UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2022


o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number ~~0-30739~~000-30739

INSMED INCORPORATED

(Exact name of registrant as specified in its charter)



Virginia						54-1972729
(State or other jurisdiction of incorporation or organization)						(I.R.S. employer identification no.)

~~10 Finderne Avenue, Building 10~~700 US Highway 202/206,
Bridgewater, New Jersey						08807
(Address of principal executive offices)						(Zip Code)

(908) 977-9900

(Registrant’s telephone number including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section12(b) of the Act:


Title of each class	Trading symbols	Name of each exchange on which registered
Common stock, par value $0.01 per share	INSM	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging 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 x		Accelerated filer o

~~Large accelerated filer~~ x	~~Accelerated filer~~ o

Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~	Smaller reporting company o☐
	Emerging growth company o☐

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 revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x

As of ~~October 31, 2017,~~May 2, 2022, there were ~~76,591,009 shares~~ 119,517,209 shares of the registrant’s common stock ~~$0.01 par value,~~ outstanding.

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INSMED INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2022

INDEX


PART I. FINANCIAL INFORMATION

ITEM 1			Consolidated Financial Statements

~~PART I. FINANCIAL INFORMATION~~

~~ITEM 1~~	~~Consolidated Financial Statements~~

	Consolidated Balance Sheets as of ~~September 30, 2017~~March 31 , 202 2 (unaudited) and December 31, ~~2016~~202 1	3

			Consolidated Statements of Comprehensive Loss (unaudited) for the three ~~and nine~~ months ended ~~September 30, 2017~~March 3 1 , 202 2 and ~~2016~~202 1	4

			Consolidated Statements of Shareholders' Equity (unaudited) for the three months ended March 3 1 , 202 2 and 202 1	5

			Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three months ended ~~September 30, 2017~~March 3 1 , 202 2 and ~~2016~~202 1	56

			Notes to Consolidated Financial Statements (unaudited)	67

ITEM 2			Management’s Discussion and Analysis of Financial Condition and Results of Operations	1423
ITEM 3			Quantitative and Qualitative Disclosures about Market Risk	2735
ITEM 4			Controls and Procedures	2735

PART II. OTHER INFORMATION

ITEM 1			Legal Proceedings	2836
ITEM 1A			Risk Factors	2836
ITEM 2			Unregistered Sales of Equity Securities and Use of Proceeds	4936
ITEM 5			Other Information	36
ITEM 6			Exhibits	5037

SIGNATURE				5138

Unless the context otherwise indicates, references in this Form 10-Q to “Insmed Incorporated” refers to Insmed Incorporated, a Virginia corporation, and “Company,” “Insmed,” “we,” “us” and “our” refer to Insmed Incorporated together with its consolidated subsidiaries. INSMED, PULMOVANCE, ARIKARES and ~~CONVERT~~ARIKAYCE are trademarks of Insmed Incorporated. This Form 10-Q also contains trademarks of third parties. Each trademark of another company appearing in this Form 10-Q is the property of its owner.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

INSMED INCORPORATED

Consolidated Balance Sheets

(in thousands, except par value and share data)

As of As of
September 30, 2017 December 31, 2016
(unaudited)
Assets

Current assets:

Cash and cash equivalents $ 430,678
$ 162,591
Prepaid expenses and other current assets 6,802
5,816
Total current assets 437,480
168,407

In-process research and development 58,200
58,200
Fixed assets, net 8,975
10,020
Other assets 1,551
1,329
Total assets $ 506,206
$ 237,956

Liabilities and shareholders’ equity

Current liabilities:

Accounts payable $ 9,348
$ 10,439
Accrued expenses 18,802
16,822
Other current liabilities 616
728
Total current liabilities 28,766
27,989

Debt, long-term 55,388
54,791
Other long-term liabilities 747
693
Total liabilities 84,901
83,473

Shareholders’ equity:

Common stock, $0.01 par value; 500,000,000 authorized shares, 76,568,368 and 62,019,889 issued and outstanding shares at September 30, 2017 and December 31, 2016, respectively 766
620
Additional paid-in capital 1,313,006
919,164
Accumulated deficit (892,501 ) (765,236 )
Accumulated other comprehensive income (loss) 34
(65 )
Total shareholders’ equity 421,305
154,483
Total liabilities and shareholders’ equity $ 506,206
$ 237,956


	As of		As of
	March 31, 2022		December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	515,704	$	716,782
Marketable securities	119,415		—
Accounts receivable	25,722		24,351
Inventory	64,145		67,009
Prepaid expenses and other current assets	31,154		28,898
Total current assets	756,140		837,040
Marketable securities, long-term	29,551		50,043
Fixed assets, net	52,676		52,955
Finance lease right-of-use assets	17,814		9,256
Operating lease right-of-use assets	31,277		33,305
Intangibles, net	72,546		73,809
Goodwill	136,110		136,110
Other assets	57,201		50,990
Total assets	$	1,153,315	$	1,243,508

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	48,571	$	35,784
Accrued liabilities	53,289		60,665
Accrued compensation	13,639		28,581
Finance lease liabilities	125		609
Operating lease liabilities	9,625		9,527

Total current liabilities	125,249		135,166

Debt, long-term	783,156		566,588
Contingent consideration	66,120		75,668
Finance lease liabilities, long-term	23,509		14,103
Operating lease liabilities, long-term	19,875		21,441
Other long-term liabilities	15,526		20,074
Total liabilities	1,033,435		833,040

Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 119,345,962 and 118,738,266 issued and outstanding shares at March 31, 2022 and December 31, 2021, respectively	1,193		1,187
Additional paid-in capital	2,428,582		2,673,556
Accumulated deficit	(2,309,665)		(2,265,243)
Accumulated other comprehensive income	(230)		968
Total shareholders’ equity	119,880		410,468
Total liabilities and shareholders’ equity	$	1,153,315	$	1,243,508

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands, except per share data)


														Three Months Ended March 31,
	Three Months Ended September 30,						Nine Months Ended September 30,								2022		2021
	2017			2016			2017			2016

Revenues	$	—		$	—		$	—		$	—
Product revenues, net													Product revenues, net		$	53,107	$	40,214

Operating expenses:													Operating expenses:
Cost of product revenues (excluding amortization of intangible assets)													Cost of product revenues (excluding amortization of intangible assets)		12,191		9,844
Research and development	26,675			23,433			75,800			67,851			Research and development		84,356		61,390
General and administrative	17,408			13,716			47,767			38,498
Selling, general and administrative													Selling, general and administrative		56,748		51,550
Amortization of intangible assets													Amortization of intangible assets		1,263		1,263
Change in fair value of deferred and contingent consideration liabilities													Change in fair value of deferred and contingent consideration liabilities		(11,618)		—
Total operating expenses	44,083			37,149			123,567			106,349			Total operating expenses		142,940		124,047

Operating loss	(44,083		)	(37,149		)	(123,567		)	(106,349		)	Operating loss		(89,833)		(83,833)

Investment income	326			138			649			472			Investment income		137		33
Interest expense	(1,496		)	(769		)	(4,459		)	(2,015		)	Interest expense		(3,291)		(7,559)
Other income, net	101			45			206			92

Other expense, net													Other expense, net		(1,249)		(43)
Loss before income taxes	(45,152		)	(37,735		)	(127,171		)	(107,800		)	Loss before income taxes		(94,236)		(91,402)

Provision for income taxes	27			25			94			71			Provision for income taxes		385		239

Net loss	$	(45,179	)	$	(37,760	)	$	(127,265	)	$	(107,871	)	Net loss		$	(94,621)	$	(91,641)

Basic and diluted net loss per share	$	(0.69	)	$	(0.61	)	$	(2.01	)	$	(1.74	)	Basic and diluted net loss per share		$	(0.80)	$	(0.89)

Weighted average basic and diluted common shares outstanding	65,312			61,878			63,199			61,871			Weighted average basic and diluted common shares outstanding		118,929		103,040

Net loss	$	(45,179	)	$	(37,760	)	$	(127,265	)	$	(107,871	)	Net loss		$	(94,621)	$	(91,641)
Other comprehensive income (loss):													Other comprehensive income (loss):
Foreign currency translation gains (losses)	76			(17		)	99			(5		)
Foreign currency translation loss													Foreign currency translation loss		(494)		(103)
Unrealized loss on marketable securities													Unrealized loss on marketable securities		(704)		—
Total comprehensive loss	$	(45,103	)	$	(37,777	)	$	(127,166	)	$	(107,876	)	Total comprehensive loss		$	(95,819)	$	(91,744)

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Shareholders' Equity (unaudited)

(in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance at December 31, 2020	102,763	$	1,028	$	2,105,252	$	(1,830,589)	$	193	$	275,884
Comprehensive loss:
Net loss						(91,641)				(91,641)
Other comprehensive income (loss)								(103)		(103)
Exercise of stock options and ESPP shares issuance	416	4		6,956						6,960

Issuance of common stock for vesting of RSUs	100	1								1
Stock-based compensation expense				10,535						10,535
Balance at March 31, 2021	103,279	$	1,033	$	2,122,743	$	(1,922,230)	$	90	$	201,636

Balance at December 31, 2021	118,738	$	1,187	$	2,673,556	$	(2,265,243)	$	968	$	410,468
Cumulative impact of ASU 2020-06 adoption				(264,609)		50,199		0		(214,410)
Comprehensive loss:
Net loss						(94,621)				(94,621)
Other comprehensive income (loss)								(1,198)		(1,198)
Exercise of stock options and ESPP shares issuance	450	4		6,812						6,816


Issuance of common stock for vesting of RSUs	158	2								2

Stock-based compensation expense				12,823						12,823
Balance at March 31, 2022	119,346	$	1,193	$	2,428,582	$	(2,309,665)	$	(230)	$	119,880

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Cash Flows (unaudited)

(in thousands)


	Nine Months Ended September 30,							Three Months Ended March 31,
	2017			2016				2022		2021
Operating activities							Operating activities
Net loss	$	(127,265	)	$	(107,871	)	Net loss	$	(94,621)	$	(91,641)
Adjustments to reconcile net loss to net cash used in operating activities:							Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2,168			1,756			Depreciation	1,286		2,388
Amortization of intangible assets							Amortization of intangible assets	1,263		1,263
Stock-based compensation expense	13,332			13,879			Stock-based compensation expense	12,823		10,535
Amortization of debt issuance costs	91			250
Accretion of back-end fee on debt	506			—

Amortization of debt issuance costs and accretion of debt discount							Amortization of debt issuance costs and accretion of debt discount	822		5,257

Finance lease amortization expense							Finance lease amortization expense	729		270
Noncash operating lease expense							Noncash operating lease expense	2,369		5,208
Change in fair value of deferred and contingent consideration liabilities							Change in fair value of deferred and contingent consideration liabilities	(11,618)		—
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Prepaid expenses and other assets	(1,052		)	(230		)
Accounts receivable							Accounts receivable	(1,798)		(1,066)
Inventory							Inventory	2,240		(2,754)
Prepaid expenses and other current assets							Prepaid expenses and other current assets	(2,752)		2,056
Other assets							Other assets	(6,289)		(19,731)
Accounts payable	(921		)	361			Accounts payable	13,363		(20,273)
Accrued expenses and other	1,745			3,109
Accrued liabilities, accrued compensation and other							Accrued liabilities, accrued compensation and other	(22,978)		(19,793)

Net cash used in operating activities	(111,396		)	(88,746		)	Net cash used in operating activities	(105,161)		(128,281)
Investing activities							Investing activities
Purchase of fixed assets	(1,301		)	(3,428		)	Purchase of fixed assets	(1,701)		(1,181)
Purchase of marketable securities							Purchase of marketable securities	(99,706)		—

Net cash used in investing activities	(1,301		)	(3,428		)	Net cash used in investing activities	(101,407)		(1,181)
Financing activities							Financing activities
Proceeds from exercise of stock options	2,953			128
Proceeds from issuance of debt	—			10,000
Payment of debt issuance costs	—			(308		)
Proceeds from issuance of common stock, net	377,703			—
Proceeds from exercise of stock options, ESPP, and RSU vestings							Proceeds from exercise of stock options, ESPP, and RSU vestings	6,818		6,961

Payments of finance lease principal							Payments of finance lease principal	(359)		(258)

Net cash provided by financing activities	380,656			9,820			Net cash provided by financing activities	6,459		6,703
Effect of exchange rates on cash and cash equivalents	128			(4		)	Effect of exchange rates on cash and cash equivalents	(969)		(246)
Net increase (decrease) in cash and cash equivalents	268,087			(82,358		)
Net decrease in cash and cash equivalents							Net decrease in cash and cash equivalents	(201,078)		(123,005)
Cash and cash equivalents at beginning of period	162,591			282,876			Cash and cash equivalents at beginning of period	716,782		532,756
Cash and cash equivalents at end of period	$	430,678		$	200,518		Cash and cash equivalents at end of period	$	515,704	$	409,751

Supplemental disclosures of cash flow information:							Supplemental disclosures of cash flow information:
Cash paid for interest	$	3,876		$	2,471		Cash paid for interest	$	2,375	$	4,271
Cash paid for income taxes	$	62		$	49		Cash paid for income taxes	$	635	$	672

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.The Company and Basis of Presentation

Insmed is a global biopharmaceutical company ~~focused~~ on a mission to transform the ~~unmet needs~~lives of patients with serious and rare diseases. The Company's ~~lead~~first commercial product, ~~candidate~~ARIKAYCE, is ~~amikacin~~approved in the United States (US) as ARIKAYCE® (amikacin liposome inhalation ~~suspension (ALIS) (formerly known~~suspension), in Europe as ~~liposomal amikacin~~ARIKAYCE Liposomal 590 mg Nebuliser Dispersion and in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product). ARIKAYCE received accelerated approval in the US in September 2018 for ~~inhalation, or LAI), which is in late‑stage development~~the treatment of Mycobacterium avium complex (MAC) lung disease as part of a combination antibacterial drug regimen for adult patients with limited or no alternative treatment options in a refractory setting. In October 2020, the European Commission (EC) approved ARIKAYCE for the treatment of nontuberculous ~~mycobacteria (NTM)~~mycobacterial (NTM) lung infections caused by MAC in adults with limited treatment options who do not have cystic fibrosis (CF). In March 2021, Japan's Ministry of Health, Labour and Welfare (MHLW) approved ARIKAYCE for the treatment of patients with NTM lung disease caused by ~~Mycobacterium avium~~ ~~complex (MAC),~~MAC who did not sufficiently respond to prior treatment with a multidrug regimen. NTM lung disease caused by MAC (which the Company refers to as MAC lung disease) is a rare and often chronic infection that can cause irreversible lung damage and ~~which~~ can be fatal. The Company's ~~earlier~~ clinical-stage pipeline includes ~~INS1007~~brensocatib and ~~INS1009. INS1007~~treprostinil palmitil inhalation powder (TPIP). Brensocatib is a ~~novel~~small molecule, oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), ~~an enzyme responsible~~which the Company is developing for ~~activating neutrophil serine proteases, which are implicated in~~ the ~~pathology~~treatment of patients with bronchiectasis, CF and other neutrophil-mediated diseases, including chronic ~~inflammatory lung diseases, such as non-cystic fibrosis (non-CF) bronchiectasis. INS1009~~rhinosinusitis without nasal polyps (CRS) and hidradenitis suppurativa (HS). TPIP is an inhaled ~~nanoparticle~~ formulation of athe treprostinil prodrug ~~that~~treprostinil palmitil which may offer a differentiated product profile for ~~rare pulmonary disorders, including~~ pulmonary arterial hypertension (PAH) and pulmonary hypertension associated with interstitial lung disease (PH-ILD).

The Company was incorporated in the Commonwealth of Virginia on November 29, 1999 and its principal executive offices are located in Bridgewater, New Jersey. The Company has legal entities in the ~~United States (US),~~US, France, Germany, Ireland, ~~Germany, France,~~Italy, the Netherlands, Switzerland, the United Kingdom (UK), and ~~the Netherlands. All intercompany transactions and balances have been eliminated in consolidation.~~Japan.

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the US for complete consolidated financial statements are not included herein. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the ~~Company’s~~ Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. The unaudited interim consolidated financial information presented herein reflects all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. All intercompany transactions and balances have been eliminated in consolidation.

The Company had $515.7 million in cash and cash equivalents and marketable securities totaling $149.0 million as of March 31, 2022 and reported a net loss of $94.6 million for the three months ended March 31, 2022. Historically, the Company has funded its operations through public offerings of equity securities and debt financings. The Company expects to continue to incur consolidated operating losses, including losses in its US and certain international entities, while funding research and development (R&D) activities for ARIKAYCE, brensocatib, TPIP and its other pipeline programs, and continuing and commencing pre-commercial, commercialization and regulatory activities for ARIKAYCE, and funding other general and administrative activities.

The Company expects its future cash requirements to be substantial, and the Company may need to raise additional capital to fund operations, including the Phase 3 ASPEN study, the continued commercialization of ARIKAYCE, the ARISE and ENCORE clinical trials related to ARIKAYCE, launch readiness activities for the potential launch of brensocatib, if approved, other clinical trials for brensocatib, TPIP, and its future product candidates, and to develop, acquire, in-license or co-promote other products or product candidates, including those that address orphan or rare diseases. The source, timing and availability of any future financing or other transaction will depend principally upon continued progress in the Company’s commercial, regulatory and development activities. Any equity or debt financing will also be contingent upon equity and debt market conditions and interest rates at the time. If the Company is unable to obtain sufficient additional funds when required, the Company may be forced to delay, restrict or eliminate all or a portion of its development programs or commercialization efforts. The Company believes it currently has sufficient funds to meet its financial needs for at least the next 12 months.

Risks and Uncertainties - There are many uncertainties regarding the novel coronavirus (COVID-19) pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic will impact its patients, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially affect the Company's financial results and business operations for the three months ended March 31, 2022, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future

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periods due to numerous uncertainties. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.

2.Summary of Significant Accounting Policies

The following are the required interim disclosure updates to ~~certain of~~ the Company's significant accounting policies described in ~~“Note 2”~~Note 2 of the notes to the ~~Company’s audited~~ consolidated financial statements in the ~~Company’s~~ Company's Annual Report on Form 10-K for the year ended December 31, ~~2016:~~202 1:

Fair Value Measurements - The Company categorizes its financial assets and liabilities measured and reported at fair value in the financial statements on a recurring basis based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs used to determine the fair value of financial assets and liabilities, are as follows:

•Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

•Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

•Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Each major category of financial assets and liabilities measured at fair value on a recurring basis ~~are~~is categorized based upon the lowest level of significant input to the valuations. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments in Level 1 generally include US treasuries and mutual funds listed in active markets.

The Company’s only financial assets and liabilities which were measured at fair value as of September 30, 2017 and December 31, 2016 were Level 1 and such assets were comprised of cash and cash equivalents of $430.7 million and $162.6 million, respectively.

~~The Company’s~~Company's cash and cash equivalents permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions. ~~Cash equivalents consist of liquid investments with~~

The following table shows assets and liabilities that are measured at fair value on a ~~maturity of three months or less from the date of purchase.~~recurring basis and their carrying value (in millions):


	March 31, 2022
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	515.7	$	515.7	$	—	$	—
Marketable securities	$	149.0	$	149.0	$	—	$	—
Deferred consideration	$	12.9	$	—	$	12.9	$	—
Contingent consideration liabilities	$	66.1	$	—	$	—	$	66.1


	December 31, 2021
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	716.8	$	716.8	$	—	$	—
Marketable securities	$	50.0	$	50.0	$	—	$	—
Deferred consideration	$	14.9	$	—	$	14.9	$	—
Contingent consideration liabilities	$	75.7	$	—	$	—	$	75.7

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the three months ended March 31, 2022, the Company purchased $99.7 million of additional marketable securities consisting of US Treasury Notes. There were no0 other transfers in or out of Level 1, Level 2 or Level 3 during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively.

As of ~~September 30, 2017~~March 31, 2022, the Company held $119.4 million and $29.6 million of current and non-current available-for-sale securities, respectively, net of an unrealized loss of $0.9 million recorded in accumulated other comprehensive income. As of December 31, ~~2016,~~2021, the Company held no securities that were in an unrealized gain or loss position.

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The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the ~~securities were~~security was rated below investment grade; (3) how long the ~~securities have~~security has been in an unrealized loss position; and (4) the ~~Company’s~~Company's ability and intent to retain the investment for a sufficient period of time for it to recover. The Company has determined that there were no other-than-temporary impairments during the quarter ended March 31, 2022.

Deferred Consideration

The deferred consideration arose from the acquisitions of Motus Biosciences, Inc. (Motus) and AlgaeneX, Inc. (AlgaeneX) (the Business Acquisition) in August 2021 (see Note 13). The Company is obligated to issue to Motus equityholders an aggregate of 184,433 shares of the Company’s common stock on each of the first, second and third anniversaries of the closing date, subject to certain reductions. A valuation of the deferred consideration is performed quarterly with gains and losses included within change in fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive loss. As the deferred consideration is settled in shares, there is no discount rate applied in the fair value calculation.

The deferred consideration has been classified as a Level 2 recurring liability as its valuation utilizes an input, the Insmed share price on the valuation date, which is a directly observable input at the measurement date and for the duration of the liabilities' anticipated lives. Deferred consideration expected to be settled within twelve months or less is classified as a current liability and are included in accrued liabilities. As of March 31, 2022, the fair value of deferred consideration included in accrued liabilities was $4.2 million. Deferred consideration expected to be settled in more than twelve months is classified as a non-current liability and is included in other long-term liabilities. As of March 31, 2022, the fair value of deferred consideration included in other long-term liabilities was $8.7 million.

The following observable input was used in the valuation of the deferred consideration as of March 31, 2022:


	Fair Value as of March 31, 2022 (in millions)	Observable Input	Input Value
Deferred consideration	$12.9	Insmed share price on the valuation date	$23.50

Contingent Consideration

The contingent consideration liabilities arose from the Business Acquisition in August 2021 (see Note 13). The contingent consideration liabilities consist of developmental and regulatory milestones, a priority review voucher milestone and net sales milestones. Upon the achievement of certain development and regulatory milestone events, the Company is obligated to issue to Motus equityholders up to 5,348,572 shares in the aggregate and AlgaeneX equityholders up to 368,867 shares in the aggregate. The fair value of the development and regulatory milestones are estimated utilizing a probability-adjusted approach. At March 31, 2022, the weighted average probability of success was 42%. The development and regulatory milestones will be settled in shares of the Company's common stock. As such, there is no discount rate applied in the fair value calculation.

If the Company were to receive a priority review voucher, the Company is obligated to pay to the Motus equityholders a portion of the value of the priority review voucher, subject to certain reductions. The potential payout will be either 50% of the after tax net proceeds received by the Company from a sale of the priority review voucher or 50% of the average of the sales prices for the last 3 publicly disclosed priority review voucher sales, less certain adjustments. The fair value of the priority review voucher milestone is estimated utilizing a probability-adjusted discounted cash flow approach. This obligation will be settled in cash.

The contingent consideration liabilities for net sales milestones were valued using an option pricing model with Monte Carlo simulation. As of March 31, 2022, the fair value of these net sales milestones were deemed immaterial to the overall fair value of the contingent consideration.

The contingent consideration liabilities have been classified as a Level 3 recurring liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the inputs to the valuation approach, the estimated fair value could be significantly different than the fair value the Company determined. Contingent consideration liabilities expected to be settled in more than twelve months are classified as a non-current liability. A valuation of the contingent consideration liabilities is performed quarterly with gains and losses included within change in fair value of contingent consideration liabilities in the consolidated statements of comprehensive loss.

The following significant unobservable inputs were used in the valuation of the contingent consideration liabilities as of March 31, 2022 (in millions):

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Contingent Consideration Liabilities

Fair Value as of March 31, 2022

Valuation Technique

Unobservable Inputs

Values

Development and regulatory milestones

$56.5

Probability-adjusted

Probabilities of success

14% - 95%

Priority review voucher milestone

$5.2

Probability-adjusted discounted cash flow

Probability of success

13.5%

Discount rate

8.2%

The following table is a summary of the changes in the fair value of the Company's valuations for the deferred and contingent consideration liabilities for the period ended March 31, 2022 (in thousands):



	December 31, 2021		Additions	Change in Fair Value	Adjustments	March 31, 2022
Deferred consideration	$	14,931	—	(2,070)	—	$	12,861
Contingent consideration	$	75,668	—	(9,548)	—	$	66,120

Convertible Notes

The estimated fair value of the liability component of the Company's 0.75% convertible senior notes due 2028 (the 2028 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of March 31, 2022 was $551.4 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2028 Convertible Notes. The $561.0 million carrying value of the 2028 Convertible Notes as of March 31, 2022 excludes the $14.0 million of the unamortized portion of the debt issuance costs.

The estimated fair value of the liability component of the Company's 1.75% convertible senior notes due 2025 (the 2025 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of March 31, 2022 was $224.6 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2025 Convertible Notes. The $222.2 million carrying value of the 2025 Convertible Notes as of March 31, 2022 excludes the $2.8 million of the unamortized portion of the debt issuance costs.

Net Loss Per Share - Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares and other dilutive securities outstanding during the period. Potentially dilutive securities from stock options, ~~and~~restricted stock, restricted stock units (RSUs), performance stock units (PSUs) and convertible debt securities would be anti-dilutive as the Company incurred a net loss. Potentially dilutive common shares resulting from the assumed exercise of outstanding stock options and from the assumed conversion of the Convertible Notes are determined based on the treasury stock method.

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The following table sets forth the reconciliation of the weighted average number of common shares used to compute basic and diluted net loss per share for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016:~~2021:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands, except per share amounts)
Numerator:

Net loss $ (45,179 ) $ (37,760 ) $ (127,265 ) $ (107,871 )
Denominator:

Weighted average common shares used in calculation of basic net loss per share: 65,312
61,878
63,199
61,871
Effect of dilutive securities:

Common stock options —
—
—
—
RSUs —
—
—
—
Weighted average common shares outstanding used in calculation of diluted net loss per share 65,312
61,878
63,199
61,871
Net loss per share:

Basic and Diluted $ (0.69 ) $ (0.61 ) $ (2.01 ) $ (1.74 )


	Three Months Ended March 31,
			2022		2021
		(in thousands, except per share amounts)
Numerator:
Net loss			$	(94,621)	$	(91,641)
Denominator:
Weighted average common shares used in calculation of basic net loss per share:			118,929		103,040
Effect of dilutive securities:
Common stock options			—		—
Restricted stock and RSUs			—		—
PSUs			—		—
Convertible debt securities			—		—
Weighted average common shares outstanding used in calculation of diluted net loss per share			118,929		103,040
Net loss per share:
Basic and diluted			$	(0.80)	$	(0.89)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021, respectively, as their effect would have been anti-dilutive (in thousands):


	March 31,
	2022	2021
Common stock options	15,282	13,008
Unvested restricted stock and RSUs	1,163	915
PSUs	679	—
Convertible debt securities	23,438	11,492

2017 2016
Stock options to purchase common stock 8,601
7,306
Unvested RSUs 47
89

~~Recently Adopted Accounting Pronouncements~~ ~~- In August 2014,~~Concentration of Credit Risk—Financial instruments that potentially subject the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15,~~ ~~Presentation~~Company to concentrations of ~~Financial Statements—Going Concern (Subtopic~~

~~205-40): Disclosure~~credit risk consist primarily of ~~Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to perform interim~~cash and annual assessments of an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The new standard was effective for the annual period ending after December 15, 2016, and for interim periods thereafter.cash equivalents. The Company ~~adopted ASU 2014-15~~places its cash equivalents with high credit-quality financial institutions and may invest its short-term investments in ~~the fourth quarter of 2016, which had no impact on the Company’s consolidated financial statements.~~US treasury securities, mutual funds and government agency bonds. The ~~interim assessment during the first three quarters of 2017 did not have an impact on the consolidated financial statements.~~

Company has established guidelines relative to credit ratings and maturities that seek to maintain safety and liquidity.

The Company ~~had $430.7 million in cash and cash equivalents as~~is exposed to risks associated with extending credit to customers related to the sale of September 30, 2017 and reported a net loss of $127.3 million for the nine months ended September 30, 2017. Historically, the Company has funded its operations through public offerings of equity securities and debt financings. To date, the Company has not generated material revenue from ALIS.products. The Company does not ~~expect~~require collateral to ~~generate~~secure amounts due from its customers. The Company uses an expected loss methodology to calculate allowances for trade receivables. The Company's measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company does not currently have a material allowance for collectible trade receivables. The following table presents the percentage of gross product revenue ~~unless~~represented by the Company's three largest customers as of the three months ended March 31, 2022 and 2021.


	March 31,
	2022	2021
Customer A	36%	25%
Customer B	32%	22%
Customer C	17%	—%

The Company relies on third-party manufacturers and suppliers for manufacturing and supply of its products. The inability of the suppliers or ~~until marketing approval is received for ALIS. Accordingly,~~manufacturers to fulfill supply requirements of the Company could materially impact future operating results. A change in the relationship with the suppliers or manufacturers, or an adverse change in their business, could materially impact future operating results.

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Revenue Recognition - In accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to ~~continue~~receive in exchange for the goods or services provided. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to ~~incur losses while funding research~~the performance obligations in the contract; and ~~development (R&D) activities, regulatory submissions, potential commercial launch activities~~(5) recognize revenue when or as the entity satisfies a performance obligation. At contract inception, the Company assesses the goods or services promised within each contract to determine which are performance obligations and ~~general and administrative expenses.~~to assess whether each promised good or service is distinct. The Company ~~expects~~then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. For all contracts that fall into the scope of ASC 606, the Company has identified one performance obligation: the sale of ARIKAYCE to its ~~future cash requirements~~customers. The Company has not incurred or capitalized any incremental costs associated with obtaining contracts with customers.

