could disrupt our operations or those of our collaborators, contractors and vendors. We might suffer lossesas a result of business interruptions that exceed the coverage available under our and our contractors’ insurance policies or for which we or our contractors donot have coverage. For example, we are not insured against a terrorist attack. Any natural disaster or catastrophic event could have a significant negativeimpact on our operations and financial results. Moreover, any such event could delay our research and development programs or cause interruptions in ourcommercialization of Afrezza.We 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, includingchemical and biological materials. In addition, our manufacturing operations involve the use of a chemical that may form an explosive mixture under certainconditions. Our operations also produce hazardous waste products. We are subject to federal, state and local laws and regulations (i) governing how we use,manufacture, store, handle and 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 other releases of hazardous materials or regulated substances, and (iii) regulating workplace safety. Moreover, the risk ofaccidental contamination or injury from hazardous materials cannot be completely eliminated, and in the event of an accident, we could be held liable forany damages that may result, and any liability could fall outside the coverage or exceed the limits of our insurance. Currently, our general liability policyprovides coverage up to $1.0 million per occurrence and $2.0 million in the aggregate and is supplemented by an umbrella policy that provides a further$20.0 million of coverage; however, our insurance policy excludes pollution liability coverage and we do not carry a separate hazardous materials policy. Inaddition, we could be required to incur significant costs to comply with environmental laws and regulations in the future. Finally, current or futureenvironmental laws and regulations may impair our research, development or production efforts or have an adverse impact on our business, results ofoperations and financial condition.When we purchased the facilities located in Danbury, Connecticut in 2001, a soil and groundwater investigation and remediation was beingconducted by a former site operator (the responsible party) under the oversight of the Connecticut Department of Environmental Protection, which is notcompleted. The responsible party 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 andexpenses, if any, from the responsible party, our business, financial condition and results of operations may be harmed. 26  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, analyzingand storing large amounts of data. In addition, we rely on an enterprise software system to operate and manage our business. Our business therefore dependson the continuous, effective, reliable and secure operation of our computer hardware, software, networks, Internet servers and related infrastructure. Themultitude and complexity of our computer 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 includingintellectual property, trade secrets or personal information belonging to us or our customers or other business partners may be exposed to unauthorizedpersons or to the public. Our systems are also potentially subject to cyber-attacks, which can be highly sophisticated and may be difficult to detect. Suchattacks are often carried out by motivated, well-resourced, skilled and persistent actors including nation states, organized crime groups and “hacktivists.”Cyber-attacks could include the deployment of harmful malware and key loggers, a denial-of-service attack, a malicious website, the use of socialengineering and other means to affect the confidentiality, integrity and availability of our information technology systems, infrastructure and data. Our keybusiness partners face similar risks and any security breach of their systems could adversely affect our security status. While we continue to invest in theprotection of our critical or sensitive data and information technology, there can be no assurance that our efforts will prevent or detect service interruptions orbreaches in our systems that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could resultin financial, legal, business or reputational harm to us.Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel,prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performingnormal functions on which the operation of our business may rely, which could negatively impact our business.The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels,ability to hire and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agencyhave fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely,including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary governmentagencies, which would adversely affect our business. For example, over the last several years, including beginning on December 22, 2018, the U.S.government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and othergovernment employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timelyreview and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns couldimpact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.RISKS RELATED TO GOVERNMENT REGULATIONOur product candidates must undergo costly and time-consuming rigorous nonclinical and clinical testing and we must obtain regulatory approval priorto the sale and marketing of any product in each jurisdiction. The results of this testing or issues that develop in the review and approval by a regulatoryagency may subject us to 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,including regulation for safety, efficacy and quality, by the FDA in the United States and comparable authorities in other countries. FDA regulations and theregulations of comparable 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 theUnited States vary widely from country to country. Foreign approvals may take longer to obtain than FDA approvals and can require, among other things,additional testing and different clinical study designs. Foreign regulatory approval processes include essentially all of the risks associated with the FDAapproval processes. Some of those agencies also must approve prices of the products. Approval of a product by the FDA does not ensure approval of the sameproduct by the health authorities of other countries. In addition, changes in regulatory policy in the United States or in foreign countries for product approvalduring the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. 27  Clinical testing can be costly and take many years, and the outcome is uncertain and susceptible to varying interpretations. We cannot be certain if orwhen regulatory agencies might request additional studies, under what conditions such studies might be requested, or what the size or length of any suchstudies might be. The clinical studies of our product candidates may not be completed on schedule, regulatory agencies may order us to stop or modify ourresearch, or these agencies may not ultimately approve any of our product candidates for commercial sale. The data collected from our clinical studies maynot be sufficient to support regulatory approval of our product candidates. Even if we believe the data collected from our clinical studies are sufficient,regulatory agencies have substantial discretion in the approval process and may disagree with our interpretation of the data. Our failure to adequatelydemonstrate the safety and efficacy of any of our product candidates would delay or prevent regulatory approval of our product candidates, which couldprevent 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 inincreased cautiousness by regulatory agencies in reviewing new drugs based on safety, efficacy, or other regulatory considerations and may result insignificant delays in obtaining regulatory approvals. Such regulatory considerations may also result in the imposition of more restrictive drug labeling ormarketing requirements as conditions of approval, which may significantly affect the marketability of our drug products.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 toremove a product from the market, subject to criminal prosecution, or experience other adverse consequences, including restrictions or delays in obtainingregulatory marketing approval.Even if we comply with regulatory requirements, we may not be able to obtain the labeling claims necessary or desirable for product promotion. Wemay also be required to undertake post-marketing studies. For example, as part of the approval of Afrezza, the FDA required that we complete a clinical trialto evaluate the potential risk 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, regulatoryapproval may be withdrawn and a reformulation of our products, additional clinical studies, changes in labeling of, or indications of use for, our productsand/or additional marketing applications may be required. If we encounter any of the foregoing problems, our business, financial condition and results ofoperations will be harmed and the 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 productapprovals if problems concerning the safety or efficacy of a product appear following approval. We cannot be sure that FDA and United States Congressionalinitiatives or actions by foreign regulatory bodies pertaining to ensuring the safety of marketed drugs or other developments pertaining to the pharmaceuticalindustry will not adversely affect 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 manufacturersor suppliers must continually adhere to federal regulations setting forth requirements, known as cGMP (for drugs) and QSR (for medical devices), and theirforeign equivalents, which are enforced by the FDA and other national regulatory bodies through their facilities inspection programs. In complying withcGMP and foreign regulatory requirements, we and any of our potential third-party manufacturers or suppliers will be obligated to expend time, money andeffort in production, record-keeping and quality control to ensure that our products meet applicable specifications and other requirements. QSR requirementsalso impose extensive testing, control and documentation requirements. State regulatory agencies and the regulatory agencies of other countries have similarrequirements. In addition, we will be required to comply with regulatory requirements of the FDA, state regulatory agencies and the regulatory agencies ofother countries concerning the reporting of adverse events and device malfunctions, corrections and removals (e.g., recalls), promotion and advertising andgeneral prohibitions against the manufacture and distribution of adulterated and misbranded devices. Failure to comply with these regulatory requirementscould result in civil fines, product seizures, injunctions and/or criminal prosecution of responsible individuals and us. Any such actions would have amaterial adverse effect on our business, financial condition and results of operations.FDA and comparable foreign regulatory authorities subject Afrezza and any approved drug product to extensive and ongoing regulatory requirementsconcerning the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export andrecordkeeping. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continuedcompliance with cGMPs and GCP requirements for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems,including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply withregulatory 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 mandatoryproduct recalls; •fines, warning letters or holds on clinical trials; 28  •refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation ofapprovals; •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 and other regulatory authorities impose significant restrictions on approved products through regulations on advertising, promotional anddistribution activities. This oversight encompasses, but is not limited to, direct-to-consumer advertising, healthcare provider-directed advertising andpromotion, sales representative communications to healthcare professionals, promotional programming and promotional activities involving theInternet. Regulatory authorities may also review industry-sponsored scientific and educational activities that make representations regarding product safetyor efficacy in a promotional context. The FDA and other regulatory authorities may take enforcement action against a company for promoting unapproveduses of a product or for other violations of its advertising and labeling laws and regulations. Enforcement action may include product seizures, injunctions,civil or criminal penalties or regulatory letters, which may require corrective advertising or other corrective communications to healthcare professionals.Failure to comply with such regulations also can result in adverse publicity or increased scrutiny of company activities by the U.S. Congress or otherlegislators. Certain states have also adopted regulations and reporting requirements surrounding the promotion of pharmaceuticals. Failure to comply withstate requirements may affect our ability to promote or sell our products in certain states.We are required to comply with FDA regulations concerning the advertising and promotion of Afrezza. Failure to comply with these regulations canresult in the receipt of warning letters and further liability if off-label promotion is involved. For example, in October 2018, we received a warning letter fromthe FDA’s Office of Prescription Drug Promotion related to a particular post on our Afrezza Facebook page. The warning letter stated that the post in questionfailed to adequately disclose the risks associated with the use of Afrezza. As a result, we inactivated all Afrezza social media accounts (including Facebook,Instagram and Twitter) and conducted a review to determine whether any additional postings may contain content similar to the post in question. We haveresponded to the warning letter and will continue to work with the FDA to address their concerns.The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit ordelay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from futurelegislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or theadoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may haveobtained and we may not achieve or sustain profitability.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 complywith relevant regulatory requirements and is subject to inspection by the FDA. Although we conduct our own inspections and review and/or approveinvestigations of each supplier, there can be no assurance that the FDA, upon inspection, would find that the supplier substantially complies with the QSR orcGMP requirements, where applicable. If we or any potential third-party manufacturer or supplier fails to comply with these requirements or comparablerequirements in foreign countries, regulatory authorities may subject us to regulatory action, including criminal prosecutions, fines and suspension of themanufacture 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 meetsregulatory requirements, including cGMP requirements as well as our specifications and quality requirements, which would require significant time andexpense and could delay the 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 obtainingregulatory approval 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 subjectto class warnings in the label for Afrezza. In addition, the public perception of Afrezza might be adversely affected, which could harm our business, financialcondition and results of operations and cause the market price of our common stock and other securities to decline, even if the concern relates to anothercompany’s products or product candidates.There are also a number of clinical studies being conducted by other pharmaceutical companies involving compounds similar to, or potentiallycompetitive with, our product candidates. Adverse results reported by these other companies in their clinical studies could delay or prevent us from obtainingregulatory approval or negatively impact public perception of our product candidates, which could harm our business, financial condition and results ofoperations and cause the market price of our common stock and other securities to decline. 29  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 todo so will depend on, among other things, complex legal and factual questions, and it should be noted that the standards regarding intellectual propertyrights in our fields are still evolving. We attempt to protect our proprietary technology through a combination of patents, trade secrets and confidentialityagreements. We own a number of domestic and international patents, have a number of domestic and international patent applications pending and havelicenses to additional patents. We cannot assure you that our patents and licenses will successfully preclude others from using our technologies, and we couldincur substantial costs in seeking enforcement of our proprietary rights against infringement. Even if issued, the patents may not give us an advantage overcompetitors with alternative technologies.For example, the coverage claimed in a patent application can be significantly reduced before a patent is issued, either in the United States or abroad.Statutory differences 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 treating patients are not patentable in many countries outside of the United States. These and other issues may limit the patent protection we areable to secure internationally. Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patentsor, to the extent patents have been issued or will be issued, whether these patents will be subjected to further proceedings limiting their scope, will providesignificant proprietary protection or competitive advantage, or will be circumvented or invalidated.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 firstinventor of the subject matter covered by our pending patent applications or that we were the first to file patent applications on such inventions. Assumingthe other requirements for patentability 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, the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America InventsAct (“AIA”), or the Leahy-Smith Act, the United States moved to a first inventor to file system. In general, the Leahy-Smith Act and its implementation couldincrease the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of whichcould have a material adverse effect on our business and financial condition.Moreover, the term of a patent is limited and, as a result, the patents protecting our products expire at various dates. For example, various patentsproviding protection for the powder component of Afrezza have terms extending into 2020, 2026, 2028, 2029 or 2030. In addition, patents providingprotection for our inhaler and cartridges have terms extending into 2023, 2031 or 2032. Our method of treatment claims extend into 2026, 2029, 2030 or2031. As and when these different patents expire, Afrezza could become subject to increased competition. As a consequence, we may not be able to recoverour 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 notconclusive as to its validity or enforceability and it is uncertain how much protection, if any, will be afforded by our patents. A third party may challenge thevalidity or enforceability of a patent after its issuance by various proceedings such as oppositions in foreign jurisdictions, or post grant proceedings,including, oppositions, re-examinations or other review 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 be challenged in court where they could be held invalid, unenforceable, or have their breadth narrowed to anextent that would destroy their value.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 agreementsprovide that all inventions developed by the individual on behalf of us must be assigned to us and that the individual will cooperate with us in connectionwith securing patent protection 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 protectionfor our inventions, trade secrets, know-how or other proprietary information in the event of unauthorized use or disclosure of such information. If any tradesecret, know-how or other technology not protected by a patent were to be disclosed to or independently developed by a competitor, our business, results ofoperations and financial condition could be adversely affected.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 devotesubstantial time and 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 requiredto file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of oursis not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover itstechnology. A court may also decide to award us a royalty from an infringing party instead of issuing an injunction against the infringing activity. Anadverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly andcould put our patent applications at risk of not issuing. 30  Interference proceedings brought by the USPTO, may be necessary to determine the priority of inventions with respect to our pre-AIA patentapplications or those of our collaborators or licensors. Additionally, the Leahy-Smith Act has greatly expanded the options for post-grant review of patentsthat can be brought by third parties. In particular Inter Partes Review (“IPR”), available against any issued United States patent (pre-and post-AIA), hasresulted in a higher rate of claim invalidation, due in part to the much reduced opportunity to repair claims by amendment as compared to re-examination, aswell as the lower standard of proof used at the USPTO as compared to the federal courts. With the passage of time an increasing number of patents related tosuccessful pharmaceutical products are being subjected to IPR. Moreover, the filing of IPR petitions has been used by short-sellers as a tool to help drivedown stock prices. We may not prevail in any litigation, post-grant review, or interference proceedings in which we are involved and, even if we aresuccessful, these proceedings may result in substantial costs and be a distraction to our management. Further, we may not be able, alone or with ourcollaborators and licensors, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fullyas 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, therecould be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceivethese results to be negative, the market price of our common stock and other securities may decline.If our technologies conflict with the proprietary rights of others, we may incur substantial costs as a result of litigation or other proceedings and we couldface substantial monetary damages and be precluded from commercializing our products, which would materially harm our business and financialcondition.Biotechnology patents are numerous and may, at times, conflict with one another. As a result, it is not always clear to industry participants, includingus, which patents cover the multitude of biotechnology product types. Ultimately, the courts must determine the scope of coverage afforded by a patent andthe courts do not always 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 tostop us from engaging 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 thirdparty’s patents and would order us to stop the activities covered by the patents, including the commercialization of our products. In addition, there is a riskthat we would have to pay the other party damages for having violated the other party’s patents (which damages may be increased, as well as attorneys’ feesordered paid, if infringement is found to be willful), or that we will be required to obtain a license from the other party in order to continue to commercializethe affected products, or to design our products in a manner that does not infringe a valid patent. We may not prevail in any legal action, and a requiredlicense under the patent may not be available on acceptable terms or at all, requiring cessation of activities that were found to infringe a valid patent. We alsomay not be able to develop a non-infringing product design on 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 partiescould file complaints under 19 U.S.C. Section 337(a)(1)(B) (a “337 action”) with the International Trade Commission (the “ITC”). A 337 action can beexpensive and would consume time and other resources. There is a risk that the ITC would decide that we are infringing a third party’s patents and eitherenjoin us from importing the infringing products or parts thereof into the United States or set a bond in an amount that the ITC considers would offset ourcompetitive advantage from the continued importation during the statutory review period. The bond could be up to 100% of the value of the patentedproducts. We may not prevail in any legal action, and a required license under the patent may not be available on acceptable terms, or at all, resulting in apermanent injunction preventing any further importation of the infringing products or parts thereof into the United States. We also may not be able todevelop a non-infringing product design on commercially reasonable terms, or at all.Although we do not believe that Afrezza infringes any third-party patents, we have identified certain patents having claims that may trigger anallegation of infringement in connection with the commercial manufacture and sale of Afrezza. If a court were to determine that Afrezza was infringing any ofthese patent rights, we would have to establish with the court that these patents are invalid or unenforceable in order to avoid legal liability for infringementof 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, shouldthe patent holder refuse to either assign or license us the infringed patents, it may be necessary to cease manufacturing the product entirely and/or designaround the patents, if possible. In either event, our business, financial condition and results of operations would be harmed and our profitability could bematerially 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, therecould be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceivethese results to be negative, the market price of our common stock and other securities may decline. 31  In addition, patent litigation may divert the attention of key personnel and we may not have sufficient resources to bring these actions to a successfulconclusion. At the same time, some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can becausethey have substantially greater resources. An adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses couldprevent us from manufacturing and selling our products or result in substantial monetary damages, which would adversely affect our business, financialcondition and results of operations and cause the market 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 suchpotential trade names for our product candidates, nor can we assure that we will be granted registration of any potential trade names for which we do file. Noassurance can be given that any of our trademarks will be registered in the United States or elsewhere, or once registered that, prior to our being able to enter aparticular market, they will not be cancelled for non-use. Nor can we give assurances, that the use of any of our trademarks will confer a competitiveadvantage 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 becauseof evidence of confusion in the marketplace. We cannot assure you that the FDA or any other regulatory authority will approve of any of our trademarks orwill not request reconsideration 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 underour indebtedness 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 issubject to the commercial success of Afrezza, the extent to which we are able to successfully develop and commercialize our Technosphere drug deliveryplatform and any other product candidates that we develop, prevailing economic and competitive conditions, and to certain financial, business and otherfactors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay theprincipal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, wemay be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. Wecannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt serviceobligations or that these actions would be permitted under the terms of our future debt agreements. In the absence of sufficient operating results andresources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and otherobligations. We may not be able to consummate those dispositions or obtain sufficient proceeds from those dispositions to meet our debt service and otherobligations 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 adverselyimpact the market 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 commonstock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depressthe 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 theprice 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 isreserved for: issuance upon the exercise of stock options and the vesting of restricted stock unit awards and the purchase of shares of common stock under ouremployee stock purchase program. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our commonstock. The issuance or sale of substantial amounts of common stock, or the perception that such issuances or sales may occur, could adversely affect themarket price of our common stock and other securities. 32  Our stock price is volatile and may affect the market price of our common stock and other securities.Between January 1, 2016 and December 31, 2018, our closing stock price as reported on The Nasdaq Global Market has ranged from $0.71 to $10.80,adjusted for the 1-for-5 reverse stock split that occurred during this period. The trading price of our common stock is likely to continue to be volatile. Thestock market, particularly in recent years, has experienced significant volatility particularly with respect to pharmaceutical and biotechnology stocks, andthis trend may continue.The volatility of pharmaceutical and biotechnology stocks often does not relate to the operating performance of the companies represented by thestock. Our business and the market price of our common stock may be influenced by a large variety of factors, including: •our ability to obtain marketing approval for Afrezza outside of the United States and to find collaboration partners for the commercialization ofAfrezza in foreign jurisdictions; •our future estimates of Afrezza sales, prescriptions or other operating metrics; •our ability to successfully commercialize other products (in addition to Afrezza) based on 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, especially for emerging growth and pharmaceutical market sectors; •legislative developments; •announcements by us, our collaborators, or our competitors concerning clinical study results, acquisitions, strategic alliances, technologicalinnovations, 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; •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 commonstock on The Nasdaq 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 ourinvestigational products that appear on interactive websites that permit users to generate content anonymously or under a pseudonym andstatements attributed to company officials 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 meetany of the Nasdaq listing requirements in the future, such as the corporate governance requirements, the minimum closing bid price requirement, or theminimum market value of listed securities requirement, Nasdaq could determine to delist our common stock. A delisting of our common stock couldadversely affect the market liquidity of our common stock, decrease the market price of our common stock, adversely affect our ability to obtain financing forthe continuation of our operations and result in the loss of confidence in our company. In 2016, we received a notice of non-compliance from the ListingQualifications Department of the Nasdaq Stock Market with respect to the $1.00 minimum closing bid price requirement. Although we regained compliancewith the minimum closing bid price requirement after effecting a reverse stock split in March 2017, there can be no assurance that we will be able to meet theminimum closing bid price requirement or other listing requirements in the future. 33  If other biotechnology and biopharmaceutical companies or the securities markets in general encounter problems, the market price of our common stockand other securities could be adversely affected.Public companies in general, including companies listed on The Nasdaq Global Market, have experienced price and volume fluctuations that haveoften been unrelated or disproportionate to the operating performance of those companies. There has been particular volatility in the market prices ofsecurities of biotechnology and other life sciences companies, and the market prices of these companies have often fluctuated because of problems orsuccesses in a given market segment or because investor interest has shifted to other segments. These broad market and industry factors may cause the marketprice of our common stock and other securities to decline, regardless of our operating performance. We have no control over this volatility and can only focusour efforts on our own operations, and even these may be affected 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 oftenbeen initiated against that company. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, whichwould hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.The future sale of our common stock or the exchange or conversion of our convertible debt into, or exercise of our outstanding warrants for, common stockcould negatively affect the market price of our common stock and other securities.As of February 14, 2019, we had 187,342,566 shares of common stock outstanding. Substantially all of these shares are available for public sale,subject in some cases to volume and other limitations. 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 additionalshares of our common stock upon the exchange or conversion of some or all of our senior convertible notes or notes payable to related party or upon issuanceof our outstanding warrants, could adversely affect the market price of our common stock and other securities. In addition, the existence of these notes mayencourage short selling of our common stock by market participants, which could adversely affect the market price of our common stock and other securities.In addition, we will need to raise substantial additional capital in the future to fund our operations. If we raise additional funds by issuing equitysecurities or additional 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,more difficult 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 andrestated 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 ourstockholders or the holders of our other securities. Our anti-takeover provisions include provisions such as a prohibition on stockholder actions by writtenconsent, the authority of our board of directors to issue preferred stock without stockholder approval, and supermajority voting requirements for specifiedactions. In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits stockholdersowning 15% or more of our outstanding voting stock from merging or combining with us in certain circumstances. These provisions may delay or prevent anacquisition of us, even if the acquisition may be considered beneficial by some of our stockholders. In addition, they may frustrate or prevent any attempts byour stockholders to replace or remove our current management by making it more 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 commonstock.