10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

☐    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 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.)
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 ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No ☐

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
Non-accelerated filer o	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of August 2, 2021, there were 115,246,666 shares of the registrant’s common stock outstanding.

INSMED INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2021

INDEX

PART I.  FINANCIAL INFORMATION
ITEM 1	Consolidated Financial Statements
	Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020	3
	Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2021 and 2020	4
	Consolidated Statements of Shareholders' Equity (unaudited) for the three and six months ended June 30, 2021 and 2020	5
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2021 and 2020	7
	Notes to Consolidated Financial Statements (unaudited)	8
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	36
ITEM 4	Controls and Procedures	36
PART II.  OTHER INFORMATION
ITEM 1	Legal Proceedings	37
ITEM 1A	Risk Factors	37
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
ITEM 5	Other Information	37
ITEM 6	Exhibits	38
SIGNATURE		39

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 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
	June 30, 2021		December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	928,327	$	532,756
Accounts receivable	18,417		16,562
Inventory	60,385		49,592
Prepaid expenses and other current assets	31,066		23,982
Total current assets	1,038,195		622,892
Intangibles, net	46,735		49,261
Fixed assets, net	53,784		53,953
Finance lease right-of-use assets	9,795		10,334
Operating lease right-of-use assets	32,037		32,946
Other assets	49,237		26,769
Total assets	$	1,229,783	$	796,155
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	31,081	$	42,853
Accrued expenses	45,553		37,807
Accrued compensation	15,939		25,591
Finance lease liabilities	1,158		1,081
Operating lease liabilities	5,925		11,475
Total current liabilities	99,656		118,807
Debt, long-term	548,745		356,318
Finance lease liabilities, long-term	14,114		14,713
Operating lease liabilities, long-term	23,409		21,255
Other long-term liabilities	12,806		9,178
Total liabilities	698,730		520,271
Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 115,239,269 and 102,763,060 issued and outstanding shares at June 30, 2021 and December 31, 2020, respectively	1,152		1,028
Additional paid-in capital	2,569,028		2,105,252
Accumulated deficit	(2,039,551)		(1,830,589)
Accumulated other comprehensive income	424		193
Total shareholders’ equity	531,053		275,884
Total liabilities and shareholders’ equity	$	1,229,783	$	796,155

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Product revenues, net	$	45,366	$	42,495	$	85,580	$	79,355
Operating expenses:
Cost of product revenues (excluding amortization of intangible assets)	10,837		9,950		20,681		18,388
Research and development	64,655		35,748		126,045		71,932
Selling, general and administrative	57,177		49,663		108,727		101,009
Amortization of intangible assets	1,263		1,248		2,526		2,497
Total operating expenses	133,932		96,609		257,979		193,826
Operating loss	(88,566)		(54,114)		(172,399)		(114,471)
Investment income	34		203		67		1,607
Interest expense	(10,319)		(7,469)		(17,878)		(14,880)
Loss on extinguishment of debt	(17,689)		—		(17,689)		—
Other expense, net	(159)		(46)		(202)		(10)
Loss before income taxes	(116,699)		(61,426)		(208,101)		(127,754)
Provision for income taxes	622		428		861		464
Net loss	$	(117,321)	$	(61,854)	$	(208,962)	$	(128,218)
Basic and diluted net loss per share	$	(1.07)	$	(0.64)	$	(1.97)	$	(1.38)
Weighted average basic and diluted common shares outstanding	109,580		96,633		106,328		93,206
Net loss	$	(117,321)	$	(61,854)	$	(208,962)	$	(128,218)
Other comprehensive income (loss):
Foreign currency translation income (loss)	334		(51)		231		(88)
Total comprehensive loss	$	(116,987)	$	(61,905)	$	(208,731)	$	(128,306)

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 March 31, 2020	89,860	$	899	$	1,808,712	$	(1,602,863)	$	(47)	$	206,701
Comprehensive loss:
Net loss						(61,854)				(61,854)
Other comprehensive loss								(51)		(51)
Exercise of stock options and ESPP shares issuance	321	3		5,138						5,141
Net proceeds from issuance of common stock	11,155	111		245,801						245,912
Issuance of common stock for vesting of RSUs	98	1								1
Stock-based compensation expense				9,468						9,468
Balance at June 30, 2020	101,434	$	1,014	$	2,069,119	$	(1,664,717)	$	(98)	$	405,318
Balance at March 31, 2021	103,279	$	1,033	$	2,122,743	$	(1,922,230)	$	90	$	201,636
Comprehensive loss:
Net loss						(117,321)				(117,321)
Other comprehensive loss								334		334
Exercise of stock options and ESPP shares issuance	344	3		6,562						6,565
Net proceeds from issuance of common stock	11,500	115		269,771						269,886
Equity component of convertible debt issuance				196,063						196,063
Equity component of convertible debt redemption				(37,846)						(37,846)
Issuance of common stock for vesting of RSUs	116	1								1
Stock-based compensation expense				11,735						11,735
Balance at June 30, 2021	115,239	$	1,152	$	2,569,028	$	(2,039,551)	$	424	$	531,053

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, 2019	89,682	$	897	$	1,797,286	$	(1,536,499)	$	(10)	$	261,674
Comprehensive loss:
Net loss						(128,218)				(128,218)
Other comprehensive loss								(88)		(88)
Exercise of stock options and ESPP shares issuance	472	5		7,562						7,567
Net proceeds from issuance of common stock	11,155	111		245,801						245,912
Issuance of common stock for vesting of RSUs	125	1								1
Stock-based compensation expense				18,470						18,470
Balance at June 30, 2020	101,434	$	1,014	$	2,069,119	$	(1,664,717)	$	(98)	$	405,318
Balance at December 31, 2020	102,763	$	1,028	$	2,105,252	$	(1,830,589)	$	193	$	275,884
Comprehensive loss:
Net loss						(208,962)				(208,962)
Other comprehensive loss								231		231
Exercise of stock options and ESPP shares issuance	760	7		13,518						13,525
Net proceeds from issuance of common stock	11,500	115		269,771						269,886
Equity component of convertible debt issuance				196,063						196,063
Equity component of convertible debt redemption				(37,846)						(37,846)
Issuance of common stock for vesting of RSUs	216	2								2
Stock-based compensation expense				22,270						22,270
Balance at June 30, 2021	115,239	$	1,152	$	2,569,028	$	(2,039,551)	$	424	$	531,053

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Six Months Ended June 30,
	2021		2020
Operating activities
Net loss	$	(208,962)	$	(128,218)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	4,773		4,534
Amortization of intangible assets	2,526		2,497
Stock-based compensation expense	22,270		18,470
Loss on extinguishment of debt	17,689		—
Amortization of debt issuance costs	807		698
Accretion of debt discount	12,389		9,363
Finance lease amortization expense	539		720
Noncash operating lease expense	9,550		5,772
Changes in operating assets and liabilities:
Accounts receivable	(1,855)		4,059
Inventory	(11,557)		(7,160)
Prepaid expenses and other current assets	(7,484)		5,424
Other assets	(22,623)		(3,251)
Accounts payable	(11,158)		12,175
Accrued expenses and other	(1,302)		(12,852)
Accrued compensation	(9,327)		(6,119)
Net cash used in operating activities	(203,725)		(93,888)
Investing activities
Purchase of fixed assets	(4,666)		(4,560)
Net cash used in investing activities	(4,666)		(4,560)
Financing activities
Proceeds from exercise of stock options, ESPP, and RSU vesting	13,527		7,568
Proceeds from issuance of common stock, net	269,886		245,912
Payment on extinguishment of 1.75% convertible senior notes due 2025	(12,578)		—
Payment of principal on 1.75% convertible senior notes due 2025	(225,000)		—
Proceeds from issuance of 0.75% convertible senior notes due 2028	575,000		—
Payment of debt issuance costs	(16,013)		—
Payments of finance lease principal	(522)		(590)
Net cash provided by financing activities	604,300		252,890
Effect of exchange rates on cash and cash equivalents	(338)		40
Net increase in cash and cash equivalents	395,571		154,482
Cash and cash equivalents at beginning of period	532,756		487,429
Cash and cash equivalents at end of period	$	928,327	$	641,911
Supplemental disclosures of cash flow information:
Cash paid for interest	$	5,911	$	4,819
Cash paid for income taxes	$	997	$	472

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 on a mission to transform the lives of patients with serious and rare diseases. The Company's first commercial product, ARIKAYCE, is approved in the United States as ARIKAYCE (amikacin liposome inhalation suspension), in Europe as ARIKAYCE® Liposomal 590 mg Nebuliser Dispersion and in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product). ARIKAYCE received accelerated approval in the United States (US) in September 2018 for 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 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 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 can be fatal. The Company's clinical-stage pipeline includes brensocatib and treprostinil palmitil inhalation powder (TPIP). Brensocatib is a small molecule, oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), which the Company is developing for the treatment of patients with bronchiectasis and other neutrophil-mediated diseases. TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for pulmonary arterial hypertension (PAH) and other rare pulmonary disorders.

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 US, France, Germany, Ireland, Italy, the Netherlands, Switzerland, the United Kingdom (UK), and 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 Annual Report on Form 10-K for the year ended December 31, 2020.

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 $928.3 million in cash and cash equivalents as of June 30, 2021 and reported a net loss of $209.0 million for the six months ended June 30, 2021. Historically, the Company has funded its operations through public offerings of equity securities and debt financings. The Company commenced commercial shipments of ARIKAYCE in October 2018. 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 continued commercialization of ARIKAYCE and additional clinical trials related to ARIKAYCE, to develop brensocatib and TPIP and to develop, acquire, in-license or co-promote other products or product candidates, including those that address a broad range of 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 six months ended June 30, 2021, the Company

8

is unable to predict the impact that COVID-19 will have on its financial position and operating results in future 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 the Company's significant accounting policies described in Note 2 of the notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020:

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 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 June 30, 2021 and December 31, 2020, were Level 1 assets comprised of cash and cash equivalents. The 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. The following table shows assets and liabilities that are measured at fair value on a recurring basis and their carrying value (in millions):

	June 30, 2021
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	928.3	$	928.3	$	—	$	—

	December 31, 2020
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	532.8	$	532.8	$	—	$	—

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and December 31, 2020, the Company held no securities that were in an unrealized gain or loss position.

The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. The Company has determined that there were no other-than-temporary impairments during the quarter ended

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June 30, 2021. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the securities were rated below investment grade; (3) how long the securities have been in an unrealized loss position; and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to recover.

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 June 30, 2021 was $641.1 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2028 Convertible Notes. The $365.4 million carrying value of the 2028 Convertible Notes as of June 30, 2021 excludes the $199.5 million and $10.1 million of the unamortized portion of the debt discount and issuance costs, respectively.

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 June 30, 2021 was $236.3 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2025 Convertible Notes. The $183.4 million carrying value of the 2025 Convertible Notes as of June 30, 2021 excludes the $39.1 million and $2.5 million of the unamortized portion of the debt discount and issuance costs, respectively.

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, restricted stock, restricted stock units (RSUs) 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.

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 six months ended June 30, 2021 and 2020:

 

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands, except per share amounts)
Numerator:
Net loss	$	(117,321)	$	(61,854)	$	(208,962)	$	(128,218)
Denominator:
Weighted average common shares used in calculation of basic net loss per share:	109,580		96,633		106,328		93,206
Effect of dilutive securities:
Common stock options	—		—		—		—
Restricted stock and RSUs	—		—		—		—
Convertible debt securities	—		—		—		—
Weighted average common shares outstanding used in calculation of diluted net loss per share	109,580		96,633		106,328		93,206
Net loss per share:
Basic and diluted	$	(1.07)	$	(0.64)	$	(1.97)	$	(1.38)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of June 30, 2021 and 2020 as their effect would have been anti-dilutive (in thousands):

 

	June 30,
	2021	2020
Common stock options	14,449	13,272
Unvested restricted stock and RSUs	1,125	868
Convertible debt securities	23,438	11,492

Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash equivalents with high credit-quality financial institutions and may invest its short-term investments in US treasury securities, mutual funds and government agency bonds. The Company has established guidelines relative to credit ratings and maturities that seek to maintain safety and liquidity.

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The Company is exposed to risks associated with extending credit to customers related to the sale of products. The Company does not require collateral to 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 total gross product revenue represented by the Company's three largest customers for the six months ended June 30, 2021 and 2020.

	June 30,
	2021	2020
Customer A	30%	26%
Customer B	25%	27%
Customer C	23%	25%

The Company relies on third-party manufacturers and suppliers for manufacturing and supply of its products. The inability of the suppliers or 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.

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 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 the performance obligations in the contract; and (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 and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company 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 customers. The Company has not incurred or capitalized any incremental costs associated with obtaining contracts with customers.

Product revenues, net consist primarily of net sales of ARIKAYCE in the US. The Company's customers in the US include specialty pharmacies and specialty distributors. Globally, product revenues are recognized once the Company performs and satisfies all five steps mentioned above.

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 and specialty pharmacy fees, (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 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.

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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 expenses 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.

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 adjust prior period accruals, affecting revenue in the period of adjustment.

The Company also recognizes revenue related to certain early access programs (EAPs) in Europe, consisting of sales to the French National Agency for Medicines and Health Products Safety, which granted ARIKAYCE a Temporary Authorization for Use (Autorisation Temporaire d'Utilisation, or ATU) and from the named patient program in Germany and other countries. EAPs are intended to make products available on a named patient basis before they are commercially available in accordance with local regulations. In December 2020, the Company began recognizing product revenue from commercial sales of ARIKAYCE to Germany subsequent to receiving approval from the EC.

Inventory and 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 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 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 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 milestone payments. Cost is determined using a standard cost method, which approximates actual cost, and assumes a FIFO flow of goods.

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 R&D expense when consumed.

Leases - In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous generally accepted accounting principles. ASU 2016-02 requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term on the balance sheet.

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

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Company recognizes 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 derived from the underlying asset. Lease liabilities accrete to yield and 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 to the payment occurs and are recognized in the consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments.

In accordance with Topic 842, leases are measured at present value using the rate implicit in the lease or, 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 lease commencement date to determine the present value of future lease payments. The implicit borrowing rate approximates the rate the Company would pay to 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 Topic 842 required disclosures.

Recently Adopted Accounting Pronouncements - In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, which requires financial assets measured at an amortized cost basis to be presented at the net amount expected to be collected. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including 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 adopted ASU 2016-13 effective January 1, 2020. Different aspects of the guidance required modified retrospective or prospective adoption. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

New Accounting Pronouncements (Not Yet Adopted) - In August 2020, the FASB issued ASU 2020-06, Debt — Accounting for Convertible Instruments, to reduce the complexity associated with applying US generally accepted accounting principles (GAAP) to certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the number of 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. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021. A modified retrospective and a fully retrospective transition method are both permitted. The Company is currently evaluating the impact of adoption of ASU 2020-06 on its consolidated financial statements.

3.            Inventory

As of June 30, 2021 and December 31, 2020, the Company's inventory balance consists of the following (in thousands):

	June 30, 2021		December 31, 2020
Raw materials	$	27,071	$	21,601
Work-in-process	17,468		18,754
Finished goods	15,846		9,237
	$	60,385	$	49,592

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

As of June 30, 2021, the Company's identifiable intangible assets consisted of acquired ARIKAYCE R&D and milestones paid to PARI for the license to use PARI's Lamira® Nebulizer System 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. Total intangible assets, net was $46.7 million and $49.3 million as of June 30, 2021 and December 31, 2020, respectively.

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The Company began amortizing its intangible assets in October 2018, over ARIKAYCE's initial regulatory exclusivity period of 12 years. Amortization of intangible assets during each of the next five years is estimated to be approximately $5.1 million per year. A rollforward of the Company's intangible assets for the six months ended June 30, 2021 follows (in thousands):

Intangible Asset	December 31, 2020		Additions		Amortization		June 30, 2021
Acquired ARIKAYCE R&D	$	47,289	$	—	$	(2,425)	$	44,864
PARI milestones	1,972		—		(101)		1,871
	$	49,261	$	—	$	(2,526)	$	46,735

The Company reviews the recoverability of these finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company determined that no indicators of impairment of finite-lived intangible assets existed at June 30, 2021.

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)	June 30, 2021		December 31, 2020
Lab equipment	7	$	11,031	$	10,352
Furniture and fixtures	7	5,917		5,917
Computer hardware and software	3-5	7,366		7,267
Office equipment	7	89		88
Manufacturing equipment	7	1,567		1,567
Leasehold improvements	lease term	35,759		35,289
Construction in progress (CIP)	—	25,178		21,823
		86,907		82,303
Less: accumulated depreciation		(33,123)		(28,350)
		$	53,784	$	53,953

6.                                      Accrued Expenses

As of June 30, 2021 and December 31, 2020, the Company's accrued expenses balance consists of the following (in thousands):

 

	June 30, 2021		December 31, 2020
Accrued clinical trial expenses	$	13,136	$	6,733
Accrued professional fees	12,182		8,594
Accrued technical operation expenses	6,896		9,164
Accrued royalty payable	3,654		3,423
Accrued interest payable	2,403		3,631
Accrued sales allowances and related costs	6,314		5,051
Accrued construction costs	141		364
Other accrued expenses	827		847
	$	45,553	$	37,807

7.                                    Leases

The Company's lease portfolio consists primarily of office space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's corporate headquarters

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lease, which is classified as a finance lease. 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 Company's financial 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 outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, has the right to direct how and 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 the manufacturing facilities is the sum of the minimum guarantees over the life of the 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 $0.2 million and $1.0 million for the three months ended June 30, 2021 and 2020, respectively, and $0.3 million and $1.1 million for the six months ended June 30, 2021 and 2020, 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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	—	$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	2,100	$	183	$	8,641	$	205

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 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 $28.1 million incurred by the Company under these additional agreements have been classified within other assets in the Company's consolidated balance 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 $16.0 million, were approximately $559.0 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.

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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 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 five business day period immediately after any five 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 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 last trading day of the 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 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.

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. However, since the convertible notes are within the scope of the accounting guidance for cash convertible instruments, the Company is required to separate each series of convertible notes into liability and equity components. The carrying amount of the liability component of each series of convertible notes as of the date of issuance was calculated by measuring the fair value of a similar liability that did not have an associated equity component. The fair value was based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments. The carrying amount of the equity component representing the embedded conversion option for each series of convertible notes was determined by deducting the fair value of the liability component from the gross proceeds of the applicable convertible notes. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the expected life of a similar liability that does not have an associated equity component using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification in the accounting guidance for contracts in an entity’s own equity. The fair value of the

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liability component of the 2025 Convertible Notes on the date of issuance was estimated at $309.1 million using an effective interest rate of 7.6% and, accordingly, the residual equity component on the date of issuance was $140.9 million. The fair value of the liability component of the 2028 Convertible Notes on the date of issuance was estimated at $371.6 million using an effective interest rate of 7.1% and, accordingly, the residual equity component on the date of issuance was $203.4 million. The respective discounts are being amortized to interest expense over the term of the applicable series of convertible notes and have remaining periods of approximately 3.54 years, with respect to the 2025 Convertible Notes, and 6.92 years, with respect to the 2028 Convertible Notes. The following table presents the carrying value of the Company's debt balance (in thousands):

 

	June 30, 2021		December 31, 2020
Face value of outstanding convertible debt	$	800,000	$	450,000
Debt issuance costs, unamortized	(12,621)		(5,646)
Discount on debt	(238,634)		(88,036)
Debt, long-term	$	548,745	$	356,318

As of June 30, 2021, future principal repayments of the debt for each of the years through maturity were as follows (in thousands):

 

Year Ending December 31:
2021	$	—
2022	—
2023	—
2024	—
2025	225,000
2026 and thereafter	575,000
	$	800,000

Interest Expense

Interest expense related to the 2025 Convertible Notes and 2028 Convertible Notes for the three and six months ended June 30, 2021 and 2020, which includes the contractual interest coupon payable semi-annually in cash, the amortization of the issuance costs, accretion of debt discount and finance lease interest expense is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Contractual interest expense	$	2,052	$	1,975	$	4,021	$	3,948
Amortization of debt issuance costs	457		349		807		698
Accretion of debt discount	7,482		4,713		12,389		9,363
Total convertible debt interest expense	9,991		7,037		17,217		14,009
Finance lease interest expense	328		432		661		871
Interest expense	$	10,319	$	7,469	$	17,878	$	14,880

9.                                      Shareholders’ Equity

Common Stock — As of June 30, 2021, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 per share and 115,239,269 shares of common stock issued and outstanding. In addition, as of June 30, 2021, the Company had reserved 14,448,585 shares of common stock for issuance upon the exercise of outstanding stock options and 1,124,648 shares of common stock for issuance upon the vesting of RSUs. The Company has also reserved 23,438,430 shares 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 the second quarter of 2021, the Company completed an underwritten public offering of 11,500,000 shares of the Company's common stock, including 1,500,000 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 $25.00 per share. The Company's net proceeds from the sale of the shares, after deducting the underwriting discounts and offering expenses of $17.5 million, were $270.1 million.

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In the first quarter of 2021, the Company entered into a sales agreement with SVB Leerink 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 June 30, 2021, 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 June 30, 2021, 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.

10.                                Stock-Based Compensation

The Company's current equity compensation plan, the 2019 Incentive Plan, was approved by shareholders at the Company's Annual Meeting of Shareholders on May 16, 2019. The 2019 Incentive Plan is administered by the Compensation Committee of the Board of Directors of the Company. Under the terms of the 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 to eligible employees and non-employee directors. On May 16, 2019, upon the approval of the 2019 Incentive Plan by shareholders, 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. As of June 30, 2021, 4,679,956 shares remained for future issuance under the 2019 Incentive Plan. The 2019 Incentive Plan will terminate on 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 to new hires, which awards are made pursuant to the Nasdaq's inducement grant exception to the shareholder approval requirement for grants of equity compensation. During the six months ended June 30, 2021, the Company granted inducement stock options covering 444,070 shares of the Company's common stock to new employees.

On May 15, 2018, the 2018 Employee Stock Purchase Plan (2018 ESPP) was approved by shareholders at the Company's 2018 Annual Meeting of Shareholders. The Company has reserved the following for issuance under the 2018 ESPP: (i) 1,000,000 shares of common stock, plus (ii) commencing on January 1, 2019 and ending on December 31, 2023, an additional number of shares to be added on the first day of each calendar year equal to the lesser of (A) 1,200,000 shares of common stock, (B) 2% of the number of outstanding shares of common stock on such date and (C) an amount determined by the administrator.

Stock Options - As of June 30, 2021, there was $98.9 million of unrecognized compensation expense related to unvested stock options.

From time to time, the Company 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 fulfilling a service condition (continued employment). As of June 30, 2021, the Company had performance-conditioned options totaling 114,780 shares outstanding which had not yet met the recognition criteria.

Restricted Stock Units — As of June 30, 2021, there was $26.9 million of unrecognized compensation expense related to unvested RSU awards.