Product revenues, net consist of net sales of ARIKAYCE. The Company's customers in the US include specialty pharmacies and specialty distributors. In December 2020, the Company began recognizing product revenue from commercial sales of ARIKAYCE in Europe. In July 2021, the Company began recognizing product revenue from commercial sales of ARIKAYCE in Japan. Globally, product revenues are recognized once the Company performs and satisfies all five steps of the revenue recognition criteria mentioned above.

The following table presents a summary of the Company's product revenues, net, by geographic location for the three months ended March 31, 2022 and 2021 (in thousands).


	Three Months Ended March 31,				Increase (decrease)
	2022		2021		$		%
US	$	40,782	$	37,254	$	3,528	9.5%
Japan	10,676		—		10,676		NA
Europe and rest of world	1,649		2,960		(1,311)		(44.3)%
Total product revenues, net	$	53,107	$	40,214	$	12,893	32.1%

Revenue is recorded at net selling price (transaction price), which includes estimates of variable consideration for which reserves are established for (a) customer credits, such as invoice discounts for prompt pay, (b) estimated government rebates, such as Medicaid and Medicare Part D reimbursements, and estimated managed care rebates, (c) estimated chargebacks, and (d) estimated costs of co-payment assistance. These reserves are based on the amounts earned or to be ~~substantial,~~claimed on the related sales and are classified as reductions of accounts receivable (prompt pay discounts and chargebacks), prepaid expenses (co-payment assistance), or as a current liability (rebates). Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company's historical experience, current contractual and statutory requirements, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company's best estimates of the amount of consideration to which it is entitled based on the terms of the applicable contract. The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company's estimates. If actual results in the future vary from estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

Customer credits: The Company's customers are offered various forms of consideration, including prompt payment discounts. The payment terms for sales to specialty pharmacies for prompt payment discounts are based on contractual rates agreed with the respective specialty pharmacies. The Company anticipates that its customers will earn these discounts and, therefore, deducts the full amount of these discounts from total gross product revenues at the time such revenues are recognized.

Rebates: The Company contracts with government agencies and managed care organizations, or collectively, third-party payors, so that ARIKAYCE will be eligible for purchase by, or partial or full reimbursement from, such third-party payors. The Company estimates the rebates it will provide to third-party payors and deducts these estimated amounts from total gross product revenues at the time the revenues are recognized. These reserves are recorded in the same period in which the revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The current liability is included in accrued liabilities on the consolidated balance sheets. The Company estimates the rebates that it will provide to third-party payors based upon (i) the Company's contracts with these third-party payors, (ii) the government mandated discounts applicable to government-funded programs, (iii) a range of possible outcomes that are probability-weighted for the estimated payor mix, and (iv) information obtained from the Company's specialty pharmacies.

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Chargebacks: Chargebacks are discounts that occur when certain contracted customers, currently public health service institutions and federal government entities purchasing via the Federal Supply Schedule, purchase directly from the Company's specialty distributor. Contracted customers generally purchase the product at a discounted price and the specialty distributor, in turn, charges back to the Company the difference between the price the specialty distributor initially paid and the discounted price paid by the contracted customers. The Company estimates chargebacks provided to the specialty distributor and deducts these estimated amounts from gross product revenues, and from accounts receivable, at the time revenues are recognized.

Co-payment assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. Based upon the terms of the program and information regarding programs provided for similar specialty pharmaceutical products, the Company estimates the average co-pay mitigation amounts and the percentage of patients that it expects to participate in the program in order to establish accruals for co-payment assistance. These reserves are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue. The Company adjusts its accruals for co-pay assistance based on actual redemption activity and estimates of future redemptions related to sales in the current period.

If any, or all, of the Company's actual experience varies from its estimates, the Company may need to ~~raise additional capital~~adjust prior period accruals, affecting revenue in the period of adjustment.

The Company also recognizes revenue related to ~~fund operations,~~various early access programs (EAPs) in Europe, predominantly in France. EAPs are intended to ~~develop~~make products available on a named patient basis before they are commercially available in accordance with local regulations.

Inventory and ~~commercialize ALIS,~~Cost of Product Revenues (excluding amortization of intangible assets) - Inventory is stated at the lower of cost and net realizable value. The Company began capitalizing inventory costs following US Food and Drug Administration (FDA) approval of ARIKAYCE in September 2018. Inventory is sold on a first-in, first-out (FIFO) basis. The Company periodically reviews inventory for expiry and obsolescence and, if necessary, writes down accordingly. If quality specifications are not met during the manufacturing process, such inventory is written off to ~~develop INS1007~~cost of product revenues (excluding amortization of intangible assets) in the period identified.

Cost of product revenues (excluding amortization of intangible assets) consist primarily of direct and ~~INS1009~~indirect costs related to the manufacturing of ARIKAYCE sold, including third-party manufacturing costs, packaging services, freight, and allocation of overhead costs, in addition to ~~develop, acquire, in-license or co-promote other products that address orphan or rare diseases.~~royalty expenses and revenue-based milestone payments. Cost is determined using a standard cost method, which approximates actual cost, and assumes a FIFO flow of goods.

~~ASU 2014-15 requires~~Prior to FDA approval of ARIKAYCE, the Company expensed all inventory-related costs in the period incurred. Inventory used for clinical development purposes is expensed to ~~evaluate~~R&D expense when consumed.

Business combinations and asset acquisitions - The Company evaluates acquisitions of assets and other similar transactions to assess whether ~~it has sufficient resources~~or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to ~~fund operations~~determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the ~~next 12 months from the filing date without regard~~screen is not met, further determination is required as to whether or not ~~it can raise capital~~the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in ASU 2017-01, Business Combinations, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the ~~future.~~acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, Business Combinations, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

The consideration for the Company’s business acquisitions may include future payments that are contingent upon the occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair value of contingent consideration, other than changes due to payments, are recognized as a gain or loss and recorded within change in the fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive loss.

If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’

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carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values.

Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets.

Indefinite-lived intangible assets - Indefinite-lived intangible assets consist of In Process Research & Development (IPR&D). IPR&D acquired directly in a transaction other than a business combination is capitalized if the projects will be further developed or have an alternative future use; otherwise they are expensed. The fair values of IPR&D project assets acquired in business combinations are capitalized. The Company ~~believes~~generally utilizes the Multi-Period Excess Earning Method to determine the estimated fair value of the IPR&D assets acquired in a business combination. The projections used in this valuation approach are based on many factors, such as relevant market size, patent protection, and expected pricing and industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually. However, an entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it ~~currently has sufficient funds~~is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to ~~meet~~that excess. The Company considers many factors in evaluating whether the value of its intangible assets with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of equity and debt capital, general economic conditions, the Company’s outlook and market performance of the Company’s industry and recent and forecasted financial ~~needs~~performance. The Company performs a qualitative annual test for its indefinite-lived intangible assets annually as of October 1.

Finite-lived Intangible Assets - Finite-lived intangible assets are measured at ~~least~~their respective fair values on the ~~next 12 months. In September 2017,~~date they were recorded and, with respect to the acquired ARIKAYCE R&D intangible asset, at the date of subsequent adjustments of fair value. The fair values assigned to the Company's intangible assets are based on reasonable estimates and assumptions given available facts and circumstances.

Impairment Assessment - The Company reviews the recoverability of its finite-lived intangible assets and long-lived assets for indicators of impairments. Events or circumstances that may require an impairment assessment include negative clinical trial results, a significant decrease in the market price of the asset, or a significant adverse change in legal factors or the manner in which the asset is used. If such indicators are present, the Company ~~completed~~assesses the recoverability of affected assets by determining if the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found to not be recoverable, the Company measures the amount of the impairment by comparing to the carrying value of the assets to the fair value of the assets. The Company determined that no indicators of impairment of finite-lived intangible assets or long-lived assets existed at March 31, 2022.

Goodwill - Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of the Company’s business acquisitions accounted for using the acquisition method of accounting. Goodwill is not amortized and is subject to impairment testing at a reporting unit level on an ~~underwritten offering~~annual basis or when a triggering event occurs that may indicate the carrying value of ~~14.1 million shares~~the goodwill is impaired. The Company reassesses its reporting units as part of its ~~common stock for cash proceeds~~annual segment review. An entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value of ~~$377.7 million, net of fees and expenses related to~~ the ~~offering.~~reporting unit is less than its carrying amount. The Company will perform its next annual impairment testing for goodwill on October 1, 2022.

Leases - A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly identified property, plant or equipment in exchange for consideration. Control of an asset is conveyed to the Company if the Company obtains the right to obtain substantially all of the economic benefits of the asset or the right to direct the use of the asset. The Company recognizes right-of-use (ROU) assets and lease liabilities at the lease commencement date based on the present value of future, fixed lease payments over the term of the arrangement. ROU assets are amortized on a straight-line basis over the term of the lease or are amortized based on consumption, if this approach is more representative of the pattern in which benefit is expected to be ~~opportunistic in raising additional capital within~~derived from the ~~next 12 months~~underlying asset. Lease liabilities accrete to yield and ~~may do so through equity or debt financing(s), strategic transactions or otherwise. The source, timing~~are reduced at the time when the lease payment is payable to the vendor. Variable lease payments are recognized at the time when the event giving rise

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to the payment occurs and ~~availability of any future financing or other transaction will depend principally upon continued progress~~are recognized in the ~~Company’s regulatory, development and pre-commercial activities. Any equity~~consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments.

Leases are measured at present value using the rate implicit in the lease or, ~~debt financing will also be contingent upon equity and debt market conditions and interest rates~~if the implicit rate is not determinable, the lessee's implicit borrowing rate. As the implicit rate is not typically available, the Company uses its implicit borrowing rate based on the information available at the ~~time. If~~lease commencement date to determine the present value of future lease payments. The implicit borrowing rate approximates the rate the Company ~~is unable~~would pay to ~~obtain sufficient additional funds when~~borrow on a collateralized basis over a similar term an amount equal to the lease payments.

Refer to Note 7 - Leases for details about the Company's lease portfolio, including required ~~the Company may be forced to delay, restrict or eliminate all or a portion of its R&D programs, pre-commercialization activities, or dispose of assets or technology.~~disclosures.

Recently Adopted Accounting Pronouncements - In ~~March 2016,~~December 2019, the FASB issued ASU ~~2016-9,~~ ~~Improvements to Employee Share-Based Payment~~2019-12, Income Taxes (Topic 740): Simplifying the Accounting~~, which amends Accounting Standards Codification (ASC) Topic 718,~~ ~~Compensation—Stock Compensation~~. for Income Taxes. ASU ~~2016-9~~2019-12 simplifies ~~several aspects of~~ the accounting for ~~share-based payment transactions, including~~income taxes by removing certain exceptions to the ~~income tax consequences, classification~~general principles in Topic 740. The amendments also promote consistent application of ~~awards as either equity or~~and simplify US generally accepted accounting principles (GAAP) for other areas of Topic 740 by clarifying and amending the existing guidance. For public business entities, the guidance was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. The Company adopted this guidance January 1, 2021. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements and accompanying notes.

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, to reduce the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and ~~classification on~~equity. For convertible instruments, the ~~statement~~number of ~~cash flows.~~accounting models for convertible debt instruments is reduced, which results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Only convertible instruments that meet the definition of a derivative or are issued with substantial premiums will continue to be subject to the separation models. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a share of convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. ASU ~~2016-9 was~~2020-06 will be effective for fiscal years beginning after December 15, ~~2016, and interim periods within those fiscal years.~~ 2021. The Company ~~adopted ASU 2016-9 in~~transitioned using the ~~first quarter of 2017.~~modified retrospective method. The impact of adopting ASU 2020-06 on January 1, 2022 resulted in an opening balance sheet adjustment increasing debt by $221.9 million, increasing issuance costs classified to debt by $6.1 million, decreasing the ~~adoption was~~deferred tax liability by $1.4 million, and causing an increase to retained earnings of $50.2 million, with an offsetting reduction to additional paid-in-capital of $264.6 million, net of tax.

3. Inventory

As of March 31, 2022 and December 31, 2021, the Company's inventory balance consists of the following (in thousands):


	March 31, 2022		December 31, 2021

Raw materials	$	30,598	$	29,541
Work-in-process	10,607		18,528
Finished goods	22,940		18,940
	$	64,145	$	67,009

Inventory is stated at the lower of cost and net realizable value and consists of raw materials, work-in-process and finished goods. The Company began capitalizing inventory costs following FDA approval of ARIKAYCE in September 2018. The Company has not recorded any significant inventory write-downs since that time. The Company currently uses a limited number of third-party contract manufacturing organizations (CMOs) to produce its inventory.

4.Intangibles, Net and Goodwill

Intangibles, Net

Finite-lived Intangible Assets

As of March 31, 2022, the Company's finite-lived intangible assets consisted of acquired ARIKAYCE R&D and the milestones paid to PARI Pharma GmbH (PARI) for the license to use PARI's Lamira® Nebulizer System (Lamira) for the delivery of ARIKAYCE to patients as a result of the FDA and EC approvals of ARIKAYCE in September 2018 and October 2020, respectively. The Company began amortizing its acquired ARIKAYCE R&D and PARI milestones intangible assets in October 2018, over ARIKAYCE's initial regulatory exclusivity period of 12 years. Amortization of these assets during each of the next five years is estimated to be approximately $5.1 million per year.

Indefinite-lived Intangible Assets

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As of March 31, 2022, the Company's indefinite-lived intangible assets consisted of acquired in process research and development (IPR&D) from the Business Acquisition (see Note 13). Indefinite-lived intangible assets are not amortized.

A rollforward of the Company's intangible assets for the three months ended March 31, 2022 and March 31, 2021 is as follows (in thousands):



Intangible Asset	December 31, 2021		Additions		Amortization		March 31, 2022
Acquired ARIKAYCE R&D	$	42,439	$	—	$	(1,212)	$	41,227
Acquired IPR&D	29,600		—		—		29,600
PARI milestones	1,770		—		(51)		1,719
	$	73,809	$	—	$	(1,263)	$	72,546

Intangible Asset	December 31, 2020		Additions		Amortization		March 31, 2021
Acquired ARIKAYCE R&D	$	47,289	$	—	$	(1,213)	$	46,076

PARI milestones	1,972		—		(50)		1,922
	$	49,261	$	—	$	(1,263)	$	47,998

Goodwill

The Company's goodwill balance of $136.1 million as of March 31, 2022, resulted from the Business Acquisition (see Note 13).

5. Fixed Assets, Net

Fixed assets are stated at cost and depreciated using the straight-line method, based on useful lives as follows (in thousands):



Asset Description	Estimated Useful Life (years)	March 31, 2022		December 31, 2021

Lab equipment	7	$	12,507	$	11,862
Furniture and fixtures	7	5,835		5,799
Computer hardware and software	3-5	7,326		7,264
Office equipment	7	89		89
Manufacturing equipment	7	1,203		1,145
Leasehold improvements	lease term	36,203		36,073
Construction in progress (CIP)	—	27,860		27,784
		91,023		90,016
Less: accumulated depreciation		(38,347)		(37,061)
		$	52,676	$	52,955

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6.Accrued Liabilities

As of March 31, 2022 and December 31, 2021, the Company's accrued liabilities balance consists of the following (in thousands):


	March 31, 2022		December 31, 2021
Accrued clinical trial expenses	$	14,533	$	19,410
Accrued professional fees	8,746		10,678
Accrued technical operation expenses	3,817		6,187
Accrued royalty payable	6,559		6,655
Accrued interest payable	2,269		2,175
Accrued sales allowances and related costs	11,516		8,275
Deferred consideration	4,193		4,883
Accrued construction costs	366		551
Other accrued liabilities	1,290		1,851
	$	53,289	$	60,665

7.Leases

The Company's lease portfolio consists primarily of office and laboratory space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's leases of its corporate headquarters and a research facility in San Diego, which are classified as finance leases. The terms of the Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred. These short-term leases are not material to the ~~consolidated~~Company's financial ~~statements.~~

3. �� ~~Identifiable Intangible Asset~~

position. Furthermore, the Company does not separate lease and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees and it does not sublease any of its leased assets.

The Company ~~believes there are no indicators of impairment relating~~outsources its manufacturing operations to ~~its in-process research and development intangible asset as of September 30, 2017.~~

4.~~Accrued Expenses~~

~~Accrued expenses consist~~CMOs. Upon review of the ~~following:~~

As of September 30,
2017 As of December 31,
2016
(in thousands)
Accrued clinical trial expenses $ 8,560
$ 7,071
Accrued compensation 6,634
6,937
Accrued professional fees 2,057
1,604
Accrued technical operation expenses 742
591
Accrued interest payable 424
438
Other accrued expenses 385
181
$ 18,802
$ 16,822

5.~~Debt~~

~~On September 30, 2016,~~agreements with its CMOs, the Company and its domestic subsidiaries, as co-borrowers, entered into an Amended and Restated Loan and Security Agreement (the A&R Loan Agreement) with Hercules Capital, Inc. (Hercules). The A&R Loan Agreement included a total commitment from Hercules of up to $55.0 million, of which $25.0 million was previously outstanding. The amount of borrowings was increased by $10.0 million to an aggregate total of $35.0 million on September 30, 2016. An additional $20.0 million was available at the Company’s option through June 30, 2017 subject to certain conditions, including the payment of a facility fee of 0.375%.determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company ~~exercised this option in early October 2016~~obtains substantially all of the economic benefits from the use of the manufacturing facilities, has the right to direct how and ~~borrowed an additional $20.0 million in connection~~for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with ~~its upfront payment obligation under~~ the ~~license agreement with AstraZeneca AB. The interest rate for the term~~manufacturing facilities is ~~floating and is calculated as the greater of (i) 9.25% or (ii) 9.25% plus~~ the sum of the US prime rate minus 4.50%, along with a backend fee of 4.15% of the aggregate principal amount outstanding and an aggregate facility fee of $337,500. The maturity date of the loan facility was also extended to October 1, 2020. In connection with the Company generating and announcing top-line data from the CONVERT study on September 5, 2017 that supports the filing of a New Drug Application (NDA), along with the completion of the equity financing, the interest-only period was automatically extended through May 1, 2019 and the Company's requirement to have a consolidated minimum cash liquidity in an amount no less than $25.0 million was eliminated. In addition, pursuant to the A&R Loan Agreement, Hercules has the right to participate, in an aggregate amount of up to $2.0 million, in a subsequent private financing that involves the issuance of our equity securities.

In connection with the A&R Loan Agreement, the Company granted Hercules a first position lien on all of the Company’s assets, excluding intellectual property. Prepayment of the loans made pursuant to the A&R Loan Agreement is subject to penalty. The back-end fee of 4.15% on the aggregate outstanding principal balance is being charged to interest expense (and accreted to the debt) using the effective interest methodguarantees over the life of the ~~A&R Loan Agreement. Debt issuance~~production contracts.

The Company also records variable consideration for variable lease payments in excess of fixed fees or minimum guarantees. Variable consideration related to the Company's leasing arrangements was $0.1 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively. Variable costs related to CMO manufacturing agreements are direct costs related to the manufacturing of ARIKAYCE and are capitalized within inventory in the Company's consolidated balance sheet, while the variable costs related to other leasing arrangements, not related to the manufacturing of ARIKAYCE, have been classified within operating expenses in the Company's consolidated statements of comprehensive loss.

The table below summarizes the supplemental noncash disclosures of the Company's leases included in its consolidated financial statements (in thousands):


	Three Months Ended March 31,
		2022		2021
Finance right-of-use assets obtained in exchange for lease obligations		$	9,287	$	—
Operating right-of-use assets obtained in exchange for lease obligations		$	341	$	6,541

In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company entered into certain agreements with Patheon UK Limited (Patheon) related to increasing its long-term production capacity for ARIKAYCE commercial inventory. The Company has determined that these agreements with Patheon contain an embedded lease for the manufacturing facility and the specialized equipment contained therein. Costs of $34.0 million incurred by the Company under these additional agreements have been classified withinother assets in the Company's consolidated balance

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sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to establish an operating lease ROU asset and operating lease liability.

8.Debt

In May 2021, the Company completed an underwritten public offering of the 2028 Convertible Notes, in which the Company sold $575.0 million aggregate principal amount of the 2028 Convertible Notes, including the exercise in full of the underwriters' option to purchase an additional $75.0 million in aggregate principal amount of 2028 Convertible Notes. The Company's net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses of $15.7 million, were approximately $559.3 million. The 2028 Convertible Notes bear interest payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The 2028 Convertible Notes mature on June 1, 2028, unless earlier converted, redeemed, or repurchased.

In January 2018, the Company completed an underwritten public offering of the 2025 Convertible Notes, in which the Company sold $450.0 million aggregate principal amount of the 2025 Convertible Notes, including the exercise in full of the underwriters' option to purchase an additional $50.0 million in aggregate principal amount of 2025 Convertible Notes. The Company's net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses of $14.2 million, were approximately $435.8 million. The 2025 Convertible Notes bear interest payable semiannually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The 2025 Convertible Notes mature on January 15, 2025, unless earlier converted, redeemed, or repurchased.

A portion of the net proceeds from the 2028 Convertible Notes was used to repurchase $225.0 million of the Company's outstanding 2025 Convertible Notes. The Company recorded a loss on early extinguishment of debt of $17.7 million, primarily related to the premium paid on extinguishment of a portion the 2025 Convertible Notes.

On or after October 15, 2024, until the close of business on the second scheduled trading day immediately preceding January 15, 2025, holders may convert their 2025 Convertible Notes at any time. The initial conversion rate for the 2025 Convertible Notes is 25.5384 shares of common stock per $1,000 principal amount of 2025 Convertible Notes (equivalent to ~~Hercules were recorded~~an initial conversion price of approximately $39.16 per share of common stock). On or after March 1, 2028, until the close of business on the second scheduled trading day immediately preceding June 1, 2028, holders may convert their 2028 Convertible Notes at any time. The initial conversion rate for the 2028 Convertible Notes is 30.7692 shares of common stock per $1,000 principal amount of 2028 Convertible Notes (equivalent to an initial conversion price of approximately $32.50 per share of common stock). Upon conversion of either the 2025 Convertible Notes or the 2028 Convertible Notes, holders may receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's option. The conversion rates will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

Holders may convert their 2025 Convertible Notes prior to October 15, 2024 or their 2028 Convertible Notes prior to March 1, 2028, only under the following circumstances, subject to the conditions set forth in the applicable indenture: (i) during the 5 business day period immediately after any 5 consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of the applicable series of convertible notes, as determined following a request by a holder of such convertible notes, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on such trading day, (ii) the Company elects to distribute to all or substantially all holders of the common stock (a) any rights, options or warrants (other than in connection with a stockholder rights plan for so long as the rights issued under such plan have not detached from the associated shares of common stock) entitling them, for a period of not more than 45 days from the declaration date for such distribution, to subscribe for or purchase shares of common stock at a price per share that is less than the average of the last reported sale prices of the common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the declaration date for such distribution, or (b) the Company's assets, debt securities or rights to purchase securities of the Company, which distribution has a per share value, as reasonably determined by the board of directors, exceeding 10% of the last reported sale price of the common stock on the trading day immediately preceding the declaration date for such distribution, (iii) if a transaction or event that constitutes a fundamental change or a make-whole fundamental change occurs, or if the Company is a party to (a) a consolidation, merger, combination, statutory or binding share exchange or similar transaction, pursuant to which the common stock would be converted into, or exchanged for, cash, securities or other property or assets, or (b) any sale, conveyance, lease or other transfer or similar transaction in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Company and its subsidiaries, taken as a ~~discount~~whole, all or any portion of the applicable series of convertible notes may be surrendered by a holder for conversion at any time from or after the date that is 30 scheduled trading days prior to the anticipated effective date of the transaction, (iv) if during any calendar quarter commencing after the calendar quarter ending on March 31, 2018 or June 30, 2021 for the 2025 Convertible Notes and 2028 Convertible Notes, respectively, (and only during such calendar quarter), the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the ~~debt and are being amortized to interest expense using the effective interest method over the life~~last trading day of the ~~A&R Loan Agreement.~~immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, or, (v) if the Company

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sends a notice of redemption, a holder may surrender all or any portion of its convertible notes, to which the notice of redemption relates, for conversion at any time on or after the date the applicable notice of redemption was sent until the close of business on (a) the second business day immediately preceding the related redemption date or (b) if the Company fails to pay the redemption price on the redemption date as specified in such notice of redemption, such later date on which the redemption price is paid. To date, there have not been any holder initiated redemption requests of either series of convertible notes.

Each series of convertible notes can be settled in cash, common stock, or a combination of cash and common stock at the Company's option, and thus, the Company determined the embedded conversion options in both series of convertible notes are not required to be separately accounted for as a derivative. The 2025 Convertible Notes and 2028 Convertible Notes have remaining terms of approximately 2.79 years and 6.17 years, respectively. The following table presents the ~~components~~carrying value of the ~~Company’s~~Company's debt balance ~~as of September 30, 2017~~ (in thousands):

Notes payable $ 55,000
Accretion of back-end fee on debt 677
Debt issuance costs, unamortized (289 )
Debt, long-term $ 55,388


	March 31, 2022		December 31, 2021
Face value of outstanding convertible notes	$	800,000	$	800,000
Debt issuance costs, unamortized	(16,844)		(11,539)
Discount on debt	—		(221,873)
Debt, long-term	$	783,156	$	566,588

As of ~~September 30, 2017,~~March 31, 2022, future principal repayments of the ~~debt~~notes for each of the ~~fiscal~~ years through maturity were as follows (in thousands):


Year Ending December 31:
2022	$	—
2023	—
2024	—
2025	225,000
2026	—
2027 and thereafter	575,000
	$	800,000

Interest Expense

Year Ending December 31:
2017 $ —
2018 —
2019 13,399
2020 41,601
$ 55,000
Interest expense related to debt and finance leases for the three months ended March 31, 2022 and 2021 is as follows (in thousands):


	Three Months Ended March 31,
		2022		2021
Contractual interest expense		$	2,063	$	1,969
Amortization of debt issuance costs		822		350

Accretion of debt discount		—		4,907
Total convertible debt interest expense		2,885		7,226
Finance lease interest expense		406		333
Interest expense		$	3,291	$	7,559

~~The estimated fair value of~~In accordance with the ~~debt (categorized as a Level 2 liability~~Company's transition using the modified retrospective method upon adopting ASU 2020-06, Debt — Accounting for ~~fair value measurement purposes) is determined using current market factors and the ability of~~Convertible Instruments, on January 1, 2022, the Company ~~to obtain~~ceased accreting debt ~~at comparable terms to those that are currently in place. The Company believes the estimated fair value at September 30, 2017 approximates the carrying amount.~~discount.

6.9.Shareholders’ Equity

Common Stock — As of ~~September 30, 2017,~~March 31, 2022, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 per share and ~~76,568,368~~119,345,962 shares of common stock issued and outstanding. In addition, as of ~~September 30, 2017,~~March 31, 2022, the Company had reserved ~~8,601,293~~15,282,451 shares of common stock for issuance upon the exercise of outstanding stock options, ~~and 46,914~~1,163,182 shares of common stock for issuance upon the vesting of ~~RSUs.~~RSUs and 679,038 shares for issuance upon the vesting of PSUs. The Company has also reserved 23,438,430shares of common stock for issuance upon conversion of the 2025 Convertible Notes and 2028 Convertible Notes, in the aggregate, subject to adjustment in accordance with the applicable indentures. In connection with the Business Acquisition, the Company reserved 9,406,112 shares of the Company’s common stock, subject to certain closing-related reductions. The shares of the Company’s common stock reserved in connection with the

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Motus acquisition were partly issued as acquisition consideration at closing, and will also be issued upon the first, second and third anniversaries of the acquisition’s closing date and upon the achievement of certain development and regulatory milestone events, subject to certain reductions. The shares of the Company’s common stock reserved in connection with the AlgaeneX acquisition will be issued upon the achievement of a development milestone event, subject to certain reductions.

~~On September 6, 2017,~~Of the 9,406,112 shares reserved, subject to certain closing-related reductions, the Company issued 2,889,367 shares of the Company's common stock in connection with its Business Acquisition in the third quarter of 2021, following certain closing-related deductions. See Note 13 for additional information related to the Business Acquisition.

In the second quarter of 2021, the Company completed an underwritten public offering of ~~14,123,150~~11,500,000 shares of the ~~Company’s~~Company's common stock, ~~which included~~including 1,500,000 shares issued pursuant to the ~~underwriter’s~~ exercise in full of ~~its over-allotment~~the underwriters' option to purchase additional shares from the Company, at a public offering price of ~~1,842,150~~

~~shares, at a price to the public of $28.50~~$25.00 per share. The ~~Company’s~~Company's net proceeds from the sale of the shares, after deducting the ~~underwriter’s discount~~underwriting discounts and offering expenses of ~~$24.8~~$17.5 million, were ~~$377.7~~$270.1 million.

In the first quarter of 2021, the Company entered into a sales agreement with SVB Leerink LLC (now known as SVB Securities LLC) (SVB Leerink), to sell shares of the Company's common stock, with aggregate gross sales proceeds of up to $250.0 million, from time to time, through an “at the market” equity offering program (the ATM program), under which SVB Leerink acts as sales agent. As of March 31, 2022, the Company had not sold or issued any shares under the ATM program.

In the second quarter of 2020, the Company completed an underwritten public offering of 11,155,000 shares of the Company's common stock, including 1,455,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares from the Company, at a public offering price of $23.25 per share. The Company's net proceeds from the sale of the shares, after deducting the underwriting discounts and offering expenses of $13.5 million, were $245.9 million.