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 thedevelopment and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future, and payment of cash dividends, ifany, will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board ofdirectors. Pursuant to the Facility Agreement, we are subject to contractual restrictions on the payment of dividends. There is no guarantee that our commonstock will appreciate or maintain its current price. You could lose the entire value of any investment in our common stock. 34  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 encompassing17.5 acres. In September 2008, we completed the construction of approximately 140,000 square feet of new manufacturing space providing us with twobuildings totaling approximately 328,000 square feet, housing our research and development, manufacturing and certain administrative functions forAfrezza. We believe the Connecticut facility will have sufficient space to satisfy commercial demand for Afrezza. Our obligations under the FacilityAgreement and the Milestone Agreement are secured by our facility in Danbury, Connecticut and other assets. At the end of December 31, 2018, we leased atotal of approximately 24,475 square feet of office space in Westlake Village, California pursuant to a lease that expires in January 2023. This facilitycontains our principal 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, twomotions were submitted to the district court at Tel Aviv, Economic Department for the certification of a class action against MannKind and certain of ourofficers and directors. In general, the complaints allege that MannKind and certain of our officers and directors violated Israeli and U.S. securities laws bymaking materially false and misleading statements regarding the prospects for Afrezza, thereby artificially inflating the price of its common stock. Theplaintiffs are seeking monetary damages. In November 2016, the district court dismissed one of the actions without prejudice. In the remaining action, thedistrict court ruled in October 2017 that U.S. law will apply to this case. The plaintiff has appealed this ruling, and following an oral hearing before theSupreme Court of Israel, has decided to withdraw his appeal. Subsequently, in November 2018, we filed a motion to dismiss the certification motion inlimine. In December 2018, the district court ordered that the motion to dismiss will be heard during a pretrial hearing set for February 2019. The Court alsogranted our motion to postpone its response to the merits of the certification motion until after the resolution of the motion to dismiss. We will continue tovigorously 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 finaldisposition of such matters will not have a material adverse effect on our financial position, results of operations or cash flows. We maintain liabilityinsurance coverage to protect our assets from losses arising out of or involving activities associated with ongoing and normal business operations.Item 4. Mine Safety DisclosuresNot applicable. 35  PART IIItem 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesCommon Stock MarketOur common stock has been traded on The Nasdaq Global Market under the symbol “MNKD” since July 28, 2004. The following table sets forth forthe quarterly periods indicated, the high and low sales prices for our common stock as reported by The Nasdaq Global Market (adjusted for the Reverse StockSplit effected March 3, 2017). High Low Year ended December 31, 2018 First quarter $4.05 $2.18 Second quarter $2.45 $1.59 Third quarter $3.04 $0.98 Fourth quarter $2.19 $0.94 Year ended December 31, 2017 First quarter $3.61 $1.44 Second quarter $1.88 $0.67 Third quarter $2.35 $1.09 Fourth quarter $6.96 $2.01 The closing sales price of our common stock on The Nasdaq Global Market was $1.39 on February 14, 2019 and there were 105 registered holders ofrecord as of 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 anygeneral statement incorporating by reference this Annual Report on Form 10-K into any of our filings under the Securities Act, or the Exchange Act, exceptto the extent we specifically incorporate this section by reference.The following graph illustrates a comparison of the cumulative total stockholder return (change in stock price plus reinvested dividends) of ourcommon stock with (i) The Nasdaq Composite Index and (ii) The Nasdaq Biotechnology Index. The graph assumes a $100 investment, on December 31,2013, in (i) our common stock, (ii) the securities comprising The Nasdaq Composite Index and (iii) the securities comprising The Nasdaq BiotechnologyIndex. 36  The comparisons in the graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of our commonstock.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 foruse in the operation and expansion of our business. Accordingly, we do not anticipate paying any cash dividends on our common stock in the foreseeablefuture. Any future determination to pay dividends will be at the discretion of our board of directors. In addition, under the terms of the Facility Agreement, weare restricted from distributing any of our assets or declaring and distributing a dividend to our stockholders.Recent Sales of Unregistered SecuritiesNone.Item 6. Selected Financial DataThe following data has been derived from our audited financial statements, including the consolidated balance sheets at December 31, 2018 and 2017and the related consolidated statements of operations for each of the three years ended December 31, 2018, 2017 and 2016 and related notes appearingelsewhere in this report. The consolidated statement of operations data for the years ended December 31, 2015 and 2014 and the consolidated balance sheetdata as of December 31, 2016, 2015 and 2014 are derived from our audited consolidated financial statements that are not included in this report. Items thatsignificantly impact the comparability among the periods presented include the following: •Long-lived asset, inventory impairments, and recognition of loss on purchase commitments in 2015, •Recognition of revenue, related costs and gain on extinguishment of debt related to the collaboration with Sanofi in 2016, •Recognition of revenue related to commercial sales of Afrezza in 2016 and 2017; and •Recognition of revenue related to UT License Agreement and Research Agreement. 37  The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and the audited consolidated financial statements, and the notes thereto, and other financial information included herein this AnnualReport on Form 10-K, which provide additional information about the items noted above that significantly affect the comparability among the periodspresented. Year Ended December 31, 2018 2017 2016 2015 2014 (In thousands, except per share amounts) Statement of Operations Data: Revenue: Total net revenue $27,859 $11,745 $174,758 $— $— (Loss) income from operations (76,595) (108,189) 67,260 (344,655) (179,627)Net (loss) income (86,975) (117,333) 125,664 (368,445) (198,382)Net (loss) income per share - basic (0.60) (1.13) 1.37 (4.54) (2.57)Net (loss) income per share - diluted (0.60) (1.13) 1.36 (4.54) (2.57)Shares used to compute basic net (loss) income per share 144,136 104,245 92,053 81,233 77,045 Shares used to compute diluted net (loss) income per share 144,136 104,245 92,085 81,233 77,045 December 31, 2018 2017 2016 2015 2014 (In thousands) Balance Sheet Data: Cash and cash equivalents $71,157 $43,946 $22,895 $59,074 $120,841 Total assets 107,705 84,575 107,063 126,412 394,439 Facility financing obligation 11,298 52,745 71,339 74,582 72,995 Note payable to related party 72,089 79,666 49,521 49,521 49,521 Accrued interest — note payable to related party 6,835 2,347 9,281 6,380 3,486 Senior convertible notes 19,099 24,411 27,635 27,613 99,355 Sanofi loan facility and loss share obligation — — — 62,371 3,034 Accumulated deficit (2,940,000) (2,854,898) (2,737,565) (2,863,229) (2,494,784)Total stockholders’ deficit (175,082) (214,732) (183,593) (350,329) (73,770) 38  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 statementsand notes thereto included in this Annual Report on Form 10-K.OverviewWe are a biopharmaceutical company focused on the development and commercialization of inhaled therapeutic products for patients with diseasessuch as diabetes and pulmonary arterial hypertension. Our only approved product, Afrezza, is a rapid-acting inhaled insulin that was approved by the FDA inJune 2014 to improve glycemic control in adult patients with diabetes. Afrezza became available by prescription in United States retail pharmacies inFebruary 2015.As of December 31, 2018, we had an accumulated deficit of $2.9 billion and a stockholders’ deficit of $175.1 million. We had net income (losses) ofapproximately $(87.0) million, $(117.3) million and $125.7 million in the years ended December 31, 2018, 2017 and 2016, respectively. We have fundedour operations primarily through the sale of equity securities and convertible debt securities, borrowings under The Mann Group Loan Arrangement, receiptof a $45.0 million upfront payment under the UT License Agreement, receipt of upfront and milestone payments under the Sanofi License Agreement andborrowings under a senior secured revolving promissory note and a guaranty and security agreement that we entered into with an affiliate of Sanofi inSeptember 2014 in connection with the Sanofi License Agreement (the “Sanofi Loan Facility”), which provided us with a secured loan facility of up to$175.0 million to fund our share of net losses under the Sanofi License Agreement, which was terminated in 2016. As discussed below in “Liquidity andCapital Resources”, if we are unable to obtain additional funding, there is 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 tosuccessfully commercialize Afrezza and manufacture sufficient quantities of Afrezza, competition from other products and technologies and uncertaintiesassociated with obtaining and enforcing patent rights. Additional significant risks include the risks inherent in clinical trials and the regulatory approvalprocess for our product candidates, which in some cases depends upon the efforts of our partners.Critical Accounting PoliciesThe preparation of our consolidated financial statements is in accordance with accounting principles generally accepted in the United States ofAmerica (GAAP). The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. We consider an accounting estimate to becritical to the consolidated financial statements if (i) the estimate is complex in nature or requires a high degree of judgment and (ii) different estimates andassumptions were used, the results could have a material impact on the consolidated financial statements. On an ongoing basis, we evaluate our estimates andthe application of our policies. We base our estimates on historical experience, current conditions and on various other assumptions that we believe arereasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.We consider our critical accounting policies to be those related to revenue recognition and gross-to-net adjustments, inventory costing andrecoverability, recognized loss on purchase commitments, impairment of long-lived assets, milestone rights liability, clinical trial expenses, stock-basedcompensation and accounting for income taxes. These critical accounting policies are also considered significant accounting policies and are more fullydescribed in Note 2 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II, Item 8 — FinancialStatements and Supplementary Data.Revenue Recognition – Net Revenue – Commercial Product Sales – On January 1, 2018, we adopoted Accounting Standards Codification (“ASC”)Topic 606 - Revenue from Contracts with Customers (“the new revenue guidance”). We recognize revenue on product sales when the Customer obtainscontrol of the Company's product, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods orservices. Product revenues are recorded net of applicable reserves for variable consideration, including discounts, rebates, allowances and fees. For furtherdetail refer to Note 2 – Summary of Significant Accounting Policies.Prior to Janaury 1, 2018, we invoiced our customers upon shipment of Afrezza to them and record an accounts receivable, with a correspondingliability for deferred revenue equal to the gross invoice price net of estimated gross-to-net adjustments. We were required to reliably estimate returns in a verynarrow range in order to recognize revenue upon shipment. While we can currently estimate returns within a range, it is not sufficiently precise to meet therequirements. Accordingly, we defered recognition of revenue and the related estimated discounts and allowances on Afrezza product shipments until theright of return no longer existed, which occurs at the earlier of the time Afrezza is dispensed through patient prescriptions or expiration of the right of return.Through December 31, 2017, we recognized revenue based on Afrezza prescriptions dispensed, as estimated by syndicated data provided by a third party. Wealso analyzed additional data points to ensure that such third-party data is reasonable, including data related to inventory movements within the channel andongoing prescription demand. In addition, the costs of Afrezza associated with the deferred revenue were recorded as deferred costs until such time as therelated deferred revenue is recognized. As of December 31, 2017, prior to the adoption of Topic 606, the ending balance for net deferred revenue, was$3.0 million on the Company’s consolidated balance sheets, which is presented net of $1.5 million in gross-to-net revenue adjustments. 39  Revenue Recognition – Collaborations and Services — We enter into licensing or research agreements under which we license certain rights to ourproduct candidates to third parties or provide research services to third-parties. The terms of these arrangements may include but are not limited to, paymentto us of one or more of the following: nonrefundable, up-front license fees; development, regulatory, and commercial milestone payments; payments formanufacturing supply services we provide; and royalties on net sales of licensed products and sublicenses of the rights. As part of the accounting for thesearrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified inthe contract. We use key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates forpersonnel costs, discount rates, and probabilities of technical and regulatory success. Given that significant estimates depend on the development plan, theseestimates could change and impact the revenue recognition. Consideration received that does not meet the requirements to satisfy the revenue recognitioncriteria is recorded as deferred revenue in the accompanying consolidated balance sheets based on our best estimate of when such revenue will be recognized.Current deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. Amounts that we expect will not berecognized within the next 12 months are classified as long-term deferred revenue.Inventory Costing and Recoverability — We determine the cost of inventory using the first-in, first-out or FIFO method. We capitalize inventory costsassociated with our product’s based on judgement that future economic benefits are expected to be realized. Inventories are stated at the lower of cost or netrealizable value. We analyzed our inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value. Weperformed an assessment of projected sales to evaluate the lower of cost or net realizable value and the potential excess inventory on hand at December 31,2018, 2017 and 2016. As a result of these assessments, we recorded inventory write-offs of $2.2 million and $3.0 million in the years ended December 31,2018 and 2017, respectively. There were no write-offs for the year ended December 31, 2016.Recognized Loss on Purchase Commitments — We assess whether losses on long term purchase commitments should be accrued. Losses that areexpected to arise from firm, non-cancellable, commitments for future purchases of inventory items are recognized unless recoverable. The loss on thepurchase commitment balance is reduced as material is received. The balance of recognized loss on purchase commitments is primarily associated withinsulin purchases. As of December 31, 2018 and 2017 the balance was $98.3 million and $109.3 million, respectively.Impairment of Long-Lived Assets — We evaluate long lived assets for impairment at least on a quarterly basis and whenever events or changes incircumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be indicated when estimated undiscountedfuture cash flows from the use and eventual disposition of an asset group, which are identifiable and largely independent of the cash flows of other assetgroups, are less than the carrying amount of the asset group.In connection with our quarterly assessment of impairment indicators, we recorded no impairments for the year ended December 31, 2018. We recorded$0.2 million and $1.2 million for the year ended December 31, 2017 and 2016, respectively. For further information see Note 4 — Property and Equipment ofthe Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data”.Milestone Rights Liability — In connection with the execution of the Facility Agreement, we also entered into the Milestone Agreement whichrequires the Company to make contingent payments to the Milestone Purchasers, totaling up to $90.0 million, of which $75.0 million remain payable as ofDecember 31, 2018, upon the Company achieving specified commercialization milestones (the “Milestone Rights”). We evaluated the Milestone Rights anddetermined that such rights do not meet the definition of a freestanding derivative. Since we have elected not to apply the fair value option, we recorded therights at the initial fair value. Upon the achievement of a milestone event, the milestone payment will be allocated between (i) a reduction of the initialliability and (ii) a return on investment and the gain or loss is recognized at the time the milestone event is achieved. The estimated fair value of theMilestone 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 thefair value hierarchy).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 negotiationswhich vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us undersuch contracts. Our objective is to reflect the appropriate trial expenses in our financial statements by matching period expenses with period services andefforts expended. In the event that we do not identify certain costs that have begun to be incurred or we underestimate or overestimate the level of servicesperformed or the costs of such services, our reported expenses for a period would be too low or too high. The date on which certain services commence, thelevel of services performed on or before a given date and the cost of the services are often judgmental. We make these judgments based upon the facts andcircumstances 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 ofservices performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or toolow for any particular period. 40  Stock-Based Compensation — Share-based payments to employees, including grants of stock options, restricted stock units, performance-basedawards and the compensatory elements of employee stock purchase plans, are recognized in the consolidated statements of operations based upon the fairvalue of the awards at the grant date subject to an estimated forfeiture rate. We use the Black-Scholes option valuation model to estimate the grant date fairvalue of employee stock options and the compensatory elements of employee stock purchase plans. Restricted stock units are valued based on the marketprice on the grant date. We evaluate stock awards with performance conditions as to the probability that the performance conditions will be met and estimatesthe date at which the performance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period.Accounting for Income Taxes — Our management must make judgments when determining our provision for income taxes, our deferred tax assets andliabilities and any valuation allowance recorded against our net deferred tax assets. At December 31, 2018 and December 31, 2017, respectively, we hadestablished a valuation allowance of $665.4 million and $654.3 million against all of our net deferred tax asset balances, due to uncertainties related to therealizability of our deferred tax assets as a result of our history of operating losses. The valuation allowance is based on our estimates of taxable income byjurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from theseestimates or we adjust these estimates in future periods, we may need to change the valuation allowance, which could materially impact our financial positionand results of operations.On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Codeof 1986, as amended. The changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning afterDecember 31, 2017, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, and expandedlimits on employee remuneration. In 2017, we recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in SAB118 because we had not yet completed our enactment-date accounting for these effects. In 2018 and 2017, we did not record tax expense related to theenactment-date effects of the Act as we maintained a full valuation allowance and we estimated a deficit in post-1986 earnings and profits from its foreignsubsidiaries. At December 31, 2018, we have now completed the accounting for all of the enactment-date income tax effects of the Act. During 2018, we didnot recognize adjustments to the provisional amounts recorded at December 31, 2017 as all changes were off-set by the valuation allowance.Results of OperationsYears ended December 31, 2018 and 2017RevenuesThe following table provides a comparison of the revenue categories for the years ended December 31, 2018 and 2017 (dollars in thousands): Year Ended December 31, 2018 2017 $ Change % Change Net revenue - commercial product sales: Gross revenue from product sales $30,242 $12,572 $17,670 141%Wholesaler distribution fees, rebates and chargebacks, product returns and other discounts (12,966) (3,380) (9,586) (284%)Net revenue - commercial product sales 17,276 9,192 8,084 88%Revenue - collaborations and services 10,583 250 10,333 4,133%Revenue - other — 2,303 (2,303) (100%)Total revenues $27,859 $11,745 $16,114 137% Gross revenue from the sales of Afrezza increased by $17.7 million for the year ended December 31, 2018, or 141%, compared to the prior year,primarily driven by higher product demand and price increases, as well as a more favorable mix of cartridges. Effective as of the beginning of 2018, weadopted Topic 606, the new revenue standard under which we now recognize revenue on a sell-to model rather than a sell-through model. The estimatedgross-to-net adjustment of $13.0 million (43% of gross revenue) for the year ended December 31, 2018, compared to the prior year ended December 31, 2017estimated gross-to-net adjustment was $3.4 million (27% of gross revenue) was primarily due to commercial and government rebates related to increases inthe wholesale acquisition cost of Afrezza as well as product returns. We were not required to reduce revenue in 2017 for product returns because we deferredrecognition of revenue on Afrezza product delivered to wholesalers until the right of return no longer existed, which occurred at the earlier of the timeAfrezza was dispensed from pharmacies to patients or expiration of the right of return.Net revenue from collaborations and services increased by $10.3 million, or 4,133%, for the year ended December 31, 2018 compared to the prior year.The increase was primarily attributable to $6.5 million earned from our collaboration agreements with Cipla and UT, which were executed in the second andfourth quarters of 2018, respectively. In addition, we also recognized $3.8 million in services revenue related to the research agreement with UT. 41  Revenue – other decreased by 100% as compared to the prior year ended December 31, 2017 which was primarily due to bulk insulin sales of $1.7million and $0.6 million for the sale of intellectual property in 2017.ExpensesThe following table provides a comparison of the expense categories for the years ended December 31, 2018 and 2017 (dollars in thousands): Year Ended December 31, 2018 2017 $ Change % Change Expenses: Cost of goods sold $19,402 $17,228 $2,174 13%Cost of revenue - collaborations and services 1,077 — 1,077 100%Research and development 8,737 14,118 (5,381) (38%)Selling 47,407 46,135 1,272 3%General and administrative 32,309 28,824 3,485 12%Property and equipment impairment — 203 (203) (100%)(Gain) loss on foreign currency translation (4,468) 13,641 (18,109) (133%)Loss on purchase commitment (10) (215) 205 (95%)Total expenses $104,454 $119,934 $(15,480) (13%) Cost of goods sold increased by $2.2 million, or 13%, compared to the prior year ended December 31, 2017. The increase was primarily attributable toa $1.6 million increase in costs associated with Afrezza sales and a one-time $2.0 million fee associated with amending our Insulin Supply Agreement. Theseincreases were offset by a decrease in inventory write-off of $0.8 million in 2018.Cost of revenue - collaborations and services was $1.1 million for the year ended December 31, 2018 compared to zero for the prior year endedDecember 31, 2017. Cost of revenue - collaborations and services for 2018 was attributable to resource costs related to conducting the UT license andresearch agreement which was executed in 2018.Research and development expenses decreased by $5.4 million, or 38%, compared with the prior year ended December 31, 2017. The decrease wasprimarily attributable to a $2.2 million decrease in clinical trial spending, a $1.7 million decrease in salary-related expenses associated with our move tooffice-only space in 2017 as well as higher personnel costs associated with supporting manufacturing production activities and a $0.8 million decrease inresearch and development supply and services costs.Selling expenses increased by $1.3 million, or 3%, compared to the prior year ended December 31, 2017. The increase was primarily attributable to$2.9 million in salary-related expenses and benefits in supporting Afrezza sales commercial operations and patient support, a $1.8 million increase in medicalaffairs support and market access, a $0.6 million increase in stock-based compensation expense mainly related to the performance-based stock awards as aresult of the achievement of performance goals related to Afrezza sales in 2018 and a $0.5 million increase in travel for our salesforces. These increases wereoffset by decreases in on-line marketing and product advertising of $4.7 million.In order to conform to the 2018 presentation above, we reclassified approximately $3.6 million of personnel costs for the year ended December 31,2017 related to Afrezza medical affair activities from general administrative expenses to selling expenses. This resulted in a change in selling expenses forthe year ended December 31, 2017 from $42.6 million as previously reported in our Annual Report on Form 10-K filed on February 27, 2018, to $46.1million. General and administrative expenses increased by $3.5 million, or 12%, compared with the prior year ended December 31, 2017. This increase wasprimarily attributable to $1.7 million in headcount increases in human resources, corporate communications, and office support departments, a $1.3 millionincrease in stock-based compensation expenses, a $1.1 million increase in transition costs due to transitioning certain corporate support functions fromConnecticut to our headquarters in California, and a $0.4 million increase in investor relations and corporate communication. These increases were offset bydecreases of $0.8 million in accounting consulting fees. In order to conform to the 2018 presentation above, we reclassified approximately $3.6 million of personnel costs for the year ended December 31,2017 related to Afrezza medical affair activities from general and administrative expenses to selling expenses. The resulted in a change in general andadministrative expenses for the year ended December 31, 2017 from $32.4 million as previously reported in our Annual Report on Form 10-K filed onFebruary 27, 2018, to $28.8 million. 42  Under the Insulin Supply Agreement with Amphastar, payment obligations are denominated in Euros. We are required to record the foreign currencytranslation impact of the U.S. dollar to Euro exchange rate associated with the recognized loss on purchase commitments. The gain on foreign currencytranslation for the year ended December 31, 2018 was $4.5 million as compared to a loss of $13.6 million for the year ended December 31, 2017, resulting inan $18.1 million net change due to favorable U.S. dollar to Euro exchange rates.Other Income (Expense)The following table provides a comparison of the other income (expense) categories for the years ended December 31, 2018 and 2017 (dollars inthousands): Year Ended December 31, 2018 2017 $ Change % Change Change in fair value of warrant liability $— $5,488 $(5,488) (100%)Interest income 501 293 208 71%Interest expense on notes (5,116) (9,494) 4,378 (46%)Interest expense on note payable to related party (4,323) (3,782) (541) 14%Loss on extinguishment of debt (765) (1,611) 846 (53%)Other income (expense) (437) 13 (450) (3,462%)Total other (expense) income $(10,140) $(9,093) $(1,047) 12% During 2017 we recorded a change in fair value of the warrant liability of $5.5 million. The Company determined that these warrants required liabilityclassification primarily due to a price-protection clause that applies in the event of certain dilutive financings. The warrant liability was extinguished in 2017and therefore there was no such impact on our consolidated statements of operations in 2018.Interest income increased by $0.2 million for the year ended December 31, 2018, or 71%, compared to the prior year , which was primarily attributableto a higher balance on our money market fund and a higher interest rate.Interest expense on notes, which includes the Facility Financing Obligation and senior convertible notes, decreased by $4.4 million for the year endedDecember 31, 2018, or 46%, compared to the prior year, which was primarily attributable to a reduction in principal debt balances.Interest expense on note payable to related party (“The Mann Group”) increased by $0.5 million for the year ended December 31, 2018, or 14%compared to the prior year, which was primarily attributable to a higher average principal balance.The loss on extinguishment of debt decreased by $0.8 million for the year ended December 31, 2018, or 53%, compared to the prior year, which wasprimarily attributable to conversions of convertible debt under our facility financing agreement to common stock in September 2018. In the same period of2017, we recorded a loss on extinguishment of $1.6 million related to the exchange of convertible debt under our facility financing agreement in April andJune 2017.Other income (expense) increased by $0.4 million for the year ended December 31, 2018 compared to the prior year. This change was primarily due toa realized currency loss in connection with a foreign exchange contract associated with purchases under the Insulin Supply Agreement. 43  Years ended December 31, 2017 and 2016RevenuesThe following table provides a comparison of the revenue categories for the years ended December 31, 2017 and 2016 (dollars in thousands): Year Ended December 31, 2017 2016 $ Change % Change Net revenue - commercial product sales: Gross revenue from product sales $12,572 $2,714 $9,858 363%Wholesaler distribution fees, rebates and chargebacks, product returns and other discounts (3,380) (819) (2,561) (313%)Net revenue - commercial product sales 9,192 1,895 7,297 385%Revenue - collaborations and services 250 171,965 (171,715) (100%)Revenue - other 2,303 898 1,405 156%Total revenues $11,745 $174,758 $(163,013) (93%) The increase in gross revenue from product sales of $9.9 million for the year ended December 31, 2017 compared to the prior year is primarily due toan increase in cartridges sold. Total estimated gross-to-net adjustments of $3.4 million were approximately 27% of gross revenue from product sales for theyear ended December 31, 2017, a decrease of approximately 3% of gross revenue from the prior year. This decrease is due primarily to distribution fees paidto Integrated Commercialization Solutions Direct (“ICS”) in 2016 as part of an interim agreement that enabled us to distribute product in all necessaryjurisdictions while we obtained the necessary licenses. This agreement was terminated in December 2016 and therefore these fees did not recur in 2017.Net revenue from collaborations and services for the year ended December 31, 2017 decreased by $171.7 million from the prior year, primarily becausethe Sanofi License Agreement was terminated in 2016, which resulted in us recognizing previously deferred revenue from Sanofi, including upfront andmilestone payments.Revenue – other for the year ended December 31, 2017 represents $1.7 million from sales of bulk insulin to a third party and $0.6 million from a saleof intellectual property. Revenue – other for the year ended December 31, 2016 represents $0.9 million from sales of bulk insulin to a third party.ExpensesThe following table provides a comparison of the expense categories for the years ended December 31, 2017 and 2016 (dollars in thousands): Year Ended December 31, 2017 2016 $ Change % Change Expenses: Cost of goods sold $17,228 $17,121 $107 1%Cost of revenue - collaborations and services — 32,971 (32,971) (100%)Research and development 14,118 14,917 (799) (5%)Selling 46,135 21,027 25,108 119%General and administrative 28,824 25,901 2,923 11%Property and equipment impairment 203 1,259 (1,056) (84%)Loss (gain) on foreign currency translation 13,641 (3,433) 17,074 (497%)Loss on purchase commitment (215) (2,265) 2,050 (91%)Total expenses $119,934 $107,498 $12,436 12% 44  Cost of goods sold includes the costs related to Afrezza product dispensed by pharmacies to patients as well as the following costs, which are recordedas expenses in the period in which they are incurred, rather than as a portion of the inventory cost: current year manufacturing costs in excess of costscapitalized into inventory, the impact of an annual revaluation of inventory and deferred costs of commercial sales to standard cost, write-offs of inventoryand deferred costs of commercial sales. The increase in cost of goods sold of $0.1 million for the year ended December 31, 2017 compared to the prior year isprimarily due to increases of $2.8 million in inventory write-offs related to obsolescence and $1.6 million in cost of goods attributable to greater commercialproduct sales. These increases were offset by a decrease of $4.5 million related to a reduction in current year manufacturing costs in excess of costscapitalized into inventory (resulting from the reduction in work force in the fourth quarter of 2016).Costs of revenue - 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 for the year ended December 31, 2016. During the year ended December31, 2017, we did not recognize any collaboration product costs. During the year ended December 31, 2016, we recognized $33.0 million of collaborationproduct costs, which consists of $13.5 million in Afrezza manufacturing costs for product sold to Sanofi, and $19.5 million related to the cost of bulk insulinsold to Sanofi.Research and development expenses decreased for the year ended December 31, 2017 by $0.8 million, or 5% compared with the prior year, primarilydue to a $3.6 million decrease in research and development workforce costs in the fourth quarter of 2016 and an FDA submission fee for label expansion of$1.0 million incurred in 2016. These decreases were offset by a $2.5 million increase in clinical trial expenses, a $0.7 million increase in expenses incurredfor research and development related to manufacturing automation and improvements, and a $0.2 million increase in travel expenses.Selling expenses increased for the year ended December 31, 2017 by $25.1 million, or 119%, compared to the prior year, primarily due to a full year ofmarketing Afrezza in 2017 using an internal sales force, versus marketing Afrezza for a partial year in 2016 using a contracted sales force. This resulted in a$16.0 million increase in expense related to the transition and build-out of our internal sales-force, which was offset by a $7.7 million decrease in spendingon contracted sales efforts. In addition, there was a $5.0 million increase in product advertising expense, primarily attributed to television advertisements, a$3.9 million increase in expenses for marketing and branding, a $3.5 million increase in travel expenses, a $1.0 million increase in expenses related topromotional materials, a $0.5 million increase in facilities expense, and a $0.3 million increase in sponsorship expense.In order to conform to the 2017 presentation above, we reclassified approximately $3.6 million of personnel costs related to Afrezza medical affairactivities from general administrative expenses to selling expenses in 2017 and $1.2 million in 2016. This resulted in a change in selling expenses from$42.6 million in 2017 and $19.9 million in 2016, as previously reported in our Annual Report on Form 10-K filed on March 6, 2017, to $46.1 million for theyear ended December 31, 2017 and $20.0 million for the year ended December 31, 2016.General and administrative expense increased for the year ended December 31, 2017 by $2.9 million, or 11%, compared to the prior year, primarily dueto increases in salaries of $2.6 million related to new executives hired in late 2016 and 2017, a $1.5 million increase in professional fees, primarily related torecapitalization transactions, a $1.4 million increase in expense for consulting services related to accounting, human resources, and business development, a$0.7 million increase in expenses for performance bonuses, a $0.5 million increase in expenses associated with executive recruitment and relocation, and a$0.2 million increase in expenses for software infrastructure. These increases were partially offset by a $2.1 million decrease in legal expenses.In order to conform to the 2017 presentation above, we reclassified approximately $3.6 million of personnel costs related to Afrezza medical affairactivities from general and administrative expenses to selling expenses in 2017 and $1.2 million in 2016. This resulted in a change in general andadministrative expenses from $32.4 million in 2017 and $27.1 million in 2016, as previously reported in our Annual Report on Form 10-K filed on March 6,2017, to $28.8 million for the year ended December 31, 2017 and $25.9 million for the year ended December 31, 2016.Under the Insulin Supply Agreement with Amphastar, payment obligations are denominated in Euros. We are required to record the foreign currencytranslation impact of the U.S. dollar to Euro exchange rate associated with the recognized loss on purchase commitments. A loss of $13.6 million wasrecorded for foreign currency translation for the year ended December 31, 2017, as compared to a gain in 2016 of $3.4 million, resulting in a $17.1 millionnet change due to unfavorable U.S. dollar to Euro exchange rates during 2017.