INSMED INC (Form: 10-Q, Received: 05/07/2013 07:32:00)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2013

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

For the transition period from to

Commission File Number 0-30739

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.)

9 Deer Park Drive, Suite C
Monmouth Junction, NJ		08852
(Address of principal executive offices)		(Zip Code)

(732) 997-4600

(Registrant’s telephone number including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting Company (See the definitions of “large accelerated filer,” “accelerated filer,” and “small reporting Company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Small Reporting Company o

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

As of April 30, 2013, there were 31,795,357 shares of the registrant’s common stock, $0.01 par value, outstanding.

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INSMED INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2013

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1	Financial Statements
		Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012	3
		Consolidated Statements of Comprehensive Loss (unaudited) for the three months ended March 31, 2013 and 2012	4
		Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2013 and 2012	5
		Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
ITEM 3		Quantitative and Qualitative Disclosures about Market Risk	35
ITEM 4		Controls and Procedures	35

PART II. OTHER INFORMATION

ITEM 1		Legal Proceedings	37
ITEM 1A		Risk Factors	38
ITEM 2		Unregistered Sales of Equity Securities and Use of Proceeds	38
ITEM 3		Defaults Upon Senior Securities	38
ITEM 4		Mine Safety Disclosures (Not Applicable)	38
ITEM 5		Other Information	38
ITEM 6		Exhibits	38
SIGNATURE			39
EXHIBIT INDEX			40

In this Form 10-Q, we use the words “Insmed Incorporated” to refer to Insmed Incorporated, a Virginia corporation, and we use the words “Company,” “Insmed,” “Insmed Incorporated,” “we,” “us” and “our” to refer to Insmed Incorporated and its consolidated subsidiaries. ARIKACE ® is a registered trademark and Insmed ™ is a trademark 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. FINANCIAL STATEMENTS

INSMED INCORPORATED

Consolidated Balance Sheets

(in thousands, except par value, share and per share data)

	March 31, 2013			December 31, 2012
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	79,434		$	90,782
Certificate of deposit	2,173			2,153
Prepaid expenses and other current assets	1,418			643
Total current assets	83,025			93,578

In-process research and development	58,200			58,200
Other assets	110			117
Fixed assets, net	1,681			1,666
Total assets	$	143,016		$	153,561

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	8,184		$	7,060
Accrued expenses	5,329			2,933
Accrued compensation	1,359			2,207
Accrued lease expense, current	298			295
Deferred rent	144			149
Capital lease obligations, current	83			96
Current portion of long term debt	4,875			3,007
Total current liabilities	20,272			15,747

Accrued lease expense, long-term	580			647
Capital lease obligations, long-term	48			64
Debt, long-term	14,511			16,221
Total liabilities	35,411			32,679


Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 31,571,926 and 31,488,204 issued and outstanding shares at March 31, 2013 and December 31, 2012, respectively	316			315
Additional paid-in capital	455,725			455,325
Warrant to purchase 329,932 shares of common stock for $2.94 per share at March 31, 2013 and December 31, 2012	790			790
Accumulated deficit	(349,226		)	(335,548		)
Total shareholders’ equity	107,605			120,882
Total liabilities and shareholders’ equity	$	143,016		$	153,561

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands, except per share data)

	Three Months Ended March 31,
	2013			2012

Revenues	$	—		$	—

Operating expenses:
Research and development	10,334			4,739
General and administrative	3,975			2,525
Total operating expenses	14,309			7,264

Operating loss	(14,309		)	(7,264		)

Investment income	51			418
Interest expense	(643		)	(2		)
Gain on sale of assets, net	2			5
Loss before income taxes	(14,899		)	(6,843		)

Provision (benefit) for income taxes	(1,221		)	2

Net loss	$	(13,678	)	$	(6,845	)

Basic and diluted net loss per share	$	(0.43	)	$	(0.28	)

Weighted average basic and diluted common shares outstanding	31,554			24,860


Net loss	$	(13,678	)	$	(6,845	)
Comprehensive loss:
Unrealized gains on investments, net of taxes	—			216
Comprehensive loss	$	(13,678	)	$	(6,629	)

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2013			2012
Operating activities
Net loss	$	(13,678	)	$	(6,845	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	148			136
Stock based compensation expense	954			495
Gain on sale of assets, net	(2		)	(5		)
Amortization of debt discount and debt issuance costs	118			—
Accrual of the end of term charge on the debt	49			—
Changes in operating assets and liabilities:
Accounts receivable	—			757
Prepaid expenses and other assets	(797		)	263
Accounts payable	1,124			545
Accrued expenses and deferred rent	1,787			(609		)
Accrued lease expense	(64		)	(64		)
Accrued compensation	(848		)	(285		)
Net cash used in operating activities	(11,209		)	(5,612		)

Investing activities
Purchase of fixed assets	(163		)	(66		)
Proceeds from sale of asset	2			—
Sales of short-term investments	—			12,907
Net cash provided by (used in) investing activities	(161		)	12,841

Financing activities
Payments on capital lease obligations	(29		)	(34		)
Proceeds from exercise of stock options	51			—
Net cash provided by (used in) financing activities	22			(34		)

Increase (decrease) in cash and cash equivalents	(11,348		)	7,195
Cash and cash equivalents at beginning of period	90,782			14,848

Cash and cash equivalents at end of period	$	79,434		$	22,043

Supplemental disclosures of cash flow information:
Cash paid for interest	$	476		$	2
Cash paid for taxes	$	—		$	2

Supplemental disclosures of non-cash investing and financing activities:
Unrealized gain on investments	$	—		$	216

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Business and Basis of Presentation

Description of Business - Insmed is a biopharmaceutical company focused on developing and commercializing inhaled therapies for patients battling serious lung diseases that are often life threatening. The Company’s lead product candidate, ARIKACE ® , or liposomal amikacin for inhalation, is an inhaled antibiotic treatment that delivers a proven and potent anti-infective directly to the site of serious lung infections to improve the efficacy, safety and convenience of this therapeutic approach for patients.

Currently, the Company is conducting clinical trials of ARIKACE for two initial indications in orphan patient populations: a Phase 3 clinical trial in cystic fibrosis (“CF”) patients who have lung infections caused by Pseudomonas aeruginosa ( Pseudomonas ) and a Phase 2 clinical trial in patients who have lung infections caused by non-tuberculous mycobacteria (“NTM”). The Company’s primary development focus is to obtain regulatory approval for ARIKACE for these two initial indications and to prepare for commercialization initially in Europe and Canada and eventually in the United States (“US”). If approved, ARIKACE will be the first once-a-day inhaled antibiotic treatment option available for these CF and NTM indications. The Company’s strategy is to continue to develop ARIKACE for additional indications beyond Pseudomonas in CF patients and in NTM patients.

The Company was incorporated in the Commonwealth of Virginia on November 29, 1999 and its principal executive offices are located in Monmouth Junction, New Jersey.

Basis of Presentation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Transave, LLC, Insmed Pharmaceuticals, Incorporated, Insmed Limited, and Celtrix Pharmaceuticals, Incorporated. All significant intercompany balances and transactions have been eliminated in consolidation.

Prior Period Reclassifications - Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the current-year presentation. Specifically, the Company allocated a portion of certain operating expenses from general and administrative expense to research and development expense in 2013 and recast prior year amounts to conform to the current year presentation for comparability purposes.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The consolidated balance sheet as of December 31, 2012 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 18, 2013.

2. Summary of Significant Accounting Policies

Use of Estimates - The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s balance sheets and the amounts of revenue and expenses reported

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for each period presented are effected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, stock-based compensation, income taxes, loss contingencies, the warrant fair value calculation, impairment of intangibles and long lived assets and accounting for research and development costs. Actual results could differ from those estimates.

Investment Income and Interest Expense - Investment income consists of interest and dividend income earned on our cash, cash equivalents and short-term investments, along with realized gains (losses) on the sale of investments. Interest expense consists primarily of interest costs related to our debt and capital lease obligations.

Cash and Cash Equivalents and Short-Term Investments - The Company considers cash equivalents to be highly liquid investments with maturities of three months or less from the date of purchase. The Company invests its available cash primarily in mutual and money market funds US treasury obligations, and bank certificates of deposit. For purposes of determining realized gains and losses, the cost of securities sold is based on specific identification.

Fixed Assets, Net - Fixed assets are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives of three to seven years are used for computer equipment, laboratory equipment, office equipment and furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. Long-lived assets, such as lab equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, then an impairment charge is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset.

Identifiable Intangible Assets and Goodwill - Identifiable intangible assets are measured at their respective fair values and are not amortized until commercialization of the related product commences. Once commercialization occurs, these intangible assets will be amortized over their estimated useful lives. The fair values assigned to our intangible assets are based on reasonable estimates and assumptions given available facts and circumstances. Unanticipated events or circumstances may occur that may require us to review the assets for impairment. Events or circumstances that may require an impairment assessment include negative pre-clinical or clinical trial results, the non-approval of a new drug application by a regulatory agency, material delays in our development program or a sustained decline in market capitalization.

Indefinite-lived intangible assets are not subject to periodic amortization. Rather, indefinite-lived intangibles are reviewed for impairment by applying a fair value based test on an annual basis or more frequently if events or circumstances indicate impairment may have occurred. Events or circumstances that may require an interim impairment assessment are consistent with those described above. The Company performs its annual impairment test as of October 1 of each year. We are not aware of any indicators of impairment that would necessitate an impairment test as of March 31, 2013.

The Company uses the income approach to derive the fair value of in-process research and development assets. This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate. The Company did not use a market based valuation approach because the Company lacks revenues and profits. The income approach requires significant management judgment with respect to unobservable inputs such as future volume, revenue and expense growth rates, changes in working capital use, appropriate discount rates and other assumptions and estimates. The estimates and assumptions used are consistent with the Company’s business plans.

Debt Issuance Costs - Debt issuance costs are amortized using the effective interest rate method, and are amortized to interest expense over the term of the debt. Debt issuance costs paid to the lender are reflected as a discount to the debt, and debt issuance costs paid to other third parties are reflected as other assets in the consolidated balance sheets.

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 judgments associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of

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subjectivity associated with the inputs used to determine the fair value of financial assets and liabilities, are as follows:

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

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

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

Each major category of financial assets and liabilities measured at fair value on a recurring basis are 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.

As of March 31, 2013 and December 31, 2012, the Company did not have any Level 2 or 3 financial assets or liabilities. The following table presents the Company’s Level 1 assets measured at fair value as of March 31, 2013 and December 31, 2012.

	Level 1
	As of		As of
	March 31, 2013		December 31, 2012
	(in thousands)
Cash, cash equivalents and money funds	$	79,434	$	90,782
Certificate of deposit	2,173		2,153

	$	81,607	$	92,935

The Company’s cash, cash equivalents, and money funds consist of liquid investments with a maturity of three months or less from the date of purchase. The certificate of deposit matures in July 2013. We recognize 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 three months ended March 31, 2013 and 2012. As of March 31, 2013 and December 31, 2012, the Company held no securities that were in an unrealized loss or gain position.

The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. In making our determination, we consider 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) our ability and intent to retain the investment for a sufficient period of time for it to recover.

Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company places its cash equivalents with financial institutions that it believes have high credit quality. The Company has established investment guidelines relative to credit ratings and maturities that seek to maintain safety and liquidity.

The Company sources each of its raw materials from a single supplier. In addition, the production of the Company’s lead product candidate is performed by a sole manufacturer. The inability of the suppliers or manufacturer to fulfill supply requirements of the Company could materially adversely affect future operating results or the Company’s business generally. A change in the relationship with the suppliers or manufacturer, or an adverse change in their business, could materially adversely affect the Company’s future operating results.

Revenue Recognition - The Company recognizes revenues when all of the following four criteria are present: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.

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Where the Company has continuing performance obligations under the terms of a collaborative arrangement, non-refundable upfront license payments received upon contract signing are recorded as deferred revenue and recognized as revenue as the related activities are performed. The period over which these activities are to be performed is based upon management’s estimate of the development period. Changes in management’s estimate could change the period over which revenue is recognized. Research and/or development payments are recognized as revenues as the related research and/or development activities are performed and when the Company has no continuing performance obligations related to the research and development payment received.

Where the Company has no continuing involvement under a collaborative arrangement, the Company records nonrefundable license fee revenues when the Company has the contractual right to receive the payment, in accordance with the terms of the collaboration agreement, and records milestones upon appropriate notification to the Company of achievement of the milestones by the collaborative partner.

The Company recognizes revenue from milestone payments when earned, provided that (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement and (ii) the Company does not have ongoing performance obligations related to the achievement of the milestone earned. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensurate with either the vendor’s performance to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement. Any amounts received by the Company under the agreement in advance of the Company’s performance, if deemed substantive, are recorded as deferred revenue and recognized as revenue as the Company completes its performance obligations.

With regard to recognizing revenue for multiple deliverable revenue arrangements, each deliverable within a multiple-deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control.

In addition, multiple deliverable revenue arrangement consideration is allocated at the inception of an arrangement to all deliverables using the relative selling price method. The Company also applies a selling price hierarchy for determining the selling price of a deliverable, which includes (1) vendor-specific objective evidence, if available, (2) third-party evidence, if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available.

Deferred revenue associated with a non-refundable payment received under a collaborative agreement that is terminated prior to its completion results in an immediate recognition of the deferred revenue.

Research and Development - Research and development expenses consist primarily of salaries, benefits and other related costs, including stock based compensation, for personnel serving in our research and development functions, and other internal operating expenses, the cost of manufacturing our drug candidate, 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. The Company’s expenses related to manufacturing its drug candidate and medical devices for clinical study are primarily related to activities at contract manufacturing organizations that manufacture ARIKACE and the medical devices for the Company’s use. The Company’s expenses related to clinical trials are primarily related to activities at contract research organizations that conduct and manage clinical trials on the Company’s behalf. These contracts set forth the scope of work to be completed at a fixed fee or amount per patient enrolled. Payments under these contracts 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. Nonrefundable advance payments 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, or when the goods or services are no longer expected to be provided.

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Stock-Based Compensation — The Company recognizes stock-based compensation expense for awards of equity instruments to employees and directors based on the grant-date fair value of those awards. The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting period of the award, and if applicable, is adjusted for expected forfeitures. Stock-based compensation expense is included in both research and development expenses and general and administrative expenses in the Consolidated Statements of Comprehensive Loss. For awards deemed to be granted outside of the Company’s 2000 Stock Incentive Plan, the Company uses liability accounting. These awards are classified as a liability and are remeasured at fair value at the end of each reporting period. Changes in fair value are included in compensation expense in the Consolidated Statements of Comprehensive Loss (see additional disclosures related to awards granted outside of the 2000 Stock Incentive Plan in Footnote 6, Stock-Based Compensation).

Income Taxes - The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss carryforwards and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is recorded to reduce the deferred tax assets to the amount that is expected to be realized. In evaluating the need for a valuation allowance, we take into account various factors, including the expected level of future taxable income and available tax planning strategies. If actual results differ from the assumptions made in the evaluation of our valuation allowance, we record a change in valuation allowance through income tax expense in the period such determination is made.

The Company uses a model for how it measures, presents and discloses an uncertain tax position taken or expected to be taken in a tax return. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based solely on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood to be sustained upon ultimate settlement. The Company has no uncertain tax positions as of March 31, 2013 or December 31, 2012 that qualify for either recognition or disclosure in the consolidated financial statements.

The Company’s policy for interest and penalties related to income tax exposures is to recognize interest and penalties as a component of the income taxes on continuing operations in the Consolidated Statements of Comprehensive Loss.

Net Income (Loss) Per Common Share - Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares and other dilutive securities outstanding during the period. Potentially dilutive securities from stock options, the restricted stock units and the warrant would be antidilutive as the Company incurred a net loss. Potentially dilutive common shares resulting from the assumed exercise of outstanding stock options and warrants are determined based on the treasury stock method.

The following table sets forth the reconciliation of the weighted average number of shares attributable to common stockholders used to compute basic net income (loss) per share for the three months ended March 31, 2013 and 2012.

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	Three Months Ended March 31,
	2013			2012
	(In thousands, except per share amounts)
Numerator:
Net income (loss):	$	(13,678	)	$	(6,845	)
Denominator:
Weighted average common shares used in calculation of basic net income (loss) per share:	31,554			24,860
Effect of dilutive securities:
Common stock options	—			—
Restricted stock and restricted stock units	—			—
Common stock warrant	—			—
Weighted average common shares outstanding used in calculation of diluted net income (loss) per share	31,554			24,860
Net income (loss) per share:
Basic and Diluted	$	(0.43	)	$	(0.28	)

The following potentially dilutive securities have been excluded from the computations of diluted weighted-average common shares outstanding as of March 31, 2013 and 2012 as their effect would have been anti-dilutive.

	Three Months Ended March 31,
	2013	2012
	(In thousands)

Stock options to purchase common stock	2,348	845
Warrant to purchase common stock	330	158
Restricted stock units	200	494

Segment Information - The Company currently operates in one business segment, which is the development and commercialization of inhaled therapies for patients with serious lung infections. A single management team that reports to the Chief Executive Officer comprehensively manages the entire business. The Company does not operate separate lines of business with respect to its products or product candidates. Accordingly, the Company does not have separate reportable segments.

Recently Adopted Accounting Pronouncements - In February 2013, an Accounting Standards Update was issued that requires companies to present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income (loss) based on its source and the income statement line items affected by the reclassification. This update became effective for the Company on January 1, 2013 and its adoption did not affect the Company’s consolidated financial statements.

In July 2012, an Accounting Standards Update was issued that allows companies to assess qualitative factors to determine the likelihood of indefinite-lived intangible asset impairment and whether it is necessary to perform the quantitative impairment test currently required. This update became effective for the Company on January 1, 2013 and its adoption did not impact the disclosures in the Company’s consolidated financial statements.

3. Accrued Expenses

Accrued expenses consist of the following:

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	As of March 31,		As of December 31,
	2013		2012
	(in thousands)

Accrued clinical trial expenses	$	2,941	$	1,460
Liability for stock-based compensation awards	1,808		1,204
Accrued professional fees	417		185
Accrued interest payable	159		80
Other accrued expenses	4		4
	$	5,329	$	2,933

4. Debt

On June 29, 2012, the Company and its domestic subsidiaries, as co-borrowers, entered into a Loan and Security Agreement that allowed the Company to borrow up $20.0 million in $10.0 million increments (“Loan Agreement”). The Company borrowed the first and second $10.0 million increments by signing two Secured Promissory Notes (“Note A” and “Note B”) on June 29, 2012 and December 27, 2012, respectively. Notes A and B bear interest at 9.25%. Note A is to be repaid over a 42-month period with the first twelve monthly payments representing interest only followed by thirty monthly equal payments of principal and interest. Note B is to be repaid over a 36-month period with the first six monthly payments representing interest only followed by thirty monthly equal payments of principal and interest. The interest only period is currently scheduled to end on July 31, 2013, but is extendable to December 31, 2013, contingent upon completion of certain ARIKACE-related development milestones. The principal monthly repayments for Notes A and B are scheduled to begin on August 1, 2013, or if extended, January 1, 2014, and in either case will end on January 1, 2016. In connection with the Loan Agreement, the Company granted the lender a first position lien on all of the Company’s assets, excluding intellectual property. Prepayment of the loans made pursuant to the Loan Agreement is subject to a prepayment penalty and the Company is required to pay an “end of term” charge of approximately $0.4 million, which is being charged to interest expense (and accreted to the debt) using the effective interest method over the term of the Notes. Debt issuance costs paid to the lender were recorded as a discount on the debt and are being amortized to interest expense using the effective interest method over the life of the Loan Agreement. Debt issuance costs paid to third parties were capitalized and are being amortized to interest expense using the effective interest method over the term of the Notes.

The Loan Agreement also contains representations and warranties by the Company and the lender, indemnification provisions in favor of the lender, customary covenants (including limitations on other indebtedness, liens, acquisitions, investments and dividends, but no financial covenants), and events of default (including with respect to payment defaults, breaches of covenants following any applicable cure period, a material impairment in the perfection or priority of the lender’s security interest or in the collateral, and events relating to bankruptcy or insolvency). Upon the occurrence of an event of default, a default interest rate of the base rate plus an additional 5% may accrue on the outstanding loan balances, and the lender may terminate its lending commitment, declare all outstanding obligations immediately due and payable, and take such other actions as set forth in the Loan Agreement. In addition, pursuant to the Loan Agreement, the lender has the right to participate, in an amount of up to $1.0 million, in certain future private equity financing(s) by the Company.

In conjunction with entering into the Loan Agreement, the Company granted a warrant to the lender to purchase shares of the Company’s common stock. Since the warrant was granted in conjunction with entering into the Loan Agreement, the relative fair value of the warrant was recorded as equity and debt discount. The portion of the fair value allocated to debt discount is being amortized to interest expense over the term of the related debt using the effective interest method.

The following table presents the components of the Company’s debt balance as of March 31, 2013.

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	March 31, 2013
	(in thousands)
Debt:
Notes payable	$	20,000
Add:
Accreted end of term charge	92
Less:
Unamortized debt issuance fees paid to lender	(169		)
Unamortized discount from warrant	(537		)
Current portion of long-term debt	(4,875		)
Long-term debt	$	14,511

Future principal repayments of the two Notes are as follows (in thousands):

Year Ending December 31:
2013	$	3,007
2014	7,724
2015	8,481
2016	788
Total	$	20,000

The estimated fair value of the debt (categorized as a Level 2 liability for fair value measurement purposes) is determined using current market factors and the ability of the Company to obtain debt at comparable terms to those that are currently in place. We believe the estimated fair value at March 31, 2013 approximates the gross carrying amount.

5. Shareholders’ Equity

Common Stock — As of March 31, 2013, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 and 31,571,926 shares of common stock issued and outstanding. Of the shares outstanding as of March 31, 2013, 1,765,271 shares represent holdback shares held by the Company as security for potential indemnification payments, as described in the Agreement and Plan of Merger with Transave, Inc. (the “Merger Agreement”), filed as Exhibit 2.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (see Footnote 9, Commitments and Contingencies, Legal Proceedings, Pilkiewicz v. Transave LLC for additional information regarding these holdback shares). In addition, as of March 31, 2013, the Company has reserved 2,347,919 shares of common stock for issuance upon the exercise of outstanding common stock options, 200,452 for issuance upon the vesting of restricted stock units, and 329,932 shares of common stock for issuance upon the exercise of the outstanding warrant (see Note 10. Subsequent Events, “Warrant Exercise”).

Warrant - In conjunction with entering into the Loan Agreement (See Note 4 — Debt), the Company granted a warrant to the lender to purchase 329,932 shares of the Company’s common stock at an exercise price of $2.94 per share. The fair value of the warrant of $0.8 million was calculated using the Black-Scholes warrant-pricing methodology at the date of issuance and was recorded as equity and as a discount to the debt and is being amortized to interest expense over the term of the promissory notes using the effective interest method. This warrant expires on June 29, 2017, which is five years from the date of grant (see Note 10. Subsequent Events, “Warrant Exercise”).

6. Stock Based Compensation

The Company has two equity compensation plans; the Amended and Restated 2000 Stock Incentive Plan, as amended (the “2000 Stock Incentive Plan”) and the Amended and Restated 2000 Employee Stock Purchase Plan

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(the “Stock Purchase Plan”). Both the 2000 Stock Incentive Plan and the Stock Purchase Plan were adopted by the Company’s Board of Directors in 2000.

Under the terms of the 2000 Stock Incentive Plan, the Company is authorized to grant a variety of incentive awards based on our common stock, including stock options (both incentive options and non-qualified options), performance shares and other stock awards to all employees and non-employee directors. At the Company’s Annual Meeting of Shareholders held on May 18, 2011, t he Company’s shareholders approved an amendment to increase the number of authorized shares under this plan by 3,000,000 shares. As of March 31, 2013, the 2000 Stock Incentive Plan provides for the issuance of a maximum of 3,925,000 shares of common stock. On March 15, 2013 the Company’s Board of Directors amended the 2000 Stock Incentive Plan to provide for a single aggregate per person annual sub-limit for the issuance of a maximum of 1,500,000 stock options, performance shares (including RSUs) and shares of restricted stock.

On April 17, 2013, the Company’s Board of Directors approved a new plan, the 2013 Incentive Plan, which provides for an additional 3,000,000 shares of the Company’s common stock to be reserved for future grants under the 2013 Incentive Plan. This increase will be presented to the Company’s shareholders for their approval at the Company’s annual meeting of shareholders to be held on May 23, 2013. If approved by the Company’s shareholders, any remaining shares reserved for future grants under the 2000 Incentive Plan will be transferred to the 2013 Incentive Plan. As of March 31, 2013, 135,583 shares of the Company’s common stock were reserved for future grants (or issuances) of restricted stock, restricted stock units, stock options, and stock warrants under the 2000 Stock Incentive Plan.

Under the terms of the Stock Purchase Plan, eligible employees may, from time-to-time, have the opportunity to purchase our common stock at a discount. An option gives its holder the right to purchase shares of our common stock, up to a maximum value of $25,000 per year. The Stock Purchase Plan provides for the issuance of a maximum of 150,000 shares of our common stock to participating employees. The Company has not offered employees the right to purchase common stock under the Stock Purchase Plan since prior to our merger with Transave in December 2010. As of March 31, 2013, 150,000 shares of the Company’s common stock were reserved for future issuances of common stock under the Stock Purchase Plan.

Stock Options - The Company calculates the fair value of stock options granted using the Black-Scholes valuation model. The Company calculates the fair value of stock options granted outside of the 2000 Stock Incentive Plan using liability accounting. These awards are classified as a liability and remeasured at fair value at the end of each reporting period using the Black-Scholes valuation model and changes in fair value are included in compensation expense in the Consolidated Statements of Comprehensive Loss (see additional disclosures related to stock options granted outside the 2000 Stock Incentive Plan at the end of this footnote).