Preferred Stock — As of ~~September 30, 2017,~~March 31, 2022, the Company had 200,000,000 shares of preferred stock authorized with a par value of $0.01 per share and no shares of preferred stock were issued and outstanding.

7.10.Stock-Based Compensation

The ~~Company’s~~Company's current equity compensation plan, the ~~2017~~Insmed Incorporated 2019 Incentive Plan (as amended, the 2019 Incentive Plan), was approved by shareholders at the ~~Company’s~~Company's Annual Meeting of Shareholders onin May ~~18, 2017.~~2019. The ~~2017~~2019 Incentive Plan is administered by the Compensation Committee ~~and~~of the Board of Directors of the Company. Under the terms of the ~~2017~~2019 Incentive Plan, the Company is authorized to grant a variety of incentive awards based on its common stock, including stock options (both incentive stock options and non-qualified stock options), RSUs, performance options/shares and other stock awards ~~as well as pay incentive bonuses~~ to eligible employees and non-employee directors. On May ~~18, 2017,~~16, 2019, upon the approval of the ~~2017~~2019 Incentive Plan by shareholders, ~~5,000,000~~3,500,000 shares were authorized for issuance thereunder, plus any shares subject to then-outstanding awards under the 2017 Incentive Plan, the 2015 Incentive Plan and the 2013 Incentive Plan that subsequently were canceled, terminated unearned, expired, were forfeited, lapsed for any reason or were settled in cash without the delivery of shares. On May 12, 2020, at the Company's 2020 Annual Meeting of Shareholders, the Company's shareholders approved an amendment of the 2019 Incentive Plan providing for the issuance of an additional 4,500,000 shares under the plan. On May 12, 2021, at the Company's 2021 Annual Meeting of Shareholders, the Company's shareholders approved the second amendment to the 2019 Incentive Plan providing for the issuance of an additional 2,750,000 shares under the plan. The Company has submitted a proposal to its shareholders to approve a third amendment to the 2019 Incentive Plan at the 2022 Annual Meeting of Shareholders. The third amendment to the 2019 Incentive Plan, if approved, will provide for the issuance of an additional 3,000,000 shares. As of ~~September 30, 2017, 4,929,910~~March 31, 2022, 2,389,172 shares remained for future issuance under the ~~2017~~2019 Incentive Plan. The ~~2017~~2019 Incentive Plan will terminate on ~~April 3, 2027~~May 16, 2029 unless it is extended or terminated earlier pursuant to its terms. In addition, from time to time, the Company makes inducement grants of stock ~~options. These~~options to new hires, which awards are made pursuant to the ~~NASDAQ~~Nasdaq's inducement grant exception ~~as a component~~to the shareholder approval requirement for grants of ~~new hires’ employment compensation in connection with the Company’s~~ equity ~~grant program.~~compensation. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2022, the Company granted inducement stock options covering ~~236,370~~135,500 shares of the Company's common stock to new employees.

On May 15, 2018, the 2018 Employee Stock ~~Options~~ -Purchase Plan (2018 ESPP) was approved by shareholders at the Company's 2018 Annual Meeting of Shareholders. The Company ~~calculates~~has reserved the ~~fair value~~following for issuance under the 2018 ESPP: (i) 1,000,000 shares of common stock, ~~options granted using the Black-Scholes valuation model. The following table summarizes the Company’s grant date fair value~~plus (ii) commencing on January 1, 2019 and ~~assumptions used in determining the fair value~~ending on December 31, 2023, an additional number of ~~all stock options granted:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Volatility 72%-73% 75%-76% 72%-74% 75%-77%
Risk-free interest rate 1.73%-1.93% 1.00%-1.18%
1.73%-1.99% 1.00%-1.73%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Expected option term (in years) 6.25 6.25 6.25 6.25
Weighted average fair value of stock options granted $9.59 $7.79 $10.18 $8.74

~~For each period presented, the volatility factor was based~~shares to be added on the ~~Company’s historical volatility during~~first day of each calendar year equal to the ~~expected option term. Estimated forfeitures are based on the actual percentage~~lesser of ~~option forfeitures since the closing~~(A) 1,200,000 shares of common stock, (B) 2% of the ~~Company’s merger with Transave, Inc. in December 2010.~~number of outstanding shares of common stock on such date and (C) an amount determined by the administrator.

Stock Options — As of March 31, 2022, there was $101.6 million of unrecognized compensation expense related to unvested stock options.

From time to time, the Company ~~grants performance-condition~~has granted performance-conditioned options to certain of its employees. Vesting of these options is subject to the Company achieving certain performance criteria established at the date of grant and the grantees

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fulfilling a service condition (continued employment). As of ~~September 30, 2017,~~March 31, 2022, the Company had ~~performance~~performance-conditioned options totaling ~~133,334~~114,780 shares outstanding which had not yet met the recognition criteria.

~~The following table summarizes the Company’s aggregate stock option activity for the nine months ended September 30, 2017:~~

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life in Years

Aggregate
Intrinsic
Value (in
thousands)
Options outstanding at December 31, 2016 7,116,706
$ 13.30

Granted 2,207,390
$ 15.42

Exercised (336,135 ) $ 8.78

Forfeited or expired (386,668 ) $ 15.59

Options outstanding at September 30, 2017 8,601,293
$ 13.92
7.65 $ 148,771
Vested and expected to vest at September 30, 2017 8,269,230
$ 13.88
7.60 $ 143,327
Exercisable at September 30, 2017 3,904,073
$ 12.46
6.40 $ 73,193

The total intrinsic value of stock options exercised during the three months ended September 30, 2017 and 2016 was $1.4 million and $0.0 million, respectively, and during the nine months ended September 30, 2017 and 2016 was $3.5 million and $0.1 million, respectively.

Restricted Stock Units— As of ~~September 30, 2017,~~March 31, 2022, there was ~~$31.5~~$24.7 million of unrecognized compensation expense related to unvested ~~stock options which~~RSU awards.

Performance Stock Units — In January 2022, the Company issued 271,612 PSUs. For these PSUs, there are two performance conditions, a service condition, and a market condition. The performance conditions are the issuance of a press release announcing certain top-line results from a clinical trial and the acceptance of a new drug application (NDA) by the FDA for brensocatib. The service condition is ~~expected~~continuous employment with the Company through the later of the third anniversary of the grant date of the PSU award and the date an NDA for brensocatib is accepted by the FDA. The potential payout of the awards ranges from 0% to 250% of the target, dependent on a market condition that is based on Insmed's total shareholder return compared to a defined peer group. Due to the multiple vesting conditions, uncertain timing and variable payout of these PSUs, a Monte Carlo simulation was performed to determine the fair value of the awards. Compensation cost will be recognized ~~over a weighted average period of 2.7 years. Included in unrecognized compensation expense was $1.1 million related to outstanding performance-condition options. The following table summarizes~~on the ~~range of exercise prices and~~date the ~~number of stock options outstanding and exercisable:~~

Outstanding as of September 30, 2017 Exercisable as of September 30, 2017
Range of Exercise Prices ($) Number of Options Weighted Average Remaining Contractual Term (in years) Weighted Average Exercise Price ($) Number of Options Weighted Average Exercise Price ($)
3.03
4.55
988,195
4.89 3.59
988,195
3.59
6.90
6.90
137,577
5.47 6.90
100,077
6.90
6.96
10.85
1,081,121
8.55 10.76
289,330
10.52
11.14
12.58
1,095,757
6.65 12.17
735,792
12.16
12.66
13.58
185,880
7.76 13.24
89,704
13.29
13.67
13.67
865,660
9.27 13.67
—
—
13.94
15.91
862,300
8.01 14.97
339,372
14.55
16.07
16.16
1,009,781
7.93 16.13
463,410
16.12
16.19
17.16
871,266
9.34 17.10
31,741
16.30
17.24
27.38
1,503,756
7.41 21.20
866,452
21.13

~~Restricted Stock and Restricted Stock Units~~ — The Company may grant restricted stock (RS) and RSUs to eligible employees, including its executives, and non-employee directors. Each share of RS vests, and each RSU represents a right to receive one shareperformance conditions become probable, with an initial recording of the ~~Company’s common stock, upon~~cumulative expense that would have been recognized if the ~~completion of~~PSU expense had been recognized on a ~~specific period of continued service or achievement of a certain milestone. RS and RSU awards granted are valued at the market price of the Company’s common stock on~~straight-line basis since the date of grant. The ~~Company recognizes noncash compensation expense for~~remaining unamortized fair value of the ~~fair values of these RS and RSUs~~awards will then be expensed prospectively on a straight-line basis over the remaining service period. Since the market condition is reflected in the grant-date fair value and is not a condition for the award to vest, it does not impact the requisite service period. The volatility, risk-free interest rate and weighted-average grant date fair value of the PSUs granted are 65.4%, 1.03% and $39.12, respectively. Any forfeitures that occur after compensation cost recognition commences will result in the cumulative reversal of expense in the period in which the forfeiture occurs. As of ~~these awards. The following table summarizes~~March 31, 2022, there was $10.6 million of unrecognized compensation expense related to unvested PSU awards, which assumes a payout of 100% of the ~~Company’s RSU award activity during the nine months ended September 30, 2017:~~

Number of
RSUs

Weighted
Average
Grant Price ($)
Outstanding at December 31, 2016 89,194
10.85
Granted 46,914
17.16
Released (89,194 ) (10.85 )
Outstanding at September 30, 2017 46,914
17.16

target.

The following table summarizes the aggregate stock-based compensation expense recorded in the ~~Consolidated Statements~~consolidated statements of ~~Comprehensive Loss~~comprehensive loss related to stock options and RSUs during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016:~~2021, respectively (in millions):


	Three Months Ended March 31,
		2022		2021
Research and development		$	5.6	$	3.7
Selling, general and administrative		7.2		6.8
Total		$	12.8	$	10.5

There was 0 stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to PSUs during the three months ended March 31, 2022, as the performance conditions associated with the PSU awards are not probable as of March 31, 2022.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in millions)
Research and development expenses $ 1.8
$ 1.7
$ 4.8
$ 4.6
General and administrative expenses 2.9
3.4
8.5
9.3
Total $ 4.7
$ 5.1
$ 13.3
$ 13.9

8.11.Income Taxes

The ~~Company’s~~Company recorded a provision for income taxes ~~was $27,000~~of $0.4 million and ~~$94,000~~$0.2 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2022 and ~~$25,000 and $71,000 for the three and nine months ended September 30, 2016,~~2021, respectively. The ~~provision for income taxes in all periods was~~provisions are primarily a result of certain of the ~~Company’s~~Company's international subsidiaries, ~~in Europe,~~ which had taxable income during the ~~three and nine months ended September 30, 2017 and 2016.~~periods. Additionally, the Company is impacted by certain state taxes which effectively impose income tax on modified gross revenues. In jurisdictions where the Company has net losses, there was a full valuation allowance recorded against the ~~Company’s~~Company's deferred tax assets and therefore no tax benefit was recorded.

The Company is subject to US federal USand state income taxes and ~~foreign income taxes. The~~the statute of limitations for tax audit is open for the ~~Company’s US~~Company's federal tax returns for the years ended ~~2013~~2018 and later, and is generally open for certain states for the years ~~2012~~2017 and later. The Company has incurred net operating losses since inception, except for the year ended December 31, 2009. ~~Loss~~Such loss carryforwards ~~are~~would be subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. As of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, the Company had recorded no reserves for unrecognized income tax benefits ~~nor had it~~against certain deferred tax assets in the US. However, given the Company’s valuation allowance position, these reserves do not have an impact on the balance sheet as of March 31, 2022 and December 31, 2021 or the consolidated statements of comprehensive loss for the three months ended March 31, 2022 and 2021. The Company has not recorded any accrued interest or penalties related to uncertain tax positions. The Company does not anticipate any material changes in the amount of unrecognized tax positions over the next 12 months.

9.12.Commitments and Contingencies

The Company has an operating lease for office and laboratory space located in Bridgewater, NJ, its corporate headquarters, for which the initial lease term expires in November 2019. Future minimum rental payments under this lease are $2.2 million. In July 2016, the Company signed an operating lease for additional laboratory space located in Bridgewater, NJ for which the initial lease term expires in December 2021. Future minimum rental payments under this lease are $2.0 million.

Rent expense charged to operations was ~~$0.4~~$2.0 million and $1.2 million for ~~both~~ the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016, and $1.1 million and $0.9 million for the nine months ended September 30, 2017 and 2016,~~2021, respectively. Future minimum rental payments required under the Company’s operating leases for the period from October 1, 2017 to December 31, 2017 and for each of the five years thereafter are as follows (in thousands):

Year Ending December 31:
2017 (remaining) $ 377
2018 1,520
2019 1,421
2020 477
2021 498
2022 —
$ 4,293

~~Purchase Commitments~~

~~In September 2017, the Company increased its purchase commitments made in the normal course~~Table of business with contract manufacturing organizations (CMOs) and various other suppliers related to the production requirements for ALIS. These purchase commitments have increased as a result of the release of top-line results from the CONVERT study.Contents

Legal Proceedings

On July 15, 2016, a lawsuit captioned Hoey v. Insmed Incorporated, et al, No. 3:16-cv-04323-FLW-TJB (D.N.J. July 15, 2016) was filed in the US District Court for the District of New Jersey on behalf of a putative class of investors who purchased the Company’s common stock from March 18, 2013 through June 8, 2016. The complaint alleged that the Company and certain of its executives violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (Exchange Act) by misrepresenting and/or omitting the likelihood of the European Medicines Agency (EMA) approving the Company’s European marketing authorization application (MAA) for use of ALIS in the treatment of NTM lung disease and the likelihood of commercialization of ALIS in Europe.

On October 25, 2016, the Court issued an order appointing Bucks County Employees Retirement Fund as lead plaintiff for the putative class. On December 15, 2016, the lead plaintiff filed an amended complaint that shortens the putative class period for the Exchange Act claims to March 26, 2014 through June 8, 2016 and adds claims under Sections 11, 12, and 15 of the Securities Act of 1933 (Securities Act) on behalf of a putative class of investors who purchased common stock in or traceable to the Company’s March 31, 2015 public offering. The amended complaint names as defendants in the Securities Act claims the Company, certain directors and officers, and the investment banks who served as underwriters in connection with the secondary offering. The amended complaint alleges defendants violated the Securities Act by using a purportedly misleading definition of “culture conversion” and supposedly failing to disclose in the offering materials purported flaws in its Phase 2 study that made the secondary offering risky or speculative. The amended complaint seeks damages in an unspecified amount. The Company moved to dismiss the amended complaint on March 1, 2017. The lead plaintiff opposed the motion on May 17, 2017 and the Company provided its reply brief on July 11, 2017. On July 20, 2017, the plaintiff asked for leave to file a sur-reply in further opposition to the Company’s motion to dismiss the amended complaint, which the Company has opposed. The Company believes that the allegations in the complaints are without merit and intends to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of the lawsuit.

From time to time, the Company is a party to various ~~other~~ lawsuits, claims and other legal proceedings that arise in the ordinary course of business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the ~~Company’s~~Company's consolidated financial position, results of operations or cash flows.

13. Business Acquisition

~~10.Subsequent Event~~

~~In October 2017,~~On August 4, 2021, the Company ~~exercised~~acquired all of the equity interests of Motus and AlgaeneX, each a privately held, preclinical stage company. In connection with the closing of the Company’s acquisition of Motus, the Company issued an aggregate of 2,889,367 shares of the Company’s common stock, following certain closing-related reductions, to Motus’s former stockholders and option ~~to buy-down the future royalties that will be payable to PARI Pharma GmbH (PARI). Pursuant to the existing licensing agreement, PARI is~~holders and certain individuals who are entitled to receive ~~royalty payments in~~a portion of the ~~mid-single digits on the annual global net sales of ALIS,~~acquisition consideration (collectively, Motus equityholders), subject to certain ~~specified annual minimum royalties.~~adjustments. The ~~royalty buy-down will enable~~Company is obligated to issue to Motus equityholders an aggregate of 184,433 shares of the Company’s common stock on each of the first, second and third anniversaries of the closing date and up to 5,348,572 shares in the aggregate upon the achievement of certain development and regulatory milestone events, and to pay to the Motus equityholders an aggregate of $35 million upon the achievement of certain net sales-based milestones and a portion of the value of a priority review voucher (to the extent issued to the Company), in each case, subject to certain reductions.

At the closing of the Company’s acquisition of AlgaeneX, the Company paid $1.5 million in cash to ~~reduce~~AlgaeneX’s former stockholders and certain individuals who are entitled to receive a portion of the ~~royalty~~acquisition consideration (collectively, the AlgaeneX equityholders). The Company is obligated to issue to AlgaeneX’s equityholders an aggregate of 368,867 shares of the Company’s common stock upon the achievement of a development milestone event and pay to AlgaeneX equityholders a mid-single digits licensing fee on certain future payments ~~due~~received by the Company in licensing transactions for AlgaeneX’s manufacturing technology, in each case, subject to ~~PARI~~certain reductions.

The shares of the Company’s common stock issued to the Motus equityholders and the AlgaeneX equityholders were issued, and the shares issuable in the future will be issued, pursuant to Section 4(a)(2) of the Securities Act of 1933, and the numbers of such issued and issuable shares was calculated based on a per share value of $27.11, which is the weighted average price per share of the Company's common stock preceding the closing of the Business Acquisition for the 45 consecutive trading day period beginning on May 24, 2021. The Company will not receive any proceeds from the issuance of common stock to the Motus equityholders or the AlgaeneX equityholders.

The Company evaluated the Business Acquisition under ASC 805, Business Combinations and ASU 2017-01, Business Combinations: Clarifying the Definition of a Business. The Company concluded that substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or a group of similar identifiable assets. The transaction does not pass the screen test and thus management performed a full assessment to determine if the acquired entities met the definition of a business. For the full assessment, management considered whether it has acquired (a) inputs, (b) substantive processes, and (c) outputs. Under ASC 805, to be considered a business, a set of activities and assets is required to have only the first two of the three elements, which together are or will be used in the future to create outputs. Management determined that the acquired entities met the definition of a business since the Company acquired inputs and substantive processes capable of producing outputs.

Therefore, the transaction has been accounted for under the acquisition method of accounting. Under the acquisition method, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on the ~~annual global net sales~~fair values as of ~~ALIS.~~the date of the acquisition. The ~~payment to PARI~~fair value of the consideration totaled approximately $165.5 million. The results of Motus's and AlgaeneX's operations have been included in the consolidated statements of comprehensive loss beginning on the acquisition date.

The fair value of IPR&D was capitalized as of the acquisition date and accounted for as indefinite-lived intangible assets until completion or disposition of the assets or abandonment of the associated research and development efforts. Upon successful completion of the development efforts, the useful lives of the IPR&D assets will be ~~included as a component~~determined based on the anticipated period of ~~general~~regulatory exclusivity and ~~administrative expenses in~~will be amortized within operating expenses. Until that time, the ~~fourth quarter~~IPR&D assets will be subject to impairment testing and will not be amortized. The goodwill recorded related to the acquisition is the excess of ~~2017.~~the fair value of the consideration transferred by the acquirer over the fair value of the net identifiable assets acquired and liabilities assumed at the date of acquisition. The goodwill recorded is not deductible for tax purposes.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding ~~Forward Looking~~Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. ~~“Forward-looking~~"Forward-looking statements,”" as that term is defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are statements that are not historical facts and involve a number of risks and uncertainties. Words herein such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential,” “continues,”"may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "intends," "potential," "continues," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements.

Forward-looking statements are based on our current expectations and beliefs, and involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance and achievements and the timing of certain events to differ materially from the results, performance, achievements or timing discussed, projected, anticipated or indicated in any forward-looking statements. Such risks, uncertainties and other factors include, among others, the following:

•failure to successfully commercialize ARIKAYCE, our only approved product, in the US, Europe or Japan (amikacin liposome inhalation suspension, Liposomal 590 mg Nebuliser Dispersion, and amikacin sulfate inhalation drug product, respectively), or to maintain US, European or Japanese approval for ARIKAYCE;

risks that the full six-month data from the CONVERT study (the CONVERT study or the 212 study) or subsequent data from the remainder of the study’s treatment and off‑treatment phases will not be consistent with the top-line six-month results of the study;

•uncertainties in the research and development of our existing product candidates, including due to delays in data readouts, such as the full data from the CONVERT study, patient enrollment and retention or failure of our preclinical studies or clinical trials to satisfy pre‑established endpoints, including secondary endpoints in the CONVERT study and endpoints in the CONVERT extension study (the 312 study);

failure to obtain, or delays in obtaining, regulatory approval from the US Food and Drug Administration (FDA), Japan’s Ministry of Health, Labour and Welfare (MHLW), the European Medicines Agency (EMA), and other regulatory authorities for our product candidates or their delivery devices, such as the eFlow Nebulizer System, including due to insufficient clinical data, selection of endpoints that are not satisfactory to regulators, complexity in the review process for combination products or inadequate or delayed data from a human factors study required for US regulatory approval;

failure to maintain regulatory approval for our product candidates, if received, due to a failure to satisfy post-approval regulatory requirements, such as the submission of sufficient data from confirmatory clinical studies;

~~safety and efficacy concerns related to our product candidates;~~

~~lack of experience in conducting and managing preclinical development activities and clinical trials necessary for regulatory approval, including the regulatory filing and review process;~~

~~failure to comply with extensive post‑approval regulatory requirements or imposition of significant post‑approval restrictions on our product candidates by regulators;~~

~~uncertainties in the rate and~~ degree of market acceptance of ARIKAYCE by physicians, patients, third-party payors and others in the healthcare community;

•our inability to obtain full approval of ARIKAYCE from the FDA, including the risk that we will not successfully or in a timely manner complete the study to validate a patient reported outcome (PRO) tool and the confirmatory post-marketing clinical trial required for full approval of ARIKAYCE;

•inability of us, PARI or our other third-party manufacturers to comply with regulatory requirements related to ARIKAYCE or the Lamira® Nebulizer System;

•our inability to obtain adequate reimbursement from government or third-party payors for ARIKAYCE or acceptable prices for ARIKAYCE;

•development of unexpected safety or efficacy concerns related to ARIKAYCE or our product candidates;

•inaccuracies in our estimates of the size of the potential markets for ARIKAYCE, brensocatib, TPIP or our other product candidates ~~if approved;~~or in data we have used to identify physicians, expected rates of patient uptake, duration of expected treatment, or expected patient adherence or discontinuation rates;

•our inability to create an effective direct sales and marketing infrastructure or to partner with third parties that offer such an infrastructure for distribution of ARIKAYCE or any of our product candidates ~~if approved;~~that are approved in the future;

~~inaccuracies~~•failure to obtain regulatory approval to expand ARIKAYCE’s indication to a broader patient population;

•risk that brensocatib does not prove to be effective or safe for patients in ongoing and future clinical studies, including the ASPEN study;

•risk that TPIP does not prove to be effective or safe for patients in ongoing and future clinical studies;

•risk that our ~~estimates~~competitors may obtain orphan drug exclusivity for a product that is essentially the same as a product we are developing for a particular indication;

•failure to successfully predict the time and cost of development, regulatory approval and commercialization for novel gene therapy products;

•failure to successfully conduct future clinical trials for ARIKAYCE, brensocatib, TPIP and our other product candidates due to our limited experience in conducting preclinical development activities and clinical trials necessary for regulatory approval and our potential inability to enroll or retain sufficient patients to conduct and complete the ~~size of~~trials or generate data necessary for regulatory approval, among other things;

•risks that our clinical studies will be delayed or that serious side effects will be identified during drug development;

•failure to obtain, or delays in obtaining, regulatory approvals for ARIKAYCE outside the ~~potential markets~~US, Europe or Japan, or for our product candidates in the US, Europe, Japan or ~~limitations by regulators on the proposed treatment population~~other markets, including separate regulatory approval for ~~our~~Lamira and other product ~~candidates;~~candidate devices in each market and for each usage;

•failure of third parties on which we are dependent to ~~conduct our clinical trials, to~~ manufacture sufficient quantities of ARIKAYCE or our product candidates for commercial or clinical ~~or commercial~~ needs, ~~including~~to conduct our ~~raw materials suppliers,~~clinical trials, or to comply with our agreements or laws and regulations that impact our ~~business;~~business or agreements with us;

~~inaccurate estimates regarding~~

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•our ~~future capital requirements, including those necessary~~inability to ~~fund our ongoing clinical development, regulatory~~attract and ~~commercialization efforts as well as milestone payments or royalties owed to third parties;~~

~~failure to develop,~~retain key personnel or to ~~license for development, additional~~effectively manage our growth;

•our inability to successfully integrate our recent acquisitions and appropriately manage the amount of management’s time and attention devoted to integration activities;

•risks that our acquired technologies, products and product candidates ~~including a failure~~are not commercially successful;

•our inability to ~~attract experienced third‑party collaborators;~~

~~uncertainties in the timing, scope and rate of reimbursement for our product candidates;~~

~~changes in laws and regulations applicable~~adapt to our highly competitive and changing environment;

•risk that we are unable to maintain our significant customers;

•risk that government healthcare reform materially increases our costs and damages our financial condition;

•business or economic disruptions due to catastrophes or other events, including natural disasters or public health crises;

•impact of the COVID-19 pandemic and ~~failure~~efforts to ~~comply with such laws~~reduce its spread on our business, employees, including key personnel, patients, partners and ~~regulations;~~suppliers;

•our inability to ~~repay~~adequately protect our ~~existing indebtedness~~intellectual property rights or ~~to obtain additional capital when needed;~~

~~failure to obtain, protect and enforce~~prevent disclosure of our ~~patents~~trade secrets and other ~~intellectual property~~proprietary information and costs associated with litigation or other proceedings related to such matters;

•restrictions or other obligations imposed on us by ~~license~~ agreements ~~that are critical for~~related to ARIKAYCE or our product ~~development,~~candidates, including our license agreements with PARI ~~Pharma GmbH (PARI)~~ and AstraZeneca AB (AstraZeneca), and failure to comply with our obligations under such agreements;

~~competitive developments affecting our product candidates and potential exclusivity related thereto;~~

•the cost and potential reputational damage resulting from litigation to which we are or may become a party, including ~~without limitation,~~product liability claims;

•risk that our operations are subject to a material disruption in the ~~class action lawsuit pending against us;~~event of a cybersecurity attack or issue;

~~loss of key personnel; and~~•business disruptions or expenses related to the upgrade to our enterprise resource planning system;

~~lack of~~•our limited experience operating ~~internationally.~~internationally;

•changes in laws and regulations applicable to our business, including any pricing reform, and failure to comply with such laws and regulations;

•our history of operating losses, and the possibility that we never achieve or maintain profitability;

•goodwill impairment charges affecting our results of operations and financial condition;

•inability to repay our existing indebtedness and uncertainties with respect to our ability to access future capital; and

•delays in the execution of plans to build out an additional third-party manufacturing facility approved by the appropriate regulatory authorities and unexpected expenses associated with those plans.

We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Any forward-looking statement is based on information current as of the date of this Quarterly Report on Form 10-Q and speaks only as of the date on which such statement is made. Actual events or results may differ materially from the results, plans, intentions or expectations anticipated in these forward-looking statements as a result of a variety of factors, many of which are beyond our control. More information on factors that could cause actual results to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (SEC), including, but not limited to, those described in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~included~~ in this Quarterly Report on Form 10-Q and included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~202 1. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~202 1.

OVERVIEW

We are a global biopharmaceutical company ~~focused~~ on a mission to transform the ~~unmet needs~~lives of patients with serious and rare diseases. Our ~~lead~~first commercial product, ~~candidate~~ARIKAYCE, is ~~amikacin~~approved in the US as ARIKAYCE® (amikacin liposome inhalation ~~suspension (ALIS) (formerly known~~suspension), in Europe as ~~liposomal amikacin~~ARIKAYCE Liposomal 590 mg Nebuliser Dispersion and in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product). ARIKAYCE received accelerated approval in the US in September 2018 for ~~inhalation, or LAI), which is in late-stage development~~the treatment of MAC lung disease as part of a combination antibacterial drug regimen for adult patients with limited or no alternative treatment options in a refractory ~~nontuberculous mycobacteria (NTM)~~setting. In October 2020, the EC approved ARIKAYCE for the treatment of NTM lung infections caused by MAC in adults with limited treatment options who do not have CF. In March 2021, Japan's MHLW approved ARIKAYCE for the treatment of patients with NTM lung disease caused by ~~Mycobacterium avium~~ ~~complex (MAC),~~MAC who did not sufficiently respond to

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prior treatment with a multidrug regimen. NTM lung disease caused by MAC (which we refer to as MAC lung disease) is a rare and often chronic infection that can cause irreversible lung damage and can be fatal.

Our ~~earlier~~ clinical-stage pipeline includes ~~INS1007~~brensocatib and ~~INS1009. INS1007~~TPIP. Brensocatib is a ~~novel~~small molecule, oral, reversible inhibitor of ~~dipeptidyl peptidase 1 (DPP1), an enzyme responsible~~DPP1, which we are developing for ~~activating neutrophil serine proteases, which are implicated in~~ the ~~pathology~~treatment of ~~chronic inflammatory lung~~patients with bronchiectasis, CF and other neutrophil-mediated diseases, ~~such as non-cystic fibrosis (non-CF) bronchiectasis. INS1009~~including CRS and HS. TPIP is an inhaled ~~nanoparticle~~ formulation of athe treprostinil prodrug ~~that~~treprostinil palmitil which may offer a differentiated product profile for ~~rare pulmonary disorders, including pulmonary arterial hypertension (PAH).~~

PAH and PH-ILD.

The table below summarizes the current status and anticipated milestones for ARIKAYCE and our ~~principal~~ product ~~candidates: ALIS, INS1007,~~candidates brensocatib and ~~INS1009.~~

TPIP.