(Gain) loss on purchase commitments changed by $2.1 million as a result of a gain recorded in 2016 of $2.3 million versus $0.2 million in 2017. The$2.3 million gain on purchase commitments in 2016 related to a renegotiation of certain of our purchase commitments (primarily the reduction incancellation fees under the Insulin Supply Agreement). 45  Other Income (Expense)The following table provides a comparison of the other income (expense) categories for the years ended December 31, 2017 and 2016 (dollars inthousands): Year Ended December 31, 2017 2016 $ Change % Change Change in fair value of warrant liability $5,488 $5,369 $119 2%Interest income 293 85 208 245%Interest expense on notes (9,494) (15,576) 6,082 (39%)Interest expense on note payable to related party (3,782) (2,901) (881) 30%(Loss) gain on extinguishment of debt (1,611) 72,024 (73,635) (102%)Other (expense) income 13 (597) 610 (102%)Total other income (expense) $(9,093) $58,404 $(67,497) (116%) During the year ended December 31, 2017 we recorded a $5.5 million change in the fair value of the warrant liability from the beginning of the yearthrough the date the Series A Common Stock Purchase Warrants (“A Warrants”) and Series B Common Stock Purchase Warrants (“B Warrants”) wereexchanged, compared to $5.4 million for the prior year due to the volatility in our stock price. On September 29, 2017, we entered into exchange agreementswith the four holders of all outstanding A and B Warrants, pursuant to which we agreed to issue to such holders an aggregate of 1,292,510 shares of ourcommon stock in exchange for such warrants.The decrease of $6.1 million in the interest expense on notes for the year ended December 31, 2017 compared to the same period in the prior year wasprimarily due to the extinguishment of debt under the Sanofi Loan Facility in the fourth quarter of 2016 as a result of the settlement agreement with Sanofientered into in November 2016 (the “Settlement Agreement”).The increase of $0.9 million in the interest expense on note payable to the The Mann Group for the year ended December 31, 2017 compared to theprior year was primarily due to additional borrowings and capitalization of interest under The Mann Group Loan Arrangement in the second quarter of 2017.(Loss) gain on extinguishment of debt decreased by $73.6 million. This was due to the $72.0 million gain from extinguishment of debt in 2016 as aresult of the Settlement Agreement with Sanofi and forgiveness of the full outstanding loan balance of the Sanofi Loan Facility and $1.6 million of losses onconversions of convertible notes into common stock during 2017.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, under which we can no longer borrow as we have used all amounts available for borrowing, borrowings under the Facility Agreement withDeerfield, receipt of upfront, and milestone payments under the Sanofi License Agreement, and borrowings under the Sanofi Loan Facility which terminatedin 2016.As of December 31, 2018, we had $101.7 million principal amount of outstanding debt, consisting of: •$18.7 million principal amount of senior convertible notes bearing interest at 5.75% per annum and maturing on October 23, 2021, all of whichis convertible; •The following amounts under the Facility Financing Obligation with Deerfield which are partially convertible as further described below: o$9.0 million principal amount due and payable in July 2019 and bearing interest at 9.75% per annum. Interest is payable in cashquarterly in arrears on the last business day of March, June, September and December of each year; o$2.5 million principal amount due and payable in May 2019 and bearing interest at 8.75% per annum. Interest is payable in cashquarterly in arrears on the last business day of March, June, September and December of each year; and •$71.5 million principal amount of indebtedness under The Mann Group Loan Arrangement bearing interest at a fixed rate of 5.84% per annumcompounded quarterly beginning April 1, 2018 and maturing on July 1, 2021, all of which is convertible at a conversion price per share of$4.00. Interest is due and payable quarterly in arrears on the first day of each calendar quarter for the preceding quarter, except that interestpayments are subject to deferral under a subordination agreement with Deerfield until our payment obligations to Deerfield have been satisfiedin full. 46  We have entered into certain transactions related to these borrowings during 2017 and 2018 that are more fully described in Note 6– Related-PartyArrangements, Note 7 – Borrowings, Note 10 – Fair Value of Financial Instruments, Note 14 – Commitments and Contingencies.On October 10, 2017, we entered into securities purchase agreements with certain institutional investors and a charitable foundation. Pursuant to theterms of the purchase agreements, we sold to the purchasers in a registered offering an aggregate of 10,166,600 shares of our common stock at a purchaseprice of $6.00 per share. Included in this offering was 166,600 shares issued to a charitable foundation associated with the Chairman of our board of directors.The net proceeds from the offering were approximately $57.7 million, after deducting placement agent fees equal to 5.0% of the aggregate gross proceedsfrom the offering (except for the proceeds received from the sale of 166,600 shares issued to the charitable foundation) and offering expenses payable by us.The offering closed on October 13, 2017.In November 2017, we sold an aggregate of 173,327 shares of our common stock for aggregate gross proceeds of approximately $0.5 million pursuantto our At Market Issuance Sales Agreement with B. Riley FBR, Inc. (f/k/a FBR Capital Markets & Co.), dated as of April 26, 2016 (the “FBR Agreement”). OnFebruary 27, 2018, we terminated the FBR Agreement and no further sales were made under such agreement.On February 27, 2018 we entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.(“Cantor Fitzgerald”), as sales agent, pursuant to which we may offer and sell, from time to time, through Cantor Fitzgerald, shares of our common stockhaving an aggregate offering price of up to $50.0 million or such other amount as may be permitted by the Sales Agreement. Under the Sales Agreement,Cantor Fitzgerald may sell shares by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, asamended. For the year ended December 31, 2018, we sold an aggregate of 1,028,432 shares of our common stock for aggregate gross proceeds ofapproximately $2.0 million pursuant to our Sales Agreement with Cantor Fitzgerald.On April 5, 2018, we entered into securities purchase agreements with certain institutional investors. Pursuant to the terms of the purchase agreements,we sold to the purchasers in a registered offering an aggregate of 14,000,000 shares of our common stock and warrants to purchase up to an aggregate of14,000,000 shares of our common stock at a combined purchase price of $2.00 per share and accompanying warrant. The shares of common stock and thewarrants were immediately separable. The warrants became exercisable at a price of $2.38 per share beginning on October 9, 2018 and will expire April 9,2019. The net proceeds from the offering were approximately $26.4 million. The offering closed on April 9, 2018.On December 19, 2018, we entered into an underwriting agreement with Leerink Partners LLC relating to the issuance and sale in a public offering of26,666,667 shares of our common stock and warrants to purchase up to an aggregate of 26,666,667 shares of our common stock at a combined purchase priceof $1.50 per share and accompanying warrant. The shares of common stock and the warrants were immediately separable. The warrants were immediatelyexercisable at issuance at a price of $1.60 per share and will expire on December 26, 2019. The net proceeds to us from the offering were approximately $37.5million. The offering closed on December 26, 2018.In connection with the execution of the Facility Agreement, on July 1, 2013, we issued Milestone Rights to the Milestone Purchasers. The MilestoneRights provide the Milestone Purchasers certain rights to receive payments of up to $90.0 million, of which $75.0 million remain payable as of December 31,2018, upon the occurrence of specified strategic and sales milestones, including the achievement of specified net sales figures. In addition, the FacilityAgreement includes customary representations, warranties and covenants, including, a restriction on the incurrence of additional indebtedness, and afinancial covenant which requires our cash and cash equivalents to be at least $20.0 million as of December 31, 2018 and $25.0 million as of the end of eachfiscal quarter after December 31, 2018. We have met the required conditions as of the specified dates. See Note 14 — Commitments and Contingencies andNote 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 ofinsulin. See Note 14 — Commitments and Contingencies for further information related to the Insulin Supply Agreement.There can be no assurance that we will have sufficient resources to make any required repayments of principal under the senior convertible notes,Facility Financing Obligation, or The Mann Group Loan Arrangement when required. Further, if we undergo a fundamental change, as that term is defined inthe indentures governing the terms of the senior convertible notes, or certain Major Transactions as defined in the Facility Agreement in respect of theFacility Financing Obligation, the holders of the respective debt securities will have the option to require us to repurchase all or any portion of such debtsecurities at a repurchase price of 100% of the principal amount of such debt securities to be repurchased plus accrued and unpaid interest, if any. The seniorconvertible notes are partially convertible and the Mann Group Loan Arrangement is fully convertible at any time prior to maturity, as further disclosed inNote 6 – Related-Party Arrangements and Note 7 – Borrowings. 47  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 the future. If wefail to pay interest on the senior convertible notes and the Facility Financing Obligation, or if we fail to repay or repurchase the senior convertible notes,Facility Financing Obligation, or borrowings under The Mann Group Loan Arrangement, we will be in default under the applicable instrument for suchindebtedness, and may also suffer an event of default under the terms of other borrowing arrangements that we may enter into from time to time. Any of theseevents could have a material adverse effect on our business, results of operations and financial condition, up to and including the note holders initiatingbankruptcy proceedings or causing us to cease operations altogether.These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements and related notes thereto includedelsewhere in this Annual Report on Form 10-K, do not include adjustments that might result from the outcome of this uncertainty.Net cash used in operating activities, which consists of net loss adjusted for the various non-cash items, changes in working capital and changes inother balance sheet accounts, totaled $37.7 million for the year ended December 31, 2018. Net cash used in operating activities totaled $64.8 million and$78.1 million for the year ended December 31, 2017 and December 31, 2016, respectively.During the year ended December 31, 2018, we used $37.7 million of cash for our operating activities as a result of our net loss of $87.0 million, offsetby a net decrease in operating assets and liabilities of $36.7 million and non-cash charges of $12.6 million. The net decrease in operating assets andliabilities was primarily attributable to our receipt of $57.2 million in cash from collaboration agreements (revenue recognition of $46.8 million was deferredto future periods – see Note 8 – Collaboration and Licensing Arrangements). The net decreases in operating assets and liabilities was partially offset by anincrease in inventory of $3.2 million, a decrease of accrued expenses of $2.2 million and an increase in accounts receivable of $1.3 million, offset bydecreases in purchase commitment of $7.0 million and accounts payable of $1.6 million. The non-cash items included $6.9 million of stock-basedcompensation, $2.9 million of depreciation, amortization and accretion and an $0.8 million loss on extinguishment of debt, offset by $4.5 million of gain onforeign currency translation, and inventory write-offs of $2.2 million. During the year ended December 31, 2017, we used $64.8 million of cash for our operating activities as a result of our net loss of $117.3 million, offsetby a net decrease in operating assets and liabilities of $27.6 million and non-cash charges of $25.0 million. The net decrease in operating assets andliabilities was primarily a result of the receipt of $30.6 million from Sanofi pursuant to the insulin put option in January 2017. The net decrease in operatingassets and liabilities was partially offset by an increase in accounts payable of $3.8 million and accrued expenses and other current liabilities of $2.9 million,offset by decreases in deferred revenue of $0.4 million and purchase commitments of $4.7 million. In addition, there were increases in accounts receivable of$2.5 million, inventory of $3.3 million, and deferred costs from commercial product sales of $0.1 million, offset by a decrease in prepaid expenses of $1.4million. The non-cash items included $5.5 million of a gain in the fair value of the warrant liability, offset by $13.6 million loss on foreign currencyexchange, $4.8 million of stock-based compensation, $3.5 million of depreciation, amortization and accretion, $3.8 million of interest accrued through notepayable to The Mann Group, $3.0 million of inventory write-offs and $1.6 million of loss on extinguishment of debt.During the year ended December 31, 2016, we used $78.1 million of cash for our operating activities as a result of a net decrease in operating assetsand liabilities of $139.3 million offset by our net income of $125.7 million, adjusted by non-cash charges of $64.5 million. The changes in operating assetsand liabilities were due to increases in accounts receivable from Sanofi of $30.5 million, inventory of $2.3 million, and decreases in accounts payable of$12.1 million, deferred revenue of $17.5 million, deferred payments from collaboration of $134.1 million, offset by a decrease in deferred costs fromcollaboration of $13.5 million and increases in recognized loss on purchase commitment of $40.6 million and deferred revenue of $3.4 million. The non-cashcharges included a $72.0 million gain on extinguishment of debt, $4.2 million of depreciation and accretion, $5.1 million of stock-based compensation, $2.9million of interest accrued on borrowings under the Mann Group Loan Arrangement, and $4.5 million of interest accrued on borrowings under the SanofiLoan Facility offset by a $5.4 million non-cash gain from a change in the fair value of warrants, a $3.4 million gain on foreign currency translation exchange,and $2.3 million gain on purchase commitments.Cash used in investing activities was $0.2 million for the year ended December 31, 2018 compared to cash provided by investing activities of $16.7million for the year ended December 31, 2017. The difference was primarily due to $16.7 million of net proceeds from the sale of certain parcels of real estateowned by the Company in Valencia, California in 2017.Cash provided from investing activities was $16.7 million for the year ended December 31, 2017 compared to cash used in investing activities of $1.1million for the year ended December 31, 2016. The difference was primarily related to net proceeds received during the year ended December 31, 2017 for thesale of certain parcels of real estate owned by the Company in Valencia, California and certain related improvements, personal property, equipment, suppliesand fixtures for $16.7 million.Cash used in investing activities in 2016 was primarily comprised of purchases of property and equipment of $1.1 million.Cash provided from financing activities was $61.3 million for the year ended December 31, 2018 primarily related to an aggregate proceeds of $68.0million in an offering and a direct placement of common stock and $2.0 million in at-the-market issuance of common stock offset by $5.0 million of principalpayment on Facility Financing Obligation and $4.1 million costs associated with the offering and direct placement of common stock. 48  Cash provided by financing activities of $73.6 million for the year ended December 31, 2017 was primarily related to $57.7 million in net proceedsfrom a registered direct offering of common stock and $19.4 million received from borrowings on the note payable under the Mann Group Loan Arrangementoffset by a principal payment of $4.0 million on the Facility Financing Obligation.Cash provided by financing activities of $43.0 million for the year ended December 31, 2016 was primarily related to $47.3 in net proceeds receivedfrom the sale of stock and warrants and a payment on the Facility Financing Obligation of $5.0 million during the year ended December 31, 2016. FutureLiquidity Needs. As of December 31, 2018, we had $71.7 million in cash and cash equivalents and restricted cash. Our cash position, together with our short-term debt obligations and anticipated operating expenses, raises substantial doubt about our ability to continue as a going concern. We expect to expend ourcapital resources for the manufacturing, sales and marketing of Afrezza and to develop our product pipeline candidates. We also intend to use our capitalresources for general corporate purposes. We will need to raise additional capital before we exhaust our current cash resources in order to continue to fund ourresearch and development, support continued product growth and commercialization efforts, and to fund operations, generally. We will seek to raiseadditional funds through various potential sources, such as equity and debt financings, or other arrangements.Issuances of debt or additional equity could impact the rights of our existing stockholders, dilute the ownership percentages of our existingstockholders and may impose restrictions on our operations. These restrictions could include limitations on additional borrowing, specific restrictions on theuse of our assets as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. We also may seek to raiseadditional capital by pursuing opportunities for the licensing, sale or divestiture of certain intellectual property and other assets, including our Technospheretechnology platform. There can be no assurance, however, that any collaboration, license, sale of securities or sale or license of assets will be available to uson a timely basis or on acceptable terms, or at all. If we are unable to raise additional capital when needed or on acceptable terms, we may be required to enterinto agreements with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop independently, andany 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 resourcesmore rapidly than we currently anticipate. If planned operating results are not achieved or we are not successful in raising additional capital when needed, wewill be required to reduce expenses through the delay, reduction or curtailment of our projects, or further reduction of costs 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, 2018 and 2017, we did not have any off-balance sheet arrangements.Contractual ObligationsOur contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent liabilitiesfor which we cannot reasonably predict future payments. Accordingly, the table below excludes contractual obligations relating to milestone and royaltypayments due to third parties, all of which are contingent upon certain future events. The expected timing of payment of the obligations presented (excludingpayments in respect of the Milestone Rights) below are estimated based on current information. These contractual obligations consisted of the following atDecember 31, 2018 (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) $11,045 $365 $— $— $11,410 Senior convertible notes — long term (2) 1,075 21,042 — — 22,117 Note payable to The Mann Group (3) — 90,638 — — 90,638 Facility Financing Obligation (4) 12,026 — — — 12,026 Insulin supply agreement (5) 6,657 59,024 32,618 — 98,299 Operating lease obligations (6) 947 3,015 88 0 4,050 Total contractual obligations $31,750 $174,084 $32,706 $— $238,540 (1)The amounts included in open purchase order and supply commitments are subject to performance under the purchase order or contract by the supplierof the goods or services and do not become our obligation until such performance is rendered. The amount shown is principally for the purchase ofmaterials for commercial operations or sales and marketing efforts.(2)The amounts include future interest payments at fixed rates of 5.75% and payment of the notes in full upon maturity in 2021. 49  (3)The obligation for the note payable to The Mann Group includes future principal and interest payments related to the $71.5 million of borrowings asof December 31, 2018. Interest is accrued based on a fixed rate of 5.84% compound quarterly beginning April 1, 2018 and the outstanding principalamount and all accrued interest thereon will be due on July 1, 2021, subject to deferral under a subordination agreement with Deerfield until ourpayment obligations to Deerfield have been satisfied in full.(4)The Facility Financing Obligation includes future principal and interest payments on $9.0 million aggregate principal amount of 2019 notes and on$2.5 million aggregate principal amount of Tranche B notes, payable in accordance with the provisions of the Facility Agreement, as amended. Interestaccrues 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 minimumquantities of insulin for calendar years 2015 through 2019 for an aggregate total purchase price of approximately €120.1 million The Insulin SupplyAgreement specifies that Amphastar will be deemed to have satisfied its obligations with respect to quantity, if the actual quantity supplied is withinplus or minus ten percent (+/- 10%) of the quantity set forth in the applicable purchase order. On December 26, 2018, we amended the Insulin SupplyAgreement to extend the annual minimum quantities purchased of insulin through 2024. As of December 31, 2018, the aggregate total remainingpurchase amount is €85.8 million. Future payments due were estimated by converting U.S. dollars using December 31, 2018 Euro to dollar exchangerate.(6)Consists of our Westlake Village, California office lease and our lease agreement with Enterprise for the lease of vehicles for our field sales personnel.Related Party TransactionsFor a description of our related party transactions see Note 6 — Related-Party Arrangements of the Notes to Consolidated Financial Statementsincluded in “Part II, 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 2018 and other new accounting standards that havebeen issued by the FASB but are not effective until after December 31, 2018.Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Due 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 interestrates. See Note 6 – Related Party Arrangements and, Note 7– Borrowings in the Notes to Consolidated Financial Statements included in Part II, Item 8 —Financial Statements and Supplementary Data for information about the principal amount of outstanding debt.The interest rate on amounts borrowed under The Mann Group Loan Arrangement is fixed at 5.84%. As of December 31, 2018, we also had debt relatedto the senior convertible notes at a fixed interest rate of 5.75%, debt related to the 2019 notes at a fixed interest rate of 9.75% and debt related to the TrancheB 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 andinvestment-grade corporate, government and municipal debt. None of these investments are entered into for trading purposes. Our cash is deposited in andinvested through highly rated financial institutions in North America.If a change in interest rates equal to 10% of the interest rates on December 31, 2018 were to have occurred, this change would not have had a materialeffect on the 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. Suchobligations are denominated in Euros. At the end of each reporting period, the recognized gain or loss on purchase commitment is converted to U.S. dollars atthe then-applicable foreign exchange rate. As a result, our business is affected by fluctuations in exchange rates between the U.S. dollar and foreigncurrencies. On April 2, 2018, we entered into a foreign currency short-term (90 days) hedging transactions to mitigate our currency exposure risks to foreigncurrency exchange risks. In 2018, we realized a currency loss of approximately $0.7 million. This amount was recorded in other income and expense. Thehedging agreement ended as of December 31, 2018. Exchange rate fluctuations may adversely affect our expenses, results of operations, financial positionand cash flows. If a change in the U.S. dollar to Euro exchange rate equal to 10% of the U.S. dollar to Euro exchange rate on December 31, 2018 were tooccur, this change would have resulted in a foreign currency impact to our pre-tax income (losses) of approximately $9.8 million. 50  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.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and currentreports that we file with the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and ourChief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls andprocedures, we and our management recognize that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures,including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controlsand procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possiblecontrols and procedures, our management was required to apply its reasonable judgment. As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under thesupervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of ourdisclosure controls and procedures as of December 31, 2018. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures wereeffective as of December 31, 2018. Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, 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 inconditions such as replacing consulting resources with permanent personnel or that the degree of compliance with the policies or procedures may deteriorate.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, ourmanagement used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the Internal Control-Integrated Framework (2013 Framework).Based on this assessment, our management concluded that, as of December 31, 2018, our internal control over financial reporting was effective basedon those criteria.The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche LLP, an independentregistered public accounting firm, as stated in its report, which is included herein.Changes in Internal Control over Financial ReportingAn evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer andChief Financial Officer, of any changes in our internal control over financial reporting that occurred during our last fiscal quarter and that has materiallyaffected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internalcontrol over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting. 51  Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of MannKind Corporation Opinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of MannKind Corporation and subsidiaries (the “Company”) as of December 31, 2018,based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 26, 2018, expressed anunqualified opinion on those financial statements and includes an explanatory paragraph relating to the Company’s ability to continue as a going concern.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtainingan understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Los Angeles, CaliforniaFebruary 26, 2019Item 9B. Other Information. None. 52  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 governancematters will be contained in the section entitled “Proposal 1 — Election of Directors” and “Corporate Governance Principles and Board and CommitteeMatters” in our definitive proxy statement for our 2019 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the SEC on or before April30, 2019, and is incorporated herein by reference.(c) Section 16(a) Beneficial Ownership Reporting Compliance — Section 16(a) of the Exchange Act requires our directors, executive officers and anypersons beneficially holding more than 10% of our common stock to report their initial ownership of our common stock and any subsequent changes in thatownership to the SEC. Our executive officers, directors and greater than 10% stockholders are required by SEC regulation to furnish us with copies of allSection 16(a) forms they file.We have adopted a Code of Business Conduct and Ethics Policy that applies to our directors and employees and have posted the text of the policy onour website (www.mannkindcorp.com) in connection with “Investors” materials. In addition, we intend to promptly disclose on our website (i) the nature ofany amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or personsperforming similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of thesespecified individuals, the name of such person who is granted the waiver and the date of the waiver, to the extent any such waiver is required to be disclosedpursuant 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,” “CompensationCommittee Interlocks 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“Securities Authorized 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 ProxyStatement is incorporated 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 andProcedures” 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 ProxyStatement shall not be deemed to be filed as part of this report. Without limiting the foregoing, the information under the captions “Report of the AuditCommittee of the Board of Directors” in the Proxy Statement is not incorporated by reference. 53  PART 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, FinancialStatement Schedules and Report of Independent Registered Public Accounting Firm are included in a separate section of this report beginning on page60: Report of Independent Registered Public Accounting Firm 62Consolidated Balance Sheets 63Consolidated Statements of Operations 64Consolidated Statements of Comprehensive Income (Loss) 65Consolidated Statements of Stockholders’ Deficit 66Consolidated Statements of Cash Flows 67Notes to Consolidated Financial Statements 68All financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to requiresubmission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.(3) Exhibits. The exhibits listed under Item 15(b) hereof are filed or furnished with, or incorporated by reference into, this Annual Report onForm 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(File No. 000-50865), filed with the SEC on August 9, 2016). 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation of MannKind Corporation (incorporated by reference toExhibit 3.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on March 2, 2017). 3.3 Certificate of Amendment of Amended and Restated Certificate of Incorporation of MannKind Corporation (incorporated by reference to Exhibit3.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 13, 2017). 3.4 Amended and Restated Bylaws (incorporated by reference to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SECon November 19, 2007). 4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4. 4.2 Form of common stock certificate (incorporated by reference to Exhibit 4.2 to MannKind’s Annual Report on Form 10-K (File No. 000-50865),filed with the SEC on March 16, 2017). 4.3 Form of 9.75% Senior Secured Convertible Promissory Note due 2019 (incorporated by reference Exhibit 99.2 to MannKind’s Current Report onForm 8-K (File No. 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. 000-50856), filed with the SEC on May 12, 2014). 4.6 Milestone Rights Purchase Agreement, dated as of July 1, 2013, by and among MannKind, Deerfield Private Design Fund II, L.P. and HorizonSanté FLML SÁRL (incorporated by reference to Exhibit 99.3 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with theSEC 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 Exhibit 99.4 to MannKind’s CurrentReport on Form 8-K (File No. 000-50865), filed with the SEC on July 1, 2013). 54  ExhibitNumber Description of Document 4.8 Facility Agreement, dated as of July 1, 2013, by and among MannKind Corporation, Deerfield Private Design Fund II, L.P. and Deerfield PrivateDesign International II, L.P. (incorporated by reference to Exhibit 99.1 MannKind’s Current Report on Form 8-K (File No. 000-50865), filed withthe 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’sAnnual Report 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 of August 11, 2014, by and among MannKind,Deerfield Private Design Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 4.14 toMannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on November 10, 2014). 