The following table summarizes the aggregate stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to stock options and RSUs during the three and six months ended June 30, 2021 and 2020, respectively (in millions): 

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	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development	$	4.4	$	3.0	$	8.1	$	5.8
Selling, general and administrative	7.4		6.5		14.2		12.7
Total	$	11.8	$	9.5	$	22.3	$	18.5

11.                                 Income Taxes

The Company's provision for income taxes was $0.6 million and $0.4 million for the three months ended June 30, 2021 and 2020, respectively, and $0.9 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively. The provision for income taxes in all periods was primarily a result of certain of the Company's international subsidiaries, which had taxable income during the three and six months ended June 30, 2021 and 2020. 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 deferred tax assets and therefore no tax benefit was recorded.

The Company is subject to US federal and state income taxes and the statute of limitations for tax audit is open for the Company's federal tax returns for the years ended 2017 and later, and is generally open for certain states for the years 2016 and later. The Company has incurred net operating losses since inception, except for the year ended December 31, 2009. Such loss carryforwards would be subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. As of June 30, 2021 and December 31, 2020, the Company had recorded reserves for unrecognized income tax benefits 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 June 30, 2021 and December 31, 2020 or the consolidated statements of comprehensive loss for the three and six months ended June 30, 2021 and 2020. 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.

On March 27, 2020, the US government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which includes numerous modifications to income tax provisions, including a limitation on business interest expense and net operating loss provisions and the acceleration of alternative minimum tax credits. Given the Company's history of losses, the CARES Act did not impact its income tax positions.

12.                               Commitments and Contingencies

Rent expense charged to operations was $1.1 million for both the three months ended June 30, 2021 and 2020, and $2.3 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.

Legal Proceedings

From time to time, the Company is a party to various 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 consolidated financial position, results of operations or cash flows.

13.                               Subsequent Event

In August 2021, the Company acquired Motus Biosciences, Inc. (Motus) and AlgaeneX, Inc. (AlgaeneX), each a privately held, preclinical stage company. In connection with the closing of the Company’s acquisition of Motus, the Company will issue an aggregate of 3,135,374 shares of the Company’s common stock to Motus’s former stockholders and option holders and certain individuals who are entitled to receive a portion of the acquisition consideration (collectively, Motus equityholders), subject to certain reductions. 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 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 milestone events 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 AlgaeneX’s former stockholders and certain individuals who are entitled to receive a portion of the acquisition consideration (collectively, the AlgaeneX equityholders). The Company is obligated to issue to AlgaeneX’s equityholders an aggregate of 368,867 shares

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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 received by the Company in licensing transactions for AlgaeneX’s manufacturing technology, in each case, subject to certain reductions.

The shares of the Company’s common stock issuable to the Motus equityholders and the AlgaeneX equityholders are being issued pursuant to Section 4(a)(2) of the Securities Act of 1933, and the number of such issuable shares was calculated based on a per share value of $27.11. The Company will not receive any proceeds from the issuance of common stock to the Motus equityholders or the AlgaeneX equityholders.

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

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. "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," 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;

•uncertainties in the 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 US Food and Drug Administration (FDA), including the risk that we will not timely and successfully 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 Pharma GmbH (PARI) or our other third-party manufacturers to comply with regulatory requirements related to ARIKAYCE or the Lamira® Nebulizer System (Lamira);

•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 or our product candidates 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 that are approved in the future;

•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;

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•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 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 US, Europe or Japan, or for our product candidates in the US, Europe, Japan or other markets;

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

•our inability to attract and retain key personnel or to effectively manage our growth;

•our inability to adapt to our highly competitive and changing environment;

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

•impact of the COVID-19 pandemic and efforts to reduce its spread on our business, employees, including key personnel, patients, partners and suppliers;

•our inability to adequately protect our intellectual property rights or prevent disclosure of our trade secrets and other proprietary information and costs associated with litigation or other proceedings related to such matters;

•restrictions or other obligations imposed on us by agreements related to ARIKAYCE or our product candidates, including our license agreements with PARI and AstraZeneca AB (AstraZeneca), and failure to comply with our obligations under such agreements;

•the cost and potential reputational damage resulting from litigation to which we are or may become a party, including product liability claims;

•our limited experience operating internationally;

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

•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” 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, 2020. 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, 2020.

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OVERVIEW

     We are a global biopharmaceutical company on a mission to transform the lives of patients with serious and rare diseases. Our first commercial product, ARIKAYCE, is approved in the United States as ARIKAYCE (amikacin liposome inhalation suspension), in Europe as 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 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 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 the first quarter of 2021, Japan's MHLW approved ARIKAYCE for the treatment of patients with NTM lung disease caused by MAC who did not sufficiently respond to 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 clinical-stage pipeline includes brensocatib and TPIP. Brensocatib is a small molecule, oral, reversible inhibitor of DPP1, which we are developing for the treatment of patients with bronchiectasis and other neutrophil-mediated diseases. TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for PAH and other rare pulmonary disorders.

The table below summarizes the current status and anticipated milestones for ARIKAYCE and our product candidates brensocatib and TPIP.

Principal Product/Product Candidate	Status	Next Expected Milestones
ARIKAYCE for MAC lung disease	• We continue to focus on the commercialization of ARIKAYCE in the US. The product was granted accelerated approval by the FDA for the treatment of refractory MAC lung disease as part of a combination antibacterial drug regimen for adult patients who have limited or no alternative treatment options. We began commercial shipments of ARIKAYCE in October 2018. • In October 2020, the FDA approved a supplemental new drug application (sNDA) for ARIKAYCE, adding important efficacy data regarding the durability and sustainability of culture conversion to the ARIKAYCE label. • 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 the fourth quarter of 2020, we launched ARIKAYCE in Germany. In February 2021, we launched ARIKAYCE in the Netherlands. • In December 2020, we commenced the post-approval confirmatory frontline clinical trial program for ARIKAYCE in patients with MAC lung disease. The frontline clinical trial program consists of the ARISE trial and the ENCORE trial. We are currently enrolling patients for these trials, and are running these global studies in parallel. • In March 2021, Japan's MHLW approved ARIKAYCE for the treatment of patients with NTM lung disease caused by MAC who did not sufficiently respond to prior treatment with a multidrug regimen. • In July 2021, we launched ARIKAYCE in Japan.	• In addition to our launches in Germany and the Netherlands, we plan to launch in other European countries, subject to local reimbursement processes. • We will continue to advance the post-approval confirmatory, frontline clinical trial program for ARIKAYCE, through the ARISE trial and the ENCORE trial, which are intended to fulfill the FDA's post-marketing requirement to allow for the full approval of ARIKAYCE in the US, as well as to support the use of ARIKAYCE as a frontline treatment for patients with MAC lung disease in the US, Europe and Japan.

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Principal Product/Product Candidate	Status	Next Expected Milestones
Brensocatib (oral reversible inhibitor of DPP1) for non-cystic fibrosis bronchiectasis (NCFBE) and other inflammatory diseases	• In June 2020, we announced full results from our global, randomized, double-blind placebo-controlled Phase 2 WILLOW study evaluating the efficacy, safety, and pharmacokinetics of brensocatib administered once daily in adults with NCFBE. Final results from the WILLOW study were published online in the New England Journal of Medicine in September 2020. • Full results for the WILLOW study reflect that the 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). In addition, treatment with 10mg brensocatib resulted in a significant reduction in the rate of pulmonary exacerbations, a key secondary endpoint. 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. • In June 2020, the FDA granted breakthrough therapy designation for brensocatib for the treatment of adult patients with NCFBE for reducing exacerbations. • In November 2020, brensocatib was granted access to the Priority Medicines (PRIME) scheme from the European Medicines Agency (EMA) for patients with NCFBE. • In December 2020, we commenced a Phase 3 trial (the ASPEN trial) through which we will seek to confirm the positive results seen in the WILLOW study. We are currently enrolling patients for this trial, which is designed to investigate brensocatib in patients with bronchiectasis. The primary endpoint is the rate of pulmonary exacerbations over a 52-week treatment period. Patients with bronchiectasis due to CF may not be enrolled in the trial.	• We will continue to advance the ASPEN trial, to seek to confirm the positive results seen in the WILLOW trial and to support a new drug application (NDA) for brensocatib for the treatment of adult patients with bronchiectasis. • We are advancing a clinical development program for brensocatib in CF. The CF Therapeutics Development Network has endorsed our study protocol for brensocatib in CF. The process for initiating study sites for the Phase 2 pharmacokinetics/pharmacodynamics multiple-dose study is underway. • We plan to explore the potential of brensocatib in additional neutrophil-mediated diseases in 2021. • Last month, Professor James Chalmers of the University of Dundee released preliminary results of the STOP-COVID19 trial. While we understand the preliminary results of this 28-day study did not demonstrate evidence of clinical benefit of brensocatib for COVID-19 patients, it is our understanding that an effect on the main target of neutrophil serine proteases was seen, and no significant difference in adverse events was observed between groups. Further data will be shared by Professor Chalmers in the form of a scientific publication in the coming months.
TPIP (inhalation formulation of a treprostinil prodrug) for PAH and other rare pulmonary disorders	• In December 2020, we completed dosing of subjects in a Phase 1 healthy volunteer trial to assess the safety, tolerability and pharmacokinetics of TPIP. • In February 2021, we announced topline results from the Phase 1 study of TPIP in healthy volunteers. Data from the study demonstrated that TPIP was generally well tolerated, with a pharmacokinetic profile that supports continued development with once-daily dosing.	• Data from the Phase 1 healthy volunteer trial of TPIP will be presented in an oral session at the European Society of Cardiology Congress in August 2021. • We plan to advance 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 pulmonary vascular resistance (PVR) over a 24-hour period. We anticipate sharing preliminary data from this study in the second half of 2021. The second will evaluate the effect of TPIP on PVR and 6-minute walk distance over a 16-week treatment period using an up-titration, once-daily dosing schedule. We plan to initiate this trial in the fourth quarter of 2021.

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Our earlier-stage pipeline includes preclinical compounds that we are evaluating in multiple rare diseases with unmet medical need. To complement our internal research and development, we actively evaluate in-licensing and acquisition opportunities for a broad range of rare diseases.

Our Strategy

Our strategy focuses on the needs of patients with rare diseases. We secured accelerated approval for ARIKAYCE from the FDA for the treatment of refractory MAC lung disease in patients with limited or no alternative treatment options, and currently are primarily focused on the successful commercialization of ARIKAYCE. In Europe, we recently secured EC approval of ARIKAYCE for the treatment of NTM lung infections caused by MAC in adults with limited treatment options who do not have cystic fibrosis. We also recently secured Japan's MHLW approval of ARIKAYCE for the treatment of patients with NTM lung disease caused by MAC who did not sufficiently respond to prior treatment with a multidrug regimen. We are not aware of any other approved inhaled therapies specifically indicated to treat MAC lung disease in North America, Europe or Japan. We believe that ARIKAYCE has the potential to prove beneficial in other patients with MAC. Our product candidates are brensocatib, our Phase 3 product candidate which we are developing for patients with bronchiectasis and potentially other neutrophil-mediated diseases, and TPIP, our product candidate that may offer a differentiated product profile for patients with PAH and other rare pulmonary disorders. We are also advancing earlier-stage programs in other rare disorders.

Our current priorities are as follows:

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

•Develop and validate a PRO tool for NTM lung disease to be used in, among other trials, the ENCORE trial required for the full US approval of ARIKAYCE by the FDA in patients with MAC lung disease;

•Continue our expansion efforts in Europe to support commercial activities for ARIKAYCE in the region;

•Continue our expansion efforts in Japan to support commercial launch activities in the country;

•Ensure our product supply chain will support the global commercialization and potential future lifecycle management programs of ARIKAYCE;

•Develop a core value dossier to support payor reimbursement for ARIKAYCE in Japan;

•Maintain or obtain determinations of coverage and reimbursement in the US and Europe for ARIKAYCE from governmental and other third-party payors;

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

•Advance brensocatib, including in the Phase 3 ASPEN trial in patients with bronchiectasis;

•Advance the Phase 2 TPIP development program;

•Generate preclinical findings from our earlier-stage programs and advance translational medicine; and

•Expand our pipeline through corporate development.

ARIKAYCE for Patients with MAC Lung Disease

ARIKAYCE is 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 combination antibacterial drug regimen for adult patients with limited or no alternative treatment 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 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. Unlike amikacin solution for intravenous administration, our proprietary Pulmovance™ technology uses charge-neutral liposomes to deliver amikacin directly to the lungs where liposomal amikacin is taken up by the lung macrophages where the 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. 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. ARIKAYCE is administered once-daily, using Lamira, an inhalation device developed and

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manufactured by PARI. Lamira is a portable nebulizer that enables aerosolization of liquid medications via a vibrating, perforated membrane, and was designed specifically for ARIKAYCE delivery.

The FDA has designated ARIKAYCE as an orphan drug and a QIDP for NTM lung disease. Orphan designated drugs are eligible for seven years of exclusivity for the orphan indication. QIDP designation provides an additional five years of 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 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 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 condition of accelerated approval, we must conduct a post-approval confirmatory clinical trial. In December 2020, we commenced the post-approval 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 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 intended to fulfill the FDA’s post-marketing requirement to allow for full approval of ARIKAYCE by the FDA, and verification and description of clinical benefit in the ENCORE trial will be necessary for full approval of ARIKAYCE.

Regulatory Pathway Outside of the US

In October 2020, the EC granted marketing authorization for ARIKAYCE for the 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 and the Netherlands, and plan to launch in other European Union (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 did not sufficiently respond to prior treatment with a multidrug regimen. In July 2021, we launched ARIKAYCE in Japan.

Further Research and Lifecycle Management

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We are currently exploring and supporting research and lifecycle management programs for ARIKAYCE beyond treatment of refractory MAC lung 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-approval confirmatory, frontline clinical trial program for ARIKAYCE, through the ARISE trial and the ENCORE trial, which are intended to fulfill the FDA's post-marketing requirement to allow for the full approval of ARIKAYCE in the US, as well as to support the use of ARIKAYCE as a frontline treatment for patients with MAC lung disease in the US, Europe and Japan.

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.

The ENCORE trial is a randomized, double-blind, placebo-controlled Phase 3b study to evaluate the efficacy and safety of an ARIKAYCE-based regimen in patients with newly diagnosed MAC lung disease. Patients 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 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 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 initiated the frontline clinical trial program of ARIKAYCE in December 2020 and are running the ARISE and ENCORE trials in parallel in approximately 200 sites.

Subsequent lifecycle management studies could also potentially enable us to reach more patients. These initiatives include investigator-initiated studies, which are clinical studies initiated and sponsored by physicians or research institutions with funding from us and may also include new clinical studies sponsored by us.

Product Pipeline

Brensocatib

Brensocatib is a small molecule, oral, reversible inhibitor of DPP1, which we 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 NSPs (including neutrophil elastase, proteinase 3, and cathepsin G) that have been implicated in a variety of inflammatory diseases. In chronic inflammatory lung diseases, neutrophils accumulate in the airways and result in excessive active NSPs that cause lung destruction and inflammation. Brensocatib may decrease the damaging effects of inflammatory diseases such as bronchiectasis by inhibiting DPP1 and its activation of NSPs.

Bronchiectasis is a severe, chronic pulmonary disorder in which the bronchi become permanently dilated due to a cycle of infection, inflammation, and 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. Bronchiectasis affects approximately 340,000 to 520,000 patients in the US, and reports suggest that bronchiectasis may affect approximately 350,000 to 500,000 patients in the European 5 (comprised of France, Germany, Italy, Spain and the United Kingdom) and one million to five million patients in the Asia-Pacific region. Today, there are no approved therapies in the US, Europe, or Japan for 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

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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 480 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 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 EMA for patients with NCFBE.

The WILLOW Study

The WILLOW study was a randomized, double-blind, placebo-controlled, parallel-group, multi-center, multi-national, Phase 2 study to assess the efficacy, safety and tolerability, and pharmacokinetics of brensocatib administered once daily for 24 weeks in patients with 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 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 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 without NTM lung infection.

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We are advancing a clinical development program for brensocatib in CF. The CF Therapeutics Development Network has endorsed our study protocol for brensocatib in CF. The process for initiating study sites for the Phase 2 pharmacokinetics/pharmacodynamics multiple-dose study is underway.

Investigator-Initiated Study in Patients with Severe COVID-19

In April 2020, we announced we would provide funding and clinical drug supply for the STOP-COVID19 trial, an investigator-initiated study of brensocatib in hospitalized patients in the UK with COVID-19 sponsored by the University of Dundee.

The STOP-COVID19 trial is a prospective, randomized, double-blind, placebo-controlled trial of brensocatib in patients with severe COVID-19. The multicenter study enrolled approximately 400 patients at 10 sites in the UK who presented to the hospital with confirmed COVID-19 and were at risk of needing increased levels of supplemental oxygen and/or ventilation. Patients were randomized 1:1 to receive either brensocatib 25 mg once daily or matching placebo on top of standard of care. The primary endpoint is clinical improvement on a seven-point ordinal scale as defined by the World Health Organization. Patients were treated for up to 28 days. Last month, Professor James Chalmers of the University of Dundee released preliminary results of the STOP-COVID19 trial. While we understand the preliminary results of this 28-day study did not demonstrate evidence of clinical benefit of brensocatib for COVID-19 patients, it is our understanding that an effect on the main target of neutrophil serine proteases was seen, and no significant difference in adverse events was observed between groups. Further data will be shared by Professor Chalmers in the form of a scientific publication in the coming months.

Treprostinil Palmitil Inhalation Powder

TPIP is an investigational inhaled formulation of treprostinil prodrug that has the potential to address certain of the current limitations of existing prostanoid therapies. We believe that 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. Reducing dose frequency has the potential to ease patient burden and improve compliance. Additionally, we believe that TPIP may be associated with fewer side effects, including 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 TPIP may offer a differentiated product profile for PAH and other rare pulmonary disorders.

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.

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 will be presented in an oral session at the European Society of Cardiology Congress in August 2021

We plan to advance 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 sharing preliminary data from a small number of patients from this study in the second half of 2021. The second will aim to investigate the effect of TPIP on PVR and 6-minute walk distance over a 16-week treatment period using an up-titration, once-daily dosing schedule. We plan to initiate this trial in the fourth quarter of 2021. Beyond PAH, we continue to explore potential development pathways for TPIP in patients with pulmonary hypertension associated with interstitial lung disease (PH-ILD) and idiopathic pulmonary fibrosis (IPF), and plan to initiate a study in patients with PH-ILD using an up-titration, once-daily dosing schedule.

Corporate Development

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We plan to continue to develop, acquire, in license or co-promote other products, product candidates and technologies, including those that address rare diseases. We are focused broadly on rare disease therapeutics and prioritizing those areas that best align with our core competencies.

KEY COMPONENTS OF OUR RESULTS OF OPERATIONS

Product Revenues, Net

Product revenues, net, consist primarily of net sales of ARIKAYCE in the US and Europe. 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. 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, chargebacks and returns.

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 and program management. R&D expenses also includes other internal operating expenses, the cost of manufacturing product candidates, including the medical devices for drug delivery, for clinical study, the cost of conducting clinical studies, and the cost of conducting preclinical and research activities. In addition, R&D expenses include payments to third parties for the license rights to products in development (prior to marketing approval), such as brensocatib. Our R&D expenses related to manufacturing our product candidates and medical devices for clinical study are primarily related to activities at contract manufacturing organizations (CMOs) that manufacture 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 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

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 and human resource functions. SG&A expenses also include professional fees for legal services, consulting services, including commercial activities, insurance, board of director fees, tax and accounting 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.

Investment Income and Interest Expense

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Investment income consists of interest and dividend income earned on our cash and cash equivalents. Interest expense consists primarily of the accretion of debt discount, contractual interest costs and the amortization of debt issuance costs related to our accretion of debt. Debt discount is accreted, and 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 costs. Unamortized debt issuance costs associated with extinguished debt are expensed in the period of the extinguishment.

RESULTS OF OPERATIONS

COVID-19 Update

We are committed to the safety and well-being of our workforce. In March 2020, we implemented a number of corporate initiatives in response to the novel coronavirus global pandemic which manifests as COVID-19. These initiatives included a remote working policy for all employees in order to aid the global containment effort and allow infectious disease specialists and pulmonologists to focus exclusively on treating patients and containing the virus. The policy included all of the field-based therapeutic specialists and employees who support ARIKAYCE prescribers. Beginning on June 1, 2020, certain of our field-based employees who support ARIKAYCE prescribers were permitted to return to the field on a voluntary basis. To date, access to prescribers has been limited with significant regional variability. Our Arikares® trainers are continuing to offer remote training for patients who initiate treatment with ARIKAYCE. As COVID-19 infections in the US subsided and vaccination rates increased, we have seen a resumption of activities, including field-based employees returning to the field, reopening of physician offices and patients returning to in-office visits. However, as new variants of COVID-19 emerge, some of these activities have recently been paused in certain regions. While 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 the ARIKAYCE patient population and physicians.

There are many uncertainties regarding the COVID-19 pandemic, and we are closely monitoring the impact of the pandemic on all aspects of our business, including how it will impact our patients, 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 June 30, 2021, we are unable to predict the impact that COVID-19 will have on our financial position and operating results in future periods due to 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 June 30, 2021 and 2020

Overview - Operating Results

Our operating results for the three months ended June 30, 2021, included the following:

•Product revenues, net, increased $2.9 million as compared to the same period in the prior year as a result of the increase in ARIKAYCE sales;

•Cost of product revenues (excluding amortization of intangible assets) increased $0.9 million as compared to the same period in the prior year as a result of the increase in product revenues;

•Increased R&D expenses of $28.9 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;

•Increased SG&A expenses of $7.5 million as compared to the same period in the prior year resulting from increases in compensation and benefit related expenses and increases related to our global commercial activities;

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

•Increased interest expense of $2.9 million as compared to the same period in the prior year related to the accretion of debt discount for our debt.

Product Revenues, Net

Product revenues, net, consists of net sales of ARIKAYCE. The following table summarizes the sources of revenue for the three months ended June 30, 2021 and 2020 (in thousands):

	Three Months Ended June 30,				Increase (decrease)
	2021		2020		$		%
Product revenues, net	$	45,366	$	42,495	$	2,871	6.8	%

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Product revenues, net, increased to $45.4 million, an increase of 6.8%, from $42.5 million in the same period in 2020 as a result of the increase in ARIKAYCE sales.

Cost of Product Revenues (excluding amortization of intangible assets)

Cost of product revenues (excluding amortization of intangible assets) for the three months ended June 30, 2021 and 2020 were comprised of the following (in thousands):

	Three Months Ended June 30,						Increase (decrease)
	2021			2020			$		%
Cost of product revenues (excluding amortization of intangible assets)	$	10,837		$	9,950		$	887	8.9	%
Cost of product revenues, as % of revenues	23.9		%	23.4		%

Cost of product revenues (excluding amortization of intangible assets) increased to $10.8 million for the three months ended June 30, 2021 as compared to $10.0 million in the same period in 2020. The increase in cost of product revenues (excluding amortization of intangible assets) in the three months ended June 30, 2021 was attributable to the increase in total revenues discussed above.