Principal Product/Product ~~Candidate/Target~~

~~Indications~~

Candidate

Status

Next Expected Milestones

~~ALIS~~ARIKAYCE for ~~NTM~~MAC lung ~~infections~~disease

l• We ~~announced top‑line data for~~continue to focus on the ~~CONVERT study on September 5, 2017. Based on top‑line results, the CONVERT study met its primary endpoint~~commercialization of ~~culture conversion, which we define as three consecutive negative monthly sputum cultures by month six with statistical and clinical significance, with 29%~~ARIKAYCE. We commenced commercial shipments of ~~patients in the ALIS plus current guidelines-based therapy (GBT) arm achieving culture conversion, compared to 9% of patients in the GBT‑only arm (p<0.0001).~~

l~~The CONVERT study is a randomized, open-label global phase 3 clinical study of ALIS in adult patients with treatment refractory NTM lung disease caused by MAC.~~

l~~The FDA has designated ALIS as an orphan drug, a breakthrough therapy, and a qualified infectious disease product (QIDP).~~

l~~The European Commission has granted an orphan designation for ALIS for the treatment of NTM lung disease.~~

l~~We plan to pursue accelerated approval for ALIS~~ARIKAYCE in the US ~~based on~~in October 2018, in Europe in November 2020, and in Japan in July 2021.

• In December 2020, we commenced the post-marketing confirmatory frontline clinical trial program for ARIKAYCE in patients with MAC lung disease, consisting of the ARISE trial and the ENCORE trial. We are currently enrolling patients for these trials and are running these global studies in parallel.

• We will continue to advance the post-marketing confirmatory, frontline clinical trial program for ARIKAYCE. In ARISE, we anticipate completing enrollment in 2022 and having top-line data ~~from the CONVERT study. We intend to seek marketing approvals for ALIS~~ in ~~certain countries outside the US, when sufficient data are available. If approved, we expect ALIS would be~~ the first ~~inhaled antibiotic specifically indicated for~~half of 2023. In ENCORE, we anticipate completing enrollment by the ~~treatment~~end of ~~NTM lung disease caused by MAC in North America, Japan and Europe.~~

l~~If approved, we plan to commercialize ALIS in the US, Japan, certain countries in Europe, and certain other countries.~~

2023.

~~INS1007~~

Brensocatib (oral reversible inhibitor of DPP1) for ~~non-CF~~ bronchiectasis and other ~~rare~~neutrophil-mediated diseases

l~~We are in preparations for the WILLOW study, a~~• In June 2020, we announced full results from our global, ~~phase 2,~~ randomized, double-blind placebo-controlled ~~parallel-group, multi-center clinical~~Phase 2 WILLOW study, which were published online in the New England Journal of Medicine inSeptember 2020.

• In December 2020, we commenced a Phase 3 trial (the ASPEN trial) through which we will seek to ~~assess~~confirm the ~~efficacy, safety and tolerability, and pharmacokinetics of INS1007 administered once daily for 24 weeks~~positive results seen in ~~subjects with non-CF bronchiectasis.~~

lthe WILLOW study. We are currently ~~assessing our regulatory strategies with regard~~enrolling patients globally for this trial.

• We will continue to ~~orphan drug designation~~advance the ASPEN trial and ~~other pathways that could expedite the development and regulatory reviews of INS1007 in the US and the EU.~~

l~~We have received a "study may proceed letter" from the FDA and expect to commence~~anticipate completing enrollment in ~~the WILLOW clinical study of INS1007 in the fourth quarter of 2017.~~early 2023.

• We are ~~exploring~~advancing a clinical development program for brensocatib in CF. The Phase 2 pharmacokinetics/pharmacodynamics multiple-dose study is underway, and we anticipate sharing results by early 2023.

• We plan to explore the potential of ~~INS1007~~brensocatib in ~~various neutrophil-driven inflammatory conditions.~~additional neutrophil-mediated diseases, including CRS and HS.

~~INS1009 (inhaled nanoparticle~~

TPIP (dry-powder inhalation formulation of a treprostinil prodrug) for ~~rare pulmonary disorders~~PAH and PH-ILD

l ~~The~~• In February 2021, we announced topline results ~~of our phase~~from the Phase 1 study of ~~INS1009 were presented at~~TPIP in healthy volunteers. Data from the ~~European Respiratory Society international congress~~study supports continued development into Phase 2 with once-daily dosing.

• We are advancing the development of TPIP in ~~September 2016.~~both PAH and PH-ILD.

l ~~The phase 1 study was~~

• We currently have three parallel Phase 2 studies ongoing: a ~~randomized, double-blind, placebo-controlled, single ascending dose~~Phase 2a study of ~~INS1009 for inhalation~~the hemodynamic impact of TPIP in PAH patients over a 24-hour period; a Phase 2b study in PAH patients over a 16-week treatment period to ~~determine its~~evaluate the effect of TPIP on pulmonary vascular resistance (PVR) and six-minute walk distance; and a Phase 2 study in patients with PH-ILD over a 16-week treatment period to assess safety ~~tolerability,~~ and ~~pharmacokinetics in healthy volunteers.~~tolerability.

l• We ~~believe INS1009 may offer a differentiated product profile for rare pulmonary disorders, including~~will continue to advance our Phase 2 development work in both PAH and ~~we are currently evaluating our options to advance its development including exploring its use as an inhaled dry powder formulation.~~PH-ILD.

• We anticipate having preliminary data from a small number of patients in the Phase 2a study in 2022.

Our earlier-stage pipeline includes preclinical compounds that we are evaluating in multiple rare diseases ofwith unmet medical ~~need, including methicillin-resistant staph aureus (MRSA) and NTM.~~ need. To complement our internal research and development, we actively evaluate in-licensing and acquisition opportunities for a broad range of rare diseases.

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Our Strategy

Our strategy focuses on the needs of patients with rare diseases. We ~~are currently primarily focused on~~secured approval for ARIKAYCE in the ~~development~~US as ARIKAYCE® (amikacin liposome inhalation suspension), in Europe as ARIKAYCE Liposomal 590 mg Nebuliser Dispersion and ~~commercialization of ALIS.~~in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product). We are not aware of any other approved inhaled therapies specifically indicated to treat ~~NTM~~MAC lung disease in North America, ~~Japan~~Europe or ~~Europe. While we~~Japan. We believe that ~~ALIS~~ARIKAYCE has the potential to ~~treat a number of different bacterial infections,~~prove beneficial in other patients with MAC. Our product candidates are brensocatib, our Phase 3 product candidate which we are ~~prioritizing securing US regulatory approval of ALIS~~developing for ~~adult~~ patients with ~~NTM lung disease caused by MAC.~~bronchiectasis, CF and other neutrophil-mediated diseases, and TPIP, our product candidate that may offer a differentiated product profile for patients with PAH and PH-ILD. We are also advancing earlier-stage programs in other rare ~~pulmonary~~ disorders.

Our current priorities are as follows:

•Continue our efforts to ensure the successful commercialization and expansion of ARIKAYCE globally;

~~Completing~~•Advance our Phase 3 ASPEN trial for brensocatib in patients with bronchiectasis;

•Develop and validate a PRO tool for NTM lung disease to be used in, among other trials, the ~~CONVERT study;~~

~~Preparing a New Drug Application (NDA)~~ENCORE trial required for ~~submission under subpart H to~~the full US approval of ARIKAYCE by the FDA ~~for ALIS based on the primary endpoint of the CONVERT study;~~in patients with MAC lung disease;

~~Ensuring~~•Ensure our product supply chain will support the global commercialization ~~if approved,~~ and potential future ~~life cycle~~lifecycle management programs of ~~ALIS;~~ARIKAYCE;

~~Preparing for potential commercialization~~•Maintain or obtain determinations of ~~ALIS~~coverage and reimbursement in the US, ~~Japan, certain countries in~~ Europe and ~~certain~~Japan for ARIKAYCE from governmental and other ~~countries;~~third-party payors;

~~Developing the core value dossier to support the global reimbursement of ALIS;~~

~~Supporting~~•Support further research and lifecycle management strategies for ~~ALIS,~~ARIKAYCE, including ~~exploring~~ the potential use of ~~ALIS~~ARIKAYCE as part of a ~~front-line,~~frontline, multi-drug ~~regimen~~regimen;

•Advance the brensocatib program in CF and other neutrophil mediated diseases, such as ~~maintenance monotherapy to prevent recurrence (defined as true relapse or reinfection) of NTM lung disease;~~CRS and HS;

~~Starting enrollment of~~•Advance the ~~WILLOW phase~~Phase 2 ~~study of INS1007 in non-CF bronchiectasis;~~TPIP development programs;

~~Generating~~•Generate preclinical findings from our earlier-stage ~~program(s);~~programs and advance translational medicine; and

~~Expanding~~•Expand our ~~rare disease~~ pipeline through corporate development.

~~Product Pipeline~~

~~ALIS~~ARIKAYCE for Patients with ~~NTM~~MAC Lung Disease

~~Our lead product candidate~~ARIKAYCE is ~~ALIS,~~our first approved product. ARIKAYCE received accelerated approval in the US in September 2018 for the treatment of refractory MAC lung disease as part of a ~~novel, once-daily liposomal formulation of amikacin that is in late-stage clinical development~~combination antibacterial drug regimen for adult patients with limited or no alternative treatment ~~refractory~~options. In October 2020, ARIKAYCE received approval in Europe for the treatment of NTM lung infections caused by MAC in adults with limited treatment options who do not have CF. In March 2021, ARIKAYCE received approval in Japan for the treatment of patients with NTM lung disease caused by MAC who did not sufficiently respond to prior treatment with a multidrug regimen. MAC lung disease is a rare and often chronic infection that can cause irreversible lung damage and ~~which~~ can be fatal. Amikacin solution for parenteral administration is an established drug that has activity against a variety of NTM; however, its use is limited by the need to administer it intravenously and by toxicity to hearing, balance, and kidney ~~function (Peloquin et al., 2004).~~function. Unlike amikacin solution for intravenous ~~amikacin,~~administration, our ~~advanced liposome~~proprietary Pulmovance™ technology uses charge-neutral liposomes to deliver amikacin directly to the ~~lung~~lungs where itliposomal amikacin is taken up by the lung macrophages where the ~~NTM~~MAC infection resides. This technology also prolongs the release of amikacin in the lungs, while minimizing systemic exposure, thereby offering the potential for decreased systemic toxicities. ~~ALIS’s~~ARIKAYCE's ability to deliver high levels of amikacin directly to the lung and sites of MAC infection via the use of our Pulmovance technology distinguishes it from intravenous amikacin. ~~ALIS~~ARIKAYCE is administered once-daily using Lamira, an inhalation device developed and manufactured by PARI. Lamira is a portable ~~aerosol delivery system,~~nebulizer that enables aerosolization of liquid medications via ~~an optimized, investigational eFlow® Nebulizer System manufactured by PARI Pharma GmbH (PARI).~~

a vibrating, perforated membrane, and was designed specifically for ARIKAYCE delivery.

The FDA has designated ~~ALIS~~ARIKAYCE as an orphan drug ~~a breakthrough therapy,~~ and a ~~QIDP~~Qualified Infectious Disease Product (QIDP) for NTM lung disease. Orphan ~~designation features~~designated drugs are eligible for seven years of ~~post-approval marketing~~ exclusivity infor the ~~approved indication, and~~orphan indication. QIDP ~~features~~designation provides an additional five years of ~~post-approval~~exclusivity for the designated indication. The FDA granted a total of 12 years of exclusivity in the indication for which ARIKAYCE was approved.

ARIKAYCE also has been included in the international treatment guidelines for NTM lung disease. The evidence-based guidelines, issued by the American Thoracic Society (ATS), European Respiratory Society (ERS), European Society of Clinical Microbiology and Infectious Diseases (ESCMID), and Infectious Diseases Society of America (IDSA), now strongly recommend the use of ARIKAYCE for MAC lung disease as part of a combination antibacterial drug regimen for adult patients with limited or no alternative treatment options who have failed to convert to a negative sputum culture after at least six months of treatment.

In October 2020, the FDA approved ~~indication.~~ an sNDA for ARIKAYCE, adding important efficacy data regarding the durability and sustainability of culture conversion to the ARIKAYCE label. The data, which are from the Phase 3 CONVERT

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study of ARIKAYCE, demonstrate that the addition of ARIKAYCE to GBT was associated with sustained culture conversion through the end of treatment as well as durable culture conversion three months post-treatment compared with GBT alone.

Accelerated Approval

In March 2018, we submitted an NDA for ARIKAYCE to the FDA to request accelerated approval. Accelerated approval allows drugs that (i) are being developed to treat a serious or life-threatening disease or condition and (ii) provide a meaningful therapeutic benefit over existing treatments to be approved substantially based on an intermediate endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit, rather than a clinical endpoint such as survival or irreversible morbidity. In September 2018, the FDA granted accelerated approval for ARIKAYCE under the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) for the treatment of refractory MAC lung disease as part of a combination antibacterial drug regimen for adult patients with limited or no alternative treatment options via the accelerated approval pathway. LPAD, which was enacted as part of the 21st Century Cures Act, serves to advance the development of new antibacterial drugs to treat serious or life-threatening infections in limited populations of patients with unmet needs. As required for drugs approved under the LPAD pathway, labeling for ARIKAYCE includes certain statements to convey that the drug has been shown to be safe and effective only for use in a limited population.

As a ~~result, ALIS would have 12 years~~condition of ~~post-approval marketing exclusivity~~accelerated approval, we must conduct a post-marketing confirmatory clinical trial. In December 2020, we commenced the post-marketing confirmatory frontline clinical trial program for ARIKAYCE in patients with MAC lung disease. The frontline clinical trial program consists of the ARISE trial, an interventional study designed to validate cross-sectional and longitudinal characteristics of a PRO tool in MAC lung disease, and the ENCORE trial, designed to establish the clinical benefits and evaluate the safety of ARIKAYCE in patients with newly diagnosed MAC lung disease using the PRO tool validated in the ~~US, if approved. A QIDP-designated product~~ARISE trial. We are running these global studies in parallel and approximately 200 sites are expected to be initiated for these clinical trials. The frontline clinical program is ~~eligible for fast track status and is often granted priority review status. A priority review designation for a drug means~~intended to fulfill the FDA’s ~~goal is~~post-marketing requirement to ~~take action on~~allow for full approval of ARIKAYCE by the ~~NDA within six months following~~FDA, and verification and description of clinical benefit in the ~~filing date, as compared to within 10 months following~~ENCORE trial will be necessary for full approval of ARIKAYCE.

Regulatory Pathway Outside of the ~~filing date under a standard review.~~US

~~The CONVERT Study and 312 Study~~

~~CONVERT Top‑Line Efficacy Data~~

~~We announced top-line data~~In October 2020, the EC granted marketing authorization for ARIKAYCE for the ~~CONVERT study on September 5, 2017. The CONVERT study enrolled 336 adult~~treatment of NTM lung infections caused by MAC in adults with limited treatment options who do not have CF. We have launched ARIKAYCE in Germany, the Netherlands, Wales, and Scotland, and plan to launch in other EU countries and the UK, subject to local reimbursement processes.

In March 2021, Japan's MHLW approved ARIKAYCE for the treatment of patients with NTM lung disease caused by MAC who were refractory to at least six months of treatment on current GBT of a multi-drug regimen. After a screening period of up to 10 weeks, eligible patients were randomized 2:1 to once-daily ALIS plus GBT or GBT only. The primary endpoint of the study was the proportion of patients achieving culture conversion, which we defined as three consecutive monthly negative sputum cultures, by month six. Based on top‑line results, the CONVERT study met its primary endpoint, with 29% of patients in the ALIS plus GBT arm achieving culture conversion, compared to 9% of patients in the GBT‑only arm (p<0.0001).

We also reported top-line data for certain secondary and exploratory endpoints for the first six months of the study. Top‑line data for the six‑minute walk test indicated no statistically significant difference between patients in the two arms of the study. However, an analysis of these data (per a pre-specified exploratory endpoint) showed that patients who achieved culture conversion in either arm demonstrated an improvement in six‑minute walk distance when compared to patients who did not ~~culture convert (p=0.0108). Top-line data for the secondary endpoint of time~~sufficiently respond to conversion demonstrated that patients in the GBT‑only arm took approximately 30% longer to convert when compared to patients on ALIS plus GBT (p<0.0001). We are continuing our analysis of the impact of conversion on a variety of other clinical measures.

The protocol for the CONVERT study incorporates feedback from the FDA and the EMA via its scientific advice working party process, as well as local health authorities in other countries, including Japan’s Pharmaceuticals and Medical Devices Agency (PMDA). Because the CONVERT study met the primary endpoint of culture conversion by month six based on the top-line results, we plan to submit an NDA pursuant to 21 C.F.R. Part 314 Subpart H (Accelerated Approval of New Drugs for Serious or Life-Threatening Illnesses) (Subpart H), which permits the FDA to approve a product candidate based on a surrogate or intermediate endpoint, provided (i) we commit to study the product candidate further to verify and describe the confirmatory data of its clinical benefit and (ii) the FDA concurs with other aspects of the NDA. We believe that efficacy data from the CONVERT study after month six in combination with the durability data, if successful, will suffice to meet both the accelerated and confirmatory data requirements. We expect that full approval would be contingent on FDA review of, among other things, the final analyses of sustainability and durability of culture conversion for converters.

~~CONVERT Top‑Line Safety and Tolerability Data~~

Approximately 98% of patients in the ALIS plus GBT arm of the study experienced at least one treatment-emergent adverse event (TEAE), compared to 91% of patients in the GBT‑only arm, with most events being mild or moderate in severity. A greater percentage of patients in the ALIS plus GBT arm than in the GBT‑only arm experienced TEAEs involving dysphonia, cough, haemoptysis, dyspnoea, oropharyngeal pain, diarrhoea, nausea, and fatigue. Based on our review of the top‑line study safety data, the incidence of dysphonia, cough and dyspnoea among patients in the ALIS plus GBT arm generally decreased after the second study month. Approximately 20% and 18% of patients in the ALIS plus GBT arm and GBT‑only arm of the study, respectively, experienced at least one seriousprior treatment ~~emergent adverse event (STEAE). The table below provides additional information regarding certain STEAEs experienced by patients in the study.~~



		~~2:1 Randomization~~
~~Patients Reporting STEAEs >3% in Either Arm~~		~~ALIS + GBT (n=223)~~	~~GBT (n=112)~~
~~Patients Reporting At Least One STEAE~~		~~20.2% (45)~~	~~17.9% (20)~~
~~System Organ Class~~	~~Preferred Term~~
~~Respiratory, Thoracic, Mediastinal Disorders~~		~~11.7% (26)~~	~~9.8% (11)~~
	~~Hemoptysis~~	~~2.7% (6)~~	~~4.5% (5)~~
	~~COPD (exacerbation)~~	~~3.1% (7)~~	~~0.9% (1)~~
~~Infections and Infestations~~		~~9.0% (20)~~	~~5.4% (6)~~
	~~Pneumonia~~	~~3.6% (8)~~	~~1.8% (2)~~
~~Cardiac Disorders~~		~~0.4% (1)~~	~~4.5% (5)~~
~~Patient Deaths~~		~~2.7% (6)~~	~~4.5% (5)~~

There were no distinctions between treatment arms for adverse events of hearing loss or renal impairment, side effects commonly associated with the intravenous use of amikacin. The overall dropout rate was 16.1%, with an 8.9% dropout rate in the GBT‑only arm and a 19.6% dropout rate in the ALIS plus GBT arm.

~~CONVERT Extension Study (or 312 Study)~~

All non-converters in the CONVERT study, as determined at the month eight visit, may be eligible to enter a separate 12-month, single-arm, open-label study (the 312 study). The primary objective of the 312 study is to evaluate the long-term safety and tolerability of ALIS in combination with a ~~standard multi-drug~~multidrug regimen. The secondary endpoints of the 312 study include evaluating the proportion of patients achieving culture conversion (three consecutive monthly negative sputum cultures) by month six and the proportion of patients achieving culture conversion by month 12 (end of treatment).

~~Phase 2 Study (or 112 Study)~~

~~Our completed phase 2 study (or 112 study) was a randomized, double-blind, placebo-controlled study that evaluated the efficacy and safety of ALIS~~In July 2021, we launched ARIKAYCE in ~~adults with NTM lung disease due to MAC or~~ ~~M. abscessus~~ ~~that was refractory to guideline-based therapy. In October 2016, the results from the phase 2 study were published online in the~~ ~~American Journal of Respiratory and Critical Care Medicine~~ ~~(Olivier et al. 2016).~~

The study included an 84-day double-blind phase in which patients were randomized 1:1 either to ALIS once-daily plus a multi-drug regimen or to placebo once-daily plus a multi-drug regimen. After completing the 84-day double-blind phase, patients had the option of continuing in an 84-day open-label phase during which all patients received ALIS plus the same multi-drug regimen. The study also included 28-day and 12-month off-ALIS follow-up assessments. Eighty-nine (89) patients were randomized and dosed in the study. Of the 80 patients who completed the 84-day double-blind phase, 78 patients entered the open-label phase and received ALIS plus the same multi-drug regimen for an additional 84 days. Seventy-six (76) percent (59/78) of patients who entered the open-label phase of the study completed the open-label study.

The primary efficacy endpoint of the study was the change from baseline (Day 1) to the end of the double-blind phase of the trial (Day 84) in a semi-quantitative measurement of mycobacterial density on a seven-point scale. ALIS did not meet the pre-specified level for statistical significance although there was a positive trend (p=0.072) in favor of ALIS. The p-value for the key secondary endpoint of culture conversion to negative at Day 84 was 0.003, in favor of ALIS. A shorter time to first negative sputum culture was also observed with ALIS relative to placebo during the double-blind phase (p=0.013).

The microbiologic outcomes from the 112 study were also explored post hoc using a more stringent definition of culture conversion, which was defined as at least three consecutive monthly sputum samples that test negative for NTM, consistent with the definition of culture conversion in the guidelines and in clinical practice. Twenty-three (23) patients achieved at least three consecutive negative monthly sputum samples by the 28-day follow-up assessment, of which four started to convert at baseline prior to administration of study drug. For the other 19 patients who achieved culture conversion, 17 achieved culture conversion after receiving ALIS (10 during the double-blind phase and seven after entering the open-label phase, of which six received ALIS for the first time in the open-label phase). Two patients achieved culture conversion while receiving placebo during the double-blind phase. The majority of patients who achieved culture conversion (three consecutive negative monthly sputum samples) during the double-blind phase continued to have negative cultures through the open-label and follow-up phases.

At the end of the double-blind phase, the ALIS group improved from baseline in mean distance walked in the six-minute walk test. At the end of the open-label phase, patients in the ALIS group continued to improve in the mean distance walked in the six-minute walk test, while the patients who previously received placebo in the double-blind phase and subsequently received ALIS in the open-label phase demonstrated a reduced rate of decline from baseline.

Approximately 90% of patients in both treatment groups experienced at least one treatment-emergent adverse event, with most events either mild or moderate in severity. During the double-blind phase a greater percentage of patients treated with ALIS experienced, among others, dysphonia, bronchiectasis exacerbation, cough, oropharyngeal pain, fatigue, chest discomfort, wheezing, and infective pulmonary exacerbation of cystic fibrosis (CF). No clinically relevant changes were detected in laboratory values and vital signs.

Japan.

Further Research and Lifecycle Management ~~for ALIS~~

We are currently exploring and supporting research and lifecycle management programs for ~~ALIS~~ARIKAYCE beyond treatment of refractory ~~NTM~~MAC lung ~~infections caused~~disease as part of a combination antibacterial regimen for adult patients who have limited or no treatment options. As noted above, we will continue to advance the post-marketing confirmatory, frontline clinical trial program for ARIKAYCE, through the ARISE and ENCORE trials, which are intended to fulfill the FDA's post-marketing requirement to allow for the full approval of ARIKAYCE in the US. We believe these studies will support the use of ARIKAYCE as a frontline treatment for patients with MAC lung disease.

The ARISE trial is a randomized, double-blind, placebo-controlled Phase 3b study in adult patients with newly diagnosed MAC lung disease that aims to generate evidence demonstrating the domain specification, reliability, validity, and responsiveness of PRO-based scores, including a respiratory symptom score. Patients will be randomized 1:1 to receive ARIKAYCE plus background regimen or placebo plus background regimen once daily for six months. Patients will then discontinue all study treatments and remain in the trial for one month for the continued assessment of PRO endpoints. The study is currently enrolling patients, and is expected to enroll approximately 100 patients. We anticipate completing enrollment by ~~MAC. Specifically, we are evaluating future~~the end of 2022 and having top-line data in the first half of 2023.

The ENCORE trial is a randomized, double-blind, placebo-controlled Phase 3b study ~~designs focusing on~~to evaluate the ~~MAC disease treatment pathway, including front-line treatment~~efficacy and ~~monotherapy maintenance to prevent recurrence (defined as true relapse or reinfection)~~safety of ~~NTM~~an ARIKAYCE-based regimen in patients with newly diagnosed MAC lung disease. IfPatients will be randomized 1:1 to receive ARIKAYCE plus background regimen or placebo plus background regimen once daily for 12 months. Patients will then discontinue all study treatments and remain in the ~~data~~trial for three months for the assessment of durability of culture conversion. The primary endpoint is change from baseline to Month 13 in respiratory symptom score. The key secondary endpoint is the ~~CONVERT~~proportion of subjects achieving durable culture conversion at Month 15. The study is currently enrolling patients, and is expected to enroll approximately 250 patients. We anticipate completing enrollment by the end of 2023.

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We initiated the frontline clinical trial program of ARIKAYCE in December 2020 and are ~~sufficient to support our MAAs~~running the ARISE and ~~regulatory bodies approve ALIS, such~~ENCORE trials in parallel in approximately 200 sites.

Subsequent lifecycle management studies could also potentially enable us to reach more ~~potential~~ patients. These initiatives

~~may~~ include ~~new clinical studies sponsored by us or~~ investigator-initiated studies, which are clinical studies initiated and sponsored by physicians or research institutions with funding from ~~us.~~

~~Market Opportunity for ALIS in NTM Lung Disease in 2018~~

NTM lung disease is associated with increased rates of morbidity and mortality, and MAC is the predominant pathogenic species in NTM lung disease in the US, Japan and Europe. The prevalence of NTM lung disease has increased over the past two decades, and we believe it is an emerging public health concern worldwide. Based on currently available information from external sources, including market research funded by us and third parties, and internal analyses and calculations, we estimate potential patient populations in the US, Japan and EU5 (comprised of France, Germany, Italy, Spain and the United Kingdom) for 2018 as follows:

Potential Market Estimated Number of Patients with Diagnosed NTM Lung Disease Estimated Number of Patients Treated for NTM Lung Disease Caused by MAC Estimated Number of Patients Refractory to Treatment
United States 75,000-105,000
40,000-50,000
10,000-15,000
Japan 125,000-145,000
60,000-70,000
15,000-18,000
EU5 14,000
4,400
1,400

We are not aware of any approved inhaled therapies specifically indicated for NTM lung disease in North America, Japan or Europe. Current guideline-based approaches for NTM lung disease, including those from the American Thoracic Society and Infectious Diseases Society of America, involve multi-drug regimens not approved for the treatment of NTM lung disease and treatment that could last two years or more. Based on a burden of illness study that we conducted in the United States with a major medical benefits provider, we previously concluded that patients with NTM lung disease are costly to healthcare plans, while a recent claims-based study in the United States has shown that patients with NTM lung disease have higher resource utilization and costs than their age and gender-matched controls. Accordingly, we believe that a significant market opportunity for ALIS in NTM lung disease exists in the US and internationally.

~~NTM Lung Disease Market Opportunity in Japan~~

We are currently exploring the NTM market opportunity for ALIS in Japan. If the data from the CONVERT study are sufficient to support our MAAs, and the FDA approves ALIS, we expect our first regulatory filing after the US to be in Japan. We plan to establish a presence in Japan in 2018, including hiring local employees to closely manage our regulatory and pre-commercial activities.

~~Under the Japanese regulatory system administered by the PMDA, pre-marketing approval and~~may also include new clinical studies are required for all pharmaceutical products. To obtain manufacturing/marketing approval, a Company must submit an application for approval to the MHLW with results of nonclinical and clinical studies to show the quality, efficacy and safety of a new product candidate. A data compliance review, on-site inspection for good clinical practice, audit and detailed data review for compliance with current good manufacturing practices are undertakensponsored by the PMDA. The application is then discussed by the committees of the Pharmaceutical Affairs and Food Sanitation Council. Based on the results of these reviews, the final decision on approval is made by MHLW. In Japan, the National Health Insurance system maintains a Drug Price List specifying which pharmaceutical products are eligible for reimbursement, and the MHLW sets the prices of the products on this list. After receipt of marketing approval, negotiations regarding the reimbursement price with MHLW would begin. Price would be determined within 60 to 90 days unless the applicant disagrees, which may result in extended pricing negotiations. The government generally introduces price cut rounds every other year and also mandates price decreases for specific products. New products judged innovative or useful, that are indicated for pediatric use, or that target orphan or small population diseases, however, may be eligible for a pricing premium. The government has also promoted the use of generics, where available.us.

Product Pipeline

~~INS1007~~Brensocatib

~~INS1007~~Brensocatib is a small molecule, oral, reversible inhibitor of DPP1, which we ~~in-licensed~~licensed from AstraZeneca in October 2016. DPP1 is an enzyme responsible for activating neutrophil serine proteases (NSPs) in neutrophils when they are formed in the bone marrow. Neutrophils are the most common type of white blood cell and play an essential role in pathogen destruction and inflammatory mediation. Neutrophils contain the ~~neutrophil serine proteases,~~NSPs (including neutrophil elastase, proteinase 3, and cathepsin G,G) that have been implicated in a variety of inflammatory diseases. In chronic inflammatory lung diseases,

neutrophils accumulate in the airways and ~~release~~result in excessive active ~~neutrophil serine proteases in excess~~NSPs that cause lung destruction and inflammation. ~~INS1007~~Brensocatib may decrease the damaging effects of inflammatory diseases such as ~~non-CF~~ bronchiectasis by inhibiting DPP1 and its activation of ~~neutrophil serine proteases. Non-CF bronchiectasis~~NSPs.