4.11 Exchange and Third Amendment to Facility Agreement, dated June 29, 2017 by and among MannKind, MannKind LLC, Deerfield PrivateDesign Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.2 to MannKind’s Current Reporton Form 8-K (File No. 000-50865), filed with the SEC on June 29, 2017). 4.12 Fourth Amendment to Facility Agreement, dated October 23, 2017 by and among MannKind, MannKind LLC, Deerfield Private Design Fund II,L.P. and Deerfield Private Design International II, 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 October 23, 2017). 4.13 Fifth Amendment to Facility Agreement, dated January 15, 2018 by and among MannKind, MannKind LLC, Deerfield Private Design Fund II,L.P., and Deerfield Private Design International II, 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 19, 2018). 4.14 Exchange and Sixth Amendment to Facility Agreement, dated January 18, 2018 by and among MannKind, MannKind LLC, Deerfield PrivateDesign Fund II, L.P., and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.2 to MannKind’s Current Reporton Form 8-K (File No. 000-50865), filed with the SEC on January 19, 2018). 4.15 Exchange and Seventh Amendment to Facility Agreement, dated June 8, 2018 by and among MannKind, MannKind LLC, Deerfield PrivateDesign Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.1 to MannKind’s Current Reporton Form 8-K (File No. 000-50865), filed with the SEC on June 11, 2018). 4.16 Exchange and Eighth Amendment to Facility Agreement, dated July 12, 2018 by and among MannKind, MannKind LLC, Deerfield PrivateDesign Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.1 to MannKind’s Current Reporton Form 8-K (File No. 000-50865), filed with the SEC on July 13, 2018). 4.17 Ninth Amendment to Facility Agreement, dated September 5, 2018 by and among MannKind, MannKind LLC, Deerfield Private Design Fund II,L.P. and Deerfield Private Design International II, 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 September 5, 2018). 4.18 Tenth Amendment to Facility Agreement, dated September 26, 2018 by and among MannKind, MannKind LLC, Deerfield Private Design FundII, L.P. and Deerfield Private Design International II, 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 September 27, 2018). 4.19 Indenture, by and between MannKind and U.S. Bank (dated October 30, 2017 (incorporated by reference to Exhibit 4.1 to MannKind’s CurrentReport on Form 8-K (File No. 000-50865), filed with the SEC on October 30, 2017). 4.20 Form of 5.75% Convertible Senior Subordinated Exchange Note due 2021 (incorporated by reference to Exhibit A of Exhibit 4.1 to MannKind’sCurrent Report on Form 8-K (File No. 000-50865), filed with the SEC on October 30, 2017). 4.21 Form of Warrant to Purchase Common Stock issued November 16, 2015 (incorporated by reference to Exhibit 4.17 to MannKind’s AnnualReport on Form 10-K (File No. 000-50865), filed with the SEC on March 15, 2016). 4.22 Amended and Restated Promissory Note made by MannKind in favor of The Mann Group LLC, dated March 11, 2018 (incorporated by referenceto Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on March 12, 2018). 4.23 Form of Common Stock Purchase Warrant issued April 9, 2018 (incorporated by reference to Exhibit 4.1 to MannKind’s Current Report on Form8-K (File No. 000-50865), filed with the SEC on April 6, 2018). 4.24 Form of Common Stock Purchase Warrant issued December 26, 2018 (incorporated by reference to Exhibit 4.1 to MannKind’s Current Report onForm 8-K (File No. 000-50865), filed with the SEC on December 21, 2018). 10.1* Offer Letter Agreement, dated July 12, 2017, by and between MannKind and Steven B. Binder (incorporated by reference to Exhibit 99.1 toMannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on July 17, 2017). 55  ExhibitNumber Description of Document 10.2* Offer Letter, dated March 9, 2016, by and between MannKind and Michael E. Castagna (incorporated by reference to Exhibit 10.38 toMannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 15, 2016). 10.3* Offer Letter dated December 22, 2016, by and between MannKind and Stuart Tross (incorporated by reference to Exhibit 10.36 to MannKind’sAnnual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 10.4* Offer Letter dated February 17, 2017, by and between MannKind and Courtney Barton (incorporated by reference to Exhibit 10.4 to MannKind’sAnnual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 27, 2018). 10.5* Offer Letter dated June 28, 2017, by and between MannKind and Patrick McCauley (incorporated by reference to Exhibit 10.5 to MannKind’sAnnual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 27, 2018). 10.6* Offer Letter dated February 2, 2018, by and between MannKind and David Kendall (incorporated by reference to Exhibit 10.6 to MannKind’sAnnual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 27, 2018). 10.7* Executive Severance Agreement, dated October 10, 2007, between MannKind and David Thomson (incorporated by reference to Exhibit 99.1 toMannKind’s Current Report on Form 8-K (File No. 000-50865), as amended, filed with the SEC on October 17, 2007). 10.8* Form of Indemnity Agreement entered into between MannKind and each of its directors and officers (incorporated by reference to Exhibit 10.1 toMannKind’s Registration Statement on Form S-1 (File No. 333-115020),filed with the SEC on April 30, 2004, as amended). 10.9* Form of Change of Control Agreement (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on April 7, 2017). 10.10* Description of Officers’ Incentive Program (incorporated by reference to Exhibit 10.5 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2006). 10.11* 2004 Equity Incentive Plan, as amended (incorporated by reference to Appendix A to MannKind’s proxy statement on Schedule 14A (File No.000-50865), filed with the SEC on April 6, 2012). 10.12* Form of Stock Option Agreement under the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 MannKind’s RegistrationStatement on Form S-1 (File No. 333-115020), originally filed with the SEC on April 30, 2004, as amended). 10.13* Form of Phantom Stock Award Agreement under the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to MannKind’sCurrent Report on Form 8-K (File No. 000-50865), filed with the SEC on December 14, 2005). 10.14* 2004 Non-Employee Directors’ Stock Option Plan and form of stock option agreement there under (incorporated by reference to Exhibit 10.20 toMannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2006). 10.15* Non-Employee Director Compensation Program. 10.16* 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). 10.17* Form of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise under the MannKind 2013 Equity Incentive Plan(incorporated by reference to Exhibit 99.2 to MannKind’s registration statement on Form S-8(File No. 000-188790), filed with the SEC on May23, 2013). 10.18* Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the MannKind 2013 Equity Incentive Plan(incorporated by reference to Exhibit 99.3 to MannKind’s registration statement on Form S-8 (File No. 000-188790), filed with the SEC on May23, 2013). 10.19* MannKind Corporation 2018 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to MannKind’s registration statement Form S-8(File No. 333-226648), filed with the SEC on August 7, 2018). 10.20* Form of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise under the MannKind 2018 Equity Incentive Plan(incorporated by reference to Exhibit 99.2 to MannKind’s registration statement on Form S-8 (File No. 333-226648), filed with the SEC onAugust 7, 2018). 10.21* Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the MannKind 2018 Equity Incentive Plan(incorporated by reference to Exhibit 99.3 to MannKind’s registration statement on Form S-8 (File No. 333-226648), filed with the SEC onAugust 7, 2018). 10.22* MannKind Corporation 2004 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 99.4 to MannKind’s registrationstatement Form S-8 (File No. 333-226648), filed with the SEC on August 7, 2018). 56  ExhibitNumber Description of Document 10.23* MannKind Corporation Market Price Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to MannKind’s registration statement FormS-8 (File No. 333-225428), filed with the SEC on June 5, 2018). 10.24 Form of Exchange Agreement (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filedwith the SEC on October 2, 2017). 10.25 Form of Securities Purchase Agreement, dated October 10, 2017 (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report onForm 8-K (File No. 000-50865), filed with the SEC on October 11, 2017). 10.26 Form of Securities Purchase Agreement, dated April 5, 2018 (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form8-K (File No. 000-50865), filed with the SEC on April 6, 2018). 10.27 Engagement Letter, dated October 10, 2017, by and between MannKind and H.C. Wainwright & Co. LLC (incorporated by reference to Exhibit99.2 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on October 11, 2017). 10.28 Amended and Restated Promissory Note made by MannKind in favor of The Mann Group LLC, dated March 11, 2018 (incorporated by referenceto Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on March 12, 2018) 10.29 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 Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with theSEC on July 1, 2013). 10.30 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’sAnnual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 3, 2014). 10.31 Second Amendment to Facility Agreement and Registration Rights Agreement, dated as of August 11, 2014, by and among MannKind, DeerfieldPrivate Design Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 4.14 to MannKind’sQuarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on November 10, 2014). 10.32 Exchange and Third Amendment to Facility Agreement, dated June 29, 2017 by and among MannKind, MannKind LLC, Deerfield PrivateDesign Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.2 to MannKind’s Current Reporton Form 8-K (File No. 000-50865), filed with the SEC on June 29, 2017). 10.33 Fourth Amendment to Facility Agreement, dated October 23, 2017 by and among MannKind, MannKind LLC, Deerfield Private Design Fund II,L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.2 to MannKind’s Current Report on Form 8-K(File No. 000-50865), filed with the SEC on October 23, 2017). 10.34 Fifth Amendment to Facility Agreement, dated January 15, 2018 by and among MannKind, MannKind LLC, Deerfield Private Design Fund II,L.P. and Deerfield Private Design International II, 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 19, 2018). 10.35 Exchange and Sixth Amendment to Facility Agreement, dated January 18, 2018 by and among MannKind, MannKind LLC, Deerfield PrivateDesign Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.2 to MannKind’s Current Reporton Form 8-K (File No. 000-50865), filed with the SEC on January 19, 2018). 10.36 Exchange and Seventh Amendment to Facility Agreement, dated June 8, 2018 by and among MannKind, MannKind LLC, Deerfield PrivateDesign Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.1 to MannKind’s Current Reporton Form 8-K (File No. 000-50865), filed with the SEC on June 11, 2018). 10.37 Exchange and Eighth Amendment to Facility Agreement, dated July 12, 2018 by and among MannKind, MannKind LLC, Deerfield PrivateDesign Fund II, L.P. and Deerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.1 to MannKind’s Current Reporton Form 8-K (File No. 000-50865), filed with the SEC on July 13, 2018). 10.38 Ninth Amendment to Facility Agreement, dated September 5, 2018 by and among MannKind, MannKind LLC, Deerfield Private Design Fund II,L.P. and Deerfield Private Design International II, 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 September 5, 2018). 10.39 Tenth Amendment to Facility Agreement, dated September 26, 2018 by and among MannKind, MannKind LLC, Deerfield Private Design FundII, L.P. and Deerfield Private Design International II, 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 September 27, 2018). 57  ExhibitNumber Description of Document 10.40 Exchange Agreement, dated April 18, 2017, by and among MannKind Corporation, MannKind LLC, Deerfield Private Design Fund II, L.P. andDeerfield Private Design International II, 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 April 19, 2017). 10.41 Exchange Agreement, dated March 12, 2018, by and among MannKind Corporation, MannKind LLC, Deerfield Private Design Fund II, L.P. andDeerfield Private Design International II, L.P. (incorporated by reference to Exhibit 99.2 to MannKind’s Current Report on Form 8-K (File No.000-50865), filed with the SEC on March 12, 2018). 10.42 Exchange Agreement, dated May 25, 2018, by and among MannKind Corporation and certain holders of MannKind Corporation’s 5.75%Convertible Senior Notes due 2021 (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865),filed with the SEC on May 25, 2018). 10.43 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 January12, 2017). 10.44 First, Second and Third Amendments to Agreement of Purchase and Sale and Joint Escrow Instructions, dated February 7, 2017, February 10,2017 and February 15, 2017, respectively, by and between MannKind and Rexford Industrial Realty, L.P. (incorporated by reference to Exhibit10.35 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 10.45 Agreement, dated June 27, 2017, by and between MannKind and The Mann Group LLC (incorporated by reference to Exhibit 99.1 toMannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on June 29, 2017). 10.46** Supply Agreement, dated as of July 31, 2014, by and between MannKind and Amphastar France Pharmaceuticals S.A.S. (incorporated byreference to Exhibit 10.3 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on November 10, 2014). 10.47 First Amendment to Supply Agreement, dated October 31, 2014, by and between MannKind and Amphastar France Pharmaceuticals, S.A.S. andAmphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.32 to MannKind’s Annual Report on Form 10-K (File No. 000-50865),filed with the SEC on March 16, 2017). 10.48** Second Amendment to Supply Agreement, dated November 9, 2016, by and between MannKind and Amphastar Pharmaceuticals, Inc.(incorporated by reference to Exhibit 10.33 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16,2017). 10.49** Third Amendment to Supply Agreement, dated April 11, 2018, by and between MannKind and Amphastar Pharmaceuticals, Inc. (incorporated byreference to Exhibit 10.8 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on May 9, 2018). 10.50** Fourth Amendment to Supply Agreement, dated December 24, 2018, by and between MannKind and Amphastar Pharmaceuticals, Inc. 10.51 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). 10.52 Office Lease, dated May 5 2017, by and between MannKind and Russell Ranch Road II LLC. (incorporated by reference to Exhibit 10.3 toMannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on August 7, 2017). 10.53 Controlled Equity OfferingSM Sales Agreement, by and between MannKind and Cantor Fitzgerald & Co., dated February 27, 2018 (incorporatedby reference to Exhibit 10.47 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 27, 2018). 10.54** License and Collaboration Agreement, dated September 3, 2018 by and between MannKind and United Therapeutics Corporation (incorporatedby reference to Exhibit 10.8 to MannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on November 1, 2018). 10.55** Research Agreement, dated September 3, 2018 by and between MannKind and United Therapeutics Corporation (incorporated by reference toExhibit 10.9 to MannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on November 1, 2018). 23.1 Consent of Independent Registered Public Accounting Firm. 58  ExhibitNumber Description of Document 31.1 Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. 32.1 Certification of the Chief Executive Officer pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended andSection 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). 32.2 Certification of the Chief Financial Officer pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended andSection 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. 59  SIGNATURESPursuant 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 onits behalf by the undersigned, thereunto duly authorized. MANNKIND CORPORATION By: /s/ Michael E. Castagna Michael E. Castagna Chief Executive OfficerDated: February 26, 2019POWER OF ATTORNEYKNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael E. Castagna and DavidThomson, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name,place, and stead, in any and all capacities, to sign any and all amendments to this report, and any other documents in connection therewith, and to file thesame, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full powerand authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposesas he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute orsubstituted, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated. Signature Title Date /s/ Michael E. CastagnaMichael E. Castagna Chief Executive Officer and Director(Principal Executive Officer) February 26, 2019 /s/ Steven B. BinderSteven B. Blinder Chief Financial Officer(Principal Financial and Accounting Officer) February 26, 2019 /s/ Kent KresaKent Kresa Chairman of the Board of Directors February 26, 2019 /s/ Ronald J. ConsiglioRonald J. Consiglio Director February 26, 2019 /s/ Michael FriedmanMichael Friedman, M.D. Director February 26, 2019 /s/ David H. MacCallumDavid H. MacCallum Director February 26, 2019 /s/ Christine Mundkur Director February 26, 2019Christine Mundkur /s/ James S. ShannonJames S. Shannon Director February 26, 2019 /s/ Henry L. NordhoffHenry L. Nordhoff Director February 26, 2019 60  MANNKIND CORPORATION AND SUBSIDIARIESINDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 62Consolidated Balance Sheets 63Consolidated Statements of Operations 64Consolidated Statements of Comprehensive Income (Loss) 65Consolidated Statements of Stockholders’ Deficit 66Consolidated Statements of Cash Flows 67Notes to Consolidated Financial Statements 68 61  Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of MannKind Corporation Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of MannKind Corporation and subsidiaries (the "Company") as of December 31, 2018and 2017, the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit, and cash flows for each of the three years inthe period ended December 31, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statementspresent fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cashflows for each of the three years in the period ended December 31, 2018, in conformity with the accounting principles generally accepted in the United Statesof America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2019 expressed an unqualified opinion on theCompany's internal control over financial reporting.Going ConcernThe accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 tothe financial statements, the Company’s available cash resources and continuing cash needs raise substantial doubt about its ability to continue as a goingconcern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company'sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to theCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and thePCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond tothose risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of thefinancial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Deloitte & Touche LLPLos Angeles, CaliforniaFebruary 26, 2019 We have served as the Company’s auditor since 2001. 62  MANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, 2018 2017 (In thousands except per share data) ASSETS Current assets: Cash and cash equivalents $71,157 $43,946 Restricted cash 527 4,409 Accounts receivable, net 4,017 2,789 Inventory 3,597 2,657 Deferred costs from commercial product sales — 405 Prepaid expenses and other current assets 2,556 3,010 Total current assets 81,854 57,216 Property and equipment, net 25,602 26,922 Other assets 249 437 Total assets $107,705 $84,575 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $5,379 $6,984 Accrued expenses and other current liabilities 15,022 12,449 Facility financing obligation 11,298 52,745 Deferred revenue, net — 3,038 Deferred payments from collaborations - current 36,885 250 Recognized loss on purchase commitments - current 6,657 12,131 Total current liabilities 75,241 87,597 Note payable to related party 72,089 79,666 Accrued interest - note payable to related party 6,835 2,347 Senior convertible notes 19,099 24,411 Recognized loss on purchase commitments - long term 91,642 97,585 Deferred payments from collaborations - long term 10,680 500 Milestone rights liability 7,201 7,201 Total liabilities 282,787 299,307 Commitments and contingencies (Note 14) Stockholders' deficit: Undesignated preferred stock, $0.01 par value - 10,000,000 shares authorized; no shares issued or outstanding at December 31, 2018 and 2017 — — Common stock, $0.01 par value - 280,000,000 shares authorized, 187,029,967 and 119,053,414 shares issued and outstanding at December 31, 2018 and 2017, respectively 1,870 1,192 Additional paid-in capital 2,763,067 2,638,992 Accumulated other comprehensive loss (19) (18)Accumulated deficit (2,940,000) (2,854,898)Total stockholders' deficit (175,082) (214,732)Total liabilities and stockholders' deficit $107,705 $84,575 See notes to consolidated financial statements. 63  MANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2018 2017 2016 (In thousands except per share data) Revenues: Net revenue - commercial product sales $17,276 $9,192 $1,895 Revenue - collaborations and services 10,583 250 171,965 Revenue - other — 2,303 898 Total revenues 27,859 11,745 174,758 Expenses: Cost of goods sold 19,402 17,228 17,121 Cost of revenue - collaborations and services 1,077 — 32,971 Research and development 8,737 14,118 14,917 Selling, general and administrative 79,716 74,959 46,928 Property and equipment impairment — 203 1,259 (Gain) loss on foreign currency translation (4,468) 13,641 (3,433)Gain on purchase commitments (10) (215) (2,265)Total expenses 104,454 119,934 107,498 (Loss) income from operations (76,595) (108,189) 67,260 Other (expense) income: Change in fair value of warrant liability — 5,488 5,369 Interest income 501 293 85 Interest expense on notes (5,116) (9,494) (15,576)Interest expense on note payable to related party (4,323) (3,782) (2,901)(Loss) gain on extinguishment of debt (765) (1,611) 72,024 Other income (expense) (437) 13 (597)Total other (expense) income (10,140) (9,093) 58,404 (Loss) income before income tax expense (86,735) (117,282) 125,664 Provision for income taxes 240 51 — Net (loss) income $(86,975) $(117,333) $125,664 Net (loss) income per share - basic $(0.60) $(1.13) $1.37 Net (loss) income per share - diluted $(0.60) $(1.13) $1.36 Shares used to compute basic net (loss) income per share 144,136 104,245 92,053 Shares used to compute diluted net (loss) income per share 144,136 104,245 92,085 See notes to consolidated financial statements. 64  MANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2018 2017 2016 (In thousands) Net (loss) income $(86,975) $(117,333) $125,664 Other comprehensive income (loss): Cumulative translation gain (loss) (1) 6 (4)Comprehensive (loss) income $(86,976) $(117,327) $125,660 See notes to consolidated financial statements. 65  MANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT Common Stock AdditionalPaid-In AccumulatedOtherComprehensive Accumulated Shares Amount Capital Loss Deficit Total (In thousands) BALANCE, JANUARY 1, 2016 85,735 $857 $2,512,063 $(20) $(2,863,229) $(350,329)Exercise of stock options 55 1 466 — — 467 Issuance of common shares from the release of restricted stock units 131 1 (1) — — 0 Issuance of common shares under Employee Stock Purchase Plan 51 1 425 — — 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 97 49,903 — — 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 95,681 957 2,553,039 (24) (2,737,565) (183,593)Exercise of stock options 5 — 24 — — 24 Issuance of common shares from the release of restricted stock units 135 2 (1) — — 1 Issuance of common shares under Employee Stock Purchase Plan 103 1 235 — — 236 Stock-based compensation expense — — 4,847 — — 4,847 Restricted stock units taxes paid in cash — — (127) — — (127)Issuance of shares pursuant to conversion notes 11,496 115 20,984 — — 21,099 Issuance of direct placement — common stock 10,167 102 60,898 — — 61,000 Issuance costs associated with direct placement — — (3,310) — — (3,310)Issuance of at-the-market placement 173 2 562 — — 564 Issuance costs associated with at-the-market placement — — (17) — — (17)Reclassification of warrant liability to equity 1,293 13 1,880 — — 1,893 Amortization of shelf fees — — (22) — — (22)Cumulative translation gain — — — 6 — 6 Net loss — — — — (117,333) (117,333)BALANCE, DECEMBER 31, 2017 119,053 1,192 2,638,992 (18) (2,854,898) (214,732)Exercise of stock options 7 — 7 — — 7 Issuance of common shares from the release of restricted stock units 193 2 (1) — — 1 Issuance of common shares under Employee Stock Purchase Plan 400 3 342 — — 345 Stock-based compensation expense — — 6,857 — — 6,857 Issuance of shares pursuant to conversion of Note Payable to Related Party 3,000 30 8,130 — 8,160 Issuance of shares pursuant to conversion of Facility Financing Obligation 19,726 197 37,931 — — 38,128 Issuance of direct placement — common stock 14,000 140 27,860 28,000 Issuance costs associated with direct placement (1,610) — — (1,610)Issuance of public offering — common stock 26,667 267 39,733 — — 40,000 Issuance cost associated with public offering (2,538) (2,538)Issuance of shares pursuant to conversion of Senior Convertible Notes 2,726 27 4,953 — — 4,980 Issuance of at-the-market placement 1,028 10 2,079 — — 2,089 Issuance costs associated with at-the-market placement — — (84) — — (84)Issuance of shares under Market Price Stock Purchase Plan 230 2 428 — — 430 Amortization of shelf fees — — (12) — — (12)Cumulative translation loss — — — (1) — (1)Adjustment to adopt ASU 2014-09 (Topic 606) 1,873 1,873 Net loss — — — — (86,975) (86,975)BALANCE, DECEMBER 31, 2018 187,030 $1,870 $2,763,067 $(19) $(2,940,000) $(175,082) See notes to consolidated financial statements. 66  MANNKIND CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2018 2017 2016 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(86,975) $(117,333) $125,664 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation, amortization and accretion 2,857 3,528 4,158 Stock-based compensation expense 6,857 4,847 5,135 Change in fair value of warrant liability — (5,488) (5,369)(Gain) Loss on foreign currency translation (4,468) 13,641 (3,433)(Gain) Loss on extinguishment of debt 765 1,611 (72,024)Interest incurred through borrowings under Sanofi Loan Facility — — 4,478 Interest on note payable to related party 4,488 3,782 2,901 Series A warrant issuance cost — — 653 Other, net (25) 100 19 (Gain) loss on sale, abandonment/disposal or impairment of property and equipment (114) 203 1,259 Gain on purchase commitments (10) (215) (2,265)Write-off of inventory 2,212 2,971 — Changes in operating assets and liabilities: Accounts receivable, net (1,339) (2,487) (302)Receivable from Sanofi — 30,557 (30,534)Inventory (3,152) (3,297) (2,331)Deferred costs from commercial product sales — (96) (309)Deferred costs from collaboration — — 13,539 Prepaid expenses and other current assets 454 1,354 (346)Other assets 200 188 361 Accounts payable (1,605) 3,800 (12,118)Accrued expenses and other current liabilities 2,249 2,932 348 Deferred revenue — (381) 3,419 Deferred payments from collaboration 46,814 (250) (134,056)Deferred sales from collaboration — — (17,503)Loss on purchase commitments (6,939) (4,745) 40,566 Net cash used in operating activities (37,731) (64,778) (78,090)CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (354) — (1,144)Net proceeds from sale of asset held for sale — 16,651 — Proceeds from sale of property and equipment 120 24 17 Net cash provided by (used in) investing activities (234) 16,675 (1,127)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from direct placement of common stock 28,000 61,000 50,000 Issuance cost associated with direct placement (1,610) (3,310) (2,690)Proceeds from public offering — common stock 40,000 Issuance cost associated with public offering (2,538) Principal payments on facility financing obligation (5,000) (4,000) (5,000)Payment of employment taxes related to vested restricted stock units — (127) (165)Proceeds from issuance of common stock — — 893 Borrowings on note payable to related party — 19,429 — Proceeds from market price stock purchase plan 430 — — Proceeds from issuance of common stock pursuant to at-the-market issuance 2,089 564 — Issuance costs of at-the-market transactions (84) (17) — Other 7 24 — Net cash provided by financing activities 61,294 73,563 43,038 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 23,329 25,460 (36,179)CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 48,355 22,895 59,074 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD $71,684 $48,355 $22,895 SUPPLEMENTAL CASH FLOWS DISCLOSURES: Income taxes paid in cash $240 $51 $— Interest paid in cash, net of amounts capitalized $3,759 $7,728 $8,991 NON-CASH INVESTING AND FINANCING ACTIVITIES: Payment of note obligations and interest through issuance of common stock $42,912 $20,593 $— Payment of note payable to related party through issuance of common stock $8,160 $— $— Capitalization of interest on note payable to related party $— $10,716 $— Non-cash construction in progress and property and equipment $— $— $588 Reclassification of deferred payments from collaboration to Sanofi Loan Facility and loss share obligation $— $— $5,174 Reclassification of property and equipment to asset held for sale $— $— $17,294 Reclassification of warrant liability to additional paid-in capital $— $1,880 $— See notes to consolidated financial statements. 67  MANNKIND CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Description of BusinessBusiness — MannKind Corporation and its Subsidiaries (the “Company”) is a biopharmaceutical company focused on the development andcommercialization of inhaled therapeutic products for diseases such as diabetes and pulmonary arterial hypertension. The Company’s only approved product,Afrezza (insulin human) Inhalation Powder, is a rapid-acting inhaled insulin that was approved by the U.S. Food and Drug Administration (the “FDA”) inJune 2014 to improve glycemic control in adults with diabetes. Afrezza became available by prescription in United States retail pharmacies in February2015. Currently, the Company promotes Afrezza to endocrinologists and certain high-prescribing primary care physicians in the United States through itsspecialty sales force.Basis of Presentation - The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a goingconcern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company is not currently profitableand has rarely generated positive net cash flow from operations. As of December 31, 2018, the Company had an accumulated deficit of $2.9 billion.At December 31, 2018, the Company’s capital resources consisted of cash and cash equivalents of $71.2 million and $0.5 million of restricted cash.The Company expects to continue to incur significant expenditures to support commercial manufacturing, sales and marketing of Afrezza, collaborationwork and the development of product candidates in the Company’s pipeline. The facility agreement (as amended, the “Facility Agreement”) with DeerfieldPrivate Design Fund II, L.P. and Deerfield Private Design International II, L.P. (collectively, “Deerfield”) that resulted in the issuance of 9.75% SeniorConvertible Notes due 2019 (“2019 notes”) and 8.75% Senior Convertible Notes due 2019 (“Tranche B notes”) (see Note 7 — Borrowings) requires theCompany to maintain at least $20.0 million in cash and cash equivalents as of October 31, 2018 and December 31, 2018 and $25.0 million in cash and cashequivalents as of the end of each fiscal quarter after December 31, 2018. As of December 31, 2018, the Company had $101.7 million principal amount of outstanding borrowings. The Company has entered into certaintransaction related to these borrowings during 2017 and 2018 that are more fully described in Note 6 - Related Party Agreements and Note 7 – Borrowings.The Company’s currently available cash and financing sources will not be sufficient to continue to meet its current and anticipated cash requirementswithin one year from the date these financial statements were issued. The Company plans to raise additional capital, whether through a sale of equity or debtsecurities, strategic business collaboration agreements with other companies, the establishment of other funding facilities, licensing arrangements, asset salesor other means, in order to continue the development and commercialization of Afrezza and other product candidates and to support its other ongoingactivities. The Company cannot provide assurances that such additional capital will be available on acceptable terms or at all. Successful completion of theseplans is dependent on factors outside of the Company’s control. As such, management cannot be certain that such plans will be effectively implementedwithin one year after the date that the financial statements are issued. These factors raise substantial doubt about the Company’s ability to continue as agoing concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.Intercompany balances and transactions have been eliminated.Segment Information — Operating segments are identified as components of an enterprise about which separate discrete financial information isavailable for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, theCompany has viewed its operations and manages its business as one segment operating in the United States of America.2. Summary of Significant Accounting PoliciesFinancial Statement Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the UnitedStates of America (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accountingpolicies, and in developing the estimates and assumptions that are used in the preparation of the financial statements. Management must apply significantjudgment in this process. The more significant estimates reflected in these accompanying consolidated financial statements include revenue recognition andgross-to-net adjustments, assessing long-lived assets for impairment, clinical trial expenses, inventory costing and recoverability, recognized loss onpurchase commitment, milestone rights liability, stock-based compensation and the determination of the provision for income taxes and correspondingdeferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. 