R&D Expenses

R&D expenses for the three months ended June 30, 2021 and 2020 were comprised of the following (in thousands):

	Three Months Ended June 30,				Increase (decrease)
	2021		2020		$		%
External Expenses
Clinical development and research	$	23,498	$	6,009	$	17,489	291.0	%
Manufacturing	9,593		4,673		4,920		105.3	%
Regulatory, quality assurance, and medical affairs	3,313		3,252		61		1.9	%
Subtotal—external expenses	$	36,404	$	13,934	$	22,470	161.3	%
Internal Expenses
Compensation and benefit related expenses	$	18,914	$	14,900	$	4,014	26.9	%
Stock-based compensation	4,434		2,979		1,455		48.8	%
Other internal operating expenses	4,903		3,935		968		24.6	%
Subtotal—internal expenses	$	28,251	$	21,814	$	6,437	29.5	%
Total	$	64,655	$	35,748	$	28,907	80.9	%

R&D expenses increased to $64.7 million during the three months ended June 30, 2021 from $35.7 million in the same period in 2020. The $28.9 million increase was primarily due to a $17.5 million increase in clinical development and research costs related to the ongoing ARIKAYCE frontline clinical trial program and the Phase 3 ASPEN trial of brensocatib. The increase was also due to a $5.5 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in headcount as well as a $4.9 million increase in manufacturing expenses to support ongoing clinical trials.

External R&D expenses by product for the three months ended June 30, 2021 and 2020 were comprised of the following (in thousands):

	Three Months Ended June 30,				Increase (decrease)
	2021		2020		$		%
ARIKAYCE external R&D expenses	$	13,510	$	9,097	$	4,413	48.5	%
Brensocatib external R&D expenses	16,203		2,816		13,387		475.4	%
Other external R&D expenses	6,691		2,021		4,670		231.1	%
Total	$	36,404	$	13,934	$	22,470	161.3	%

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We expect R&D expenses to continue to increase in 2021 relative to 2020 primarily due to our clinical trial activities and related spend including our Phase 3 ASPEN trial of brensocatib, our confirmatory clinical trial of ARIKAYCE in a front-line treatment setting for patients with MAC lung disease, and our TPIP clinical trials.

SG&A Expenses

SG&A expenses for the three months ended June 30, 2021 and 2020 were comprised of the following (in thousands):

 

	Three Months Ended June 30,				Increase (decrease)
	2021		2020		$		%
Compensation and benefit related expenses	$	21,339	$	18,309	$	3,030	16.5	%
Stock-based compensation	7,302		6,488		814		12.5	%
Professional fees and other external expenses	22,235		19,675		2,560		13.0	%
Facility related and other internal expenses	6,301		5,191		1,110		21.4	%
Total SG&A expenses	$	57,177	$	49,663	$	7,514	15.1	%

SG&A expenses increased to $57.2 million during the three months ended June 30, 2021 from $49.7 million in the same period in 2020. The $7.5 million increase was primarily due to a $3.8 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in global headcount as well as a $2.6 million increase in professional fees and other external expenses primarily resulting from our commercial launch efforts in Europe and Japan and from resuming certain commercial activities.

Amortization of Intangible Assets

Amortization of intangible assets for the three months ended June 30, 2021 and 2020 was $1.3 million and $1.2 million, respectively. 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.

Interest Expense

Interest expense increased to $10.3 million for the three months ended June 30, 2021 as compared to $7.5 million in the same period in 2020 due to the accretion of debt discount for our debt.

Comparison of the Six Months Ended June 30, 2021 and 2020

Overview - Operating Results

Our operating results for the six months ended June 30, 2021, included the following:

•Product revenues, net, increased $6.2 million as compared to the same period in the prior year as a result of the increase 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 decrease in the sale of inventory for which the cost was incurred prior to FDA approval of ARIKAYCE, as well as the increased sales of ARIKAYCE;

•Increased R&D expenses of $54.1 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;

•Increased SG&A expenses of $7.7 million as compared to the same period in the prior year resulting from increases in compensation and benefit related expenses, including increases related to our commercial launch efforts in Europe and Japan;

•Amortization of intangible assets of $2.5 million was consistent with the same period in the prior year; and

•Increased interest expense of $3.0 million as compared to the same period in the prior year related to the accretion of debt discount for our debt.

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Product Revenues, Net

Product revenues, net, consists of net sales of ARIKAYCE. The following table summarizes the sources of revenue for the six months ended June 30, 2021 and 2020 (in thousands):

	Six Months Ended June 30,				Increase (decrease)
	2021		2020		$		%
Product revenues, net	$	85,580	$	79,355	$	6,225	7.8	%

Product revenues, net, increased to $85.6 million, an increase of 7.8%, from $79.4 million in the same period in 2020 as a result of the increase in ARIKAYCE sales.

Cost of Product Revenues (excluding amortization of intangible assets)

Cost of product revenues (excluding amortization of intangible assets) for the six months ended June 30, 2021 and 2020 were comprised of the following (in thousands):

	Six Months Ended June 30,						Increase (decrease)
	2021			2020			$		%
Cost of product revenues (excluding amortization of intangible assets)	$	20,681		$	18,388		$	2,293	12.5	%
Cost of product revenues, as % of revenues	24.2		%	23.2		%

Cost of product revenues (excluding amortization of intangible assets) increased to $20.7 million for the six months ended June 30, 2021 as compared to $18.4 million in the same period in 2020. The increase in cost of product revenues (excluding amortization of intangible assets) in the six months ended June 30, 2021 was directly attributable to a decrease in the sale of inventory for which the cost was incurred prior to FDA approval of ARIKAYCE and the increase in total revenues discussed above. All product costs incurred prior to FDA approval of ARIKAYCE in September 2018 were expensed as R&D expenses.

R&D Expenses

R&D expenses for the six months ended June 30, 2021 and 2020 were comprised of the following (in thousands):

	Six Months Ended June 30,				Increase (decrease)
	2021		2020		$		%
External Expenses
Clinical development and research	$	46,929	$	13,577	$	33,352	245.7	%
Manufacturing	16,811		7,639		9,172		120.1	%
Regulatory, quality assurance, and medical affairs	7,205		7,447		(242)		(3.2)	%
Subtotal—external expenses	$	70,945	$	28,663	$	42,282	147.5	%
Internal Expenses
Compensation and benefit related expenses	$	38,411	$	29,643	$	8,768	29.6	%
Stock-based compensation	8,118		5,821		2,297		39.5	%
Other internal operating expenses	8,571		7,805		766		9.8	%
Subtotal—internal expenses	$	55,100	$	43,269	$	11,831	27.3	%
Total	$	126,045	$	71,932	$	54,113	75.2	%

R&D expenses increased to $126.0 million during the six months ended June 30, 2021 from $71.9 million in the same period in 2020. The $54.1 million increase was primarily due to a $33.4 million increase in clinical development and research costs related to the initiation of the ARIKAYCE frontline clinical trial program and the Phase 3 ASPEN trial of brensocatib. The increase was also due to a $11.1 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in headcount as well as a $9.2 million increase in manufacturing expenses to support ongoing clinical trials.

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External R&D expenses by product for the six months ended June 30, 2021 and 2020 were comprised of the following (in thousands):

	Six Months Ended June 30,				Increase (decrease)
	2021		2020		$		%
ARIKAYCE external R&D expenses	$	28,150	$	17,357	$	10,793	62.2	%
Brensocatib external R&D expenses	25,800		8,414		17,386		206.6	%
Other external R&D expenses	16,995		2,892		14,103		487.7	%
Total	$	70,945	$	28,663	$	42,282	147.5	%

We expect R&D expenses to continue to increase in 2021 relative to 2020 primarily due to our clinical trial activities and related spend including our Phase 3 ASPEN trial of brensocatib, our confirmatory clinical trial of ARIKAYCE in a front-line treatment setting for patients with MAC lung disease, and our TPIP clinical trials.

     SG&A Expenses

SG&A expenses for the six months ended June 30, 2021 and 2020 were comprised of the following (in thousands):

 

	Six Months Ended June 30,				Increase (decrease)
	2021		2020		$		%
Compensation and benefit related expenses	$	43,092	$	35,298	$	7,794	22.1	%
Stock-based compensation	14,152		12,649		1,503		11.9	%
Professional fees and other external expenses	39,198		41,411		(2,213)		(5.3)	%
Facility related and other internal expenses	12,285		11,651		634		5.4	%
Total SG&A expenses	$	108,727	$	101,009	$	7,718	7.6	%

SG&A expenses increased to $108.7 million during the six months ended June 30, 2021 from $101.0 million in the same period in 2020. The $7.7 million increase was primarily due to a $9.3 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in global headcount, including the increases related to our commercial launch efforts in Europe and Japan. This increase was partially offset by a $2.2 million decrease in professional fees and other external expenses resulting from the reduction of certain commercial activities due to COVID-19 restrictions in the first quarter of 2021.

Amortization of Intangible Assets

Amortization of intangible assets for the six months ended June 30, 2021 and 2020 was $2.5 million and $2.5 million, respectively. 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.

Interest Expense

Interest expense was $17.9 million for the six months ended June 30, 2021 as compared to $14.9 million in the same period in 2020 due to the accretion of debt discount for our debt.

LIQUIDITY AND CAPITAL RESOURCES

Overview

There is considerable time and cost associated with developing potential pharmaceutical products to the point of regulatory approval and commercialization. We commenced commercial shipments of ARIKAYCE in October 2018. We expect to continue to incur consolidated operating losses, 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 for ARIKAYCE, and other general and administrative 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 $16.0 million, were $559.0

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million. 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 of the 2025 Convertible Notes.

In May 2021, we also completed an underwritten public offering of 11,500,000 shares of the Company's common stock, including 1,500,000 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 $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 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 June 30, 2021, we had not sold or issued any shares under the ATM program.

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

We may need to raise additional capital to fund our operations, including continued commercialization of ARIKAYCE and future clinical trials related to ARIKAYCE, to design and conduct ongoing and future clinical trials for brensocatib and TPIP, and to develop, acquire, in-license or co-promote other products or product candidates, including those that address orphan or rare diseases. We believe we currently have sufficient funds to meet our financial needs for at least the next 12 months. We expect to opportunistically raise additional capital and may do so through equity or debt financing(s), strategic transactions or otherwise. We expect such additional funding, if any, would be used to continue to commercialize ARIKAYCE, to conduct further trials of ARIKAYCE, to develop brensocatib, TPIP and our other product candidates, or to pursue the license or purchase of other technologies or products and product candidates. During 2021, we plan to continue to support the commercialization of ARIKAYCE in the US and Europe, to continue to fund further clinical development of ARIKAYCE, brensocatib and TPIP, and to fund our global expansion efforts to support commercial launch activities in Japan and in additional countries in Europe. Our cash requirements for the next 12 months will be impacted by a number of factors, the most significant of which we expect to be expenses related to our commercialization efforts and our ARISE and ENCORE clinical trials for ARIKAYCE, expenses related to the ASPEN trial and other development activities for brensocatib, and to a lesser extent, expenses related to the clinical development of TPIP.

Cash Flows

As of June 30, 2021, we had cash and cash equivalents of $928.3 million, as compared with $532.8 million as of December 31, 2020. The $395.6 million increase was primarily due to our May 2021 underwritten public offerings of debt and equity, partially offset by the repurchase of a portion of our 2025 Convertible Notes and cash used in operating activities. Our working capital was $938.5 million as of June 30, 2021 as compared with $504.1 million as of December 31, 2020.

Net cash used in operating activities was $203.7 million and $93.9 million for the six months ended June 30, 2021 and 2020, respectively. The net cash used in operating activities during the six months ended June 30, 2021 and 2020 was primarily for the commercial, clinical and manufacturing activities related to ARIKAYCE, as well as other SG&A expenses and clinical trial expenses related to brensocatib and TPIP. The increase in cash used in operating activities for the six months ended June 30, 2021 compared to the corresponding period in 2020 was primarily due to the increase in R&D expenses to support our ongoing clinical trials. The increase was also due to the net change in working capital, driven primarily by increases in other assets from deposits to our CRO for our recently initiated clinical trials and the $12.5 million milestone payment to AstraZeneca related to the first dosing in our Phase 3 ASPEN trial.

Net cash used in investing activities was $4.7 million and $4.6 million for the six months ended June 30, 2021 and 2020, respectively, for purchases of fixed assets.

Net cash provided by financing activities was $604.3 million and $252.9 million for the six months ended June 30, 2021 and 2020, respectively. Net cash provided by financing activities for the six months ended June 30, 2021 and 2020 were primarily due to net cash proceeds from the issuance and extinguishment of debt during the six months ended June 30, 2021 and the net proceeds from the issuance of common stock during the six months ended June 30, 2021 and 2020.

Contractual Obligations

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There were no material changes outside of the ordinary course of business in our contractual obligations during the six months ended June 30, 2021 from those disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2020.    

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements 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

There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. For the required interim disclosure updates related to our accounting policies, see Note 2 to our consolidated financial statements — Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q.

ITEM 3.                                                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2021, our cash and cash equivalents were in cash accounts and money market funds. Our investments in money market funds are not insured by the federal government.

As of June 30, 2021, we had $800.0 million of convertible notes outstanding. Our 2025 Convertible Notes and our 2028 Convertible Notes bear interest at a coupon rate of 1.75% and 0.75%, respectively. If a 10% change in interest rates had occurred on June 30, 2021, 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 six months ended June 30, 2021 and 2020, 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 Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. 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 ensure that information required to be disclosed by us in the 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 June 30, 2021, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures 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 six months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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ITEM 1.                                                LEGAL PROCEEDINGS

From time to time, we are 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, 2020, which was filed with the SEC on February 25, 2021. 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 Form 10-Q (please read the Cautionary Note Regarding Forward-Looking Statements in this Form 10-Q).

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

There were no unregistered sales of the Company's equity securities by the Company during the quarter ended June 30, 2021.

ITEM 5.    OTHER INFORMATION

In August 2021, the Company acquired Motus Biosciences, Inc. (Motus) and AlgaeneX, Inc. (AlgaeneX), each a privately held, preclinical stage company. In connection with the closing of the Company’s acquisition of Motus, the Company will issue an aggregate of 3,135,374 shares of the Company’s common stock to Motus’s former stockholders and option holders and certain individuals who are entitled to receive a portion of the acquisition consideration (collectively, Motus equityholders), subject to certain reductions. 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 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 milestone events 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 AlgaeneX’s former stockholders and certain individuals who are entitled to receive a portion of the 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 received by the Company in licensing transactions for AlgaeneX’s manufacturing technology, in each case, subject to certain reductions.

The shares of the Company’s common stock issuable to the Motus equityholders and the AlgaeneX equityholders are being issued pursuant to Section 4(a)(2) of the Securities Act of 1933, and the number of such issuable shares was calculated based on a per share value of $27.11. The Company will not receive any proceeds from the issuance of common stock to the Motus equityholders or the AlgaeneX equityholders.

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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 Current Report on Form 8-K filed on March 30, 2020).
4.1	Second Supplemental Indenture, dated as of May 13, 2021, by and between the Company and Wells Fargo Bank, National Association (incorporated by reference from Exhibit 4.2 to Insmed Incorporated’s Current Report on Form 8-K filed on May 13, 2021).
4.2	Form of 0.75% Convertible Senior Note due 2028 (included in Exhibit 4.1).
10.1**	Employment Agreement, effective as of July 8, 2021, between Insmed Incorporated and Michael Smith.
10.2	Consulting Agreement, effective as of July 8, 2021, between Christine Pellizzari and Insmed Incorporated.
10.3**	Second Amendment to Employment Agreement, effective as of July 23, 2021, between Insmed Incorporated and Roger Adsett.
10.4**	Amendment to Employment Agreement, effective as of July 23, 2021, between Insmed Incorporated and Martina Flammer, M.D.
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 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 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 June 30, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, (ii) Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2021 and 2020, (iii) Consolidated Statements of Shareholders' Equity for the three and six months ended June 30, 2021 and 2020, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020, (v) Notes to the Unaudited Consolidated Financial Statements, and (vi) Cover Page.
104	The cover page from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in iXBRL and contained in Exhibit 101.
* Certain portions of this exhibit have been redacted.
** Management contract or compensatory plan or arrangement.

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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: August 5, 2021	By	/s/ Sara Bonstein
		Sara Bonstein
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EX-10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is effective on July 8, 2021 (the “Effective Date”), by and between Insmed Incorporated, a Virginia corporation (“Insmed”), and Michael Smith (hereinafter, the “Executive”). When referring to the Executive, the term “he” or “she” throughout this Agreement is intended to be gender neutral.

WITNESSETH:

WHEREAS, Insmed desires to employ the Executive and the Executive desires to be employed by Insmed on the terms herein described.

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, Insmed and the Executive hereby agree as follows:

1.Definitions. When used in this Agreement, the following terms shall have the following meanings:

a.“Accrued Obligations” means:

i.all accrued but unpaid Base Salary through the end of the Term of Employment;

ii.any unpaid or unreimbursed expenses incurred in accordance with Insmed policy, including amounts due under Section 5(a) hereof, to the extent incurred during the Term of Employment;

iii.any accrued but unpaid benefits provided under Insmed’s employee benefit plans, subject to and in accordance with the terms of those plans;

iv. rights to indemnification by virtue of the Executive’s position as an officer or director of Insmed or its subsidiaries and the benefits under any directors’ and officers’ liability insurance policy maintained by Insmed, in accordance with its terms thereof; and

b.“Affiliate” means any entity in which Insmed has a substantial direct or indirect equity interest.

c.“Base Salary” means the salary provided for in Section 4(a) hereof or any increased salary granted to Executive pursuant to Section 4(a) hereof.

d.“Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended.

e.“Board” means the Board of Directors of Insmed.

f.“Bonus” means any bonus payable to the Executive pursuant to Section 4(b) hereof.

g.“Cause” means:

i.a conviction of the Executive, or a plea of nolo contendere, to a felony involving moral turpitude; or

ii.willful misconduct or gross negligence by the Executive resulting, in either case, in material economic harm to Insmed or any Affiliate; or

iii.a willful failure by the Executive to carry out the reasonable and lawful directions of the Board and failure by the Executive to remedy the failure within thirty (30) days after receipt of written notice of same from the Board; or

iv.fraud, embezzlement, theft or dishonesty of a material nature by the Executive against Insmed or any Affiliate, or a willful material violation by the Executive of a policy or procedure of Insmed or any Affiliate, resulting, in any case, in material economic harm to Insmed or any Affiliate; or

v.a willful material breach by the Executive of this Agreement and failure by the Executive to remedy the material breach within 30 days after receipt of written notice of same from the Board.

h.“Change in Control” means:

i.The acquisition by any Person of Beneficial Ownership of at least 40% of either (A) the value of the then outstanding shares of common stock of Insmed (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of Insmed entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”) (the foregoing Beneficial Ownership hereinafter being referred to as a “Controlling Interest”); provided, however, that for purposes of this definition, the following acquisitions shall not constitute or result in a Change of Control: (v) any acquisition directly from Insmed; (w) any acquisition by Insmed; (x) any acquisition by any Person that as of the Effective Date owns Beneficial Ownership of a Controlling Interest; (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Insmed or any subsidiary of Insmed; or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) below; or

ii.During any period of two consecutive years (not including any period prior to the Effective Date) individuals who constitute the Board on the Effective Date (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by Insmed’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

iii.Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving Insmed or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of Insmed, or the acquisition of assets or stock of another entity by Insmed or any of its subsidiaries (each a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the Persons who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then outstanding shares

of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Insmed or all or substantially all of Insmed’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) of Insmed or such Acquiring Corporation) beneficially owns, directly or indirectly, more than 40% of the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

iv.approval by the shareholders of Insmed of a complete liquidation or dissolution of Insmed.

Notwithstanding the foregoing, no event or transaction will constitute a Change in Control hereunder unless it also constitutes a “change in control event” under Section 409A of the Code.

i.“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time.

j.“Code” means the Internal Revenue Code of 1986, as amended.

k.“Competitive Activity” means (i) the discovery, design, development, distribution, marketing or sale of therapies for rare lung diseases and/or disorders, or (ii) any other activity in competition with the material activities of Insmed or any of its Affiliates, in either case in any of the States within the United States, or countries within the world, in which Insmed or any of its Affiliates conducts business. For this purpose, the activities of Insmed and its Affiliates, and where Insmed and its Affiliates do business, will be determined as of the earlier of the date of the application of this definition or the Termination Date.

l.“Confidential Information” means all trade secrets and information disclosed to the Executive or known by the Executive as a consequence of or through the unique position of his employment with Insmed or any Affiliate (including information conceived, originated, discovered or developed by the Executive and information acquired by Insmed or any Affiliate from others) prior to or after the date hereof, and not generally or publicly known (other than as a result of unauthorized disclosure by the Executive), about Insmed or any Affiliate or its business. Confidential Information includes, but is not limited to, inventions, ideas, designs, computer programs, circuits, schematics, formulas, algorithms, trade secrets, works of authorship, mask works, developmental or experimental work, processes, techniques, improvements, methods of manufacturing, know-how, data, financial information and forecasts, product plans, marketing plans and

strategies, price lists, customer lists and contractual obligations and terms thereof, data, documentation and other information, in whatever form disclosed, relating to Insmed or any Affiliate, including, but not limited to, financial statements, financial projections, business plans, listings and contractual obligations and terms thereof, components of intellectual property, unique designs, methods of manufacturing or other technology of Insmed or any Affiliate.

m.“Disability” means the Executive’s inability, or failure, to perform the essential functions of his position, with or without reasonable accommodation, for any period of six months or more in any 12-month period, by reason of any medically determinable physical or mental impairment.

n.“Equity Awards” means any stock options, restricted stock, restricted stock units, stock appreciation rights, phantom stock or other equity-based awards granted by Insmed to the Executive.

o. “Excise Tax” means any excise tax imposed by Section 4999 of the Code, together with any interest and penalties imposed with respect thereto, or any interest or penalties that are incurred by the Executive with respect to any such excise tax.

p.“Good Reason” means the occurrence of any of the following: (i) a material diminution in the Executive’s base compensation; (ii) a material diminution in the Executive’s authority, duties, or responsibilities; (iii) a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Executive is required to report; (iv) Insmed’s or Affiliate’s requiring the Executive to be based at any office or location outside of 50 miles from the location of employment or service as of the effective date of this Agreement, except for travel reasonably required in the performance of the Executive’s responsibilities; or (v) any other action or inaction that constitutes a material breach by Insmed of this Agreement. For purposes of this Agreement, Good Reason shall not be deemed to exist unless the Executive’s termination of employment for Good Reason occurs within six months following the initial existence of one of the conditions specified in clauses (i) through (v) above, the Executive provides Insmed with written notice of the existence of such condition within 90 days after the initial existence of the condition, and Insmed fails to remedy the condition within 30 days after its receipt of such notice.

q.“Group” shall have the meaning ascribed to such term in Section 13(d) of the Securities Exchange Act of 1934.

r.“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and 14(d) thereof.

s.“Pro-Rata Bonus” means the Bonus based on actual corporate performance outcomes (75% of overall bonus) and 100% of personal performance at target (25% of overall bonus) for that year that (but for the cessation of the Executive’s employment) would otherwise have been payable to the Executive for the fiscal year in which the Termination Date occurs, multiplied by the following fraction: (i) the number of days that the Executive was employed by Insmed during that fiscal year, divided by (ii) 365. For this purpose, the Bonus that would otherwise have been payable to the Executive shall be determined in good faith and in the same manner applicable to active named executive officers of Insmed.

t.“Restricted Period” shall be the Term of Employment and the one year period immediately following termination of the Term of Employment.

u.“Severance Amount” shall mean an amount equal to one-half of the Executive’s annual Base Salary, as in effect immediately prior to the Termination Date.

v.“Severance Term” means the six-month period following the date on which the Term of Employment ends.

w.“Target Bonus” has the meaning described in Section 4(b).

x.“Term of Employment” means the period during which the Executive shall be employed by Insmed pursuant to the terms of this Agreement, which period shall begin on the Effective Date and continue until terminated in accordance with Section 6 hereof.

y.“Termination Date” means the date on which the Term of Employment ends.