Bronchiectasis is a ~~progressive~~severe, chronic pulmonary disorder in which the bronchi become permanently dilated due to ~~chronic~~a cycle of infection, inflammation, and ~~infection. Currently,~~lung tissue damage. The condition is marked by frequent pulmonary exacerbations requiring antibiotic therapy and/or hospitalizations. Symptoms include chronic cough, excessive sputum production, shortness of breath, and repeated respiratory infections, which can worsen the underlying condition. Today, there isare no ~~cure, and we are not aware of any~~ approved therapies in the US, Europe, or Japan for ~~non-CF~~the treatment of patients with bronchiectasis.

Based on the positive results of the WILLOW study discussed below, in December 2020 we commenced our Phase 3 trial, ASPEN, which will investigate brensocatib in bronchiectasis. ASPEN is a global, randomized, double-blind, placebo-controlled Phase 3 study to assess the efficacy, safety, and tolerability of brensocatib in patients with bronchiectasis. Patients with bronchiectasis due to CF may not be enrolled in the study. Patients will be randomized to receive brensocatib 10 mg, brensocatib 25 mg, or placebo once daily for 52 weeks. The primary endpoint is the rate of pulmonary exacerbations over the 52-week treatment period. Secondary endpoints include time to first pulmonary exacerbation, percentage of subjects who remain pulmonary exacerbation-free, change from baseline in post-bronchodilator FEV1, rate of severe pulmonary exacerbations, change from baseline in the Bronchiectasis (QOL-B) Respiratory Symptoms Domain Score, and incidence and severity of treatment-emergent adverse events (AEs). This study is currently enrolling patients, and is expected to enroll approximately 1,620 patients (540 in each arm) at approximately 460 sites in 40 countries.

In March 2020, AstraZeneca exercised its first option pursuant to our October 2016 license agreement under which AstraZeneca can advance clinical development of brensocatib in the indications of chronic obstructive pulmonary disease (COPD) or asthma. Under the terms of the agreement, upon exercise of this option, AstraZeneca is solely responsible for all aspects of the development of brensocatib up to and including Phase 2b clinical trials in COPD or asthma. The agreement also includes a second and final option which, if exercised, would permit AstraZeneca to further develop brensocatib beyond Phase 2b clinical trials upon reaching agreement on commercial terms satisfactory to each party for the further development and commercialization of brensocatib in COPD or asthma. We retain full development and commercialization rights for brensocatib in all other indications and geographies.

In June 2020, the FDA granted breakthrough therapy designation for brensocatib for the treatment of adult patients with non-cystic fibrosis bronchiectasis (NCFBE) for reducing exacerbations. The FDA's breakthrough therapy designation is designed to expedite the development and review of therapies that are intended to treat serious or life-threatening diseases and for which preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy. The benefits of breakthrough therapy designation include more frequent communication and meetings with FDA, eligibility for rolling and priority review, intensive guidance on an efficient drug development program, and organizational commitment from the FDA involving senior managers. In November 2020, brensocatib was granted access to the PRIME scheme from the European Medicines Agency (EMA) for patients with NCFBE.

In October 2021, the EMA’s Paediatric Committee approved the brensocatib Pediatric Investigational Plan for the treatment of patients with NCFBE. Subsequently, the ASPEN trial will now include 40 adolescent patients between ages 12 to 17, which will fulfill the pediatric study requirements to support marketing applications in this patient population in the US, Europe and Japan.

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The WILLOW Study

~~We are in preparations for the~~The WILLOW study was a ~~global phase 2,~~ randomized, double-blind, placebo-controlled, ~~parallel group,~~parallel-group, multi-center, ~~clinical~~multi-national, Phase 2 study to assess the efficacy, safety and tolerability, and pharmacokinetics of ~~INS1007~~brensocatib administered once daily for 24 weeks in ~~subjects~~patients with ~~non-CF bronchiectasis.~~ NCFBE. The WILLOW study was conducted at 116 sites and enrolled 256 adult patients diagnosed with NCFBE who had at least two documented pulmonary exacerbations in the 12 months prior to screening. Patients were randomized 1:1:1 to receive either 10 mg or 25 mg of brensocatib or matching placebo. The primary efficacy endpoint was the time to first pulmonary exacerbation over the 24-week treatment period in the brensocatib arms compared to the placebo arm.

WILLOW Efficacy Data

We ~~have~~announced topline data for the WILLOW study in February 2020 and full data for the WILLOW study in June 2020. In September 2020, final results from the WILLOW study were published online in the New England Journal of Medicine. The data demonstrate that the WILLOW study met its primary endpoint of time to first pulmonary exacerbation over the 24-week treatment period for both the 10 mg and 25 mg dosage groups of brensocatib compared to placebo (p=0.027, p=0.044, respectively). The risk of exacerbation at any time during the trial was reduced by 42% for the 10 mg group versus placebo (HR 0.58, p=0.029) and by 38% for the 25 mg group versus placebo (HR 0.62, p=0.046). In addition, treatment with brensocatib 10 mg resulted in a significant reduction in the rate of pulmonary exacerbations, a key secondary endpoint, versus placebo. Specifically, patients treated with brensocatib experienced a 36% reduction in the 10 mg arm (p=0.041) and a 25% reduction in the 25 mg arm (p=0.167) versus placebo. Change in concentration of active NE in sputum versus placebo from baseline to the end of the treatment period was also statistically significant (p=0.034 for 10 mg, p=0.021 for 25 mg).

WILLOW Safety and Tolerability Data

Brensocatib was generally well-tolerated in the study. Rates of AEs leading to discontinuation in patients treated with placebo, brensocatib 10 mg, and brensocatib 25 mg were 10.6%, 7.4%, and 6.7%, respectively. The most common AEs in patients treated with brensocatib were cough, headache, sputum increase, dyspnea, fatigue, and upper respiratory tract infection. Rates of adverse events of special interest (AESIs) in patients treated with placebo, brensocatib 10 mg, and brensocatib 25 mg, respectively, were as follows: rates of skin events (including hyperkeratosis) were 11.8%, 14.8%, and 23.6%; rates of dental events were 3.5%, 16.0%, and 10.1%; and rates of infections that were considered AESIs were 17.6%, 13.6%, and 16.9%.

Further Research and Development

In August 2019, we received ~~a "study may proceed letter"~~notice from the FDA that we were awarded a development grant of $1.8 million for specific work to be performed on a PRO tool. The grant funding is for the development of a novel PRO tool for use in clinical trials to measure symptoms in patients with NCFBE with and ~~expect~~without NTM lung infection.

We are currently advancing a clinical development program for brensocatib in CF. The CF Therapeutics Development Network (CFTDN) has sanctioned our study protocol for brensocatib in CF. The CFTDN is an organization composed of specialists in CF clinical research and is the largest CF clinical trials network globally. Feedback from the CFTDN does not have any bearing on FDA regulatory approval. The Phase 2 pharmacokinetics/pharmacodynamics multiple-dose study is underway, and we are on track to ~~commence enrollment in~~share results from the study ~~in the fourth quarter of 2017. In addition, we are exploring~~by early 2023. We also plan to explore the potential of ~~INS1007~~brensocatib in ~~various neutrophil-driven inflammatory conditions.~~additional neutrophil-mediated diseases, including CRS and HS.

Treprostinil Palmitil Inhalation Powder

~~Phase 1 Study Results~~

In a phase 1 study of healthy volunteers conducted by AstraZeneca, INS1007 (previously AZD7986) was well tolerated and demonstrated inhibition of the activity of the neutrophil serine protease neutrophil elastase in a dose and concentration dependent manner. In preclinical studies, it was shown to reversibly inhibit DPP1 and the activation of neutrophil serine proteases within maturing neutrophils.

~~INS1009~~

~~INS1009~~TPIP is an investigational ~~sustained-release~~ inhaled formulation of a treprostinil prodrug ~~nanoparticle formulation~~ that has the potential to address certain of the current limitations of existing prostanoid therapies. We believe that ~~INS1009~~TPIP prolongs duration of effect and may provide ~~PAH~~ patients with greater consistency in pulmonary arterial pressure reduction over time. Current inhaled prostanoid therapies must be dosed four to nine times per ~~day for the treatment of PAH.~~day. Reducing dose frequency has the potential to ease patient burden and improve compliance. Additionally, we believe that ~~INS1009~~TPIP may be associated with fewer side effects, including ~~elevated heart rate, low blood pressure, and~~ severity and/or frequency of cough, headache, throat irritation, nausea, flushing and dizziness that are associated with high initial drug levels and local upper airway exposure when using current inhaled prostanoid therapies. We believe ~~INS1009~~TPIP may offer a differentiated product profile for PAH and PH-ILD.

In February 2021, we announced topline results from the Phase 1 study of TPIP in healthy volunteers. The objective of this first-in-human single ascending dose and multiple ascending dose study was to assess the pharmacokinetics and tolerability profile of TPIP. Data from the study demonstrated that TPIP was generally well tolerated, with a pharmacokinetic profile that supports continued development with once-daily dosing. The most common AEs across all cohorts in the study were cough, dizziness, headache, and nausea. Most AEs were mild in severity and consistent in nature with those typically seen with other inhaled prostanoid therapies. There were few moderate AEs and no severe or serious AEs. Subjects in the multiple dose panel that incorporated an up-titration approach beginning at 112.5 µg once-daily and progressing to 225 µg once-daily reported fewer AEs compared to the panel dosed with 225 µg once-daily from the first dose.

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Overall pharmacokinetic results demonstrated that treprostinil exposure (AUC and Cmax) was dose-proportional, with low to moderate inter-subject variability. Treprostinil was detected in the plasma at 24 hours at all doses and throughout the 48-hour sampling period for the two highest doses. Compared with currently available inhaled treprostinil therapy, TPIP showed substantially lower Cmax and longer half-life. Data from this study were presented in an oral session at the European Society of Cardiology Congress in August 2021.

We are advancing the development of TPIP with two studies in patients with PAH. The first is an open-label, proof-of-mechanism study to understand the impact of TPIP on PVR over a 24-hour period. We anticipate having preliminary data from a small number of patients in this study in 2022. The second will aim to investigate the effect of TPIP on PVR and six-minute walk distance over a 16-week treatment period using an up-titration, once-daily dosing schedule. We initiated study sites in late 2021. Beyond PAH, we continue to explore potential development pathways for TPIP in patients with other rare pulmonary disorders, including ~~PAH, and we~~PH-ILD. We initiated a Phase 2 study in patients with PH-ILD using an up-titration, once-daily dosing schedule in early 2022.

Translational Medicine

Our translational medicine efforts are ~~currently evaluating our options to advance its development, including exploring its use as an inhaled dry powder formulation.~~

~~Phase 1 Study Results~~

~~In late 2014, we had a pre-IND meeting with the FDA for INS1009 and clarified that, subject to final review~~comprised of the Company’s preclinical ~~data, INS1009 could be eligible~~programs, advanced through our internal research and development and augmented through business development activities. In March 2021, we acquired a proprietary protein deimmunization platform, called Deimmunized by Design, focused on the reengineering of therapeutic proteins to evade immune recognition and reaction. In August 2021, we acquired Motus and AlgaeneX, preclinical stage companies engaged in the research, development and manufacturing of gene therapies for ~~an approval pathway under Section 505(b)(2)~~rare genetic disorders. We believe that animal studies may demonstrate the viability of the Federal Food, Drug, and Cosmetic Act (FDCA) (505(b)(2) approval). Like a traditional NDA that is submitted under Section 505(b)(1) of the FDCA, a 505(b)(2) NDA must establish that the drug is safe and effective, but unlike a traditional NDA, the applicant may rely at leastthese potential medicines to address serious unmet medical needs in part on studies not conducted by or for the applicant and for which the applicant does not have a right of reference. The ability to rely on existing third-party data to support safety and/or effectiveness can reduce the time and cost associated with traditional NDAs.various therapeutic areas.

Corporate Development

We plan to continue to develop, acquire, in-license or co-promote other products, product candidates and technologies, including those that address serious and rare diseases that currently have completed a phase 1 study of INS1009. The phase 1 study was a randomized, double-blind, placebo-controlled single ascending dose study of INS1009 for inhalation to determine its safety, tolerability,significant unmet needs. We are focused broadly on rare disease therapeutics and ~~pharmacokinetics in healthy volunteers. Twenty-four (24) patients were enrolled and received INS1009~~prioritizing those areas that best align with cohorts of eight patients receiving doses of 85 micrograms (mcg), 170 mcg, 340 mcg or placebo. Participants in the first cohort (8 patients) received a single dose of open label treprostinil (Tyvaso) at 54 mcg 24 hours prior to receiving INS1009 at 85 mcg. The 85 mcg dose of INS1009 provides an equivalent amount of treprostinil on a molar basis as the 54 mcg dose of Tyvaso. The peak serum concentration was approximately 90% lower for treprostinil after INS1009 administration compared with Tyvaso, which could indicate a reduced future adverse event (AE) profile. The pharmacokinetic characteristics also supported once- or twice-daily dosing. The longer half-life of treprostinil for INS1009 was likely due to a sustained pulmonary release. The AE profile was consistent with other inhaled prostanoids. These data were presented at the European Respiratory Society international congress in September 2016.our core competencies.

KEY COMPONENTS OF OUR ~~STATEMENT~~RESULTS OF OPERATIONS

Product Revenues, Net

Product revenues, net, consist of net sales of ARIKAYCE. In October 2018, we began shipping ARIKAYCE to our customers in the US, which include specialty pharmacies and specialty distributors. In December 2020 and February 2021, we began commercial sales of ARIKAYCE in Germany and the Netherlands, respectively. In July 2021, we began recognizing product revenue from commercial sales of ARIKAYCE in Japan. We recognize revenue for product received by our customers net of allowances for customer credits, including prompt pay discounts, service fees, estimated rebates, including government rebates, such as Medicaid rebates and Medicare Part D coverage gap reimbursements in the US, and chargebacks.

Cost of Product Revenues (Excluding Amortization of Intangible Assets)

Cost of product revenues (excluding amortization of intangible assets) consist primarily of direct and indirect costs related to the manufacturing of ARIKAYCE sold, including third-party manufacturing costs, packaging services, freight, and allocation of overhead costs, in addition to royalty expenses and revenue-based milestones. We began capitalizing inventory upon FDA approval of ARIKAYCE. All costs related to inventory for ARIKAYCE prior to FDA approval were expensed as incurred and therefore not included in cost of product revenues.

Research and Development (R&D) Expenses

R&D expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions, including medical ~~affairs. Expenses~~affairs and program management. R&D expenses also ~~include~~includes other internal operating expenses, the cost of manufacturing ~~our~~product candidates, including the medical devices for drug ~~candidate(s)~~delivery, for clinical study, the cost of conducting clinical studies, and the cost of conducting preclinical and research activities. In addition, ~~our~~ R&D expenses include payments to third parties for the license rights to products in development (prior to marketing approval), such as ~~for INS1007.~~brensocatib. Our R&D expenses related to manufacturing our ~~drug candidate(s)~~product candidates and medical devices for clinical study are primarily related to activities at CMOs that manufacture ~~our product candidates for our use, including purchases of active pharmaceutical ingredients.~~brensocatib and TPIP. Our R&D expenses related to clinical trials are primarily related to activities at contract research organizations (CROs) that conduct and manage clinical trials on our behalf. These contracts with CROs set forth the scope of work to be completed at a fixed fee or amount per patient enrolled. Payments under these contracts with CROs primarily depend on performance criteria such as the successful enrollment of patients or the completion of clinical trial milestones as well as time-based fees. Expenses are accrued based on contracted amounts applied to the level of patient enrollment and to activity according to the clinical trial protocol. Deposits for goods or services that will be used or rendered for future research and development activities are deferred

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and capitalized. Such amounts are then recognized as an expense as the related goods are delivered or the services are performed.

Selling, General and Administrative (SG&A) Expenses

~~General and administrative~~SG&A expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for our non-employee directors and personnel serving in our executive, finance and accounting, legal and compliance, commercial and pre-commercial, corporate development, field sales, information technology ~~program management~~ and human resource functions. ~~General and administrative~~SG&A expenses also include professional fees for legal services, ~~including fees incurred in connection with the securities litigation filed against us and patent-related expenses,~~ consulting services, including ~~for pre-commercial planning~~commercial activities, ~~such as non-branded disease awareness,~~ insurance, board of director fees, tax and accounting ~~services.~~services and certain milestones related to ARIKAYCE.

Amortization of Intangible Assets

Upon commercialization of ARIKAYCE, our intangible assets began to be amortized over their estimated useful lives. The fair values assigned to our intangible assets are based on estimates and assumptions we believe are reasonable based on available facts and circumstances. Unanticipated events or circumstances may occur that require us to review the assets for impairment.

Change in Fair Value of Deferred and Contingent Consideration Liabilities

In connection with the Business Acquisition in August 2021, we recorded deferred and contingent consideration liabilities related to potential future milestone payments. Adjustments to the fair value are due to changes in: the probability of achieving milestones; our stock price; or certain other estimated assumptions. The change in fair value of deferred and contingent consideration liabilities is calculated quarterly with gains and losses recorded in the consolidated statements of comprehensive loss.

Investment Income and Interest Expense

Investment income consists of interest and dividend income earned on our cash and cash ~~equivalents.~~equivalents and marketable securities. Interest expense consists primarily of the accretion of debt discount, contractual interest costs and the amortization of debt issuance costs related to our debt. Debt discount was accreted prior to the adoption of ASU 2020-06, and debt ~~obligations. Debt~~ issuance costs are amortized, to interest expense using the effective interest rate method over the term of the debt. Our balance sheet reflects debt, net of the debt discount, debt issuance costs paid to the lender, and other ~~third party~~third-party costs. Unamortized debt issuance costs associated with extinguished debt are expensed in the period of the extinguishment.

RESULTS OF OPERATIONS

COVID-19 Update

Our employees (other than our laboratory personnel) have been provided a flexible approach to where and how they work in order to more easily manage business and personal responsibilities. We have enhanced our internal communications and touch points to ensure connectivity to our workforce. For when employees do work from the office, all of our facilities have been appropriately evaluated and sanitized on a daily basis in line with state and CDC guidelines. We will continue to manage this situation with a focus on the safety of our employees, ARIKAYCE physicians, caregivers and patients.

Though we continue to see use of ARIKAYCE, including new patient adds and continued prescription renewals, there remains a general uncertainty regarding the impact of COVID-19 on all aspects of our business, including how it will impact our patients, physicians, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially affect our financial results and business operations through the quarter ended March 31, 2022, we are unable to predict the impact that COVID-19 will have on our financial position and operating results in future periods due to these and other numerous uncertainties. We will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary.

Comparison of the Three Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021

Overview - Operating Results

~~Net Loss~~

~~Net loss~~Our operating results for the ~~quarter~~three months ended ~~September 30, 2017 was $45.2~~March 31, 2022, included the following:

•Product revenues, net, increased $12.9 million or $0.69 per share—basic and diluted, compared with a net loss of $37.8 million, or $0.61 per share—basic and diluted, for the quarter ended September 30, 2016. The $7.4 million increase in our net loss for the quarter ended September 30, 2017 as compared to the same period in ~~2016 was primarily due to:~~the prior year as a result of the growth in ARIKAYCE sales;

•Cost of product revenues (excluding amortization of intangible assets) increased $2.3 million as compared to the same period in the prior year as a result of the increase in sales volumes of ARIKAYCE;

~~Increased research and development~~•R&D expenses ~~of $3.2~~increased $23.0 million as compared to the same period in the prior year primarily resulting from increases in clinical development and research costs for our ongoing clinical trials;

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•SG&A expenses increased $5.2 million as compared to the same period in the prior year resulting primarily from increases in commercial expenses, as well as increases in compensation and benefit related expenses;

•Amortization of intangible assets of $1.3 million was consistent with the same period in the prior year;

•Change in fair value of contingent consideration liabilities was $(11.6) million, primarily as a result of the change in our share price; and

•Interest expense decreased $4.3 million as compared to the same period in the prior year due to the cessation of accreting debt discount in accordance with the adoption of ASU 2020-06.

Product Revenues, Net

Product revenues, net, consists of net sales of ARIKAYCE. The following table summarizes revenue by geography for the three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,				Increase (decrease)
	2022		2021		$		%
US	$	40,782	$	37,254	$	3,528	9.5%
Japan	10,676		—		10,676		NA
Europe and rest of world	1,649		2,960		(1,311)		(44.3)%
Total product revenues, net	$	53,107	$	40,214	$	12,893	32.1%

Product revenues, net, for the three months ended March 31, 2022 increased to $53.1 million as compared to $40.2 million in the same period in 2021, an increase of 32.1% as a result of the launch of ARIKAYCE in ~~expenses related to INS1007~~Japan and ~~ALIS clinical trial expenses; and~~

~~Increased general and administrative expenses of $3.7 million, resulting from an increase~~growth in ~~consulting fees relating to pre-commercial planning activities and higher compensation and related expenses due to an increase in headcount.~~

~~In addition, there was a $0.7 million increase in interest expense resulting from the increase in our debt~~ARIKAYCE sales in the ~~second half~~US.

Cost of ~~2016.~~Product Revenues (excluding amortization of intangible assets)

~~Research and Development Expenses~~

~~Research and development expenses~~Cost of product revenues (excluding amortization of intangible assets) for the ~~quarters~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 were comprised of the following (in thousands):


	Three Months Ended March 31,						Increase (decrease)
	2022			2021			$		%
Cost of product revenues (excluding amortization of intangible assets)	$	12,191		$	9,844		$	2,347	23.8	%
Cost of product revenues, as % of revenues	23.0		%	24.5		%

Quarters Ended September 30, Increase (decrease)
2017 2016 $ %
External Expenses

Clinical development & research $ 12,307
$ 9,628
$ 2,679
27.8 %
Manufacturing 2,884
2,967
(83 ) (2.8 )%
Regulatory and quality assurance 1,100
401
699
174.3 %
Subtotal—external expenses $ 16,291
$ 12,996
$ 3,295
25.4 %
Internal Expenses

Compensation and related expenses $ 8,373
$ 8,086
$ 287
3.5 %
Other internal operating expenses 2,011
2,351
(340 ) (14.5 )%
Subtotal—internal expenses $ 10,384
$ 10,437
$ (53 ) (0.5 )%
Total $ 26,675
$ 23,433
$ 3,242
13.8 %

~~Research and development expenses~~Cost of product revenues (excluding amortization of intangible assets) increased by $2.3 million, or 23.8%,to ~~$26.7~~$12.2 million ~~during~~for the ~~quarter~~three months ended ~~September 30, 2017 from $23.4~~March 31, 2022 as compared to $9.8 million in the same period in ~~2016.~~2021. The ~~$3.2 million~~ increase ~~was primarily due to an increase~~in cost of ~~$2.7 million in external clinical development expenses, specifically $2.1 million~~product revenues (excluding amortization of start-up phase 2 clinical trial expenses related to INS1007 and $2.0 million of ALIS clinical trial expenses, partially offset by a $1.4 million decrease in INS1009 research expenses. In addition, regulatory and quality assurance expenses increased by $0.7 million primarily due to ALIS regulatory consulting and publication expensesintangibles) in the ~~quarter~~three months ended ~~September 30, 2017 as compared~~March 31, 2022 was attributable to the ~~prior year period.~~increase in product revenues discussed above.

~~General and Administrative~~R&D Expenses

~~General and administrative~~R&D expenses for the ~~quarter~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 were comprised of the following (in thousands):

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Quarters Ended September 30, Increase (decrease)
2017 2016 $ %
General & administrative $ 9,355
$ 9,097
$ 258
2.8 %
Pre-commercial expenses 8,053
4,619
3,434
74.3 %
Total general & administrative expenses $ 17,408
$ 13,716
$ 3,692
26.9 %


	Three Months Ended March 31,				Increase (decrease)
	2022		2021		$		%
External Expenses
Clinical development and research	$	33,101	$	23,431	$	9,670	41.3	%
Manufacturing	10,373		7,218		3,155		43.7	%
Regulatory, quality assurance, and medical affairs	4,996		3,892		1,104		28.4	%
Subtotal—external expenses	$	48,470	$	34,541	$	13,929	40.3	%
Internal Expenses
Compensation and benefit related expenses	$	24,495	$	19,497	$	4,998	25.6	%
Stock-based compensation	5,615		3,684		1,931		52.4	%
Other internal operating expenses	5,776		3,668		2,108		57.5	%
Subtotal—internal expenses	$	35,886	$	26,849	$	9,037	33.7	%
Total R&D expenses	$	84,356	$	61,390	$	22,966	37.4	%

~~General and administrative~~R&D expenses increased to ~~$17.4~~$84.4 million during the ~~quarter~~three months ended ~~September 30, 2017~~March 31, 2022 from ~~$13.7~~$61.4 million in the same period in ~~2016.~~2021. The ~~$3.7~~$23.0 million increase was primarily due to ana $9.7 million increase ~~of $2.3 million~~ in ~~consulting fees relating to pre-commercial planning activities, including non-branded disease awareness~~clinical development and ~~other professional fees, and an increase of $0.9 million due to higher compensation~~research costs related to anthe ongoing Phase 3 ASPEN trial of brensocatib and the ARIKAYCE frontline clinical trial program. The increase ~~in headcount.~~

~~Interest Expense~~

~~Interest expense~~ was ~~$1.5 million for the quarter ended September 30, 2017 as compared~~also due to ~~$0.8 million in the same period in 2016. The $0.7~~a $6.9 million increase in interest expense in the quarter ended September 30, 2017 as compared to the prior year quarter relates to an increase in borrowings from Hercules Capital, Inc. (Hercules) during September and October of 2016. We entered into an Amended and Restated Loan Agreement (A&R Loan Agreement) with Hercules in September 2016 which increased our borrowing capacity by an additional $30.0 million to an aggregate total of $55.0 million, and we used this increased borrowing capacity to fund the upfront payment to AstraZeneca for the exclusive global rights to INS1007 in October 2016.

~~Comparison of the Nine Months Ended September 30, 2017 and 2016~~

~~Net Loss~~

Net loss for the nine months ended September 30, 2017 was $127.3 million, or $2.01 per share—basic and diluted, compared with a net loss of $107.9 million, or $1.74 per share—basic and diluted, for the nine months ended September 30, 2016. The $19.4 million increase in our net loss for the nine months ended September 30, 2017 as compared to the same period in 2016 was primarily due to:

~~Increased R&D expenses of $7.9 million, primarily resulting from an increase in expenses related to INS1007 and higher~~ compensation and benefit related expenses and stock-based compensation due to an increase in headcount, as ~~compared to the prior period, partially offset by decreases in INS1009 research expenses; and~~

Increased general and administrative expenses of $9.3 million, primarily resulting from an increase in pre-commercial planning activities and higher compensation and related expenses due to an increase in headcount.

~~In addition, there was~~well as a ~~$2.4~~$3.2 million increase in ~~interest expense resulting from the increase in our debt in the second half of 2016.~~manufacturing expenses to support ongoing clinical trials.

~~Research and Development Expenses~~

~~Research and development~~External R&D expenses by product for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 were comprised of the following (in thousands):


	Three Months Ended March 31,				Increase (decrease)
	2022		2021		$		%
ARIKAYCE external R&D expenses	$	16,678	$	14,640	$	2,038	13.9	%
Brensocatib external R&D expenses	21,726		9,597		12,129		126.4	%
Other external R&D expenses	10,066		10,304		(238)		(2.3)	%
Total external R&D expenses	$	48,470	$	34,541	$	13,929	40.3	%

Nine Months Ended
September 30, Increase (decrease)
2017 2016 $ %
External Expenses

Clinical development & research $ 30,614
$ 26,266
$ 4,348
16.6 %
Manufacturing 10,490
12,243
(1,753 ) (14.3 )%
Regulatory and quality assurance 2,996
1,366
1,630
119.3 %
Subtotal—external expenses $ 44,100
$ 39,875
$ 4,225
10.6 %
Internal Expenses

Compensation and related expenses $ 24,071
$ 21,463
$ 2,608
12.2 %
Other internal operating expenses 7,629
6,513
1,116
17.1 %
Subtotal—internal expenses $ 31,700
$ 27,976
$ 3,724
13.3 %
Total $ 75,800
$ 67,851
$ 7,949
11.7 %

~~Research and development~~We expect R&D expenses ~~increased~~ to ~~$75.8 million during the nine months ended September 30, 2017 from $67.9 million in the same period in 2016. The $7.9 million increase was due~~continue to ~~a $4.3 million~~ increase in ~~external clinical development expenses, specifically $5.1 million of start-up phase 2 clinical trial expenses related~~2022 relative to INS1007 and $1.9 million of ALIS clinical trial expenses, which were partially offset by a $2.6 million decrease in INS1009 research expenses. In addition, compensation and related expenses increased by $2.6 million due to an increase in headcount. There were also increases in regulatory and quality assurance expenses of $1.6 million,2021 primarily due to ~~increases~~our clinical trial activities and related spend, including our Phase 3 ASPEN trial of brensocatib, our confirmatory clinical trial of ARIKAYCE in ~~ALIS~~a front-line treatment setting for patients with MAC lung disease, our TPIP clinical ~~consulting. These increases were partially offset by a $1.8 million decrease~~trials and our research efforts in manufacturing expenses due to a $3.0 million reduction in ALIS production-related expenses, which was partially offset by purchases of $1.2 million of clinical materials related to INS1007 in the second quarter of 2017.translational medicine.