The following table summarizes the grant date fair value and assumptions used in determining the fair value of stock options granted under and outside the 2000 Stock Incentive Plan during the three months ended March 31, 2013.

	Three Months Ended March 31,
	2013			2012

Volatility	95.5		%	104.6		%
Risk-free interest rate	0.8		%	1.0		%
Dividend yield	0.0		%	0.0		%
Expected option term (in years)	6.25			6.25
Weighted-average fair value of stock options granted	$	6.85		$	3.29

For the three months ended March 31, 2013, the volatility factor was based on the Company’s historical volatility since the closing of the merger with Transave on December 1, 2010. The expected life was determined using the simplified method as described in ASC Topic 718, “Accounting for Stock Compensation”, which is the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate is based on the US Treasury yield in effect at the date of grant. Forfeitures are based on actual percentage of option forfeitures since the closing of the merger on December 1, 2010, and are the basis for future forfeiture expectations.

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The following table summarizes stock option activity for stock options granted under and outside the 2000 Stock Incentive Plan for the three months ended March 31, 2013 as follows:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number of		Exercise		Contractual	Intrinsic
	Shares		Price		Life in Years	Value

Options outstanding at December 31, 2012	1,817,839		$	4.10
Granted	552,250		6.85
Exercised	(17,170	)	3.03
Forfeited and expired	(5,000	)	10.10
Options outstanding at March 31, 2013	2,347,919		4.74		8.19	$	6,507,867
Vested and expected to vest at March 31, 2013	2,180,927		4.72		8.08	6,092,692
Exercisable at March 31, 2013	426,919		4.57		2.27	1,304,426

The Company recognized stock-based compensation expense related to stock options of approximately $0.7 million and $0.2 million for the three months ended March 31, 2013 and 2012, respectively. General and administrative expenses include $0.6 million and $0.1 million and research and development expenses include $0.1 million and $0.1 million of stock-based compensation expense in the Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, there was $8.6 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 3.31 years.

Outstanding as of March 31, 2013								Exercisable as of March 31, 2013
Range of Exercise Prices				Number of Options	Weighted Average Remaining Contractual Term (in Years)	Weighted Average Excersise Price		Number of Options	Weighted Average Excersise Price
$	3.03	$	3.13	465,135	6.16	$	3.03	224,419	$	3.03
$	3.14	$	3.39	21,400	9.19	$	3.24	—	$	—
$	3.40	$	3.47	708,314	9.45	$	3.40	—	$	—
$	3.48	$	5.89	405,070	5.53	$	5.18	186,750	$	5.89
$	5.90	$	6.33	240,250	9.5	$	6.55	5,250	$	6.50
$	6.34	$	6.89	385,750	9.97	$	6.90	—	$	—
$	6.90	$	7.43	105,500	9.76	$	6.96	—	$	—
$	7.44	$	8.29	6,000	9.98	$	7.44	—	$	—
$	8.30	$	17.59	5,250	1.11	$	8.30	5,250	$	8.30
$	17.60	$	17.60	5,250	0.11	$	17.60	5,250	$	17.60

Restricted Stock and Restricted Stock Units — The Company grants Restricted Stock Units (“RSUs”) to eligible employees, including our executives. Each RSU represents a right to receive one share of the Company’s common stock upon the completion of a specific period of continued service or achievement of a certain milestone. RSU awards granted under the Company’s 2000 Stock Incentive Plan are generally valued at the market price of the Company’s common stock on the date of grant. In prior years certain RSUs were granted in excess of certain plan sub-limits. As of March 31, 2013, such awards that are still considered to be granted outside the 2000 Stock Incentive Plan are classified as a liability and remeasured at fair value at the end of each reporting period and

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changes in fair value are included in compensation expense in the Consolidated Statements of Comprehensive Loss (see additional disclosures related to RSUs granted outside the 2000 Stock Incentive Plan at the end of this footnote). The Company recognizes compensation expense for the fair values of these RSUs on a straight-line basis over the requisite service period of these awards, which is generally one to three years.

The following table summarizes the RSU activity for awards granted both under and outside of the 2000 Stock Incentive Plan during the three months ended March 31, 2013:

			Weighted
	Number of		Average
	RSUs		Grant Price
Outstanding as of December 31, 2012	215,525		$	6.26
Granted	53,730		$	6.67
Released	(68,803	)	$	3.69
Forfeited	—		—
Outstanding as of March 31, 2013	200,452		$	7.26
Expected to Vest as of March 31, 2013	192,388		$	7.25

The Company recognized stock-based compensation expense related to RSUs of approximately $0.3 million for each of the three month periods ended March 31, 2013 and 2012. General and administrative expenses include $0.2 million and $0.3 million and research and development expenses include $0.1 million and less than $0.1 million of stock-based compensation expense in the Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, there was $0.6 million of unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 0.9 years.

Awards Granted Outside of the 2000 Stock Incentive Plan - In connection with a recent review of equity compensation awards made under the 2000 Stock Incentive Plan, the Company determined that it had inadvertently exceeded the annual per-person sub-limits in connection with awards previously made to certain of its current and past officers and directors. The aggregate amount of common stock represented by these awards in excess of the per person annual sub-limits during the three months ended March 31, 2013 and the two years ended December 31, 2012, which consisted of RSUs and stock options, is approximately 1.4 million shares. Such awards are included in the stock option and RSU tables and related disclosures above. The awards that exceeded the per person sub-limits included certain awards issued immediately following the Company’s business combination with Transave, awards negotiated with new hires pursuant to employment agreements or offers of employment, and certain other awards made subsequent to the Company’s 2011 one-for-ten reverse stock split. As of March 31, 2013, these awards were deemed to be granted outside of the 2000 Stock Incentive Plan and as such the Company applied liability accounting to these awards and recorded a liability of $1.8 million which is included in accrued expenses as of March 31, 2013.

7. License and Collaborative Agreements

Premacure (now Shire plc) - In May, 2012, the Company entered into an agreement with Premacure Holdings AB and Premacure AB of Sweden (collectively, “Premacure”) pursuant to which the Company granted to Premacure an exclusive, worldwide license to develop, manufacture and commercialize IGF-1, with its natural binding protein, IGFBP-3, for the prevention and treatment of complications of preterm birth in exchange for royalty payments on commercial sales of IGF-1 (the “Premacure License Agreement”). In March 2013, we amended the Premacure License Agreement to provide Premacure with the option, exercisable by Premacure any time prior to April 30, 2013, to pay us $11.5 million (the “Buyout Amount”) and assume any of our royalty obligations to other parties in exchange for a fully paid license (see Note 10. Subsequent Events, “Exercise of Buyout Option”).

8. Income Taxes

The provision (benefit) for income taxes was ($1.2 million) and $0 during the three months ended March

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31, 2013 and 2012. The Company’s effective tax rate was (8.2%) and 0% for the three months ended March 31, 2013 and 2012, respectively. The benefit for income taxes recorded and the effective tax rate for the three months ended March 31, 2013 solely reflect the reversal of a valuation allowance previously recorded against the Company’s New Jersey State net operating losses (“NOL”) that resulted from the Company’s sale of $27.0 million of its New Jersey State NOLs under the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) for cash of $1.2 million, net of commissions. The Program allows qualified technology and biotechnology businesses in New Jersey to sell unused amounts of NOLs and defined research and development tax credits for cash. The remaining net deferred tax asset as of March 31, 2013 remains fully offset by a valuation allowance due to the Company’s history of losses.

As of December 31, 2012, the Company had NOL carryforwards for income tax purposes of $350.0 million available to offset future taxable income, if any. The NOL carryforwards expire in various years beginning in 2013. The Company is not currently subject to any open tax audits and the statute of limitations for tax audits is generally open for the years 2009 and later. However, except in 2009, the Company has incurred net operating losses since inception. Such loss carryforwards would be subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin.

The Company’s policy is to recognize interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company has not recorded such expenses. As of December 31, 2012, the Company did not record any reserves for unrecognized income tax benefits, nor did it record 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 twelve months.

Utilization of the NOLs and general business tax credits carryforwards may be subject to a substantial limitation under Section 382 of the Internal Revenue Code of 1986 due to changes in ownership of the Company that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and general business tax credits carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. Since the Company’s formation, it has raised capital through the issuance of common stock on several occasions which, combined with the purchasing shareholders’ subsequent disposition of those shares, may have resulted in a change of control, as defined by Section 382, and it issued a substantial amount of shares of common stock as part of its merger with Transave, Inc. in December 2010. Due to the significant complexity and cost associated with a change in control study, and because there could be additional changes in control in the future, the Company has not yet formally assessed whether there has been one or more changes in control since the Company’s formation. If the Company experienced a change of control at any time since Company formation, utilization of its NOL or general business tax credit carryforwards would be subject to the limitation rules under Section 382. Any limitation may result in expiration of a portion of the NOL or general business tax credit carryforwards before utilization which would reduce the Company’s gross deferred tax assets.

9. Commitments and Contingencies

Commitments

The Company has two operating leases for office and laboratory space located in Monmouth Junction, NJ through December 31, 2014. Future minimum rental payments under these two leases total approximately $1.3 million. We continue to lease office space in Richmond, VA, where the Company’s corporate headquarters were previously located through October 2016. Future minimum rental payments under this lease total approximately $1.7 million. During 2011, we recorded a net present value charge of $1.2 million in general and administrative expenses associated with vacating the Richmond facility. The remaining accrual for this charge was $0.9 million as of March 31, 2013.

Rent expense charged to operations was $0.2 million for each of the three month periods ended March 31, 2013 and 2012. Future minimum rental payments required under the Company’s operating leases are as follows (in thousands).

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Year Ending December 31:
2013	$	890
2014	1,201
2015	498
2016	425
Total	$	3,014

Legal Proceedings

Cacchillo v. Insmed

On October 6, 2010, a complaint was filed against the Company by Angeline Cacchillo (“Plaintiff”) in the U.S. District Court for the Northern District of New York (the “Court”), captioned Cacchillo v. Insmed, Inc. , No. 1:10-cv-0199, seeking monetary damages and a court order requiring Insmed to support Plaintiff’s compassionate use application to the FDA and if approved, to provide Plaintiff with IPLEX. Plaintiff was a participant in the Phase 2 clinical trial of IPLEX sponsored by us evaluating the effectiveness of the investigational drug in patients with type 1 myotonic muscular dystrophy (“MMD”). In the complaint, Plaintiff alleged (i) violation of constitutional due process and equal protection by depriving Plaintiff of continued access to IPLEX, (ii) fraudulent inducement to enter the Phase 2 clinical trial with the false promise to support Plaintiff’s compassionate use application to the FDA, (iii) negligent representation that the Company would support Plaintiff’s compassionate use application, (iv) breach of contract, seeking monetary and non-monetary damages, (v) intentional infliction of emotional distress by refusing to support Plaintiff’s compassionate use application after providing IPLEX, (vi) violation of an assumed duty of care to Plaintiff, (vii) breach of fiduciary duty to Plaintiff, (viii) negligence and (ix) unjust enrichment. Plaintiff seeks compensatory and punitive monetary damages and sought injunction relief as noted above.

On October 7, 2010, Plaintiff filed a motion for a preliminary injunction that would require us to provide a written statement supporting the “compassionate use” of IPLEX for Plaintiff and directing us to provide IPLEX to Plaintiff at cost in the event that the compassionate use application were granted by the FDA. On October 22, 2010, the Court denied Plaintiff’s motion for the preliminary injunction concluding that the Court lacked subject matter jurisdiction with respect to her claim for a preliminary injunction. Plaintiff appealed the Court’s denial of her motion for a preliminary injunction to the U.S. Court of Appeals for the Second Circuit, which affirmed the trial court’s order denying the Plaintiff’s motion for a preliminary injunction.

We filed a motion with the Court to dismiss all of the outstanding claims, and on June 29, 2011, the Court dismissed six of Plaintiff’s claims, leaving outstanding the claims for (i) fraudulent inducement, (ii) negligent misrepresentation, and (iii) breach of contract. The Company filed an answer and affirmative defenses with the Court on July 12, 2011. Plaintiff’s claim for monetary damages with respect to these claims remains outstanding. The parties completed discovery on or about June 1, 2012. The Company filed a Motion for Summary Judgment on August 1, 2012 seeking judgment in our favor on the three claims remaining in the case and the motion was fully submitted on October 9, 2012. On January 19, 2013, the Court granted the Company’s Motion for Summary Judgment and dismissed all of the outstanding claims. Plaintiff filed a Notice of Appeal on March 15, 2013. The Company expects that the parties will submit briefs before the end of 2013, with a decision expected in the first half of 2014.

Pilkiewicz v. Transave LLC

On March 28, 2011, Frank G. Pilkiewicz and other former stockholders of Transave, Inc. (collectively, the “Petitioners”) filed an appraisal action against the Company’s subsidiary Transave, LLC in the Delaware Court of Chancery captioned Frank G. Pilkiewicz, et al. v. Transave, LLC , C.A. No. 6319-CS. On December 13, 2011, following the mailing of the revised notice of appraisal rights in accordance with the settlement terms of Mackinson et al. v. Insmed , an Amended Petition for Appraisal of Stock was filed by the Petitioners.

The Petitioners seek appraisal under Delaware law of their total combined common stock holdings representing total dissenting shares of approximately 7.77 million shares of Transave, Inc. common stock (the

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“Transave Stock”). The Petitioners are challenging the value of the consideration that they would be entitled to receive for their Transave Stock under the terms of the merger.

Under the terms of the Merger Agreement, certain of the former stockholders of Transave, Inc. (the “Transave Stockholders”) are obligated to indemnify the Company for certain liabilities in connection with the appraisal action. The Company notified the Transave Stockholders in May 2012 that the Company is seeking indemnification in accordance with the Merger Agreement and that it will continue to retain the aggregate amount of the holdback shares totaling 1,765,271 shares, as security for any indemnification payments due under the Merger Agreement. Discovery is ongoing and the trial is scheduled to begin September 30, 2013. The Company believes that the allegations contained in the amended petition are without merit, and we intend to continue to vigorously defend this action. It is not possible at this time to estimate the amount of loss or range of possible loss, if any, that might result from an adverse resolution of this action.

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

10. Subsequent Events

Exercise of Buyout Option — As disclosed in more detail in Note 7. “License and Collaborative Agreements”, in May 2012, the Company entered into a license agreement with Premacure pursuant to which the Company granted to Premacure an exclusive, worldwide license to develop, manufacture and commercialize IGF-1, with its natural binding protein, IGFBP-3, in exchange for royalty payments on commercial sales of IGF-1 (the “Premacure License Agreement”). In March 2013, the Premacure License Agreement was amended to provide Premacure with the option, exercisable by Premacure any time prior to April 30, 2013, to pay us $11.5 million and assume any of our royalty obligations to other parties in exchange for a fully paid license. On April 29, 2013, Premacure exercised this option and is now obligated to pay the Company $11.5 million on or before May 9, 2013. The Company is not entitled to any additional future royalties from Premacure, and Premacure has assumed the Company’s royalty obligations to other parties.

Warrant Exercise — As disclosed in more detail in Note 4. “Debt” and Note 5. “Shareholders’ Equity”, in June 2012, in conjunction with entering into a Loan Agreement with the Company, the Company granted a warrant to the lender to purchase 329,932 shares of the Company’s common stock at an exercise price of $2.94 per share. On April 30, 2013, the lender exercised the warrant in full via the “net issuance” method. In accordance with the provisions of the net issuance method as contained in the warrant agreement, the Company issued and delivered 223,431 Common Shares (the “Warrant Shares”) to the lender on May 1, 2013. As a result of the exercise, the warrant is no longer outstanding and there are no additional shares issuable under this instrument.

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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. “Forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995, 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 include, but are not limited to: our ability to complete development of, receive regulatory approval for, and successfully commercialize ARIKACE®; our estimates of expenses and future revenues and profitability; our plans to develop and market new products and the timing of these development programs; status, timing, and the results of preclinical studies and clinical trials and preclinical and clinical data described herein; the timing of responses to information and data requests from the US Food and Drug Administration (the “FDA”) and other regulatory authorities; our clinical development of product candidates; our ability to obtain and maintain regulatory approval for our product candidates; our expectation as to the timing of regulatory review and approval; our estimates regarding our capital requirements and our needs for additional financing; our estimates of the size of the potential markets for our product candidates; our selection and licensing of product candidates; our ability to attract third parties with acceptable development, regulatory and commercialization expertise; the benefits to be derived from corporate license agreements and other third party efforts, including those relating to the development and commercialization of our product candidates; the degree of protection afforded to us by our intellectual portfolio; the safety and efficacy of our product candidates; sources of revenues and anticipated revenues, including contributions from license agreements and other third party efforts for the development and commercialization of products; our ability to create an effective direct sales and marketing infrastructure for products we elect to market and sell directly; the rate and degree of market acceptance of our product candidates; the timing and amount of reimbursement for our product candidates; the success of other competing therapies that may become available; and the availability of adequate supply and manufacturing capacity and quality for our product candidates.

Forward-looking statements are based upon our current expectations and beliefs, and involve known and unknown risk, 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 factors include, among others, the factors discussed in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 18, 2013. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission, 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, 2012.

OVERVIEW

Insmed is a biopharmaceutical company focused on developing and commercializing inhaled therapies for patients battling serious lung diseases that are often life threatening. Our lead product candidate, ARIKACE ® or liposomal amikacin for inhalation, is an inhaled antibiotic treatment that delivers a proven and potent anti-infective directly to the site of serious lung infections to improve the efficacy, safety and convenience of this therapeutic approach for patients.

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Currently, we are conducting clinical trials of ARIKACE for two initial indications in orphan patient populations: a Phase 3 clinical trial in cystic fibrosis (“CF”) patients who have lung infections caused by Pseudomonas aeruginosa ( Pseudomonas ) and a Phase 2 clinical trial in patients who have lung infections caused by non-tuberculous mycobacteria (“NTM”). Our primary development focus is to obtain regulatory approval for ARIKACE in these two initial indications and to prepare for commercialization initially in Europe and Canada and eventually in the United States (“US”). If approved, ARIKACE will be the first once-a-day inhaled antibiotic treatment option available for these CF and NTM indications. Our strategy is to continue to develop ARIKACE for additional indications beyond Pseudomonas in CF and NTM. The following table summarizes the current status of ARIKACE development.

Product Candidate/Target Indications	Status	Next Expected Milestone(s)
ARIKACE Pseudomonas aeruginosa lung infections in CF patients	· In a Phase 3 registrational clinical trial in Europe and Canada that completed the patient treatment phase of the trial in early May 2013. · In a two-year open-label extension study that is enrolling patients from the Phase 3 registrational clinical trial and is expected to be completed during the first half of 2015. · Granted orphan drug designation in Europe and the US.	· We expect to report top-line clinical results from our Phase 3 registrational clinical trial in mid-2013. · If approved, ARIKACE would be the only once-a-day treatment for Pseudomonas lung infections in CF patients. · If approved, we plan to commercialize ARIKACE ourselves in Europe and in Canada. · We plan to evaluate our plans for CF in the US after reviewing the results from our Phase 3 clinical trial in Europe and Canada.

ARIKACE Non-tuberculous mycobacteria (NTM) lung infections	· In a Phase 2 clinical trial in the US and Canada that began enrolling patients in June 2012. · Granted orphan drug designation in the US.	· We expect to report top-line clinical results from our Phase 2 clinical trial during the fourth quarter of 2013. · We expect to commence a limited compassionate use program in the second half of 2013. · If approved, ARIKACE would be the first approved inhaled antibiotic treatment for NTM lung infections. · If approved, we plan to commercialize ourselves initially in the US and eventually in Europe and in Canada.

ARIKACE Pseudomonas aeruginosa and other susceptible organisms causing lung infections in non-CF bronchiectasis patients	· Phase 2 clinical trial in the US completed. · Granted orphan drug designation in the US.	· We expect to evaluate development and commercialization strategies when we complete our Phase 3 clinical trial in CF patients with Pseudomonas lung infections and Phase 2 clinical trial in patients with NTM infections.

ARIKACE is considered a new molecular entity (NME) by the US Food and Drug Administration (“FDA”) primarily due to its proprietary liposomal technology. The key active ingredient, amikacin, is an FDA-approved antibiotic with proven efficacy in the treatment of a broad range of gram-negative infections, including Pseudomonas and NTM. ARIKACE is in the aminoglycoside class of antibiotics.

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ARIKACE is differentiated from other inhaled antibiotics used to treat serious lung infections by our proprietary advanced liposomal technology, which is designed specifically to enhance the delivery profile, safety and efficacy of pharmaceuticals delivered to the lung via inhalation. We believe ARIKACE provides potential improvements over existing treatments for these indications. In Phase 2 studies in CF patients with Pseudomonas lung infections, ARIKACE demonstrated improved patient lung function during treatment as well as in the period following treatment (the “off-treatment” period). In a Phase 2 open label extension study, ARIKACE also demonstrated statistically significant effectiveness for up to 56 days off-treatment over multiple treatment cycles.

If approved for CF patients with Pseudomonas lung infections, we expect ARIKACE would be the first inhaled antibiotic to be approved for once-daily administration in this indication. If approved for NTM patients, we expect ARIKACE would be the first and only approved treatment for NTM lung infections. ARIKACE has been granted orphan drug designation for CF patients who have Pseudomonas lung infections in both the European Union (“EU”) and the US, and for NTM patients in the US. We plan to file for orphan drug designation for NTM lung infections in Europe in 2013.

Corporate History

We were incorporated in the Commonwealth of Virginia on November 29, 1999. On December 1, 2010, we completed a business combination with Transave, Inc. (or “Transave”) a privately held, New Jersey-based pharmaceutical company focused on the development of differentiated and innovative inhaled pharmaceuticals for the site-specific treatment of serious lung infections. Our current operations are based on the technology and product candidates historically developed by Transave.

Lead Product Candidate - ARIKACE

Our lead product candidate, ARIKACE or liposomal amikacin for inhalation, is a once-a-day inhaled antibiotic treatment engineered to deliver a proven and potent anti-infective directly to the site of serious lung infections. There are two key components of ARIKACE: the liposomal formulation of the drug and the nebulizer device through which ARIKACE is inhaled through the mouth and into the lung. The nebulizer technology is owned by PARI Pharma GmbH (“PARI”), but through our licensing agreement with PARI, we have exclusive access to this technology, which is specifically developed for the delivery of our liposomal encapsulation of amikacin. Our proprietary liposomal technology and nebulizer are designed specifically for delivery of pharmaceuticals to the lung and provides for potential improvements to existing treatments. We believe that ARIKACE has potential usage for at least two orphan patient populations with high unmet need: CF patients who have Pseudomonas lung infections and patients who have NTM lung infections. We estimate the combined global market potential for these two orphan indications to be approximately $1 billion.

ARIKACE has the potential to be differentiated from other marketed drugs for the treatment of chronic lung infections by improving efficacy, safety and patient convenience. We believe efficacy may be improved due to the ability of ARIKACE to deliver high, sustained levels of amikacin directly to the lung and to the specific site of the underlying infection. We also believe that ARIKACE may have increased durability of effect, benefiting patients when off treatment. In addition, the inhalation delivery of ARIKACE may reduce the potential for adverse events such as ototoxicity (hearing loss, ringing in the ears and/or loss of balance) and nephrotoxicity (toxicity to the kidneys), as compared with intravenous (IV) administration of amikacin. If approved, we expect that ARIKACE will be administered once daily for approximately 13 minutes via inhalation using the eFlow ® Nebulizer System, which has been optimized specifically for ARIKACE by PARI. We believe that this nebulizer system will reduce treatment time or dosing frequency, as compared with the currently marketed inhaled antibiotics, which require dosing two to three times daily with treatment times ranging from approximately 10 to 40 minutes per day. By easing the patient’s treatment burden we believe that ARIKACE can potentially improve patient compliance, which we believe may in turn lead to a reduction in the development of antibiotic resistance and, ultimately, lead to clinical benefit.

We believe that ARIKACE may provide: (1) improved efficacy resulting from sustained deposition of drug in the lung and improved ability to reach the site of infection (for CF Pseudomonas infections, this means penetration of biofilm and facilitated drug release by factors that are secreted by the bacteria, and for NTM, this

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means enhanced uptake into macrophages, where NTM often grows); (2) decreased adverse events and improved tolerability as compared with amikacin delivered intravenously; and (3) reduced dosing frequency or treatment time as compared to existing products.

ARIKACE for CF Patients with Pseudomonas Lung Infections

Disease

CF is an inherited chronic disease that is often diagnosed before the age of two. CF occurs primarily in individuals of central and western European origin. CF affects roughly 70,000 children and adults worldwide, including 30,000 children and adults in the US (Cystic Fibrosis Foundation Patient Registry, 2011) and 35,000 patients in Europe (Hoiby, BMC Medicine, 2011, 9:32). There is no cure for CF.

Despite extensive treatment with multiple antibiotics, improved nutrition, and other treatments, life expectancy of a CF patient is only about 37 years (Cystic Fibrosis Foundation Patient Registry, 2011). Median predicted age of survival is calculated using life table analysis (as calculated by actuaries) given the ages of the patients in the registry and the distribution of deaths. Using this calculation, half of the people in the patient registry are expected to live beyond the median predicted survival age, and half are expected to live less than the median predicted survival age.

