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Borrowings | 6 Months Ended
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Jun. 30, 2019
Debt Disclosure [Abstract] |
Borrowings | 7. Borrowings Carrying amount of borrowings consist of the following, exclusive of $9.1 million accrued interest owed to the related party that will be capitalized and paid-in-kind (in thousands):
|  | June 30, 2019 |  |  | December 31, 2018 |
Facility financing obligation |  | $ | 8,974 |  |  | $ | 11,298 |
Senior convertible notes |  |  | 19,031 |  |  |  | 19,099 |
Note payable to related party |  |  | 71,981 |  |  |  | 72,089 |
Total debt - net carrying amount |  | $ | 99,986 |  |  | $ | 102,486 |
These borrowings are further described below: Facility Financing Obligation – On July 1, 2013, the Company entered into the Facility Agreement, which permitted it to borrow $160.0 million through the issuance of the 2019 notes, $100.0 million of which were converted into shares of the Company’s common stock during 2013 and 2014. The Company and Deerfield amended the Facility Agreement in 2014 to permit the Company to borrow an additional $20.0 million through the issuance of Tranche B notes. The remaining $80.0 million in principal amount that was not converted during 2013 and 2014 ($60.0 million in 2019 notes and $20.0 million in Tranche B notes) is subject to a repayment schedule that began in July 2016 and will end in August 2019. As of June 30, 2019, the Facility Financing Obligation consisted of $9.0 million principal amount and $0.2 million unamortized issuance cost. The table below summarizes all principal payments since July 2016, indicating whether the amount was settled in cash or in exchange for the issuance of shares of the Company’s common stock:
Date |  | 2019 notes |  | Tranche B notes
July 2016 |  | $5.0 million (cash) |  |
April 2017 |  | $5.0 million (equity exchange) |  | $4.0 million (cash) $1.0 million (equity exchange)
June 2017 |  | $5.0 million (equity exchange) |  |
November 2017 |  | $5.6 million (equity exchange) |  |
January 2018 |  | $3.2 million (equity exchange) |  |
March 2018 |  | $1.3 million (equity exchange) |  | $5.0 million (equity exchange)
June 2018 |  | $3.0 million (equity exchange) |  | $3.0 million (equity exchange)
July 2018 |  | $2.0 million (cash) $10.0 million (equity exchange) |  | $2.0 million (equity exchange)
September 2018 |  | $8.0 million (equity exchange) |  | $2.5 million (equity exchange)
October 2018 |  | $3.0 million (cash) |  |
May 2019 |  |  |  | $2.5 million (cash)
July 2019 |  | $2.4 million (cash) |  |
|  | $1.6 million (equity exchange) |  |
The Facility Agreement includes customary representations, warranties and covenants, including a restriction on the incurrence of additional indebtedness. On July 18, 2019, outstanding 2019 notes in the principal amount of $4.0 million were repaid. The Facility Agreement also required the Company to deposit $5.0 million in an escrow account, which is classified as restricted cash in the condensed consolidated balance sheets as of June 30, 2019, until August 31, 2019. See Note 13 – Subsequent Events. As discussed in Note 1 – Description of Business and Summary of Significant Accounting Policies, the Company will need to raise additional capital to support its current operating plans. Accretion of debt issuance cost and debt discount during the three and six months ended June 30, 2019 and 2018, are as follows (in thousands):
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Amortization of debt discount |  | $ | 69 |  |  | $ | 385 |  |  | $ | 141 |  |  | $ | 698 |
Accretion expense - debt issuance cost |  | $ | 21 |  |  | $ | 10 |  |  |  | 35 |  |  | $ | 17 |
Milestone Rights — On July 1, 2013, in conjunction with the execution of the Facility Agreement, the Company issued to Deerfield Private Design Fund II, L.P. and Horizon Santé FLML SÀRL, (the “Milestone Purchasers”) certain rights to receive payments of up to $90.0 million upon the occurrence of specified strategic and sales milestones, $75.0 million of which remains payable upon achievement of such milestones (the “Milestone Rights”). As of June 30, 2019 and December 31, 2018, the remaining Milestone Rights liability balance was $8.9 million which is based on initial fair value estimates calculated using the income approach and reduced by milestone achievement payments made. The Company currently estimates that it will reach the next milestone in the third quarter of 2019, at which point the Company will be required to make a $5.0 million payment in the following quarter. The carrying value of the Milestone Rights liability related to this $5.0 million payment is $1.6 million, which represents the fair value related to this payment that was determined in 2013 (the most recent measurement date). Accordingly, $1.6 million in value related to the next milestone payment was recorded in accrued expenses and other current liabilities as of June 30, 2019 and December 31, 2018, resulting in $7.2 million being recorded in Milestone Rights liability, which is non-current, in the accompanying condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, respectively. The Milestone Agreement includes customary representations and warranties and covenants by the Company, including restrictions on transfers of intellectual property related to Afrezza. The Milestone Rights are subject to acceleration in the event the Company transfers its intellectual property related to Afrezza in violation of the terms of the Milestone Agreement. The Company has initially recorded the Milestone Rights at their estimated fair value. Security Agreement — In connection with the Facility Agreement and Milestone Agreement, the Company and its subsidiary, MannKind LLC, entered into a Guaranty and Security Agreement (the “Security Agreement”) with Deerfield and Horizon Santé FLML SÁRL (collectively, the “Purchasers”), pursuant to which the Company and MannKind LLC each granted the Purchasers a security interest in substantially all of their respective assets, including respective intellectual property, accounts receivables, equipment, general intangibles, inventory and investment property, and all of the proceeds and products of the foregoing. The Security Agreement includes customary covenants by the Company and MannKind LLC, remedies of the Purchasers and representations and warranties by the Company and MannKind LLC. The security interests granted by the Company and MannKind LLC will terminate upon repayment of the Facility Financing Obligation in full, if applicable. Embedded Derivatives — The Company identified and evaluated a number of embedded features in the notes issued under the Facility Agreement to determine if they represented embedded derivatives that are required to be separated from