2.Employment. Insmed hereby agrees to employ the Executive and the Executive hereby agrees to serve Insmed during the Term of Employment on the terms and conditions set forth herein.

3.Duties of Executive. During the Term of Employment, the Executive shall be employed and serve as the Senior Vice President, General Counsel, and shall have such duties typically associated with such title. The Executive shall faithfully and diligently perform all services consistent with his position as may be assigned to him by Executive Management or the Board in their discretion. The Executive shall devote his full business time, attention and efforts to the performance of his duties under this Agreement, render such services to the best of his ability, and use his reasonable best efforts to promote the interests of Insmed. The Executive shall not engage in any other business or occupation during the Term of Employment, including, without limitation, any activity that (i) conflicts with the interests of Insmed or its subsidiaries, (ii) interferes with the proper and efficient performance of his duties for Insmed, or (iii) interferes with the exercise of his judgment in Insmed’s best interests. Notwithstanding the foregoing or any other provision of this Agreement, it shall not be a breach or violation of this Agreement for the Executive to (w) serve on up to two outside corporate or scientific advisory boards with prior notice to, and approval by, the Board, (x) serve on civic or charitable boards or committees, (y) deliver lectures, fulfill speaking engagements or teach at educational institutions, or (z) manage personal investments, so long as such activities do not constitute a Competitive Activity or significantly interfere with or significantly detract from the performance of the Executive’s responsibilities to Insmed in accordance with this Agreement.

4.Compensation.

a.Base Salary. The Executive shall receive a Base Salary at the annual rate of $440,000 during the Term of Employment, with such Base Salary payable in installments consistent with Insmed’s normal payroll schedule, subject to applicable withholding and other taxes. The Base Salary shall be reviewed, at least annually, for merit increases and may, by action and in the discretion of the Board, be increased at any time or from time to time, but may not be decreased from the then current Base Salary.

b.Bonuses. During the Term of Employment, the Executive shall participate in Insmed’s annual incentive compensation plan, program and/or arrangements applicable to senior-level executives, as established and modified from time to time by the Compensation Committee of the Board in its sole discretion. The Executive shall have a target bonus opportunity under such plan or program equal

to 40% of his current Base Salary, (the “Target Bonus”), based on satisfaction of performance criteria to be established by the Compensation Committee of the Board within the first three months of each fiscal year that begins during the Term of Employment. Payment of annual incentive compensation awards shall be made in the same manner and at the same time that other senior-level executives receive their annual incentive compensation awards and, except as otherwise provided herein, will be subject to the Executive’s continued employment through the applicable payment date.

5.Expense Reimbursement and Other Benefits.

a.Reimbursement of Expenses. Upon the submission of proper substantiation by the Executive, and subject to such rules and guidelines as Insmed may from time to time adopt with respect to the reimbursement of expenses of executive personnel, Insmed shall reimburse the Executive for all reasonable expenses actually paid or incurred by the Executive during the Term of Employment in the course of and pursuant to the business of Insmed. The Executive shall account to Insmed in writing for all expenses for which reimbursement is sought and shall supply to Insmed copies of all relevant invoices, receipts or other evidence reasonably requested by Insmed.

b.Compensation/Benefit Programs. During the Term of Employment, the Executive shall be entitled to participate in all medical, dental, hospitalization, accidental death and dismemberment, disability, travel and life insurance plans, and any and all other plans as are from time to time offered by Insmed to its executive personnel, including savings, pension, profit-sharing and deferred compensation plans, subject to the general eligibility and participation provisions set forth in such plans.

c.Working Facilities. During the Term of Employment, Insmed shall furnish the Executive with an office, administrative help and such other facilities similar to those provided to similarly situated executives of Insmed. The Executive’s principal place of employment (subject to reasonable travel) shall be Bridgewater, NJ.

d.Stock Options. As a material inducement to entering into this Agreement, the Executive shall receive an option to purchase a number of common shares of Insmed equivalent to the value of $750,000. The exact number of options will be determined using a Black-Scholes calculation based upon the closing price on the Effective Date. The exercise price per share will be equal to the fair market value per share also as determined based upon the closing on the Effective Date. The options will vest at the rate of twenty-five percent (25%) on each of the first, second, third and fourth anniversaries of the grant date, so that the entire grant will be fully vested on the fourth anniversary of the date of grant, subject to Executive’s continued employment with Insmed on each vesting date. The terms and conditions of the options will be consistent with Insmed’s standard stock option agreement and stock incentive plan.

e.Vacation. The Executive shall be entitled to take vacation time as per our Professional Judgment Vacation Policy. This policy provides the Executive the ability, with advanced approval from his manager, to take vacation days as and when appropriate throughout the calendar year.

6.Termination.

a.General. The Term of Employment shall terminate upon the earliest to occur of (i) the Executive’s death, (ii) a termination by Insmed by reason of the Executive’s Disability, (iii) a termination by Insmed with or without Cause, or (iv) a termination by Executive with or without Good Reason. Upon any termination of Executive’s employment for any reason, except as may otherwise be requested by Insmed in writing and agreed upon in writing by Executive, the Executive shall resign from any and all directorships, committee memberships or any other positions Executive holds with Insmed or any of its Affiliates.

b.Termination by Company for Cause. Insmed shall at all times have the right, upon written notice to the Executive, to terminate the Term of Employment, for Cause. In no event shall a termination of the Executive’s employment for Cause occur unless Insmed gives written notice to the Executive in accordance with this Agreement stating with reasonable specificity the events or actions that constitute Cause and providing the Executive with an opportunity to cure (if curable) within a reasonable period of time. Cause shall in no event be deemed to exist except upon a decision made by the Board, at a meeting, duly called and noticed, to which the Executive (and the Executive’s counsel) shall be invited upon proper notice and shall be permitted to present evidence. For purposes of this Section 6(b), any good faith determination by the Board of Cause shall be binding and conclusive on all interested parties. In the event that the Term of Employment is terminated by Insmed for Cause, Executive shall be entitled only to the Accrued Obligations, payable as and when those amounts would have been payable had the Term of Employment not ended. Nothing in this paragraph shall be construed as a release of any claims against Insmed and the Board’s determination of cause shall not be considered a waiver of any claims the Executive may have.

c.Disability. Insmed shall have the option, in accordance with applicable law, to terminate the Term of Employment upon written notice to the Executive, at any time during which the Executive is suffering from a Disability. In the event that the Term of Employment is terminated due to the Executive’s Disability, the Executive shall be entitled to (i) the Accrued Obligations, payable as and when those amounts would have been paid had the Term of Employment not ended, (ii) any unpaid Bonus in respect to any completed fiscal year that has ended on or prior to the Termination Date, payable within 2 ½ months following the last day of the month in which the Termination Date occurs, (iii) the Pro-Rata Bonus, payable within 2 ½ months following the end of the fiscal year in which the Termination Date occurs, and (iv) any insurance benefits to which he and his beneficiaries are entitled as a result of his Disability.

d.Death. In the event that the Term of Employment is terminated due to the Executive’s death, the Executive’s estate shall be entitled to (i) the Accrued Obligations, payable as and when those amounts would have been paid had the Term of Employment not ended, (ii) the Pro-Rata Bonus, payable within 2 ½ months following the end of the fiscal year in which the Termination Date occurs, and (iii) any insurance benefits to which he and his beneficiaries are entitled as a result of his death.

e.Termination Without Cause or Resignation with Good Reason. Insmed may terminate the Term of Employment without Cause, and the Executive may terminate the Term of Employment for Good Reason, at any time upon written

notice. If the Term of Employment is terminated by Insmed without Cause (other than due to the Executive’s death or Disability) or by the Executive for Good Reason, in either case prior to the date of a Change in Control or more than one year after a Change in Control, the Executive shall be entitled to the following:

i.The Accrued Obligations, payable as and when those amounts would have been paid had the Term of Employment not ended;

ii.Any unpaid Bonus in respect to any completed fiscal year that has ended on or prior to the Termination Date, payable within 2 ½ months following the last day of the month in which the Termination Date occurs;

iii.The Pro-Rata Bonus, payable within 2 ½ months following the end of the fiscal year in which the Termination Date occurs;

iv.The Severance Amount, payable in equal installments consistent with Insmed’s normal payroll schedule over the 6-month period beginning with the first regularly scheduled payroll date that occurs more than 30 days following the Termination Date;

v.Provided that the Executive timely elects continued coverage under COBRA, Insmed will reimburse the Executive for the monthly COBRA cost of continued health and dental coverage of the Executive and his qualified beneficiaries paid by the Executive under the health and dental plans of Insmed, less the amount that the Executive would be required to contribute for health and dental coverage if the Executive were an active employee of Insmed, for 6 months (or, if less, for the duration that such COBRA coverage is available to Executive); and

vi.Accelerated vesting, as of the Termination Date, of any time-vested Equity Awards that would have otherwise vested within six months following the Termination Date.

f.Termination by Executive Without Good Reason. The Executive may terminate his employment without Good Reason by providing Insmed 30 days’ written notice of such termination. In the event of a termination of employment by the Executive under this Section 6(f), the Executive shall be entitled only to the Accrued Obligations payable as and when those amounts would have been payable had the Term of Employment not ended. In the event of termination of the Executive’s employment under this Section 6(f), Insmed may, in its sole and absolute discretion, by written notice, accelerate such date of termination and still have it treated as a termination without Good Reason.

g.Change in Control of Insmed. If the Executive’s employment is terminated by Insmed (or any entity to which the obligations and benefits under this Agreement have been assigned, pursuant to Section 11) without Cause or by the Executive for Good Reason during the one year period immediately following the Change in Control, then the Executive shall be entitled to the same payments, rights and benefits described in Section 6(e), subject to the following enhancements:

i.The Severance Amount will be doubled and will be paid in a lump-sum on the first regularly scheduled payroll date that occurs more than 30 days following the Termination Date (rather than in installments over 12 months);

ii.Provided that the Executive timely elects continued coverage under COBRA, Insmed will reimburse the Executive for the monthly COBRA cost of continued health and dental coverage of the Executive and his

qualified beneficiaries paid by the Executive under the health and dental plans of Insmed, less the amount that the Executive would be required to contribute for health and dental coverage if the Executive were an active employee of Insmed, for 12 months (or, if less, for the duration that such COBRA coverage is available to Executive); and

iii.All time-vested Equity Awards will vest in full.

h.Release. All rights, payments and benefits due to the Executive under this Article 6 (other than the Accrued Obligations) shall be conditioned on the Executive’s execution of a separate separation agreement to be provided by Insmed at that time that includes a general release of claims against Insmed and its affiliates substantially in the form attached hereto as Exhibit A (the “Release”) and on that Release becoming effective and irrevocable within 30 days following the Termination Date, or within 45 days if required by law.

i.Section 280G Certain Reductions of Payments by Insmed.

i.Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by Insmed to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be nondeductible by Insmed for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit of the Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as “Agreement Payments”) shall be reduced to the Reduced Amount. The “Reduced Amount” shall be an amount expressed in present value that avoids any Payment being nondeductible by Insmed because of Section 280G of the Code. To the extent necessary to avoid imposition of the Excise Tax, the amounts payable or benefits to be provided to the Executive shall be reduced such that the reduction of compensation to be provided to the Executive is minimized. In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code, and where two economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro rata basis (but not below zero). Anything to the contrary notwithstanding, if the Reduced Amount is zero and it is determined further that any Payment which is not an Agreement Payment would nevertheless be nondeductible by Insmed for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of Payments which are not Agreement Payments shall also be reduced (but not below zero) to an amount expressed in present value which maximizes the aggregate present value of Payments without causing any Payment to be nondeductible by Insmed because of Section 280G of the Code. If a reduction of any Payment is required pursuant to this Section 6(i), such reduction shall occur to the amounts in the order that results in the greatest economic present value of all payments and benefits actually made or provided to the Executive. For purposes of this Section 6(i), present value shall be determined in accordance with Section 280G(d)(4) of the Code.

ii.All determinations required to be made under this Section 6(i) shall be made by a tax or compensation consulting firm of national reputation selected by Insmed (the “Consulting Firm”), which shall provide detailed supporting calculations both to Insmed and the Executive within 20 business days of the date of termination or such earlier time as is requested by Insmed and an opinion to the Executive that he has substantial authority not to report any excise tax on his Federal income tax return with respect to any Payments. Any such determination by the Consulting Firm shall be binding upon Insmed and the Executive. Within five business days thereafter, Insmed shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement. All fees and expenses of the Consulting Firm incurred in connection with the determinations contemplated by this Section 6(i) shall be borne by Insmed.

iii.As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Consulting Firm hereunder, it is possible that Payments will have been made by Insmed which should not have been made (“Overpayment”) or that additional Payments which will not have been made by Insmed could have been made (“Underpayment”), in each case, consistent with the calculations required to be made hereunder. In the event that the Consulting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against the Executive which the Consulting Firm believes has a high probability of success, determines that an Overpayment has been made, any such Overpayment paid or distributed by Insmed to or for the benefit of the Executive shall be promptly repaid to Insmed by the Executive. In the event that the Consulting Firm, based upon controlling precedent or other substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by Insmed to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

j.Cooperation. Following the Term of Employment, the Executive shall give his assistance and cooperation willingly, upon reasonable advance notice with due consideration for his other business or personal commitments, in any matter relating to his position with Insmed, or his expertise or experience as Insmed may reasonably request, including his attendance and truthful testimony where deemed appropriate by Insmed, with respect to any investigation or Insmed’s defense or prosecution of any existing or future claims or litigations or other proceedings relating to matters in which he was involved or potentially had knowledge by virtue of his employment with Insmed. In no event shall his cooperation materially interfere with his services for a subsequent employer or other similar service recipient. To the extent permitted by law, Insmed agrees that (i) it shall promptly reimburse the Executive for his reasonable and documented expenses in connection with his rendering assistance and/or cooperation under this Section 6(j) upon his presentation of documentation for such expenses and (ii) the Executive shall be reasonably compensated for any continued material services as required under this Section 6(j).

k.Return of Company Property. Following the Termination Date, the Executive or his personal representative shall return all Insmed property in his possession, including but not limited to all computer equipment (hardware and software), telephones, facsimile machines, palm pilots and other communication devices, credit cards, office keys, security access cards, badges, identification cards and all copies (including drafts) of any documentation or information (however stored) relating to the business of Insmed, its customers and clients or its prospective customers and clients (provided that the Executive may retain a copy of the addresses contained in his rolodex, smart phone or similar device).

l.Compliance with Section 409A.

i.General. It is the intention of both Insmed and the Executive that the benefits and rights to which the Executive could be entitled pursuant to this Agreement comply with Section 409A of the Code and the Treasury Regulations and other guidance promulgated or issued thereunder (“Section 409A”), to the extent that the requirements of Section 409A are applicable thereto, and the provisions of this Agreement shall be construed in a manner consistent with that intention.

ii.Distributions on Account of Separation from Service. If and to the extent required to comply with Section 409A, no payment or benefit required to be paid under this Agreement on account of termination of the Executive’s employment shall be made unless and until the Executive incurs a “separation from service” within the meaning of Section 409A.

iii.Six Month Delay for Specified Employees. If the Executive is a “specified employee” (within the meaning of Section 409A(a)(2)(B)(i) of the Code), then no payment or benefit that is considered deferred compensation subject to Section 409A of the Code (and not exempt from Section 409A of the Code as a short term deferral or otherwise) that is payable on account of the Executive’s “separation from service”, as that term is defined for purposes of Section 409A, shall be made before the date that is six months after the Executive’s “separation from service” (or, if earlier, the date of the Executive’s death) if and to the extent that such payment or benefit constitutes deferred compensation (or may be nonqualified deferred compensation) under Section 409A and such deferral is required to comply with the requirements of Section 409A. Any payment or benefit delayed by reason of the prior sentence shall be paid out or provided in a single lump sum at the end of such required delay period in order to catch up to the original payment schedule.

iv.Treatment of Each Installment as a Separate Payment. For purposes of applying the provisions of Section 409A to this Agreement, each separately identified amount to which the Executive is entitled under this Agreement shall be treated as a separate payment. In addition, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

v.Taxable Reimbursements and In-Kind Benefits.

a.Any reimbursements by Insmed to the Executive of any eligible expenses under this Agreement that are not excludable from the Executive’s income for Federal income tax purposes (the “Taxable Reimbursements”) shall

be made by no later than the last day of the taxable year of the Executive following the year in which the expense was incurred.

b.The amount of any Taxable Reimbursements, and the value of any in-kind benefits to be provided to the Executive, during any taxable year of the Executive shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year of the Executive.

c.The right to Taxable Reimbursement, or in-kind benefits, shall not be subject to liquidation or exchange for another benefit.

vi.No Guaranty of 409A Compliance. Notwithstanding the foregoing, Insmed does not make any representation to the Executive that the payments or benefits provided under this Agreement are exempt from, or satisfy, the requirements of Section 409A, and Insmed shall have no liability or other obligation to indemnify or hold harmless the Executive or any beneficiary of the Executive for any tax, additional tax, interest or penalties that the Executive or any beneficiary of the Executive may incur in the event that any provision of this Agreement, or any amendment or modification thereof, or any other action taken with respect thereto, is deemed to violate any of the requirements of Section 409A.

7.Restrictive Covenants.

a.Non-competition. At all times during the Restricted Period, the Executive shall not, directly or indirectly (whether as a principal, agent, partner, employee, officer, investor, owner, consultant, board member, security holder, creditor or otherwise), engage in any Competitive Activity, or have any direct or indirect interest in any sole proprietorship, corporation, company, partnership, association, venture or business or any other person or entity that directly or indirectly (whether as a principal, agent, partner, employee, officer, investor, owner, consultant, board member, security holder, creditor, or otherwise) engages in a Competitive Activity; provided that the foregoing shall not apply to the Executive’s ownership of securities of Insmed or the acquisition by the Executive, solely as an investment, of securities of any issuer that is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, and that are listed or admitted for trading on any United States national securities exchange or that are quoted on the Nasdaq Stock Market, or any similar system or automated dissemination of quotations of securities prices in common use, so long as the Executive does not control, acquire a controlling interest in or become a member of a group which exercises direct or indirect control of, more than five percent of any class of capital stock of such corporation.

b.Non-solicitation of Employees and Certain Other Third Parties. At all times during the Restricted Period, the Executive shall not, directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity (i) employ or attempt to employ or enter into any contractual arrangement with any employee, consultant or individual contractor performing services for Insmed, or any Affiliate, unless such employee, consultant or independent contractor, has not been employed or engaged by Insmed for a period

in excess of six months, and/or (ii) call on, solicit, or engage in business with, any of the actual or targeted prospective customers or clients of Insmed or any Affiliate on behalf of any person or entity in connection with any Competitive Activity, nor shall the Executive make known the names and addresses of such actual or targeted prospective customers or clients, or any information relating in any manner to the trade or business relationships of Insmed or any Affiliates with such customers or clients, other than in connection with the performance of the Executive’s duties under this Agreement, and/or (iii) persuade or encourage or attempt to persuade or encourage any persons or entities with whom Insmed or any Affiliate does business or has some business relationship to cease doing business or to terminate its business relationship with Insmed or any Affiliate or to engage in any Competitive Activity on its own or with any competitor of Insmed or any Affiliate.

c.Confidential Information. The Executive shall not at any time divulge, communicate, use to the detriment of Insmed or any Affiliate or for the benefit of any other person or persons, or misuse in any way, any Confidential Information pertaining to the business of Insmed. Any Confidential Information or data now or hereafter acquired by the Executive with respect to the business of Insmed or any Affiliate (which shall include, but not be limited to, information concerning Insmed’s or any Affiliate’s financial condition, prospects, technology, customers, suppliers, sources of leads and methods of doing business) shall be deemed a valuable, special and unique asset of Insmed and its Affiliates that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to Insmed and its Affiliates with respect to all of such information. Upon request by Insmed, the Executive shall deliver promptly to Insmed upon termination of his services for Insmed, or at any time thereafter as Insmed may request, all memoranda, notes, records, reports, manuals, drawings, designs, computer files in any media and other documents (and all copies thereof) containing such Confidential Information. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to restrict or prohibit Executive from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including the U.S. Equal Employment Opportunity Commission (“EEOC”), the Department of Labor (“DOL”), the National Labor Relations Board (“NLRB”), the Department of Justice (“DOJ”), the Securities and Exchange Commission (“SEC”), the Congress, and any agency Inspector General (collectively, the “Regulators”), or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation. Federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.

d.Ownership of Developments. All processes, concepts, techniques, inventions and works of authorship, including new contributions, improvements, formats,

packages, programs, systems, machines, compositions of matter manufactured, developments, applications and discoveries, and all copyrights, patents, trade secrets, or other intellectual property rights associated therewith conceived, invented, made, developed or created by the Executive during the Term of Employment either during the course of performing work for Insmed or its Affiliates, or their clients, or which are related in any manner to the business (commercial or experimental) of Insmed or its Affiliates or their clients (collectively, the “Work Product”) shall belong exclusively to Insmed and its Affiliates and shall, to the extent possible, be considered a work made by the Executive for hire for Insmed and its Affiliates within the meaning of Title 17 of the United States Code. To the extent the Work Product may not be considered work made by the Executive for hire for Insmed and its Affiliates, the Executive agrees to assign, and automatically assign at the time of creation of the Work Product, without any requirement of further consideration, any right, title, or interest the Executive may have in such Work Product. Upon the request of Insmed, the Executive shall take such further actions, including execution and delivery of instruments of conveyance, as may be appropriate to give full and proper effect to such assignment. The Executive shall further: (i) promptly disclose the Work Product to Insmed; (ii) assign to Insmed or its assignee, without additional compensation, all patent or other rights to such Work Product for the United States and foreign countries; (iii) sign all papers necessary to carry out the foregoing; and (iv) give testimony in support of his inventions, all at the sole cost and expense of Insmed.

e.Books and Records. All books, records, and accounts relating in any manner to the customers or clients of Insmed or its Affiliates, whether prepared by the Executive or otherwise coming into the Executive’s possession, shall be the exclusive property of Insmed and its Affiliates and shall be returned immediately to Insmed on termination of the Executive’s employment hereunder or on Insmed’s request at any time.

f.Acknowledgment by Executive. The Executive acknowledges and confirms that the restrictive covenants contained in this Section 7 (including without limitation the length of the term of the provisions of this Section 7) are reasonably necessary to protect the legitimate business interests of Insmed and its Affiliates, and are not overbroad, overlong, or unfair and are not the result of overreaching, duress or coercion of any kind. The Executive further acknowledges and confirms that the compensation payable to the Executive under this Agreement is in consideration for the duties and obligations of the Executive hereunder, including the restrictive covenants contained in this Section 7, and that such compensation is sufficient, fair and reasonable. The Executive further acknowledges and confirms that his full, uninhibited and faithful observance of each of the covenants contained in this Section 7 will not cause him any undue hardship, financial or otherwise, and that enforcement of each of the covenants contained herein will not impair his ability to obtain employment commensurate with his abilities and on terms fully acceptable to him or otherwise to obtain income required for the comfortable support of him and his family and the satisfaction of the needs of his creditors. The Executive acknowledges and confirms that his special knowledge of the business of Insmed and its Affiliates is such as would cause Insmed and its Affiliates serious injury or loss if he were to use such ability and knowledge to the

benefit of a competitor or were to compete with Insmed or its Affiliates in violation of the terms of this Section 7. The Executive further acknowledges that the restrictions contained in this Section 7 are intended to be, and shall be, for the benefit of and shall be enforceable by, Insmed’s successors and assigns. The Executive expressly agrees that upon any breach or violation of the provisions of this Section 7, Insmed shall be entitled to seek in addition to any other rights or remedies it may have, to (i) temporary and/or permanent injunctive relief in any court of competent jurisdiction as described in Section 7(i) hereof, and (ii) such damages as are provided at law or in equity. The existence of any claim or cause of action against Insmed or its Affiliates, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement of the restrictions contained in this Section 7.

g.Reformation by Court. In the event that a court of competent jurisdiction shall determine that any provision of this Section 7 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Section 7 within the jurisdiction of such court, such provision shall be interpreted or reformed and enforced as if it provided for the maximum restriction permitted under such governing law.

h.Extension of Time. If the Executive shall be in violation of any provision of this Section 7, then each time limitation set forth in this Section 7 shall be extended for a period of time equal to the period of time during which such violation or violations occur.

i.Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained in Section 7 of this Agreement may cause irreparable harm and damage to Insmed, and its Affiliates, the monetary amount of which may be virtually impossible to ascertain. As a result, the Executive recognizes and hereby acknowledges that Insmed and its Affiliates shall be entitled to seek an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 7 of this Agreement by the Executive or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies Insmed may possess.