Among other issues, CF causes thick, sticky mucus to develop in and clog the lungs. This creates an ideal environment for various pathogens, such as Pseudomonas , to colonize and lead to chronic infection of the lung, inflammation and progressive loss of lung function. In fact, chronic bronchial infections with Pseudomonas are a major cause of morbidity and mortality among patients with CF. Once a CF patient acquires a Pseudomonas infection, it is difficult to eradicate. The current, best available treatment is chronic administration of antibiotics to suppress the bacteria, reduce inflammation and preserve lung function for as long as possible. The rate of infection with Pseudomonas in CF patients increases with age. It is estimated that 70% of adult CF patients have chronic infection due to Pseudomonas (CFF Patient Registry, 2011). A study reported in the Journal of Cystic Fibrosis (Liou, 2010) found that deterioration in lung function of CF patients is the main cause of death and that, despite best efforts, lung function declines by 1% to 3% annually.

Current Clinical Program

ARIKACE was granted orphan drug status in the US and Europe for the treatment of Pseudomonas lung infections.

We are conducting a registrational Phase 3 clinical study of ARIKACE for CF patients with Pseudomonas lung infections in Europe and Canada. The Phase 3 trial includes 302 patients and is a 1:1 randomized trial comparing ARIKACE 560 mg, delivered once daily for approximately 13 minutes via the eFlow Nebulizer System, to Tobi (inhaled tobramycin solution), which is delivered twice daily approximately 15 minutes per treatment for a daily total of approximately 30 minutes per day. The first patient in this trial was dosed in April 2012, and the trial met target enrollment in November 2012. The study’s primary endpoint is relative change in forced expiratory volume in one second (FEV1) from baseline measured after the completion of three cycles, each comprising a 28-day on-treatment period and a 28-day off-treatment period. Approximately 260 patients are required to demonstrate non-inferiority at an agreed-upon margin with 80% power. Secondary endpoints for the study include change in pulmonary function, time to and the proportion of patients experiencing pulmonary exacerbation, the time elapsed to first antipseudomonal antibiotic treatment for pulmonary exacerbation, time to and number of hospitalizations, reduction in bacteria as measured by reduction in colony forming units, change in patient-reported symptoms and evaluation of safety and tolerability. We previously agreed with the European Medicines Agency (EMA) on the study design. The last patient, last visit for this study occurred on May 6, 2013. We currently expect to announce clinical results from the Phase 3 trial in mid-2013.

In addition, patients completing the initial 24 week Phase 3 study will have the option to enroll in a two-year open-label extension study. The patients in this study will receive ARIKACE for a two year period, using the same cycles of a 28 day on-treatment period and a 28 day off-treatment period.

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Strategy for Commercialization

We currently plan to retain marketing rights for ARIKACE in certain countries in Europe, and in Canada and the US. We believe ARIKACE will require a limited commercial infrastructure in these regions because of the small focused nature of the potential physician prescribing population for CF patients. We may license ARIKACE for certain indications in certain countries in Europe, as well as outside of Europe, and in Canada and the US. In 2013, we commenced preparations for the potential commercialization of ARIKACE in Europe and Canada, including hiring Matt Pauls, our chief commercial officer. We plan to hire several other positions to support our sales and marketing efforts.

ARIKACE for Patients with NTM Lung Infections

Disease

Non-tuberculous mycobacteria, or NTM, are organisms common in soil and water that have been associated with lung disease in select patient groups. NTM have characteristics that are similar to tuberculosis, or TB, but NTM are not contagious. Many people have NTM in their bodies, but NTM do not normally lead to an infection, perhaps because the body’s immune system successfully overcomes the threat of infection. It is not completely understood why certain individuals are susceptible to NTM infections. However, the patients who become infected by NTM often are immune-compromised or have structural damage in their lungs at the time of the infection.

NTM are organisms that invade and multiply chiefly within macrophages. They are characteristically resistant to most antibiotics. NTM lung infections are chronic, debilitating and progressive and often require lengthy, repeat hospitalizations. Signs and symptoms of NTM pulmonary disease are variable and nonspecific. They include chronic cough, sputum production and fatigue. Less commonly, malaise, dyspnea, fever, hemoptysis, and weight loss also can occur, usually with advanced NTM disease. Evaluation is often complicated by the symptoms caused by co-existing lung diseases. According to a study published in the American Journal of Respiratory and Critical Care Medicine , these conditions include chronic obstructive airway disease associated with smoking, bronchiectasis, previous mycobacterial diseases, CF and pneumoconiosis (Olivier et al. 2003).

Current Clinical Program

ARIKACE was granted orphan drug designation in the US for the treatment of patients with NTM.

We are currently conducting a Phase 2 clinical trial in the US and Canada for ARIKACE in adult patients with NTM lung infections. We began enrolling patients in June 2012. The Phase 2 clinical trial is a randomized, placebo-controlled study of approximately 100 adult patients with recalcitrant NTM lung infections. There are two parts to the study: a randomized portion and an open-label portion.

In the randomized portion of the study, patients are screened initially to include in the study those who have NTM lung infections with persistent sputum culture for MAC or M. abscessus while on ATS/IDSA-guidelines-based treatment regimen for at least six months prior to screening. Patients who are NTM culture positive and meet the eligibility criteria to enroll in the study will receive, in addition to their ongoing antibiotic treatment regimen, either ARIKACE 560 mg or a placebo both delivered once daily for approximately 13 minutes via an optimized, investigational eFlow Nebulizer System.

The primary efficacy endpoint for this study is the change in mycobacterial density from baseline to the end of 84 days of treatment. At a public workshop discussion in September 2012, the FDA agreed that the microbiological end-point is an appropriate primary end-point for NTM lung disease. The study will also measure secondary endpoints, including the proportion of patients with culture conversion to negative, the time to “rescue” anti-mycobacterial drugs, the change from baseline in six-minute walk distance and oxygen saturation, the change

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from baseline in patient reported outcomes, and evaluation of safety and tolerability. At the conclusion of the randomized portion of the study, eligible patients will receive ARIKACE once daily for an additional 84 days during the open-label portion of the study, primarily to measure longer-term safety and efficacy. We previously agreed with the FDA on this clinical trial design. We expect results from this clinical trial in the fourth quarter of 2013.

In addition to the Phase 2 clinical trial outlined above, we intend to pursue a limited compassionate use program starting in the second half of 2013. We currently anticipate this program’s participants will consist of approximately 25 patients who have NTM lung infections but are not eligible for entry into our Phase 2 clinical trial. We believe that clinical data collected from the experience with these patients will help regulatory authorities to evaluate ARIKACE’s safety and suitability for treating NTM lung infection patients.

Strategy for Commercialization

We currently plan to retain marketing rights for ARIKACE in certain countries in Europe, and in Canada and the US. Given the current lack of approved treatments for NTM lung infections, we believe we will immediately have a strong market position if ARIKACE is approved for commercialization in the NTM indication. We believe ARIKACE will require a limited commercial infrastructure in these regions because of the small focused nature of the potential physician prescribing population for NTM patients. We may seek to license ARIKACE for certain indications in certain countries in Europe, as well as outside of Europe, Canada and the US. We believe there will be substantial carryover between lung specialist physicians who treat CF patients with pseudomonas lung infections and those who have NTM lung infections thereby allowing us to leverage our commercial infrastructure across both indications.

ARIKACE for Non-CF Bronchiectasis Patients with Pseudomonas Lung Infections

Disease

We believe ARIKACE has the potential to be used to treat non-CF bronchiectasis characterized by Pseudomonas lung infections. However, we are currently concentrating our development efforts on the treatment of Pseudomonas lung infections in CF patients and patients with NTM lung infections. We will evaluate our development and commercialization strategies for this indication when we complete our Phase 3 study in CF patients with Pseudomonas lung infections and Phase 2 study in patients with NTM infections.

Non-CF bronchiectasis is a serious pulmonary condition characterized by localized, irreversible enlargement of the bronchial tubes. Accumulation of mucus in the bronchi leads to frequent infections, which causes inflammation and further reduces lung function. Patients evolve to a chronic inflammation-infection cycle. Disease burden has primarily been linked to productive cough and high levels of sputum production.

Development Program

ARIKACE was granted orphan drug status in the US for the treatment of bronchiectasis in patients with Pseudomonas or other susceptible pathogens.

In May 2009, we completed our randomized, placebo controlled US Phase 2 study (TR02-107) of ARIKACE for the treatment of chronic Pseudomonas infection in non-CF patients with bronchiectasis. In the study, 64 study subjects were randomized (1:1:1) to receive ARIKACE 280 mg, ARIKACE 560 mg or a placebo on a daily basis during a 28-day on-treatment period. The subjects completed follow-up assessments at the end of a 28-day off-treatment period. This study provided an initial evidence of safety, tolerability and clinically meaningful improvement in pulmonary function throughout the on-treatment period in the treatment of chronic Pseudomonas infection in non-CF patients with bronchiectasis.

In the study, both ARIKACE 280 mg and ARIKACE 560 mg were well tolerated. The adverse events experienced by patients during the study were consistent with underlying chronic lung disease in bronchiectasis patients. There was no evidence of renal toxicity or ototoxicity. Patients in the 560-mg cohort appear to have a slightly higher frequency of dry cough post administration than patients in the 280 mg cohort. Cough was of short

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duration and self-limiting. One patient discontinued treatment due to dysphonia (hoarseness or difficulty speaking) and cough.

There was a statistically significant reduction in Pseudomonas density observed in the 560 mg ARIKACE cohort relative to the placebo cohort. Patients receiving ARIKACE experienced fewer pulmonary exacerbations at a rate of 4.7%, as compared to 10.5% in those receiving placebo. No patients in the ARIKACE cohorts required anti- Pseudomonas rescue treatment, whereas 15% of patients in the placebo cohort required treatment. Hospitalization from any cause occurred at a 5.3% rate for patients in the placebo cohort, as compared to a 2.3% rate for patients in the ARIKACE cohort. Patients receiving ARIKACE achieved improvements in patient respiratory symptoms and quality of life assessments compared with patients receiving placebo.

Although we believe there is an opportunity to develop ARIKACE for non-CF bronchiectasis, we do not intend to initiate further clinical studies with respect to a non-CF bronchiectasis indication until we have completed additional clinical studies for CF patients with Pseudomonas lung infections and for patients with NTM lung infections. Following those studies, we will evaluate whether to develop ARIKACE further for non-CF bronchiectasis.

KEY COMPONENTS OF OUR STATEMENT OF OPERATIONS

Research and Development Expenses

Research and development expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions, and other internal operating expenses, the cost of manufacturing our drug candidate for clinical study, the cost of conducting clinical studies, and the cost of conducting preclinical and research activities. Our expenses related to manufacturing our drug candidate for clinical study are primarily related to activities at contract manufacturing organizations that manufacture ARIKACE for our use. Our expenses related to clinical trials are primarily related to activities at contract research organizations that conduct and manage clinical trials on our behalf. These contracts set forth the scope of work to be completed at a fixed fee or amount per patient enrolled. Payments under these contracts primarily depend mainly 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. Nonrefundable advance payments 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, or when the goods or services are no longer expected to be provided.

Since 2011, we have focused our development activities principally on our proprietary, advanced liposomal technology designed specifically for inhalation lung delivery. We are conducting three clinical trials: (1) a Phase 3 trial in Europe and Canada in which we are evaluating ARIKACE in CF patients with Pseudomonas lung infections, (2) an open label extension study in which patients that complete the Phase 3 trial have the option to receive ARIKACE for a period of two years and (3) a Phase 2 trial in the US in which we are evaluating ARIKACE for NTM infections. Since our business combination with Transave, our research and development expenses for our ARIKACE program were approximately $54.3 million. We expect that our development efforts in 2013 and 2014 will principally relate to the use of ARIKACE in the CF and NTM indications.

Our clinical trials with ARIKACE are subject to numerous risks and uncertainties that are outside of our control, including the possibility that necessary regulatory approvals may not be obtained. In addition, the duration and the cost of clinical trials may vary significantly from trial to trial over the life of a project as a result of differences in the study protocol for each trial as well as differences arising during the clinical trial, including, among others, the following:

· the number of patients that ultimately participate in the trial;

· the duration of patient follow-up that is determined to be appropriate in view of results;

· the number of clinical sites included in the trials;

· the length of time required to enroll suitable patient subjects; and

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· the efficacy and safety profile of the product candidate.

Our clinical trials may be subject to delays, particularly if we are unable to produce clinical trial material in sufficient quantities and of sufficient quality to meet the schedule for our clinical trials. Moreover, all of our product candidates must overcome significant regulatory, technological, manufacturing and marketing challenges before they can be successfully commercialized. Any significant delays that occur or additional expenses that we incur may have a material adverse effect on our financial position and may require us to raise additional capital sooner or in larger amounts than is presently expected. In addition, as a result of the risks and uncertainties related to the development and approval of our product candidates and the additional uncertainties related to our ability to market and sell these products once approved for commercial sale, we are unable to provide a meaningful prediction regarding when, if at all, we will generate positive cash inflow from these projects.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our executive, finance and accounting, legal, market research, and human resource functions. General and administrative expenses also include professional fees for legal, including patent-related expenses, consulting, insurance, board of director fees, tax and accounting services. We expect that our general and administrative expenses will increase in order to support increased levels of development activities and commencement of commercialization activities for our product candidates.

Investment Income and Interest Expense

Investment income consists of interest and dividend income earned on our cash, cash equivalents and short-term investments, along with realized gains (losses) on the sale of investments. Interest expense consists primarily of interest costs related to our debt and capital lease obligations.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2013 and 2012

Net loss for the three months ended March 31, 2013 was $13.7 million (or $0.43 per common share — basic and diluted) compared with a net loss of $6.8 million (or $0.28 per common share — basic and diluted) for the three months ended March 31, 2012. The increase in our net loss in 2013 of $6.9 million was primarily due to a $5.6 million increase in our research and development expenses that primarily resulted from the activities under our Phase 3 CF clinical study and our two-year extension study in Europe and Canada, and our Phase 2 NTM clinical study in the US. We were in the process of initiating the Phase 2 CF study and Phase 2 NTM study in the first quarter of 2012 and did not initiate the two-year extension study until October 2012. Also contributing to the increase in the net loss was a $1.5 million increase in our general and administrative expenses that was primarily due to a $1.0 million increase in professional fees. The increase in professional fees primarily related to the investigation, accounting and reporting of equity awards we previously granted to our employees and directors that at the time of the grants were in excess of annual per-person sub-limits included in our 2000 Stock Incentive Plan (see Item 4. Controls and Procedures included herein in Part I of this Quarterly Report on Form 10-Q for additional information regarding equity awards granted in excess of sub-limits included in our 2000 Stock Incentive Plan).

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2013 and 2012 comprised the following:

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	Three Months Ended
	March 31,				Increase (Decrease)
	2013		2012		$		%
	(in thousands)
External expenses
Clinical development	$	6,853	$	2,525	$	4,328	171	%
Clinical manufacturing	563		313		250		80	%
Regulatory and quality assurance	123		93		30		32	%
Subtotal - external	7,539		2,931		4,608		157	%

Internal expenses
Compensation and related expenses	1,808		1,532		276		18	%
Other internal operating expenses	987		276		711		258	%
Subtotal - internal	2,795		1,808		987		55	%

Total	$	10,334	$	4,739	$	5,595	118	%

Research and development expenses increased to $10.3 million during the three months ended March 31, 2013 from $4.7 million in the same period in 2012. The $5.6 million increase is primarily due to a $4.6 million increase in external costs associated with the activities under our Phase 3 CF clinical study and our two-year extension study in Europe and Canada, and our Phase 2 NTM clinical study in the US during the three months ended March 31, 2013. We were in the process of initiating the Phase 2 CF study and Phase 2 NTM study in the first quarter of 2012 and did not initiate the two-year extension study until October 2012. Also contributing to the $5.6 million increase was a $1.0 million increase in internal expenses, including a $0.4 million increase in lab expenses, a $0.3 million increase in recruiting fees and a $0.3 million increase in compensation and related expenses.

General and Administrative Expenses

General and administrative expenses increased to $4.0 million during the three months ended March 31, 2013 from $2.5 million in the same period in 2012. The $1.5 million increase was due to a $1.0 million increase in professional fees that was primarily related to the investigation, accounting and reporting of excess equity awards we previously granted to our employees and directors that at the time of the grants were in excess of annual per-person sub-limits included in our 2000 Stock Incentive Plan, and a $0.5 million increase in compensation expenses, of which $0.3 million was non-cash stock compensation expense resulting from remeasuring at fair value certain stock options deemed granted outside of our 2000 Stock Incentive Plan.

Investment Income

Investment income decreased to $0.1 million during the three months ended March 31, 2013 from $0.4 million in the same period in 2012. The $0.3 million decrease is a result of our decision to amend our investment policy and only invest in mutual and money market funds, US Treasury obligations, and bank certificates of deposit. During the three months ended March 31, 2013, the majority of our cash was invested in money funds that have lower rates of return than the returns we received from our short-term investments in the same period in 2012.

Interest Expense

Interest expense increased to $0.6 million during the three months ended March 31, 2013 from $0.0 in 2012. The $0.6 million increase was due to the $20.0 million of borrowings ($10.0 million in June 2012 and $10.0 million in December 2012) under our Loan Agreement we entered into in June 2012.

Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes was ($1.2 million) and $0 during the three months ended March 31, 2013 and 2012. The Company’s effective tax rate was (8.2%) and 0% for the three months ended March 31, 2013 and 2012, respectively. The benefit for income taxes recorded and the effective tax rate for the three months

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ended March 31, 2013 solely reflect the reversal of a valuation allowance previously recorded against the Company’s New Jersey State net operating losses (“NOL”) that resulted from the Company’s sale of $27.0 million of its New Jersey State NOLs under the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) for cash of $1.2 million, net of commissions. The Program allows qualified technology and biotechnology businesses in New Jersey to sell unused amounts of NOLs and defined research and development tax credits for cash. The remaining net deferred tax asset as of March 31, 2013 remains fully offset by a valuation allowance due to the Company’s history of losses.

LIQUIDITY AND CAPITAL RESOURCES

Overview

There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. Historically, we have funded our operations through public and private placements of equity securities, through debt financing, from the proceeds from the sale of our follow-on biologics (“FOB”) platform to Merck in 2009 and from revenues related to sales of product and our IPLEX expanded access program, which was discontinued in 2011. We expect to continue to incur losses because we plan to fund our research and development activities and commercial launch activities, and we do not expect material revenues for at least the next few years.

As of March 31, 2013, we had total cash, cash equivalents, and a certificate of deposit on hand of $81.6 million, consisting of $79.4 million in cash and cash equivalents and $2.2 million in a certificate of deposit, as compared with $92.9 million of cash, cash equivalents, and a certificate of deposit on hand as of December 31, 2012. The $11.3 million net decrease was due to our use of $11.2 million in operations. Our working capital was $60.6 million as of March 31, 2013, which excludes our certificate of deposit of $2.2 million that matures in July 2013.

We believe that our cash, cash equivalents and certificate of deposit totaling $81.6 million as of March 31, 2013 will fund our operations into 2014. However, our business strategy may require us to, or we may otherwise determine to, raise additional capital at any time through equity or debt financing(s), strategic transactions or otherwise. Such additional funding may be necessary to continue to develop our potential product candidates, to pursue the license or purchase of complementary technologies, to commercialize our product candidates or to purchase other products. In addition, we may determine to raise capital opportunistically. We cannot assure you that adequate capital will be available on favorable terms, or at all, when needed. If we are unable to obtain sufficient additional funds when required, we may be forced to delay, restrict or eliminate all or a portion of our research or development programs, dispose of assets or technology or cease operations.

Cash Flows

Net cash used in operating activities was $11.2 million and $5.6 million for the three months ended March 31, 2013 and 2012, respectively. The net cash used in operating activities during 2013 and 2012 was primarily for the clinical development of our lead product candidate, ARIKACE, which included the initiation of three clinical trials for the study of ARIKACE during 2012 and the continued advancement of these three clinical trials during the first quarter of 2013.

Net cash (used in) provided by investing activities was $(0.2) million and $12.8 million during the three months ended March 31, 2013 and 2012, respectively. The net cash used in investing activities in 2013 related to fixed asset purchases of $0.2 million for lab and computer equipment. The net cash provided by investing activities in the three months ended March 31, 2012 was primarily a result of $12.9 million of net sales of short-term investments.

Net cash provided by (used in) financing activities was $22 thousand and $(34) thousand for the three months ended March 31, 2013 and 2012, respectively.

On June 29, 2012, we entered into a Loan and Security Agreement that allowed us to borrow up $20.0 million in $10.0 million increments (“Loan Agreement”). We borrowed the first and second $10.0 million

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increments by signing two Secured Promissory Notes (“Note A” and “Note B”) on June 29, 2012 and December 27, 2012, respectively. Notes A and B bear interest at 9.25%. Note A is to be repaid over a 42-month period with the first twelve monthly payments representing interest only followed by thirty monthly equal payments of principal and interest. Note B is to be repaid over a 36-month period with the first six monthly payments representing interest only followed by thirty monthly equal payments of principal and interest. The interest only period is currently scheduled to end on July 31, 2013, but is extendable to December 31, 2013, contingent upon completion of certain ARIKACE-related development milestones. The principal monthly repayments for Notes A and B are scheduled to begin on August 1, 2013, or if extended, January 1, 2014, and in either case will end on January 1, 2016. In connection with the Loan Agreement, we granted the lender a first position lien on all of our assets, excluding intellectual property. Prepayment of the loans made pursuant to the Loan Agreement is subject to a prepayment penalty and we are required to pay an “end of term” charge of $0.4 million.

Contractual Obligations

We have two operating leases for office and laboratory space located in Monmouth Junction, NJ that terminate on December 31, 2014. Future minimum rental payments under these two leases total approximately $1.3 million. We continue to lease office space in Richmond, VA where our corporate headquarters were previously located. Future minimum rental payments under this lease total approximately $1.7 million. During 2011, we recorded a net present value charge of $1.2 million in general and administrative expenses associated with vacating the Richmond, VA facility. The remaining accrual for this charge was $0.9 million as of March 31, 2013.

We executed two secured promissory notes totaling $20.0 million; $10.0 million in June 2012 and $10.0 million in December 2012. We also entered into three capital leases for lab equipment and leasehold improvements with monthly payments through December 2014. As of March 31, 2013, future payments under the two promissory notes, the capital leases and minimum future payments under non-cancellable operating leases are as follows:

			As of March 31, 2013
			Payments Due By Period
			Less than						After
	Total		1 year		1-3 Years		4-5 Years		5 Years
	(In thousands)
Debt obligations
Debt maturities	$	20,000	$	4,875	$	15,125	$	—	$	—
Contractual interest	3,156		1,746		1,404		6		—
Capital lease obligations	—						—
Debt maturities	131		83		48		—		—
Contractual interest	1		1		—		—		—
Operating leases	3,014		1,191		1,526		297
Purchase obligations	—		—		—		—		—

Total contractual obligations	$	26,302	$	7,896	$	18,103	$	303	$	—

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

We currently have a licensing agreement with PARI for use of the optimized eFlow Nebulizer System for delivery of ARIKACE in treating patients with CF, bronchiectasis and NTM infections. We have rights to several US and foreign issued patents, and patent applications involving improvements to the optimized eFlow Nebulizer System. Under the licensing agreement, PARI is entitled to receive payments either in cash, qualified stock or a combination of both, at PARI’s discretion, based on achievement of certain milestone events including Phase 3 trial initiation (which occurred in 2012), first acceptance of MAA submission (or equivalent) in the US of ARIKACE and the device, first receipt of marketing approval in the US for ARIKACE and the device, and first receipt of

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marketing approval in a major EU country for ARIKACE and the device, and NDA acceptance and regulatory approval of ARIKACE. In addition, PARI is entitled to receive royalty payments on commercial sales of ARIKACE pursuant to the licensing agreement.

In 2005 and 2009, we entered into a research funding agreements with Cystic Fibrosis Foundation Therapeutics, Inc. (CFFT) whereby we received $1.7 million and $2.2 million for each respective agreement in research funding for the development of its ARIKACE product. If ARIKACE becomes an approved product for CF patients in the US, we will owe a payment to CFFT of up to $13.4 million that is payable over a three-year period after approval as a commercialized drug in the US. Furthermore, if certain sales milestones are met within 5 years of the drug commercialization approval in the US, we would owe an additional $3.9 million in additional payments. Since there is significant development risk associated with ARIKACE, we have not accrued these obligations.

In 2009 and 2012, we entered into a cooperative research and development agreement (CRADA) with National Institutes of Allergy and Infectious Diseases (NIAID) to design and conduct our Phase 2 study of ARIKACE in patients with NTM. NIAID has also agreed to provide biostatistical advisory input in connection with the Phase 2 NTM study. If we decide not to continue with the commercialization of ARIKACE in NTM, NIAID will have the right to complete the clinical trial. Further NIAID may elect to pursue its rights to obtain license rights to certain inventions made under the CRADA.

Future Funding Requirements

We may need to raise additional capital to fund our operations and to develop and commercialize ARIKACE. Our future capital requirements may be substantial and will depend on many factors, including:

· the decisions of the FDA and EMA with respect to our applications for marketing approval of ARIKACE in the US and Europe; the costs of activities related to the regulatory approval process; and the timing of approvals, if received;

· the timing and cost of our anticipated clinical trials of ARIKACE for the treatment of adult patients with CF;

· the cost of putting in place the sales and marketing capabilities necessary to be prepared for a potential commercial launch of ARIKACE, if approved;

· the cost of filing, prosecuting and enforcing patent claims;

· the costs of our manufacturing-related activities;

· the costs associated with commercializing ARIKACE if we receive marketing approval; and

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

In June 2012, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission. This shelf registration statement permits us to offer, from time to time, any combination of common stock, preferred stock, debt securities, units and warrants up to an aggregate offering price of $75.0 million. In October 2012, we issued approximately $25.7 million of our common stock utilizing the shelf registration statement. We believe that our cash, cash equivalents and certificate of deposit totaling $81.6 million as of March 31, 2013 will fund our operations into 2014. However, our business strategy may require us to, or we may otherwise determine to, raise additional capital at any time through equity or debt financing(s), strategic transactions or otherwise. Such additional funding may be necessary to continue to develop our potential product candidates, to pursue the license or purchase of complementary technologies, to commercialize our product candidates or to purchase other products. In addition, we may determine to raise capital opportunistically. If we are unable to obtain additional financing, we may be required to reduce the scope of our planned product development and commercialization or our plans to establish a sales and marketing force, any of which could harm our business, financial condition and results of operations. The source, timing and availability of any future financing will depend principally upon equity and debt market conditions, interest rates and, more specifically, our continued progress in our regulatory, development and commercial activities. We cannot assure you that such capital funding will be available on favorable terms or at all. If we are unable to obtain sufficient additional funds when required, we may be forced to delay, restrict or eliminate all or a portion of our research or development programs, dispose of assets or technology or cease operations.