68  Revenue Recognition — The Company adopted Accounting Standards Codification (“ASC”) Topic 606 - Revenue from Contracts with Customers(“the new revenue guidance”), on January 1, 2018. Under Topic 606, the Company recognizes revenue when its customers obtain control of promised goodsor services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods or services. See below formore information about the impact of adoption of the new revenue guidance. Upon adoption of the new revenue guidance, the Company moved from thesell-through model to a sell-to model for revenue related to commercial sales of Afrezza to wholesalers and now records revenue when its customers takecontrol of the product along with an estimate of potential returns as variable consideration. For sales of Afrezza to specialty pharmacies, the Companypreviously recognized revenue at the time of shipment because specialty pharmacies generally purchase on demand and estimated returns are minimal.Therefore, there was no impact upon adoption for sales to specialty pharmacies.To determine revenue recognition for arrangements that are within the scope of Topic 606, the Company performs the following five steps: (i) identifythe contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction priceto the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company onlyapplies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collectthe consideration it is entitled to in exchange for the goods or services it transfers to the customer.At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promisedwithin each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company hasthree types of contracts with customers: contracts with wholesale distributors and specialty pharmacies for commercial product sales, collaborationarrangements, and arrangements with parties to whom it has sold intellectual property.Prior to Janaury 1, 2018, we invoiced our customers upon shipment of Afrezza to them and recorded an accounts receivable, with a correspondingliability for deferred revenue equal to the gross invoice price net of estimated gross-to-net adjustments. We were required to reliably estimate returns in a verynarrow range in order to recognize revenue upon shipment. While we were able to estimate returns within a range, it was not sufficiently precise to meet theaccounting requirements for the Income Statement upon shipment. Accordingly, we deferred recognition of revenue and the related estimated discounts andallowances on Afrezza product shipments until the right of return no longer existed, which occurs at the earlier of the time Afrezza is dispensed throughpatient prescriptions or expiration of the right of return. Through December 31, 2017, we recognized revenue based on Afrezza prescriptions dispensed, asestimated by syndicated data provided by a third party. We also analyzed additional data points to ensure that such third-party data was reasonable,including data related to inventory movements within the channel and ongoing prescription demand. In addition, the costs of Afrezza associated with thedeferred revenue were recorded as deferred costs until such time as the related deferred revenue is recognized.Revenue Recognition – Net Revenue – Commercial Product Sales – The Company sells Afrezza to a limited number of wholesale distributors andspecialty pharmacies in the U.S. (collectively, its “Customers”). These Customers subsequently resell the Company’s product to retail pharmacies and certainmedical centers or hospitals or in the case of specialty pharmacies, sell directly to patients. In addition to distribution agreements with Customers, theCompany enters into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates,chargebacks, and discounts with respect to the purchase of the Company’s product.For the years ended December 31, 2018 and 2017, Afrezza net revenue from commercial product sales consisted of $17.3 million and $9.2 million,respectively. As of December 31, 2018, there was zero net deferred revenue due to the adoption of Topic 606. At December 31, 2017, the balance of netdeferred revenue was $3.0 million on the Company’s consolidated balance sheet. For the year ended December 31, 2018 and 2017, shipments to threewholesale distributors represented 89% of total shipments. For the year ended December 31, 2016, the Company sold directly to ICS and Sanofi.The Company, beginning January 1, 2018, recognizes revenue on product sales when the Customer obtains control of the Company's product, whichoccurs at a point in time (based on the terms of the relevant contracts which are at delivery for wholesale distributors and at shipment for specialtypharmacies). Product revenues are recorded net of applicable reserves for variable consideration, including discounts and allowances. Voucher Program – Under the voucher program, potential new patients are given vouchers which they can provide to retailers for free product. Theretailers provide the product to the patient for free and pay the wholesaler for the product, who pays the Company. The retailers submit the vouchers to aprogram administrator who pays the retailer for the product. The administrator then invoices the Company for the amount of vouchers paid plus a fee.Accordingly, on a net basis, it is not probable that the Company will receive the consideration to which it is entitled from the sale of product under thevoucher program. Therefore, the Company excludes such amounts from both gross and net revenue. The cost of product associated with the voucher programis included in cost of goods sold. 69  Reserves for Variable Consideration — Revenues from product sales are recorded at the transaction price, which includes estimates of variableconsideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, providerchargebacks and discounts, government rebates, payor rebates, and other incentives, such as voluntary patient assistance, and other allowances that areoffered within contracts between the Company and its Customers, payors, and other indirect customers relating to the Company’s sale of its product. Thesereserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and result in a reduction of accounts receivable orestablishment of a current liability. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with theexpected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends,industry data, and forecasted customer buying and payment patterns. Overall, these reserves reduce recognized revenue to the Company’s best estimates ofthe amount of consideration to which it is entitled based on the terms of the respective underlying contracts. The amount of variable consideration that is included in the transaction price is only to the extent that it is probable that a significant reversal in theamount of the cumulative revenue recognized under the contract will not occur in a future period. The Company’s analyses also contemplates application ofthe constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimatesdetailed below as of December 31, 2018 and, therefore, the transaction price was not reduced further during the year ended December 31, 2018. Actualamounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, theCompany will adjust these estimates, which would affect net revenue – commercial product sales and earnings in the period such variances become known. Trade Discounts and Allowances — The Company generally provides Customers with discounts which include incentive fees, such as prompt paydiscounts, that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue isrecognized. In addition, the Company compensates (through trade discounts and allowances) its Customers for sales order management, data, and distributionservices. However, the Company has determined such services received to date are not distinct from the Company’s sale of product to the Customers and,therefore, these payments have been recorded as a reduction of revenue and a reduction to accounts receivable, net. Product Returns — As of January 1, 2018, as a part of the adoption of Topic 606, the Company generally offers Customers a right of return forunopened product that has been purchased from the Company for a period beginning six months prior to and ending 12 months after its expiration date. Suchright of return lapses upon shipment to a patient. The Company estimates the amount of its product sales that may be returned by its Customers and recordsthis estimate as a reduction of revenue in the period the related product revenue is recognized, as well as reductions to accounts receivable, net. TheCompany currently estimates product returns using available industry data and its own sales information, including its visibility into the inventoryremaining in the distribution channel. The Company’s current return reserve rate is estimated to be a low single-digit return rate. Provider Chargebacks and Discounts — Chargebacks for fees and discounts to providers represent the estimated obligations resulting fromcontractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase theproduct from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to thequalified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of productrevenue and the establishment of a current liability which is recorded in accrued expenses and other current liabilities. Chargeback amounts are generallydetermined at the time of resale to the qualified healthcare provider by Customers, and the Company generally issues credits for such amounts within a fewweeks of the Customer’s notification to the Company of the resale. Reserves for chargebacks consist of credits that the Company expects to issue for unitsthat remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to qualified healthcare providers, andchargebacks that Customers have claimed, but for which the Company has not yet issued a credit. Government Rebates — The Company is subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded inthe same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included inaccrued expenses and other current liabilities. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap forwhom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates consists of invoicesreceived for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter,and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories atthe end of each reporting period. Payor Rebates — The Company contracts with certain private payor organizations, primarily insurance companies and pharmacy benefit managers, forthe payment of rebates with respect to utilization of its products. The Company estimates these rebates and records such estimates in the same period therelated revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expensesand other current liabilities. 70  Other Incentives — Other incentives which the Company offers include voluntary patient support programs, such as the Company's co-pay assistanceprogram, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required bypayors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receiveassociated with product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. Theadjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a currentliability which is included in accrued expenses and other current liabilities.Deferred Costs from Commercial Product Sales — Deferred costs from commercial product sales represents the cost of product (including labor,overhead and shipping costs to third party logistics providers) shipped to wholesale distributors, but not dispensed by pharmacies to patients. If the Companyestimates that inventory that has been shipped to wholesale distributors will be returned for credit because there is a risk of product expiry, deferred costs ofcommercial product sales is reduced and cost of goods sold is increased for the cost of such inventory. The Company had deferred costs from commercialproducts sales of $0.4 million as of December 31, 2017. On January 1, 2018, the Company adjusted its deferred costs from commercial products to zero as aresult of the adoption of Topic 606.Revenue Recognition — Net Revenue — Collaborations and Services — The Company enters into licensing or research agreements under which theCompany licenses certain rights to its product candidates to third parties or conducting research services to third parties. The terms of these arrangements mayinclude, but are not limited to payment to the Company of one or more of the following: nonrefundable, up-front license fees; development, regulatory, andcommercial milestone payments; payments for manufacturing supply services the Company provides; and royalties on net sales of licensed products andsublicenses of the rights. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment such asdetermining the performance obligation in the contract and determining the stand-alone selling price for each performance obligation identified in thecontract. The Company uses key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates forpersonnel costs, discount rates, and probabilities of technical and regulatory success. Given the significant estimates depend on the development plan, theseestimates could change and impact the revenue recognition. Consideration received that does not meet the requirements to satisfy the revenue recognitioncriteria is recorded as deferred revenue. Current deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months.Amounts that we expect will not be recognized within the next 12 months are classified as long-term deferred revenue. For the years ended December 31,2018 and 2017 net revenue - collaborations and services consisted of $10.6 million and $0.3 million, respectively. For further information see Note 8 —Collaboration and Licensing Agreements.The Company recognizes upfront license payments as revenue upon delivery of the license only if the license is determined to be a separate unit ofaccounting from the other undelivered performance obligations. The undelivered performance obligations typically include manufacturing or developmentservices or research and/or steering committee services. If the license is not considered as a distinct performance obligation, then the license and otherundelivered performance obligations would be accounted for as a single unit of accounting. In this case, the license payments and payments for performanceobligations are recognized as revenue over the estimated period of when the performance obligations are performed.Whenever the Company determines that an arrangement should be accounted for over time as a single performance obligation, the Companydetermines the period over which the performance obligations will be performed, and revenue will be recognized over the period the Company is expected tocomplete its performance obligations. Significant management judgment is required in determining the level of effort required under an arrangement and theperiod over which the Company is expected to complete its performance obligations under an arrangement. If the Company determines that an arrangementhas multiple performance obligations, the allocation of the transaction price is determined from observable market inputs and revenue is recognized based onthe measurement of progress as the performance obligation is satisfied.The Company’s collaboration agreements typically entitle the Company to additional payments upon the achievement of development, regulatoryapproval and sales performance-based milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the relatedmilestone payment is included with other collaboration consideration, such as upfront fees and research funding, in the Company’s revenue calculation. Ifthese milestones are not considered probable at the inception of the collaboration, the milestones will typically be recognized in one of two ways dependingon the timing of when the milestone is achieved. If the milestone is achieved during the performance period, the Company will only recognize revenue to theextent of the proportional performance achieved at that date, or the proportion of the ratable method achieved at that date, and the remainder will be recordedas deferred revenue to be amortized over the remaining performance period. If the milestone is achieved after the performance period has completed and allperformance obligations have been delivered, the Company will recognize the milestone payment as revenue in its entirety in the period the milestone wasachieved.For collaborative agreements, the Company has concluded for accounting purposes they represent contracts with customers, and are not subject toaccounting literature on collaborative arrangements. This is because the Company grants to collaboration partners licenses to its intellectual property,supplies bulk FDKP and provides research and development services, all of which are outputs of the Company’s ongoing activities, in exchange forconsideration. The Company does not develop assets jointly with collaboration partners, and does not share in significant risks of their development orcommercialization activities. Accordingly, the Company concluded that its collaborative agreements must be accounted for pursuant to Topic 606, Revenuefrom Contracts with Customers. 71  For collaboration agreements that allow collaboration partners to select additional optioned products, the Company evaluates whether such optionscontain material rights, (i.e. have exercise prices that are discounted compared to what the company would charge for a similar license to a new collaborationpartner). The exercise price of these options includes a combination licensing fees, event-based milestone payments and royalties. When these amounts inaggregate are not offered at a discount that exceeds discounts available to other customers, the company concludes the option does not contain a materialright, and considers grants of additional licensing rights upon option exercises to be separate contracts. The Company concluded there is no material right inthese options.The Company follows detailed accounting guideance in measuring revenue and certain judgments affect the application of its revenue policy. Forexample, in connection with its existing collaboration agreements, the Company has recorded on its consolidated balance sheets short-term and long-termdeferred revenue based on its best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to berecognized as revenue in the next 12 months. Amounts that the Company expects will not be recognized within the next 12 months are classified as long-term deferred revenue. However, this estimate is based on the Company’s current project development plan and, if the development plan should change in thefuture, the Company may recognize a different amount of deferred revenue over the next 12-month period. At December 31, 2018 and 2017, the Companyhad current deferred payment from collaborations of $36.9 million and $0.2 million, respectively and long-term deferred payment from collaborations of$10.7 million and $0.5 million, respectively, related to the Company’s collaborations.Revenue Recognition — Revenue — Other — In 2017, other revenue consisted of $1.7 million of revenue from bulk insulin sales and $0.6 millionrelated to the sale of intellectual property to Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd (“Fosun”), which is accounted for under themultiple-deliverable revenue recognition guidance and more fully described in Note 9 – Sale of Intellectual Property. Revenue from bulk insulin sales arerecognized after delivery and customer acceptance of the bulk insulin.Cost of Goods Sold — A significant component of cost of goods sold is current period manufacturing costs in excess of costs capitalized intoinventory (excess capacity costs). These costs, in addition to the impact of the annual revaluation of inventory to standard costs (and the annual revaluationof deferred costs of commercial sales to standard costs in 2017 and 2016), and write-offs of inventory (and write-offs of deferred costs of commercial sales in2017 and 2016) are recorded as expenses in the period in which they are incurred, rather than as a portion of inventory costs. Cost of goods sold also includesthe standard cost related to Afrezza sold during the period and related variances and realized currency gain or loss in connection with the Amphastar insulincontract. The cost of goods sold also excludes the write-off of the cost of insulin held in inventory at the end of 2015.Cash and Cash Equivalents — The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at thetime of purchase, that are readily convertible into cash to be cash equivalents. As of December 31, 2018 and 2017, cash equivalents were comprised of moneymarket accounts with maturities less than 90 days from the date of purchase.Restricted Cash – The Company records restricted cash when cash and cash equivalents are restricted as to withdrawal or usage. The Company presentsamounts of restricted cash that will be available for use within 12 months of the reporting date as restricted cash in current assets. Restricted cash amountsthat will not be available for use in the Company’s operations within 12 months of the reporting date are presented as restricted cash in long term assets.Concentration of Credit Risk — Financial instruments which potentially subject the Company to concentration of credit risk consist of cash and cashequivalents. Cash and cash equivalents are held in high credit quality institutions. Cash equivalents consist of interest-bearing money market accounts andU.S. treasury securities, which are regularly monitored by management.Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable are recorded at the invoiced amount and are not interest bearing.Accounts receivable are presented net of an allowance for doubtful accounts if there are estimated losses resulting from the inability of its customers to makerequired payments. The Company makes ongoing assumptions relating to the collectability of its accounts receivable in its calculation of the allowance fordoubtful accounts. Accounts receivable are also presented net of an allowance for product returns and trade discounts and allowances because the Company’scustomers have the right of setoff for these amounts against the related accounts receivable.Inventories — Inventories are stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out, or FIFO, method. The Company capitalizes inventory costs associated with the Company’s products based on management’s judgment that futureeconomic benefits are expected to be realized; otherwise, such costs are expensed as incurred as cost of goods sold. The Company periodically analyzes itsinventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value and writes down such inventories, asappropriate. In addition, the Company’s products are subject to strict quality control and monitoring which the Company performs throughout themanufacturing process. If certain batches or units of product no longer meet quality specifications or may become obsolete or are forecasted to becomeobsolete due to expiration, the Company will record a charge to write down such unmarketable inventory to its estimated net realizable value. The inventoryalso excludes the cost of insulin which was previously written off, in association with the insulin purchase agreement. 72  The Company analyzed its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value. TheCompany performed an assessment of projected sales and evaluated the lower of cost or net realizable value and the potential excess inventory on hand atDecember 31, 2018 and 2017. As a result of these assessments, the Company recorded a $2.2 million and $3.0 million charge for the years endedDecember 31, 2018 and 2017, respectively, to write-off inventory that may expire prior to sale. For the year ended December 31, 2016 there were no write-offsto inventory. Leases – The Company records rent expense for leases that contain scheduled rent increases on a straight-line basis over the lease term which beginswith the point at which the Company obtains control and possession of the leased property. Prepaid Expenses and Other Current Assets — As of December 31, 2018 and 2017, prepaid expenses and other current assets primarily consist ofprepaid expenses for goods and services to be received and includes a certificate of deposit for $0.4 million as collateral as required by an agreement with thebank.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 carryingvalue or fair value 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.Building improvements are amortized over the estimated useful life of the improvements. Maintenance and repairs are expensed as incurred. Assets underconstruction 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 indicatethat the carrying value of an asset may not be recoverable. Assets are considered to be impaired if the carrying value may not be recoverable.If the Company believes an asset to be impaired, the impairment recognized is the amount by which the carrying value of the asset exceeds the fairvalue of the asset. Fair value is determined using the market, income or cost approaches as appropriate for the asset. Any write-downs are treated as permanentreductions in the carrying amount of the asset and recognized as an operating loss.The Company recorded asset impairments of $0.2 million and $1.3 million for the years ended December 31, 2017 and 2016, respectively (see Note 4— Property and Equipment).Recognized Loss on Purchase Commitments — The Company assesses whether losses on long term purchase commitments should be accrued. Lossesthat are expected to arise from firm, non-cancellable, commitments for the future purchases are recognized unless recoverable. When making the assessment,the Company also considers whether it is able to renegotiate with its vendors. The recognized loss on purchase commitments is reduced as inventory itemsare received. If, subsequent to an accrual, a purchase commitment is successfully renegotiated, the gain is recognized in the Company’s consolidatedstatement of operations.The balance of the recognized loss on insulin purchase commitments as of December 31 2018 and 2017 was $98.3 million and $109.3 million,respectively.Milestone Rights Liability — On July 1, 2013, in conjunction with the execution of the Facility Agreement, the Company issued Milestone Rights tothe Milestone Purchasers. The Milestone Rights provide the Milestone Purchasers certain rights to receive payments of up to $90.0 million, of which $75.0million remain payable as of December 31, 2018, upon the occurrence of specified strategic and sales milestones, including the achievement of specified netsales figures. The Company analyzed the Milestone Rights and determined that the Milestone Agreement does not meet the definition of a freestandingderivative. Since the Company has not elected to apply the fair value option to the Milestone Agreement, the Company recorded the Milestone Rights attheir 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 specifiedcontractual payments were adjusted for both the expected timing and the probability of achieving the milestones and discounted to present value using aselected market discount rate. The expected timing and probability of achieving the milestones was developed with consideration given to both internaldata, such as progress made to date and assessment of criteria required for achievement, and external data, such as market research studies. The discount ratewas selected based on an estimation of required rate of returns for similar investment opportunities using available market data. The Milestone Rightsliability will be remeasured as the specified milestone events are achieved. Specifically, as each milestone event is achieved, the portion of the initiallyrecorded Milestone Rights liability that pertains to the milestone event being achieved, will be remeasured to the amount of the specified related milestonepayment. The resulting change in the balance of the Milestone Rights liability due to remeasurement will be recorded in the Company’s consolidatedstatements of operations as interest expense. Furthermore, the Milestone Rights liability will be reduced upon the settlement of each milestone payment. As aresult, each milestone payment would be effectively allocated between a reduction of the recorded Milestone Rights liability and an expense representing areturn 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 ofDecember 31, 2018 and 2017, the remaining liability balance was $8.9 million. 73  Fair Value of Financial Instruments —The Company applies various valuation approaches in determining the fair value of its financial assets andliabilities within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputsbe used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained fromsources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants woulduse in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken downinto three levels based on the source of inputs as follows:Level 1 — Quoted prices for identical instruments in active markets.Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; andmodel-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 includethe cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Deferred income tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to berecovered or settled. A valuation allowance is recorded to reduce net deferred income tax assets to amounts that are more likely than not to be realized.Income tax positions are considered for uncertainty. The Company believes that its income tax filing positions and deductions will be sustained onaudit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no liabilities for uncertain income taxpositions have been recorded. If a tax position does not meet the minimum statutory threshold to avoid payment of penalties, the Company recognizes anexpense for the amount of the penalty in the period the tax position is claimed in the tax return of the Company. The Company recognizes interest accruedrelated to unrecognized tax benefits in income tax expense, if any. Penalties, if probable and reasonably estimable, are recognized as a component of incometax expense.Significant management judgment is involved in determining the provision for income taxes, deferred tax assets, deferred tax liabilities, and anyvaluation allowance recorded against deferred tax assets. Due to uncertainties related to the realization of the Company’s deferred tax assets as a result of itshistory of operating losses, a full valuation allowance has been established against the total deferred tax asset balance. The valuation allowance is based onmanagement’s estimates of taxable 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 differ from these estimates or the Company adjusts these estimates in future periods, a change in the valuation allowance maybe needed. See Note 16 – Income Taxes for disclosure on the tax laws enacted in December 2017.Contingencies — The Company records a loss contingency for a liability when it is both probable that a liability has been incurred and the amount ofthe loss can be reasonably estimated. These accruals represent management’s best estimate of probable loss. Disclosure also is provided when it is reasonablypossible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. On a quarterly basis, theCompany reviews the status of each significant matter and assesses its potential financial exposure. Significant judgment is required in both thedetermination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters,accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potentialliability related to pending claims and litigation and may revise its estimates.Stock-Based Compensation — Share-based payments to employees, including grants of stock options, restricted stock units, performance-based awardsand the compensatory elements of employee stock purchase plans, are recognized in the consolidated statements of operations based upon the fair value ofthe awards at the grant date subject to an estimated forfeiture rate. The Company uses the Black-Scholes option valuation model to estimate the grant datefair value of employee stock options and the compensatory elements of employee stock purchase plans. Restricted stock units are valued based on the marketprice on the grant date. The Company evaluates stock awards with performance conditions as to the probability that the performance conditions will be metand estimates the date at which the performance conditions will be met in order to properly recognize stock-based compensation expense over the requisiteservice period.Warrants — The Company accounts for its warrants as either equity or liabilities based upon the characteristics and provisions of each instrument andevaluation of sufficient authorized shares available to satisfy the obligations. Warrants classified as derivative liabilities are recorded on the Company’sconsolidated balance sheets at their fair value on the date of issuance and are revalued at each subsequent balance sheet date, with fair value changesrecognized in the consolidated statements of operations.Comprehensive Income (Loss) — Other comprehensive income (loss) requires that all components of comprehensive income (loss) to be reported in thefinancial statements in the period in which they are recognized. Other comprehensive income (loss) includes certain changes in stockholders’ equity that areexcluded from net income (loss). Specifically, the Company includes unrealized gains and losses on foreign exchange translation gains and losses resultingfrom translating cash and cash accounts in foreign currencies in accumulated other comprehensive loss on the consolidated balance sheets. 74  Research and Development Expenses — Research and development expenses consist of costs associated with the clinical trials of the Company’sproduct candidates, development supplies and other development materials, compensation and other expenses for research and development personnel, costsfor consultants and related contract research, facility costs, and depreciation. Research and development costs, which are net of any tax credit exchangerecognized for the Connecticut state research and development credit exchange program, are expensed as incurred.Clinical Trial Expenses — Clinical trial expenses, which are reflected in research and development expenses in the accompanying consolidatedstatements of operations, result from obligations under contracts with vendors, consultants and clinical site agreements in connection with conductingclinical trials. