MNKD 2017 Annual Report

On October 23, 2017, the Company and MannKind LLC entered into a Fourth Amendment to the Facility Agreement, 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 January 15, 2018 (further extended to January 19 ,2018 under the Fifth Amendment and May 6, 2018 under the Sixth Amendment to the Facility Agreement – See Note 20 - Subsequent Events), with the Company depositing an amount of cash equal to the October Payment into an escrow account until the October Payment has been satisfied in 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’s common stock), and (ii) amended and restated the Facility Financing Obligation and the Tranche B notes to provide that Deerfield may convert the principal amount 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 Fourth Amendment. 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 for the 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 October Payment, and after the October Payment has been satisfied, to reduce other principal payments due under the 2019 notes or the Tranche B notes. The Company determined that the Fourth Amendment did not include any concessions and that the addition of the conversion option was not substantive and therefore it was not considered to be a troubled debt restructuring. Accordingly, the Company accounted for the transaction as a modification. On November 6, 2017 Deerfield converted 1,720,846 shares under the conversion feature at a price of $3.25/share, redeeming $5,592,750 of principal. As of December 31, 2017, there was $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 an annual rate of 9.75% and the Tranche B notes accrue interest 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 Financing Obligation principal repayment schedule is comprised of payments which began on July 1, 2016 and end on December 9, 2019. As of December 31, 2017, future payments for the years ending December 31, 2018, and 2019 are $24.4 million and $30.0 million, respectively. In connection with the Facility Agreement, on July 1, 2013, the Company entered into a Milestone Rights Purchase Agreement (the “Milestone Agreement”) with Deerfield and Horizon Santé FLML SÁRL (collectively, the “Milestone Purchasers”), which requires the Company to make contingent payments to the Milestone Purchasers, totaling up to $90.0 million, upon the Company achieving specified commercialization milestones (the “Milestone Rights”). The Milestone Rights were initially recorded as a short-term liability equal to $3.2 million included in accrued expenses and other current liabilities and a long-term liability equal to $13.1 million included in other liabilities in the accompanying consolidated balance sheets. During the first quarter of 2015, a milestone triggering event was achieved following the Afrezza launch on February 3, 2015, which resulted in a $5.8 million incremental charge to interest expense due to the increase in carrying value of the liability to the $10.0 million milestone payment made in February 2015. As of December 31, 2017 and 2016, the remaining milestone rights liability balance was $8.9 million. The Company currently estimates that it will reach the next milestone in the third quarter of 2018, at which point the Company will be required to make a $5 million payment. The carrying value of the milestone rights liability related to this $5 million payment is $1.6 million, which represents the fair value related to this payment that was determined in 2013 (the most recent measurement date). Accordingly, $1.6 million in value related to the next milestone payment was recorded in accrued expenses and other current liabilities as of December 31, 2017. Furthermore, $7.2 million and $8.9 million was recorded in milestone rights liability and other liabilities, which is non-current, in the accompanying consolidated balance sheets as of December 31, 2017 and 2016, respectively. Accretion of debt issuance cost and debt discount in connection with the Facility Agreement does not include the acceleration of the debt discount and issuance costs related to the transactions disclosed above as the 101