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To date, we have not generated any revenue from ARIKACE. We do not know when or if we will generate any revenue. We do not expect to generate significant revenue unless or until we obtain marketing approval of, and commercialize, ARIKACE.

Off-Balance Sheet Arrangements

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

CRITICAL ACCOUNTING POLICIES

Preparation of financial statements in accordance with generally accepted accounting principles in the US requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We use our historical experience and other relevant factors when developing our estimates and assumptions. We continually evaluate these estimates and assumptions. The amounts of assets and liabilities reported in our consolidated balance sheets and the amounts of revenue reported in our consolidated statements of comprehensive loss are effected by estimates and assumptions, which are used for, but not limited to, the accounting for research and development, revenue recognition,, stock-based compensation, in process research and development intangible assets, and accrued expenses. The accounting policies discussed below are considered critical to an understanding of our consolidated financial statements because their application places the most significant demands on our judgment. Actual results could differ from our estimates. For additional information about our significant accounting policies, see Note 2 to our Consolidated Financial Statements — “Summary of Significant Accounting Policies.”

Research and Development

Research and development expenses consist primarily of the cost of conducting our clinical trials, the cost of manufacturing our drug candidate for use in our clinical studies, salaries, benefits and other related costs, including stock-based compensation, for personnel serving our research and development functions, and other internal operating expenses, and the cost of conducting preclinical and research activities. Our expenses related to manufacturing our drug candidate for use in our clinical studies are primarily related to activities at contract manufacturing organizations that manufacture ARIKACE for our use. Our expenses related to clinical trials are primarily related to activities at contract research organizations that conduct and manage clinical trials on our behalf, as well as activities at the location(s) of the trials. These contracts set forth the scope of work to be completed at a fixed fee or amount per patient enrolled. Payments under these contracts primarily depend mainly 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.

Nonrefundable advance payments 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, or when the goods or services are no longer expected to be provided.

Revenue Recognition

We recognize revenues when all of the following four criteria are present: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.

Where we have continuing performance obligations under the terms of a collaborative arrangement, non-refundable upfront license payments received upon contract signing are recorded as deferred revenue and recognized as revenue as the related activities are performed. The period over which these activities are to be performed is based upon management’s estimate of the development period. Changes in management’s estimate could change the period over which revenue is recognized. Research and/or development payments are recognized as revenues as the

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related research and/or development activities are performed and when we have no continuing performance obligations related to the research and development payment received.

Where we have no continuing involvement under a collaborative arrangement, we record nonrefundable license fee revenues when we have the contractual right to receive the payment, in accordance with the terms of the collaboration agreement, and record milestones upon appropriate notification to us of achievement of the milestones by the collaborative partner.

We recognize revenue from milestone payments when earned, provided that (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement and (ii) we do not have ongoing performance obligations related to the achievement of the milestone earned. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensurate with either the vendor’s performance to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement. Any amounts received by us under the agreement in advance of our performance, if deemed substantive, are recorded as deferred revenue and recognized as revenue as we complete our performance obligations.

In addition, multiple deliverable revenue arrangement consideration is allocated at the inception of an arrangement to all deliverables using the relative selling price method. We also apply a selling price hierarchy for determining the selling price of a deliverable, which includes (1) vendor-specific objective evidence, if available, (2) third-party evidence, if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available.

Stock-Based Compensation

We recognize stock-based compensation expense for awards of equity instruments to employees and directors based on the grant-date fair value of those awards. The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting period of the award, and if applicable, is adjusted for expected forfeitures. Stock-based compensation expense is included in both research and development expenses and general and administrative expenses in the Consolidated Statements of Comprehensive Loss. For awards deemed to be granted outside of the Company’s 2000 Stock Incentive Plan, the Company uses liability accounting. These awards are classified as a liability and are remeasured at fair value at the end of each reporting period. Changes in fair value are included in compensation expense in the Consolidated Statements of Comprehensive Loss.

The following table summarizes the assumptions used in determining the fair value of stock options granted during the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012

Volatility	95.5	%	104.6	%
Risk-free interest rate	0.8	%	1.0	%
Dividend yield	0.0	%	0.0	%
Expected option term (in years)	6.25		6.25

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For the three months ended March 31, 2013, the volatility factor was based on our historical volatility since the closing of our merger with Transave on December 1, 2010. The expected life was determined using the simplified method as described in ASC Topic 718, “Accounting for Stock Compensation”, which is the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate is based on the US Treasury yield in effect at the date of grant. Forfeitures are based on actual percentage of option forfeitures since the closing of the merger with Transave on December 1, 2010 and are the basis for future forfeiture expectations.

Identifiable Intangible Assets

Identifiable intangible assets are measured at their respective fair values and are not amortized until commercialization of the related product commences. Once commercialization occurs, these intangible assets will be amortized over their estimated useful lives. The fair values assigned to our intangible assets are based on reasonable estimates and assumptions given available facts and circumstances. Unanticipated events or circumstances may occur that may require us to review the assets for impairment. Events or circumstances that may require an impairment assessment include negative pre-clinical or clinical trial results, the non-approval of a new drug application by a regulatory agency, material delays in our development program or a sustained decline in market capitalization. We are not aware of any indicators of impairment that would necessitate an impairment test as of March 31, 2013.

We use the income approach to derive the fair value of in-process research and development assets. This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate. We did not use a market based valuation approach because we lack revenues and profits. The income approach requires significant management judgment with respect to unobservable inputs such as future volume, revenue and expense growth rates, changes in working capital use, appropriate discount rates and other assumptions and estimates. The estimates and assumptions used are consistent with our business plans.

Accrued Expenses

We are required to estimate accrued expenses as part of our process of preparing financial statements. This process involves estimating the level of service performed on our behalf and the associated cost incurred in instances where we have not been invoiced or otherwise notified of actual costs. Examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations for preclinical development, clinical trials and manufacturing of clinical materials. We accrue for expenses associated with these external services by determining the total cost of a given study based on the terms of the related contract. We accrue for costs incurred as the services are being provided by monitoring the status of the trials and the invoices received from our external service providers. In the case of clinical trials, the estimated cost normally relates to the projected costs of having subjects enrolled in our trials, which we recognize over the estimated term of the trial according to the number of subjects enrolled in the trial on an ongoing basis, beginning with subject enrollment. As actual costs become known to us, we adjust our accruals.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2013, an Accounting Standards Update was issued that requires companies to present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income (loss) based on its source and the income statement line items affected by the reclassification. This update became effective for us on January 1, 2013 and its adoption did not impact our consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2013, our cash and cash equivalents were in cash accounts or were invested in money funds. Such accounts or investments are not insured by the federal government.

As of March 31, 2013, we had $20.0 million of fixed rate borrowings in the form of two secured promissory notes that bear interest at 9.25% outstanding under a Loan and Security Agreement we entered into in June 2012. If a 10% change in interest rates was to have occurred on March 31, 2013, this change 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 or British Pounds. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations, and during the three months periods ended March 31, 2013 and 2012, our results of operations were not materially affected by fluctuations in foreign currency exchange rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the rules and forms of the SEC. These disclosure controls and procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, management is required to apply its judgment in evaluating the benefits of possible disclosure controls and procedures relative to their costs to implement and maintain.

Based on management’s evaluation as of the end of the period covered by this report, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective, as a result of the material weakness over the administration, accounting and oversight of our 2000 Stock Incentive Plan discussed below under “Update on Management’s Annual Report on Internal Control Over Financial Reporting”, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Update on Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of, our principal executive and principal financial and accounting officers and effected by our board of directors and management 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 and includes those policies and procedures that:

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· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and board of directors; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Based on management’s assessment, including consideration of the control deficiencies discussed below, management concluded that the company’s internal control over financial reporting was ineffective as of December 31, 2012, due to the fact that there was a material weakness in our internal control over the administration, accounting and oversight of its 2000 Stock Incentive Plan. Specifically, as initially disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 18, 2013, in connection with a recent review of our equity compensation grants, we determined that we had inadvertently exceeded the annual per-person sub-limits applicable to grants of equity awards provided for by our 2000 Stock Incentive Plan. During the three months ended March 31, 2013 and the two years ended December 31, 2012, we granted equity compensation to employees and directors relating to an aggregate of 1.4 million shares of common stock in excess of such sub-limits, which resulted in additional stock based compensation expense of $0.3 million and a liability of $1.8 million in the consolidated financial statements for the three month period ending and as of March 31, 2013. We have not exceeded the overall 3,925,000 share reserve currently provided for by the 2000 Stock Incentive Plan and approved by shareholders, whether as a result of previously-issued awards or currently outstanding awards.

Remediation Plan

Management and our Board of Directors are actively engaged in implementing a remediation plan to address the material weakness over the administration, accounting and oversight of our 2000 Stock Incentive Plan. In November 2012, we hired a new Chief Financial Officer and in the first quarter of 2013, we hired a new Senior Vice President of Human Resources and a senior director to our finance staff which we believe will help strengthen our internal controls. Remediation efforts we have implemented to date include modification of certain forms and processes, training of certain personnel, and pursuant to our Board’s approval, amendment to our 2000 Stock Incentive Plan to replace the three individual annual per person sub-limits with a single aggregate stock option, performance share and restricted stock sub-limit of 1,500,000 shares. We did not change the overall share reserve for the 2000 Stock Incentive Plan of 3,925,000 shares, which was approved by our shareholders in 2011. Additional remediation efforts we expect to implement include, among other things, strengthening of internal controls within certain processes, additional training of certain personnel and possible rotation of Board members to different committees and a review of each of the charters for our Board committees.

Except for the changes in internal control resulting from the implementation of our remediation plan as described above, there were no other changes in internal control over financial reporting during the three months ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Cacchillo v. Insmed

On October 6, 2010, a complaint was filed against us by Angeline Cacchillo (“Plaintiff”) in the U.S. District Court for the Northern District of New York (the “Court”), captioned Cacchillo v. Insmed, Inc. , No. 1:10-cv-0199, seeking monetary damages and a court order requiring Insmed to support Plaintiff’s compassionate use application to the FDA and if approved, to provide Plaintiff with IPLEX. Plaintiff was a participant in the Phase 2 clinical trial of IPLEX sponsored by us evaluating the effectiveness of the investigational drug in patients with type 1 myotonic muscular dystrophy (“MMD”). In the complaint, Plaintiff alleged (i) violation of constitutional due process and equal protection by depriving Plaintiff of continued access to IPLEX, (ii) fraudulent inducement to enter the Phase 2 clinical trial with the false promise to support Plaintiff’s compassionate use application to the FDA, (iii) negligent representation that we would support Plaintiff’s compassionate use application, (iv) breach of contract, seeking monetary and non-monetary damages, (v) intentional infliction of emotional distress by refusing to support Plaintiff’s compassionate use application after providing IPLEX, (vi) violation of an assumed duty of care to Plaintiff, (vii) breach of fiduciary duty to Plaintiff, (viii) negligence and (ix) unjust enrichment. Plaintiff seeks compensatory and punitive monetary damages and sought injunction relief as noted above.

We filed a motion with the Court to dismiss all of the outstanding claims, and on June 29, 2011, the Court dismissed six of Plaintiff’s claims, leaving outstanding the claims for (i) fraudulent inducement, (ii) negligent misrepresentation, and (iii) breach of contract. We filed an answer and affirmative defenses with the Court on July 12, 2011. Plaintiff’s claim for monetary damages with respect to these claims remains outstanding. The parties completed discovery on or about June 1, 2012. We filed a Motion for Summary Judgment on August 1, 2012 seeking judgment in our favor on the three claims remaining in the case and the motion was fully submitted on October 9, 2012. On January 19, 2013, the Court granted our Motion for Summary Judgment and dismissed all of the outstanding claims. Plaintiff filed a Notice of Appeal on March 15, 2013. We expect that the parties will submit briefs before the end of 2013, with a decision expected in the first half of 2014.

Pilkiewicz v. Transave LLC

On March 28, 2011, Frank G. Pilkiewicz and other former stockholders of Transave (collectively, the “Petitioners”) filed an appraisal action against our subsidiary Transave, LLC in the Delaware Court of Chancery captioned Frank G. Pilkiewicz, et al. v. Transave, LLC , C.A. No. 6319-CS. On December 13, 2011, following the mailing of the revised notice of appraisal rights in accordance with the settlement terms of Mackinson et al. v. Insmed , Petitioners filed an Amended Petition for Appraisal of Stock.

The Petitioners seek appraisal under Delaware law of their common stock holdings, representing approximately 7.77 million dissenting shares of Transave common stock (the “Transave Stock”). The Petitioners have challenged the value of the consideration that they would be entitled to receive for their Transave Stock under the terms of the merger.

Under the terms of the Merger Agreement, certain of the former stockholders of Transave (the “Transave Stockholders”) are obligated to indemnify us for certain liabilities in connection with the appraisal action. Certain indemnification and other obligations of the Transave Stockholders were secured by a holdback of 1,765,271 shares of our common stock. In May 2012, we notified the Transave Stockholders that we are seeking indemnification from them and that we will continue to retain all 1,765,271 holdback shares as security for any indemnification

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payments due to us. Discovery is ongoing and the trial is scheduled to begin September 30, 2013. We believe the allegations contained in the amended petition are without merit and we intend to continue to vigorously defend this action. It is not possible at this time to estimate the amount of loss or range of possible loss, if any, that might result from an adverse resolution of this action.

From time to time, we are a party to various other lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. While the outcome of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will materially adversely affect our business, financial position, results of operations, or cash flows.

ITEM 1A. RISK FACTORS

Except for the historical information in this report, the matters contained in this report include forward-looking statements that involve risks and uncertainties. Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. These factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors may have a material adverse effect upon our business, results of operations and financial condition.

You should consider carefully the risk factors, together with all of the other information included in our Annual Report on Form 10-K for the year ended December 31, 2012. Each of these risk factors could adversely affect our business, results of operations and financial condition, as well as adversely affect the value of an investment in our common stock. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

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

There were no unregistered sales of the Company’s equity securities during the quarter ended March 31, 2013.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

A list of exhibits filed herewith is included on the Exhibit Index, which immediate precedes such exhibits and is incorporated herein by reference.

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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: May 7, 2013	By	/s/ Andrew T. Drechsler
		Andrew T. Drechsler
		Chief Financial Officer

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EXHIBIT INDEX

10.1	Employment Agreement, effective as of April 1, 2013, between Insmed Incorporated and Matthew Pauls

10.2	License agreement dated April 25, 2008 between Transave, Inc. and PARI Pharma GmbH (Confidential treatment has been requested for certain portions of this exhibit. The confidential portions of this exhibit have been omitted and filed separately with the SEC.)

10.3	Amended and Restated 2000 Stock Incentive Plan

31.1	Certification of William H. Lewis, Chief 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 William H. Lewis, Chief 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

32.1	Certification of Andrew T. Drechsler, Chief Financial 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

32.2	Certification of Andrew T. Drechsler, Chief Financial 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.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.CAL		XBRL Taxonomy Extension Definition Linkbase Document

101.CAL		XBRL Taxonomy Extension Label Linkbase Document

101.CAL		XBRL Taxonomy Extension Presentation Linkbase Document

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is effective on the 1st day of April, 2013, by and between Insmed Incorporated, a Virginia corporation (the “Company”), and Matthew Pauls (hereinafter, the “Executive”).

WITNESSETH:

WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed by the Company 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, the Company 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 Company 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 the Company’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 the Company or its subsidiaries and the benefits under any directors’ and officers’ liability insurance policy maintained by the Company, in accordance with its terms thereof; and

(v) any accrued but unused vacation pay.

(b) “ 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.

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

(d) “ Board ” means the Board of Directors of the Company.

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

(f) “ 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 the Company or any Related Entities; 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 the Company or any Related Entity, or a willful material violation by the Executive of a policy or procedure of the Company or any Related Entity, resulting, in any case, in material economic harm to the Company or any Related Entity; 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, by the Board.

(g) “ 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 the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company 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 the Company; (w) any acquisition by the Company; (x) any acquisition by any person that as of the Commencement Date owns Beneficial Ownership of a Controlling Interest; (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company; 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 Commencement Date) individuals who constitute the Board on the Commencement 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 Commencement Date whose election, or nomination for election by the Company’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 the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company 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 the Company or all or substantially all of the Company’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 the Company 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 the Company of a complete liquidation or dissolution of the Company.

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.

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

(i) “ Code ” means the Internal Revenue Code of 1986, as amended.

(j) “ Commencement Date ” means April 1, 2013.

(k) “ Competitive Activity ” means (i) the discovery, design, development, distribution, marketing or sale of inhalation therapies for lung diseases and/or disorders, or (ii) any other activity in competition with the material activities of the Company or any of its Related Entities, in either case in any of the States within the United States, or countries within the world,

in which the Company or any of its Related Entities conducts business. For this purpose, the activities of the Company and its Related Entities, and where the Company and its Relates Entities 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 the Company or any Related Entity (including information conceived, originated, discovered or developed by the Executive and information acquired by the Company or any Related Entity 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 the Company or any Related Entity 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 the Company or any Related Entity, 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 the Company or any Related Entity.

(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 the Company 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 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) the Company’s or Related Entity’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 the Company 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 the Company with written notice of the existence of such

condition within 90 days after the initial existence of the condition, and the Company 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 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 (based on actual performance outcomes for that year), multiplied by the following fraction: (i) the number of days that the Executive was employed by the Company 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 the Company.

(t) “ Related Entity ” means any Person controlling, controlled by or under common control with the Company or any of its subsidiaries. For this purpose, the terms controlling,” “controlled by” and “under common control with” mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including (without limitation) the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

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

(v) “ 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.

(w) “ Severance Term ” means the six month period following the date on which the Term of Employment ends.

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

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

(z) “ Termination Date ” means the date on which the Term of Employment ends.

2. Employment . The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company 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 Chief Commercial Officer of the Company, and shall have such duties typically associated with such title, including, without limitation supervising all sales and marketing activities. The Executive shall faithfully and diligently perform all services as may be assigned to him by Executive Management or the Board in their discretion of the company or its subsidiaries. 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 the Company. 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 the Company or its subsidiaries, (ii) interferes with the proper and efficient performance of his duties for the Company, or (iii) interferes with the exercise of his judgment in the Company’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 the Company in accordance with this Agreement.

4. Compensation .

(a) Base Salary . The Executive shall receive a Base Salary at the annual rate of $385,000.00 during the Term of Employment, with such Base Salary payable in installments consistent with the Company’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 the Company’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. During the Term of Employment, 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 (or, for 2013, within 30 days of the Commencement Date). The bonus calculation for 2013, shall not be prorated as long as the Executive commences employment on or prior to April 1, 2013. 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 the Company may from time to time adopt with respect to the reimbursement of expenses of executive personnel, the Company 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 the Company. The Executive shall account to the Company in writing for all expenses for which reimbursement is sought and shall supply to the Company copies of all relevant invoices, receipts or other evidence reasonably requested by the Company. In addition, the Company shall reimburse the Executive for (or directly pay) reasonable attorneys’ fees incurred by the Executive in the negotiation and drafting of this Agreement, up to a maximum of $5,000.

(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 the Company 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, 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 place of employment (subject to reasonable travel) shall be Monmouth Junction, NJ.

(d) Stock Options .

(i) As a material inducement to entering into this Agreement, as soon as is practicable, following Executive’s employment hereunder, and subject to final approval of the Board, the Company will grant to the Executive a stock option with respect to 200,000 shares of the Company’s common stock on terms and conditions consistent with the Company’s standard option agreement and stock incentive plan. In addition, as a material inducement to entering into this Agreement, as soon as is practicable, following Executive’s employment hereunder, and subject to final approval of the Board, the Company will grant to the Executive a stock option with respect to 100,000 shares of the Company’s common stock that will vest 100% when cumulative revenues from all approved products exceed $25mm, and with such other terms and conditions consistent with the Company’s standard option agreement and stock incentive plan. For the avoidance of doubt, these stock option awards are intended to be a material inducement to the Executive’s entering into this Agreement and will be made outside of the Company’s existing stock incentive plan.

(ii) During the Term of Employment, the Executive shall be eligible to be granted additional Equity Awards. The number and type of such additional Equity Awards, and the terms and conditions thereof, shall be determined by the Compensation Committee of the Board, in its discretion.

(e) Reimbursement for Relocation Expenses to be repaid to prior employer

(i) In the event that the Executive is required to repay his prior employer for expenses associated with relocation from New Jersey to California, the Company with the supporting documentation will reimburse the Executive for these expenses up to $50,000.

(f) Vacation . The Executive shall be entitled to four weeks of paid vacation each calendar year during the Term of Employment, to be taken at such times as the Executive and the Company shall mutually determine and provided that no vacation time shall significantly interfere with the duties required to be rendered by the Executive hereunder. Up to two weeks of unused vacation time may be carried forward into any succeeding calendar year; provided, however, in no event shall the amount of vacation time available to the Executive annually under this Agreement, inclusive of any carryover time, exceed six weeks in the aggregate.

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 the Company by reason of the Executive’s Disability, (iii) a termination by the Company 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 the Company 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 the Company or any of its Related Entities.

(b) Termination By Company for Cause. The Company 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 the Company 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 the Company 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.

(c) Disability . The Company 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) 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 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 . The Company 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 the Company 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 the Company’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, the Company 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 the Company, less the amount that the Executive would be required to contribute for health and dental coverage if the Executive were an active employee of the Company, for 6 months (or, if less, for the duration that such COBRA coverage is available to Executive); and

(vi) Acceletated vesting, as of the Termination Date, of any stock options 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 the Company 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), the Company 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 the Company . If the Executive’s employment is terminated by the Company (or any entity to which the obligations and benefits under this Agreement have been assigned, pursuant to Section 10) 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, the Company 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 the Company, less the amount that the Executive would be required to contribute for health and dental coverage if the Executive were an active employee of the Company, 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 general release of claims against the Company 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.

(i) Section 280G Certain Reductions of Payments by the Company .

(i) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company 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 the Company 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 the Company 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 the Company 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 the Company 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 the Company (the “Consulting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive within 20 business days of the date of termination or such earlier time as is requested by the Company 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 the Company and the Executive. Within five business days thereafter, the Company 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 the Company.

(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 the Company which should not have been made (“Overpayment”) or that additional Payments which will not have been made by the Company 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 the Company to or for the benefit of the Executive shall be promptly repaid to the Company 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 the Company 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 the Company, or his expertise or experience as the Company may reasonably request, including his attendance and truthful testimony where deemed appropriate by the Company, with respect to any investigation or the Company’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 the Company. 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, the Company 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 Company 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 the Company, its customers and clients or its prospective customers and clients (provided that the Executive may retain a copy the addresses contained in his rolodex, palm pilot, PDA or similar device).

(l) Compliance with Section 409A .

(i) General . It is the intention of both the Company 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 the Company 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, the Company 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 the Company 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 the Company 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) Nonsolicitation 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 the Company, or any Related Entity, unless such employee, consultant or independent contractor, has not been employed or engaged by the Company 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 the Company or any Related Entity 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 the Company or any Related Entities 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 the Company or any Related Entity does business or has some business relationship to cease doing business or to terminate its business relationship with the Company or any Related Entity or to engage in any Competitive Activity on its own or with any competitor of the Company or any Related Entity.

(c) Confidential Information. The Executive shall not at any time divulge, communicate, use to the detriment of the Company or any Related Entity or for the benefit of any other person or persons, or misuse in any way, any Confidential Information pertaining to the business of the Company. Any Confidential Information or data now or hereafter acquired by the Executive with respect to the business of the Company or any Related Entity (which shall include, but not be limited to, information concerning the Company’s or any Related Entity’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 the Company and its Related Entities that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to the Company and its Related Entities with respect to all of such information. Notwithstanding the foregoing, nothing herein shall be deemed to restrict the Executive from disclosing Confidential Information as required to perform his duties under this Agreement or to the extent required by law. If any person or authority makes a demand on the Executive purporting to legally compel him to divulge any Confidential Information, the Executive immediately shall give notice of the demand to the Company so that the Company may first assess whether to challenge the demand prior to the Executive’s divulging of such Confidential Information. The Executive shall not divulge such Confidential Information until the Company either has concluded not to challenge the demand, or has exhausted its challenge, including appeals, if any. Upon request by the Company, the Executive shall deliver promptly to the Company upon termination of his services for the Company, or at any time thereafter as the Company 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.

(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 prope1ty 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 the Company or its Related Entities, or their clients, or which are related in any manner to the business (commercial or experimental) of the Company or its Related Entities or their clients

(collectively, the “Work Product”) shall belong exclusively to the Company and its Related Entities and shall, to the extent possible, be considered a work made by the Executive for hire for the Company and its Related Entities 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 the Company and its Related Entities, 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 the Company, 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 the Company; (ii) assign to the Company 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 the Company.