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that donot match the periods over which materials or services are provided to the Company under such contracts. The appropriate level of trial expenses are reflectedin the Company’s consolidated financial statements by matching period expenses with period services and efforts expended. These expenses are recordedaccording to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. Clinical trial accrual estimates aredetermined through discussions with internal clinical personnel and outside service providers as to the progress or state of completion of trials, or the servicescompleted. Service provider status is then compared to the contractually obligated fee to be paid for such services. During the course of a clinical trial, theCompany 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 caseinterest is capitalized. There were no capitalized interest costs for the years ended December 31, 2018 and 2017.Net Income (Loss) Per Share of Common Stock — Basic net income or loss per share excludes dilution for potentially dilutive securities and iscomputed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted net income or loss pershare reflects the potential dilution under the treasury method that could occur if securities or other contracts to issue common stock were exercised orconverted into common stock. For periods where the Company has presented a net loss, potentially dilutive securities are excluded from the computation ofdiluted net loss per share as they would be anti-dilutive.In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standardrequires a company to recognize revenue to depict the transfer of goods or services when transferred to customers in an amount that reflects the considerationit expects to be entitled to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts withCustomers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. TheFASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued additional ASUs whichclarified certain aspects of the new guidance. The new guidance also requires disclosures about the nature, timing and uncertainty of revenue and cash flowsarising from customer contracts, including significant judgments and changes in judgments.The Company applied the new revenue guidance using the modified retrospective approach to all contracts with the cumulative effect of initialapplication recognized as of January 1, 2018. Revenue amounts and comparative information prior to this adoption date have not been retrospectivelyadjusted and continue to be accounted for under the previous accounting guidance.The previous accounting guidance required the Company to reliably estimate returns in order to recognize revenue upon shipment. While theCompany could estimate returns within a range, it was not sufficiently precise to meet those requirements. Accordingly, under the previous guidance, theCompany deferred recognition of revenue on Afrezza product deliveries to wholesalers until the right of return no longer existed, which occurred at theearlier of the time Afrezza was dispensed from pharmacies to patients or expiration of the right of return. Therefore, for deliveries to wholesalers, the Companyrecognized revenue based on estimated Afrezza patient prescriptions dispensed, a sell-through model.Upon adoption of the new revenue guidance, the Company moved from the sell-through model to a sell-to model for revenue related to commercialsales of Afrezza to wholesalers and now records revenue when its customers take control of the product along with an estimate of potential returns as variableconsideration. For sales of Afrezza to specialty pharmacies, the Company previously recognized revenue at the time of shipment because specialtypharmacies generally purchase on demand and estimated returns are minimal. Therefore, there was no impact upon adoption for sales to specialty pharmacies.Additionally, the Company has historically entered into collaborative agreements and sales of intellectual property to third parties under whichperiodic payments have been received. In February 2017, the FASB issued ASU 2017-05 Clarifying the Scope of Asset Derecognition Guidance andAccounting for Partial Sales of Nonfinancial Assets to ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assetswhich further clarified the new revenue recognition guidance under Topic 606. The Company adopted the guidance on January 1, 2018 using the modifiedretrospective method. There was no impact upon adoption related to these arrangements. These transactions are more fully described in Note 8 –Collaboration Arrangements and Note 9 - Sale of Intellectual Property. 75  The cumulative effect of the changes made to the consolidated January 1, 2018 balance sheet for the adoption of the new revenue guidance was asfollows (in thousands): Balance atDecember 31, 2017 Adjustmentsdue to newrevenueguidance Balance atJanuary 1, 2018 Assets Accounts receivable, net $2,789 $(111)(1) $2,678 Deferred costs from commercial product sales 405 (405)(2) — Liabilities Accrued expenses and other current liabilities $12,449 $649 (3) $13,098 Deferred revenue, net 3,038 (3,038)(4) — Equity Accumulated deficit $(2,854,898) $1,873 (5) $(2,853,025) (1)To establish a reserve for product returns(2)To eliminate deferred costs from commercial product sales previously required by the sell-through method(3)To record additional accrual for estimated voucher payments related to inventory remaining in the distribution channel at January 1, 2018(4)To eliminate deferred revenue previously required by the sell-through method(5)To record the net impact of (1)-(4) in opening accumulated deficit 76  In accordance with the new revenue guidance, the disclosure of the impact of adoption on the consolidated balance sheet consolidated statement ofoperations and cash flows was as follows (in thousands): Consolidated Balance Sheet For the year December 31, 2018 As Reported Adjustments Balances withoutadoption of Topic606 Assets Accounts receivable, net $4,017 $314 $4,331 Deferred costs from commercial product sales — 875 875 Liabilities Accrued expenses and other current liabilities $15,022 $(751) $14,271 Deferred revenue, net — 3,937 3,937 Equity Accumulated deficit $(2,940,000) $(1,997) $(2,941,997) Consolidated Statement of Operations For the year December 31, 2018 As Reported Adjustments Balances withoutadoption of Topic606 Revenue Net revenue - commercial product sales $17,276 $(486) $16,790 Expenses Cost of goods sold $19,402 $(754) $18,648 Net loss (86,975) (267) (87,242) For the year ended December 31, 2018 As Reported Adjustments Balances withoutadoption of Topic606 Cash Flows from Operating Activities Net loss $(86,975) $(267) $(87,242)Change in: Accounts receivable, net (1,339) 2,567 1,228 Deferred costs from commercial product sales — 470 470 Accrued expenses and other current liabilities 2,249 (751) 1,498 Deferred revenue, net — (899) (899)Cash (used in) provided by operating activities (37,731) 1,120 (36,611) Recently Issued Accounting Standards — From time to time, new accounting pronouncements are issued by the Financial Accounting StandardsBoard (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Companybelieves that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financialposition or results of operations upon adoption. 77  In February of 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and in July of 2018, the FASB issued ASU 2018-11, “Leases (Topic 842):Targeted Improvements.” The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, theupdated guidance provides lessors with an election to combine the lease and non-lease components of a contract, if certain conditions are met, and accountfor the combined component in accordance with the new revenue guidance in ASU 2014-09 if the non-lease component is the prominent component of thecontract. The updated guidance is effective for interim and annual periods beginning after December 15, 2018 and requires using a modified retrospectivetransition method. However, the Company has elected to apply a practical expedient offered in the updated guidance which allows entities to apply theguidance on January 1, 2019 and comparative periods are not restated. In transition, lessees and lessors are required to recognize and measure leases startingat the effective date using an optional approach. The new standard will be effective on January 1, 2019 and will result in an increase of assets and liabilitiesof approximately $5.0 million. In July 2017, the FASB issued ASU No. 2017-11, Earnings per Share (Topic 260) and Derivatives and Hedging (Topic 815): Accounting for CertainFinancial Instruments with Down Round Provisions. This ASU addresses the complexity and cost of accounting for certain financial instruments with downround features that require fair value measurement of the entire instrument or conversion option and requires entities that present earnings per share inaccordance with Topic 260 to recognize the effect of the down round feature when it is triggered. ASU 2017-11 is effective for fiscal years beginning January1, 2019, including interim periods within those periods. The adoption of this standard is not expected to materially impact the Company’s consolidatedfinancial statements. 3. InventoriesInventories consist of the following (in thousands): December 31, 2018 2017 Raw materials $1,337 $572 Work-in-process 1,605 1,273 Finished goods 655 812 Total inventory $3,597 $2,657 Work-in-process and finished goods as of December 31, 2018 and 2017 include conversion costs but not insulin cost because the insulin used in itsproduction was previously written off. The Company analyzed its inventory levels to identify inventory that may expire or has a cost basis in excess of itsestimated realizable value. The Company performed an assessment of projected sales and evaluated the lower of cost or net realizable value and the potentialexcess inventory on hand at December 31, 2018. During the year ended December 31, 2018 and 2017, the Company recorded a write-down of inventory ofapproximately $2.2 million and $3.0 million, respectively. Inventory that was forecasted to become obsolete due to expiration is recorded in costs of goodssold in the accompanying consolidated statements of operations. There was no write-down of inventory for the year ended December 31, 2016.4. Property and EquipmentProperty and equipment consist of the following (in thousands): Estimated Useful December 31, Life (Years) 2018 2017 Land — $875 $875 Buildings 39-40 17,389 17,389 Building improvements 5-40 34,967 34,957 Machinery and equipment 3-15 61,217 62,681 Furniture, fixtures and office equipment 5-10 2,954 3,556 Computer equipment and software 3 8,355 8,416 Construction in progress — 342 — 126,099 127,874 Less accumulated depreciation (100,497) (100,952)Total property and equipment, net $25,602 $26,922 78  Depreciation expense related to property and equipment for the years ended December 31, 2018, 2017 and 2016, was $1.7 million, $1.8 million and$2.4 million, respectively. The Company disposed of $2.1 million of furniture and fixtures, manufacturing equipment and laboratory equipment as it was nolonger in service. The net book value was de minimis. On January 6, 2017, the Company and Rexford Industrial Realty, L.P. (“Rexford”) entered into an Agreement of Purchase and Sale and Joint EscrowInstructions (the “Purchase Agreement”), pursuant to which the Company agreed to sell and Rexford agreed to purchase certain parcels of real estate ownedby the Company in Valencia, California and certain related improvements, personal property, equipment, supplies and fixtures (collectively, the “Property”)for $17.3 million. This asset in the amount of $16.7 million was classified as held for sale as of December 31, 2016. The sale and purchase of the Property for$17.3 million pursuant to the terms of the Purchase Agreement, as amended, was completed on February 17, 2017. Net proceeds were $16.7 million afterdeducting broker’s commission and other fees of approximately $0.6 million paid by the Company. Net proceeds received approximated the carrying valueof the asset held for sale.5. Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities are comprised of the following (in thousands): December 31, 2018 2017 Salary and related expenses $8,110 $7,260 Current portion of milestone rights liability 1,643 1,643 Professional fees 741 1,007 Discounts and allowances for commercial product sales 2,656 873 Sales and marketing services 88 147 Restructuring — 362 Accrued interest 492 567 Deferred Lease Liability 257 118 Other 1,035 472 Accrued expenses and other current liabilities $15,022 $12,449 6. Related-Party Arrangements December 31,2018 December 31,2017 Principal amount $71,506 $79,666 Unamortized premium 639 — Unaccreted debt issuance costs (56) — Net carrying amount $72,089 $79,666 In 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, described in the Company’s consolidated balance sheets as Note Payable to Related Party,was amended to, among other things, extend the maturity date of the loan to January 5, 2020, extend the date through which the Company can borrow underThe Mann Group Loan Arrangement to December 31, 2019, increase the aggregate borrowing amount under The Mann Group Loan Arrangement from$350.0 million to $370.0 million and provide that repayments or cancellations of principal under The Mann Group Loan Arrangement will not be availablefor reborrowing. At various times over the years that the Mann Group Loan Arrangement has been outstanding, the Company and The Mann Group haveagreed to exchange portions of the outstanding principal for shares of the Company’s common stock.On June 27, 2017, the Company entered into an agreement with The Mann Group, pursuant to which the parties agreed to, among other things, (i)capitalize $10.7 million of accrued and unpaid interest as of June 30, 2017, resulting in such amount being classified as outstanding principal under TheMann Group Loan Arrangement; (ii) advance to the Company approximately $19.4 million of cash, the remaining amount available for borrowing by theCompany under The Mann Group Loan Arrangement after the foregoing capitalization of accrued and unpaid interest; and (iii) defer all interest payable onthe outstanding principal until July 1, 2018, unless such payments are otherwise permitted under the subordination agreement with Deerfield, and subject tofurther deferral pursuant to the terms of the subordination agreement with Deerfield which terms are more fully disclosed below. 79  On March 11, 2018, the Company amended and restated the Mann Group Loan Arrangement with The Mann Group to, among other things, (i) reflectthe current outstanding principal balance of the existing loan of $71.5 million, after giving effect to the partial cancellation of principal in exchange forshares of the Company’s common stock described below; (ii) extend the maturity date of the loan to July 1, 2021; (iii) for periods beginning after April 1,2018 require interest to compound quarterly; and (iv) permit the principal and any accrued and unpaid interest under the Mann Group Loan Arrangement tobe converted, at the option of The Mann Group, at any time on or prior to close of business on the business day immediately preceding the stated maturitydate, into shares of the Company’s common stock. The conversion rate of 250 shares per $1,000 principal amount of the Note, which is equal to $4.00 pershare subject to adjustment under certain circumstances as described in the Mann Group Loan Arrangement.The Company analyzed this amendment and concluded that the transaction represented an extinguishment of the related party note and recorded a$0.8 million loss on extinguishment of debt. As a result of the extinguishment the Company recorded a debt premium of $0.8 million and debt issuance costsof $0.1 million during 2018.On March 11, 2018, the Company and The Mann Group entered into a common stock purchase agreement pursuant to which the Company agreed toissue to The Mann Group and The Mann Group agreed to purchase 3,000,000 shares of the Company’s common stock at a price per share of $2.72, whichrepresented the closing price of the Company’s common stock on March 9, 2018. As payment for the purchase price for the shares, The Mann Group agreed tocancel $8.2 million in principal amount under the Mann Group Loan Arrangement, with the principal payment to be reflected in the amended and restatedMann Group Loan Arrangement. The purchased shares were issued in a private placement.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 preceding quarter, or at suchother time as the Company and The Mann Group mutually agree. The Mann Group can require the Company to prepay up to $200.0 million in advances thathave been outstanding for at least 12 months, less approximately $105.0 million aggregate principal amount that has been cancelled in connection with threecommon stock purchase agreements. If The Mann Group exercises this right, the Company will have 90 days 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 a letter agreement entered into in August2010, The Mann Group has agreed to not require the Company to prepay amounts outstanding under the amended and restated promissory note if theprepayment would require the Company to use its working capital resources. In addition, The Mann Group entered into a subordination agreement withDeerfield pursuant to which The Mann Group agreed with Deerfield not to demand or accept any payment under The Mann Group Loan Arrangement untilthe Company’s payment obligations to Deerfield under the Facility Agreement have been satisfied in full. Subject to the foregoing, in the event of a defaultunder The Mann Group Loan Arrangement, all unpaid principal and interest either becomes immediately due and payable or may be accelerated at The MannGroup’s option, and the interest rate will increase to the one-year LIBOR 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 Arrangementcontains no financial covenants.As of December 31, 2018 and 2017, the Company had accrued unpaid interest related to the above note of $6.8 million and $2.3 million, respectively.As of December 31, 2018 and 2017, there was no additional amount available for future borrowings. Interest expense (excluding the amortization of debtpremium and debt issuance costs) for the years ended December 31, 2018 and 2017 are as follows (in thousands): For the Year Ended December 31, 2018 2017 Interest expense on note payable to related party $4,304 $3,782 Amortization of the premium and accretion of debt issuance costs related to the related party notes for the years ended December 31, 2018 and 2017are as follows (in thousands): For the Year Ended December 31, 2018 2017 Amortization of debt premium $185 $— Accretion expense - debt issuance cost $19 $— In May 2015, the Company entered into a sublease agreement with the Alfred Mann Foundation for Scientific Research (the “Mann Foundation”), aCalifornia not for-profit corporation. The lease was for approximately 12,500 square feet of office space in Valencia, California, which expired in April 2017and was renewed on a month-to-month basis at a rate of $20,000 per month until August 31, 2017 when the Company moved into its new corporateheadquarters (see Note 14 — Commitments and Contingencies).There was no lease payment made to the Mann Foundation for the year ended December 31,2018. Lease payments to the Mann Foundation for the years ended December 31, 2017 and 2016 were $0.2 million, and $0.3 million, respectively. 80  The Company has entered into indemnification agreements with each of its directors and executive officers, in addition to the indemnificationprovided for in its amended and restated certificate of incorporation and amended and restated bylaws (see Note 14 — Commitments and Contingencies).On October 10, 2017, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain institutional investors and acharitable foundation (collectively, the “Purchasers”). Included in this offering were 166,600 shares issued to a charitable foundation associated with theChairman of the Company’s board of directors.7. BorrowingsBorrowings consist of the following (in thousands): December 31, 2018 2017 Facility Financing Obligation (2019 Notes and Tranche B Notes) Principal amount $11,495 $54,407 Unamortized debt issuance costs and debt discount (197) (1,662)Net carrying amount $11,298 $52,745 Senior Convertible Notes (2021 Notes) Principal amount $18,690 $23,690 Unamortized premium 409 721 Net carrying amount $19,099 $24,411 Note payable to related party - net carrying amount $72,089 $79,666 In addition to the Mann Group Loan Arrangement described in Note 6, as of December 31, 2018, the Company’s outstanding borrowings consisted of$18.7 million principal amount of the Senior Convertible Notes due 2021 bearing interest at 5.75% per annum and maturing on October 23, 2021, as well as$11.5 million principal amount of the Facility Financing Obligation, which is comprised of the following: •A principal amount of $9.0 million of 2019 notes due and payable in July 2019 and bearing interest at 9.75% per annum. Interest is payable incash quarterly in arrears in the last business day of March, June, September and December of each year; and •A principal amount of $2.5 million of Tranche B notes due and payable in May 2019 and bearing interest at 8.75% per annum. Interest ispayable in cash quarterly in arrears on the last business day of March, June, September and December of each year. These borrowings are further described below: Facility Financing Obligation (2019 Notes and Tranche B Notes) – As of December 31, 2018, there were $9.0 million principal amount of 2019 notesand $2.5 million principal amount of Tranche B notes outstanding. As of December 31, 2017, there were $39.4 million principal amount of 2019 notes and$15.0 million principal amount of Tranche B notes outstanding. The 2019 notes accrue interest at annual rate of 9.75% and the Tranche B notes accrueinterest at an annual rate of 8.75%. Interest is paid quarterly in arrears on the last day of each March, June, September and December. The Facility FinancingObligation principal repayment schedule is comprised of payments which began on July 1, 2016 and end in July 2019. As of December 31, 2018, the futurepayment for the year ending December 31, 2019 is $11.5 million. On April 18, 2017, the Company entered into an Exchange Agreement with Deerfield pursuant to which the Company agreed to, among other things,(i) repay $4.0 million principal amount under the Tranche B notes; (ii) exchange $1.0 million principal amount under the Tranche B notes for 869,565 sharesof the Company’s common stock (the “Tranche B Exchange Shares”); and (iii) exchange $5.0 million principal amount under the 2019 notes for 4,347,826shares of the Company’s common stock (together with the “Tranche B Exchange Shares,” the “April Exchange Shares”). The exchange price for the AprilExchange Shares was $1.15 per share. 81  The Company determined that, since the principal amount repaid and exchanged under the Tranche B notes and the principal amount exchangedunder the 2019 notes represented the principal amount that would have otherwise become due and payable in May and July of 2017 under the Tranche Bnotes and 2019 notes, respectively, the extinguishment of the May and July 2017 payments was not considered to be a troubled debt restructuring.Accordingly, the Company accounted for the transaction by recording a loss on extinguishment of debt of $0.3 million at April 18, 2017 which wascalculated as the difference between the reacquisition price and the net carrying value of the related debt. The reacquisition price was calculated using the$4.0 million cash repayment and the fair value of the April Exchange Shares on April 18, 2017. The fair value of the April Exchange Shares was determinedto be $1.22 per share representing the closing trading price of the Company’s common stock on The Nasdaq Global Market on April 18, 2017.On June 29, 2017, the Company entered into the Third Amendment to the Facility Agreement with Deerfield, pursuant to which the Company agreedto, among other things, (i) exchange $5.0 million principal amount under the Company’s 2019 notes for 3,584,230 shares of the Company’s common stock(the “June Exchange Shares”) at an exchange price of $1.395 per share and (ii) amend the Facility Agreement with Deerfield, to (A) defer the payment of$10.0 million in principal amount of the 2019 notes from the original July 18, 2017 due date to August 31, 2017, which was further deferred to October 31,2017 upon the Company’s delivery on August 31, 2017 and October 30, 2017 of a written certification to Deerfield that certain conditions had been met,including that no event of default under the Facility Agreement had occurred, Michael E. Castagna remains the Company’s Chief Executive Officer, theCompany received the advance from The Mann Group (see Note 6 — Related-Party Arrangements), the Company had at least $10.0 million in cash and cashequivalents on hand, no material adverse effect on the Company had occurred, the engagement letter between the Company and Greenhill & Co., Inc.(“Greenhill”) remained in full force and effect and Greenhill had remained actively engaged in exploring capital structure and financial alternatives on behalfof the Company in accordance with such engagement letter (collectively, the “Extension Conditions”), and (B) amend the Company’s financial covenantunder the Facility Agreement to provide that, if the Extension Conditions remain satisfied, the obligation under the Facility Agreement to maintain at least$25.0 million in cash and cash equivalents as of the end of each quarter, was reduced to $10.0 million as of August 31, 2017, September 30, 2017, October31, 2017 and December 31, 2017 if certain conditions were met. We met the conditions at each of these month-ends.The Company determined that since the principal amount repaid and exchanged under the 2019 notes represented the principal amount that wouldhave otherwise become due and payable under the 2019 notes, the $5.0 million prepayment was not considered to be a troubled debt restructuring.Accordingly, the Company accounted for the transaction by recording a loss on extinguishment of debt of $0.5 million on June 29, 2017 which wascalculated as the difference between the reacquisition price and the net carrying value of the related debt. The net carrying value of the related debt includesthe acceleration of the debt discount and issuance costs amounting to approximately $0.3 million as a result of the transaction. The reacquisition price wascalculated using the fair value of the June Exchange Shares on June 29, 2017. The fair value of the June Exchange Shares was determined to be $1.45 pershare representing the closing trading price of the Company’s common stock on The Nasdaq Global Market on June 29, 2017.On October 23, 2017, the Company entered into a Fourth Amendment to the Facility Agreement with Deerfield, pursuant to which the parties (i)deferred the payment of $10.0 million in principal amount (the “October Payment”) of the Facility Financing Obligation from October 31, 2017 to January15, 2018, with the Company depositing an amount of cash equal to the October Payment into an escrow account until the October Payment has been satisfiedin full (subject to early release to the extent that portions of the October Payment are satisfied through the exchange of principal for shares of the Company’scommon stock), and (ii) amended and restated the Facility Financing Obligation and the Tranche B notes to provide that Deerfield may convert the principalamount under such notes from time to time into an aggregate of up to 4,000,000 shares of the Company’s common stock after the effective date of the FourthAmendment. The conversion price will be the greater of (i) the average of the volume weighted average price per share of the Company’s common stock forthe three trading day period immediately preceding the date of any election by Deerfield to convert principal amounts of such notes and (ii) $3.25 per share,subject to adjustment under certain circumstances. Any conversions of principal by Deerfield under such notes will be applied first to reduce the OctoberPayment, and after the October Payment has been satisfied, to reduce other principal payments due.The Company determined that the Fourth Amendment did not include any concessions and that the addition of the conversion option was notsubstantive and therefore it was not considered to be a troubled debt restructuring. Accordingly, the Company accounted for the transaction as amodification. On November 6, 2017 Deerfield converted 1,720,846 shares under the conversion feature at a price of $3.25 per share, redeeming $5,592,750 ofprincipal. On January 15, 2018, the Company entered into a Fifth Amendment to the Facility Agreement with Deerfield, pursuant to which the parties deferredthe payment date for the $4.4 million remaining October 2017 Tranche 4 Principal Payment from January 15, 2018 to January 19, 2018. Concurrent with thisamendment the Company entered into a First Amendment to Escrow Agreement to extend the escrow period to January 19, 2018 to align with the amendedpayment date under the Fifth Amendment. On January 18, 2018, the Company entered into an Exchange and Sixth Amendment to Facility Agreement with Deerfield, pursuant to which, amongother things, the Company agreed to issue to Deerfield an aggregate of 1,267,972 shares of its common stock, in exchange for $3.2 million of the 2019 notes,an exchange rate of $2.49 per share. In addition, the parties deferred the payment date for the $1.3 million remaining principal amount of the 2019 notes (the“Remaining Payment”) from January 19, 2018 to May 6, 2018. 82  The Company and Deerfield also amended the outstanding Facility Financing Obligation to provide that Deerfield may, subject to the terms of theSixth Amendment, convert principal amounts of the Facility Financing Obligation from time to time into an aggregate of up to 10,000,000 shares of theCompany’s common stock (excluding the exchange shares issued to Deerfield on January 18, 2018). The conversion price was set at the greater of (i) theaverage of the volume weighted average price per share of the Company’s common stock for the three trading day period immediately preceding the date ofany election by Deerfield to convert principal amounts and (ii) $2.75 per share, subject to adjustment under certain circumstances described in the FacilityFinancing Obligation. Any conversions of principal will be applied first to reduce the Remaining Payment, and thereafter to reduce other principal payments. In connection with the Sixth Amendment, the Company also entered into a Second Amendment to Escrow Agreement, dated January 18, 2018, withDeerfield and US Bank, pursuant to which the parties extended the period of the escrow established thereunder to May 6, 2018, corresponding to theextended payment date. The Company determined that the Fifth and Sixth Amendments did not include any concessions and that the change of the conversion option was notsubstantive and therefore it was not considered to be a troubled debt restructuring. Accordingly, the Company accounted for the transaction as amodification. On March 6, 2018 Deerfield converted the remaining $1.3 million of principal amount due under the 2019 notes for 441,618 shares of the Company’scommon stock. The fair value of these exchange shares was determined to be $2.83 per share representing the average of the volume weighted average priceper share of the Company’s common stock for the three trading day period immediately preceding the date of the election by Deerfield to convert as reportedon the Nasdaq Global Market. The Escrow Agreement with Deerfield and US Bank, was terminated as the required payment was satisfied in full as of March12, 2018. On March 12, 2018 the Company entered into an Exchange Agreement with Deerfield pursuant to which the Company agreed to, among other things,exchange $5.0 million of principal amount of the Tranche B notes for 1,838,236 shares of the Company’s common stock. The fair value of these exchangeshares was determined to be $2.72 per share representing the closing price of the Company’s common stock on March 9, 2018 as reported on the NasdaqGlobal Market. The principal amount being exchanged under the Tranche B notes represents the principal amount that would have otherwise become dueand payable in May 2018.On June 8, 2018, the Company entered into an Exchange and Seventh Amendment to Facility Agreement with Deerfield, pursuant to which, amongother things, (i) the Company issued to Deerfield 3,061,224 shares of the Company’s common stock in exchange for the cancellation of (a) $3.0 million of$5.0 million principal amount of 2019 notes that was due and payable on July 1, 2018 and (b) $3.0 million of $5 million principal amount of Tranche Bnotes that was due and payable on December 31, 2019, (ii) the Company’s obligation under the Facility Agreement to maintain at least $25.0 million in cashas of the end of each quarter was reduced to $20 million through December 31, 2018, (iii) the minimum price at which the Facility Financing Obligation maybe converted into shares of the Company’s common stock was reduced from $2.75 to $2.01 per share and (iv) the parties agreed that, on or after June 8, 2018,the Facility Financing Obligation may be converted into a maximum of 9,558,382 shares of the Company’s common stock. The fair value of the exchangeshares issued to Deerfield on June 8, 2018 was determined to be $1.96 per share, representing the closing price of the Company’s common stock on June 8,2018 as reported on the Nasdaq Global Market.On July 12, 2018, the Company entered into an Exchange and Eighth Amendment to Facility Agreement with Deerfield, pursuant to which the partiesamended the Facility Agreement to, among other things, (i) issue to Deerfield 7,367,839 shares of the Company’s common stock in exchange for thecancellation of (a) $7.0 million of $10.0 million principal amount of 2019 notes that was due and payable on July 18, 2018, (b) $3.0 million of $5.0 millionprincipal amount of 2019 notes that was due and payable on December 31, 2019 and (c) $2.0 million of $2.0 million principal amount of Tranche B notesthat was due and payable on December 31, 2019, (ii) defer the payment of $3.0 million in principal amount of 2019 notes from July 18, 2018 to August 31,2018, (iii) reduce the minimum price at which the remaining notes issued under the Facility Agreement may be converted into shares of the Company’scommon stock from $2.01 to $1.80 per share and (iv) provide that, on or after July 12, 2018, such remaining notes may be converted into a maximum of5,750,000 shares of the Company’s common stock. The fair value of the exchanged shares on July 12, 2018 was determined to be $1.80 per share,representing the closing price of the Company’s common stock on July 12, 2018 with de minimis price differences and no extinguishment gain or loss wasrecognized. On September 5, 2018, the Company entered into a Ninth Amendment to Facility Agreement (the “Ninth Deerfield Amendment”) with Deerfield,pursuant to which the parties amended the Facility Agreement to, among other things, further defer the payment of $3.0 million in principal amount of 2019notes from August 31, 2018 to September 30, 2018, which was amended in the tenth amendment and such payment was made to Deerfield on October 18,2018. 83  Following the Ninth Deerfield Amendment, in September 2018 Deerfield converted $8.0 million in principal amount of 2019 notes and $2.5 million inprincipal amount of Tranche B notes into an aggregate of 5,749,500 shares of the Company’s common stock in two transactions on September 6 andSeptember 7, 2018. Accordingly, the Company accounted for the transactions by recording a loss on extinguishment of debt of $0.7 million which wascalculated as the difference between the reacquisition price and the net carrying value of the related debt. The net carrying value of the related debt includesthe acceleration of the debt discount and issuance costs amounting to approximately $0.3 million as a result of the transaction. The fair value of theExchange Shares was determined to be $2.04 and $1.78 per share representing the closing trading price of the Company’s common stock on The NasdaqGlobal Market on September 6 and September 7, 2018, respectively. On September 26, 2018, the Company entered into a Tenth Amendment to Facility Agreement with Deerfield, pursuant to which the parties amendedthe Facility Agreement, to, among other things, (i) further defer the payment of $3.0 million in principal amount of 2019 notes from September 30, 2018 untilthe earlier of October 31, 2018 or the first business day following the date the Company receives an upfront payment of $45.0 million from UT (See Note 8 –Collaboration Arrangements), and (ii) provide that the Company shall be obligated to maintain at least $20.0 million in cash and cash equivalents as ofOctober 31, 2018 and December 31, 2018 and $25.0 million in cash and cash equivalents as of the end of each fiscal quarter after December 31, 2018.Subsequently, such payment was made to Deerfield on October 18, 2018. On July 1, 2013, in conjunction with the execution of the Facility Agreement, the Company issued Milestone Rights to the Milestone Purchasers. As of December 31, 2018 and 2017, the remaining Milestone Rights liability balance was $8.9 million. The Company currently estimates that it willreach the next milestone in the second quarter of 2019, at which point the Company will be required to make a $5.0 million payment. The carrying value ofthe Milestone Rights liability related to this $5 million payment is $1.6 million, which represents the fair value related to this payment that was determinedin 2013 (the most recent measurement date). Accordingly, $1.6 million in value related to the next milestone payment was recorded in accrued expenses andother current liabilities as of December 31, 2018. Furthermore, $7.2 million was recorded in Milestone Rights liability and other liabilities, which is non-current, in the accompanying consolidated balance sheets as of December 31, 2018 and 2017, respectively.Accretion of debt issuance cost and debt discount in connection with the Facility Agreement does not include the acceleration of the debt discountand issuance costs related to the transactions disclosed above as the amounts were included in the loss on extinguishment of debt in the consolidatedstatement of operations. Accretion of debt issuance cost and debt discount during the years ended December 31, 2018, 2017 and 2016 were as follows (inthousands): December 31, 2018 2017 2016 Accretion expense - debt issuance cost $46 $31 35 Accretion expense - debt discount $1,155 $1,700 1,722 The Facility Agreement includes customary representations, warranties and covenants, including a restriction on the incurrence of additionalindebtedness. As discussed in Note 1 – Description of Business, the Company will need to raise additional capital to support its current operating plans. Inthe event of non-compliance, Deerfield may declare all or any portion of the Facility Financing Obligation to be immediately due and payable.The Milestone Agreement includes customary representations and warranties and covenants by the Company, including restrictions on transfers ofintellectual 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 initially recorded the Milestone Rights at their estimated fair value.In connection with the Facility Agreement and Milestone Agreement, the Company and its subsidiary, MannKind LLC, entered into a Guaranty andSecurity Agreement (the “Security Agreement”) with Deerfield and Horizon Santé FLML SÁRL (collectively, the “Purchasers”), pursuant to which theCompany and MannKind LLC each granted the Purchasers a security interest in substantially all of their respective assets, including respective intellectualproperty, accounts receivables, equipment, general intangibles, inventory and investment property, and all of the proceeds and products of the foregoing. TheSecurity Agreement includes customary covenants by the Company and MannKind LLC, remedies of the Purchasers and representations and warranties bythe Company and MannKind LLC. The security interests granted by the Company and MannKind LLC will terminate upon repayment of the FacilityFinancing Obligation in full, if applicable.The Company identified and evaluated a number of embedded features in the notes issued under the Facility Agreement to determine if theyrepresented 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. All of the embedded derivatives were determined to have a deminimis value as of December 31, 2018 and 2017. 