~~General and Administrative~~SG&A Expenses

~~General and administrative~~SG&A expenses for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 were comprised of the following (in thousands):


	Three Months Ended March 31,				Increase (decrease)
	2022		2021		$		%
Compensation and benefit related expenses	$	22,953	$	21,753	$	1,200	5.5	%
Stock-based compensation	7,206		6,850		356		5.2	%
Professional fees and other external expenses	19,741		16,963		2,778		16.4	%
Facility related and other internal expenses	6,848		5,984		864		14.4	%
Total SG&A expenses	$	56,748	$	51,550	$	5,198	10.1	%

Nine Months Ended
September 30, Increase (decrease)
2017 2016 $ %
General & administrative $ 27,364
$ 26,789
$ 575
2.1 %
Pre-commercial expenses 20,403
11,709
8,694
74.3 %
Total general & administrative expenses $ 47,767
$ 38,498
$ 9,269
24.1 %

~~General and administrative~~SG&A expenses increased to ~~$47.8~~$56.7 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 from ~~$38.5~~$51.6 million in the same period in ~~2016.~~2021. The ~~$9.3~~$5.2 million increase was primarily due to ana $2.8 million increase ~~of $6.2 million~~ in

~~consulting fees relating to pre-commercial planning activities, including non-branded disease awareness and other~~ professional fees and another external expenses primarily resulting from commercial activities in the US, as well as a $1.6 million increase ~~of $2.5 million~~in compensation and benefit related expenses and stock-based compensation due ~~to higher compensation expenses related~~ to an increase in global headcount.

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Amortization of Intangible Assets

Amortization of intangible assets for both the three months ended March 31, 2022 and 2021 was $1.3 million. Amortization of intangible assets is comprised of amortization of acquired ARIKAYCE R&D and amortization of the milestones paid to PARI for the FDA and EC approvals of ARIKAYCE.

Change in Fair Value of Deferred and Contingent Consideration Liabilities

The change in fair value of deferred and contingent consideration liabilities for the three months ended March 31, 2022 was $(11.6) million. The change is related to the fair value of the potential future consideration to be paid to former equityholders of the acquired businesses. Adjustments to the fair value are due to changes in: the probability of achieving milestones; our stock price; or certain other estimated assumptions.

Interest Expense

Interest expense ~~was $4.5~~decreased to $3.3 million ~~during~~for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 as compared to ~~$2.0~~$7.6 million in the same period in ~~2016. This increase in interest expense relates primarily~~2021 due to the ~~increase~~cessation of accreting debt discount in ~~our borrowings from Hercules in September and October~~accordance with the adoption of ~~2016.~~ASU 2020-06.

LIQUIDITY AND CAPITAL RESOURCES

Overview

There is considerable time and cost associated with developing a potential ~~drug or~~ pharmaceutical ~~product~~products to the point of regulatory approval and commercialization. We ~~had $430.7 million~~commenced commercial shipments of ARIKAYCE in cash and cash equivalents as of September 30, 2017 and reported a net loss of $127.3 million for the nine months ended September 30, 2017. Historically we have funded our operations through public offerings of equity securities and debt financings. To date, we have not generated material revenue from ALIS.October 2018. We ~~do not expect to generate revenue unless or until marketing approval is received for ALIS. Accordingly, we~~ expect to continue to incur consolidated operating losses, ~~while funding~~including losses at our US and certain international entities, as we plan to fund R&D for ARIKAYCE, brensocatib, TPIP and our other pipeline programs, continue pre-commercial, commercialization and regulatory activities ~~regulatory submissions, potential commercial launch activities~~for ARIKAYCE, and other general and administrative ~~expenses.~~activities.

In May 2021, we completed an underwritten public offering of $575.0 million aggregate principal amount of the 2028 Convertible Notes, including the exercise in full of the underwriters' option to purchase additional 2028 Convertible Notes. Our net proceeds from the offering, after deducting underwriting discounts and offering expenses of $15.7 million, were $559.3 million. A portion of the net proceeds from the 2028 Convertible Notes was used to repurchase $225.0 million of our outstanding 2025 Convertible Notes. We ~~expect~~recorded a loss on early extinguishment of debt of $17.7 million, primarily related to the premium paid on extinguishment of a portion of the 2025 Convertible Notes.

In May 2021, we also completed an underwritten public offering of 11,500,000 shares of our ~~future cash requirements~~common stock, including 1,500,000 shares issued pursuant to ~~be substantial,~~the exercise in full of the underwriters' option to purchase additional shares from us, at a public offering price of $25.00 per share. Our net proceeds from the sale of the shares, after deducting the underwriting discounts and offering expenses of $17.5 million, were $270.1 million.

In the first quarter of 2021, we ~~will~~entered into a sales agreement with SVB Leerink to sell shares of our common stock, with aggregate gross sales proceeds of up to $250.0 million, from time to time, through an ATM program, under which SVB Leerink acts as sales agent. As of March 31, 2022, we had not sold or issued any shares under the ATM program.

We may need to raise additional capital to fund our operations, including the Phase 3 ASPEN study, the continued commercialization of ARIKAYCE, the ARISE and ENCORE clinical trials related to ~~develop~~ARIKAYCE, launch readiness activities for the potential launch of brensocatib, if approved, other clinical trials for brensocatib, TPIP, and ~~commercialize ALIS, to develop INS1007 and INS1009~~our future product candidates, and to develop, acquire, in-license or co-promote other products or product candidates, including those that address orphan or rare diseases.

We While we believe we currently have sufficient funds to meet our financial needs for at least the next 12 ~~months. In September 2017,~~months, we ~~completed an underwritten offering of 14.1 million shares of our common stock for net proceeds of $377.7 million, net of fees and expenses related~~expect to ~~the offering. We will be opportunistic in raising~~opportunistically raise additional capital ~~within the next 12 months~~ and may do so through equity or debt financing(s), strategic transactions or otherwise. The source, timing and availability of any future financing or other transaction will depend principally upon continued progress in our regulatory, development and pre-commercial activities. Any equity or debt financing(s) will also be contingent upon equity and debt market conditions and interest rates atOur cash requirements for the ~~time. We cannot assure you that adequate capital~~next 12 months will be available on favorable terms, or at all, when needed. If we are unable to obtain sufficient additional funds when required, we may be forced to delay, restrict or eliminate all or a portion of our R&D programs, pre-commercialization activities, or dispose of assets or technology. The source, timing and availability of any future financing or other transaction will depend on and will likely be affectedimpacted by a number of factors, ~~including:~~

the ~~timing~~most significant of which we expect to be the ASPEN trial, expenses related to our commercialization efforts and ~~cost of~~ our ~~current~~ARISE and ~~anticipated~~ENCORE clinical trials ~~of ALIS~~ for ~~the treatment of patients with NTM lung infections;~~

~~the decisions of the FDA, MHLW~~ARIKAYCE, and ~~EMA with respect~~other development activities for brensocatib, and to ~~our potential applications for marketing approval of ALIS in the US, Japan and Europe, respectively; the costs of activities~~a lesser extent, expenditures related to the ~~regulatory approval process;~~clinical development of TPIP and ~~the timing of approvals, if received;~~

the costs associated with commercializing ALIS, if we receive marketing approvals; including the costs of establishing the sales and marketing capabilities to be prepared for potential commercial launches of ALIS, if approved;

~~the cost of filing, prosecuting, defending, and enforcing patent claims;~~

~~the timing and cost of our anticipated clinical trials, including for INS1007 and the related milestone payments due to AstraZeneca;~~

~~the costs of our manufacturing-related activities, including an increase in commercial inventory production and expansion projects related to our production capabilities; and~~

~~subject to receipt of marketing approval, the levels, timing and collection of revenue received from sales of approved products, if any, in the future.~~

other product candidates.

Cash Flows

As of ~~September 30, 2017,~~March 31, 2022, we had cash and cash equivalents of ~~$430.7~~$515.7 million, as compared with ~~$162.6~~$716.8 million as of December 31, ~~2016.~~2021. In addition, as of March 31, 2022, we also had marketable securities of $149.0 million. The ~~$268.1~~$201.1 million ~~increase~~decrease in cash and cash equivalents was primarily due ~~primarily~~ to the purchase of marketable securities and cash ~~proceeds from our issuance of common stock in September 2017, partially offset by use of cash~~used in operating activities. Our working capital was ~~$408.7~~$630.9 million as of ~~September 30, 2017~~March 31, 2022, as compared with ~~$140.4~~$701.9 million as of December 31, ~~2016.~~

2021.

Net cash used in operating activities was ~~$111.4~~$105.2 million and ~~$88.7~~$128.3 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively. The net cash used in operating activities during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 was primarily for the commercial, clinical ~~manufacturing~~ and ~~pre-commercial~~manufacturing activities related to ~~ALIS,~~ARIKAYCE, as well as ~~general~~other SG&A

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expenses and ~~administrative expenses. In addition, net~~clinical trial expenses related to brensocatib and TPIP. The decrease in cash used in operating activities ~~during~~for the ~~nine~~three months ended ~~September 30, 2017 included start-up~~March 31, 2022 compared to the corresponding period in 2021 was primarily due to the net change in working capital, driven primarily by deposits paid in 2021 to our CROs for our initiated clinical ~~trial expenses~~trials and the $12.5 million milestone payment to AstraZeneca in 2021 related to ~~INS1007.~~the first dosing in our Phase 3 ASPEN trial.

Net cash used in investing activities was ~~$1.3~~$101.4 million and ~~$3.4~~$1.2 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively. The ~~net cash used~~increase in ~~investing activities was primarily related~~2022 is due to ~~payments for the build out~~purchases of ~~our headquarters and lab facilities in Bridgewater, New Jersey.~~

marketable securities.

Net cash provided by financing activities was ~~$380.7~~$6.5 million and ~~$9.8~~$6.7 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively. Net cash provided by financing activities for the ~~nine~~three months ended ~~September 30, 2017 included net cash proceeds of $377.7 million from our issuance of 14.1 million shares of common stock in September 2017~~March 31, 2022 and ~~cash proceeds received from stock option exercises. Net cash provided by financing activities for the nine months ended September 30, 2016~~2021 was primarily ~~net~~due to cash proceeds from the ~~issuance~~exercise of ~~debt.~~

We expect our operating expenses and capital expenditures will significantly increase in 2018 as compared to 2017 as a result of our investments in preparation for commercialization of ALIS in the US, ongoing and future clinical trials and general and administrative activities.

stock options.

Contractual Obligations

There were no material changes outside of the ordinary course of business in our contractual obligations during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 from those disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations-Liquidity~~Operations—Liquidity and Capital ~~Resources -~~ Resources—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, ~~2016, except for the following:~~

In September 2017, we increased our purchase commitments made in the normal course of business with CMOs and various other suppliers related to the production requirements for ALIS. These purchase commitments have increased as a result of the release of top-line results from the CONVERT study.

As of September 30, 2017, future payments under our long‑term debt agreements, capital leases, minimum future payments under non‑cancellable operating leases and minimum future payment obligations are as follows:

Total Less than 1 year 1 ‑ 3 Years 4 ‑ 5 Years After 5 Years
(in thousands)
Debt obligations
Debt maturities $ 55,000
$ —
$ 29,504
$ 25,496
$ —
Contractual interest 16,157
5,158
8,520
2,479
—
Operating leases 4,293
1,511
2,162
620
—
Purchase obligations 6,075
2,700
3,375
—
—
Total contractual obligations $ 81,525
$ 9,369
$ 43,561
$ 28,595
$ —

This table does not include: (a) any milestone payments which may become payable to third parties under our license and collaboration agreements as the timing and likelihood of such payments are not known; (b) any royalty payments to third parties as the amounts of such payments, timing and/or the likelihood of such payments are not known; (c) contracts that are entered into in the ordinary course of business which are not material in the aggregate in any period presented above; or (d) any payments related to the agreements mentioned below.

In October 2017, we exercised an option to buy-down the future royalties that will be payable to PARI. Pursuant to the existing licensing agreement, PARI is entitled to receive royalty payments in the mid-single digits on the annual global net sales

of ALIS, subject to certain specified annual minimum royalties. The royalty buy-down will enable us to reduce the royalty payments due to PARI based on the annual global net sales of ALIS. The payment to PARI will be included as a component of general and administrative expenses in the fourth quarter of 2017.

In October 2017, we entered into certain agreements with Patheon UK Limited (Patheon) related to increasing our long-term production capacity for ALIS commercial inventory. The agreements provide for Patheon to manufacture and supply ALIS for our anticipated commercial needs. Under these agreements, we are required to deliver to Patheon the required raw materials, including active pharmaceutical ingredients, and certain fixed assets needed to manufacture ALIS. Patheon's supply obligation will commence once certain technology transfer and construction services are completed. Our manufacturing and supply agreement with Patheon will remain in effect for a fixed initial term, after which it will continue for successive renewal terms unless either we or Patheon have given written notice of termination. The technology transfer agreement will expire when the parties agree that the technology transfer services have been completed. The agreements may also be terminated under certain other circumstances, including by either party due to a material uncured breach of the other party or the other party’s insolvency. These early termination clauses may reduce the amounts due to the relevant parties. The investment in our long-term production capacity build-out, including under the Patheon agreements and related agreements or purchase orders with third parties for raw materials and fixed assets will be incurred over the next three to four years.

2021.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements ~~other than operating leases,~~ that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.

CRITICAL ACCOUNTING ~~POLICIES~~ESTIMATES

There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~202 1. For the required interim disclosure updates ofrelated to our accounting policies and estimates, see Note 2 to our ~~Consolidated Financial Statements~~consolidated financial statements — ~~“Summary~~Summary of Significant Accounting ~~Policies”~~Policies in this Quarterly Report on Form 10-Q.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of ~~September 30, 2017,~~March 31, 2022, our cash and cash equivalents were in cash accounts ~~or were invested~~and money market funds. Our investments in money market ~~funds. Such accounts or investments~~funds are not insured by the federal government.

As of March 31, 2022, our marketable securities were invested in US treasury notes with an original maturity of greater than 90 days.

As of ~~September 30, 2017,~~March 31, 2022, we had ~~$55.0~~$800.0 million of ~~borrowings outstanding that currently~~convertible notes outstanding. Our 2025 Convertible Notes and our 2028 Convertible Notes bear interest at ~~9.25% under the A&R Loan Agreement with Hercules.~~a coupon rate of 1.75% and 0.75%, respectively. If a 10% change in interest rates had occurred on ~~September 30, 2017, this change~~March 31, 2022, it would not have had a material effect on the fair value of our debt as of that date, nor would it have had a material effect on our future earnings or cash flows.

The majority of our business is conducted in US dollars. However, we do conduct certain transactions in other currencies, including Euros, British Pounds, and Japanese Yen. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations and during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, our results of operations were not materially affected by fluctuations in foreign currency exchange rates.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer,~~Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2017.~~March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures that are designed to ~~provide reasonable assurance~~ensure that information required to be disclosed by us in the ~~periodic~~ reports that we file or submit with the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation as of ~~September 30, 2017,~~March 31, 2022, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures ~~are~~were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended ~~September 30, 2017~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

See Note 9 to our Consolidated Financial Statements — “Commitments and Contingencies — Legal Proceedings” in this Quarterly Report on Form 10-Q for a description of our material legal proceedings. From time to time, we are ~~also~~ party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 1A.RISK FACTORS

Our business is subject to substantial risks and uncertainties. You should carefully consider the risk factors set forth below as well as the other information contained in this Quarterly Report on Form 10-Q and in our other public filings in evaluating our business, including our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, which was filed with the SEC on February ~~23, 2017.~~17, 2022. Any of the risks and uncertainties described below and in our other filings with the SEC, either alone or taken together, could materially and adversely affect our business, financial condition, results of operations, prospects for growth, and the value of an investment in our common stock. In addition, these risks and uncertainties could cause actual results to differ materially from those expressed or implied by forward-looking statements contained in this ~~Quarterly Report on~~ Form 10-Q (please read the Cautionary Note Regarding Forward-Looking Statements). The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operation, prospects and the value of an investment in our common stock and could cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements.

~~Risks Related to Development, Regulatory Approval and Commercialization of our Product Candidates~~

The currently reported results of the CONVERT study are based on top-line data for the first six months of the study and may differ from complete study results once additional data are received and evaluated.

The reported results of our CONVERT study, which are discussed herein, consist of only top-line data from the first six months of the study. Top-line data are based on a preliminary analysis of currently available efficacy and safety data, and therefore these currently reported results are subject to change following a comprehensive review of the more extensive data we expect to receive for patients as of month six. Top-line data are based on important assumptions, estimations, calculations and information currently available to us, and we have not received or had an opportunity to evaluate all of the six-month data from the CONVERT study. As a result, the top-line six-month results may differ from the full six-month data, or different conclusions or considerations may qualify such top-line results, once the complete six-month data have been received and fully evaluated. In addition, the CONVERT study is ongoing, and subsequent data from the treatment and off-treatment phases of the study may differ from the currently reported top-line results. If these top-line data differ from the results of the full six-month data or subsequent data from patients during the remainder of the treatment phase or the off-treatment phase, our ability to obtain or maintain approval for, and commercialize, ALIS may be harmed, which could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

Our prospects are highly dependent on the success of our most advanced product candidate, ALIS. If we are unable to successfully complete the development of, obtain or subsequently maintain regulatory approval for, and successfully commercialize ALIS, our business, financial condition, results of operations and prospects and the value of our common stock will be materially adversely affected.

We are investing significant efforts and financial resources in the development of ALIS, our most advanced product candidate. Our ability to generate product revenue from ALIS will depend heavily on the successful completion of development of, receipt of regulatory approval for, and commercialization of, ALIS.

Positive results from preclinical studies of a product candidate may not be predictive of similar results in human clinical trials, and promising results from earlier clinical trials of a product candidate may not be replicated in later clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in earlier stages of development. Accordingly, even if the full six-month data for the primary endpoint are positive, such data may not be predictive of the results from the remainder of the study or the 312 study, or future trials related to ALIS.

In addition, even if we believe our clinical trials for ALIS demonstrate promising results, regulators may decline to grant regulatory approval. For instance, in the fourth quarter of 2014, we filed an MAA with the EMA for ALIS as a treatment for, among other things, NTM lung disease in adult patients. The filing was based in part on data from our phase 2 study in patients with NTM lung disease. In addition, we subsequently withdrew our MAA after the Committee for Medicinal Products for Human Use concluded that the data submitted did not provide enough evidence to support an approval. We currently expect to submit an NDA to the FDA pursuant to Subpart H for ALIS based on the efficacy data from the CONVERT study through month six. Although we view the top-line six-month results from the CONVERT study as promising, the FDA may not agree that these data are sufficient to support submission or approval of our NDA under Subpart H.

Further, even if we obtain approval for ALIS from a regulator, including from the FDA pursuant to Subpart H, such approval may be withdrawn under certain circumstances and confirmatory clinical studies may be required and could fail to demonstrate sufficient safety and efficacy to support continued approval. For instance, if we obtain approval from the FDA based on the NDA filing described above, the FDA may nonetheless conclude that the data generated from the remainder of the CONVERT study or in the 312 study are not sufficient to support continued approval of our NDA.

We do not expect ALIS to be commercially available in any market until we receive requisite approval from the FDA, MHLW, EMA or an equivalent regulatory agency. The failure to obtain or subsequently maintain such approvals will materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

We may not be able to obtain regulatory approvals for ALIS or any other products we develop in the US, Japan, Europe or other markets. If we fail to obtain such approvals, we will not be able to commercialize our products.

We are required to obtain various regulatory approvals prior to studying our products in humans and then again before we market and distribute our products, and the failure to do so will prevent us from commercializing our products, which would materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. The regulatory review and approval processes in the US, Japan and Europe require evaluation of preclinical studies and clinical studies, as well as the evaluation of our manufacturing process. Securing regulatory approval to market our products requires the submission of much more extensive preclinical and clinical data, manufacturing information regarding the process and facility, scientific data characterizing our product and other supporting data to the regulatory authorities in order to establish its safety and effectiveness. These processes are complex, lengthy, expensive, resource intensive and uncertain. We have limited experience in submitting and pursuing applications necessary to gain these regulatory approvals.

As described above, data submitted to regulators are subject to varying interpretations that could delay, limit or prevent regulatory agency approval. We may also encounter delays or rejections based on changes in regulatory agency policies during the period in which we develop a product and the period required for review of any application for regulatory agency approval of a particular product. For example, the FDA has designated ALIS for fast track, breakthrough therapy and qualified infectious disease product status, all programs intended to expedite or streamline the development and regulatory review of the drug. If we were to lose the current designation under one or more of those programs, we could face delays in the FDA review and approval process. Resolving such delays could force us or third parties to incur significant costs, could limit our allowed activities or the allowed activities of third parties, could diminish any competitive advantages that we or our third parties may attain or could adversely affect our ability to receive royalties, any of which could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. Even with these designations, there is no guarantee we will receive approval for ALIS on a timely basis, or at all.

Similarly, we are currently assessing our regulatory strategies with regard to orphan drug designation and other pathways that could expedite the development and regulatory review of INS1007 in the US and the EU, but we may be unsuccessful in pursuing such strategies. The FDA recently denied our initial request for orphan drug designation for INS1007 in non-CF bronchiectasis, and we are evaluating our options, including whether to appeal this decision or reapply for this designation based on a refined regulatory strategy. In addition, although we believe that INS1009 could be eligible for approval under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act (505(b)(2)), and thus could rely at least in part on studies not conducted by or for us and for which we do not have a right of reference, we may not obtain approval from the FDA to use this pathway.

Approval by the FDA does not ensure approval by the regulatory authorities of other countries. To market our products outside of the US, we, and potentially our third-party providers, must comply with numerous and varying regulatory requirements of other countries. The approval procedures vary among countries and can involve additional product testing and administrative review periods. The time required to obtain approval in these other territories might differ from that required to obtain FDA approval. In addition, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions (including with respect to our target market) and criminal prosecution if we fail to comply with applicable US or foreign regulatory requirements.

We have not completed the research and development stage of ALIS or any other product candidates. If we are unable to successfully develop and commercialize ALIS or any other products, it will materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

Our long-term viability and growth depend on the successful commercialization of ALIS and potentially other product candidates. Pharmaceutical product development is an expensive, high risk, lengthy, complicated, resource intensive process. In order to conduct the development programs for our products, we must, among other things, be able to successfully:

~~Identify potential product candidates;~~

~~Design and conduct appropriate laboratory, preclinical and other research;~~

~~Submit for and receive regulatory approval to perform clinical studies;~~

Design and conduct appropriate preclinical and clinical studies according to good laboratory practices and good clinical practices and disease-specific expectations of the FDA and other regulatory bodies;

~~Select and recruit clinical investigators and subjects for our studies;~~

~~Collect, analyze and correctly interpret the data from our studies;~~

Obtain data establishing adequate safety of our product candidates and demonstrating with statistical significance that our product candidates are effective for their proposed indications, as indicated by satisfaction of pre-established endpoints;

~~Submit for and receive regulatory approvals for marketing;~~

~~Submit for and receive reimbursement approvals for market access; and~~

~~Manufacture the product candidates and device components according to current good manufacturing practices (CGMP) and other applicable standards and regulations.~~

The development program with respect to any given product will take many years and thus delay our ability to generate profits associated with that product. In addition, potential products that appear promising at early stages of development may fail for a number of reasons, including the possibility that the products may require significant additional testing or turn out to be unsafe, ineffective, too difficult or expensive to develop or manufacture, too difficult to administer or unstable, or regulators may require additional testing to substantiate our claims. For instance, as described above, although we view the top-line six-month results from the CONVERT study as promising, our clinical studies of ALIS for refractory NTM lung disease caused by MAC are ongoing, and outcomes from those studies cannot be predicted. If we do not proceed with the development of our ALIS program in the NTM lung disease or CF indications, certain of our contract counterparties may elect to proceed with the development of these indications. Even if we are successful in obtaining regulatory approval for our product candidates, including ALIS, we may not obtain labeling that permits us to market them with commercially viable claims because the final wording of the approved indication may be restrictive, or the available clinical data may not provide adequate comparative data with other products. Failure to successfully commercialize our products will materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

If our clinical studies do not produce positive results or our clinical trials are delayed, or if serious side effects are identified during drug development, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates in the US, Japan, Europe or other markets.

Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals, and clinical trials to demonstrate the safety and efficacy of our product candidates in humans.

Preclinical and clinical testing is expensive, difficult to design and implement and can take many years to complete. Special challenges can arise in conducting trials in diseases or conditions with small populations, such as difficulties enrolling adequate numbers of patients. Our product development costs have and may continue to increase if we experience further delays in testing or approvals. A failure of one or more of our preclinical studies or clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent our ability to obtain regulatory approval or commercialize our product candidates, including:

Our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or we may abandon projects that we expect to be promising;

~~Regulators, ethics committees or institutional review boards (IRBs) may prevent us from commencing a clinical trial or conducting a clinical trial at a prospective trial site;~~

~~Enrollment in the clinical trials may take longer than expected or the clinical trials as designed may not allow for sufficient patient accrual to complete enrollment of the trial;~~

~~We may experience difficulties or delays due to the number of clinical sites involved in our clinical trials;~~

~~We may decide to limit or abandon our commercial development programs;~~

Conditions imposed on us by the FDA or any non-US regulatory authority regarding the scope or design of our clinical trials may require us to collect and submit information to regulatory authorities, ethics committees, IRBs or others for review and approval;

~~The number of patients required for our clinical trials may be larger than we anticipate or participants may drop out of our clinical trials at a higher rate than we anticipate;~~

Our third-party contractors, contract research organizations (CROs), clinical investigators, clinical laboratories, product suppliers or nebulizer supplier may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner;

We may have to suspend or terminate one or more of our clinical trials if we, regulators, ethics committees or the IRBs determine that the participants are being exposed to unacceptable health risks or for other reasons;

We may not be able to claim that a product candidate provides an advantage over current standard of care or future competitive therapies in development because our clinical studies may not have been designed to support such claims;

Regulators, ethics committees or IRBs may require that we hold, suspend or terminate clinical research for various reasons, including potential safety concerns or noncompliance with regulatory requirements;

~~The cost of our clinical trials may be greater than we anticipate;~~

The supply or quality of product used in clinical trials or other materials necessary to conduct our clinical trials may be insufficient or inadequate or we may not be able to reach agreements on acceptable terms with prospective contract manufacturers or CROs;

~~The effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics; and~~

~~Our competitors may be able to bring products to market before we do.~~

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

~~Experience increased product development costs, as we have in the past;~~

~~Be delayed in obtaining, or be unable to obtain, regulatory approval for one or more of our product candidates;~~

Obtain approval for indications that are not as broad as intended or entirely different than those indications for which we sought approval or labeling with black box or other warnings or contraindications;

~~Have the product removed from the market after obtaining regulatory approval; or~~

~~Face a shortened patent protection period during which we may have the exclusive right to commercialize our product candidates.~~

We have limited experience in conducting and managing the preclinical development activities and clinical trials necessary to obtain regulatory approvals, including approval by the FDA, MHLW and EMA, which might prevent us from successfully designing, implementing, or completing the clinical trials required to support regulatory approval of our product candidates. Since our merger with Transave Inc., we have not completed a regulatory filing and review process for, obtained regulatory approval of or commercialized any of our product candidates. The application processes for the FDA, MHLW, PMDA, EMA and other regulatory agencies are complex and difficult and vary by regulatory agency, and we have limited experience in conducting and managing the application processes necessary to obtain regulatory approvals in these various jurisdictions and might not be able to demonstrate that our product candidates meet the appropriate standards for regulatory approval. If we are not successful in conducting and managing our preclinical development activities or clinical trials or obtaining regulatory approvals, we might not be able to commercialize ALIS or other product candidates, or might be significantly delayed in doing so, which may materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

There is little or no precedent for clinical development and regulatory expectations for agents to treat NTM lung disease; as a result, we may encounter challenges developing clinical endpoints that will ultimately be satisfactory to regulators, which could cause our product candidates not to be approved by regulators, delay commercialization of our product candidates or subject us to the risk of having any approval withdrawn.

Based on the top-line six-month data from the CONVERT study, we expect to submit an NDA under Subpart H to request accelerated approval for ALIS. The FDA may base accelerated approval for drugs intended to treat serious or life-threatening illnesses that provide meaningful therapeutic benefit to patients over existing treatments on whether the drug has an effect on a surrogate or an intermediate clinical endpoint (other than survival or irreversible morbidity). We are using a surrogate endpoint in our CONVERT study and, while we have discussed our protocol for potential accelerated approval under Subpart H with the FDA, the FDA has not indicated its agreement or disagreement with the protocol. In addition, the FDA has indicated that the results of the six-minute walk test, a secondary endpoint in the CONVERT study, will be important in assessing the results of culture conversion as a surrogate endpoint in the CONVERT study. Developing clinical endpoints that are unsatisfactory to regulators could delay clinical trials and the FDA approval process, which could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

Additionally, if ALIS or any of our other product candidates is approved based on a surrogate or an intermediate clinical endpoint under the accelerated approval regulations, the approval will be subject to the requirement that we study the product candidate further to verify and describe its clinical benefit, where there is uncertainty as to the relation of the surrogate or intermediate clinical endpoint to clinical benefit or of the observed clinical benefit to the ultimate outcome. Thus, even if we are successful in obtaining accelerated approval in the US or under comparable pathways in other jurisdictions, we may face requirements and limitations that will adversely affect our prospects. For example, we may be approved only for a very limited indication, we may not successfully complete required post-approval trials, or such trials may not confirm the clinical benefit of our drug, and approval of the drug may be withdrawn.