(e) Books and Records . All books, records, and accounts relating in any manner to the customers or clients of the Company or its Related Entities, whether prepared by the Executive or otherwise coming into the Executive’s possession, shall be the exclusive property of the Company and its Related Entities and shall be returned immediately to the Company on termination of the Executive’s employment hereunder or on the Company’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 the Company and its Related Entities, 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 the Company and its Related Entities is such as would cause the Company and its Related Entities serious injury or loss if he were to use such ability and knowledge to the benefit of a competitor or were to compete with the Company or its Related Entities 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, the Company’s successors and assigns. The Executive expressly agrees that upon any breach or violation of the provisions of this Section 7, the Company 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 the Company or its Related Entities, 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 Article 7 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Article 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. If the Company or any Related Entity seeks injunctive relief from such violation in any court, then the covenants set forth in this Section 7 shall be extended for a period of time equal to the pendency of such proceeding including all appeals by the Executive.

(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 the Company, and its Related Entities, the monetary amount of which may be virtually impossible to ascertain. As a result, the Executive recognizes and hereby acknowledges that the Company and its Related Entities 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 the Company may possess.

8. Representations and Warranties of Executive . The Executive represents and warrants to the Company 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 the Company 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 the Company, 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 Company shall have the right to conduct random drug testing of its employees and that Executive may be called upon in such a manner.

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

10. Assignment . The Company 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 the Company may hereafter merge or consolidate or to which the Company 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 the Company 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.

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

12. Jurisdiction and Venue . The patties acknowledge that a substantial portion of the negotiations, anticipated performance and execution of this Agreement occurred or shall occur in Monmouth, 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 State of New Jersey in Monmouth 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, or in such other manner as may be provided under applicable laws or court rules in such courts.

13. Entire Agreement . This Agreement, together with the exhibit attached hereto, constitutes the entire agreement between the patties 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 the Company (or any of its Related Entities) with respect to such subject matter. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Executive.

14. 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 the Company, addressed to 9 Deer Park Drive, Suite C, Monmouth Junction, NJ 08852-1919, Attention: General Counsel, and (ii) if to the Executive, to his address as

reflected on the payroll records of the Company, or to such other address as either party shall request by notice to the other in accordance with this provision.

15. 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 the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise.

16. 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 patty on the basis of who drafted the Agreement.

17. 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.

18. 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.

19. Damages; Attorneys’ Fees . Nothing contained herein shall be construed to prevent the Company 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.

20. 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 based hereon, or arising out of, under or in connection with this Agreement and any agreement, document or instrument contemplated to be executed in connection herewith, or any course of conduct, course of dealing statements (whether verbal or written) or actions of any party hereto.

21. No Set-off or Mitigation . The Company’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

the Company 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.

22. 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.

23. No Third Party Beneficiary . The Related Entities 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 the Company, 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.

24. 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.

25. Indemnification .

(a) Subject to limitations imposed by law, the Company 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 the Company, 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 the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The Company 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 the Company.

(b) The Company 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 25 in advance of the final disposition of such action, suit or proceeding. The Company 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 the Company of a written request for an advance pursuant to this Section 25, together with a reasonable accounting of such expenses.

(c) The Executive hereby undertakes and agrees to repay to the Company any advances made pursuant to this Section 25 if and to the extent that it shall ultimately be found that the Executive is not entitled to be indemnified by the Company for such amounts.

(d) The Company shall make the advances contemplated by this Section 25 regardless of the Executive’s financial ability to make repayment, and regardless whether indemnification of the Executive by the Company will ultimately be required. Any advances and undertakings to repay pursuant to this Section 25 shall be unsecured and interest-free.

(e) The provisions of this Section 25 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:
	Name:	Will Lewis
	Title:	President and CEO


	EXECUTIVE:


	Matthew Pauls

Exhibit A

General Release of Claims

1. Matthew Pauls (“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 (the “Company”), its subsidiaries, affiliated companies, successors and assigns, and its current or former directors, officers, employees, shareholders or agents in such capacities (collectively with the Company, 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’ ’) 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 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 the Company or its subsidiaries or affiliated companies (including any rights under Section 25 of the Employment Agreement or under the Company’s charter or bylaws), (iv) any claims for benefits under any directors’ and officers’ liability policy maintained by the Company or its subsidiaries or affiliated companies in accordance with the terms of such policy, (v) rights to vested benefits under the Company’s 401(k) plan, and (vi) any rights as a holder of equity securities or debt securities/notes of the Company.

2. Executive represents that he has not filed against the Released Parties any complaints, charges, or lawsuits arising out of his employment, or any other matter arising on or prior to the date of this General Release of Claims, and covenants and agrees that he will never individually or with any person file, or commence the filing of any lawsuits, complaints or proceedings with any governmental agency, or against the Released Parties with respect to any of the matters released by Executive pursuant to paragraph 1 hereof; provided, that nothing herein shall prevent you from filing a charge or complaint with the Equal Employment Opportunity Commission (“EEOC”) or similar federal or state agency or your ability to participate in any investigation or proceeding conducted by such agency. Executive does agree, however, that he is waiving his right to recover any money in connection with such an

investigation or charge filed by him or by any other individual, or a charge filed by the Equal Employment Opportunity Commission or any other federal, state or local agency.

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 the Company and its affiliates and that he will continue to comply with those covenants.

5. Executive hereby acknowledges that the Company 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 the Company in the manner described in Section 14 of the Employment Agreement.

6. Executive acknowledges and agrees that this General Release of Claims will be governed by and construed and enforced in accordance with the internal laws of the State of New Jersey applicable to contracts made and to be performed entirely within such State.

7. 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.

8. 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

Pursuant to 17 CFR 240.24b-2, confidential information (indicated by [***]) has been omitted from Exhibit 10.2 and has been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Application filed with the Commission.

LICENSE AGREEMENT

This License Agreement (this “ Agreement ”) effective as of the 25th day of April, 2008 (“ Effective Date ”), is between PARI Pharma GmbH, a German corporation with a principal place of business at Moosstrasse 3, D-82319 Starnberg, Germany (“ PARI ”) and Transave, Inc., a Delaware corporation with registered offices at 11 Deer Park Drive, Suite 117, Monmouth Jct., NJ 08852, United States of America (“ Transave ”). Each of PARI and Transave shall be referred to as a “ Party ,” and collectively the “ Parties .”

RECITALS

WHEREAS, Transave has acquired, developed and produced certain technology and formulation rights commonly referred to as Arikace™, a proprietary amikacin antibiotic based on Transave’s proprietary sustained release liposomal technology for inhalation, for the treatment and prevention of Pseudomonas aeruginosa infection in patients with cystic fibrosis and bronchiectasis;

WHEREAS, PARI is in the business of developing and commercializing drug nebulizer devices and drug formulation methodologies, and PARI has developed a drug nebulizer device;

WHEREAS, PARI and Transave have entered into a Clinical Supply Agreement effective the 4 th day of April 2007 (the “Clinical Supply Agreement” );

WHEREAS, Pari GmbH and Transave entered into a Feasibility Study Agreement dated the 10 th day of January 2007, which was assigned and transferred to PARI on the 27 th of March 2007 ( “Feasibility Agreement” );

WHEREAS, PARI and Transave executed a Statement of Work No. 3 for the Feasibility Agreement on the 26 th day of October 2007 ( “Feasibility Statement of Work No. 3” );

WHEREAS, Transave desires to use a PARI drug nebulizer device for aerosolizing Arikace for pulmonary delivery, and PARI desires to optimize its drug nebulizer device for aerosolizing Transave’s Arikace for pulmonary delivery; and

WHEREAS, PARI desires to perform evaluation, research and development activities with Transave related to PARI’s nebulizer device technology, and Transave desires to pay PARI for such activities and to obtain a license to certain PARI intellectual property rights in connection with the development and commercialization of Arikace with an optimized PARI nebulizer device, all on the terms and conditions set forth herein.

AGREEMENT

In consideration of the recitals set forth above, the mutual covenants, terms and conditions set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, PARI and Transave agree as follows:

Article 1 — Definitions

As used in this Agreement, the following terms shall have the following meanings while other terms may be defined parenthetically throughout this Agreement:

1.1 “ Affiliate(s) ” of a Party means any person or entity that directly or indirectly owns or controls, is owned or controlled by or is under common control with such Party, in each case, only for so long as such control exists. As used in this definition only, “control” of an entity means beneficial ownership, directly or indirectly, of fifty percent (50%) or more of the outstanding voting shares or securities or the ability otherwise to elect or appoint a majority of the board of directors or other managing authority of such entity.

1.2 [***]

1.3 “ Applicable Laws and Standards ” means (a) all laws, ordinances, rules, directives and regulations applicable to the Products, the Project or this Agreement, including without limitation applicable local laws and regulations in each country in the Transave Territory, (b) applicable regulations and guidelines of the FDA and other Regulatory Authorities and the ICH guidelines; (c) as applicable to the particular activities performed, Good Manufacturing Practices, Good Laboratory Practices and Good Clinical Practices promulgated by the FDA and other Regulatory Authorities or the ICH; and (d) all applicable industry and trade standards, including the applicable standards of the International Organization for Standardization (ISO).

1.4 “ Arikace ” means Transave’s proprietary amikacin antibiotic (including the 70 mg/ml formulation) based on Transave’s proprietary sustained release liposomal technology for inhalation.

1.5 “ Billable-hour ” means an hour of activities performed by or on behalf of PARI, but excluding: non-work time and time spent on traveling, training, information technology support or laboratory technical support, administrative or facilities support, time entry, finance, legal, human resources or purely clerical activities, or other support functions not directly requested by Transave.

1.6 “ Commercially Reasonable Efforts ” means those commercially reasonable efforts customarily used by companies in the biopharmaceutical industry (with respect to Transave) and the biomedical device industry (with respect to PARI) for carrying out in a sustained manner a particular task or obligation, and at least equivalent to those level of efforts applied by a Party for its other priority products.

1.7 “Competing Nebulizer” shall mean any Nebulizer which has the performance specification feature set forth below for a single treatment, including any Device or eFlow but excluding the [***], [***] and the [***] devices:

[***]

1.8 “ Confidential Information ” shall have the meaning given to it in Section 11.1.

1.9 “ Control ” means, with respect to an item of information or intellectual property rights, possession by such Party of the power and authority, whether arising by ownership, license, or other authorization, to disclose such item as required by this Agreement, and/or to grant and authorize licenses or sublicenses under such items that are within the scope granted to the other Party under this Agreement.

1.10 “ Covered ” means with respect to a product that (a) such product or its manufacture, use, sale, offer for sale, importation or exportation would infringe a Valid Claim of a Patent Right within the Intellectual Property, in the country of such manufacture, use, sale, offer for sale, importation or exportation, or (b) such product incorporates or is made using material Know-how within such Intellectual Property.

1.11 “ Data ” means all data, data sets, test data, pre-clinical and clinical trial data, analyses, reports, regulatory filings and approvals and the information therein or associated therewith (including drug master files and device master files, supporting data, regulatory correspondence and meeting minutes) and rights to reference the same, in each case:

(a) that are generated by either Party in the course of performance pursuant to a Work Plan or under this Agreement (“ Project Data ”);

(b) that are owned or controlled by PARI prior to the Effective Date, or generated by PARI during the term of this Agreement outside of performing the Work Plans, and are necessary or useful for the efforts of Transave, its Affiliates or Sublicensees in obtaining Marketing Approval for the Device (“ Existing PARI Data ”); or

(c) that are owned or controlled by Transave prior to the Effective Date, or generated by Transave during the term of this Agreement, and are necessary or useful for the efforts of PARI in performing the Work Plan(s) or in obtaining Marketing Approval for the Device but excluding any Data related to the Project Intellectual Property (“ Existing Transave Data ”).

1.12 “ Device ” means the eFlow (including the following components: control unit with screen, nebulizer handset with aerosol head, nebulizer connection cord and power supply) that is based on the Present Device, that is to be optimized or developed for use with the Drug Product, and that otherwise at least meets the Specifications, as defined below and recited in Exhibit 1.38 for a single treatment, but specifically excluded from the foregoing are the [***], [***] and [***] devices. The Parties acknowledge and agree that until the Device is finalized in accordance with this Agreement, the Present Device shall be used by the Parties hereunder for research, development and testing efforts related to this Agreement.

1.13 “Device Accessories” means those types of accessories sold by PARI as of the Effective Date or during the term of this Agreement for use with Devices, which are not specific to the drug substance being delivered by such Devices, including e.g. power adapters, carrying cases, face masks, and any replacement parts associated with the foregoing.

1.14 “ Drug Product ” means an Arikace pharmaceutical preparation that is formulated for delivery via pulmonary administration exclusively for use with the Device in the Transave Field.

1.15 “eFlow” shall mean the Nebulizer proprietary to PARI or its Affiliates that is based on perforated vibrating membrane technology and includes the mixing chamber and valve system associated with the device that is currently sold under the tradename EFLOW ® .

1.16 [***]

1.17 “ Expired ”, “ Expiration ” or “ Expiry ” means expired, lapsed, been canceled or become abandoned and has not been finally found to be invalid (or not valid) or unenforceable by an unreversable or unappealable (or for which no appeal has been timely filed) final decision or judgment of a court or other authority or agency of competent jurisdiction.

1.18 “ Exploit ” or “ Exploitation ” means to formulate, research, test, develop, seek regulatory approval for, make, have made, use, sell, have sold, offer for sale, market, promote, import, export, display, distribute or otherwise commercialize or dispose of.

1.19 “ FDA ” means the United States Food and Drug Administration or any successor to that agency.

1.20 “ First Commercial Sale ” means the first commercial sale of a Drug Product subject to royalties under Article 6, by or under authority of Transave, its Affiliates and/or their Sublicensees in a country in the Transave Territory, after Marketing Approval in such country has been obtained.

1.21 “ GAAP ” means generally accepted accounting principles in the United States or Germany, or the International Accounting Standard, consistently applied by a Party throughout its enterprise.

1.22 “ Good Manufacturing Practices ,” or “ GMP ” means all good manufacturing practices as promulgated by the Regulatory Authority of the country where the Device is being sold, in the form of laws or regulations or guidance documents, for the manufacturing of pharmaceutical products, including in the United States as promulgated by the FDA 21 CFR §§ 210-211, and medical devices, including 21 CFR § 820 — Quality System Regulation.

1.23 “ GMP Manufacturing ” means all processes and activities typically engaged in by a person or entity in the pharmaceutical or medical device industry for the GMP manufacture of a product or component thereof, including procuring raw materials, manufacturing, quality control and assurance testing, GMP record keeping, packaging and labeling.

1.24 “ Improvement ” means any improvements, modifications, discoveries, inventions, developments, enhancements, derivative works, including the technology, Know-how and other intellectual property rights associated therewith, whether or not patentable or registrable or otherwise protectable, in each case with respect to the Device or any other eFlow.

1.25 “Initiation ” of a clinical trial means the first dosing of the first human patient in such trial.

1.26 “ Intellectual Property ” means (a) any of the following, whether existing now or in the future anywhere in the world: patents, inventor’s certificates, registrations and applications therefor, including any provisionals, additions, divisionals, continuations, substitutions, continuations-in-part, together with re-examinations, reissues, renewals or extensions thereof and all foreign counterparts of any of the foregoing (collectively, “ Patent Rights ”), and (b) all Data, ideas, pharmaceutical, chemical and biological materials, products and compositions, tests, assays, techniques, methods, procedures, technical and non-technical data and other information relating to any of the foregoing, drawings, plans, designs, diagrams, sketches, specifications or other documents containing such information or materials, and business processes, price data and information, marketing data and information, sales data and information, marketing plans and market research (collectively, “ Know-how ”). It is understood, however, that Know-how does not include information that falls within exceptions of the definition of “Confidential Information” set forth in Section 11.1 of this Agreement. Intellectual Property includes all enforcement rights.

1.27 “ MAA ” means a fully completed marketing authorization application (filed with the FDA, if in the United States or to the counterpart of the FDA if outside the United States), including all supporting documentation and data required for such application to be accepted for substantive review, filed with a Regulatory Authority to seek Marketing Approval for a particular indication in a particular country. It is understood that MAA does not include applications for pricing or reimbursement approval.

1.28 “ Major EU Countries ” means Germany, France, UK, Italy and Spain.

1.29 “ Marketing Approval ” means all approvals, registrations or authorizations of any governmental entity that are necessary for the manufacturing, use, storage, import, transport and sale of products in a regulatory jurisdiction.

1.30 “Most Recent Qualified Financing” means, as of any given date, the most recent preferred stock financing of Transave which establishes an arms-length valuation for the shares of preferred stock issued in such financing and pursuant to which purchasers have purchased, or have committed to purchase, preferred stock of Transave with an aggregate purchase price of at least [***]. As of the date of this Agreement, the Most Recent Qualified Financing is the sale of Series D Convertible Preferred Stock of Transave pursuant to that certain Series D Convertible Preferred Stock Purchase Agreement, dated as of December 14, 2007 (as amended), by and among Transave and the Purchasers named therein.

1.31 “Nebulizer” shall mean any nebulizer or other device that delivers a formulation in the form of droplets to the airways, including the Device, any Competing Nebulizer and eFlow. For the avoidance of doubt, the term “Nebulizer” shall not include any device that delivers a formulation solely or primarily via a nasal route of administration.

1.32 “ Net Sales ” means the gross amounts received by Transave, its Affiliates and its permitted Sublicensees for their sales of Drug Product for use with a Device to third parties less the following deductions: (a) trade, wholesale, quantity, cash or other discounts, refunds, returns, rebates, credits and allowances to the extent actually taken; (b) import, export, excise, sales or use taxes, value added taxes, and other taxes, tariffs and duties imposed on such sales and actually paid by Transave, its Affiliates or permitted Sublicensees, as applicable; (c) out-bound packaging, handling, transportation, freight and freight insurance to the extent actually paid; (d) rebates, allowances or credits mandated by any government; (e) reimbursements, credits or chargebacks actually granted, allowed or incurred in the ordinary course of business (including any credits, volume rebates, charge-back and prime vendor

rebates, reimbursements or similar payments granted or given to wholesalers and other distributors, buying groups, health care insurance carriers, pharmacy benefit management companies, health maintenance organizations or other institutions or health care organizations); and (f) payments or rebates paid in connection with sales to any governmental authority in respect of any state or federal Medicare, Medicaid or similar programs. All calculations shall be made in accordance with GAAP.

1.33 “Optimization” means certain technical revisions of the Present Device.

1.34 “Optimization Project” means the project currently being performed according to the Feasibility Statement of Work No. 3, a copy of which is attached to Exhibit 2.2.

1.35 “ PARI Intellectual Property ” means all Intellectual Property owned or Controlled by PARI and its Affiliates, as of the Effective Date or during the term of this Agreement, including that which (a) relates to its formulation technology, including PARI’s liposomal technology (but excluding with respect to Arikace), the Device or the manufacture or use of the Device, or (b) are necessary or useful for either Party to perform the Project, or (c) are necessary or useful for Transave, its Affiliates or Sublicensees to commercialize the Device with the Drug Product in the Transave Field. For clarity, PARI Intellectual Property includes without limitation all Existing PARI Data, existing PARI Know-how, Project Intellectual Property, all Patent Rights listed on Exhibit 1.35 and all Improvements (subject to Section 2.5.2).

1.36 “ Phase II Trial ” means a clinical trial of a drug product in human patients, the primary endpoints of which are to define the optimal dose and clinical end points that will be used during a Phase III Trial.

1.37 “ Phase III Trial ” means a clinical trial of a drug product conducted in an expanded patient population at multiple sites, which is statistically powered and designed to definitively establish safety and efficacy with respect to a particular indication of one or more particular doses in the patients being studied and to provide the statistical and clinical basis for Regulatory Approval of such drug product.

1.38 “Present Device” means the present configuration no. 40L of eFlow, having the performance characteristics ascribed to such configuration in Exhibit 1.38.

1.39 “ Products ” means the individual Drug Product and/or the Device for use with the Drug Product.

1.40 “ Project ” means all activities to be performed by PARI, individually or jointly with Transave or third parties, that are set forth in a specific Work Plan.

1.41 “ Project Director ” means a development executive appointed by each Party to serve as such Party’s principal coordinator and liaison for the Project. Except in the case of an emergency, each Party agrees to provide thirty (30) days written notice to the other Party prior to replacing its Project Director. The initial Project Directors shall be: [***] for PARI and [***] for Transave.

1.42 “ Project Intellectual Property ” means all Intellectual Property that is invented or created in the course of performance of a Work Plan under this Agreement, including without limitation any Intellectual Property directed to the Nebulizer apparatus, components or methods of manufacture thereof, regardless of who develops it. For clarity, the Project Intellectual Property excludes the Project

Data, the Existing PARI Data, Existing Transave Data, and any Know-how owned or Controlled by PARI or Transave prior to the Effective Date and any Intellectual Property solely relating to Arikace.

1.43 “ Project Rate ” with respect to activities under a Work Plan means [***].

1.44 “Qualified Stock” means the series of preferred stock issued by Transave in the Most Recent Qualified Financing. As of the date of this Agreement, the Qualified Stock is Transave’s Series D Convertible Preferred Stock.

1.45 “Qualified Stock Price” means the price per share paid by the purchasers of Qualified Stock in the Most Recent Qualified Financing (as equitably adjusted for any stock dividend, stock split, combination, reorganization, recapitalization, reclassification or similar event with respect to such Qualified Stock). As of the date of this Agreement, the Qualified Stock Price is $0.2001 per share.

1.46 “Recall” means a recall, withdrawal, or field correction of any product for any reason, or a dissemination of information regarding such product due to a change in the labeling of such product.

1.47 “ Regulatory Authority ” means any national (e.g., the FDA), supra-national (e.g., the European Commission, the Council of the European Union, or the EMEA), or other governmental entity in the Territory involved in regulation of or the granting of Marketing Approval for the Products or the development, manufacture, use or commercialization thereof.

1.48 “ Royalty Term ” means, on a country-by-country basis, the period commencing on the date of First Commercial Sale of Drug Product and continuing until the later of (a) Expiration of the last Valid Claim covering the particular Device in the particular country in which such Product is sold or (b) [***] after First Commercial Sale of the Drug Product in such country in the Transave Territory.

1.49 “ Sale of Business Transaction ” means the sale or transfer by Transave, directly or indirectly, of all of its rights in the Drug Product to a third party, excluding Affiliates of Transave, during the term of this Agreement. A change of “control” in Transave shall be deemed a Sale of Business Transaction. For the purpose of this definition, an individual corporation or other entity shall be deemed to “control” another corporation if it owns, directly or indirectly, more than fifty percent (50%) of the voting shares, or has the power to elect more than half the directors, of such corporation.

1.50 “ Secondary Indication(s) ” means the pulmonary administration of Drug Product for the treatment or prophylaxis of one or more of the following: [***] or [***], provided, however, that [***], and the treatment of such indications with [***], [***] and/or the [***] devices shall be excluded from the definition of Secondary Indications.

1.51 “ Specifications ” means the specifications, performance characteristics, parameters and requirements for the Device or other deliverables set forth in a Work Plan or user requirement specifications agreed to in writing between the Parties. The initial Specifications for the Present Device and the currently anticipated target Device are set forth in Exhibit 1.38. Transave shall amend Exhibit 1.38 to (i) amend existing parameters or add additional parameters to, the original Specifications for the Device as necessary or desirable based on results of the clinical data, or (ii) add an additional set of Specifications for a Device for a Secondary Indication. Amendments shall be made by Transave and

submitted in writing to PARI for approval, which shall not be unreasonably withheld. After approval by PARI, each amendment shall become part of this Agreement and incorporated herein. Each amendment shall be substantially in the format of Exhibit 1.38 and sequentially labeled (Exhibit 1.38A, Exhibit 1.38B, etc.), and shall indicate if it supersedes any of the previous Exhibits 1.38.

1.52 “ Sublicensee ” means any person or entity who receives a sublicense from Transave under Section 4.1 of this Agreement to Exploit the Device with the Drug Product to a non-Affiliate Third Party.

1.53 “ Third Party License Agreement ” [***].

1.54 “ Transave Field ” means the pulmonary administration of Drug Product for the treatment or prophylaxis of cystic fibrosis (CF) and/or bronchiectasis. In addition, upon request or election by Transave, the “Transave Field” shall further include one or more of the Secondary Indications, subject to and in accordance with the provisions of Section 2.6.

1.55 “ Transave Intellectual Property ” means all Intellectual Property owned or Controlled by Transave and its Affiliates, as of the Effective Date or during the term of this Agreement, including that which (a) relates to its liposomal formulation technology, (b) is reasonably necessary or useful for either Party to perform the Project but excluding all Improvements, or (c) that solely relates to the Drug Product and is invented or created in the course of performance of a Work Plan or under this Agreement. For clarity, Transave Intellectual Property includes without limitation all Existing Transave Data, existing Transave Know-How and the Project Data (subject to the restrictions set forth in Section 3.2(b)).

1.56 “ Transave Territory ” means the entire world.

1.57 “ Valid Claim ” means a claim in an issued patent within the PARI Intellectual Property, including the Project Intellectual Property, which has not Expired.

1.58 “ Work Plan ” means the activities, deliverables, timelines, Specifications and budget for the Project, established by the Parties pursuant to Section 2.2.

Article 2 — Development Project

2.1 Scope of the Project . Subject to the terms and conditions of this Agreement, the Parties shall collaborate, in accordance with one or more Work Plan(s), for Optimization of the Device for use with the Drug Product.

2.2 Work Plans. The initial Work Plan is set forth in Exhibit 2.2, which may be amended by Transave based on the results of the Optimization Project with the consent of PARI, such consent not to be unreasonably withheld. Additional Work Plans may be added, sequentially numbered as Exhibit 2.2A, 2.2B, etc., and attached to this Agreement. Transave may request additional services to be performed by PARI or request changes to any existing Work Plan(s), all in accordance with this Section 2.2.