84  Senior Convertible Notes Due 2021 — On October 23, 2017, the Company entered into exchange agreements with the holders of the Company’s5.75% Senior Convertible Notes due 2018 (the “2018 notes”), pursuant to which the Company agreed to exchange all of the outstanding 2018 notes in theaggregate principal amount of $27.7 million for (i) $23.7 million aggregate principal amount of new 5.75% Senior Convertible notes due 2021 (the “2021notes”) and (ii) an aggregate of 973,236 shares of its common stock. In addition, the conversion rate was adjusted from $34 per share to $5.15 per share. Thesenior convertible notes were issued at the closing of the exchange on October 23, 2017. The Company analyzed this exchange and concluded that theexchange represents an extinguishment of the 2018 notes and recorded a $0.8 million loss on extinguishment of debt during 2017. In addition unamortizeddebt issuance costs of $0.3 million and unamortized debt premium of $0.2 million were also written-off during the last quarter of fiscal year 2017. On May 25, 2018, the Company entered into a privately-negotiated exchange agreement (the “Exchange Agreement”) with certain holders of its seniorconvertible notes, pursuant to which the Company agreed to issue 2,250,000 shares of its common stock in exchange for the cancellation of $5.0 millionprincipal amount of the senior convertible notes and unpaid accrued interest thereon. The exchange price for these exchange shares was $2.2567 per share. The exchange was completed on May 31, 2018. As a result, the Company recognized approximately $0.8 million as extinguishment gain which wascalculated based on the difference between the reacquisition price and the net carrying amount of the payment on the debt.As of December 31, 2018 and 2017, there was $18.7 million and $23.7 million principal amount of senior convertible notes outstanding, respectively.The senior convertible notes are the Company’s general, unsecured, senior obligations, except that they are subordinated in right of payment to the FacilityFinancing Obligation. The senior convertible notes rank equally in right of payment with the Company’s other unsecured senior debt. The senior convertiblenotes bear interest at the rate of 5.75% per year on the principal amount, payable semiannually in arrears in cash or, at the option of the Company if certainconditions are met, in shares of the Company’s common stock (the “Interest Shares”), on February 15 and August 15 of each year, beginning February 15,2018, with interest accruing from August 15, 2017. To date, the interest on the Company’s senior convertible notes have been paid in cash and in convertedshares. The Company converted $0.5 million accrued interest for 475,520 shares and the fair value of the exchange was $1.13 per share, representing theclosing price of the Company’s common stock on August 14, 2018 per the Nasdaq Global Market. The aggregate number of Interest Shares that the Companymay issue may not exceed 13,648,300, unless the Company receives stockholder approval to issue Interest Shares in excess of such a number in accordancewith the listing standards of the Nasdaq Global Market. Accrued interest related to these notes is recorded in accrued expenses and other current liabilities onthe accompanying consolidated balance sheets. The senior convertible notes are convertible, at the option of the holder, at any time on or prior to the close of business on the business dayimmediately preceding the stated maturity date, into shares of the Company’s common stock at an initial conversion rate of 194.1748 shares per $1,000principal amount of senior convertible notes, which is equal to the initial conversion price of approximately $5.15 per share. The conversion rate is subject toadjustment under certain circumstances described in an indenture governing the senior convertible notes.If the Company undergoes certain fundamental changes, except in certain circumstances, each holder of senior convertible notes will have the optionto require the Company to repurchase all or any portion of that holder’s senior convertible notes. The fundamental change repurchase price will be 100% ofthe principal amount of the senior convertible notes to be repurchased plus accrued and unpaid interest, if any.The Company may elect at its option to cause all or any portion of the senior convertible notes to be mandatorily converted in whole or in part at anytime prior to the close of business on the business day immediately preceding the maturity date, if the last reported sale price of its common stock exceeds120% of the conversion price then in effect for at least 10 trading days in any 20 consecutive trading day period, ending within five business days prior to thedate of the mandatory conversion notice. The redemption price is equal the sum of 100% of the principal amount of the senior convertible notes to beredeemed, plus accrued and unpaid interest. Under the terms of the indenture, the conversion option can be net-share settled and the maximum number ofshares that could be required to be delivered under the indenture is fixed and less than the number of authorized and unissued shares less the maximumnumber of shares that could be required to be delivered during the term of the senior convertible notes under existing commitments. Applying the Company’ssequencing policy, the Company performed an analysis at the time of the offering of the senior convertible notes and each reporting date since and hasconcluded that the number of available authorized shares at the time of the offering and each reporting date since was sufficient to deliver the number ofshares that could be required to be delivered during the term of the senior convertible notes under existing commitments.The senior convertible notes provide that upon an acceleration of certain indebtedness, including the Facility Financing Obligation issued toDeerfield pursuant to the Facility Agreement, the holders may elect to accelerate the Company’s repayment obligations under the notes if such acceleration isnot cured, waived, rescinded or annulled.As a result of the exchange of the senior convertible notes during the last quarter of 2017, the Company recorded approximately $0.8 million in debtpremium, which is recorded with the senior convertible notes, in the accompanying consolidated balance sheets. The premium is being accreted to interestexpense using the effective interest method over the term of the senior convertible notes. 85  Amortization of the premium and accretion of debt issuance costs related to the 2021 notes for the years ended December 31, 2018, 2017 and 2016 areas follows (in thousands): December 31, 2018 2017 2016 Amortization of debt premium $154 $232 234 Accretion expense - debt issuance cost $4 $227 257 Refer to Note 6 — Related-Party Arrangements for information regarding the Note payable to related party.8. Collaboration and Licensing Arrangements Revenue from collaborations and services for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands): December 31, 2018 2017 2016 United Therapeutics Agreement $6,386 $— $— United Therapeutics Research Agreement 3,758 — — Receptor Collaboration and License Agreement 341 250 — Cipla Distribution Agreement 98 — — Sanofi License Agreement and Supply Agreement — — 171,965 $10,583 $250 $171,965 United Therapeutics License Agreement – In September 2018, the Company and UT entered into an exclusive global license and collaborationagreement for the rights to the Company’s dry powder formulation of treprostinil and associated inhalation delivery devices. Under the UT LicenseAgreement, UT will be responsible for global development, regulatory and commercial activities with respect to TreT. The Company will manufactureclinical supplies and initial commercial supplies of TreT, and long-term commercial supplies may be manufactured by UT. The UT License Agreement became effective on October 15, 2018 and under the terms of the agreement, the Company received an upfront payment of$45.0 million on October 16, 2018 and may receive potential milestone payments of up to $50.0 million upon the achievement of specified developmenttargets. The Company will also be entitled to receive low double-digit royalties on net sales of TreT. UT, at its option, may expand the scope of the productscovered by the UT License Agreement to include products with certain other active ingredients for the treatment of pulmonary arterial hypertension. Eachsuch optioned product would be subject to UT’s payment to the Company of up to $40.0 million in additional option exercise and development milestonepayments, as well as a low double-digit royalty on net sales of any such product. The Company, in accordance with the new revenue recognitionrequirements that become effective for the Company on January 1, 2018, recognized revenue on a ratable basis from October 16, 2018 through the estimateddate when its performance obligation under UT License Agreement will be substantially completed December 31, 2021. During the year ended December 31,2018, the Company recognized $6.4 million as revenue - collaborations and services. The $38.6 million balance of the upfront payment was deferred asfollows: $30.5 million as deferred payments from collaborations – current and $8.1 million as deferred payment from collaboration – long term. Deferredrevenue is classified as part of current or long-term liability in the accompanying consolidated balance sheets based on the Company’s estimate of theportion of the performance obligation regarding that revenue will be completed within the next 12 months. The Company has evaluated the agreement in accordance with the new revenue recognition requirements that became effective for the Company onJanuary 1, 2018: At the inception of the agreement, the Company identified one distinct, performance obligation. The Company determined that the key deliverablesinclude the license and certain research services upon achievement of specified development targets. Due to the specialized and unique nature of theseservices and their direct relationship with the license, the Company has determined that these deliverables represent one distinct bundle and thus, oneperformance obligation. The Company also determined that UT’s option to expand the scope of the products covered to include products with other activeingredients is not a material right, and thus, not a performance obligation at the onset of the agreement. The consideration for the option will be accounted forif and when they are exercised. The Company expected UT to complete development plan and the remaining milestone events totaling approximately $97.5 million which includesan upfront payment, four milestone event payments based on the achievement of development targets, and various pass-through costs. The Company hasallocated the total $97.5 million transaction price to its one distinct, stand ready, performance obligation for the license and the associated services. Futurecommercial supply remains at UT’s option, is valued at a stand-alone selling price and is therefore not accounted for the current arrangement. The Companybelieves that this method best reflects the measure of progress toward complete satisfaction of the performance obligation. 86  United Therapeutics Research Agreement – In September 2018, the Company and UT also entered into a Research Agreement for the conduct ofresearch and consulting services in connection with multiple potential products, including evaluating the feasibility of preparing a dry powder formulationof a compound for the treatment of pulmonary hypertension outside the scope of the UT License Agreement. In addition, UT, at its option, may obtain alicense to develop, manufacture and commercialize products based on specified compounds within the drug classes covered by the Research Agreement.Each specified compound advanced into development and commercialization under such a license would be subject to the payment to the Company ofadditional milestone payments of up to $30.0 million and a low double-digit royalty on net sales of such products. The Company received an upfrontpayment of $10.0 million, which it will recognize as revenue as the performance obligations under the Research Agreement are satisfied. During the yearended December 31, 2018, the Company recognized $3.8 million as revenue - collaborations and services; the $10.0 million payment received was deferredwith $6.0 million as deferred payments from collaborations – current and $0.2 million as deferred payment from collaboration – long term. The Company has evaluated the agreement in accordance with the new revenue recognition requirements that became effective for the Company onJanuary 1, 2018: At the inception of the agreement, the Company identified two distinct performance obligations. The Company determined that the key deliverables ofeach performance obligation include (i) the development of a product prototype (including a technical feasibility report); (ii) engineering consultingservices. Due to the separately identifiable nature of these obligations, the Company has determined that these deliverables represent two distinctperformance obligations. The Company also determined that UT’s option to expand the scope to include specific drug classes covered by the agreement isnot a material right, and thus, not a performance obligation at the onset of the agreement. The consideration for the option will be accounted for if and whenthey are exercised. The Company determined a total transaction price of $10.0 million which includes an upfront, one-time non-refundable payment. The Companyallocated the total $10.0 million transaction price to its two distinct performance obligations based on available observable market inputs, a transaction priceof $9.0 million was allocated to the product prototype and a transaction price of $1.0 million was allocated to engineering consulting services. The revenuefor the product prototype is recognized using a proportional performance method (based on an estimated percentage of the Company’s efforts required inrelation toward overall satisfaction of the obligation). The Company believes that this method best reflects the measure of progress toward completesatisfaction of the performance obligation. The revenue for the engineering consulting services is recognized using a ratable method until the obligation issatisfied and the Company believes that this method best reflects the measure of progress toward complete satisfaction of the performance obligation.Receptor Collaboration and License Agreement — In 2016, the Company entered into a Collaboration and License Agreement (the “CLA”) withReceptor pursuant to which the Company performed initial formulation studies on compounds identified by Receptor and Receptor obtained the option toacquire an exclusive license to develop, manufacture and commercialize certain products that use the Company’s technology to deliver the compounds viaoral inhalation.On December 30, 2016 Receptor exercised its option and paid the Company a $1.0 million nonrefundable option exercise and license fee. Under theReceptor License, the Company may also receive nonrefundable milestone payments upon the completion of certain technology transfer activities and theachievement of specified sales targets as well as royalties upon Receptor’s and its sublicensees’ sale of products.The $1.0 million license fee received in 2016 was recorded in deferred revenue from collaboration as of December 31, 2016 and is being recognized innet revenue — collaborations over four years, the estimated period over which the Company was required to satisfy the remaining performance obligations.The remaining performance obligations are to provide certain technology transfer activities and to maintain certain patents. Deferred payments fromcollaboration related to this contract was $0.5 million at December 31, 2018 of which $0.3 million was recorded in current liabilities.The additional payments referred to above represent variable consideration for which the Company has not recognized any revenue because it isuncertain that Receptor will be able to successfully develop, manufacture or sell product related to this license. Therefore, the receipt of such payments ishighly susceptible to factors outside of the Company’s influence, the uncertainty regarding the receipt of these payments is not expected to be resolved foryears, and the Company has limited experience with similar contracts. There was no change to the accounting for this contract as a result of the initialapplication of the new revenue guidance. See Note 1 – Description of Business and Summary of Significant Accounting Policies for additional informationon the Company’s revenue recognition accounting policy.In 2017, the Company entered into a manufacturing and supply agreement with Receptor pursuant to which the Company will provide certain rawmaterials to Receptor and agreed to provide certain additional research and formulation consulting services to Receptor. For the year ended December 31,2018 and 2017 the additional research and formulation services provided to Receptor were de minimis.Cipla Distribution Agreement — In May 2018, the Company and Cipla Ltd. (“Cipla”) entered into an exclusive agreement for the marketing anddistribution of Afrezza in India and the Company received a $2.2 million nonrefundable license fee. Under the terms of the agreement, Cipla will beresponsible for obtaining regulatory approvals to distribute Afrezza in India and for all marketing and sales activities of Afrezza in India. The Company isresponsible for supplying Afrezza to Cipla. The Company has the potential to receive certain additional regulatory milestone payments, minimum purchasecommitment revenue and royalties on Afrezza sales in India once cumulative gross sales have reached a specified threshold. 87  The nonrefundable licensing fee was recorded in deferred revenue and is being recognized in net revenue – collaborations over 15 years, representingthe estimated period to satisfy the performance obligation. The additional potential milestone payments represent variable consideration for which theCompany has not recognized any revenue because of the uncertainly of obtaining market approval. The Company also recognized $0.2 million as incometax expense for a payment made to the India tax authority. Deferred payments from collaboration related to this contract was $2.1 million at December 31,2018 of which $0.1 million was recorded in current liabilities.Biomm Supply and Distribution Agreement – In May 2017, the Company and Biomm S.A. entered into a supply and distribution agreement for thecommercialization of Afrezza in Brazil. Under this agreement, Biomm is responsible for preparing and filing the necessary applications for regulatoryapproval of Afrezza in Brazil, including from the Agência Nacional de Vigilância Sanitária and, with respect to pricing matters, from the Camara deRegulação de Mercado de Medicamentos. Upon satisfactory approval from these regulatory bodies, the parties will finalize the economic terms of thecollaboration; thereafter, the Company will manufacture and supply Afrezza to Biomm, and Biomm will be responsible for promoting and distributingAfrezza within Brazil.The Company assessed the adoption of the new revenue guidance (Topic 606) compared to Topic 605 for all collaborations and services revenue aslisted above and determined the impact to be de minimis. In 2016, the Company entered into a settlement agreement with Sanofi. The settlement was accounted for in 2016, except for a $30.6 million cashpayment received under an insulin put option agreement which reduced the receivable from Sanofi in the first quarter of 2017. The amount of revenuerecognized was the upfront payment of $150.0 million and two milestone payments of $25.0 million each, offset by $64.9 million of net loss share withSanofi, as well as $17.5 million in sales of Afrezza and $19.4 million in sales of bulk insulin, both to Sanofi. 9. Sale of Intellectual PropertyIn April, 2017 the Company entered into an agreement to sell certain oncology assets and patents to Fosun. Fosun paid the Company a one-timenonrefundable payment of $0.6 million net of taxes in June 2017 and is required to pay royalties on net sales of products by Fosun and its affiliates and otherconsideration based on revenues from any licensees. The Company accounted for the transaction as a sale of assets. The Company recorded the $0.6 millionin payments received in revenue – other during the second quarter of 2017 as the Company had performed substantially all of its obligations as of June 30,2017. The royalties and other consideration referred to above represent variable consideration for which the Company has not recognized any revenuebecause it is uncertain whether and in what period Fosun will be able to sublicense this technology or have the ability to develop, manufacture or sellproduct utilizing this technology. Therefore receipt of such payments is highly susceptible to factors outside the Company’s influence, the uncertaintyregarding the receipt of these payments is not expected to be resolved for years, and the Company has limited experience with similar contracts.10. Fair Value of Financial InstrumentsThe availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based onmodels or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputsused to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in thefair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair valuemeasurement. The Company uses the exit price method for estimating the fair value of loans for disclosure purposes.The carrying amounts reported in the accompanying consolidated financial statements for cash, accounts receivable, accounts payable, and accruedexpenses and other current liabilities (excluding the milestone rights liability) approximate their fair value due to their relatively short maturities. The fairvalue of the cash equivalents, note payable to principal stockholder (also referred to as The Mann Group Loan Arrangement), senior convertible notes, theFacility Financing Obligation, the milestone rights liability and the warrant liability are disclosed below.Cash Equivalents and Restricted Cash— Cash equivalents and restricted cash consist of highly liquid investments with original or remainingmaturities of 90 days or less at the time of purchase that are readily convertible into cash. As of December 31, 2018 and December 31, 2017, the Companyheld $71.7 million and $48.4 million, respectively, of cash equivalents. For the year ended December 31, 2018, restricted cash was held in an escrow accountas well as used to collateralize a letter of credit. The Company held $0.5 million and $4.4 million in restricted cash as of December 31, 2018 and December31, 2017, respectively. Both are comprised of money market funds. The fair value of these money market funds was determined by using quoted prices foridentical investments in an active market (Level 1 in the fair value hierarchy). 88  Note Payable to Related Party — As of December 31, 2017, prior to the adoption of ASC 2016-01, the fair value of the note payable to related partycould not be reasonably estimated as the Company was not able to obtain a similar credit arrangement in the current economic environment. Therefore thefair value is based upon carrying value as of December 31, 2017. The fair value measurement of the note payable as of December 31, 2018 is based ondiscounted cash flow model and it is sensitive to the change in yield. If the yield changes by approximately 2%, the fair value of the note payable with theconversion feature would change approximately 3.8%. Similarly, if the yield changes by approximately 6%, the fair value of the note payable with theconversion feature would change approximately 11.1%. If the yield changes by approximately 8%, the fair value of the note payable with the conversionfeature would change approximately 15.0%. Financial Liabilities — The following tables set forth the fair value of the Company’s financial instruments as of December 31, 2018 and 2017 (inmillions): As of December 31, 2018 Fair Value Carrying Amount SignificantUnobservableInputs (Level 3) Total Fair Value Financial liabilities: Senior convertible notes (2021 notes) $19.1 $17.5 $17.5 Facility Financing Obligation 11.3 11.4 11.4 Note payable to related party 72.1 55.0 55.0 Milestone rights 8.9 18.1 18.1 Total financial liabilities $111.4 $102.0 $102.0 As of December 31, 2017 Fair Value Carrying Value SignificantUnobservableInputs (Level 3) Total Fair Value Financial liabilities: Senior convertible notes (2021 notes) $24.4 $19.8 $19.8 Facility Financing Obligation 52.7 54.6 $54.6 Milestone rights 8.9 19.1 $19.1 Total financial liabilities $86.0 $93.5 $93.5 Milestone Rights Liability — The fair value measurement of the liability is sensitive to the discount rate and the timing and probability of makingmilestone payments. If the achievement of each of the milestones which require payments were to be six months later than in the current forecast, the fairvalue of the liability would decrease by 6%. If the probabilities of meeting the $50.0 million to $200.0 million milestones were to decrease by 5% or 10%,the fair value of the liability would decrease by 13% and 25%, respectively. Over the long term, these inputs are interrelated because if the Company’sperformance improves, the timing of meeting the milestones would likely be earlier, the probability of making payments on the milestones would likely behigher and the discount rate would likely decrease, all of which would increase the fair value of the liability. The inverse is also true.Embedded Derivatives — The Company identified and evaluated a number of embedded features in the notes issued under the Facility Agreement todetermine if they represented embedded derivatives that are required to be separated from the notes and accounted for as freestanding instruments. TheCompany analyzed the Tranche B notes and identified embedded derivatives, which required separate accounting. However, all of the embedded derivativeswere determined to have a de minimis value at December 31, 2018 and 2017.11. 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, prior to March 1, 2017,all common stock share amounts included in these consolidated financial statements have been retroactively reduced by a factor of five, and all commonstock per share amounts have been increased by a factor of five, with the exception of the Company’s common stock par value. See Note 1 — Description ofBusiness. 89  On December 13, 2017, the Company amended its Amended and Restated Certificate of Incorporation to increase the authorized number of shares ofthe Company’s common stock from 140,000,000 to 280,000,000 shares. The Company is authorized to issue 280,000,000 shares of common stock, par value$0.01 per share, and 10,000,000 shares of undesignated preferred stock, par value $0.01 per share, issuable in one or more series as designated by theCompany’s board of directors. No other class of capital stock is authorized. As of December 31, 2018 and 2017, 187,029,967 and 119,053,414 shares ofcommon stock, respectively, were issued and outstanding and no shares of preferred stock were outstanding. On October 10, 2017, the Company entered into securities purchase agreements with certain institutional investors and a charitable foundation.Pursuant to the terms of the purchase agreements, the Company sold to the purchasers in a registered offering an aggregate of 10,166,600 shares of theCompany’s common stock at a purchase price of $6.00 per share. Included in this offering was 166,600 shares issued to a charitable foundation associatedwith the Chairman of the Company’s board of directors. The net proceeds to the Company from the offering were approximately $57.7 million, afterdeducting placement agent fees equal to 5.0% of the aggregate gross proceeds from the offering (except for the proceeds received from the sale of 166,600shares issued to the charitable foundation) and offering expenses payable by the Company . The offering closed on October 13, 2017. The Company’s stockwas delisted from the TASE in November of 2017.In the fourth quarter of 2017, the Company sold an aggregate of 173,327 shares of the Company’s common stock at a purchase price of $3.15 per sharepursuant to the Company’s at market issuance sales agreement with FBR agreement. The aggregate gross proceeds from the sales were approximately $0.5million.On February 28, 2018, the Company entered in a controlled equity offering Sales Agreement with Cantor Fitzgerald (the “Sales Agreement”), as salesagent, pursuant to which the Company may offer and sell, from time to time, through Cantor Fitzgerald, shares of the Company’s common stock having anaggregate offering price of up to $50.0 million or such other amount as may be permitted by the Sales Agreement. Under the Sales Agreement, CantorFitzgerald may sell shares by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended. Forthe year ended December 31, 2018, the Company sold an aggregate of 1,028,432 shares of the Company’s common stock at an average purchase price of$2.03 per share for an aggregate gross proceeds of approximately $2.1 million pursuant to the Sales Agreement with Cantor Fitzgerald.On April 5, 2018, the Company entered into securities purchase agreements with certain institutional investors. Pursuant to the terms of the purchaseagreements, the Company sold to the purchasers in a registered offering an aggregate of 14,000,000 shares of the Company’s common stock and warrants topurchase up to an aggregate of 14,000,000 shares of the Company’s common stock at a combined purchase price of $2.00 per share and accompanyingwarrant. The shares of common stock and the warrants were immediately separable. The warrants became exercisable at a price of $2.38 per share beginningon October 9, 2018 and will expire April 9, 2019. The net proceeds to the Company from the offering were approximately $26.4 million. The offering closedon April 9, 2018.On December 19, 2018, the Company entered into an underwriting agreement with Leerink Partners LLC relating to the issuance and sale in a publicoffering of 26,666,667 shares of the Company’s common stock and warrants to purchase up to an aggregate of 26,666,667 shares of the Company’s commonstock at a combined purchase price of $1.50 per share and accompanying warrant. The shares of common stock and the warrants were immediatelyseparable. The warrants were immediately exercisable at issuance at a price of $1.60 per share and will expire on December 26, 2019. The net proceeds to theCompany from the offering were approximately $37.3 million. The offering closed on December 26, 2018.For the year ended December 31, 2018, the Company received $0.4 million from the market price stock purchase plan for 230,445 shares. 90  12. Net Income (Loss) per Common ShareBasic net income (loss) per share excludes dilution for potentially dilutive securities and is computed by dividing net income (loss) by the weightedaverage number of common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution under the treasury methodthat could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For periods where the Company haspresented a net loss, potentially dilutive securities are excluded from the computation of diluted net loss per share as they would be antidilutive. The following tables summarize the components of the basic and diluted net income (loss) per common share computations (in thousands, except pershare amounts): Year Ended December 31, 2018 2017 2016 Basic EPS: Net (loss) income (numerator) $(86,975) $(117,333) $125,664 Weighted average common shares (denominator) 144,136 104,245 92,053 Net (loss) income per share $(0.60) $(1.13) $1.37 Diluted EPS: Net (loss) income (numerator) $(86,975) $(117,333) $125,664 Weighted average common shares 144,136 104,245 92,053 Effect of dilutive securities - common shares issuable — — 32 Adjusted weighted average common shares (denominator) 144,136 104,245 92,085 Net (loss) income per share $(0.60) $(1.13) $1.36 Common shares issuable represents incremental shares of common stock which consist of stock options, restricted stock units, warrants, and shares thatcould be issued upon conversion of the senior convertible notes and the Mann Group Loan Arrangement.Potentially dilutive securities outstanding that are considered antidilutive, in the periods noted below, are summarized as follows (in shares): December 31, 2018 2017 2016 Vesting of restricted stock units 691,266 1,135,216 702,867 Employee stock purchase plan 307,395 136,660 43,672 Exercise of common stock options 10,976,118 7,089,440 5,530,256 Conversion of convertible notes into common stock 3,629,627 6,875,272 814,561 Conversion of convertible notes payable to related party into common stock 21,909,541 — — Exercise of common stock warrants 31,851 31,856 9,740,597 Exercise of warrants associated with public offering 26,666,667 — — Exercise of warrants associated with direct placement 14,000,000 — — 78,212,465 15,268,444 16,831,953 13. Stock Award PlansOn May 16, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) as the successor to and continuation of the 2013 EquityIncentive Plan (the “2013 Plan”) and the 2004 Equity Incentive Plan (the “2004 Plan”). The 2018 Plan consists of 12.0 million additional shares and thenumber of unallocated shares remaining available for grant for new awards under the 2013 Plan and the 2004 Plan. The 2018 Plan provides for the granting ofstock awards including stock options and restricted stock units to employees, directors and consultants. No additional awards will be granted under the 2013Plan, the 2004 Plan or the 2004 Non-Employee Directors’ Stock Option Plan (the “NED Plan”) as all future awards will be made out of the 2018 Plan.The Company’s board of directors determines eligibility, vesting schedules and criteria and exercise prices for stock awards granted under the 2018Plan. Options and restricted stock unit awards under the 2018 Plan, the 2013 Plan and the 2004 Plan expire not more than ten years from the date of the grantand are exercisable upon vesting. Stock options that vest over time generally vest over four years. Current time-based vesting stock option grants vest andbecome exercisable at the rate of 25% after one year and ratably on a monthly 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 with consideration satisfied by service to the Company. The Company also issues stockawards with performance conditions. 