8.Representations and Warranties of Executive. The Executive represents and warrants to Insmed that:

a.The Executive’s employment will not conflict with or result in his breach of any agreement to which he is a party or otherwise may be bound;

b.The Executive has not violated, and in connection with his employment with Insmed will not violate, any non-solicitation, non-competition or other similar covenant or agreement of a prior employer by which he is or may be bound; and

c.In connection with Executive’s employment with Insmed, he will not use any confidential or proprietary information that he may have obtained in connection with employment with any prior employer; and

d.The Executive has not (i) been convicted of any felony; or (ii) committed any criminal act with respect to Executive’s current or any prior employment; and

e.The Executive is not dependent on alcohol or the illegal use of drugs. The Executive recognizes that Insmed shall have the right to conduct random drug testing of its employees and that Executive may be called upon in such a manner.

9.Agreement to Abide by Company Policies: By executing this Agreement, the Executive acknowledges and agrees to comply with any Insmed policies, standard operating procedures (“SOPs”), and additional agreements between the Executive and Insmed which may be in effect from time to time, including, but not limited to (i) Insmed’s Code of Conduct; (ii) Insmed policies against harassment and discrimination; and (iii) Insmed’s Code of Ethics.

10.Taxes. All payments or transfers of property made by Insmed to the Executive or his estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as Insmed may reasonably determine it should withhold pursuant to any applicable law or regulation.

11.Assignment. Insmed shall have the right to assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation or other entity with or into which Insmed may hereafter merge or consolidate or to which Insmed may transfer all or substantially all of its assets, if in any such case said corporation or other entity shall by operation of law or expressly in writing assume all obligations of Insmed hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

12.Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey, without regard to principles of conflict of laws.

13.Jurisdiction and Venue. The parties acknowledge that a substantial portion of the negotiations, anticipated performance and execution of this Agreement occurred or shall occur in Somerset, New Jersey, and that, therefore, without limiting the jurisdiction or venue of any other federal or state courts, each of the parties irrevocably and unconditionally (i) agrees that any suit, action or legal proceeding arising out of or relating to this Agreement which is expressly permitted by the terms of this Agreement to be brought in a court of law, may be brought in the courts of record of the Superior Court of the State of New Jersey, Somerset County, or the court of the United States, District of New Jersey; (ii) consents to the jurisdiction of each such court in any such suit, action or proceeding; (iii) waives any objection which it or he may have to the laying of venue of any such suit, action or proceeding in any of such courts; and (iv) agrees that service of any court papers may be effected on such party by mail, as provided in this Agreement and as permitted by New Jersey or Federal law, or in such other manner as may be provided under applicable laws or court rules in such courts.

14.Entire Agreement. This Agreement, together with the exhibit attached hereto, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between the Executive and Insmed (or any of its

Affiliates) with respect to such subject matter. This Agreement may not be modified in any way unless by a written instrument signed by both Insmed and the Executive.

15.Notices. All notices required or permitted to be given hereunder shall be in writing and shall be personally delivered by courier, sent by registered or certified mail, return receipt requested or sent by confirmed facsimile transmission addressed as set forth herein. Notices personally delivered, sent by facsimile or sent by overnight courier shall be deemed given on the date of delivery and notices mailed in accordance with the foregoing shall be deemed given upon receipt by the addressee, as evidenced by the return receipt thereof. Notice shall be sent (i) if to Insmed, addressed to, 700 US Highway 202/206, Bridgewater, NJ 08807-1704, Attention: Chief People Strategy Officer, and (ii) if to the Executive, to his address as reflected on the payroll records of Insmed, or to such other address as either party shall request by notice to the other in accordance with this provision.

16.Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where permitted and applicable, assigns, including, without limitation, any successor to Insmed, whether by merger, consolidation, sale of stock, sale of assets or otherwise.

17.Right to Consult with Counsel; No Drafting Party. The Executive acknowledges having read and considered all of the provisions of this Agreement carefully, and having had the opportunity to consult with counsel of his own choosing, and, given this, the Executive agrees that the obligations created hereby are not unreasonable. The Executive acknowledges that he has had an opportunity to negotiate any and all of these provisions and no rule of construction shall be used that would interpret any provision in favor of or against a party on the basis of who drafted the Agreement.

18.Severability. The invalidity of any one or more of the words, phrases, sentences, clauses, provisions, sections or articles contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, provisions, sections or articles contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, provisions or provisions, section or sections or article or articles had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity.

19.Waivers. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation.

20.Damages; Attorneys’ Fees. Nothing contained herein shall be construed to prevent Insmed or the Executive from seeking and recovering from the other damages sustained

by either or both of them as a result of its or his breach of any term or provision of this Agreement. Each party shall bear its own costs and attorneys’ fees.

21.Waiver of Jury Trial. The Executive hereby knowingly, voluntarily and intentionally waives any right that the Executive may have to a trial by jury in respect of any litigation arising out of, under or in connection with the express terms of this Agreement and any agreement, document or instrument contemplated to be executed in connection herewith.

22.No Set-off or Mitigation. Insmed’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which Insmed may have against the Executive or others. In the event of any termination of the Executive’s employment under this Agreement, he shall be under no obligation to seek other employment or otherwise in any way to mitigate the amount of any payment provided for hereunder.

23.Section Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

24.No Third Party Beneficiary. The Affiliates are intended third party beneficiaries of this Agreement. Otherwise, nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than Insmed, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement.

25.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument and agreement.

26.Indemnification.

a.Subject to limitations imposed by law, Insmed shall indemnify and hold harmless the Executive to the fullest extent permitted by law from and against any and all claims, damages, expenses (including attorneys’ fees), judgments, penalties, fines, settlements, and all other liabilities incurred or paid by him in connection with the investigation, defense, prosecution, settlement or appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and to which the Executive was or is a party or is threatened to be made a party by reason of the fact that the Executive is or was an officer, employee or agent of Insmed, or by reason of anything done or not done by the Executive in any such capacity or capacities, provided that the Executive acted in good faith, in a manner that was not grossly negligent or constituted willful misconduct and in a manner he reasonably believed to be in or not opposed to the best interests of Insmed, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Insmed also shall pay any and all expenses (including attorney’s fees) incurred by the

Executive as a result of the Executive being called as a witness in his capacity as a current or former officer or director of Insmed.

b.Insmed shall pay any expenses (including attorneys’ fees, judgments, penalties, fines, settlements, and other liabilities incurred by the Executive in investigating, defending, settling or appealing any action, suit or proceeding described in this Section 26 in advance of the final disposition of such action, suit or proceeding. Insmed shall promptly pay the amount of such expenses to the Executive, but in no event later than ten days following the Executive’s delivery to Insmed of a written request for an advance pursuant to this Section 26, together with a reasonable accounting of such expenses.

c.The Executive hereby undertakes and agrees to repay to Insmed any advances made pursuant to this Section 26 if and to the extent that it shall ultimately be found that the Executive is not entitled to be indemnified by Insmed for such amounts.

d.Insmed shall make the advances contemplated by this Section 26 regardless of the Executive’s financial ability to make repayment, and regardless whether indemnification of the Executive by Insmed will ultimately be required. Any advances and undertakings to repay pursuant to this Section 26 shall be unsecured and interest-free.

e.The provisions of this Section 26 shall survive the Term of Employment.

[Signatures on Following Page]

IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first above written.

COMPANY:

Insmed Incorporated, a Virginia corporation

By: /s/ William H. Lewis

Name: William H. Lewis

Title: Chair and CEO

EXECUTIVE:

/s/ Michael Smith

Name: Michael Smith

Exhibit A

General Release of Claims

1.Michael Smith ("Executive"), for himself and his family, heirs, executors, administrators, legal representatives and their respective successors and assigns, in exchange for the consideration received pursuant to Sections 6(e) [and 6(g)] of the Employment Agreement (the “Severance Benefits”) to which this release is attached as Exhibit A (the "Employment Agreement"), does hereby release and forever discharge Insmed Incorporated (“Insmed"), its subsidiaries, affiliated companies, successors and assigns, and its current or former directors, officers, employees, shareholders or agents in such capacities (collectively with Insmed, the "Released Parties") from any and all actions, causes of action, suits, controversies, claims and demands whatsoever, for or by reason of any matter, cause or thing whatsoever, whether known or unknown including, but not limited to, all claims under any applicable laws arising under or in connection with Executive's employment or termination thereof, whether for tort, breach of express or implied employment contract, wrongful discharge, intentional infliction of emotional distress, or defamation or injuries incurred on the job or incurred as a result of loss of employment. Without limiting the generality of the release provided above, Executive expressly waives any and all claims under Age Discrimination in Employment Act ("ADEA''), as amended, that he may have as of the date hereof. Executive further understands that, by signing this General Release of Claims, he is in fact waiving, releasing and forever giving up any claim under the ADEA, as amended, as well as all other laws within the scope of this paragraph 1 that may have existed on or prior to the date hereof. Notwithstanding anything in this paragraph 1 to the contrary, this General Release of Claims shall not apply to (i) any rights to receive any payments or benefits to which the Executive is entitled under COBRA, (ii) any rights or claims that may arise as a result of events occurring after the date this General Release of Claims is executed, (iii) any indemnification and advancement rights Executive may have as a former employee, officer or director of Insmed or its subsidiaries or affiliated companies (including any rights under Section 26 of the Employment Agreement or under Insmed’s charter or bylaws), (iv) any claims for benefits under any directors' and officers' liability policy maintained by Insmed or its subsidiaries or affiliated companies in accordance with the terms of such policy, (v) rights to vested benefits under Insmed’s 401(k) plan, and (vi) any rights as a holder of equity securities or debt securities/notes of Insmed.

2.Nothing in this Agreement restricts or prohibits Executive from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including the U.S. Equal Employment Opportunity Commission (“EEOC”), the Department of Labor (“DOL”), the National Labor Relations Board (“NLRB”“), the Department of Justice (“DOJ”), the Securities and Exchange Commission (“SEC”), the Congress, and any agency Inspector General (collectively, the “Regulators”), or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation. However, to the maximum extent permitted by law, Executive is waiving his right to

receive any individual monetary relief from Insmed or any others covered by the Release of Claims resulting from such claims or conduct, regardless of whether Executive or another party has filed them, and in the event Executive obtains such monetary relief Insmed will be entitled to an offset for the payments made pursuant to this Agreement. This Agreement does not limit Executive’s right to receive an award from any Regulator that provides awards for information relating to a potential violation of law. Executive does not need the prior authorization of Insmed to engage in conduct protected by this paragraph, nor is Executive required to notify Insmed that he or she has engaged in such conduct. Federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.

3.Executive acknowledges that, in the absence of his execution of this General Release of Claims, the Severance Benefits would not otherwise be due to him.

4.Executive acknowledges and agrees that he received adequate consideration in exchange for agreeing to the covenants contained in Section 7 of the Employment Agreement, that such covenants remain reasonable and necessary to protect the legitimate business interests of Insmed and its affiliates and that he will continue to comply with those covenants.

5.Executive hereby acknowledges that Insmed has informed him that he has up to 21 days to sign this General Release of Claims and he may knowingly and voluntarily waive that 21 day period by signing this General Release of Claims earlier. Executive also understands that he shall have seven days following the date on which he signs this General Release of Claims within which to revoke it by providing a written notice of his revocation to Insmed in the manner described in Section 15 of the Employment Agreement.

6.Executive acknowledges that he has read this General Release of Claims, that he has been advised that he should consult with an attorney before he executes this General Release of Claims, and that he understands all of its terms and executes it voluntarily and with full knowledge of its significance and the consequences thereof.

7.This General Release of Claims shall become irrevocable on the eighth day following Executive's execution of this General Release of Claims, unless previously revoked in accordance with paragraph 5, above.

Intending to be legally bound hereby, Executive has executed this General Release of Claims on ___________, 20__.

EX-10.2

June 21, 2021

Christine Pellizzari

14459 Marsala Way

Naples, FL 34109

Dear Christine:

This letter, upon signature by the parties, will constitute our agreement (“Agreement”) effective July 8, 2021 (the “Effective Date”) concerning the services of Christine Pellizzari (“Consultant”) as a consultant to Insmed Incorporated (“Company”).

1.Services. Consultant will provide consulting services to Company, as may be requested and subject to her availability to perform such services. Consultant certifies that Services are within Consultant’s area of knowledge, training, and experience, and shall be performed in a professional and timely manner. Consultant agrees that Company may provide specific direction for performing Services through its CEO and/or General Counsel. All Services performed under this Agreement shall be performed by Christine Pellizzari, who shall be bound by the terms of this Agreement. Consultant may not subcontract its obligations under this Agreement. Consultant may work remotely, except where the Services require activities at the Company’s office in Bridgewater, NJ or travel to an alternative site. Consultant agrees to be available for up to ten (10) hours a week or forty (40) hours per month to perform Services.

2.Term. The term of this Agreement shall commence on the Effective Date and expire on January 15, 2022, and may be renewed on a month to month basis with one month’s notice by the mutual written consent of the parties.

3.Fees.

a.Consultant shall be paid will be $16,000 per month paid monthly in arrears for Services performed by Consultant. Company shall also reimburse Consultant at cost for reasonable out-of-pocket expenses incurred by Consultant at the Company’s request, upon presentation of appropriate itemized documentation (including reasonable supporting documentation, such as receipts, verifying such expenses) and in accordance with the Company’s travel policy. Consultant shall be responsible for and will pay all taxes related to the receipt of payments hereunder and shall give reasonable proof of supporting documentation, if reasonably requested, to verify the payment of such taxes. Company shall pay Consultant within thirty (30) days of Company’s receipt of Consultant’s invoice. Company has the right to withhold payment for any disputed sums. The parties will attempt to resolve disagreements regarding disputed sums in good faith and as soon as is practicable. Consultant will not be entitled to issue invoices to Company for Services performed more than twelve (12) months previously. Invoices shall be submitted to Billing@Insmed.com.

b.Company and Consultant acknowledge and agree that this compensation represents the fair market value for the Services, and nothing in this Agreement, including the consideration set forth in this Section 3, incorporates or is intended

to constitute, the solicitation, receipt or payment of any remuneration in return for referring an individual to Company for the furnishing, or arranging for the furnishing, of any item or service for which payment may be made in whole or in part under a federal health care program, or in return for purchasing, leasing, ordering or arranging for or recommending purchasing, leasing or ordering any good, facility, service or item for which payment may be made in whole or in part under a federal health care program. The compensation under this Section 3 is in full and complete payment for the Services and assignment of Inventions under this Agreement. No royalties are payable under this Agreement.

c.For the avoidance of doubt, there will be no break in Consultant’s service relationship with the Company for purposes of continued vesting in outstanding stock options and restricted stock units and Consultant will continue to vest in such equity awards during the term of this Agreement, subject to the terms of the applicable equity plans and Consultant’s award agreements for such equity awards, each as amended.

4.Performance Obligations. Consultant will use commercially reasonable efforts to meet all obligations and deadlines described therein. Consultant shall perform all Services hereunder pursuant to and consistent with the terms of this Agreement, all written directions and instructions from Company, generally accepted professional standards of care and all applicable federal, state and local laws, rules, regulations, guidelines and other governmental requirements and all applicable industry and professional standards including but not limited to, the Federal Food, Drug, and Cosmetic Act, as amended and current Good Clinical Practices as applicable. Consultant shall timely obtain all permits required to perform the Services; and that represents and warrants that all deliverables under this Agreement will be of original development and will not infringe upon or violate any third party’s rights, including any copyrights, trade secrets, trademarks or other intellectual property rights, rights of privacy or publicity of any person or entity. Consultant shall provide to Company any information reasonably requested by Company, and shall consult with Company before providing any information to any governmental authority in connection with the Services.

5.Independent Contractor. Consultant (including any person hired or employed by Consultant) is an independent contractor and not an employee of Company, whether by virtue of any term of this Agreement or by the performance of any Services hereunder. In the event that Consultant (or any of its principals, employees or agents) is ever classified as an employee of Company with respect to this Agreement, Consultant (including any person hired or employed by Consultant) will not be entitled, and hereby waives any right, to participate in any employee benefits made available by or through Company, including without limitation, health, dental, disability and life insurance coverage, pension or retirement benefits, paid vacation, and sick leave. Consultant shall be solely responsible for operating its own business and will comply with all laws applicable thereto, including, without limitation, the provision of any necessary workers’ compensation insurance. Consultant (including its principals, employees or agents) shall have no authority to obligate Company or any of its affiliates in any manner whatsoever and shall not represent that Consultant has such authority. Unless otherwise agreed in writing, Consultant will be responsible for all travel expenses incurred in connection with this Agreement.

6.Confidentiality. Consultant acknowledges that in the course of the Services rendered, Consultant and its principals and employees will be given and have access to or may develop Confidential Information (as defined below). In view of Consultant’s access to Confidential Information, if Consultant competes with Company either during or for a period of time following the conclusion of Consultant’s Services, Company will likely suffer significant harm. In return for the consideration that Consultant will receive from Company under this Agreement and to induce Company to enter into this Agreement, and in light of the potential harm that Consultant could cause Company in view of Consultant’s access to Confidential Information, Consultant agrees, to each of provisions of Section 7 and 8.

a.Confidential Information. “Confidential Information” is defined as confidential or proprietary data and information (whether in written, digital or other graphic form, electronically stored, or orally transmitted or memorized) relating to the business of Company, or to their customers, clients or investors, or entrusted to Company by a third party, that is or has been disclosed to Consultant, or of which Consultant became aware in anticipation of or as a consequence of Consultant’s engagement with Company, and that has value to Company and is not generally known to the competitors of Company, including, without limitation, data, results, analyses, formulae, properties, syntheses, methods, procedures, techniques, policies, plans, strategies, operations and activities relating to Company’s business, including without limit Company’s research, development, preclinical studies, clinical studies, regulatory programs, protocols, compounds, products, suppliers, customers, potential customers, marketing, manufacturing and finances.

i.Consultant recognizes and acknowledges that Confidential Information is valuable, special, and unique to Company’s business, that access to and knowledge thereof are essential to the performance of the Services, and that it is in the legitimate business interest of Company to restrict Consultant’s disclosure or use of Confidential Information for any purpose other than in connection with the performance of the Services, and to prevent any potential misappropriation of such Confidential Information.

ii.Consultant shall keep confidential and shall not disclose, communicate or divulge Confidential Information to any third party, other than as requested by Company to perform Services. Consultant shall use Confidential Information solely for performing Services and shall not use Confidential Information for any purpose other than performing Services. Consultant shall store and maintain in a secure place all Confidential Information that is within Consultant’s possession or control.

iii.Confidential Information shall not include any information that: (A) is or becomes generally available to the public other than through a breach of this Agreement, (B) was lawfully and without restriction in Consultant’s possession prior to receipt from Company, as evidenced by contemporaneous written records, (C) is disclosed to Consultant without restriction by an unrelated third party who is entitled to disclose it without

breaching a confidentiality obligation to Company, as evidenced by contemporaneous written records.

iv.Consultant shall be permitted to disclose Confidential Information to the extent required by applicable laws or regulations, or by a court or administrative order. Consultant shall provide prior written notice, to the extent practical and permitted by law, and in any event, prompt written notice, to Company of such requirement of disclosure. Consultant shall take all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

v.Upon the expiration or termination of this Agreement, or upon the earlier request of Company, Consultant shall cease using Confidential Information and return to Company or destroy, at Company’s discretion, all originals, reproductions, and summaries of documents, materials, and other tangible manifestations of Confidential Information in its possession or control.

vi.Regardless of the period of time Services are provided to Company, Consultant agrees to be bound by this obligation until such time as, and to the extent that, such information is published or is publicly known.

b.Third Party Confidential Information. In connection with the Consultant’s performance of the Services, Company may need to disclose the Confidential Information of one or more third parties (collectively, “Third Party Confidential Information”) that is subject to confidentiality terms Company has negotiated with third parties (“Third Party Terms”), which may be different from the terms in this Agreement. Consultant hereby agrees to be bound by the Third Party Terms with respect to the Third Party Confidential Information. Consultant agrees that subject to the Third Party Terms, Third Party Confidential Information shall not be disclosed and shall only be used for the purpose of performing the Services.

7.Intellectual Property and Inventions. Consultant will promptly disclose to Company, or its designee, all improvements, inventions, formulae, processes, techniques, know-how and data, whether or not patentable, made or conceived or reduced to practice or learned by Consultant, either alone or jointly with others, (“Inventions”) related to or owing out of Consultant’s performance of Services; tasks which have been or may be assigned to Consultant by Company; Consultant’s use of the Company’s premises; the actual or anticipated business of Company; or information or knowledge gained by Consultant through any engagement with Company, including Confidential Information (collectively referred to as “Company Inventions”). Notwithstanding the previous sentence, Consultant will not disclose any Company Inventions that Consultant possesses under an obligation of secrecy to a third party. All Company Inventions shall be the sole property of Company. For value received, Consultant agrees to assign and hereby assigns to Company all right, title and interest in and to such Company Inventions. At Company’s expense, Consultant will assist Company in every reasonable manner to obtain and, from time to time, to enforce patents on said Company Inventions in any and all countries and will execute all documents necessary or useful for such purpose, including without limits

assignments of such to Company or its designee. Consultant hereby designates and appoints the Company with its duly authorized officers and agents, as Consultant’s agents and attorneys-in-fact to act for Consultant and in Consultant’s behalf to execute and file documents and to do all other lawfully permitted acts to further the prosecution and issuance of patents on such Company Inventions with the same legal force and effect as if executed by Consultant.