(a) Upon any such request by Transave which shall specify deliverables and Specifications , PARI shall promptly prepare and submit to Transave a draft Work Plan or an

amendment based on such request, setting forth in reasonable detail the services to be performed, the time and FTEs required for such services, timelines for the performance and completion of such services, and a budget for any out-of-pocket costs required to be expended. It is understood that PARI may also propose additional Work Plans or amendments on its initiative, and shall submit a draft thereof to Transave in the same form for approval by Transave.

(b) The Parties shall negotiate in good faith the final version of any additional Work Plan or amendment to a Work Plan, any of which shall be effective only after mutual agreement by the Parties thereon in writing. In the event of any conflict between a Work Plan and the terms and conditions of this Agreement, this Agreement shall control.

(c) PARI shall use Arikace or Drug Product provided to PARI solely for the purpose of Optimization of the Device pursuant to a Work Plan and shall not use Arikace or Drug Product for any other purpose. PARI shall not formulate, modify or reverse engineer the Drug Product or Arikace.

(d) Transave and its permitted Sublicensees shall use the Device solely with the Drug Product in accordance with the terms of this Agreement and shall not modify or reverse engineer the Device.

2.3 Management .

2.3.1 Joint Steering Committee . Promptly after the Effective Date, Transave and PARI shall establish a joint steering committee (the “ Joint Steering Committee ” or “ JSC ”), comprising three members chosen by each Party, to oversee, review and coordinate the activities of the Parties under this Agreement, including the performance of the Project and the development, manufacture and commercialization of the Product. The JSC shall be responsible for: (a) overseeing the activities of the Parties under this Agreement; (b) resolving disputes and disagreements under this Agreement; and (c) undertaking or approving such other matters as are specifically provided for the JSC under this Agreement. JSC will be responsible for developing a full charter for the Joint Steering Committee, and obtain written approvals from the CEO (as defined below) of the Parties. JSC meetings that must take place in person shall alternate between the place of business of each Party, unless otherwise agreed to by the Parties. Written minutes of all meetings will be provided within ten (10) business days of the meeting/teleconference to the members of the JSC.

2.3.2 Decision Making. Decisions of the Joint Steering Committee shall be made by unanimous vote of the members present in person or by other means (e.g., teleconference) at any meeting, with at least one representative from each Party participating in such vote. In the event that the JSC is unable to reach unanimity with respect to a particular matter, then either Party may, by written notice to the other, have such matter referred to the President or Chief Executive Officer (“ CEO ”) of each of the Parties, who shall discuss and attempt to resolve such matters to the Parties’ mutual satisfaction within thirty (30) days thereafter. If the Parties are unable to resolve such dispute in accordance with this Section 2.3.2, Article 14 of this Agreement shall apply.

2.3.3 Reserved Rights. Notwithstanding the foregoing, however, in the event either Party reasonably determines that a final decision of the JSC pursuant to Section 2.3 will result in a hazardous or unsafe Device or Drug Product, or infringement of a third party’s patent rights, then that first Party shall provide the JSC with information supporting its belief. Upon delivery of such information, and discussion with the second Party at the JSC, the first Party shall have the right to refrain from implementing such decision in its performance of this Agreement, provided that if the

second Party in good faith disagrees with the basis of such determination, the Parties shall resolve the disagreement in accordance with Section 2.3.2. Notwithstanding the foregoing, nothing in this Article 2 shall be deemed to require either Party to take any action that it believes is unlawful.

2.3.4 Limited Authority . The decisions of the JSC, whether under this Section 2.3 or under any other section of this Agreement, shall not have the power to amend or contradict the terms of this Agreement or the agreed upon Work Plans, nor substitute for either Party’s ability to exercise any right, nor excuse the performance of any obligation, set forth in this Agreement.

2.4 Conduct of the Project . Subject to the terms and conditions of this Agreement, each Party shall use Commercially Reasonable Efforts to perform the activities assigned to it under a Work Plan in accordance with the Specifications, timelines and budgets set forth therein, under the supervision of the JSC. Each Party shall keep the JSC informed as to its progress under a Work Plan.

2.5 Improvements. Notwithstanding anything to the contrary in this Agreement, if PARI develops an incremental Improvement, then PARI shall incorporate such Improvement into the Device, without further consideration, if (i) it is not contractually prohibited from doing so by the agreement under which such Improvement was developed, (ii) PARI generally incorporates such Improvement into an eFlow for use in CF, Bronchiectasis or such Secondary Indication (but in this instance only, without reference to the Drug Product contained in the definition of Secondary Indication in Section 1.50) that has been included in the Transave Field pursuant to Section 2.6, and (iii) it is consistent with the Specifications and the applicable regulatory requirements. If an Improvement is not an incremental Improvement (e.g., a major Improvement or a new 510(k) is or will be filed), then PARI shall, to the extent it has the right to do so, offer Transave an opportunity to review such Improvement for a period of sixty (60) days from receipt of a description of such Improvement and a plan for development of such Improvement and possible incorporation into the Device in order for Transave to determine whether it wishes to have such Improvement incorporated into the Device and thereby be incorporated into the license granted pursuant to Section 4.1. If Transave determines (by giving written notice to PARI) within such sixty (60) day period that it desires to benefit from the Improvement and include the Improvement in the Device, such Improvement shall be automatically included in PARI Intellectual Property. If Transave does not give written notice to PARI within the sixty (60) day period of its desire to benefit from the Improvement, Transave shall be deemed to have rejected the Improvement and PARI shall have no obligation to include the Improvement in the Device. Notwithstanding anything to the contrary in this Agreement, if PARI develops an Improvement and desires to obtain patent protection for such Improvement, PARI shall be free to obtain such protection and may take all steps necessary, appropriate or advisable thereto, provided that Transave’s rights under this Agreement shall not be restricted or limited in any way.

2.6 Designation of Secondary Indication. During the Term, if Transave desires to add one or more Secondary Indications to the Transave Field it will notify PARI thereof in writing. Also, if at any time during the Term of this Agreement, PARI negotiates with a third party to license PARI Intellectual Property in one or more Secondary Indications, PARI agrees that, prior to entering into a binding definitive licensing agreement, whether oral or written, whether in the form of an agreement, term sheet, letter of intent or other format, with such third party, PARI shall provide notice to Transave of such negotiations and shall offer to Transave the option to add such Secondary Indication(s) to the Transave Field; provided, however, that PARI shall not be obligated to offer such Secondary Indication to Transave if Transave has already entered into a binding definitive licensing agreement, whether oral or written, whether in the form of an agreement, term sheet, letter of intent or other format, for another Nebulizer with a third party for such Secondary Indication. Transave shall have thirty (30) days from the date of receipt of notice to exercise this option by sending a written notice thereof to PARI.

Notwithstanding the foregoing, PARI shall be permitted to conduct development activities on its own or with a third party with respect to the Secondary Indications, including feasibility studies and the notice obligation and right of first refusal of Transave shall not apply thereto. If Transave desires to add a Secondary Indication either pursuant to the first sentence of this paragraph or by exercising its option, the Parties shall negotiate in good faith commercially reasonable and mutually acceptable diligence requirements, non-compete provisions, termination rights and such other terms and conditions as the Parties may identify for the applicable Secondary Indication(s), [***]

2.7 [***]. At any time, the Parties may agree to discuss a potential license agreement related to [***] for use with Arikace.

2.8 Project Fees . Transave shall compensate PARI for its performance of the Work Plans at the Project Rate [***] (“ Project Fees ”). The Project Fees shall be invoiced to and paid by Transave in accordance with Section 9.1 below. Except for the compensation and reimbursement set forth in this Section 2.8, each Party shall perform all of its activities under the Work Plans at its own cost.

2.9 Reports. PARI’s obligations to provide reports will be as specified in individual Work Plans. In addition to any meetings, working groups or reviews required under the Work Plan, PARI shall provide Transave with reasonable access to the Project Director, from time to time throughout the term of the applicable Work Plan. Such access shall be at Transave’s reasonable request, during regular business hours and mutually convenient times, and may include (without limitation) teleconferences, email, face-to-face meetings or other visits to PARI’s facility.

2.10 Subcontractors . PARI shall not subcontract its performance of the Project to another entity without Transave’s prior written approval, which approval shall not be unreasonably withheld, delayed or conditioned. In any case, PARI shall remain completely responsible for all acts and omissions of its subcontractors for any Project activities that are subcontracted.

Article 3 — Intellectual Property

3.1 Existing Intellectual Property Ownership and Limited License Grant .

(a) Transave shall exclusively own the Transave Intellectual Property and any improvements, enhancements or modifications in and to the foregoing conceived or developed by either Party pursuant to this Agreement. Except for the license expressly granted in 3.1(b), no other license in the Transave Intellectual Property is granted to PARI by implication, estoppel or otherwise. PARI shall exclusively own the PARI Intellectual Property and any improvements, enhancements or modifications in and to any of the foregoing conceived or developed by either Party pursuant to this Agreement, including all Improvements. Except for the licenses expressly granted in this Agreement, no other license in the PARI Intellectual Property is granted to TRANSAVE by implication, estoppel or otherwise.

(b) Subject to the terms and conditions of this Agreement, Transave hereby grants PARI a royalty-free, non-exclusive, non-transferable (except to its Affiliates and as expressly provided herein) license under the Transave Intellectual Property solely to perform PARI’s obligations and responsibilities under the Work Plans and this Agreement. PARI hereby grants to Transave, until initiation of the Royalty Term, a royalty-free, non-exclusive license under the PARI Intellectual Property and PARI Project Intellectual Property solely to perform Transave’s activities, under this Agreement including the development of Drug Products, provided, however that all Improvements shall be exclusively owned by PARI and Transave shall not file any patent application that incorporates the PARI Intellectual Property and/or the Project Intellectual Property.

3.2 Project Intellectual Property Ownership and Project Data Ownership .

(a) PARI shall exclusively own the Project Intellectual Property. Transave agrees to assign and hereby assigns to PARI all right, title and interest in and to Project Intellectual Property.

(b) Subject to Section 3.3 below, Transave shall exclusively own all Project Data; provided, however, that Transave (i) shall not use any Project Data with, or share, transfer or license to PARI Competitor pursuant to Section 4.1.3 below and (ii) Transave shall not file any patent application or amendment that incorporates the PARI Intellectual Property and/or the Project Intellectual Property in the claims thereof. Transave shall give PARI reasonably sufficient advance notice and opportunity to review any patent applications, prior to filing, that first incorporate any particular PARI Intellectual Property or Project Intellectual Property. If, within fifteen (15) days after receipt, PARI notifies TRANSAVE in writing that TRANSAVE’s patent application contains PARI Intellectual Property or Project Intellectual Property that is patentable but for which PARI has not previously filed for patent protection, then TRANSAVE agrees to delay filing of its application for an additional thirty (30) days, to permit PARI to prepare and file a patent application to protect such PARI Intellectual Property or Project Intellectual Property. In the event Transave nevertheless files a patent application that claims the PARI Intellectual Property or any Project Intellectual Property, then PARI shall receive a non-exclusive, perpetual, world-wide, fully paid-up, sublicensable, unrestricted, irrevocable right and license to research, formulate, develop, seek regulatory approval for, make, have made, use, sell, have sold, offer for sale, market, promote, import, export, display, make derivative works of, copy, distribute, perform, license, sublicense or otherwise commercialize, exploit or dispose of the PARI Intellectual Property or any Project Intellectual Property to the extent claimed in such patent application and/or patent. In the event that Transave uses Project Data (that have been generated based on the utilization of the Device) to file a patent application, then PARI shall have a non-exclusive, perpetual, world-wide, fully paid-up, licensable, unrestricted right and license (outside of the Transave Field) (1) to practice under any apparatus claim that claims a Device, Nebulizer that is proprietary to PARI, or component thereof, and any method of manufacture claim that claims a method of manufacturing a Device, Nebulizer that is proprietary to PARI, or component thereof, in any such patent that is based on such Project Data , and (2) to practice under any method of use claim that is a method of using a Device, Nebulizer that is proprietary to PARI, or component thereof, in any such patent that is based on such Project Data to the extent necessary to avoid any liability on PARI’s part for infringement of such method of use claims. Notwithstanding anything to the contrary in the foregoing, PARI shall not obtain any rights under this Section 3.2(b) to Exploit any Transave proprietary drug product or formulation thereof.

3.3 Default on Project Fees . Subject to Article 14, in the event of a default in the payment of any undisputed Project Fees under this Agreement, which default is not cured within thirty (30) days after Transave receives written notice thereof by PARI referencing this Section 3.3, specifying in detail

the amount of Project Fees alleged to be unpaid and a calculation thereof, and providing all relevant supporting documentation evidencing such calculation, then Transave shall not have the right to use such specific Project Intellectual Property and Project Data that was conceived or developed by PARI that was not paid for in accordance with the Work Plan by Transave. In such event, however, it is understood that Transave shall retain the right to use and Exploit other Project Intellectual Property and Project Data that Transave has fully paid for in accordance with the Work Plan and this Article 3.

3.4 Scientific Records . PARI shall maintain laboratory notebooks and all technical, scientific, accounting and other records in sufficient detail and which shall reflect work done, results achieved, intellectual property developed, including all data in the form required by Applicable Laws and Standards, which shall be kept for three (3) years after completion or termination of the respective Work Plan or any longer period mandated by Applicable Laws and Standards. However, records supporting the relevant PARI Patent Rights and the Project Intellectual Property shall be kept for the longer of a period of fifteen (15) years after First Commercial Sale of Drug Product in any country in the Transave Territory or 20 years from the date of filing of any intellectual property related to this project or a longer period mandated by Applicable Laws and Standards.

3.5 Patent Protection . Except as set forth in Section 3.6 with respect to the Joint Patents, PARI has the sole discretion and responsibility, at its expense, to prepare, file, prosecute, maintain, defend, and enforce any patent applications and patents, as applicable, to PARI Intellectual Property and Project Intellectual Property. TRANSAVE has the sole discretion and responsibility at its expense, to prepare, file, prosecute, maintain, defend, and enforce any patent applications and patents, as applicable, to TRANSAVE Intellectual Property. In any case and pursuant to this Section 3.5, TRANSAVE shall not, without PARI’s prior written consent, to be withheld in its sole discretion, prepare, file, prosecute, maintain, defend, or enforce any patent applications and patents, as applicable, relating to the Device or any other eFlow or otherwise incorporate PARI Intellectual Property and/or the Project Intellectual Property, including but not limited to eFlow, or PARI’s proprietary TouchSpray ® Technology. In any case and pursuant to this Section 3.5, PARI shall not, without Transave’s prior written consent, to be withheld in its sole discretion, prepare, file, prosecute, maintain, defend, or enforce any patent applications and patents, as applicable, relating to the Drug Product.

3.6 Joint Patents. PARI and Transave are currently discussing the potential of filing a joint patent application (the “Joint Patent” ). The Parties hereby agree that no Joint Patent application shall be filed without (i) the consent of the other Party and (ii) the Parties having entered into an Addendum to this Agreement outlining the respective rights and obligations, including provisions regarding ownership, rights of use, restrictions of use, prosecution, enforcement and defense, with respect to the Joint Patent.

Article 4 — Commercial License

4.1 Commercial License

4.1.1 Exclusive Grant in Transave Field . During the Royalty Term, PARI hereby grants Transave a royalty-bearing exclusive right and license in the Transave Territory, (with the right to grant and authorize sublicenses, except with respect to [***] which PARI shall sublicense at Transave’s request according to Section 4.1.4, provided (x) such Sublicensees agree to be bound by the terms of this Agreement, (y) Transave shall nonetheless remain liable to PARI for any breach by a Sublicensee of this Agreement and (z) such Sublicensee is not a PARI Competitor pursuant to Section 4.1.3 below), under PARI Intellectual Property and Project Intellectual Property to Exploit (subject to Section 4.1.1 below) the Device for use with the Drug Product in the Transave Field; provided, however, that Improvements are governed by Section 2.5.2. For clarity, the license of this Section 4.1.1 shall be

exclusive, except with respect to the [***], in the Transave Field even as to PARI, and PARI shall not practice itself, nor grant to a third party, any rights with respect to PARI Intellectual Property or Project Intellectual Property for use in the Transave Field in the Transave Territory, except with respect to the [***]. Upon expiration of the Royalty Term, the foregoing license shall be rendered non-exclusive, fully paid-up and royalty-free, on a country-by-country basis; provided, however, that upon Transave’s written request, such license shall remain exclusive, on a country-by-country basis, subject to Transave’s continued payment of royalties for such country as set forth in Section 6.1 of this Agreement.

4.1.2 Manufacturing Rights . Transave covenants that it shall not, and it shall cause its Affiliates and permitted Sublicensees not to, exercise rights to manufacture the Device for use with the Drug Product, the Device, the Device Accessories or any components of any of the foregoing under the license of this Section 4.1 except pursuant to a fully executed Commercial Supply Agreement as set forth in Section 8.9 of this Agreement.

4.1.3 Restriction of Certain Sublicenses . Transave shall not grant to a PARI Competitor a sublicense under the PARI Intellectual Property without PARI’s prior written consent. For such purposes a “ PARI Competitor ” shall mean an entity identified in Exhibit 4.1 hereto.

4.1.4 Sublicense of [***]. Transave acknowledges that a portion of the PARI Intellectual Property includes PARI’s rights under the Third Party License Agreement. In the event Transave transfers or sublicenses the license granted in this Section to a third party, such rights shall be excluded from such transfer or sub-license. However, in the event that Transave transfers or sublicenses to a third party any of the license rights granted in this Section 4.1, upon Transave’s request, PARI shall directly grant to such third party a sublicense of PARI’s rights under the Third Party License Agreement for no additional consideration, other than that already due to PARI under this Agreement with respect to any transfer or sublicense of rights granted to Transave in this Section 4.1. Such transfer or sublicense shall be subject to the terms and conditions of this Agreement.

4.2 Exclusivity of Efforts . The Parties acknowledge and agree that nothing contained in this Section 4.2 shall limit PARI from researching, developing, manufacturing, or commercializing medical devices (including existing devices) as stand alone devices outside of the Transave Field other than the Device (subject to PARI’s obligations under Section 2.6).

(a) Non-Compete . Subject to Section 4.2(b) below and the AKITA Rights, during the Term of this Agreement, PARI agrees that it and its Affiliates shall not compete with Transave (x) in CF and/or Bronchiectasis with a Competing Nebulizer in the Transave Field, within the Transave Territory, or (y) otherwise engage in the research, development, manufacture and/or commercialization of amikacin for pulmonary administration using a Competing Nebulizer. In addition, during the term of this Agreement, PARI agrees that it and its Affiliates shall not compete with Transave or otherwise engage in the research, development, manufacture and/or commercialization of any liposomal formulation of tobramycin, ciprofloxacin and levofloxacin for pulmonary administration, provided, however, that the foregoing restrictions in this sentence shall not apply with respect to (i) the right of any third party licensee (but only to the extent such right is existing and in effect as of the Effective Date) to research, develop, manufacture and/or commercialize any liposomal formulation of tobramycin, ciprofloxacin and levofloxacin for pulmonary administration pursuant to any licensing agreements entered into by PARI or its Affiliates prior to the date of this Agreement, and (ii) the right of PARI and its Affiliates to enter into additional agreements that would be necessary or useful to exploit, but do not expand, existing rights under such licensing agreements referred to in (i), such as testing agreements, and clinical and commercial supply

agreements, with any such third party licensee related to the research, development and manufacture and/or commercialization of products generated pursuant to those respective licensing agreements,; except the foregoing restrictions in this sentence shall apply, notwithstanding (i) or (ii), with respect to any research, development, manufacture and/or commercialization of any such liposomal formulations for pulmonary administration using a Nebulizer that includes any developments or optimizations generated under Feasibility Statement of Work No. 3. Notwithstanding the foregoing, the Parties acknowledge and agree that PARI is able to supply medical device product information to customers and sell medical devices other than Competing Nebulizers to customers and patients indicated to deliver amikacin for any indication (including clinical development and clinical research), including CF and Bronchiectasis, and that such uses shall not conflict with the prohibitions of this Section 4.2(a).

(b) Transave Diligence . PARI’s obligations under Section 4.2(a) shall be conditioned upon Transave complying with its diligence obligations as set forth in Sections 7.1 and 7.2.

(c) During the term of this Agreement, Transave agrees that it and its Affiliates shall not compete with PARI or otherwise engage in the research, development manufacture and/or commercialization of any liposomal formulation of cyclosporin.

4.3 Rights in Bankruptcy . All rights and licenses granted under or pursuant to any section of this Agreement are, and shall be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, 11 U.S.C. § 101 et seq., licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code. The parties shall retain and may fully exercise all of their respective rights and elections under the Bankruptcy Code.

Article 5 — Upfront License Fee and Milestones

5.1 Upfront License Fee. After execution of this Agreement and within thirty (30) days after receipt of written notice of PARI’s election under Section 5.3(a), Transave shall pay PARI (a) [***] either in cash, or the equivalent in Qualified Stock, or a combination of cash and Qualified Stock, at PARI’s option as provided in section 5.3(a) below, plus (b) the equivalent of [***] in Qualified Stock, as an upfront license fee.

5.2 Milestones. In further consideration of the rights and license granted by PARI under this Agreement, Transave agrees to make the following milestone payments to PARI, upon the first achievement of the corresponding events set forth below by or under authority of Transave, within thirty (30) days after Transave’s receipt of written notice of PARI’s election under Section 5.3(b) below. For avoidance of doubt, each Milestone Payment is payable only once.

MILESTONE EVENT		MILESTONE PAYMENT
1. Receipt of any positive trial report from the first Phase IIb Trial that are sufficient to support the advancement of Drug Product development with the Device into the first Phase III Trial		[*] either in cash, Qualified Stock or a combination of cash and Qualified Stock; plus [*] in Qualified Stock

2. Initiation of the first Phase III Trial of Drug Product with the Device		[***] either in cash, Qualified Stock or a combination of cash and Qualified Stock
3. First Acceptance of MAA (or equivalent) submission in the US for such Drug Product with the Device		[***] either in cash, Qualified Stock or a combination of cash and Qualified Stock
4. First receipt of Marketing Approvals in the United States for both (i) such Drug Product and (ii) the Device		[***] either in cash, Qualified Stock or a combination of cash and Qualified Stock
5. First receipt of Marketing Approvals in the first of the Major EU Countries for both (i) such Drug Product and (ii) the Device, in the same Major EU Country		[***] either in cash, Qualified Stock or a combination of cash and Qualified Stock
Total		€4,300,000

5.3 Equity Issuances. Subject to the limitations set forth in Sections 5.3(d) and 5.3(e) below, PARI may elect, as set forth below, to receive any or all of the payments set forth in Sections 5.1 and 5.2 above in the form of Qualified Stock in lieu of cash, as set forth below in this Section 5.3.

(a) Upfront License Fee. Within thirty (30) days of the execution of this Agreement and provided PARI has received the information set forth in paragraphs (b)(iii) and (iv) below, PARI shall notify Transave in writing whether or not it elects to receive Qualified Stock in lieu of the upfront license fee payment of [***] set forth in Section 5.1(a) above. If PARI fails to make its election within such thirty (30) days and provided PARI has received the information set forth in paragraphs (b)(iii) and (iv) below, then Transave may, in its sole discretion, make such payment in cash, Qualified Stock or a combination of cash and Qualified Stock, in the manner set forth in Section 5.3(c) below.

(b) Milestone Payments. Promptly following the occurrence of each of the Milestone Events specified in Section 5.2 above, Transave shall provide to PARI (i) written notification that such milestone event has occurred; (ii) to the extent not previously provided, a summary of the terms of the Qualified Stock that PARI may elect to receive in connection therewith; (iii) to the extent not previously provided, copies of any voting agreement or co-sale agreement to

which other holders of such Qualified Stock are parties, as well as any other document restricting the transferability of such shares of Qualified Stock; and (iv) such financial or other information reasonably requested by PARI. For the avoidance of doubt, all materials and other information provided to PARI pursuant to this Section 5.3 shall be deemed to be Confidential Information subject to Article 11 of this Agreement. PARI shall, within thirty (30) days after Transave’s delivery of the foregoing information, notify Transave in writing whether or not it elects to receive Qualified Stock in lieu of the cash milestone payment applicable to such milestone event. If PARI fails to make its election within such thirty (30) days, then Transave may, in its sole discretion, make such payment in cash or Qualified Stock, in the manner set forth in Section 5.3(c) below.

(c) Calculation of Number of Shares of Qualified Stock. For purposes of determining how many shares of Qualified Stock shall be issuable in connection with a payment to be made in Qualified Stock hereunder, such number shall be determined by (i) converting the cash payment applicable to the upfront license fee or Milestone Event, as specified in Sections 5.1 and 5.2 above, respectively, into its US Dollar equivalent (determined using the average daily exchange rate for the US Dollar, as quoted in the Wall Street Journal, for the ten (10) business days preceding the date on which Transave receives PARI’s election pursuant to Section 5.3(a) or Section 5.3(b) above, as applicable, or, in the event that no such election is received, the ten (10) business days following the expiration of the thirty (30) day period set forth in Section 5.3(a) or Section 5.3(b) above, as applicable) and (ii) dividing such result by the Qualified Stock Price. By way of illustration, assuming that (i) PARI elected to receive the milestone payment of [***] for Milestone Event 3 in Section 5.2 above in the form of Qualified Stock, (ii) the average daily exchange rate for the US Dollar for the ten (10) business days preceding the date on which Transave received PARI’s election was $1.45, (iii) the Qualified Stock was the Company’s Series D Convertible Preferred Stock and (iv) the Qualified Stock Price was $0.2001 per share, then the number of shares of Qualified Stock that would be issued with respect to such milestone payment would be $[***] divided by $0.2001, which is equal to [***] shares of Series D Convertible Preferred Stock.