91  The following table summarizes information about the Company’s stock-based award plans as of December 31, 2018: OutstandingOptions OutstandingRestrictedStock Units Shares Availablefor FutureIssuance 2004 Equity Incentive Plan 933,402 — — 2013 Equity Incentive Plan 5,766,448 691,266 — 2018 Equity Incentive Plan 4,225,603 — 9,211,379 2004 Non-Employee Directors’ Stock Option Plan 50,665 — — Total 10,976,118 691,266 9,211,379 Share-based payment transactions are recognized as compensation cost based on the fair value of the instrument on the date of grant. The Companyuses the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options. The expected term of an option granted isbased 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. During the years ended December 31, 2018, 2017 and 2016, the Company recorded stock-based compensation expense of $6.9 million, $4.8 millionand $5.1 million, respectively.Total stock-based compensation expense recognized in the accompanying consolidated statements of operations is included in the followingcategories (in thousands): Year Ended December 31, 2018 2017 2016 Cost of goods sold $379 $460 $695 Research and development 1,203 1,010 1,309 Selling, general and administrative 5,275 3,377 3,131 Total $6,857 $4,847 $5,135 The expected volatility assumption used in the Company’s Black-Sholes option valuation model is based on an assessment of the historical volatility,with consideration of implied volatility, derived from an analysis of historical trade activity. The Company has selected risk-free interest rates based on U.S.Treasury securities with an equivalent expected term in effect on the date the options were granted. Additionally, the Company uses historical data andmanagement judgment to estimate stock option exercise behavior and employee turnover rates to estimate the number of stock option awards that willeventually vest. The Company calculated the fair value of employee stock options granted during the years ended December 31, 2018, 2017 and 2016 usingthe following assumptions: Year Ended December 31, 2018 2017 2016 Risk-free interest rate 2.63% — 3.11% 1.83% — 2.13% 1.18% — 1.80% Expected lives 5.90 — 7.19 years 5.41 — 5.78 years 5.13 — 5.82 years Volatility 92.68% — 93.62% 83.32% — 90.39% 77.57% — 82.75% Dividends — — — The following table summarizes information about stock options outstanding: Number ofShares WeightedAverage ExercisePrice per Share AggregateIntrinsicValue ($000) Outstanding at January 1, 2018 7,089,440 $9.33 Granted 5,158,648 $1.94 Exercised (6,880) $1.10 Forfeited (733,536) 2.87 Expired (531,554) $20.56 Outstanding at December 31, 2018 10,976,118 $5.75 $— Exercisable at December 31, 2018 3,672,480 $13.03 $— 92  The weighted average grant date fair value of the stock options granted during the years ended December 31, 2018, 2017 and 2016 was $1.51, $1.19and $3.05 per option, respectively. The total intrinsic value of options exercised during the year ended December 31, 2018 and December 31, 2017 was deminimis. The total intrinsic value of options exercised during the year ended December 31, 2016 was $0.1 million. Intrinsic value is measured using the fairmarket value at the date of exercise for options exercised or at December 31 for outstanding options, less the applicable exercise price. Cash received from the exercise of options during the years ended December 31, 2017 and 2016 was approximately $0.01 million and $0.5 million,respectively and for the year ended December 31, 2018 the cash received was de minimis. The weighted-average remaining contractual terms for optionsoutstanding that were vested and expected to vest, options outstanding that were vested and options exercisable at December 31, 2018 was 7.81 years, 5.62years and 5.57 years, respectively.As of December 31, 2018, 2017 and 2016, the Company recognized $1.9 million, $0.9 million and $0.3 million of compensation costs related to theperformance-based stock options, respectively. As of December 31, 2018, there was $1.3 million of unrecognized compensation costs related to performance-based stock options subject to performance conditions.A summary of restricted stock unit activity for the year ended December 31, 2018 is presented below: Number ofShares WeightedAverageGrant DateFair Valueper Share Outstanding at January 1, 2018 1,135,216 $4.08 Granted 448,600 2.02 Vested (694,831) 3.47 Forfeited (197,719) 2.84 Outstanding at December 31, 2018 691,266 $3.71 Total intrinsic value of restricted stock units vested during the years ended December 31, 2018, 2017 and 2016 was $1.4 million, $0.4 million and$0.6 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 totalgrant date fair value of restricted stock units vested during the years ended December 31, 2018, 2017 and 2016 was $2.4 million, $1.9 million, and $2.6million, respectively. As of December 31, 2018, there was $8.5 million of unrecognized compensation expense related to options and performance-based options and $1.5million of unrecognized compensation expense related to restricted stock units, respectively, which is expected to be recognized over the weighted averagevesting period of 1.7 to 2.9 years. The Company evaluates stock awards with performance conditions as to the probability that the performance conditionswill be met and uses that information to estimate the date at which those performance conditions will be met in order to properly recognize stock-basedcompensation expense over the requisite service period. 14. Commitments and ContingenciesGuarantees and Indemnifications — In the ordinary course of its business, the Company makes certain indemnities, commitments and guaranteesunder which it may be required to make payments in relation to certain transactions. The Company, as permitted under Delaware law and in accordance withits Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at theCompany’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential futureindemnification is unlimited; however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amountspaid. The Company believes the fair value of these indemnification agreements is minimal. The Company has not recorded any liability for these indemnitiesin the accompanying consolidated balance sheets. However, the Company accrues for losses for any known contingent liability, including those that mayarise from indemnification provisions, when future payment is probable and the amount can be reasonably estimated. No such losses have been recorded todate.Litigation — The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. As of December 31, 2018, theCompany believes that the final disposition of such matters will not have a material adverse effect on the financial position, results of operations or cashflows of the Company and no accrual has been recorded. The Company maintains liability insurance coverage to protect the Company’s assets from lossesarising out of or involving activities associated with ongoing and normal business operations. The Company records a provision for a liability when it is bothprobable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company’s policy in recording legal expenses inconnection with legal proceedings and claims is to record expenses as they are incurred. 93  Following the public announcement of Sanofi's election to terminate the Sanofi License Agreement and the subsequent decline in the Company’sstock price, two motions were submitted to the district court at Tel Aviv, Economic Department for the certification of a class action against the Companyand certain of its officers and directors. In general, the complaints allege that the Company and certain of its officers and directors violated Israeli and U.S.securities laws by making materially false and misleading statements regarding the prospects for Afrezza, thereby artificially inflating the price of its commonstock. The plaintiffs are seeking monetary damages. In November 2016, the district court dismissed one of the actions without prejudice. In the remainingaction, the district court ruled in October 2017 that U.S. law will apply to this case. The plaintiff has appealed this ruling, and following an oral hearingbefore the Supreme Court of Israel, has decided to withdraw his appeal. Subsequently, in November 2018, the Company filed a motion to dismiss thecertification motion in limine. In December 2018, the district court ordered that the motion to dismiss will be heard during a pretrial hearing set for February2019. The Court also granted the Company's motion to postpone its response to the merits of the certification motion until after the resolution of the motionto dismiss. The Company will continue to vigorously defend against the claims advanced.Contingencies — In connection with the Facility Agreement, on July 1, 2013, the Company also entered into a the Milestone Agreement with theMilestone Purchasers, pursuant to which the Company sold the Milestone Purchasers the Milestone Rights to receive payments up to $90.0 million upon theoccurrence of specified strategic and sales milestones, including the first commercial sale of an Afrezza product in the United States and the achievement ofspecified net sales figures (see Note 7 – Borrowings).Commitments — On July 31, 2014, the Company entered into a supply agreement (the “Insulin Supply Agreement”) with Amphastar FrancePharmaceuticals S.A.S., a French corporation (“Amphastar”), pursuant to which Amphastar manufactures for and supplies to the Company certain quantitiesof recombinant human insulin for use in Afrezza. Under the terms of the Insulin Supply Agreement, Amphastar is responsible for manufacturing the insulin inaccordance with the Company’s specifications and agreed-upon quality standards. In December 2018, the supply agreement with Amphastar was amended to extend the term over which the Company is required to purchase insulin,without reducing the total amount of insulin to be purchased. Under the amendment, annual minimum quantities of insulin to be purchased for calendar years2018 through 2024 total an aggregate purchase price of €90.3 million. As of December 31, 2018, the remaining purchase amount is €85.8 million. Inaddition, an amendment fee of $2.0 million paid in the forth quarter of 2018 and was recorded in cost of goods sold as a period cost.The annual purchase requirements under the contract are as follows: 2019 €5.8 million2020 €15.9 million2021 €15.9 million2022 €19.8 million2023 €19.8 million2024 €8.6 million Unless terminated earlier, the term of the Insulin Supply Agreement with Amphastar expires on December 31, 2024 and can be renewed for additional,successive two year terms upon 12 months’ written notice given prior to the end of the initial term or any additional two year term. The Company andAmphastar each have normal and customary termination rights, including termination for material breach that is not cured within a specific time frame or inthe event of liquidation, bankruptcy or insolvency of the other party. In addition, the Company may terminate the Insulin Supply Agreement upon two years’prior written notice to Amphastar without cause or upon 30 days’ prior written notice to Amphastar if a controlling regulatory authority withdraws approvalfor Afrezza, provided, however, in the event of a termination pursuant to either of the latter two scenarios, the provisions of the Insulin Supply Agreementrequire the Company to pay the full amount of all unpaid purchase commitments due over the initial term within 60 calendar days of the effective date ofsuch termination. On April 2, 2018, the Company entered into a foreign currency hedging transaction to mitigate its exposure to foreign currency exchangerisks. The hedging transaction hedges against short-term currency fluctuations for the remaining current year purchase requirement amount of €4.4 millionand is renewable every 90 days. In 2018, the Company realized a currency loss of approximately $0.6 million during 2018. This amount is recorded in otherincome and expense. 94  Warrants - On April 5, 2018, the Company entered into securities purchase agreements with certain institutional investors. Pursuant to the terms of thepurchase agreements, the Company sold to the purchasers in a registered offering an aggregate of 14,000,000 shares of its common stock and warrants topurchase up to an aggregate of 14,000,000 shares of its common stock at a combined purchase price of $2.00 per share and accompanying warrant. The sharesof the common stock and the warrants were immediately separable. The warrants are exercisable at a price of $2.38 per share beginning six months followingthe date of issuance and will expire six months thereafter. The net proceeds to the Company from the offering were approximately $26.4 million. The offeringclosed on April 9, 2018. Additionally, on December 19, 2018, the Company entered into an underwriting agreement with Leerink Partners LLC relating tothe issuance and sale in a public offering of 26,666,667 shares of the Company’s common stock and warrants to purchase up to an aggregate of 26,666,667shares of the Company’s common stock at a combined purchase price of $1.50 per share and accompanying warrant. The shares of common stock and thewarrants were immediately separable. The warrants were immediately exercisable at issuance at a price of $1.60 per share and will expire on December 26,2019. The net proceeds to the Company from the offering were approximately $37.3 million. The offering closed on December 26, 2018. The Companydetermined that these warrants met the criteria for equity classification and accounted for such warrants in additional paid in capital. Vehicle Leases – During the second quarter of 2018, the Company entered into a lease agreement with Enterprise for the lease of approximately 100vehicles. The lease requires monthly payments of approximately $83,000 per month including the cost of maintaining the vehicles, taxes and insurance. Theleases commenced when the Company took possession of the majority of the vehicles in the second quarter of 2018. The leases expire 48 months after thedelivery date.On March 8, 2018, the Company entered into a standby letter of credit for a total of $0.5 million in connection with the Company’s sales force vehiclelease program. The letter of credit is collateralized by a restricted cash account in the amount of $0.5 million. There were no amounts drawn down on thisletter of credit as of December 31, 2018. Office Lease — On May 5, 2017, the Company executed an office lease with Russell Ranch Road II LLC for the Company’s corporate headquarters inWestlake Village, California. The office lease commenced in August 2017. The lease requires monthly payments of $40,951, increased by 3% annually, plusthe estimated cost of maintaining the property by the landlord with a five month concession from October 2017 through February 2018. The lease expiresJanuary 2023 and provides the Company with a five year renewal option.On November 29, 2017, the Company executed an office lease with Russell Ranch Road II LLC to expand the office space for the Company’scorporate headquarters in Westlake Village, California. The office lease commenced in October 2018. The lease requires monthly payments of $35,969,increased by 3% annually, plus the estimated cost of maintaining the property by the landlord. In addition, the Company will be entitled to reimbursementfrom the landlord of up to $56,325 for tenant improvements. The lease expires in January 2023 and provides the Company with a five year renewal option.Rent expense under all operating leases including office space and equipment was approximately $0.5 million for the year ended December 31, 2018,and $0.4 million for the years ended December 31, 2017 and 2016, respectively.Future minimum lease payments are as follows: 2019 $947,162 2020 975,577 2021 1,004,844 2022 1,034,989 2023 87,957 $4,050,529 15. Employee Benefit Plans The Company administers a 401(k) savings retirement plan for its employees. The Company contributed $1.0 million for the year ended December 31,2018, and $0.4 million for the years ended December 31, 2017 and 2016, respectively. 95  16. Income TaxesLoss from continuing operations before provision for income tax for the Company’s domestic and international operations was as follows (inthousands): December 31, 2018 2017 2016 US $(84,207) $(113,679) $129,361 Foreign (2,528) (3,603) (3,697)Loss before provision for income taxes $(86,735) $(117,282) $125,664 At December 31, 2018, the Company has concluded that it is more likely than not that the Company may not realize the benefit of its deferred taxassets due to its history of losses. The provision for income taxes for the years ended December 31, 2018 and 2017 was $0.2 million and $0.1 million,respectively. There was no provision for income tax recorded for the year ended December 31, 2016. The provision for income taxes relates only to foreignwithholding taxes for the years ended December 31, 2018 and 2017 because the Company has 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, 2018 2017 2016 Current U.S. federal $— $— $— U.S. state — — — Non-U.S. 240 51 — Total current 240 51 — Deferred U.S. federal (9,164) 244,801 (43,814)U.S. state (1,903) 15,398 (4,311)Non-U.S. — — — Total deferred (11,067) 260,199 (48,125)Valuation allowance 11,067 (260,199) 48,125 Total $240 $51 $— Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting andincome tax purposes. A valuation allowance is established when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized.Components of the net deferred tax assets as of December 31, 2018 and 2017, are as follows (in thousands): December 31, 2018 2017 Deferred tax assets: Net operating loss carryforwards $524,377 $507,235 Research and development credits 81,583 83,461 Capitalized research 557 1,016 Milestone Rights 3,521 1,908 Accrued expenses 1,156 211 Loss on purchase commitment 23,194 23,654 Non-qualified stock option expense 2,551 7,004 Capitalized patent costs 5,090 5,194 Other 669 795 Depreciation 22,560 23,820 Deferred Product Revenue & Costs 107 Total net deferred tax assets 665,365 654,298 Valuation allowance (665,365) (654,298)Net deferred tax assets $— $— 96  The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2018, 2017 and2016: December 31, 2018 2017 2016 Federal tax benefit rate 21.0% 35.0% 35.0%Permanent items 1.0 6.2 (1.9)Intercompany transfer of intellectual property — — 0.9 Tax law changes (0.7) (265) — Stock based compensation (6.5) (5.0) — Tax attribute expirations (1.6) (2.8) — Foreign withholding tax (0.3) — — Valuation allowance (13.2) 231.6 (34.0)Effective income tax rate -0.3% —% —% As of December 31, 2018 and 2017, management assessed the realizability of deferred tax assets. Management evaluated the need for an amount of anyvaluation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, whereinmanagement analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company’sdeferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not(a probability level of more than 50 percent) that the Company may not realize the benefit of its deferred tax assets. In assessing the realization of theCompany’s deferred tax assets, the Company considers all available evidence, both positive and negative.In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recentyears is a significant piece of negative evidence that is difficult to overcome.” Based upon available evidence, it was concluded on a more-likely-than-notbasis that all deferred tax assets were not realizable as of December 31, 2018. Accordingly, a valuation allowance of $665.4 million has been recorded tooffset this deferred tax asset. During the years ended December 31, 2018 and 2017, the change in the valuation allowance was $11.1 million and$(260.2) million, respectively.The Company adopted Topic 606, on January 1, 2018. Under Topic 606, the Company recognizes revenue when its customers obtain control ofpromised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods orservices. Upon adoption, no change in retained earnings was recorded related to income taxes as the Company maintains a full valuation allowance. Anadjustment of $0.4 million was recorded as a deferred tax liability and a corresponding reduction to the valuation allowance. See above for more informationabout the non-income tax impact of adoption of the new revenue guidance.At December 31, 2018, the Company had federal and state net operating loss carryforwards of approximately $2.1 billion and $2.4 billion available,respectively, to reduce future taxable income. $77.0 million of the federal losses do not expire and the remaining federal and state losses have startedexpiring, beginning in the current year through various future dates.Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s federal and California net operating loss and researchand development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. Asa result of the Company's initial public offering, an ownership change within the meaning of Internal Revenue Code Section 382 occurred in August 2004.As a result, federal net operating loss and credit carryforwards of approximately $216.0 million are subject to an annual use limitation of approximately $13.0million. 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. There is a risk that changes in ownership have occurred since Company's initial public offering. If a change in ownership were tohave occurred after the initial public offering, net operating loss carryforwards and other tax attributes could be further limited or restricted. If limited, therelated asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of thevaluation allowance, limitations created by future ownership changes, if any, related to the Company’s operations in the U.S. will not impact the Company’seffective tax rate. At December 31, 2018, the Company had $54.2 million of U.S. federal research and development credits which expire beginning in 2024, and$27.4 million of state research and development credits which for California do not expire and expire through various future dates for Connecticut and NewJersey. 97  The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business theCompany is subject to examination by taxing authorities throughout the country. These audits could include examining the timing and amount ofdeductions, the allocation of income among various tax jurisdictions and compliance with federal, state and local laws. The Company’s tax years since 2015remain subject to examination by federal, state and foreign tax authorities.The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the year ended December31, 2018, the interest and penalties recognized were not material. During the years ended December 31, 2017 and 2016 the Company recognized and accruedan insignificant amount of interest or penalties related to unrecognized tax benefits.The Company considers its undistributed earnings of foreign subsidiaries to be permanently reinvested in foreign operations and has not provided forU.S. income taxes on such earnings. As of December 31, 2018 the Company had no undistributed earnings from its foreign subsidiaries.On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Codeof 1986, as amended. The changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning afterDecember 31, 2017, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, and expandedlimits on employee remuneration. In 2017, the Company recorded provisional amounts for certain enactment-date effects of the Act by applying the guidancein SAB 118 because it had not yet completed our enactment-date accounting for these effects. In 2018 and 2017, the Company did not record tax expenserelated to the enactment-date effects of the Act as the Company maintained a full valuation allowance and the Company estimated a deficit in post-1986earnings and profits from its foreign subsidiaries. The impact of this Act was a decrease of deferred tax assets of $301.0 million, offset by a decrease in avaluation allowance of $301.0 million, resulting in no additional income tax expense or benefit.The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the Act in 2017. At December 31, 2017, theCompany had not completed its accounting for all of the enactment-date income tax effects of the Act under ASC 740, Income Taxes, for the followingaspects: remeasurement of deferred tax assets and liabilities, one-time transition tax, and tax on global intangible low-taxed income. As of December 31,2018, the Company had completed the accounting for all of the enactment-date income tax effects of the Act. As further discussed below, during 2018, theCompany did not recognize adjustments to the provisional amounts recorded at December 31, 2017 as all changes were off-set by the valuation allowance.The one-time transition tax is based on the total post-1986 earnings and profits, the tax on which we previously deferred from US income taxes underUS law. The Company had estimated a deficit in post 1986 earnings and profits with no income tax expense recorded. Upon further analyses of the Act andnotices and regulations issued and proposed by the US Department of the Treasury and the Internal Revenue Service, the Company finalized the calculationsof the transition tax liability during 2018. The provisional amount did not change; therefore, there was no adjustment to tax expense or valuation allowance.As of December 31, 2017, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reversein the future (which was generally 21%), by recording a provisional amount of $301.0 million, which was fully offset by a valuation allowance of the sameamount. Upon further analysis of certain aspects of the Act and refinement of the calculations during the year ended December 31, 2018, the Company foundno other adjustments were necessary. The Act subjects a US shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB StaffQ&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to eitherrecognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in theyear the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. 98  17. Selected quarterly financial data (unaudited)Summarized quarterly financial data for the years ended December 31, 2018 and 2017, are set forth in the following tables: March 31 June 30 September 30 December 31 (In thousands, except per share data) 2018 Net revenues $3,465 $3,893 $4,469 $16,031 Net (loss) $(30,385) $(22,675) $(24,168) (9,747)Net (loss) per share — basic $(0.25) $(0.16) $(0.16) $(0.06)Net (loss) per share — diluted $(0.25) $(0.16) $(0.16) $(0.06)Weighted average common shares used to compute basic net (loss) per share 120,911 140,054 153,597 161,397 Weighted average common shares used to compute diluted net (loss) per share 120,911 140,054 153,597 161,397 2017 Net revenues $3,009 $2,163 $2,043 $4,530 Net income (loss) $(16,324) $(35,339) $(32,886) $(32,784)Net income (loss) per share — basic $(0.17) $(0.35) $(0.31) $(0.28)Net income (loss) per share — diluted (0.17) $(0.35) (0.31) (0.28)Weighted average common shares used to compute basic net income (loss) per share 95,744 99,864 104,703 116,451 Weighted average common shares used to compute diluted net income (loss) per share 95,744 99,864 104,703 116,451 99 Exhibit 10.15Non-employee Director CompensationAdopted November 17, 2017Modified November 14, 2018 ElementAmountAnnual Cash Retainer$50,000 (cash) In lieu of cash, a director can elect to receive a RSU valued at $50,000on the basis of the 20-day trailing average closing price as of the tradingday immediately preceding the date of the annual meeting Annual Equity GrantIntended equity value: $150,000 (The number of shares for this equity award will be determined usingthe then-current guideline price for employee equity awards.) Equity Vehicles100% RSU (RSUs vest immediately, but shares will not be distributed until thedirector leaves the board.) Initial Equity GrantNone Independent Chairman Premium$32,500 (cash) Committee Member CompensationAudit: $10,000 Compensation: $7,500 Nominating/Governance: $5,000 (cash) Committee Chair PremiumsAudit: $15,000 Comp: $12,500 Nominating/Governance: $5,000 (cash) Exhibit 10.50FOURTH AMENDMENT TO SUPPLY AGREEMENTThis fourth amendment (“Fourth Amendment”) to the Supply Agreement by and between MannKind Corporation (“MannKind”) andAmphastar Pharmaceuticals, Inc. (“Amphastar”), originally dated July 31, 2014 and as previously amended on October 31, 2014, November 9,2016 and April 11, 2018 (collectively, the “Agreement”), is hereby made as of the 24 day of December, 2018, by and between MannKind on the onehand, and on the other hand, Amphastar. RECITALS:WHEREAS, MannKind and Amphastar entered into the Agreement pursuant to which Amphastar is to manufacture and supply theProduct to MannKind, and MannKind is to purchase certain minimum quantities of the Product; 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 asfollows: 1.Definitions. Unless otherwise defined herein, each of the capitalized terms used in this Fourth Amendment shall have thedefinition and meaning ascribed to it in the Agreement. 2.Amendment Fee. No later than December 31, 2018, MannKind shall pay Amphastar an amendment fee in the amount of US$2.0 million (the “Amendment Fee”). 3.Amendments to the Agreement. Effective upon the payment of the Amendment Fee, the Agreement shall be amended asfollows:3.1The table in Section 6.1 of the Agreement shall be amended and replaced in its entirety with the following: Calendar YearPurchase Commitment Quantities(kg)Purchase Price (per gram)Delivery and Payment201451EUR 77.50 2015299EUR 77.50 20160EUR 77.50 201735EUR 77.50 201857.5EUR 77.50 201975EUR 77.50Purchase Commitment Quantities of 25 kg shallbe purchased in each of the first, second andfourth Quarters, which shall be payable toAmphastar no later than fifteen (15) days afterthe date of invoice. 2020205EUR 77.5025% of the Purchase Commitment Quantitiesshall be paid on a Quarterly basis.2021205EUR 77.5025% of the Purchase Commitment Quantitiesshall be paid on a Quarterly basis.2022255EUR 77.5025% of the Purchase Commitment Quantitiesshall be paid on a Quarterly basis. 2023255EUR 77.5025% of the Purchase Commitment Quantitiesshall be paid on a Quarterly basis. 2024112.5EUR 77.5025% of the Purchase Commitment Quantitiesshall be paid on a Quarterly basis. Notwithstanding anything to the contrary, in no event shall any of the Quarterly payments set forth in the Table above (Section 6.1 ofthe Agreement) be payable to Amphastar later than fifteen (15) days after the close of the corresponding calendar quarter. - 2 -3.2Section 10.1 of the Agreement shall be extended until December 31, 2024. All other terms and conditions inparagraph 10.1 shall remain in full force and effect. 4.Final Agreement.From and after the execution of this Fourth Amendment, all references in the Agreement (or in the Fourth Amendment) to “thisAgreement,” “hereof,” “herein,” “hereto,” and similar words or phrases shall mean and refer to the Agreement as amended by this FourthAmendment. The Agreement as amended by this Fourth Amendment constitutes the entire agreement by and between the Parties as to thesubject matter hereof. Except as expressly modified by this Fourth Amendment, all other terms and conditions of the Agreement shall remain infull force and effect.IN WITNESS WHEREOF, each of MannKind and Amphastar has caused this Fourth Amendment to be executed by their dulyauthorized officers. MannKind Corporation Amphastar Pharmaceuticals, Inc. By: /s/ David Thomson By: /s/ Jason Shandell Name: David Thomson Name: Jason Shandell Title: EVP + General Counsel Title: President + General Counsel - 3 -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, 333-213366, 333-225428 and 333-226648 on Form S-8, and Registration No. 333-210792 on Form S-3 of our reports datedFebruary 26, 2019, relating to the consolidated financial statements of MannKind Corporation and subsidiaries (“MannKind Corporation”) (which reportexpresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s ability to continue as a going concern), and theeffectiveness of MannKind Corporation’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of MannKind Corporationfor the year ended December 31, 2018./s/ Deloitte & Touche LLPLos Angeles, CAFebruary 26, 2019 Exhibit 31.1RULE 13a-14(a)/15d-14(a) CERTIFICATIONI, Michael E. Castagna, 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 thestatements made, 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. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’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/ Michael E. CastagnaMichael E. CastagnaChief Executive Officer and Director Date: February 26, 2019 Exhibit 31.2RULE 13a-14(a)/15d-14(a) CERTIFICATIONI, Steven B. Binder, 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 thestatements made, 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. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’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/ Steven B. BinderSteven B. BinderChief Financial Officer Date: February 26, 2019 Exhibit 32.1CERTIFICATION1 Pursuant 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), Michael E. Castagna, Chief Executive Officer of MannKind 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, 2018, to which this Certification is attached as Exhibit 32.1 (the “AnnualReport”) 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 the Company.In Witness Whereof, the undersigned has set his hand hereto as of the 26th day of February, 2019. /s/ Michael E. CastagnaMichael E. CastagnaChief Executive 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 Commissionand is not to be incorporated by reference into any filing of MannKind Corporation under the Securities Act of 1933, as amended, or the SecuritiesExchange Act of 1934, as amended (whether made before or after the date of the Annual Report on Form 10-K to which this certification relates),irrespective of any general incorporation language contained in such filing. Exhibit 32.2CERTIFICATION1 Pursuant 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), Steven B. Binder, Chief Financial Officer of MannKind 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, 2018, to which this Certification is attached as Exhibit 32.2 (the “AnnualReport”) 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 the Company.In Witness Whereof, the undersigned has set his hand hereto as of the 26th day of February, 2019. /s/ Steven B. BinderSteven B. BinderChief 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 Commissionand is not to be incorporated by reference into any filing of MannKind Corporation under the Securities Act of 1933, as amended, or the SecuritiesExchange Act of 1934, as amended (whether made before or after the date of the Annual Report on Form 10-K to which this certification relates),irrespective of any general incorporation language contained in such filing. 

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