For ALIS to be successfully developed and commercialized in a given market, in addition to regulatory approvals required for ALIS, the eFlow Nebulizer System must satisfy certain regulatory requirements and its use as a delivery system for ALIS must be approved or cleared by regulators.

ALIS is administered using the eFlow Nebulizer System. As such, the eFlow Nebulizer System must receive regulatory approval or clearance on its own or in conjunction with ALIS as a combination product in order for us to develop and commercialize ALIS. Although the eFlow Nebulizer System is CE marked by PARI in the EU, outside the EU it is labeled as investigational for use in our clinical trials, including in the US, Japan, Canada and Australia. The eFlow Nebulizer System is not approved for commercial use in the US, Japan, Canada or certain other markets in which we may seek to commercialize ALIS.

~~In the US, we plan to seek approval of the eFlow Nebulizer System in conjunction with ALIS as a combination product through a single NDA submission, and the increased complexity of the review process~~Statements in this circumstance may delay approval. Additionally, while we continue to work closely with PARI to coordinate efforts regarding regulatory requirements, we will be responsible for this NDA submission, and we, in consultation and collaboration with PARI, may not be successful in meeting the regulatory requirements for the eFlow Nebulizer System, which would prevent or delay our ability to bring ALIS to market or to market it successfully. Failure of PARI to successfully supply, or to maintain regulatory approval or clearance, of the eFlow Nebulizer System could result in increased development costs, delays in or failure to obtain regulatory approval, and associated delays in ALIS reaching the market. Further, based on our discussions to date with the FDA, we will need to conduct a human factors study for the eFlow Nebulizer System prior to submission of our NDA for ALIS. Preparations for this study are underway, but if the study is delayed or otherwise does not yield adequate data, it could prevent or delay submission of the NDA or approval of ALIS.

We may not be able to enroll enough patients to complete our clinical trials or retain a sufficient number of patients in our clinical trials to generate the data necessary for regulatory approval of our product candidates.

~~The completion rate of our clinical studies is dependent on, among other factors, the patient enrollment rate. Patient enrollment is a function of many factors, including:~~

~~Investigator identification and recruitment;~~

~~Regulatory approvals to initiate study sites;~~

~~Patient population size;~~

~~The nature of the protocol to be used in the trial;~~

~~Patient proximity to clinical sites;~~

~~Eligibility criteria for the study;~~

~~The patients’ willingness to participate in the study;~~

~~Discontinuation rates; and~~

~~Competition from other companies’ potential clinical studies for the same patient population.~~

Delays in patient enrollment for future clinical trials, such as those we encountered in enrolling the CONVERT study, could increase costs and delay ultimate commercialization and sales, if any, of our products. Once enrolled, patients may elect to discontinue participation in a clinical trial at any time. If patients elect to discontinue participation in our clinical trials at a higher rate than expected, we may be unable to generate the data required by regulators for approval of our product candidates.

Even if we obtain regulatory approval for ALIS or any of our other product candidates, we will continue to face extensive regulatory requirements and our products may face future development and regulatory difficulties.

Even if regulatory approval in the US is obtained, the FDA may still impose significant restrictions on a product’s indicated uses or marketing, including risk evaluation and mitigation strategies (REMS), or may impose ongoing requirements on us, including with respect to:

~~Labeling, such as black box or other warnings or contraindications;~~

~~Post-market surveillance, post-market studies or post-market clinical trials;~~

~~Packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of safety and other postmarket information;~~

~~Monitoring and reporting complaints, adverse events and instances of the failure of a product to meet specifications;~~

~~Compliance with CGMPs;~~

~~Changes to the approved product, product labeling or manufacturing process;~~

~~Advertising and other promotional material; and~~

~~Disclosure of clinical trial results on publicly available databases.~~

~~In addition, the distribution, sale and marketing of our products are subject to a number of additional requirements, including:~~

~~State wholesale drug distribution laws and the distribution of our product samples to physicians must comply with the requirements of the Prescription Drug Marketing Act of 1987;~~

~~Sales, marketing and scientific or educational grant programs must comply with federal and state laws; and~~

Pricing and rebate programs must comply with the Medicaid rebate requirements, and if products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply.

~~All of these activities also may be subject to federal and state consumer protection and unfair competition laws. If we fail to comply with applicable regulatory requirements, a regulatory agency may:~~

~~Issue warning letters or untitled letters asserting that we are in violation of the law;~~

~~Seek an injunction or impose civil or criminal penalties or monetary fines;~~

~~Suspend or withdraw regulatory approval;~~

~~Suspend or terminate any ongoing clinical trials;~~

~~Refuse to approve pending applications or supplements to applications submitted by us;~~

~~Suspend or impose restrictions on operations, including costly new manufacturing requirements;~~

~~Seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall;~~

~~Refuse to allow us to enter into supply contracts, including government contracts; and/or~~

~~Impose civil monetary penalties or pursue civil or criminal prosecutions and fines against our company or responsible officers.~~

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenues.

The commercial success of ALIS or any other product candidates that we may develop will depend upon many factors, including the degree of market acceptance by physicians, patients, third-party payers and others in the medical community.

Even if we are able to successfully complete development of, obtain regulatory approval for, and bring to market our product candidates, they may not gain market acceptance by physicians, patients, third-party payers and others in the medical community. If ALIS, or any other product candidate we bring to market, does not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not become profitable. The degree of market acceptance of ALIS and any other product candidates, if approved for commercial sale, will depend on a number of factors, including:

~~The prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;~~

~~The efficacy and potential advantages over alternative treatments;~~

~~The pricing of our products;~~

~~Relative convenience and ease of administration;~~

~~The willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;~~

~~The strength of marketing and distribution support and timing of market introduction of competitive products;~~

~~Publicity concerning our products or competing products and treatments, including competing products becoming subject to generic pricing; and~~

~~Sufficient third-party insurance coverage and reimbursement.~~

Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not be known until after it is launched. For example, if a clinical trial is not designed to demonstrate advantages over alternative treatments, we may be prohibited from promoting our product candidates on any such advantages. Our efforts to educate the medical community and third-party payers on the benefits of our product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required to commercialize more established technologies marketed by our competitors.

We currently have a very small marketing and sales organization, and we have limited experience as a company in marketing drug products. If we are unable to establish our own marketing and sales capabilities, or are unable to enter into agreements with third parties, to market and sell our products after they are approved, our ability to generate product revenues will be adversely affected.

We have a small commercial organization for the marketing, market access, sales and distribution of our products. In order to commercialize ALIS or any other product candidates, we must develop these capabilities on our own or make arrangements with third parties for the marketing, sales and distribution of our products. The establishment and development of our own sales force will be expensive and time consuming and could delay any product launch, and we may be unable to successfully develop this capability. As a result, we may seek one or more partners to handle some or all of the sales and marketing of ALIS in certain markets. However, we may not be able to enter into arrangements with third parties to sell ALIS on favorable terms or at all. In the event we are unable to develop our own marketing, market access, and sales force or collaborate with a third-party marketing, market access, and sales organization, we may not be able to successfully commercialize ALIS or any other product candidates that we develop, which would adversely affect our ability to generate product revenues. Further, whether we commercialize products on our own or rely on a third party to do so, our ability to generate revenue will be dependent on the effectiveness of the sales force.

If estimates of the size of the potential markets for our product candidates, including ALIS, are overstated or regulators limit the proposed treatment population for our product candidates, our ability to commercialize such product candidates successfully or achieve sufficient revenue to support our business could be materially adversely affected.

We have relied on currently available information from external sources, including market research funded by us and third parties, and internal analyses and calculations to estimate the potential market opportunities for NTM lung disease in 2018 in the United States, Japan and EU5. The externally sourced information used to develop these estimates has been obtained from sources we believe to be reliable, but we have not verified the data from such sources, and their accuracy and

completeness cannot be assured. Similarly, our internal analyses and calculations are based upon management’s understanding and assessment of numerous inputs and market conditions, including, but not limited to, the projected increase in prevalence of NTM lung disease, Medicare patient population growth and ongoing population shifts to geographies with increased rates of NTM lung disease. These understandings and assessments necessarily require assumptions subject to significant judgment and may prove to be inaccurate. As a result, our estimates of the size of these potential markets for ALIS could prove to be overstated, perhaps materially. We may develop estimates with respect to market opportunities for other product candidates in the future, and such estimates would be subject to similar risks. In addition, a potential market opportunity could be reduced if a regulator limits the proposed treatment population for one of our product candidates. In either circumstance, even if we obtain regulatory approval for a product candidate, we may be unable to commercialize it on a scale sufficient to generate material revenues, which could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock.

~~Risks Related to Our Reliance on Third Parties~~

We rely on third parties including collaborators, CROs, clinical and analytical laboratories, CMOs and other providers for many services that are critical to our business. If we are unable to form and sustain these relationships, or if any third-party arrangements that we may enter into are unsuccessful, including due to non-compliance by such third parties with our agreements or applicable law, our ability to develop and commercialize our products may be materially adversely affected.

We currently rely, and expect that we will in the future continue to rely, on third parties for significant research, analytical services, preclinical development, clinical development and manufacturing of our product candidates. For example, almost all of our clinical trial work is done by CROs, such as SynteractHCR, Inc., our CRO for both the 212 and 312 studies, and clinical laboratories. Reliance on these third parties poses a number of risks, including the following:

~~Significant competition in seeking appropriate partners;~~

~~The complex and time-consuming nature of negotiation, documentation and implementation of agreements with third parties in the pharmaceutical industry;~~

~~Our potential inability to establish and implement collaborations or other alternative arrangements that we might pursue on favorable terms;~~

~~Our potential inability to control whether third parties devote sufficient resources to our programs or products, including with respect to meeting contractual deadlines;~~

Our potential inability to control the regulatory and contractual compliance of third parties, including their processes and procedures, systems utilized to collect and analyze data, and equipment used to test drug product and/or clinical supplies;

Disagreements with third parties, including CROs, that result in a dispute over and loss of intellectual property rights, delay or termination of research, development, or commercialization of product candidates or litigation or arbitration;

~~Contracts with our collaborators that fail to provide sufficient protection of our intellectual property; and~~

~~Difficulty enforcing the contracts if one of these third parties fails to perform.~~

We also rely on third parties to select and enter into agreements with clinical investigators to conduct clinical trials to support approval of our products, and the failure of these third parties to appropriately carry out such evaluation and selection can adversely affect the quality of the data from these studies and, potentially, the approval of our products. In particular, as part of future drug approval submissions to the FDA, we must disclose certain financial interests of investigators who participated in any of the clinical studies being submitted in support of approval, or must certify to the absence of such financial interests. The FDA evaluates the information contained in such disclosures to determine whether disclosed interests may have an impact on the reliability of a study. If the FDA determines that financial interests of any clinical investigator raise serious questions of data integrity, the FDA can institute a data audit, request that we submit further data analyses, conduct additional independent studies to confirm the results of the questioned study, or refuse to use the data from the questioned study as a basis for approval. A finding by the FDA that a financial relationship of an investigator raises serious questions of data integrity, could delay or otherwise adversely affect approval of our products.

~~Such risks could materially harm our business, financial condition, results of operations and prospects and the value of our common stock.~~

We may not have, or may be unable to obtain, sufficient quantities of our product candidates to meet our required supply for clinical studies or commercialization requirements, which would materially harm our business.

We do not have any in-house manufacturing capability other than for development and characterization and depend completely on a small number of third-party manufacturers and suppliers for the manufacture of our product candidates on a clinical or commercial scale. For instance, we are and expect to remain dependent upon Therapure Biopharma Inc. (Therapure), Ajinomoto Althea, Inc. (Althea) and other suppliers being able to provide an adequate supply of ALIS both for our clinical trials and for commercial sale in the event ALIS receives regulatory approvals. Althea currently manufactures ALIS at a relatively small scale. In order to meet potential commercial demand, if ALIS is approved, we have constructed a manufacturing operation at Therapure in Canada that operates at a larger scale and intend to invest in additional production capacity for ALIS. We may not be able to secure such additional production capacity for ALIS, which would increase the risks associated with either Therapure or Althea being unable to provide us with an adequate supply of ALIS. For additional information related to long-term commercial production, see ~~"Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations."~~

We are also dependent upon PARI being able to provide an adequate supply of nebulizers both for our clinical trials and for commercial sale in the event ALIS receives regulatory approval, as PARI is the sole manufacturer of the eFlow Nebulizer System. We have no alternative supplier for the nebulizer, and we do not intend to seek an alternative or secondary supplier. Significant effort and time were expended in the optimization of the nebulizer for use with ALIS. In the event PARI cannot provide us with sufficient quantities of the nebulizer, replication of the optimized device by another party may require considerable time and additional regulatory approval. In the case of certain defined supply failures, we will have the right under our commercialization agreement with PARI to make the nebulizer and have it made by certain third parties, but not those deemed under the commercialization agreement to compete with PARI.

We do not have long-term commercial agreements with all of our suppliers and if any of our suppliers are unable or unwilling to perform for any reason, we may not be able to locate suppliers or enter into favorable agreements with them. In such circumstances, an inadequate supply of ALIS or the nebulizer could delay, impair or prevent clinical trials, the development and commercialization of ALIS and adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

~~Risks Related to Our Financial Condition and Future Capital Requirements~~

We have a history of operating losses, and we currently have no material source of revenue. We expect to incur operating losses for the foreseeable future and may never achieve or maintain profitability.

We have incurred losses each previous year of our operation, except in 2009, when we sold our manufacturing facility and certain other assets to Merck, and we did not generate material revenue during the nine months ended September 30, 2017 or the years ended December 31, 2016, 2015 or 2014. We expect to continue incurring operating losses for the foreseeable future. The process of developing and commercializing our products requires significant pre-clinical and clinical testing as well as regulatory approvals for commercialization and marketing before we are allowed to begin product sales. In addition, commercialization of our product candidates would require us to significantly expand our sales and marketing organization and establish contractual relationships to enable product manufacturing and other related activities. We expect that our activities, together with our general and administrative expenses, will continue to result in substantial operating losses for the foreseeable future. As of September 30, 2017, our accumulated deficit was $892.5 million. For the nine months ended September 30, 2017, our consolidated net loss was $127.3 million, and we incurred a consolidated net loss of $176.3 million for the year ended December 31, 2016. To achieve and maintain profitability, we need to generate significant revenues from future product sales. The process of developing and commercializing our products will require significant expenditures for pre-clinical and clinical testing, regulatory approvals for commercialization and marketing, development of an internal or external sales and marketing organization and other related activities. Because of the numerous risks and uncertainties associated with drug development and commercialization, we are unable to predict the extent of any future losses, and we may never generate significant future revenues or achieve and sustain profitability.

~~We will need additional funds in the future to continue our operations, but we face uncertainties with respect to our ability to access capital.~~

Our operations have consumed substantial amounts of cash since our inception. We expect to continue to incur substantial research and development expenses, and we expect to expend substantial financial resources to complete development of, seek regulatory approval for, and prepare for commercialization of ALIS. In addition, if we obtain regulatory approval for ALIS or any of our other product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We will need additional capital to fund these expenses. We also will require additional future capital in order to continue our other research and development activities, including due to changes in our product development plans or misjudgment of expected costs, fund corporate development, maintain our intellectual property portfolio or resolve litigation. As of September 30, 2017, we had $430.7 million of cash and cash equivalents on hand but no committed sources of capital. We do not know whether additional financing will be available when needed, or, if available, that the terms will be favorable. If adequate funds are not available to us when needed, we will be forced to delay, restrict or eliminate all or a portion of our development programs or commercialization efforts.

Our loan agreement with Hercules contains covenants and other provisions that impose restrictions on our operations, which may adversely affect our ability to optimally operate our business or to maximize shareholder value.

Our loan agreement with Hercules, under which we had outstanding indebtedness of $55.4 million as of September 30, 2017, contains various restrictive covenants, including restrictions on our ability to incur additional debt, transfer or place a lien or security interest on our assets, including our intellectual property, merge with or acquire other companies, redeem or repurchase any shares of our capital stock or pay cash dividends to our shareholders. The loan agreement also contains certain other covenants (including limitations on other indebtedness, liens, acquisitions, investments and dividends). Upon the occurrence of an event of default, a default interest rate of an additional 5% may be applied to the outstanding loan balances, and Hercules may terminate its lending commitment, declare all outstanding obligations immediately due and payable, and take such other actions as set forth in the loan agreement. In addition, pursuant to the loan agreement, Hercules has the right to participate, in an amount of up to $2.0 million, in a subsequent private financing that involves the issuance of our equity securities. The interest-only period under the loan agreement extends through May 1, 2019. The maturity date of the loan facility is October 1, 2020.

Our borrowings under the loan agreement are secured by a lien on our assets, excluding our intellectual property, and in the event of a default on the loan, Hercules may have the right to seize the assets securing our obligations under the loan agreement. The terms and restrictions provided in the loan agreement may inhibit our ability to conduct our business and to maximize shareholder value. Future debt securities or other financing arrangements could contain negative covenants similar to, or even more restrictive than, the Hercules loan agreement.

~~In-process research and development (IPRD) comprised approximately 11% of our total assets as ofSeptember 30, 2017. A reduction in the value of our IPRD could have a material adverse effect on our results of operations, financial condition and the value of our common stock.~~

As a result of the merger with Transave Inc. in 2010, we recorded an intangible IPRD asset of $77.9 million and goodwill of $6.3 million on our balance sheet. As a result of the clinical hold on ALIS announced in late 2011, we recorded a charge of $26.0 million in the fourth quarter of 2011 that reduced the value of IPRD to $58.2 million and reduced goodwill to zero. Potential future activities or results could result in additional writedowns of IPRD, which could materially adversely affect our results of operations, financial condition and the value of our common stock.

~~We may be unable to use our net operating losses and other tax assets.~~

We have substantial tax loss carry forwards for US federal income tax and state income tax purposes, and beginning in 2015, we had tax loss carry forwards in Ireland as well. In general, our net operating losses and tax credits have been fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits. In particular, our ability to fully use certain US tax loss carry forwards and general business tax credit carry forwards recorded prior to December 2010 to offset future income or tax liability is limited under section 382 of the Internal Revenue Code of 1986, as amended (the Code). Changes in the ownership of our stock, including those resulting from the issuance of shares of our common stock in this or future offerings or upon exercise of outstanding options, may limit or eliminate our ability to use certain net operating losses and tax credit carry forwards in the future.

~~Any acquisitions we make, or collaborative relationships we enter into, may require a significant amount of our available cash and may not be clinically or commercially successful.~~

As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and personnel, but we cannot assure you that we will identify suitable products or enter into such acquisitions on acceptable terms.

~~Acquisitions involve a number of operational risks, including:~~

~~Failure to achieve expected synergies;~~

~~Difficulty and expense of assimilating the operations, technology and personnel of the acquired business;~~

~~Our inability to retain the management, key personnel and other employees of the acquired business;~~

~~Our inability to maintain the acquired company’s relationship with key third parties, such as alliance partners;~~

~~Exposure to legal claims for activities of the acquired business prior to the acquisition;~~

~~The diversion of our management's attention from our core business; and~~

~~The potential impairment of goodwill and write-off of IPRD costs, adversely affecting our reported results of operations and financial condition.~~

We also may enter into collaborative relationships that would involve our collaborators conducting proprietary development programs. Any conflict with our collaborators could limit our ability to obtain future collaboration agreements and negatively influence our relationship with existing collaborators. Disagreements with collaborators may also develop over the rights to our intellectual property.

If we make one or more significant acquisitions or enter into a significant collaboration in which the consideration includes cash, we may be required to use a substantial portion of our available cash and/or need to raise additional capital. For instance, in September and October of 2016, we borrowed $30.0 million under our loan agreement with Hercules to fund the payment due under the license agreement with AstraZeneca, and this investment as with any acquisition or collaboration may not be successful.

~~Risks Related to Regulatory Matters~~

The manufacturing facilities of our third-party manufacturers are subject to significant government regulations and approvals, which are often costly and could result in adverse consequences to our business if we and our manufacturing partners fail to comply with the regulations or maintain the approvals.

Manufacturers of our product candidates are subject to CGMP and similar standards, and while we have policies and procedures in place to select manufacturers that adhere, and monitor their adherence to, such standards, they may nonetheless fail to do so. If one of them fails to obtain or maintain compliance or experiences problems in the scale-up of commercial production, the production of our product candidates could be interrupted, resulting in delays, additional costs or restrictions on the marketing or sale of our products. These manufacturers and their facilities will be subject to pre-approval CGMP inspection by the FDA and other regulatory authorities, and the findings of the CGMP inspection could result in a failure to obtain, or a delay in obtaining, regulatory approval. In addition, these manufacturers and their facilities will be subject to continual review and periodic inspections by the FDA and other regulatory authorities following regulatory approval, if any, of our product candidates. For instance, to monitor compliance with applicable regulations, the FDA routinely conducts inspections of facilities and may identify potential deficiencies. The FDA issues what are referred to as “FDA Form 483s” that set forth observations and concerns that are identified during its inspections. Failure to satisfactorily address the concerns or potential deficiencies identified in a Form 483 could result in the issuance of a warning letter, which is a notice of the issues that the FDA believes to be significant regulatory violations requiring prompt corrective actions. Failure to respond adequately to a warning letter, or to otherwise fail to comply with applicable regulatory requirements could result in enforcement, remedial and/or punitive actions by the FDA or other regulatory authorities.

~~Even if we obtain regulatory approval for ALIS or any of our other product candidates, adverse effects discovered after approval could limit the commercial profile of any approved product.~~

If we obtain regulatory approval for ALIS or any other product candidate that we develop, such products will be used by a larger number of patients and for longer periods of time than they were used in clinical trials. For these or other reasons, we or others may later discover that our products have adverse event profiles that limit their usefulness or require their withdrawal. This discovery could have a number of potentially significant negative consequences, including:

~~Regulatory authorities may withdraw their approval or clearance of the product and may require recall of product in distribution;~~

Regulatory authorities may require the addition of labeling statements, such as black box or other warnings or contraindications, or the issuance of “Dear Doctor Letters” or similar communications to healthcare professionals;

~~Regulatory authorities may impose additional restrictions on marketing and distribution of the products, or other risk management measures, such as a REMS;~~

~~We may be required to change the way the product is administered, conduct additional clinical studies or restrict the distribution of the product;~~

~~We could be sued and held liable for harm caused to subjects; and~~

~~We could be subject to negative publicity, including communications issued by regulatory authorities.~~

Any of these events could prevent us from maintaining market acceptance of the affected product, cause substantial reduction in sales or substantially increase the costs of commercializing our product candidates, cause significant financial losses or result in significant reputational damage.

If we are unable to obtain adequate reimbursement from governments or third-party payers for ALIS or any other products that we may develop or if we are unable to obtain acceptable prices for those products, our prospects for generating revenue and achieving profitability may be materially adversely affected.

Our prospects for generating revenue and achieving profitability depend heavily upon the availability of adequate reimbursement for the use of our approved product candidates from governmental and other third-party payers, both in the US and in other markets. For instance, we expect a substantial majority of potential future ALIS revenues would come from Medicare reimbursement. Reimbursement by a third-party payer may depend upon a number of factors, including the third-party payer’s determination that use of a product is:

~~A covered benefit under its health plan;~~

~~Safe, effective and medically necessary;~~

~~Appropriate for the specific patient;~~

~~Cost-effective; and~~

~~Neither experimental nor investigational.~~

Obtaining reimbursement approval for a product from each government or other third-party payer is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to each payer. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement or we might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to such payers' satisfaction. Such studies might require us to commit a significant amount of management time and financial and other resources. Even when a payer determines that a product is eligible for reimbursement, the payer may impose coverage limitations that preclude payment for some uses that are approved by the FDA or non-US regulatory authorities. In addition, there is a risk that full reimbursement may not be available for high priced products. Moreover, eligibility for coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, also may not be sufficient to cover our costs and may not be made permanent. Subsequent approvals of competitive products could result in a detrimental change to the reimbursement of our products.

There is a significant focus in the US healthcare industry and elsewhere on cost containment and value. We expect changes in the Medicare program and state Medicaid programs, as well as managed care organizations and other third-party payers, to continue to put pressure on pharmaceutical product pricing. For instance, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) expanded Medicare outpatient prescription drug coverage for the elderly through Part D prescription drug plans sponsored by private entities and authorized such plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. The plans generally negotiate significant price concessions as a condition of formulary placement. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs, which is generally believed to have resulted in lower Medicare reimbursement for physician-administered drugs. These cost reduction initiatives and other provisions of this legislation provide additional pressure to contain and reduce drug prices and could decrease the coverage and price that we receive for any

approved products and could seriously harm our business. Although the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations when setting their own reimbursement rates, and any reimbursement reduction resulting from the MMA may result in a similar reduction in payments from private payers. Additionally, the Patient Protection and Affordable Care Act (ACA) revised the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states, and has imposed a significant annual fee on companies that manufacture or import branded prescription drug products. We believe it is likely that the ACA, or any legislation enacted to replace it, will continue the pressure on pharmaceutical pricing, especially under the Medicare program, and also may increase our regulatory burdens and operating costs. If one or more of our product candidates reaches commercialization, such changes may have a significant impact on our ability to set a price we believe is fair for our products and may adversely affect our ability to generate revenue and achieve or maintain profitability. We expect further federal and state proposals and health care reforms to continue to be proposed by legislators and/or the US President, which could limit the prices that can be charged for the products we develop and may limit our commercial opportunity.

Moreover, in markets outside the US, including Japan, Canada and the countries in the EU, pricing of pharmaceutical products is subject to governmental control. Evaluation criteria used by many EU government agencies for the purposes of pricing and reimbursement typically focus on a product’s degree of innovation and its ability to meet a clinical need unfulfilled by currently available therapies. The ACA created a similar entity, the Patient-Centered Outcomes Research Institute (PCORI) designed to review the effectiveness of treatments and medications in federally-funded health care programs. The PCORI began its first research initiatives recently, and an adverse result may result in a treatment or product being removed from Medicare or Medicare coverage. The decisions of such governmental agencies could affect our ability to sell our products profitably.

~~Government health care reform could increase our costs, and could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.~~

Our industry is highly regulated and changes in or revisions to laws and regulations that make gaining regulatory approval, reimbursement and pricing more difficult or subject to different criteria and standards may adversely impact our business, operations or financial results. For example, under the ACA, drug manufacturers are required to report information on payments or transfers of value to US physicians and teaching hospitals as well as investment interests held by physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties. The reported data are posted in searchable form on a public website. In addition, some states, as well as other countries, including France, require the disclosure of certain payments to health care professionals. In the coming years, we expect additional and potentially substantial, changes to governmental programs that could significantly impact the success of our product candidates.

The Administration and the majority party in both Houses of Congress have indicated their ongoing desire to repeal the ACA. It is unclear whether, when and how that repeal may be effectuated and what the effect on the healthcare sector will be. The US President has indicated an interest in having the federal government negotiate drug prices with pharmaceutical manufacturers. Changes to the ACA, to the Medicare or Medicaid programs, or to the ability of the federal government to negotiate drug prices, or other federal legislation regarding healthcare access, financing or legislation in individual states, could affect our business, financial condition, results of operations and prospects and the value of our common stock.

We will need approval from the FDA and other regulatory authorities in jurisdictions outside the US for our proposed trade names. Any failure or delay associated with such approvals may delay the commercialization of our products.

Any trade name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the US Patent and Trademark Office (PTO). The FDA typically conducts a rigorous review of proposed trade names, including an evaluation of potential for confusion with other trade names and medication error. The FDA also may object to a trade name if it believes the name is inappropriately promotional. Even after the FDA approves a trade name, the FDA may request that we adopt an alternative name for the product if adverse event reports indicate a potential for confusion with other trade names and medication error. If we are required to adopt an alternative name, the commercialization of ALIS could be delayed or interrupted, which would limit our ability to commercialize ALIS and generate revenues.

If we are found in violation of federal or state “fraud and abuse” laws, we may be required to pay a penalty or may be suspended from participation in federal or state health care programs, which may adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

In the US, we are subject to various federal and state health care “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended to reduce fraud and abuse in federal and state health care programs. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and

it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines or exclusion or suspension from federal and state health care programs such as Medicare and Medicaid and debarment from contracting with the US government, and our business, financial condition, results of operations and prospects and the value of our common stock may be adversely affected. Our reputation could also suffer. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.

Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. Health record privacy laws may limit access to information identifying those individuals who may be prospective users or prohibit contact with any persons enrolled in Medicare or Medicaid. There are ambiguities as to what is required to comply with these state requirements, and we could be subject to penalties if a state determines that we have failed to comply with an applicable state law requirement.

~~Risks Related to Our Intellectual Property~~

~~If we are unable to protect our intellectual property rights adequately, the value of our product candidates could be diminished.~~

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal, technical, scientific and factual questions, and our success depends in large part on our ability to protect our proprietary technology and to obtain patent protection for our products, prevent third parties from infringing on our patents, both domestically and internationally. We have sought to protect our proprietary position by filing patent applications in the US and abroad related to our novel technologies and products that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies.

Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Any conclusions we may reach regarding non-infringement, inapplicability or invalidity of a third party’s intellectual property vis-à-vis our proprietary rights, or those of a licensor, are based in significant part on a review of publicly available databases and other information. There may be information not available to us or otherwise not reviewed by us that could render these conclusions inaccurate. Our competitors may also be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

Additionally, patents issued to us or our licensors may be challenged, narrowed, invalidated, held to be unenforceable or circumvented through litigation, which could limit our ability to stop competitors from marketing similar products or reduce the term of patent protection we may have for our products. US patents and patent applications may also be subject to interference or derivation proceedings, and US patents may be subject to re-examination proceedings, reissue, post-grant review and/or ~~inter partes~~ review in the PTO. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent office, which could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. See ~~Intellectual Property - ARIKAYCE Patents and Trade Secrets~~ in Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016 (the 2016 Annual Report) for information on our European patent that was previously opposed, the decision of which is now under appeal by Generics (UK) Ltd, and our European patent that is currently being opposed by Generics (UK) Ltd.