(d) Conditions to Issuance of Equity . In the event that Transave issues Qualified Stock to PARI hereunder, the share certificate(s) evidencing such Qualified Stock shall be endorsed with customary securities legends, and the issuance of such Qualified Stock shall be subject to applicable federal and state securities laws and the restrictions and other terms of Transave’s bylaws and other organizational documents. In addition, PARI must as a condition precedent to the receipt of such Qualified Stock: (i) if requested by Transave, agree to become bound by any voting agreement, co-sale agreement or other transfer restrictions applicable to the other holders of such Qualified Stock and (ii) make such additional representations and warranties at the time of the issuance of such Qualified Stock as may be reasonably requested by Transave to ensure compliance with applicable federal and state securities laws. In the event Transave has completed an initial public offering of its capital stock prior to the occurrence of a Milestone Event for which PARI would be entitled to elect to receive Qualified Stock in lieu of a cash milestone payment, or Transave otherwise reasonably concludes that it is unable to comply with applicable federal and state securities laws in connection with any particular issuance of Qualified Stock to PARI pursuant to this Section 5.3, Transave shall have no obligation to issue such Qualified Stock, but if such Qualified Stock is not issued, Transave shall pay PARI the amount of [***] (for the upfront license fee set forth in Section 5.1), [***] (for Milestone Event 1 set forth in Section 5.2), [***] (for Milestone Events 2 and 5 set forth in Section 5.2), [***] (for Milestone Event 3 set forth in Section 5.2) or [***] (for Milestone Event 4 set forth in Section 5.2), as applicable, upon the occurrence of the obligation to pay the upfront license fee or milestone payment specified in Section 5.1or in Subsections 1 through 5 of

Section 5.2 above, as applicable, within thirty (30) days of Transave reasonably concluding that it is unable to issue such Qualified Stock. For the avoidance of doubt, Transave’s obligation to issue Qualified Stock under this Section 5.3 shall not apply to an initial public offering of Transave’s capital stock, and shall only apply with respect to the Qualified Stock issued in the Most Recent Qualified Financing but not to any warrants, promissory notes or other securities which may be issued concurrently to the investors in such Most Recent Qualified Financing.

(e) Effect of Sale of Business Transaction . In connection with any Sale of Business Transaction which closes prior to any particular issuance to PARI of Qualified Stock, the successor in interest to Transave shall have the option (but not the obligation) to assume Transave’s obligation to issue Qualified Stock pursuant to this Section 5.3 by issuing capital stock of the successor in interest at the applicable conversion ratio for the Qualified Stock in such Sale of Business Transaction, subject to PARI having (x) received documents and information with respect to the capital stock of such successor in interest substantially similar to the documents and information set forth in Sections 5.3(b)(ii), 5.3(b)(iii) and 5.3(b)(iv) above and (y) agreed in writing within thirty (30) days of receipt of all such documents and information that it elects to receive capital stock of the successor in interest as the method of payment. If such successor in interest does not elect to assume such obligation or PARI has not elected to receive capital stock of such successor in interest, then such successor in interest shall immediately pay PARI the amount of [***] (for the upfront license fee set forth in Section 5.1), [***] (for Milestone Event 1 set forth in Section 5.2), [***] (for Milestone Events 2 and 5 set forth in Section 5.2), [***] (for Milestone Event 3 set forth in Section 5.2) or [***] (for Milestone Event 4 set forth in Section 5.2), as applicable, upon the occurrence of the obligation to pay the upfront license fee or milestone payment specified in Section 5.1 or in Subsections 1 through 5 of Section 5.2 above, as applicable, and PARI shall have no right to capital stock or equity of Transave or such successor in interest thereafter.

Article 6 — Royalties

6.1 Royalties for Drug Products . In further consideration of the rights and license granted by PARI under this Agreement, during the Royalty Term, subject to the terms and conditions of this Agreement, Transave agrees to pay PARI a royalty equal to [***] of the Net Sales of Drug Product sold by Transave, its Affiliates or Sublicensees. Such royalties shall be paid in accordance with Section 9.2 below.

6.2 Combination Products . In the event (i) a Drug Product is sold in combination with the Device or other components for a single price, or (ii) a Drug Product is sold in combination with services or other products, amounts invoiced for such combination sales for purposes of calculating Net Sales of the Drug Product in such combination shall be reasonably allocated between such amounts attributable to the Drug Product and amounts attributable to the Device, other components, services or other products (“ Non-Royalty Components ”), by or under authority of Transave. Such allocation shall be based on the relative value(s) of the Drug Product and of the Non-Royalty Components, and if the Parties are unable to agree on such allocation, the allocation shall be determined in accordance with Article 14.

6.3 Annual Minimum Royalties . During the Royalty Term, Transave shall pay to PARI an Annual Minimum Royalty in US dollars in accordance with Section 9.3 below; provided, however, that, in the event Transave has permanently discontinued to Exploit the Drug Product for CF in accordance with Section 7.1(a), then the Annual Minimum Royalty shall no longer be applicable for the Drug Product for CF but the obligation to pay Annual Minimum Royalties for the Drug Product for Bronchiectasis shall remain in effect.

(a) Determining the Annual Minimum Royalty.

(i) The “ Annual Minimum Royalty ” shall be determined by the following table.

Year of Sales		Annual Minimum Royalty
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

(b) Failure to pay Annual Minimum Royalty. In the event Transave does not pay the Minimum Royalty Payment due under Section 6.3(a) above when due, PARI shall have the right to (i) render non-exclusive the license set forth in Section 4.1.1 upon written notice to Transave and failure to cure within sixty (60) days, and the non-compete obligations set forth in Section 4.2(a) shall immediately cease and (ii) terminate immediately the license set forth in section 4.1.1 for CF or Bronchiectasis, as applicable, if the Minimum Royalty Payment (plus all interest due pursuant to Section 9.5) plus an amount equal to [***] of the then applicable Minimum Royalty Payment has not been paid within six (6) months of the initial due date of the Minimum Royalty Payment; provided, however, that if all such payments have been made by Transave to PARI within such six (6) months period, then the license shall become exclusive again and the non-compete obligations set forth in Section 4.2(a) shall be reinstated immediately, as of the date of payment. The royalty rates set forth in this Article 6 shall remain unchanged due to the license of Section 4.1.1 becoming non-exclusive.

6.4 Infringement or Misappropriation of Third Party Rights . In the event of an actual or threatened infringement action pertaining to the Device, which causes, or could reasonably be expected to cause, Transave’s use of the Device to be disrupted, PARI shall, at its option and on a country by country basis, (i) provide Transave with access to components or entire nebulizers which are functionally equivalent to the infringing elements of the Device while still meeting the Specifications, without additional charge (“ Option 1 ”); (ii) modify the infringing portions of the Device to avoid the infringement while still meeting the Specifications (“ Option 2 ”); or (iii) obtain a license for Transave to continue use of the Device for the Term of this Agreement, and pay for any additional fee required for a license with the Third Party Controlling the Intellectual Property which is infringed or misappropriated by the Device (“ Option 3 ”). In the event PARI reasonably believes it to be Necessary (defined below) to proceed with obtaining a license for Transave as described above in Option 3, then PARI shall contribute up to a maximum amount of [***] in the aggregate of all Royalties paid by Transave to PARI pursuant to this Agreement towards the cost of such license. If at any time the anticipated costs for PARI to comply with Option 3 exceeds [***] in the aggregate of all Royalties paid by Transave to PARI pursuant to this Agreement, then PARI shall so notify Transave and Transave shall pay such additional amounts in order for PARI to secure such Necessary license. “Necessary” shall mean a determination by PARI after good faith consultation with Transave that a license would be prudent given the potential to resolve any claims or potential claims of Intellectual Property infringement or misappropriation.

Article 7 — Development, Regulatory and Commercialization Roles and Responsibilities

7.1 Transave Development and Commercialization Diligence for CF .

(a) Transave agrees to use Commercially Reasonable Efforts to pursue the clinical development of and to obtain Marketing Approval for CF for the Drug Product intended for use with the Device in one (1) or more countries (and at least in the United States), and after obtaining such Marketing Approval, to use Commercially Reasonable Efforts to market and sell the Drug Product with the Device in all countries in which it has been approved, except that Transave may, in its sole discretion, permanently discontinue: development, seeking regulatory approval, or commercialization based on: safety issues, negative and/or unfavorable clinical trial results, lack of commercial viability, strength of competitors prohibiting an effective marketing of the Drug Product in the marketplace, or weak financial forecasts; provided, however, that in such event Transave shall immediately notify PARI in writing of such decision and in such case CF shall no longer be included in the Transave Field and PARI’s obligations under Section 4.2(a) shall no longer apply as to CF. Until such first Marketing Approval, provided that the license of Section 4.1.1 remains exclusive hereunder, Transave shall provide PARI, at least semi-annually through the JSC, with detailed reports of the progress of its development of Drug Products for use with the Device and plans for its development and commercialization thereof in the upcoming year. The JSC shall discuss such reports and plans and Transave shall duly consider any comments thereon provided by PARI, provided that the Parties agree that Transave shall retain sole control of its development efforts hereunder and its plans therefor. For clarity, it is understood that the obligation to use Commercially Reasonable Efforts as set forth in this Section 7.1 shall apply to any Affiliates and/or permitted Sublicensees who are responsible for development of Drug Products for use with the Device, and Transave shall share reports and plans from such Affiliates and/or permitted Sublicensees with PARI at least annually through the JSC in the same manner as for reports and plans of its own development. This Section 7.1 shall also apply to any permitted successors and assigns of Transave under this Agreement. Transave’s breach of this Section 7.1(a) shall be deemed a material breach of this Agreement.

(b) The Parties agree that Transave will use Commercially Reasonable Efforts to meet the following milestones with respect to CF:

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: first Phase III Trial for CF begins		[***]

2. Diligence Milestone 2: first submission of an MAA application for CF in the Transave Territory		[***]

To the extent Transave does not meet a milestone listed above within the stated time period or the dates listed below, other than any failure resulting directly from a breach of this Agreement by PARI, then, subject to the provisions of Section 7.3, PARI shall have the option, in its sole discretion, to take the applicable action set forth below. Such option must be exercised by written notice to Transave (the “Diligence Termination Notice”), and shall become effective on the thirtieth (30 th ) day following the date of the Diligence Termination Notice. PARI shall have the option to:

(i) with respect to Diligence Milestone 1 above, terminate its obligation not to compete with Transave in CF as set forth in Section 4.2 of this Agreement only. In the event Transave has still not achieved Diligence Milestone 1 by [***], then the license granted by PARI to

Transave under this Agreement shall be rendered non-exclusive with regard to CF only. In the event Transave still has not achieved Diligence Milestone 1 by [***], then PARI shall have the option to terminate the licenses granted by PARI to Transave under this Agreement with regard to CF only by providing written notice to Transave thereof;

(ii) with respect to Diligence Milestone 2 above, terminate its obligation not to compete with Transave in CF as set forth in Section 4.2 of this Agreement only. In the event Transave has still not achieved Diligence Milestone 2 by [***], then the licenses granted by PARI to Transave hereunder shall be rendered non-exclusive with regard to CF only. In the event Transave still has not achieved Diligence Milestone 2 by [***], then PARI shall have the option to terminate the license granted by PARI to Transave under this Agreement with regard to CF only by providing written notice to Transave thereof;

7.2 Transave Development and Commercialization Diligence for Bronchiectasis.

(a) The Parties agree that Transave will use Commercially Reasonable Efforts to meet the following milestone with respect to Bronchiectasis:

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: Last patient to complete the Phase II Trial for Bronchiectasis		[***]
2. Other Diligence Milestones: see below

Within one hundred eighty (180) days following the final results of the Phase II Trial for Bronchiectasis, the Parties, acting in good faith, will negotiate additional milestones that meet reasonable industry standards. If no additional milestones are agreed to within such time period, and the lack of milestones is not mutually agreed by both parties, then at PARI’s option, PARI may by providing prompt written notice to Transave, (i) make the license granted to Transave under this Agreement non-exclusive and PARI’s non-compete obligations set forth in Section 4.2 shall terminate or (ii) terminate the license granted to Transave under this Agreement, in each case solely with respect to Bronchiectasis.

If Transave fails to meet a milestone within the applicable time period, other than any failure resulting from a breach of this Agreement by PARI, then, subject to the provisions of Section 7.3, PARI shall have the option to render Transave’s license hereunder non-exclusive solely with respect to Bronchiectasis and to terminate its obligation not to compete with Transave in Bronchiectasis as set forth in Section 4.2 of this Agreement. Such option must be exercised by sending the Diligence Termination Notice to Transave, and shall become effective on the thirtieth (30 th ) day following the date of the Diligence Termination Notice. If such milestone is still not met within twelve (12) months of the applicable time period, other than any failure resulting from a breach of this Agreement by PARI, then, subject to the provisions of Section 7.3, PARI shall have the option to terminate the license granted to Transave under this Agreement with respect to Bronchiectasis only by providing written notice thereof to Transave.

(b) For the avoidance of doubt, subject to the provisions of Section 7.2(a), nothing in this Agreement shall impart any obligation on Transave to pursue the indication of Bronchiectasis, and Transave’s activity or lack of activity with respect to Bronchiectasis shall not affect in any way Transave’s rights in and to CF or any Secondary Indication.

7.3 Updated Milestones. In the event Transave is unable to achieve the milestones set forth in Sections 7.1(b) and/or 7.2(a), as applicable, because of a breach of PARI of this Agreement, or in the case the Phase II or the Phase III Trial has to be repeated or there are documented clinical holds or delays caused by requests of the Regulatory Authorities preventing Transave from proceeding, then the due dates set forth above for such Milestones shall be reasonably adjusted to account for such factors pursuant to mutual agreement of the Parties.

7.4 Manufacture of Drug Product and Device . As between the Parties, (i) Transave shall have the exclusive right to manufacture (or have manufactured) Drug Product for any and all purposes (including without limitation, for use with the Device, for clinical and for commercial use); and (ii) PARI shall have the exclusive right to manufacture Devices for use with the Drug Product, for clinical and for commercial use, except as otherwise may be provided in the Commercial Supply Agreement.

7.5 Supply of Devices for Clinical Trials. PARI shall supply Transave or its designee with all Devices, and Device Accessories, to the extent applicable, required for the conduct of clinical trials. Devices shall meet the Specifications. The manufacturing and supply of such Devices by PARI shall comply with Article 8 below.

(a) Price . The price charged by PARI for such Devices and related parts shall be equal to the prices set forth on Exhibit 7.5(a) for clinical supply of the Devices.

(b) Initial Forecast . An initial forecast of the Devices, including delivery dates, anticipated to be required by Transave for clinical trials is set forth in Exhibit 7.5(b). Such forecast shall not be binding on either Party, unless and until such quantities and dates are confirmed in written purchase orders issued by Transave and accepted by PARI or set forth in a Work Plan executed by the Parties. Transave agrees to provide PARI a lead time of at least two (2) months.

7.6 Regulatory Matters.

(a) General . As between the Parties, (i) Transave shall be responsible for, and shall control all filings and interactions with Regulatory Authorities with respect to the Drug Products, and Transave shall control all clinical and regulatory strategy for the Drug Products; and (ii) PARI shall be responsible for, and shall control all filings and interactions with Regulatory Authorities with respect to the Device, and PARI shall control all clinical and regulatory strategy for the Device. Any MAAs, Marketing Approvals, INDs, or other regulatory submissions, filings, approvals and documentation (collectively, “ Regulatory Filings ”) shall be submitted solely in the name of, and exclusively owned by, (x) Transave or its designee with respect to the Drug Product and (y) PARI or its designee with respect to the Device. Each Party agrees to cooperate with, and provide reasonable assistance to the other Party, in the preparation of such Regulatory Filings, at the other Party’s expense.

(b) Approvals for Device for Clinical Trials. PARI represents, warrants and covenants that, with respect to the Present Device, it has been granted a 510(k) marketing clearance in the US and a CE mark in the European Union. Attached hereto as Exhibit 7.6(b) is a list of all countries in which PARI has obtained or is seeking Marketing Approval for the Present Device and PARI shall keep Transave informed of any change in status. Transave shall give reasonable weight to this list when choosing countries in which to conduct future clinical trials. If Transave chooses to

conduct a clinical trial in a country in which the current status of approval is not adequate to allow Transave to conduct a clinical trial, then PARI hereby agrees to reasonably cooperate with Transave, at Transave’s expense, in order to obtain the applicable regulatory approvals in such country to allow Transave to use the Device for clinical trials in such country.

(c) Regulatory Inspections and Requests. Transave and PARI shall cooperate in good faith with respect to the conduct of any inspections required by any Regulatory Authority of a Party’s site and facilities related to Transave’s clinical trials regarding Devices. Each Party shall promptly provide to the other Party a summary of any inspectional observations, inspection reports issued by a Regulatory Authority, or responses to a Regulatory Authority’s inspectional observations or report related to such clinical trial. PARI agrees to promptly and timely respond to all requests from Regulatory Authorities and to promptly notify Transave about such requests.

7.7 Adverse Event Reporting. Unexpected serious adverse events that are made known to either party and that are considered to be related to the Drug Product or the Device, shall be reported to the other Party on an expedited basis, and at least within forty-eight (48) hours from the notification of an institutional review board (IRB), Regulatory Authority or participating investigators and in any case not longer than five (5) business days after the event was made known. An unexpected adverse experience is defined as any adverse drug experience, the specificity or severity of which is not consistent with the current Investigator Brochure for a clinical trial, or, if an Investigator Brochure is not required or available, the specificity or severity of which is not consistent with the risk information described in the general investigational plan or elsewhere in the current application, as amended. Unexpected, as used in this definition, refers to an adverse drug experience that has not been previously observed (e.g., included in the Investigator Brochure) rather than from the perspective of such experience not being anticipated from the pharmacological properties of the pharmaceutical product. In the case of a clinical trial, an unexpected serious adverse event would, for example, be as assessed by the investigator and or the sponsor or authorized person without breaking the blind and would qualify for expedited reporting. An unexpected serious adverse event shall be reported by Transave to the appropriate institutional review board, Regulatory Authority, investigator and PARI.

7.8 Recalls.

(a) Each Party shall promptly notify the other Party in writing if any Regulatory Authority or other governmental agency having jurisdiction requests or orders it to conduct a Recall of any Device, or if PARI determines to undertake a Recall of any Device voluntarily. Prior to the beginning of any such Recall, the Parties agree to discuss the Recall process. Promptly after being notified of such Recall, but in no event later than may be required to permit PARI to meet applicable Regulatory Requirements, Transave shall provide PARI with reasonable assistance in connection with such Recall as requested by PARI.

(b) If PARI is required or determines to effect any such Recall, then PARI shall solely manage such Recall and be responsible for (i) the cost of notifying end users; (ii) costs associated with the collection and shipment from end users of the Devices subject to such recall; and (iii) costs of replacing such Devices including the cost of shipping the replacement Devices to the affected end users.

(c) Transave shall promptly notify PARI in writing if any Regulatory Authority or other governmental agency having jurisdiction requests or orders it to conduct a Recall of the Drug Product, or if it determines to undertake a Recall of the Drug Product voluntarily. Prior to the beginning of any such Recall, the Parties agree to discuss the Recall process. Transave shall solely

manage such Recall and be responsible for (i) the cost of notifying end users; (ii) costs associated with the collection and shipment from end users of the Drug product subject to such Recall; and (iii) costs of replacing the Drug Product, including the cost of shipping the replacement Drug Product to the affected end users.

Article 8 — Supply of Devices by PARI for Clinical Use

8.1 Delivery . PARI agrees to deliver those quantities of Devices and Device Accessories thereof ordered by Transave for clinical trials, FCA (Incoterms 2000) PARI’s facilities in Germany, by the delivery dates set forth in a purchase order in accordance with reasonable shipping instructions provided by Transave. The purchase order shall specify the quantity of Device to be supplied, the supply schedule and the study sites, distributors or other site(s) to which delivery shall be made. PARI shall arrange for shipping and insurance, to be paid by Transave, and carry out all customs formalities necessary to export the shipment. The Devices shall be shipped, at Transave’s expense, packaged in containers in accordance with the Specifications or as otherwise agreed by the Parties in writing, to Transave or its local country designee, or study site(s) as specified by Transave at the time of ordering the Devices, provided, however, that it will not be required to deliver Devices to more than one (1) centralized location in any given country (except for the United States), unless otherwise agreed by PARI. PARI shall cooperate with Transave, and provide Transave with all necessary documentation and assistance (to the extent PARI has experience as to the importation of Devices into such country), at Transave’s expense, with respect to importation of the Devices into any country of the Transave Territory.

8.2 Payment . PARI shall submit an invoice to Transave upon shipment of Devices ordered hereunder, reflecting the price therefor as set forth in Exhibit 7.5(a). All invoices shall state the aggregate and unit price for such Devices in a given shipment, plus any insurance, taxes or other costs incident to the purchase or shipment initially paid by PARI but to be borne by Transave hereunder. Other than amounts disputed in good faith, Transave shall pay PARI such invoiced amounts that are due hereunder within (30) days from the date of shipment.

8.3 Acceptance .

(a) At the same time it delivers Devices to Transave under Section 8.1, PARI shall deliver to Transave the following documentation: (a) the order number of the delivered Devices and Device Accessories; (b) with respect to the United States only, a Certificate of Conformance, and with respect to the European Union only, a Quality Certificate; and (c) any documentation that PARI customarily includes in shipments of such Device and/or Device Accessories. Transave may, but shall not be obligated to, inspect and test Devices delivered by PARI hereunder. If on such inspection Transave discovers that any Device shipped hereunder fails to conform with the Specifications or otherwise fails to conform to the requirements of this Agreement, Transave may provide written notice to PARI specifying in reasonable detail the manner in which such Device fails to meet the foregoing requirements, and shall promptly send to PARI a representative sample of the nonconforming Device. Transave or its designee shall retain the rejected Devices pending PARI’s analysis thereof and the resolution of any disagreement regarding the nonconformance of such Devices.

(b) At its sole cost and expense, PARI shall replace Devices appropriately rejected in accordance with this Section 8.3 by Transave or its designees.

(c) Subject to this Section 8.3 above and 8.4, Devices shall be deemed accepted if no notice to the contrary is received by PARI within thirty (30) days of receipt of such Devices by Transave. It is understood that the warranties given by PARI in Section 8.5 shall survive any failure to reject under this Section 8.3.

8.4 Latent Defects. As soon as either Party becomes aware of any defect in Devices delivered by PARI that are not discoverable upon a reasonable inspection or incoming quality assurance testing as set forth in the Specifications, it shall immediately notify the other Party in writing, and the applicable provisions of Section 8.5 shall apply. Notwithstanding the foregoing, in the event that Transave fails to reject a Device within thirty (30) days after it actually becomes aware of any latent defect therein (including, without limitation, by way of written notice from PARI), Transave shall be deemed to have accepted such Device and Section 8.5 shall not apply to such Product with respect to that latent defect only.

8.5 Replacement. If any Device fails to work in the patient’s possession, Transave shall provide a replacement directly to patient, and PARI shall provide a replacement to Transave within thirty (30) days of notice by Transave, and all replacements covered by PARI’s warranty shall be provided at PARI’s sole cost and expense subject to PARI’s right to dispute such replacement as set forth hereafter. In the event that PARI in good faith does not agree with Transave that any Devices returned by Transave are in fact nonconforming, then within ten (10) business days after receipt of such Devices, PARI shall notify Transave in writing of such disagreement. The Parties shall thereafter attempt in good faith to settle such disagreement by negotiation and consultation between themselves. If the Parties are unable to resolve such disagreement within thirty (30) days of Transave’s receipt of PARI’s notification thereof, then either Party may within thirty (30) days thereafter (the “Final Dispute Resolution Period” ) submit the question of nonconformance to an independent third party consultant reasonably acceptable to both Parties. The resolution of the question of nonconformance by such consultant shall be final and binding on both Parties. If such consultant determines that the disputed Devices are nonconforming, PARI shall be responsible for all costs associated with the consultant’s services and Transave shall have no payment obligations with respect to such Devices. If such consultant determines that the disputed Devices conform with the applicable requirements therefor, Transave shall be responsible for all costs associated with the consultant’s services and for payment for such Devices.

8.6 Warranties . PARI represents and warrants that the Devices supplied for clinical trials hereunder (a) shall comply with the Specifications as of the time of first use; (b) shall have no material defects in workmanship upon delivery; and (c) shall, upon shipment to Transave, be free and clear of all security interests, liens and other encumbrances of any kind or character. These warranties, and PARI’s obligations hereunder, will survive inspection, test, acceptance and use of the Device.

8.7 Conflicting Terms and Conditions . The supply of Devices by PARI to Transave for clinical trial purposes shall be solely in accordance with the terms and conditions of this Agreement. ANY TERMS OR CONDITIONS OF ANY PURCHASE ORDER OR ACKNOWLEDGMENT OR INVOICE GIVEN OR RECEIVED, WHICH ARE ADDITIONAL TO OR INCONSISTENT WITH THIS AGREEMENT SHALL HAVE NO EFFECT, AND SUCH TERMS AND CONDITIONS ARE HEREBY EXCLUDED AND REJECTED BY EACH PARTY.

8.8 Restrictions of Use.

(a) Transave will use the Device in compliance with all Applicable Laws and Standards valid in the country Transave intends to conduct clinical trials utilizing the Device,

including, for example, those relating to research involving the use of humans or animals and will not engage in any such clinical trials without first obtaining necessary approval from its relevant ethics committee(s) such as, but not limited to, the Institutional Review Board. The Device shall not be used by Transave directly or indirectly for: (i) any purpose other than the clinical trials, or (ii) any profit-making or commercial purpose.