(b) Company and Consultant hereby agree that all work created pursuant to this Agreement shall be considered as “Work made for hire” as that term is defined in the copyright laws of the United States (“Work”). Company shall have all rights, title, and interest in and to the Work to the extent of the rights required, including the sole and exclusive right to secure and own the copyrights and renewals throughout the world. Consultant’s signature on this Agreement will constitute an assignment of copyrights in the Work and Consultant’s agreement to cooperate with Company and execute any and all other documents appropriate to evidence sole proprietary rights and copyrights in the Work to Company.

(c) Consultant agrees to transfer, assign, and hereby does assign and make available to Company all text and other materials, regardless of its stage of development, that Consultant has created or prepared on behalf of Company, and all other property in Consultant’s possession and control that is the property of Company. In the event of early termination, Consultant will complete this transfer and assignment during the 30-day notice period.

(d) All documents, records, apparatus, equipment and other physical property furnished to Consultant by the Company or produced in connection with the Services shall remain the sole property of Company. Consultant agrees to return and deliver to Company, or destroy at Company’s discretion, all such property upon Company’s written request, and Consultant will not retain any copies or reproductions of such property.

8.Injunctive Relief. Consultant agrees that it would be impossible or inadequate to measure and calculate Company's damages from any breach of the covenants set forth in Sections 6 and 7 of this Agreement. Accordingly, Consultant agrees that if Consultant were to breach any of the covenants, Company will have available, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Agreement.

9.No Conflicts. Consultant represents that execution of this Agreement and performance of the Services hereunder by Consultant does not and will not breach any other agreement, arrangement, understanding, institutional policy, or obligation, either written or oral, of confidentiality or work relationship to which Consultant is a party or by which Consultant is bound and that during the term of this Agreement or any extensions thereof, Consultant will not enter into or become bound by any such agreement, arrangement, understanding, institutional policy or obligation, either written or oral, in conflict herewith.

10.Additional Representations and Warranties.

a.Consultant represents, warrants and covenants that the Services will be provided in compliance with all applicable laws and regulations, including but not limited to: laws and regulations pertaining to the promotion of products regulated by the FDA (21 U.S.C. §§ 201, et seq. and its implementing regulations); laws, regulations and guidance pertaining to state and federal anti-kickback statutes (42 U.S.C. §§ 1320a-7b(b), et seq. and their implementing regulations) and submission of false claims to governmental or private health care payors (31 U.S.C. §§ 3729, et seq. and its implementing regulations); state and federal laws and regulations relating to the protection of individual and patient privacy (e.g., HIPAA); the Code on Interactions with Healthcare Professionals promulgated by the Pharmaceutical Research and Manufacturers of America (PhRMA); Company policies, business code of ethics and any other laws and regulations applicable to the provision of the Services.

b.Consultant represents, warrants and covenants that Consultant is: (a) not excluded from a Federal health care program as outlined in Sections 1128 and 1156 of the Social Security Act (see the Office of Inspector General of the Department of Health and Human Services List of Excluded Individuals/Entities at http://exclusions.oig.hhs.gov); (b) not debarred by the FDA under 21 U.S.C. 335a (see the FDA Office of Regulatory Affairs Debarment List at www.fda.gov/ICECI/EnforcementActions/FDADebarmentList/); (c) not otherwise excluded from contracting with the federal government (see the Excluded Parties Listing System at www.sam.gov/); (d) to its knowledge is not under investigation or otherwise aware of any circumstances which may result in its being debarred or excluded from participation in any federal or state healthcare program; and (e) if required based on the services to be provided, duly licensed and in good standing in accordance with applicable state laws. In the event that Consultant fails at any time to satisfy one or more of the requirements set forth in this section, Company may immediately terminate this Agreement.

c.The parties acknowledge that the federal government (FDA) and certain states require pharmaceutical and/or device companies to disclose information on compensation, gifts or other remuneration provided to physicians and other health care professionals. If applicable, Company may report information about remuneration provided under this Agreement, as required by law. Once reported, such information may be publicly accessible.

d.Consultant agrees that the Company and its designated representatives shall have the right, upon reasonable notice, to audit all of Consultant’s applicable records related to the Services for the purpose of determining compliance with the compliance obligations set forth in this Agreement and the terms of this Agreement. This right to audit shall extend throughout the term of this Agreement and for the later of a period of three years after termination of the Agreement or resolution of any disputes between Company and Consultant hereunder.

e.Consultant shall not publicly disclose or announce the existence of this Agreement, or the terms and conditions thereof, nor shall it advertise or release

any publicity regarding this Agreement without the prior written consent of Company.

f.Consultant shall comply with all applicable securities laws and is aware of the restrictions imposed by the United States securities laws on the purchase or sale of securities by any person who has received material, non-public information from the issuer of such securities and on the communication of such information to any other person.

11.Indemnification. Consultant, at its expense, shall defend, indemnify and hold harmless Company and its directors, officers, employees and agents (“Indemnitees”) against any claim charge, demand, proceeding, suit, liability, cost, expense, order, decree, reasonable attorney’s fees, court costs, trials, or appeal and judgment including damages of any kind resulting from or arising out of or in connection with any actual or claimed third party claim: (a) alleging that use by Company of the deliverables in accordance with this Agreement infringes any patent, copyright or trademark, or misappropriates any trade secret, confidential information, or other proprietary or intellectual property rights, and shall pay all settlements entered into and damages awarded against the Indemnitees to the extent based on such claims; (b) for any act or omission of Consultant in the performance of the Services; and (c) from the breach of any term or condition of this Agreement attributable to Consultant or his agents, except, in the case of (a), (b) and (c), to the extent directly arising from guidance or instructions provided to Consultant by Company; and provided that: (i) Company provides Consultant with prompt written notice of any claim; (ii) Company permits Consultant to assume and solely control the defense of any action, (iii) Company may participate in such defense at its option and expense; and (iv) Company does not enter into any settlement or compromise of any claim without Consultant’s prior written consent. Consultant must not settle any such suit or claim without Company’s prior written approval unless such settlement: (A) includes a complete release of all Indemnitees; (B) does not require any Indemnitee to pay any amount or deliver any other consideration; and (C) places no restriction on the future conduct of any Indemnitee.

12.Limitation of Liability. UNDER NO CIRCUMSTANCES WILL COMPANY BE LIABLE TO CONSULTANT WITH RESPECT TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, UNDER ANY CONTRACT, STRICT LIABILITY, TORT (INCLUDING NEGLIGENCE) OR OTHER THEORY, FOR: (A) ANY INCIDENTAL, PUNITIVE, INDIRECT, SPECIAL, EXEMPLARY, EXTRAORDINARY, RELIANCE, OR CONSEQUENTIAL DAMAGES OR LOST PROFITS; OR (B) ANY OTHER DAMAGES THAT IN THE AGGREGATE EXCEED ALL AMOUNTS PAID OR PAYABLE BY COMPANY TO CONSULTANT HEREUNDER. THE FOREGOING LIMITATION OF LIABILITY WILL APPLY TO THE MAXIMUM EXTENT ALLOWED BY APPLICABLE LAW REGARDLESS OF WHETHER COMPANY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE OF ANY REMEDY OF ITS ESSENTIAL PURPOSE.

13.Survival. Rights and obligations which by their nature should survive expiration or termination of this Agreement will remain in full force and effect. Without limiting the foregoing, Sections 6, 7, 8, 11 and 12 will survive.

14.Notices. Notices will be deemed given and effective; (a) if personally delivered, upon delivery; (b) if sent by an overnight service with tracking capabilities, upon receipt; (c) if sent by fax or electronic mail, at such time as the party which sent the notice receives confirmation of receipt by the applicable method of transmittal; or (d) if sent by certified or registered mail, within five days of deposit in the mail and such notice shall be addressed to the party at the address stated on the first page of this Agreement, or at such other place or places as either party may designate in a written notice to the other.

15.Assignment. Because of the personal nature of the Services to be rendered by Consultant under this Agreement, Consultant may not assign this Agreement without the prior written consent of Company. Company may assign this Agreement to any one of its affiliates, or to any entity with which it merges or consolidates or to any transferee of all or part of Company’s assets (including by operation of law), without Consultant’s prior written consent.

16.Amendment. This Agreement may be amended only by a written instrument signed by Consultant and Company.

17.Severability and Waiver. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. The failure of either party to enforce any term of this Agreement shall not constitute a waiver of such term, and shall not affect the right to require compliance with such term in the future. Any waiver of any term of this Agreement must be in writing and signed by the party against whom such waiver is asserted.

18.Governing Law and Venue. The enforceability and interpretation of this Agreement shall be governed by the laws of the State of New Jersey, without regard to principles of choice of law. The Parties hereby expressly consent to the jurisdiction and venue of the federal and New Jersey state courts for any lawsuits arising from this Agreement.

19.EIN. Consultant will supply the correct Social Security Number/Employer Identification Number (EIN) to Company, and Company will use that Number in filing certain documents and instruments required by law in connection with this Agreement including, without limitation, Form 1099 under the Internal Revenue Code of 1986, as amended (or any successor form). Company shall not be obligated to deduct or withhold from any payment to Consultant any sum for income tax, unemployment insurance, social security, workers’ compensation, disability insurance, or any other payroll or related tax (“Employment Taxes”). Consultant shall be responsible for the payment of all Employment Taxes, fines, penalties and assessments relating to any payments made hereunder or to Consultant’s business activities.

20.Entire Agreement. This Agreement constitutes the sole and entire agreement, and supersedes all previous and contemporaneous communications, agreements and understandings, between Company and Consultant, its principals and employees, pertaining to the subject matter hereof.

[Signature Page Follows]

Please indicate your acceptance of and agreement to this Agreement with the foregoing terms by signing the enclosed duplicate original of this letter in the space provided and returning it to the Company.

INSMED INCORPORATED

By: /s/William H. Lewis

Name: William H. Lewis

Title: President & CEO

ACCEPTED AND AGREED TO:

Christine Pellizzari

By: /s/Christine Pellizzari

EX-10.3

SECOND AMENDMENT TO

EMPLOYMENT AGREEMENT

This Second Amendment to EMPLOYMENT AGREEMENT (this “Second Amendment”), is made and entered into as of July 23, 2021 (the “Effective Date”) by and between Insmed Incorporated, a Virginia corporation (the “Company”), and Roger Adsett (the “Executive”) (each of the Executive and the Company, a “Party”, and collectively, the “Parties”).

WHEREAS, the Executive has been performing services as an employee to the Company pursuant to that certain Employment Agreement between the Company and the Executive dated September 27, 2016(the “Employment Agreement”) and the first Amendment dated July 31, 2019;

WHEREAS, the Executive and the Company mutually desire to amend the Employment Agreement to revise the Executive’s principal location of employment or service as described in Section 5(c); and

WHEREAS, this Second Amendment, dated as of the Effective Date, between the parties contains the entire agreement between the Executive and the Company and supersedes any and all prior agreements, arrangements and understandings regarding the subject matter contained herein.

NOW, THEREFORE, in consideration of the premises and agreements set forth herein and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Company and the Executive hereby agree that, as of the Effective Date of this Second Amendment, the Employment Agreement shall be amended as follows:

1.Section 5(c) is hereby amended and restated in its entirety as follows (changes indicated in bold):

(c) Working Facilities. During the Term of Employment, the Company shall furnish the Executive with an office, administrative help and such other facilities similar to those provided to similarly situated executives of the Company. The Executive’s principal location of employment or service (subject to reasonable travel) shall be Greenville, DE.

1.Except as modified by this Second Amendment, all other terms and conditions of the Employment Agreement remain in full force and effect.

[Signatures on Following Page]

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Second Amendment, effective as of the date set forth above.

INSMED INCORPORATED

Insmed Incorporated, a Virginia corporation

By: /s/William H. Lewis

Name: William H. Lewis

Title: Chair and CEO

EXECUTIVE

/s/Roger Adsett

Name: Roger Adsett

EX-10.4

FIRST AMENDMENT TO

EMPLOYMENT AGREEMENT

This First Amendment to EMPLOYMENT AGREEMENT (this “First Amendment”), is made and entered into as of July 23, 2021 (the “Effective Date”) by and between Insmed Incorporated, a Virginia corporation (the “Company”), and Martina Flammer (the “Executive”) (each of the Executive and the Company, a “Party”, and collectively, the “Parties”).

WHEREAS, the Executive has been performing services as an employee to the Company pursuant to that certain Employment Agreement between the Company and the Executive dated December 19, 2019 (the “Employment Agreement”);

WHEREAS, the Executive and the Company mutually desire to amend the Employment Agreement to revise the Executive’s principal location of employment or service as described in Section 5(c); and

WHEREAS, this First Amendment, dated as of the Effective Date, between the parties contains the entire agreement between the Executive and the Company and supersedes any and all prior agreements, arrangements and understandings regarding the subject matter contained herein.

NOW, THEREFORE, in consideration of the premises and agreements set forth herein and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Company and the Executive hereby agree that, as of the Effective Date of this First Amendment, the Employment Agreement shall be amended as follows:

1.Section 5(c) is hereby amended and restated in its entirety as follows (changes indicated in bold):

(c) Working Facilities. During the Term of Employment, the Company shall furnish the Executive with an office, administrative help and such other facilities similar to those provided to similarly situated executives of the Company. The Executive’s principal location of employment or service (subject to reasonable travel) shall be Easton, CT.

1.Except as modified by this First Amendment, all other terms and conditions of the Employment Agreement remain in full force and effect.

[Signatures on Following Page]

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this First Amendment, effective as of the date set forth above.

INSMED INCORPORATED

Insmed Incorporated, a Virginia corporation

By: /s/William H. Lewis

Name: William H. Lewis

Title: Chair and CEO

EXECUTIVE

/s/Martina Flammer

Name: Martina Flammer

EX-31.1

EXHIBIT 31.1

Section 302 Certification

I, William H. Lewis, Chief Executive Officer of Insmed Incorporated, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Insmed Incorporated;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 5, 2021

/s/ William H. Lewis

William H. Lewis

Chair and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Section 302 Certification

I, Sara Bonstein, Chief Financial Officer of Insmed Incorporated, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Insmed Incorporated;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 5, 2021

/s/ Sara Bonstein

Sara Bonstein

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with this Quarterly Report on Form 10-Q of Insmed Incorporated (the "Company") for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William H. Lewis, Chief Executive Officer of the Company, certify, pursuant to 18 USC. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2003, that:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William H. Lewis

William H. Lewis

Chairman and Chief Executive Officer

(Principal Executive Officer)

August 5, 2021

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Insmed Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with this Quarterly Report on Form 10-Q of Insmed Incorporated (the "Company") for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sara Bonstein, Chief Financial Officer of the Company, certify, pursuant to 18 USC. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2003, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Sara Bonstein

Sara Bonstein

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 5, 2021

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Insmed Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Cover Page - shares	6 Months Ended
	Jun. 30, 2021	Aug. 02, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2021
Document Transition Report	false
Entity File Number	000-30739
Entity Registrant Name	INSMED INC
Entity Incorporation, State or Country Code	VA
Entity Tax Identification Number	54-1972729
Entity Address, Address Line One	700 US Highway 202/206
Entity Address, City or Town	Bridgewater
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	08807
City Area Code	908
Local Phone Number	977-9900
Title of 12(b) Security	Common stock, par value $0.01 per share
Trading Symbol	INSM
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		115,246,666
Entity Central Index Key	0001104506
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 928,327	$ 532,756
Accounts receivable	18,417	16,562
Inventory	60,385	49,592
Prepaid expenses and other current assets	31,066	23,982
Total current assets	1,038,195	622,892
Intangibles, net	46,735	49,261
Fixed assets, net	53,784	53,953
Finance lease right-of-use assets	9,795	10,334
Operating lease right-of-use assets	32,037	32,946
Other assets	49,237	26,769
Total assets	1,229,783	796,155
Current liabilities:
Accounts payable	31,081	42,853
Accrued expenses	45,553	37,807
Accrued compensation	15,939	25,591
Finance lease liabilities	1,158	1,081
Operating lease liabilities	5,925	11,475
Total current liabilities	99,656	118,807
Debt, long-term	548,745	356,318
Finance lease liabilities, long-term	14,114	14,713
Operating lease liabilities, long-term	23,409	21,255
Other long-term liabilities	12,806	9,178
Total liabilities	698,730	520,271
Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 115,239,269 and 102,763,060 issued and outstanding shares at June 30, 2021 and December 31, 2020, respectively	1,152	1,028
Additional paid-in capital	2,569,028	2,105,252
Accumulated deficit	(2,039,551)	(1,830,589)
Accumulated other comprehensive income	424	193
Total shareholders’ equity	531,053	275,884
Total liabilities and shareholders’ equity	$ 1,229,783	$ 796,155

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares (in shares)	500,000,000	500,000,000
Common stock, issued shares (in shares)	115,239,269	102,763,060
Common stock, outstanding shares (in shares)	115,239,269	102,763,060

XML

Consolidated Statements of Comprehensive Loss (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Statement of Comprehensive Income [Abstract]
Product revenues, net	$ 45,366	$ 42,495	$ 85,580	$ 79,355
Operating expenses:
Cost of product revenues (excluding amortization of intangible assets)	$ 10,837	$ 9,950	$ 20,681	$ 18,388
Cost, Product and Service [Extensible List]	us-gaap:ProductMember	us-gaap:ProductMember	us-gaap:ProductMember	us-gaap:ProductMember
Research and development	$ 64,655	$ 35,748	$ 126,045	$ 71,932
Selling, general and administrative	57,177	49,663	108,727	101,009
Amortization of intangible assets	1,263	1,248	2,526	2,497
Total operating expenses	133,932	96,609	257,979	193,826
Operating loss	(88,566)	(54,114)	(172,399)	(114,471)
Investment income	34	203	67	1,607
Interest expense	(10,319)	(7,469)	(17,878)	(14,880)
Loss on extinguishment of debt	(17,689)	0	(17,689)	0
Other expense, net	(159)	(46)	(202)	(10)
Loss before income taxes	(116,699)	(61,426)	(208,101)	(127,754)
Provision for income taxes	622	428	861	464
Net loss	$ (117,321)	$ (61,854)	$ (208,962)	$ (128,218)
Basic net loss per share (in dollars per share)	$ (1.07)	$ (0.64)	$ (1.97)	$ (1.38)
Diluted net loss per share (in dollars per share)	$ (1.07)	$ (0.64)	$ (1.97)	$ (1.38)
Weighted average basic common shares outstanding (in shares)	109,580	96,633	106,328	93,206
Weighted average diluted common shares outstanding (in shares)	109,580	96,633	106,328	93,206
Net loss	$ (117,321)	$ (61,854)	$ (208,962)	$ (128,218)
Other comprehensive income (loss):
Foreign currency translation income (loss)	334	(51)	231	(88)
Total comprehensive loss	$ (116,987)	$ (61,905)	$ (208,731)	$ (128,306)
Revenue from Contract with Customer, Product and Service [Extensible List]	us-gaap:ProductMember	us-gaap:ProductMember	us-gaap:ProductMember	us-gaap:ProductMember

XML

Consolidated Statements of Shareholders' Equity (unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)
Balance (in shares) at Dec. 31, 2019		89,682
Balance at Dec. 31, 2019	$ 261,674	$ 897	$ 1,797,286	$ (1,536,499)	$ (10)
Comprehensive loss:
Net loss	(128,218)			(128,218)
Other comprehensive income (loss)	(88)				(88)
Exercise of stock options and ESPP shares issuance (in shares)		472
Exercise of stock options and ESPP shares issuance	7,567	$ 5	7,562
Net proceeds from issuance of common stock (in shares)		11,155
Net proceeds from issuance of common stock	245,912	$ 111	245,801
Issuance of common stock for vesting of RSUs (in shares)		125
Issuance of common stock for vesting of RSUs	1	$ 1
Stock-based compensation expense	18,470		18,470
Balance (in shares) at Jun. 30, 2020		101,434
Balance at Jun. 30, 2020	405,318	$ 1,014	2,069,119	(1,664,717)	(98)
Balance (in shares) at Mar. 31, 2020		89,860
Balance at Mar. 31, 2020	206,701	$ 899	1,808,712	(1,602,863)	(47)
Comprehensive loss:
Net loss	(61,854)			(61,854)
Other comprehensive income (loss)	(51)				(51)
Exercise of stock options and ESPP shares issuance (in shares)		321
Exercise of stock options and ESPP shares issuance	5,141	$ 3	5,138
Net proceeds from issuance of common stock (in shares)		11,155
Net proceeds from issuance of common stock	245,912	$ 111	245,801
Issuance of common stock for vesting of RSUs (in shares)		98
Issuance of common stock for vesting of RSUs	1	$ 1
Stock-based compensation expense	9,468		9,468
Balance (in shares) at Jun. 30, 2020		101,434
Balance at Jun. 30, 2020	405,318	$ 1,014	2,069,119	(1,664,717)	(98)
Balance (in shares) at Dec. 31, 2020		102,763
Balance at Dec. 31, 2020	275,884	$ 1,028	2,105,252	(1,830,589)	193
Comprehensive loss:
Net loss	(208,962)			(208,962)
Other comprehensive income (loss)	231				231
Exercise of stock options and ESPP shares issuance (in shares)		760
Exercise of stock options and ESPP shares issuance	13,525	$ 7	13,518
Net proceeds from issuance of common stock (in shares)		11,500
Net proceeds from issuance of common stock	269,886	$ 115	269,771
Equity component of convertible debt issuance	196,063		196,063
Equity component of convertible debt redemption	(37,846)		(37,846)
Issuance of common stock for vesting of RSUs (in shares)		216
Issuance of common stock for vesting of RSUs	2	$ 2
Stock-based compensation expense	22,270		22,270
Balance (in shares) at Jun. 30, 2021		115,239
Balance at Jun. 30, 2021	531,053	$ 1,152	2,569,028	(2,039,551)	424
Balance (in shares) at Mar. 31, 2021		103,279
Balance at Mar. 31, 2021	201,636	$ 1,033	2,122,743	(1,922,230)	90
Comprehensive loss:
Net loss	(117,321)			(117,321)
Other comprehensive income (loss)	334				334
Exercise of stock options and ESPP shares issuance (in shares)		344
Exercise of stock options and ESPP shares issuance	6,565	$ 3	6,562
Net proceeds from issuance of common stock (in shares)		11,500
Net proceeds from issuance of common stock		$ 115	269,771
Equity component of convertible debt issuance	196,063		196,063
Equity component of convertible debt redemption	(37,846)		(37,846)
Issuance of common stock for vesting of RSUs (in shares)		116
Issuance of common stock for vesting of RSUs	1	$ 1
Stock-based compensation expense	11,735		11,735
Balance (in shares) at Jun. 30, 2021		115,239
Balance at Jun. 30, 2021	$ 531,053	$ 1,152	$ 2,569,028	$ (2,039,551)	$ 424

XML

Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Operating activities
Net loss	$ (208,962)	$ (128,218)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	4,773	4,534
Amortization of intangible assets	2,526	2,497
Stock-based compensation expense	22,270	18,470
Loss on extinguishment of debt	17,689	0
Amortization of debt issuance costs	807	698
Accretion of debt discount	12,389	9,363
Finance lease amortization expense	539	720
Noncash operating lease expense	9,550	5,772
Changes in operating assets and liabilities:
Accounts receivable	(1,855)	4,059
Inventory	(11,557)	(7,160)
Prepaid expenses and other current assets	(7,484)	5,424
Other assets	(22,623)	(3,251)
Accounts payable	(11,158)	12,175
Accrued expenses and other	(1,302)	(12,852)
Accrued compensation	(9,327)	(6,119)
Net cash used in operating activities	(203,725)	(93,888)
Investing activities
Purchase of fixed assets	(4,666)	(4,560)
Net cash used in investing activities	(4,666)	(4,560)
Financing activities
Proceeds from exercise of stock options, ESPP, and RSU vesting	13,527	7,568
Proceeds from issuance of common stock, net	269,886	245,912
Payment on extinguishment of 1.75% convertible senior notes due 2025	(12,578)	0
Payment of principal on 1.75% convertible senior notes due 2025	(225,000)	0
Proceeds from issuance of 0.75% convertible senior notes due 2028	575,000	0
Payment of debt issuance costs	(16,013)	0
Payments of finance lease principal	(522)	(590)
Net cash provided by financing activities	604,300	252,890
Effect of exchange rates on cash and cash equivalents	(338)	40
Net increase in cash and cash equivalents	395,571	154,482
Cash and cash equivalents at beginning of period	532,756	487,429
Cash and cash equivalents at end of period	928,327	641,911
Supplemental disclosures of cash flow information:
Cash paid for interest	5,911	4,819
Cash paid for income taxes	$ 997	$ 472

XML

Consolidated Statements of Cash Flows (unaudited) (Parenthetical) - Convertible Notes	Jun. 30, 2021
1.75 convertible senior notes due 2025
Interest rate (as a percent)	1.75%
0.75 convertible senior notes due 2028
Interest rate (as a percent)	0.75%

XML

The Company and Basis of Presentation

6 Months Ended

Jun. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company and Basis of Presentation

The Company and Basis of Presentation

Insmed is a global biopharmaceutical company on a mission to transform the lives of patients with serious and rare diseases. The Company's first commercial product, ARIKAYCE, is approved in the United States as ARIKAYCE (amikacin liposome inhalation suspension), in Europe as ARIKAYCE® Liposomal 590 mg Nebuliser Dispersion and in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product). ARIKAYCE received accelerated approval in the United States (US) in September 2018 for 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 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 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 can be fatal. The Company's clinical-stage pipeline includes brensocatib and treprostinil palmitil inhalation powder (TPIP). Brensocatib is a small molecule, oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), which the Company is developing for the treatment of patients with bronchiectasis and other neutrophil-mediated diseases. TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for pulmonary arterial hypertension (PAH) and other rare pulmonary disorders.