Changes in either patent laws or in interpretations of patent laws in the US and other countries may also diminish the value of our intellectual property or narrow the scope of our patent protection, including making it easier for competitors to challenge our patents. For example, the America Invents Act included a number of changes to established practices, including the transition to a first-inventor-to-file system and new procedures for challenging patents and implementation of different methods for invalidating patents.

~~If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our product candidates could be significantly diminished.~~

We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, advisors, collaborators, and other third parties and partners to protect our trade secrets and other

proprietary information. These agreements may not effectively prevent disclosure of confidential information or may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, third parties may independently develop or discover our trade secrets and proprietary information. Regulators also may disclose information we consider to be proprietary to third parties under certain circumstances, including in response to third-party requests for such disclosure under the Freedom of Information Act or comparable laws. Additionally, the FDA, as part of its Transparency Initiative continues to consider whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time whether and how the FDA’s disclosure policies may change in the future.

~~We may not be able to enforce our intellectual property rights throughout the world.~~

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the US Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or in-licensed patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner may be required to grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the US and foreign countries may affect our ability to obtain adequate protection for our technology and to enforce intellectual property rights.

We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts, prevent us from commercializing our products or increase the costs of commercializing our products.

Third parties may claim that we have infringed upon or misappropriated their proprietary rights. Any existing third-party patents, or patents that may later issue to third parties, could negatively affect our commercialization of ALIS, INS1007, INS1009 or any other product. For instance, PAH is a competitive indication with established products, including other formulations of treprostinil. Our supply of the active pharmaceutical ingredient for INS1009 is dependent upon a single supplier. The supplier owns patents on its manufacturing process, and we have filed patent applications for INS1009; however, a competitor in the PAH indication may claim that we or our supplier have infringed upon or misappropriated its proprietary rights. Moreover, in the event that we pursue approval of INS1009, or any other product candidate, via the 505(b)(2) regulatory pathway, we will be required to file a certification against any unexpired patents listed in the Orange Book for the third party drug we rely upon as part of our regulatory submission. This certification process may lead to litigation and could delay also launch of a product candidate.

In the event of a successful claim against us for infringement or misappropriation of a third party’s proprietary rights, we may be required to take actions including but not limited to the following:

~~Pay damages, including up to treble damages, royalties, and the other party’s attorneys’ fees, which may be substantial;~~

~~Cease the development, manufacture, marketing and sale of products or use of processes that infringe the proprietary rights of others;~~

~~Expend significant resources to redesign our products or our processes so that they do not infringe the proprietary rights of others, which may not be possible;~~

Redesign our products or processes to avoid third-party proprietary rights, which means we may suffer significant regulatory delays associated with conducting additional clinical trials or other steps to obtain regulatory approval; and/or

~~Obtain one or more licenses arising out of a settlement of litigation or otherwise from third parties which license(s) may not be available to us on acceptable terms or at all.~~

~~Such litigation, and any resulting resolution, could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock.~~

Any lawsuits or other proceedings relating to infringement or enforcement by us or third parties of intellectual property rights or challenges to the scope and validity of such rights may be costly and time consuming.

We may have to undertake costly litigation or engage in other proceedings, such as interference or inter partes review, to enforce any patents issued or licensed to us, to confirm the scope and validity of our or a licensor’s proprietary rights or to defend against allegations that we have infringed a third party’s intellectual property rights. Such proceedings are likely to be time consuming and may divert management attention from operation of our business.

Certain of our existing license agreements include, and our future license agreements also may include, restrictions on our ability to freely develop or commercialize the product candidates that are subject to those agreements. If we fail to comply with our obligations under these agreements, or if these license agreements are terminated for other reasons, we could lose license rights that are important to our business.

~~We are a party to licensing agreements with PARI and AstraZeneca, which we view as material to our business. For additional information regarding the terms of these agreements, see~~ ~~Business - License and Other Agreements~~ in Item 1 of Part I of our 2016 Annual Report and see Note 10, Subsequent Event, in Item 1 Part I of this Quarterly Report on Form 10Q. Under our license agreement with AstraZeneca, AstraZeneca retains a right of first negotiation pursuant to which it may exclusively negotiate with us before we can negotiate with a third party regarding any transaction to develop or commercialize INS1007, subject to certain exceptions. While this right of first negotiation is not triggered by a change of control, it may impede or delay our ability to consummate certain other transactions involving INS1007.

Additionally, if we fail to comply with our obligations under the agreements with PARI and AstraZeneca, our counterparty may have the right to take action against us, up to and including termination of the relevant license. For instance, under our licensing agreement with PARI, with respect to NTM, CF and bronchiectasis, we have specific obligations to use commercially reasonable efforts to achieve certain developmental and regulatory milestones by set deadlines. Additionally, for NTM, we are obligated to use commercially reasonable efforts to achieve certain commercial milestones in the US and Europe. The consequences of our failing to use commercially reasonable efforts to achieve certain commercial milestones are context-specific, but include ending PARI’s non-compete obligation, making the license non-exclusive and terminating the license, in each case with respect to the applicable indication. Similarly, under our license agreement with AstraZeneca, AstraZeneca may terminate our license to INS1007 if we fail to use commercially reasonable efforts to develop and commercialize a product based on INS1007, or we are subject to a bankruptcy or insolvency. Reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms and may materially harm our business.

~~Risks Related to Our Industry~~

~~We operate in a highly competitive and changing environment, and if we are unable to adapt to our environment, we may be unable to compete successfully.~~

Biotechnology and related pharmaceutical technology have undergone and are likely to continue to experience rapid and significant change. We expect that the technologies associated with biotechnology research and development will continue to develop rapidly. Our future success will depend in large part on our ability to maintain a competitive position with respect to these technologies and to obtain and maintain protection for our intellectual property. Any compounds, products or processes that we develop may become obsolete before we recover any expenses incurred in connection with their development. In each of our potential product areas, we face substantial competition from pharmaceutical, biotechnology and other companies, universities and research institutions. Relative to us, most of these entities have substantially greater capital resources, research and development staffs, facilities and experience in conducting clinical studies and obtaining regulatory approvals, as well as in manufacturing and marketing pharmaceutical products. Many of our competitors may achieve product commercialization or obtain patent protection earlier than us. Furthermore, we believe that our competitors have used, and may continue to use, litigation to gain a competitive advantage. Our competitors may also use different technologies or approaches to the development of products similar to the products we are seeking to develop.

We expect that competing successfully will depend, among other things, on product efficacy, safety, reliability, availability, timing and scope of regulatory approval and price. Specifically, we expect crucial factors will include the relative speed with which we can develop products, complete the clinical testing and regulatory approval processes and supply commercial quantities of the product to the market. We expect competition to increase as technological advances are made and commercial applications broaden. There are potential competitive products, both approved and in development, which include oral, systemic, or inhaled antibiotic products to treat chronic respiratory infections. For instance, certain entities have expressed interest in studying their products for NTM lung disease and are seeking to advance studies in NTM lung disease caused by mycobacterial species other than MAC; however, we are not aware that any such entities are currently conducting clinical trials

for the treatment of refractory NTM lung disease caused by MAC or of any approved inhaled therapies specifically indicated for NTM lung disease in North America, Japan or Europe. If any of our competitors develops a product that is more effective, safe, tolerable or, convenient or less expensive than ALIS or our other product candidates, it would likely materially adversely affect our ability to generate revenues. We also may face lower priced generic competitors if third-party payers encourage use of generic or lower-priced versions of our product or if competing products are imported into the US or other countries where we may sell ALIS.

In addition, there are other amikacin products that have been approved by the FDA, MHLW and other regulatory agencies for use in other indications, and physicians may elect to prescribe those products rather than ALIS to treat the indications for which ALIS may receive approval, which is commonly referred to as off-label use. Although regulations prohibit a drug company from promoting off-label use of its product, the FDA and other regulatory agencies do not regulate the practice of medicine and cannot direct physicians as to what product to prescribe to their patients. As a result, we would have limited ability to prevent any off-label use of a competitor’s product to treat diseases for which we have received FDA or other regulatory agency approval, even if such use violates our patents or orphan drug exclusivity for the use of amikacin to treat such diseases. If we are unable to compete successfully, it will materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

If another party obtains orphan drug exclusivity for a product that is essentially the same as a product we are developing for a particular indication, we may be precluded or delayed from commercializing the product in that indication.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition. The company that obtains the first regulatory approval from the FDA for a designated orphan drug for a rare disease receives marketing exclusivity for use of that drug for the designated condition for a period of seven years. Similar laws exist in the EU with a term of ten years. See ~~Business - Government Regulation - Orphan Drugs~~ in Item 1 of Part I of our 2016 Annual Report for additional information. If a competitor obtains approval of the same drug for the same indication or disease before us, we would be prohibited from obtaining approval for our product for seven or more years, unless our product can be shown to be clinically superior.

~~If we obtain orphan exclusivity for a product, the FDA may approve another product during our orphan exclusivity period for the same indication under certain circumstances.~~

The Orphan Drug Act was created to encourage companies to develop therapies for rare diseases by providing incentives for drug development and commercialization. One of the incentives provided by the act is seven years of market exclusivity in the US for the first product in a class licensed for the treatment of a rare disease. Orphan exclusivity does not, however, bar approval of another product under certain circumstances. One such circumstance is if a product with the same active ingredient is proven safe and effective for a different indication. Another circumstance is if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care. The FDA may also approve another product with the same active ingredient and the same indication if the company with orphan drug exclusivity is not able to meet market demand. Further, the FDA may approve more than one product for the same orphan indication or disease as long as the products contain different active ingredients. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. All of the above circumstances could create a more competitive market for us and could have a material adverse effect on our business.

Our research, development and manufacturing activities used in the production of ALIS involve the use of hazardous materials, which could expose us to damages, fines, penalties and sanctions and materially adversely affect our results of operations and financial condition.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our research and development program and manufacturing activities for ALIS and our other product candidates involve the controlled use of hazardous materials and chemicals. We generally contract with third parties for the disposal of these materials and wastes. Although we strive to comply with all pertinent regulations, we cannot eliminate the risk of environmental contamination, damage to facilities or injury to personnel from the accidental or improper use or control of these materials. In addition to any liability we could have for any misuse by us of hazardous materials and chemicals, we could also potentially be liable for activities of our CMOs or other third parties. Any such liability, or even allegations of such liability, could materially adversely affect our results of operations and financial condition. We also could incur significant costs associated with civil or criminal fines and penalties.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

~~We may be subject to product liability claims, and we have only limited product liability insurance.~~

The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims, which can lead to significant adverse publicity and obligations to pay damages. We currently have only limited product liability insurance for our products. We do not know if we will be able to maintain existing, or obtain additional, product liability insurance on acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be available on acceptable terms. If we are unable to obtain or maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our products. A successful product liability claim brought against us in excess of our insurance coverage, if any, may require us to pay substantial amounts and may materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

~~Risks Related to Employee Matters and Managing Growth~~

We are dependent upon retaining and attracting key personnel, the loss of whose services could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

We depend heavily on our management team and our principal clinical and commercial personnel, the loss of whose services might significantly delay or prevent the achievement of our research, development or business objectives. Our success depends, in large part, on our ability to attract and retain qualified management, clinical and commercial personnel, and on our ability to develop and maintain important relationships with commercial partners, leading research institutions and key distributors. We plan to hire additional personnel in anticipation of seeking regulatory approval for and commercial launch of ALIS.

Competition for skilled personnel in our industry and market is very intense because of the numerous pharmaceutical and biotechnology companies that seek similar personnel. These companies may have greater financial and other resources, offer a greater opportunity for career advancement and have a longer history in the industry than we do. We also experience competition for the hiring of our clinical and commercial personnel from universities, research institutions, and other third parties. We cannot assure that we will attract and retain such persons or maintain such relationships. Our inability to retain and attract qualified employees would materially harm our business, financial condition, results of operations and prospects and the value of our common stock.

We expect to expand our development, manufacturing, regulatory and future sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect that our potential expansion into areas and activities requiring additional expertise, such as further clinical trials, governmental approvals, manufacturing, sales, marketing and distribution will place additional requirements on our management, operational and financial resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.

The anticipated commercialization of ALIS and the development of additional product candidates will require significant expenditures by us and place a strain on our resources. If our management is unable to effectively manage our activities in anticipation of commercialization, as well as our development efforts, we may incur higher than expected expenditures or other expenses and our business may otherwise be adversely affected.

~~Risks Related to Our Common Stock and Listing on the Nasdaq Global Select Market~~

~~The market price of our stock has been and may continue to be highly volatile.~~

Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol “INSM”. The market price of our stock has been and may continue to be highly volatile, and could be subject to wide fluctuations in price in response to various factors, including those discussed herein, many of which are beyond our control. In addition, the stock market has from

time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging biotechnology and pharmaceutical companies like us, and which have often been unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our common stock. Historically, when the market price of a stock has been volatile, shareholders are more likely to institute securities and derivative class action litigation against the issuer of such stock. As described below, a securities class action lawsuit was initiated against us during 2016 following a decline in our stock price.

We, certain of our executive officers and directors and the underwriters from a prior securities offering are subject to a securities class action lawsuit, which may require significant management and board time and attention and significant expense to us and result in an unfavorable outcome, which could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock.

We, certain of our executive officers and directors and the underwriters from a prior securities offering have been named as defendants in a securities class action lawsuit initially filed on July 15, 2016. The amended complaint, filed December 15, 2016, alleges that we and certain of our executive officers and directors violated Sections 11 and 12(a)(2) of the Securities Act, and that we, certain of our executive officers and the underwriters violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder of the Exchange Act, by making materially false and misleading statements and omissions relating to the development of ALIS and/or related requests for regulatory approval. It also alleges that the defendant officers and directors violated Section 15 of the Securities Act and that the defendant officers violated Section 20(a) of the Exchange Act. For additional information, see Note 9, Commitments and Contingencies, in Item 1 of Part 1 of this Quarterly Report on Form 10-Q. While we believe that we have substantial legal and factual defenses to the claims in the class action and intend to vigorously defend the case, this lawsuit could divert our management’s and board’s attention from other business matters, the outcome of the pending litigation is difficult to predict and quantify, and the defense against the underlying claims will likely be costly. The ultimate resolution of this matter could result in payments of monetary damages or other costs, materially and adversely affect our business, financial condition and results of operations, and adversely affect our reputation and prospects, and consequently, could negatively impact the value of our common stock.

We have insurance policies related to the risks associated with our business, including directors’ and officers’ liability insurance policies. However, there is no assurance that our insurance coverage will be sufficient or that our insurance carriers will cover all claims in that litigation. If we are not successful in our defense of the claims asserted in the putative action and those claims are not covered by insurance or exceed our insurance coverage, we may have to pay damage awards, indemnify our executive officers and directors from damage awards that may be entered against them and pay the costs and expenses incurred in defense of, or in any settlement of, such claims. In addition, we are indemnifying the underwriters that are party to this action against the claims asserted against them, and these costs and expenses might not be covered by insurance.

~~In addition, there is the potential for additional shareholder litigation against us, and we could be materially and adversely affected by such matters.~~

Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements between us and our employees could hamper a third party’s acquisition of, or discourage a third party from attempting to acquire control of us.

Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements with our employees could hamper a third party’s acquisition of, or discourage a third party from attempting to acquire control of, us or limit the price that investors might be willing to pay for shares of our common stock. These provisions or arrangements include:

The ability to issue preferred stock with rights senior to those of our common stock without any further vote or action by the holders of our common stock. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of our common stock or could adversely affect the rights and powers, including voting rights, of the holders of our common stock. In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock.

The existence of a staggered board of directors in which there are three classes of directors serving staggered three-year terms, thus expanding the time required to change the composition of a majority of directors.

~~The requirement that shareholders provide advance notice when nominating director candidates to serve on our Board of Directors.~~

~~The inability of shareholders to convene a shareholders’ meeting without the chairman of the board, the president or a majority of the board of directors first calling the meeting.~~

The prohibition against entering into a business combination with the beneficial owner of 10% or more of our outstanding voting stock for a period of three years after the 10% or greater owner first reached that level of stock ownership, unless certain criteria are met.

In addition to severance agreements with our officers and provisions in our incentive plans that permit acceleration of equity awards upon a change in control, a severance plan for eligible full-time employees that provides such employees with severance equal to six months of their then-current base salaries in connection with a termination of employment without cause upon, or within 18 months following, a change in control.

We previously had a shareholder rights plan, or “poison pill”, which expired in May 2011. Under Virginia law, our Board of Directors may implement a new shareholders’ rights plan without shareholder approval. Our Board of Directors intends to regularly consider this matter, even in the absence of specific circumstances or takeover proposals, to facilitate its future ability to quickly and effectively protect shareholder value.

~~Other Risks Related to Our Business~~

We have limited experience operating internationally, are subject to a number of risks associated with our international activities and operations and may not be successful in our efforts to expand internationally.

We currently have limited operations outside of the US. As of September 30, 2017, we had 24 employees located in Europe, and we have suppliers located around the world. In order to meet our long-term goals, we will need to grow our international operations over the next several years, including in Japan, and continue to source material used in the manufacture of our product candidates from abroad. Consequently, we are and will continue to be subject to additional risks related to operating in foreign countries, including:

~~Our limited experience operating our business internationally;~~

~~An inability to achieve the optimal pricing and reimbursement for ALIS or subsequent changes in reimbursement, pricing and other regulatory requirements;~~

~~Any implementation of, or changes to, tariffs, trade barriers and other import-export regulations in the US or other countries in which we operate;~~

~~Unexpected adverse events related to ALIS or our other product candidates occurring in foreign markets that we have not experienced in the US;~~

Economic and political conditions, including geopolitical events, such as war and terrorism, foreign currency fluctuations and inflation, which could result in increased or unpredictable operating expenses and reduced revenues and other obligations incident to doing business in, or with a company located in, another country;

Changes resulting from (i) the uncertainty and instability in economic and market conditions caused by the UK’s vote to exit the European Union; and (ii) the uncertainty regarding how the UK’s access to the EU Single Market and the wider trading, legal, regulatory and labor environments will be impacted by the UK’s vote to exit the European Union, including the resulting impact on our business; and

Compliance with foreign or US laws, rules and regulations, including data privacy requirements, labor relations laws, tax laws, anticompetition regulations, import, export and trade restrictions, anti- bribery/anti-corruption laws, regulations or rules, which could lead to actions by us or our licensees, distributors, manufacturers, other third parties who act on our behalf or with whom we do business in foreign countries or our employees who are working abroad that could subject us to investigation or prosecution under such foreign or US laws.

These and other risks associated with our international operations may materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our business operations, including our drug development programs.

Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it

could result in a material adverse effect on our business operations, including a material disruption of our drug development programs. Unauthorized disclosure of sensitive or confidential client or employee data, whether through breach of computer systems, systems failure, employee negligence, fraud or misappropriation, or otherwise, could damage our reputation. Similarly, unauthorized access to or through our information systems and networks, whether by our employees or third parties, could result in negative publicity, legal liability and damage to our reputation. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

Although we have general liability insurance coverage, including coverage for errors or omissions, our insurance may not cover all claims, continue to be available on reasonable terms or be sufficient in amount to cover one or more large claims; additionally, the insurer may disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock.

We are subject to the US Foreign Corrupt Practices Act, the UK Bribery Act and other anti-corruption laws and trade control laws, as well as other laws governing our operations. If we fail to comply with these laws, we could be subject to negative publicity, civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.

Our operations are subject to anti-corruption laws, including the US Foreign Corrupt Practices Act (FCPA), the UK Bribery Act and other anticorruption laws that apply in countries where we do business. The FCPA, UK Bribery Act and these other laws generally prohibit us, our employees and our intermediaries from making prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We have conducted the CONVERT study at more than 125 sites in 18 countries, and we are conducting the 312 study and plan to conduct the WILLOW study, our global phase 2 study of INS1007 in non-CF bronchiectasis, at a broad range of trial sites around the world. Certain of these jurisdictions pose a risk of potential FCPA violations, and we have relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

We are also subject to other laws and regulations governing our international operations, including regulations administered by the US Department of Commerce’s Bureau of Industry and Security, the US Department of Treasury’s Office of Foreign Assets Control, and various non-US government entities, including applicable export control regulations, economic sanctions on countries and persons, customs requirements, currency exchange regulations and transfer pricing regulations (collectively, Trade Control laws)10-Q).

We may not be effective in ensuring our compliance with all applicable anticorruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and prospects and the value of our common stock. Likewise, even an investigation by US or foreign authorities of potential violations of the FCPA other anti-corruption laws or Trade Control laws could have an adverse impact on our reputation, business, financial condition, results of operations and prospects and the value of our common stock.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 5.OTHER INFORMATION

None.

~~There were no unregistered sales~~

Table of ~~the Company’s equity securities during the quarter ended September 30, 2017.~~Contents

ITEM 6.EXHIBITS

Exhibit Index



3.1		Articles of Incorporation of Insmed Incorporated, as amended through June 14, 2012 (incorporated by reference from Exhibit 3.1 to Insmed Incorporated’s Annual Report on Form 10-K filed on March 18, 2013).

3.2		Amended and Restated Bylaws of Insmed Incorporated (incorporated by reference from Exhibit 3.1 to Insmed Incorporated’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K filed on ~~August 6, 2015)~~March 30, 2020).


10.1*10.1		~~Amendment No. 7 to License~~Amended and Restated Employment Agreement, ~~between Transave, Inc. and PARI Pharma GmbH,~~ effective as of ~~July 21, 2017.~~

10.2*	~~Amendment No.~~April 1, ~~to Commercialization Agreement~~2022, between Insmed Incorporated and ~~PARI Pharma GmbH,~~Roger Adsett (filed herewith).

10.2		Amended and Restated Employment Agreement, effective as of ~~July 21, 2017.~~April 1, 2022, between Insmed Incorporated and Sara Bonstein (filed herewith).

10.3		Amended and Restated Employment Agreement, effective as of April 1, 2022, between Insmed Incorporated and Martina Flammer, M.D. (filed herewith).

10.4		Amended and Restated Employment Agreement, effective as of April 1, 2022, between Insmed Incorporated and S. Nicole Schaeffer (filed herewith).

10.5		Amended and Restated Employment Agreement, effective as of April 1, 2022, between Insmed Incorporated and Michael Smith (filed herewith).

31.1		Certification of William H. Lewis, Chair and Chief Executive Officer (Principal Executive Officer) of Insmed Incorporated, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

31.2		Certification of ~~Paolo Tombesi,~~Sara Bonstein, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of Insmed Incorporated, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

32.1		Certification of William H. Lewis, Chair and Chief Executive Officer (Principal Executive Officer) of Insmed Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

32.2		Certification of ~~Paolo Tombesi~~Sara Bonstein, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of Insmed Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

101		The following materials from Insmed Incorporated’s quarterly report on Form 10-Q for the quarter ended ~~September 30, 2017~~March 31, 2022 formatted in ~~XBRL (eXtensible~~iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, (ii) Consolidated Statements of Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, (iii) Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2022 and 2021, (iv) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016, and (iv)~~2021, (v) Notes to the Unaudited Consolidated Financial ~~Statements.~~Statements, and (vi) Cover Page.

104		The cover page from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in iXBRL and contained in Exhibit 101.

*			~~Confidential treatment has been requested for certain portions of this exhibit. The confidential~~ Certain portions of this exhibit have been ~~omitted and filed separately with the Securities and Exchange Commission.~~redacted.
** Management contract or compensatory plan or arrangement.

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		INSMED INCORPORATED


Date: ~~November 2, 2017~~May 5, 2022	By	/s/ ~~Paolo Tombesi~~Sara Bonstein
		~~Paolo Tombesi~~Sara Bonstein
		Chief Financial Officer
		(Principal Financial and Accounting Officer)



	As of			As of
	September 30, 2017			December 31, 2016
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	430,678		$	162,591
Prepaid expenses and other current assets	6,802			5,816
Total current assets	437,480			168,407

In-process research and development	58,200			58,200
Fixed assets, net	8,975			10,020
Other assets	1,551			1,329
Total assets	$	506,206		$	237,956

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	9,348		$	10,439
Accrued expenses	18,802			16,822
Other current liabilities	616			728
Total current liabilities	28,766			27,989

Debt, long-term	55,388			54,791
Other long-term liabilities	747			693
Total liabilities	84,901			83,473

Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 76,568,368 and 62,019,889 issued and outstanding shares at September 30, 2017 and December 31, 2016, respectively	766			620
Additional paid-in capital	1,313,006			919,164
Accumulated deficit	(892,501		)	(765,236		)
Accumulated other comprehensive income (loss)	34			(65		)
Total shareholders’ equity	421,305			154,483
Total liabilities and shareholders’ equity	$	506,206		$	237,956



	2017	2016
Stock options to purchase common stock	8,601	7,306
Unvested RSUs	47	89



	As of September 30, 2017		As of December 31, 2016
	(in thousands)
Accrued clinical trial expenses	$	8,560	$	7,071
Accrued compensation	6,634		6,937
Accrued professional fees	2,057		1,604
Accrued technical operation expenses	742		591
Accrued interest payable	424		438
Other accrued expenses	385		181
	$	18,802	$	16,822



Notes payable	$	55,000
Accretion of back-end fee on debt	677
Debt issuance costs, unamortized	(289		)
Debt, long-term	$	55,388



Year Ending December 31:
2017	$	—
2018	—
2019	13,399
2020	41,601
	$	55,000



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2016	7,116,706		$	13.30
Granted	2,207,390		$	15.42
Exercised	(336,135	)	$	8.78
Forfeited or expired	(386,668	)	$	15.59
Options outstanding at September 30, 2017	8,601,293		$	13.92	7.65	$	148,771
Vested and expected to vest at September 30, 2017	8,269,230		$	13.88	7.60	$	143,327
Exercisable at September 30, 2017	3,904,073		$	12.46	6.40	$	73,193



Outstanding as of September 30, 2017					Exercisable as of September 30, 2017
Range of Exercise Prices ($)		Number of Options	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price ($)	Number of Options	Weighted Average Exercise Price ($)
3.03	4.55	988,195	4.89	3.59	988,195	3.59
6.90	6.90	137,577	5.47	6.90	100,077	6.90
6.96	10.85	1,081,121	8.55	10.76	289,330	10.52
11.14	12.58	1,095,757	6.65	12.17	735,792	12.16
12.66	13.58	185,880	7.76	13.24	89,704	13.29
13.67	13.67	865,660	9.27	13.67	—	—
13.94	15.91	862,300	8.01	14.97	339,372	14.55
16.07	16.16	1,009,781	7.93	16.13	463,410	16.12
16.19	17.16	871,266	9.34	17.10	31,741	16.30
17.24	27.38	1,503,756	7.41	21.20	866,452	21.13



	Number of RSUs		Weighted Average Grant Price ($)
Outstanding at December 31, 2016	89,194		10.85
Granted	46,914		17.16
Released	(89,194	)	(10.85	)
Outstanding at September 30, 2017	46,914		17.16



Year Ending December 31:
2017 (remaining)	$	377
2018	1,520
2019	1,421
2020	477
2021	498
2022	—
	$	4,293



Potential Market	Estimated Number of Patients with Diagnosed NTM Lung Disease	Estimated Number of Patients Treated for NTM Lung Disease Caused by MAC	Estimated Number of Patients Refractory to Treatment
United States	75,000-105,000	40,000-50,000	10,000-15,000
Japan	125,000-145,000	60,000-70,000	15,000-18,000
EU5	14,000	4,400	1,400



	Quarters Ended September 30,				Increase (decrease)
	2017		2016		$			%
External Expenses
Clinical development & research	$	12,307	$	9,628	$	2,679		27.8	%
Manufacturing	2,884		2,967		(83		)	(2.8	)%
Regulatory and quality assurance	1,100		401		699			174.3	%
Subtotal—external expenses	$	16,291	$	12,996	$	3,295		25.4	%
Internal Expenses
Compensation and related expenses	$	8,373	$	8,086	$	287		3.5	%
Other internal operating expenses	2,011		2,351		(340		)	(14.5	)%
Subtotal—internal expenses	$	10,384	$	10,437	$	(53	)	(0.5	)%
Total	$	26,675	$	23,433	$	3,242		13.8	%



	Nine Months Ended September 30,				Increase (decrease)
	2017		2016		$			%
External Expenses
Clinical development & research	$	30,614	$	26,266	$	4,348		16.6	%
Manufacturing	10,490		12,243		(1,753		)	(14.3	)%
Regulatory and quality assurance	2,996		1,366		1,630			119.3	%
Subtotal—external expenses	$	44,100	$	39,875	$	4,225		10.6	%
Internal Expenses
Compensation and related expenses	$	24,071	$	21,463	$	2,608		12.2	%
Other internal operating expenses	7,629		6,513		1,116			17.1	%
Subtotal—internal expenses	$	31,700	$	27,976	$	3,724		13.3	%
Total	$	75,800	$	67,851	$	7,949		11.7	%



	Total		Less than 1 year		1 ‑ 3 Years		4 ‑ 5 Years		After 5 Years
	(in thousands)
Debt obligations
Debt maturities	$	55,000	$	—	$	29,504	$	25,496	$	—
Contractual interest	16,157		5,158		8,520		2,479		—
Operating leases	4,293		1,511		2,162		620		—
Purchase obligations	6,075		2,700		3,375		—		—
Total contractual obligations	$	81,525	$	9,369	$	43,561	$	28,595	$	—