the notes and accounted for as freestanding instruments. The Company analyzed the Tranche B notes and identified embedded derivatives which required separate accounting. All of the embedded derivatives were determined to have a de minimis value as of December 31, 2018 and no value as of June 30, 2019 due to the repayment of the Tranche B notes in full in May 2019. Senior Convertible Note — (See also Note 13 – Subsequent Events) In October 2017, the Company entered into exchange agreements with the holders of the Company’s 5.75% Senior Convertible Notes due 2018 (the “2018 notes”), pursuant to which the Company agreed to exchange all of the outstanding 2018 notes in the aggregate principal amount of $27.7 million for (i) new 5.75% $23.7 million aggregate principal amount of Senior Convertible notes due 2021 (the “2021” notes or “senior convertible note”) and (ii) an aggregate of 973,236 shares of its common stock. In addition, the conversion rate was adjusted from $34 per share to $5.15 per share. The senior convertible notes were issued at the closing of the exchange on October 23, 2017. The Company analyzed this exchange and concluded that the exchange represents an extinguishment of the 2018 notes and recorded a $0.8 million loss on extinguishment of debt during the last quarter of fiscal year 2017. In addition, unamortized debt issuance costs of $0.3 million and unamortized debt premium of $0.2 million were also written-off during the last quarter of fiscal year 2017. In May 2018, the Company entered into a privately-negotiated exchange agreement (the “Exchange Agreement”) with certain holders of its senior convertible notes, pursuant to which the Company agreed to issue 2,250,000 shares of its common stock in exchange for the cancellation of $5.0 million principal amount of the senior convertible notes and unpaid accrued interest thereon. The exchange price for these exchange shares was $2.2567 per share. The exchange was completed on May 31, 2018. As a result, the Company recognized approximately $0.8 million as extinguishment gain which was calculated based on the difference between the reacquisition price and the net carrying amount of the payment on the debt. As of June 30, 2019 and December 31, 2018, there was $18.7 million principal amount of senior convertible notes outstanding. The senior convertible notes are the Company’s general, unsecured, senior obligations, except that they are subordinated in right of payment to the Facility Financing Obligation. The senior convertible notes rank equally in right of payment with the Company’s other unsecured senior debt. The senior convertible notes bear interest at the rate of 5.75% per year on the principal amount, payable semiannually in arrears in cash or, at the option of the Company — subject to certain conditions and limitations — in shares of the Company’s common stock (the “Interest Shares”), on February 15 and August 15. Accrued interest related to these notes is recorded in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. The senior convertible notes are convertible, at the option of the holder, at any time on or prior to the close of business on the business day immediately preceding the stated maturity date, into shares of the Company’s common stock at an initial conversion rate of 194.1748 shares per $1,000 principal amount of senior convertible notes, which is equal to the initial conversion price of approximately $5.15 per share. The conversion rate is subject to adjustment under certain circumstances described in an indenture governing the senior convertible notes. If the Company undergoes certain fundamental changes, except in certain circumstances, each holder of senior convertible notes will have the option to require the Company to repurchase all or any portion of that holder’s senior convertible notes. The fundamental change repurchase price will be 100% of the principal amount of the senior convertible notes to be repurchased plus accrued and unpaid interest, if any. The Company may elect at its option to cause all or any portion of the senior convertible notes to be mandatorily converted in whole or part at any time prior to the close of business on the business day immediately preceding the maturity date, if the last reported sale price of its common stock exceeds 120% of the conversion price then in effect for at least 10 trading days in any 20 consecutive trading day period, ending within five business days prior to the date of the mandatory conversion notice. The redemption price is equal the sum of 100% of the principal amount of the senior convertible notes to be redeemed, plus accrued and unpaid interest. Under the terms of the indenture, the conversion option can be net-share settled and the maximum number of shares that could be required to be delivered under the indenture is fixed and less than the number of authorized and unissued shares less the maximum number of shares that could be required to be delivered during the term of the senior convertible notes under existing commitments. Applying the Company’s sequencing policy, the Company performed an analysis at the time of the offering of the senior convertible notes and each reporting date since and has concluded that the number of available authorized shares at the time of the offering and each reporting date since was sufficient to deliver the number of shares that could be required to be delivered during the term of the senior convertible notes under existing commitments. The senior convertible notes provide that upon acceleration of certain indebtedness, including the Facility Financing Obligation, the holders may elect to accelerate the Company’s repayment obligations under the notes if such acceleration is not cured, waived, rescinded or annulled. As a result of the exchange of the senior convertible notes during the last quarter of 2017, the Company recorded approximately $0.8 million in debt premium, which is recorded with the senior convertible notes, in the accompanying condensed consolidated balance sheets. The premium is being accreted to interest expense using the effective interest method over the term of the senior convertible notes. Amortization of the premium and accretion of debt issuance costs related to the 2021 notes for the three and six months ended June 30, 2019 and 2018 are as follows (in thousands):
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Amortization of debt premium |  | $ | 36 |  |  | $ | 40 |  |  | $ | 72 |  |  | $ | 83 |
Accretion expense - debt issuance cost |  |  | 2 |  |  | $ | 1 |  |  | $ | 4 |  |  | $ | 1 |
Refer to Note 6 – Related Party Arrangements for information regarding the Note payable to related party.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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