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 US, France, Germany, Ireland, Italy, the Netherlands, Switzerland, the United Kingdom (UK), and 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 Annual Report on Form 10-K for the year ended December 31, 2020.

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 $928.3 million in cash and cash equivalents as of June 30, 2021 and reported a net loss of $209.0 million for the six months ended June 30, 2021. Historically, the Company has funded its operations through public offerings of equity securities and debt financings. The Company commenced commercial shipments of ARIKAYCE in October 2018. 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 continued commercialization of ARIKAYCE and additional clinical trials related to ARIKAYCE, to develop brensocatib and TPIP and to develop, acquire, in-license or co-promote other products or product candidates, including those that address a broad range of 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 six months ended June 30, 2021, the Company

is unable to predict the impact that COVID-19 will have on its financial position and operating results in future 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.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The following are the required interim disclosure updates to the Company's significant accounting policies described in Note 2 of the notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020:

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 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 June 30, 2021 and December 31, 2020, were Level 1 assets comprised of cash and cash equivalents. The 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. The following table shows assets and liabilities that are measured at fair value on a recurring basis and their carrying value (in millions):

	June 30, 2021
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	928.3	$	928.3	$	—	$	—

	December 31, 2020
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	532.8	$	532.8	$	—	$	—

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and December 31, 2020, the Company held no securities that were in an unrealized gain or loss position.

The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. The Company has determined that there were no other-than-temporary impairments during the quarter ended

June 30, 2021. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the securities were rated below investment grade; (3) how long the securities have been in an unrealized loss position; and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to recover.

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 June 30, 2021 was $641.1 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2028 Convertible Notes. The $365.4 million carrying value of the 2028 Convertible Notes as of June 30, 2021 excludes the $199.5 million and $10.1 million of the unamortized portion of the debt discount and issuance costs, respectively.

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 June 30, 2021 was $236.3 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2025 Convertible Notes. The $183.4 million carrying value of the 2025 Convertible Notes as of June 30, 2021 excludes the $39.1 million and $2.5 million of the unamortized portion of the debt discount and issuance costs, respectively.

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, restricted stock, restricted stock units (RSUs) 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.

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 six months ended June 30, 2021 and 2020:

 

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands, except per share amounts)
Numerator:
Net loss	$	(117,321)	$	(61,854)	$	(208,962)	$	(128,218)
Denominator:
Weighted average common shares used in calculation of basic net loss per share:	109,580		96,633		106,328		93,206
Effect of dilutive securities:
Common stock options	—		—		—		—
Restricted stock and RSUs	—		—		—		—
Convertible debt securities	—		—		—		—
Weighted average common shares outstanding used in calculation of diluted net loss per share	109,580		96,633		106,328		93,206
Net loss per share:
Basic and diluted	$	(1.07)	$	(0.64)	$	(1.97)	$	(1.38)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of June 30, 2021 and 2020 as their effect would have been anti-dilutive (in thousands):

 

	June 30,
	2021	2020
Common stock options	14,449	13,272
Unvested restricted stock and RSUs	1,125	868
Convertible debt securities	23,438	11,492

Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash equivalents with high credit-quality financial institutions and may invest its short-term investments in US treasury securities, mutual funds and government agency bonds. The Company has established guidelines relative to credit ratings and maturities that seek to maintain safety and liquidity.

The Company is exposed to risks associated with extending credit to customers related to the sale of products. The Company does not require collateral to 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 total gross product revenue represented by the Company's three largest customers for the six months ended June 30, 2021 and 2020.

	June 30,
	2021	2020
Customer A	30%	26%
Customer B	25%	27%
Customer C	23%	25%

The Company relies on third-party manufacturers and suppliers for manufacturing and supply of its products. The inability of the suppliers or 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.

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 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 the performance obligations in the contract; and (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 and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company 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 customers. The Company has not incurred or capitalized any incremental costs associated with obtaining contracts with customers.

Product revenues, net consist primarily of net sales of ARIKAYCE in the US. The Company's customers in the US include specialty pharmacies and specialty distributors. Globally, product revenues are recognized once the Company performs and satisfies all five steps mentioned above.

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 and specialty pharmacy fees, (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 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 expenses 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.

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 adjust prior period accruals, affecting revenue in the period of adjustment.

The Company also recognizes revenue related to certain early access programs (EAPs) in Europe, consisting of sales to the French National Agency for Medicines and Health Products Safety, which granted ARIKAYCE a Temporary Authorization for Use (Autorisation Temporaire d'Utilisation, or ATU) and from the named patient program in Germany and other countries. EAPs are intended to make products available on a named patient basis before they are commercially available in accordance with local regulations. In December 2020, the Company began recognizing product revenue from commercial sales of ARIKAYCE to Germany subsequent to receiving approval from the EC.

Inventory and 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 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 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 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 milestone payments. Cost is determined using a standard cost method, which approximates actual cost, and assumes a FIFO flow of goods.

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 R&D expense when consumed.

Leases - In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous generally accepted accounting principles. ASU 2016-02 requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term on the balance sheet.

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 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 derived from the underlying asset. Lease liabilities accrete to yield and 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 to the payment occurs and are recognized in the consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments.

In accordance with Topic 842, leases are measured at present value using the rate implicit in the lease or, 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 lease commencement date to determine the present value of future lease payments. The implicit borrowing rate approximates the rate the Company would pay to 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 Topic 842 required disclosures.

Recently Adopted Accounting Pronouncements - In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, which requires financial assets measured at an amortized cost basis to be presented at the net amount expected to be collected. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including 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 adopted ASU 2016-13 effective January 1, 2020. Different aspects of the guidance required modified retrospective or prospective adoption. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

New Accounting Pronouncements (Not Yet Adopted) - In August 2020, the FASB issued ASU 2020-06, Debt — Accounting for Convertible Instruments, to reduce the complexity associated with applying US generally accepted accounting principles (GAAP) to certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the number of 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. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021. A modified retrospective and a fully retrospective transition method are both permitted. The Company is currently evaluating the impact of adoption of ASU 2020-06 on its consolidated financial statements.

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Inventory

6 Months Ended

Jun. 30, 2021

Inventory Disclosure [Abstract]

Inventory

Inventory

As of June 30, 2021 and December 31, 2020, the Company's inventory balance consists of the following (in thousands):

	June 30, 2021		December 31, 2020
Raw materials	$	27,071	$	21,601
Work-in-process	17,468		18,754
Finished goods	15,846		9,237
	$	60,385	$	49,592

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.

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Intangibles, Net

6 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangibles, Net

Intangibles, Net

As of June 30, 2021, the Company's identifiable intangible assets consisted of acquired ARIKAYCE R&D and milestones paid to PARI for the license to use PARI's Lamira® Nebulizer System 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. Total intangible assets, net was $46.7 million and $49.3 million as of June 30, 2021 and December 31, 2020, respectively.

The Company began amortizing its intangible assets in October 2018, over ARIKAYCE's initial regulatory exclusivity period of 12 years. Amortization of intangible assets during each of the next five years is estimated to be approximately $5.1 million per year. A rollforward of the Company's intangible assets for the six months ended June 30, 2021 follows (in thousands):

Intangible Asset	December 31, 2020		Additions		Amortization		June 30, 2021
Acquired ARIKAYCE R&D	$	47,289	$	—	$	(2,425)	$	44,864
PARI milestones	1,972		—		(101)		1,871
	$	49,261	$	—	$	(2,526)	$	46,735

The Company reviews the recoverability of these finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company determined that no indicators of impairment of finite-lived intangible assets existed at June 30, 2021.

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Fixed Assets, Net

6 Months Ended

Jun. 30, 2021

Property, Plant and Equipment [Abstract]

Fixed Assets, Net

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)	June 30, 2021		December 31, 2020
Lab equipment	7	$	11,031	$	10,352
Furniture and fixtures	7	5,917		5,917
Computer hardware and software	3-5	7,366		7,267
Office equipment	7	89		88
Manufacturing equipment	7	1,567		1,567
Leasehold improvements	lease term	35,759		35,289
Construction in progress (CIP)	—	25,178		21,823
		86,907		82,303
Less: accumulated depreciation		(33,123)		(28,350)
		$	53,784	$	53,953

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Accrued Expenses

6 Months Ended

Jun. 30, 2021

Payables and Accruals [Abstract]

Accrued Expenses

Accrued Expenses

As of June 30, 2021 and December 31, 2020, the Company's accrued expenses balance consists of the following (in thousands):

 

	June 30, 2021		December 31, 2020
Accrued clinical trial expenses	$	13,136	$	6,733
Accrued professional fees	12,182		8,594
Accrued technical operation expenses	6,896		9,164
Accrued royalty payable	3,654		3,423
Accrued interest payable	2,403		3,631
Accrued sales allowances and related costs	6,314		5,051
Accrued construction costs	141		364
Other accrued expenses	827		847
	$	45,553	$	37,807

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Leases

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Leases

LeasesThe Company's lease portfolio consists primarily of office space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's corporate headquarters

lease, which is classified as a finance lease. 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 Company's financial 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 outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, has the right to direct how and 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 the manufacturing facilities is the sum of the minimum guarantees over the life of the 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 $0.2 million and $1.0 million for the three months ended June 30, 2021 and 2020, respectively, and $0.3 million and $1.1 million for the six months ended June 30, 2021 and 2020, 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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	—	$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	2,100	$	183	$	8,641	$	205

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 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 $28.1 million incurred by the Company under these additional agreements have been classified within other assets in the Company's consolidated balance 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.

Leases

LeasesThe Company's lease portfolio consists primarily of office space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's corporate headquarters

lease, which is classified as a finance lease. 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 Company's financial 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 outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, has the right to direct how and 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 the manufacturing facilities is the sum of the minimum guarantees over the life of the 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 $0.2 million and $1.0 million for the three months ended June 30, 2021 and 2020, respectively, and $0.3 million and $1.1 million for the six months ended June 30, 2021 and 2020, 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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	—	$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	2,100	$	183	$	8,641	$	205

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 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 $28.1 million incurred by the Company under these additional agreements have been classified within other assets in the Company's consolidated balance 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.

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Debt

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Debt

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 $16.0 million, were approximately $559.0 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 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 five business day period immediately after any five 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 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 last trading day of the 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 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.

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. However, since the convertible notes are within the scope of the accounting guidance for cash convertible instruments, the Company is required to separate each series of convertible notes into liability and equity components. The carrying amount of the liability component of each series of convertible notes as of the date of issuance was calculated by measuring the fair value of a similar liability that did not have an associated equity component. The fair value was based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments. The carrying amount of the equity component representing the embedded conversion option for each series of convertible notes was determined by deducting the fair value of the liability component from the gross proceeds of the applicable convertible notes. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the expected life of a similar liability that does not have an associated equity component using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification in the accounting guidance for contracts in an entity’s own equity. The fair value of the

liability component of the 2025 Convertible Notes on the date of issuance was estimated at $309.1 million using an effective interest rate of 7.6% and, accordingly, the residual equity component on the date of issuance was $140.9 million. The fair value of the liability component of the 2028 Convertible Notes on the date of issuance was estimated at $371.6 million using an effective interest rate of 7.1% and, accordingly, the residual equity component on the date of issuance was $203.4 million. The respective discounts are being amortized to interest expense over the term of the applicable series of convertible notes and have remaining periods of approximately 3.54 years, with respect to the 2025 Convertible Notes, and 6.92 years, with respect to the 2028 Convertible Notes. The following table presents the carrying value of the Company's debt balance (in thousands):

 

	June 30, 2021		December 31, 2020
Face value of outstanding convertible debt	$	800,000	$	450,000
Debt issuance costs, unamortized	(12,621)		(5,646)
Discount on debt	(238,634)		(88,036)
Debt, long-term	$	548,745	$	356,318

As of June 30, 2021, future principal repayments of the debt for each of the years through maturity were as follows (in thousands):

 

Year Ending December 31:
2021	$	—
2022	—
2023	—
2024	—
2025	225,000
2026 and thereafter	575,000
	$	800,000

Interest Expense

Interest expense related to the 2025 Convertible Notes and 2028 Convertible Notes for the three and six months ended June 30, 2021 and 2020, which includes the contractual interest coupon payable semi-annually in cash, the amortization of the issuance costs, accretion of debt discount and finance lease interest expense is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Contractual interest expense	$	2,052	$	1,975	$	4,021	$	3,948
Amortization of debt issuance costs	457		349		807		698
Accretion of debt discount	7,482		4,713		12,389		9,363
Total convertible debt interest expense	9,991		7,037		17,217		14,009
Finance lease interest expense	328		432		661		871
Interest expense	$	10,319	$	7,469	$	17,878	$	14,880

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Shareholders' Equity

6 Months Ended

Jun. 30, 2021

Equity [Abstract]

Shareholders' Equity

Shareholders’ Equity

Common Stock — As of June 30, 2021, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 per share and 115,239,269 shares of common stock issued and outstanding. In addition, as of June 30, 2021, the Company had reserved 14,448,585 shares of common stock for issuance upon the exercise of outstanding stock options and 1,124,648 shares of common stock for issuance upon the vesting of RSUs. The Company has also reserved 23,438,430 shares 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 the second quarter of 2021, the Company completed an underwritten public offering of 11,500,000 shares of the Company's common stock, including 1,500,000 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 $25.00 per share. The Company's 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, the Company entered into a sales agreement with SVB Leerink 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 June 30, 2021, 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 June 30, 2021, 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.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company's current equity compensation plan, the 2019 Incentive Plan, was approved by shareholders at the Company's Annual Meeting of Shareholders on May 16, 2019. The 2019 Incentive Plan is administered by the Compensation Committee of the Board of Directors of the Company. Under the terms of the 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 to eligible employees and non-employee directors. On May 16, 2019, upon the approval of the 2019 Incentive Plan by shareholders, 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. As of June 30, 2021, 4,679,956 shares remained for future issuance under the 2019 Incentive Plan. The 2019 Incentive Plan will terminate on 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 to new hires, which awards are made pursuant to the Nasdaq's inducement grant exception to the shareholder approval requirement for grants of equity compensation. During the six months ended June 30, 2021, the Company granted inducement stock options covering 444,070 shares of the Company's common stock to new employees.

On May 15, 2018, the 2018 Employee Stock Purchase Plan (2018 ESPP) was approved by shareholders at the Company's 2018 Annual Meeting of Shareholders. The Company has reserved the following for issuance under the 2018 ESPP: (i) 1,000,000 shares of common stock, plus (ii) commencing on January 1, 2019 and ending on December 31, 2023, an additional number of shares to be added on the first day of each calendar year equal to the lesser of (A) 1,200,000 shares of common stock, (B) 2% of the number of outstanding shares of common stock on such date and (C) an amount determined by the administrator.

Stock Options - As of June 30, 2021, there was $98.9 million of unrecognized compensation expense related to unvested stock options.

From time to time, the Company 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 fulfilling a service condition (continued employment). As of June 30, 2021, the Company had performance-conditioned options totaling 114,780 shares outstanding which had not yet met the recognition criteria.

Restricted Stock Units — As of June 30, 2021, there was $26.9 million of unrecognized compensation expense related to unvested RSU awards.

The following table summarizes the aggregate stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to stock options and RSUs during the three and six months ended June 30, 2021 and 2020, respectively (in millions): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development	$	4.4	$	3.0	$	8.1	$	5.8
Selling, general and administrative	7.4		6.5		14.2		12.7
Total	$	11.8	$	9.5	$	22.3	$	18.5

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Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's provision for income taxes was $0.6 million and $0.4 million for the three months ended June 30, 2021 and 2020, respectively, and $0.9 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively. The provision for income taxes in all periods was primarily a result of certain of the Company's international subsidiaries, which had taxable income during the three and six months ended June 30, 2021 and 2020. 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 deferred tax assets and therefore no tax benefit was recorded.

The Company is subject to US federal and state income taxes and the statute of limitations for tax audit is open for the Company's federal tax returns for the years ended 2017 and later, and is generally open for certain states for the years 2016 and later. The Company has incurred net operating losses since inception, except for the year ended December 31, 2009. Such loss carryforwards would be subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. As of June 30, 2021 and December 31, 2020, the Company had recorded reserves for unrecognized income tax benefits 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 June 30, 2021 and December 31, 2020 or the consolidated statements of comprehensive loss for the three and six months ended June 30, 2021 and 2020. 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.

On March 27, 2020, the US government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which includes numerous modifications to income tax provisions, including a limitation on business interest expense and net operating loss provisions and the acceleration of alternative minimum tax credits. Given the Company's history of losses, the CARES Act did not impact its income tax positions.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Rent expense charged to operations was $1.1 million for both the three months ended June 30, 2021 and 2020, and $2.3 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.

Legal Proceedings

From time to time, the Company is a party to various 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 consolidated financial position, results of operations or cash flows.

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Subsequent Events

6 Months Ended

Jun. 30, 2021

Subsequent Events [Abstract]

Subsequent Event

Subsequent Event

In August 2021, the Company acquired Motus Biosciences, Inc. (Motus) and AlgaeneX, Inc. (AlgaeneX), each a privately held, preclinical stage company. In connection with the closing of the Company’s acquisition of Motus, the Company will issue an aggregate of 3,135,374 shares of the Company’s common stock to Motus’s former stockholders and option holders and certain individuals who are entitled to receive a portion of the acquisition consideration (collectively, Motus equityholders), subject to certain reductions. 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 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 milestone events 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 AlgaeneX’s former stockholders and certain individuals who are entitled to receive a portion of the 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 received by the Company in licensing transactions for AlgaeneX’s manufacturing technology, in each case, subject to certain reductions.

The shares of the Company’s common stock issuable to the Motus equityholders and the AlgaeneX equityholders are being issued pursuant to Section 4(a)(2) of the Securities Act of 1933, and the number of such issuable shares was calculated based on a per share value of $27.11. The Company will not receive any proceeds from the issuance of common stock to the Motus equityholders or the AlgaeneX equityholders.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

Fair Value Measurements

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 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 June 30, 2021 and December 31, 2020, were Level 1 assets comprised of cash and cash equivalents. The 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. The following table shows assets and liabilities that are measured at fair value on a recurring basis and their carrying value (in millions):

	June 30, 2021
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	928.3	$	928.3	$	—	$	—

	December 31, 2020
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	532.8	$	532.8	$	—	$	—

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and December 31, 2020, the Company held no securities that were in an unrealized gain or loss position.

The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. The Company has determined that there were no other-than-temporary impairments during the quarter ended

June 30, 2021. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the securities were rated below investment grade; (3) how long the securities have been in an unrealized loss position; and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to recover.

Net Loss Per Share

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, restricted stock, restricted stock units (RSUs) 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.

Concentration of Credit Risk

Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash equivalents with high credit-quality financial institutions and may invest its short-term investments in US treasury securities, mutual funds and government agency bonds. The Company has established guidelines relative to credit ratings and maturities that seek to maintain safety and liquidity.

The Company is exposed to risks associated with extending credit to customers related to the sale of products. The Company does not require collateral to 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 total gross product revenue represented by the Company's three largest customers for the six months ended June 30, 2021 and 2020.

	June 30,
	2021	2020
Customer A	30%	26%
Customer B	25%	27%
Customer C	23%	25%

The Company relies on third-party manufacturers and suppliers for manufacturing and supply of its products. The inability of the suppliers or 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.

Revenue Recognition

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 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 the performance obligations in the contract; and (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 and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company 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 customers. The Company has not incurred or capitalized any incremental costs associated with obtaining contracts with customers.

Product revenues, net consist primarily of net sales of ARIKAYCE in the US. The Company's customers in the US include specialty pharmacies and specialty distributors. Globally, product revenues are recognized once the Company performs and satisfies all five steps mentioned above.

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 and specialty pharmacy fees, (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 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 expenses 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.

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 adjust prior period accruals, affecting revenue in the period of adjustment.

The Company also recognizes revenue related to certain early access programs (EAPs) in Europe, consisting of sales to the French National Agency for Medicines and Health Products Safety, which granted ARIKAYCE a Temporary Authorization for Use (Autorisation Temporaire d'Utilisation, or ATU) and from the named patient program in Germany and other countries. EAPs are intended to make products available on a named patient basis before they are commercially available in accordance with local regulations. In December 2020, the Company began recognizing product revenue from commercial sales of ARIKAYCE to Germany subsequent to receiving approval from the EC.

Inventory and Cost of product revenues (excluding amortization of intangible assets)

Inventory and 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 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 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 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 milestone payments. Cost is determined using a standard cost method, which approximates actual cost, and assumes a FIFO flow of goods.

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 R&D expense when consumed.

Leases

Leases - In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous generally accepted accounting principles. ASU 2016-02 requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term on the balance sheet.

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 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 derived from the underlying asset. Lease liabilities accrete to yield and 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 to the payment occurs and are recognized in the consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments.

In accordance with Topic 842, leases are measured at present value using the rate implicit in the lease or, 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 lease commencement date to determine the present value of future lease payments. The implicit borrowing rate approximates the rate the Company would pay to 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 Topic 842 required disclosures.

Recently Adopted Accounting Pronouncements And New Accounting Pronouncements (Not Yet Adopted)

Recently Adopted Accounting Pronouncements - In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, which requires financial assets measured at an amortized cost basis to be presented at the net amount expected to be collected. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including 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 adopted ASU 2016-13 effective January 1, 2020. Different aspects of the guidance required modified retrospective or prospective adoption. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

New Accounting Pronouncements (Not Yet Adopted) - In August 2020, the FASB issued ASU 2020-06, Debt — Accounting for Convertible Instruments, to reduce the complexity associated with applying US generally accepted accounting principles (GAAP) to certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the number of 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. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021. A modified retrospective and a fully retrospective transition method are both permitted. The Company is currently evaluating the impact of adoption of ASU 2020-06 on its consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

Schedule of Carrying Value and Fair Value of Assets and Liabilities

The following table shows assets and liabilities that are measured at fair value on a recurring basis and their carrying value (in millions):

	June 30, 2021
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	928.3	$	928.3	$	—	$	—

	December 31, 2020
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	532.8	$	532.8	$	—	$	—

Reconciliation of the Weighted Average Number of Shares Used to Compute Basic and Diluted Net Loss per Share

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 six months ended June 30, 2021 and 2020:

 

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands, except per share amounts)
Numerator:
Net loss	$	(117,321)	$	(61,854)	$	(208,962)	$	(128,218)
Denominator:
Weighted average common shares used in calculation of basic net loss per share:	109,580		96,633		106,328		93,206
Effect of dilutive securities:
Common stock options	—		—		—		—
Restricted stock and RSUs	—		—		—		—
Convertible debt securities	—		—		—		—
Weighted average common shares outstanding used in calculation of diluted net loss per share	109,580		96,633		106,328		93,206
Net loss per share:
Basic and diluted	$	(1.07)	$	(0.64)	$	(1.97)	$	(1.38)

Potentially Dilutive Securities Excluded from Computations of Diluted Weighted Average Common Shares Outstanding

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of June 30, 2021 and 2020 as their effect would have been anti-dilutive (in thousands):

 

	June 30,
	2021	2020
Common stock options	14,449	13,272
Unvested restricted stock and RSUs	1,125	868
Convertible debt securities	23,438	11,492

Schedule of Percentage of Total Gross Product Revenue Represented by the Three Largest Customers

The following table presents the percentage of total gross product revenue represented by the Company's three largest customers for the six months ended June 30, 2021 and 2020.

	June 30,
	2021	2020
Customer A	30%	26%
Customer B	25%	27%
Customer C	23%	25%

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Inventory (Tables)

6 Months Ended

Jun. 30, 2021

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

As of June 30, 2021 and December 31, 2020, the Company's inventory balance consists of the following (in thousands):

	June 30, 2021		December 31, 2020
Raw materials	$	27,071	$	21,601
Work-in-process	17,468		18,754
Finished goods	15,846		9,237
	$	60,385	$	49,592

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Intangibles, Net (Tables)

6 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Rollforward of Intangible Assets

A rollforward of the Company's intangible assets for the six months ended June 30, 2021 follows (in thousands):

Intangible Asset	December 31, 2020		Additions		Amortization		June 30, 2021
Acquired ARIKAYCE R&D	$	47,289	$	—	$	(2,425)	$	44,864
PARI milestones	1,972		—		(101)		1,871
	$	49,261	$	—	$	(2,526)	$	46,735

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Fixed Assets, Net (Tables)

6 Months Ended

Jun. 30, 2021

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

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)	June 30, 2021		December 31, 2020
Lab equipment	7	$	11,031	$	10,352
Furniture and fixtures	7	5,917		5,917
Computer hardware and software	3-5	7,366		7,267
Office equipment	7	89		88
Manufacturing equipment	7	1,567		1,567
Leasehold improvements	lease term	35,759		35,289
Construction in progress (CIP)	—	25,178		21,823
		86,907		82,303
Less: accumulated depreciation		(33,123)		(28,350)
		$	53,784	$	53,953

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Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2021

Payables and Accruals [Abstract]

Schedule of Accrued Expenses

As of June 30, 2021 and December 31, 2020, the Company's accrued expenses balance consists of the following (in thousands):

 

	June 30, 2021		December 31, 2020
Accrued clinical trial expenses	$	13,136	$	6,733
Accrued professional fees	12,182		8,594
Accrued technical operation expenses	6,896		9,164
Accrued royalty payable	3,654		3,423
Accrued interest payable	2,403		3,631
Accrued sales allowances and related costs	6,314		5,051
Accrued construction costs	141		364
Other accrued expenses	827		847
	$	45,553	$	37,807

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Leases (Tables)

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Summary of Supplemental Noncash Disclosures included in Consolidated Financial Statements

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	—	$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	2,100	$	183	$	8,641	$	205

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Debt (Tables)

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Components of Debt Balance

The following table presents the carrying value of the Company's debt balance (in thousands): 

	June 30, 2021		December 31, 2020
Face value of outstanding convertible debt	$	800,000	$	450,000
Debt issuance costs, unamortized	(12,621)		(5,646)
Discount on debt	(238,634)		(88,036)
Debt, long-term	$	548,745	$	356,318

Schedule of Future Principal Repayments of Debt

As of June 30, 2021, future principal repayments of the debt for each of the years through maturity were as follows (in thousands):

 

Year Ending December 31:
2021	$	—
2022	—
2023	—
2024	—
2025	225,000
2026 and thereafter	575,000
	$	800,000

Summary of Interest Expense

Interest expense related to the 2025 Convertible Notes and 2028 Convertible Notes for the three and six months ended June 30, 2021 and 2020, which includes the contractual interest coupon payable semi-annually in cash, the amortization of the issuance costs, accretion of debt discount and finance lease interest expense is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Contractual interest expense	$	2,052	$	1,975	$	4,021	$	3,948
Amortization of debt issuance costs	457		349		807		698
Accretion of debt discount	7,482		4,713		12,389		9,363
Total convertible debt interest expense	9,991		7,037		17,217		14,009
Finance lease interest expense	328		432		661		871
Interest expense	$	10,319	$	7,469	$	17,878	$	14,880

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

Summary of Allocation of Employee Stock-Based Compensation

The following table summarizes the aggregate stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to stock options and RSUs during the three and six months ended June 30, 2021 and 2020, respectively (in millions): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development	$	4.4	$	3.0	$	8.1	$	5.8
Selling, general and administrative	7.4		6.5		14.2		12.7
Total	$	11.8	$	9.5	$	22.3	$	18.5

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The Company and Basis of Presentation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash and cash equivalents	$ 928,327		$ 928,327		$ 532,756
Net loss	$ (117,321)	$ (61,854)	$ (208,962)	$ (128,218)

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Summary of Significant Accounting Policies - Fair Value Measurements (Details)	6 Months Ended
	Jun. 30, 2021 USD ($) security	Jun. 30, 2020 USD ($)	May 31, 2021 USD ($)	Dec. 31, 2020 USD ($) security	Jan. 31, 2018 USD ($)
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value transfers in or out of Level 1, Level 2, or Level 3	$ 0	$ 0
Securities in an unrealized gain or loss position | security	0			0
Unamortized portion of debt discount	$ 238,634,000			$ 88,036,000
Unamortized debt issuance expense	$ 12,621,000			5,646,000
0.75 convertible senior notes due 2028 | Convertible Notes
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Interest rate (as a percent)	0.75%
Convertible senior notes			$ 371,600,000
Unamortized portion of debt discount	$ 199,500,000
Unamortized debt issuance expense	$ 10,100,000		$ 16,000,000.0
1.75 convertible senior notes due 2025 | Convertible Notes
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Interest rate (as a percent)	1.75%
Convertible senior notes					$ 309,100,000
Unamortized portion of debt discount	$ 39,100,000
Unamortized debt issuance expense	2,500,000				$ 14,200,000
Recurring basis | Carrying Value
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash and cash equivalents	928,300,000			532,800,000
Recurring basis | Carrying Value | Level 2 | 0.75 convertible senior notes due 2028
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Convertible senior notes	365,400,000
Recurring basis | Carrying Value | Level 2 | 1.75 convertible senior notes due 2025
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Convertible senior notes	183,400,000
Recurring basis | Fair Value | Level 1
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash and cash equivalents	928,300,000			532,800,000
Recurring basis | Fair Value | Level 2
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash and cash equivalents	0			0
Recurring basis | Fair Value | Level 2 | 0.75 convertible senior notes due 2028
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Convertible senior notes	641,100,000
Recurring basis | Fair Value | Level 2 | 1.75 convertible senior notes due 2025
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Convertible senior notes	236,300,000
Recurring basis | Fair Value | Level 3
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash and cash equivalents	$ 0			$ 0

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Summary of Significant Accounting Policies - Net Loss Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Numerator:
Net loss	$ (117,321)	$ (61,854)	$ (208,962)	$ (128,218)
Denominator:
Weighted average common shares used in calculation of basic net loss per share (in shares)	109,580	96,633	106,328	93,206
Effect of dilutive securities:
Dilutive securities, convertible debt (in shares)	0	0	0	0
Weighted average common shares outstanding used in calculation of diluted net loss per share (in shares)	109,580	96,633	106,328	93,206
Net loss per share:
Basic (in dollars per share)	$ (1.07)	$ (0.64)	$ (1.97)	$ (1.38)
Diluted (in dollars per share)	$ (1.07)	$ (0.64)	$ (1.97)	$ (1.38)
Common stock options
Effect of dilutive securities:
Dilutive securities, share-based payment (in shares)	0	0	0	0
Restricted stock and RSUs
Effect of dilutive securities:
Dilutive securities, share-based payment (in shares)	0	0	0	0

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Summary of Significant Accounting Policies - Anti-dilutive Securities (Details) - shares shares in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Common stock options
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	14,449	13,272
Unvested restricted stock and RSUs
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	1,125	868
Convertible debt securities
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	23,438	11,492

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Summary of Significant Accounting Policies - Concentration Risk (Details) - Sales Revenue, Product Line - Customer Concentration Risk	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Customer A
Concentration Risk [Line Items]
Concentration risk, percentage	30.00%	26.00%
Customer B
Concentration Risk [Line Items]
Concentration risk, percentage	25.00%	27.00%
Customer C
Concentration Risk [Line Items]
Concentration risk, percentage	23.00%	25.00%

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Inventory - Schedule of Inventory, Current (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Inventory Disclosure [Abstract]
Raw materials	$ 27,071	$ 21,601
Work-in-process	17,468	18,754
Finished goods	15,846	9,237
Inventory, Net	$ 60,385	$ 49,592

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Intangibles, Net (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]
Intangibles, net	$ 46,735		$ 46,735		$ 49,261
Intangible assets estimated useful life			12 years
Amortization of intangible assets, 2021	5,100		$ 5,100
Amortization of intangible assets, 2022	5,100		5,100
Amortization of intangible assets, 2023	5,100		5,100
Amortization of intangible assets, 2024	5,100		5,100
Amortization of intangible assets, 2025	5,100		5,100
Finite-lived Intangible Assets [Roll Forward]
Intangibles, gross					49,261
Additions			0
Amortization	(1,263)	$ (1,248)	(2,526)	$ (2,497)
Intangibles, net	46,735		46,735		49,261
Acquired ARIKAYCE R&D
Goodwill and Intangible Assets Disclosure [Abstract]
Intangibles, net	44,864		44,864
Finite-lived Intangible Assets [Roll Forward]
Intangibles, gross					47,289
Additions			0
Amortization			(2,425)
Intangibles, net	44,864		44,864
PARI milestones
Goodwill and Intangible Assets Disclosure [Abstract]
Intangibles, net	1,871		1,871
Finite-lived Intangible Assets [Roll Forward]
Intangibles, gross					$ 1,972
Additions			0
Amortization			(101)
Intangibles, net	$ 1,871		$ 1,871

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Fixed Assets, Net (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 86,907	$ 82,303
Less: accumulated depreciation	(33,123)	(28,350)
Property, Plant and Equipment, Net, Total	53,784	53,953
Lab equipment
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 11,031	10,352
Estimated Useful Life (years)	7 years
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 5,917	5,917
Estimated Useful Life (years)	7 years
Computer hardware and software
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 7,366	7,267
Computer hardware and software | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	3 years
Computer hardware and software | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	5 years
Office equipment
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 89	88
Estimated Useful Life (years)	7 years
Manufacturing equipment
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 1,567	1,567
Estimated Useful Life (years)	7 years
Leasehold improvements
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 35,759	35,289
Construction in progress (CIP)
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 25,178	$ 21,823

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Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Payables and Accruals [Abstract]
Accrued clinical trial expenses	$ 13,136	$ 6,733
Accrued professional fees	12,182	8,594
Accrued technical operation expenses	6,896	9,164
Accrued royalty payable	3,654	3,423
Accrued interest payable	2,403	3,631
Accrued sales allowances and related costs	6,314	5,051
Accrued construction costs	141	364
Other accrued expenses	827	847
Total accrued expenses	$ 45,553	$ 37,807

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Leases - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Lessee, Lease, Description [Line Items]
Variable lease, cost	$ 0.2	$ 1.0	$ 0.3	$ 1.1
Lease cost, future right-of-use asset			$ 28.1
Minimum
Lessee, Lease, Description [Line Items]
Remaining lease term			1 year
Maximum
Lessee, Lease, Description [Line Items]
Remaining lease term			10 years 10 months

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Leases - Lease, costs (Details) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Lease, Cost [Abstract]
Finance right-of-use assets obtained in exchange for lease obligations	$ 0	$ 0	$ 0	$ 0
Operating right-of-use assets obtained in exchange for lease obligations	$ 2,100	$ 183	$ 8,641	$ 205

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Debt - Narrative (Details)	1 Months Ended		3 Months Ended		6 Months Ended
	May 31, 2021 USD ($) day $ / shares	Jan. 31, 2018 USD ($) day $ / shares	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Debt Instrument [Line Items]
Underwriting discounts and commissions and other offering expenses			$ 12,621,000		$ 12,621,000		$ 5,646,000
Net proceeds					575,000,000	$ 0
Loss on extinguishment of debt			17,689,000	$ 0	17,689,000	$ 0
0.75 convertible senior notes due 2028
Debt Instrument [Line Items]
Initial conversion rate	0.0307692
1.75 convertible senior notes due 2025
Debt Instrument [Line Items]
Initial conversion rate		0.0255384
Convertible Notes | 0.75 convertible senior notes due 2028
Debt Instrument [Line Items]
Aggregate principal amount	$ 575,000,000.0
Option to purchase additional debt	75,000,000.0
Underwriting discounts and commissions and other offering expenses	16,000,000.0		10,100,000		$ 10,100,000
Net proceeds	$ 559,000,000.0
Initial conversion price (in dollars per share) | $ / shares	$ 32.50
Convertible senior notes	$ 371,600,000
Effective interest rate	7.10%
Equity component of convertible debt	$ 203,400,000
Remaining discount amortization period					6 years 11 months 1 day
Convertible Notes | 0.75 convertible senior notes due 2028 | Conversion Term (i)
Debt Instrument [Line Items]
Threshold trading days | day	5
Threshold consecutive trading days | day	5
Threshold percent of stock price trigger	98.00%
Convertible Notes | 0.75 convertible senior notes due 2028 | Conversion Term (ii)
Debt Instrument [Line Items]
Threshold trading days | day	45
Threshold consecutive trading days | day	10
Threshold percent of stock price trigger	10.00%
Convertible Notes | 0.75 convertible senior notes due 2028 | Conversion Term (iii)
Debt Instrument [Line Items]
Threshold trading days following fundamental change | day	30
Convertible Notes | 0.75 convertible senior notes due 2028 | Conversion Term (iv)
Debt Instrument [Line Items]
Threshold trading days | day	20
Threshold consecutive trading days | day	30
Threshold percent of stock price trigger	130.00%
Convertible Notes | 1.75 convertible senior notes due 2025
Debt Instrument [Line Items]
Aggregate principal amount		$ 450,000,000.0
Option to purchase additional debt		50,000,000.0
Underwriting discounts and commissions and other offering expenses		14,200,000	$ 2,500,000		$ 2,500,000
Net proceeds		$ 435,800,000
Repurchased amount	$ 225,000,000.0
Loss on extinguishment of debt	$ 17,700,000
Initial conversion price (in dollars per share) | $ / shares		$ 39.16
Convertible senior notes		$ 309,100,000
Effective interest rate		7.60%
Equity component of convertible debt		$ 140,900,000
Remaining discount amortization period					3 years 6 months 14 days
Convertible Notes | 1.75 convertible senior notes due 2025 | Conversion Term (i)
Debt Instrument [Line Items]
Threshold trading days | day		5
Threshold consecutive trading days | day		5
Threshold percent of stock price trigger		98.00%
Convertible Notes | 1.75 convertible senior notes due 2025 | Conversion Term (ii)
Debt Instrument [Line Items]
Threshold trading days | day		45
Threshold consecutive trading days | day		10
Threshold percent of stock price trigger		10.00%
Convertible Notes | 1.75 convertible senior notes due 2025 | Conversion Term (iii)
Debt Instrument [Line Items]
Threshold trading days following fundamental change | day		30
Convertible Notes | 1.75 convertible senior notes due 2025 | Conversion Term (iv)
Debt Instrument [Line Items]
Threshold trading days | day		20
Threshold consecutive trading days | day		30
Threshold percent of stock price trigger		130.00%

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Debt - Components of Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Debt Disclosure [Abstract]
Face value of outstanding convertible debt	$ 800,000	$ 450,000
Debt issuance costs, unamortized	(12,621)	(5,646)
Discount on debt	(238,634)	(88,036)
Debt, long-term	$ 548,745	$ 356,318

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Debt - Future Principal Repayments of Debt (Details) $ in Thousands	Jun. 30, 2021 USD ($)
Year Ending December 31:
2021	$ 0
2022	0
2023	0
2024	0
2025	225,000
2026 and thereafter	575,000
Total	$ 800,000

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Debt - Interest Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Debt Disclosure [Abstract]
Contractual interest expense	$ 2,052	$ 1,975	$ 4,021	$ 3,948
Amortization of debt issuance costs	457	349	807	698
Accretion of debt discount	7,482	4,713	12,389	9,363
Total convertible debt interest expense	9,991	7,037	17,217	14,009
Finance lease interest expense	328	432	661	871
Interest expense	$ 10,319	$ 7,469	$ 17,878	$ 14,880

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Shareholders' Equity - Narrative (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Dec. 31, 2020
Class of Stock [Line Items]
Common stock, authorized shares (in shares)	500,000,000			500,000,000
Common stock, par value (in dollars per share)	$ 0.01			$ 0.01
Common stock, issued shares (in shares)	115,239,269			102,763,060
Common stock, outstanding shares (in shares)	115,239,269			102,763,060
Offering price per share (in dollars per share)	$ 25.00		$ 23.25
Payments of stock issuance costs	$ 17.5		$ 13.5
Preferred stock, authorized (in shares)	200,000,000
Preferred stock, par value (in dollars per share)	$ 0.01
Preferred stock, shares issued (in shares)	0
Preferred stock, shares outstanding (in shares)	0
Public Stock Offering
Class of Stock [Line Items]
Shares sold in offering (in shares)	11,500,000		11,155,000
Aggregate net proceeds from stock offering	$ 270.1		$ 245.9
Over-Allotment Option
Class of Stock [Line Items]
Shares sold in offering (in shares)	1,500,000		1,455,000
ATM Program
Class of Stock [Line Items]
Common stock authorized, aggregate gross sales proceeds (up to)		$ 250.0
Convertible debt securities
Class of Stock [Line Items]
Common stock shares reserved for issuance (in shares)	23,438,430
Common stock options
Class of Stock [Line Items]
Common stock shares reserved for issuance (in shares)	14,448,585
Unvested restricted stock and RSUs
Class of Stock [Line Items]
Common stock shares reserved for issuance (in shares)	1,124,648

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Stock-Based Compensation - Narrative (Details) - USD ($) $ in Millions				6 Months Ended
	May 12, 2021	May 12, 2020	May 15, 2018	Jun. 30, 2021	May 16, 2019
Stock-Based Compensation
Inducement stock options granted to new employees (in shares)				444,070
Common stock options
Stock-Based Compensation
Unrecognized compensation expense related to unvested stock options				$ 98.9
Performance options
Stock-Based Compensation
Options outstanding (in shares)				114,780
Unvested restricted stock and RSUs
Stock-Based Compensation
Unrecognized compensation expense related to unvested RSU awards				$ 26.9
2019 Incentive Plan
Stock-Based Compensation
Shares of common stock, maximum authorized for issuance (in shares)					3,500,000
Number of additional shares authorized (in shares)	2,750,000	4,500,000
Shares available for grant (in shares)				4,679,956
2018 ESPP
Stock-Based Compensation
Shares of common stock, maximum authorized for issuance (in shares)			1,000,000
Number of additional shares authorized (in shares)			1,200,000
Percentage of outstanding shares			2.00%

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Stock-Based Compensation - Restricted Stock and Restricted Stock Units (Details) - Stock options and RSUs - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Stock-Based Compensation
Allocated share-based compensation expense	$ 11.8	$ 9.5	$ 22.3	$ 18.5
Research and development
Stock-Based Compensation
Allocated share-based compensation expense	4.4	3.0	8.1	5.8
Selling, general and administrative
Stock-Based Compensation
Allocated share-based compensation expense	$ 7.4	$ 6.5	$ 14.2	$ 12.7

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Income Taxes (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 622,000	$ 428,000	$ 861,000	$ 464,000
Deferred tax benefit	0	$ 0	0	$ 0
Unrecognized tax benefits, interest and penalties accrued	$ 0		$ 0		$ 0

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Commitments and Contingencies - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]
Rent expense charged to operations	$ 1.1	$ 1.1	$ 2.3	$ 1.9

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Subsequent Events (Details) - Subsequent Event $ / shares in Units, $ in Millions	Aug. 05, 2021 USD ($) $ / shares shares
Motus
Subsequent Event [Line Items]
Shares issued in acquisition (in shares)	3,135,374
Shares issued upon milestone achievements (in shares)	5,348,572
Cash to be paid upon achievement of milestones | $	$ 35.0
Share price used to calculate issuable shares (in dollars per share) | $ / shares	$ 27.11
Motus | First anniversary of closing date
Subsequent Event [Line Items]
Shares issued in acquisition (in shares)	184,433
Motus | Second anniversary of closing date
Subsequent Event [Line Items]
Shares issued in acquisition (in shares)	184,433
Motus | Third anniversary of closing date
Subsequent Event [Line Items]
Shares issued in acquisition (in shares)	184,433
AlgaeneX
Subsequent Event [Line Items]
Shares issued upon milestone achievements (in shares)	368,867
Cash paid in acquisition | $	$ 1.5
Share price used to calculate issuable shares (in dollars per share) | $ / shares	$ 27.11