(b) Transave shall retain control of the Device and shall not distribute or release the Device to any person or entity other than Transave’s or the clinical trial site’s employees, consultants or contractors ( “Transave Representatives” ) and individuals who will be participating in the clinical trials who have a need to access the Device in connection with use of the Device for the clinical trials and who have been advised of Transave’s obligations with respect to such Device. Transave shall not allow Transave Representatives to take or send the Device to any other location other than that specified below, unless Transave first obtains PARI’s written permission. Transave shall be liable for the use of the Device by Transaction Representatives in violation of this Section 8.8(b).

(c) The Device is to be used in accordance with the terms and conditions of this agreement only by Transave’s clinical trial sites as listed in the applicable Work Order by Transave and by Transave Representatives or patients participating in the clinical trials under Transave’s control.

(d) Transave shall conduct the clinical trials pursuant to a written protocol (the “Study Protocol” ). Transave shall provide a synopsis of the Study Protocol to PARI at least thirty (30) days prior to the start of the clinical trial. Following the completion of the clinical trials studies, Transave shall make Commercially Reasonable efforts to retrieve the Devices at Transave’s expense and the Devices shall be stored for a limited time as determined by Transave at the clinical trial site and/or Transave’s contractors’ site. Upon Transave’s notice to PARI that the Devices have been retrieved, PARI may arrange for return of the Devices directly with the contractors and/or clinical trial site. PARI shall be solely responsible for the return and/or shipments of the Devices provided that Transave shall pay the reasonable direct shipping costs incurred by PARI in connection therewith.

(e) Transave shall not subject to analysis or have subjected to analysis Devices and/or components constituting Devices received from PARI for the purpose of reverse engineering or in a manner that would reveal material composition or internal design or operation of such sample and/or component or its method of manufacture. Device shall at all times remain the sole and exclusive property of PARI.

8.9 Commercial Supply. PARI agrees to deliver, either directly to customers or through a distributor, or to Transave, at Transave’s option, on a country by country basis, those quantities of Devices and Device Accessories for commercial use in accordance with the terms set forth in Exhibit 8.9. The Parties shall negotiate in good faith and enter into, in a timely manner, a Commercial Supply Agreement incorporating those terms.

Article 9 — Payment Procedures

9.1 Invoicing. PARI shall submit invoices to Transave for the Project Fees owed by Transave for activities under a Work Plan performed by PARI as set forth in the applicable Work Plan. Transave shall pay the undisputed invoiced amounts that are due under this Agreement within thirty (30) calendar days of the date of shipment.

9.2 Royalties . Beginning with the First Commercial Sale of a Drug Product and thereafter during the Royalty Term, Transave shall provide PARI with quarterly written royalty reports applicable to royalty payments due to PARI under this Agreement, within sixty (60) days after the last day of each calendar quarter. Each report shall include a summary of the Net Sales, on a country-by-country basis, of the Drug Product that are subject to royalties hereunder during such calendar quarter and a calculation of the royalties due thereon. Simultaneously with the delivery of each such report, Transave shall pay to PARI the total royalties, if any, due to PARI under Article 6 for the period of such report.

9.3 Annual Minimum Royalty . For the first four (4) calendar quarter period ( “Year of Sales” ) beginning 180 days after the First Commercial Sale of a Drug Product for use with the Device by Transave, its Affiliates and/or Sublicensees, and for each successive Year of Sales thereafter during the Royalty Term, at the time of its last payment of royalties for the last calendar quarter in such Year of Sales under Section 9.2 above, Transave shall pay PARI the difference, if any, between the royalties actually paid in such Year of Sales and the Annual Minimum Royalty (the “ Minimum Royalty Payment ”). [***]

9.4 Method of Payment to PARI . All payments due to PARI under this Agreement shall be made by wire transfer to the bank account designated by PARI. Payments shall be made in US dollars for: Royalties on Net Sales within the US and on Annual Minimum Royalties. Payments shall be made in Euros for: Royalties on Net Sales outside of the US, Milestones and Project Fees. If any currency conversion shall be required in connection with the payment of royalties under Article 6, such conversion shall be made by using the averaged buying and selling exchange rate for such conversion, quoted for current transactions reported in The Wall Street Journal , on the last business day of the calendar quarter immediately prior to such payment.

9.5 Late Payment . [***]

9.6 Transave Books and Records. Transave shall keep full, true and accurate books and records in accordance with GAAP, which account for the Net Sales of the Drug Product for use with the Device and the royalties due thereon to PARI. PARI, at its own expense, shall have the right during normal business hours on thirty (30) calendar days’ prior written notice to Transave and not more than twice in any calendar year to have a nationally recognized independent public accounting firm selected by PARI (and reasonably acceptable to Transave) examine such books and records for the purpose of verifying the royalty payments due to PARI under this Agreement. Such accounting firm shall execute

and deliver to Transave a standard confidentiality agreement and shall not disclose to PARI any information relating to Transave’s business, except whether Transave’s royalty payments are correct or incorrect, and if incorrect, the specific details concerning any discrepancies and the amounts of the royalties due hereunder pursuant to Section 6.1 of this Agreement. If such examination reveals a discrepancy, Transave shall promptly pay to PARI any additional royalty owed to PARI. In addition, if the discrepancy is greater than [***] in PARI’s favor, Transave shall also promptly reimburse PARI for the fees and costs of the independent public accounting firm.

9.7 PARI Books and Records . PARI shall keep full, true and accurate books and records in accordance with GAAP, which account for the activities under a Work Plan performed by PARI and the Project Fees due to PARI thereon. Transave, at its own expense, shall have the right during normal business hours on thirty (30) calendar days’ prior written notice to PARI and not more than twice in any calendar year to have a nationally recognized independent public accounting firm selected by Transave (and reasonably acceptable to PARI) examine such books and records of PARI for the purpose of verifying the Project Fees invoiced to Transave over the preceding twelve (12) month period. Such accounting firm shall execute and deliver to PARI a standard confidentiality agreement and shall not disclose to Transave any information relating to PARI’s business, except whether PARI’s invoices are correct or incorrect, and if incorrect, the specific details concerning any discrepancies and the amounts of the Project Fees due hereunder. If such examination reveals a discrepancy, PARI shall promptly pay to Transave any additional amount owed to Transave. In addition, if the discrepancy is greater than [***] in Transave’s favor, PARI shall also promptly reimburse Transave for the fees and costs of the independent public accounting firm.

Article 10 — Prosecution, Marking, Enforcement and Defense

10.1 Patent Prosecution. During the term of this Agreement, PARI shall promptly notify Transave in writing of the filing or issuance of any patent applications or patents within the PARI Intellectual Property licensed to Transave pursuant to this Agreement that include subject matter related to the Project, or the Device.

10.2 Patent Marking . Each Party agrees to mark all Products in accordance with the applicable statutes or regulations in the country or countries of manufacture and sale thereof. For such purposes, each Party shall provide the other Party with written notice of all of its patent numbers applicable to the Products.

10.3 Patent Enforcement .

(a) Enforcement . Subject to the provisions of Section 3.6 and this Section 10.3, in the event that Transave or PARI reasonably believes that any Patent Rights within the PARI Intellectual Property are being infringed or misappropriated in the Transave Field by a third party, such Party shall promptly notify the other Party. Transave shall have the initial right (but not the obligation) to bring and/or control any enforcement action directed to the Drug Product, and PARI shall have the initial right (but not the obligation) to bring and/or control any enforcement action directed to the Device, including specific design elements of the hardware apparatus or the software of the Device.

(b) Backup Right to Enforce . In the event PARI does not initiate such an enforcement action within one hundred and eighty (180) days after a request by Transave to initiate an enforcement action against an alleged infringement, or notifies Transave at any time that it does not desire to enforce or defend such Patent Rights with respect to such alleged infringement, then

Transave shall have the right (but not the obligation) to enforce or defend against such alleged infringement, provided that any settlement of such infringement shall be subject to the approval of both Parties.

(c) Cooperation. The Party controlling the enforcement action shall keep the other Party reasonably informed of the progress thereof, and the other Party shall have the right to participate with counsel of its own choice at its own expense, and shall reasonably cooperate with the Party initiating the enforcement action (including joining as a party plaintiff to the extent necessary and requested by the other Party) at the expense of the Party requesting such cooperation.

(d) Allocation of Recoveries . Unless otherwise agreed, all amounts recovered in an enforcement action, after reimbursing each Party for its costs and expenses incurred therein, shall be shared between the Parties by the proportion and up to the extent of any damages established in such enforcement action, including but not limited to lost profits or royalties. The balance, if any, shall be retained by the Party that initiated the enforcement action.

10.4 Defense of Third Party Infringement Claims . If the development, manufacture, sale, offer for sale, importation, exportation or use of the Drug Product or the Device results in a claim alleging patent infringement against either Party (or its respective Affiliates or permitted Sublicensees), such Party shall promptly notify the other Party hereto in writing. Subject to Sections 3.5, 13.1 and 13.2, (i) Transave shall have the exclusive right to defend and control the defense of any infringement claim pertaining to primarily the Drug Product, and (ii) PARI shall have the exclusive right to defend and control the defense of any infringement claim pertaining to primarily the Devices and/or any component of the foregoing, each Party using counsel of its own choice as applicable; provided, however, that the other Party shall be kept informed of all material developments in connection with any such claim.

Article 11 — Confidentiality

11.1 Non-use and Non-disclosure Obligations . Each of PARI and Transave shall use any Confidential Information received by it from the other Party solely in connection with performance of their respective obligations, rights and other permitted activities under, and other purposes of, this Agreement and shall not disclose such Confidential Information to any Third Party, without the prior written consent of the other Party. Notwithstanding the foregoing and anything to the contrary in this Agreement, Transave shall not share with or provide to any PARI Competitor any of the PARI Confidential Information. These obligations shall survive the termination of this Agreement for a period of ten (10) years. For purposes of this Agreement, “Confidential Information” means the confidential or proprietary scientific, regulatory, clinical, technical or business information, materials and technologies of a Party disclosed or learned under this Agreement, including the Work Plans and any information exchanged prior to the Effective Date, whether in written, oral, electronic, photographic, magnetic or other form. For clarity, the Data and Intellectual Property owned by a Party pursuant to this Agreement shall be deemed the Confidential Information of such Party. Confidential Information shall exclude any information that:

11.1.1 is known by the receiving Party without restriction at the time of receipt and not through a prior disclosure by the disclosing Party;

11.1.2 is at the time of disclosure or thereafter becomes published or otherwise part of the public domain through no breach of this Agreement by the receiving Party;

11.1.3 is subsequently disclosed to the receiving Party without restriction by a third party having the right to make such a disclosure; or

11.1.4 is developed by the receiving Party independently of Confidential Information received by it from the disclosing Party hereunder.

11.2 Required Disclosure . In order to provide the disclosing Party an opportunity to seek a protective order or the like with respect to certain Confidential Information, the receiving Party may disclose Confidential Information to the extent that it is required by law or order of any governmental authority or agency, including the Securities and Exchange Commission, to be disclosed by a Party; provided that the receiving Party, using good faith efforts, shall apply for confidential treatment of such Confidential Information, shall provide the other Party a copy of the confidential treatment request far enough in advance, if possible, of its filing to give the other Party a meaningful opportunity to comment thereon, and shall incorporate in such confidential treatment request any reasonable comments of the other Party, in each case to the fullest extent permitted under applicable laws, rules or regulations.

11.3 Permitted Disclosure . Notwithstanding Section 11.1, Confidential Information provided under this Agreement may be disclosed to employees, agents, consultants, or suppliers of the receiving Party or professional advisors (or permitted Sublicensees, in the case of Transave), but only to the extent permitted or required to accomplish the purposes of, or to perform its obligations, rights and other permitted activities under, this Agreement; provided that such employees, agents, consultants, professional advisors, permitted Sublicensees or suppliers shall also agree to appropriate and comparable confidentiality and non-use provisions. Notwithstanding the foregoing and anything to the contrary in this Agreement, Transave shall not share with or provide to any PARI Competitor any of the PARI Confidential Information. The receiving Party shall be responsible for any breaches of this Agreement by its employees, agents, consultants, or suppliers. In addition, a Party may disclose Confidential Information provided under this Agreement by the other Party to any governmental authority in order to prosecute or maintain any Intellectual Property or any Regulatory Authority to obtain approval to market a Product, but such disclosure may be made only to the extent necessary to pursue such prosecution or maintenance or to obtain such approval, all to the extent permitted or required to accomplish the purposes of this Agreement.

11.4 Return . Upon the termination of this Agreement, all Confidential Information of the disclosing Party in the receiving Party’s possession will be returned to the disclosing Party (or destroyed by the receiving Party, with written confirmation of such destruction), and the receiving Party will make no further use thereof. Notwithstanding the foregoing, the receiving Party may retain one copy of the Confidential Information of the disclosing Party solely for archival purposes to ensure compliance with the provisions of this Article 11 or with the requirements of Regulatory Authorities.

11.5 Publicity

(a) Press Releases . Neither Party shall use the other Party’s name in any press release, publicity, advertising nor other official form of public disclosure without such other Party’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Notwithstanding the foregoing, Transave shall have the right to issue a press release or make other public disclosures announcing milestones or other significant progress pertaining to its development and/or commercialization of Drug Products and the Device, provided that if issued without the prior written consent of PARI, such press releases shall not disclose any Confidential Information of PARI hereunder and shall at all times be consistent with the last two sentences of this Section 11.5(a). In addition, once any subject matter has been publicly disclosed in accordance with this Section 11.5, no further consent from either Party will be needed for further disclosures of such subject matter. Notwithstanding the above, in all press releases, public statements, publicity, advertising or other public disclosure pertaining to the development of the Drug Product and the Device, Transave shall

always give appropriate attribution to PARI’s role(s) in the Project contemplated herein. Notwithstanding the foregoing, all press releases and similar disclosures issued by Transave shall always contain the language set forth on Exhibit 11.5 attached hereto, as such Exhibit may be amended from time to time by PARI.

(b) Terms of this Agreement . Neither Party shall disclose the terms of this Agreement to any third party, without the prior written consent of the other Party, which consent shall not be unreasonably withheld, except as required by any law or regulation or in connection with any financing transaction, or bona fide (good faith) due diligence inquiry, subject to such parties agreeing to comparable confidentiality and non-use provisions as set forth in this Article 11 and Transave being responsible for any breaches by such third party(ies). Notwithstanding the foregoing, the disclosure of any terms of this Agreement to a PARI Competitor shall require the prior written consent of PARI, to be granted in its sole discretion.

(c) Publications. Transave shall consult with PARI prior to submission of any manuscript for publication or making any public presentation, including speeches and conference posters, pertaining to the activities conducted under a Work Plan. Such consultation shall include providing a copy of the proposed manuscript or presentation reasonably in advance of the proposed date of submission of such manuscript to a publisher or the proposed date of presentation, giving due consideration to PARI’s comments as to such publication or presentation, and as requested by PARI removing any Confidential Information of PARI therefrom. Notwithstanding the above, in all press releases, public statements, publicity, advertising or other public disclosure pertaining to the development of the Drug Product and/or the Device, Transave shall always give appropriate attribution to PARI’s role(s) in the Project contemplated herein. PARI shall not publish or make any presentations regarding any Drug Product, Transave Intellectual Property, Transave Confidential Information or the activities conducted under a Work Plan except with the prior written consent of Transave. Transave shall not publish or make any presentations that incorporate PARI Intellectual Property, Project Intellectual Property, PARI Confidential Information or the activities conducted under a Work Plan except with the prior written consent of PARI.

(d) Required Disclosures . Notwithstanding Section 11.5(a) through (c) above, either Party may make such disclosures relating to this Agreement, the terms and conditions hereof or the activities hereunder, as such Party deems to be required by law or in any filings with governmental entities or national securities exchanges, provided that such Party shall use good faith efforts to apply for confidential treatment of this Agreement and redact such portions of this Agreement as reasonably requested by the non-disclosing Party, in each case to the fullest extent permitted under applicable laws, rules or regulations.

Article 12 — Representations and Warranties

12.1 PARI Representations and Warranties . PARI represents, warrants and covenants that, other than as set forth on Exhibit 12.1 attached hereto:

(a) PARI is a corporation duly organized, existing and in good standing under the laws of Germany, with full right, power and authority to enter into and perform this Agreement;

(b) the execution, delivery and performance of this Agreement does not conflict with, violate or breach any agreement to which PARI is a party, any court order to which PARI is a party or subject to or PARI’s organizational documents;

(c) this Agreement has been duly executed and delivered by PARI and is a legal, valid and binding obligation enforceable against PARI in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws relating to or affecting creditors’ rights generally and equitable principles;

(d) as of the Effective Date: (i) PARI owns or has the right to license to Transave all of the PARI Intellectual Property, and the PARI Intellectual Property includes all Patent Rights and Know-How in which PARI has a right or license that may be applicable to the Device in the Transave Field; (ii) PARI has the right to grant the licenses and rights set forth in this Agreement; and (iii) to the best of PARI’s knowledge, patents within the PARI Intellectual Property are valid and enforceable, and are not known to be infringed by any third party in the Transave Territory;

(e) as of the Effective Date, to the best knowledge of PARI, PARI has not intentionally withheld from Transave any material information related to the Device; to the best knowledge of PARI, the information relating to the Device provided by PARI to Transave does not contain any misstatement of a material fact nor omit to state any material fact required to make such information as of the date of submission to Transave not materially misleading;

(f) PARI shall perform its activities under a Work Plan in a competent and professional manner, in accordance with a Work Plan, Applicable Laws and Standards and any reasonable instructions provided by Transave to PARI; and

(g) to PARI’s knowledge as of the Effective Date, the Device does not infringe, misappropriate or otherwise violate any patent or other Intellectual Property Rights of any Third Party.

12.2 Transave Representations and Warranties. Transave represents, warrants and covenants that:

(a) Transave is a corporation duly organized, existing and in good standing under the laws of the State of Delaware, with full right, power and authority to enter into and perform this Agreement;

(b) the execution, delivery and performance of this Agreement does not conflict with, violate or breach any agreement to which Transave is a party, any court order to which Transave is a party or subject to, or Transave’ certificate of incorporation or bylaws;

(c) this Agreement has been duly executed and delivered by Transave and is a binding obligation enforceable against Transave in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws relating to or affecting creditors’ rights generally and equitable principles;

(d) as of the Effective Date, to the best knowledge of Transave, Transave has not intentionally withheld from PARI any material information related to the Drug Product; to the best knowledge of Transave, the information relating to the Drug Product provided by Transave to PARI does not contain any misstatement of a material fact nor omit to state any material fact required to make such information as of the date of submission to PARI not materially misleading;

(e) as of the Effective Date: (i) Transave owns or has the right to license to PARI all of the Transave Intellectual Property, and the Transave Intellectual Property includes all Patent Rights and Know-How in which Transave has a right or license that may be required for PARI to

perform its obligations under this Agreement; (ii) Transave has the right to grant the licenses and rights set forth in this Agreement; and (iii) to the best of Transave’s knowledge, patents within the Transave Intellectual Property are valid and enforceable, and are not known to be infringed by any third party in the Transave Territory; and

(f) to Transave’s knowledge as of the Effective Date, the pulmonary administration of Drug Product through a Nebulizer does not infringe any patent or other intellectual property rights of any third party.

12.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS ARTICLE 12 OR IN SECTION 8.6 ABOVE, NEITHER PARTY MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES TO THE OTHER PARTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, REGARDING PATENT RIGHTS, KNOW-HOW OR DATA INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, NOR VALIDITY.

12.4 Limitation of Liability . NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY UNDER ANY CIRCUMSTANCES OR ANY LEGAL OR EQUITABLE THEORY, WHETHER IN CONTRACT, STRICT LIABILITY OR OTHERWISE, FOR ANY INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES FOR LOST PROFITS ARISING OUT OF OR RELATED TO THIS AGREEMENT, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OR ANY LIMITED REMEDY.

Article 13 — Indemnification; Insurance

13.1 [***]

13.2 Indemnification of PARI . Transave shall at all times be responsible for, and shall defend, indemnify and hold PARI, its Affiliates, directors, officers, employees, agents and representatives harmless from and against any and all losses, claims, lawsuits, proceedings, expenses, recoveries and damages, including reasonable legal expenses, costs and attorneys fees, arising out of: (i) any product liability claim or lawsuit by a third party directly arising from the Drug Product; (ii) any claim of infringement of any patent rights, trade secrets rights or other intellectual property rights of a third party arising from the Drug Product or the manufacture thereof; (iii) Transave’s material breach of any representation, warranty or covenant given in this Agreement by Transave; and (iv) any negligent conduct or willful misconduct by Transave in performance under this Agreement; provided however,

that: (a) PARI gives Transave prompt notice of any such claim or lawsuit; (b) Transave has the right to compromise, settle or defend such claim or lawsuit; and (c) PARI, at the expense of Transave, cooperates with Transave in the defense of such claim or lawsuit. PARI, at its expense, may participate in the defense of any such claim or lawsuit.

13.3 Insurance. During the term of this Agreement and for a reasonable period of time thereafter, each Party or its Affiliates, shall maintain appropriate product liability insurance with respect to any clinical trials, manufacturing, development, sales, marketing, distribution and promotion activities performed by it hereunder. Each party shall, upon request of the other party, provide the requesting party with a certificate of insurance evidencing coverage under the foregoing policies of insurance, along with any amendments and revisions thereto. PARI shall be (i) named as an additional insured on any such policies maintained hereunder by Transave, and (ii) also added by endorsement on such policies. With respect to the U.S., Transave shall be (i) named as an additional insured on any such policies maintained hereunder by PARI’s Affiliate, PRE Holding, Inc., and (ii) also added by endorsement on such policies of PRE Holding, Inc.

Article 14 — Dispute Resolution

PARI and Transave shall endeavor to resolve any claim or controversy arising out of the threatened breach, breach, enforcement, interpretation, termination or validity of this Agreement informally by good faith negotiation between the senior executives, officers or management of PARI and Transave. Either Party may give the other Party written notice of any claim or controversy not resolved in the normal course of business (the “ Disputing Party Notice ”). Within thirty (30) calendar days after the delivery of the Disputing Party Notice, the receiving Party shall submit to the other Party a written response (the “ Response ”). The Disputing Party Notice and Response shall include a statement of each Party’s position and a summary of the arguments supporting that position. Within sixty (60) days after the Disputing Party Notice, such designated senior executives, officers or management of PARI and Transave shall meet at a mutually acceptable time and place and thereafter as often as they reasonably deem necessary to attempt to resolve the claim or controversy. All negotiations pursuant to this Section 14 are confidential and without prejudice and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. Any claim or controversy unresolved after application of this Article 14 shall be subject to Section 16.3 of this Agreement.

Article 15 — Term and Termination

15.1 Term . The term of this Agreement is effective as of the Effective Date as first written above, and except as otherwise terminated in accordance with this Article 15, shall continue in full force and effect until the expiration of the final Royalty Term in the last country in which Drug Product is sold.

15.2 Termination by Either Party . Subject to force majeure provisions set forth in Section 16.10 of this Agreement, each Party shall have the right to terminate this Agreement upon written notice, (i) in the event the other Party is in material breach of this Agreement, and does not cure such breach within ninety (90) days after written notice thereof, specifying in reasonable detail the breach; provided, however, that for payments due pursuant to this Agreement, the cure period shall be thirty (30) days after receipt of written notice of such past due payment; provided, however, that immediately in the event the other Party initiates a voluntary proceeding under the U.S. Bankruptcy Code, or any equivalent proceeding under the laws of any other jurisdiction; or in the event such Party becomes the subject of an involuntary proceeding under the U.S. Bankruptcy Code, or any equivalent proceeding under the laws of

any other jurisdiction, and such proceeding is not dismissed or stayed within ninety (90) days of its commencement.

15.3 Termination by Transave. Transave shall have the right to terminate this Agreement upon written notice in the event that (i) Transave receives a negative review or negative comments from the FDA, EMEA or another Regulatory Authority which indicates that Transave will be unable to obtain regulatory approval of an MAA for the Drug Product for use with the Device solely due to the Device not substantially meeting the Specifications, (ii) PARI is unable (subject to the force majeure provisions set forth in Section 16.10 of this Agreement) or unwilling to supply Devices to Transave in connection with clinical trials in accordance with the provisions of Article 8 that would prevent Transave from timely completing its Phase II and Phase III Trials, (iii) PARI fails to receive Marketing Approval for the Device in the European Union within six (6) months after Transave applies for Marketing Approval for the Drug Product in the European Union (or PARI fails to maintain such Marketing Approval for the Device in the European Union at any time thereafter), or (iv) PARI fails to receive Marketing Approval for the Device in the United States within six (6) months after Transave receives Marketing Approval for the Drug Product in the United States (or PARI fails to maintain such Marketing Approval for the Device in the United States at any time thereafter); and in each case PARI is unable to cure such default within six (6) months of receiving written notice in accordance with this Section 15.3.

15.4 Termination by PARI. PARI shall have the right to terminate this Agreement upon written notice in the event that (i) Transave assigns or otherwise transfers this Agreement to a third party that does not execute a written undertaking agreeing to assume all of Transave’s rights and obligations set forth in this Agreement and otherwise abide by the terms and conditions of this Agreement, (ii) Transave has not obtained Marketing Approval for the Drug Product six (6) years of the Effective Date hereof, (iii) the First Commercial Sale of the Drug Product has not occurred within two (2) years of having obtained Marketing Approval for such Drug Product, (iv) Transave (and its Affiliates and permitted Sublicensees) cease using Commercially Reasonable Efforts to commercialize the Drug Product for a period equal to two (2) years or (v) the licenses granted to Transave under this Agreement have been terminated pursuant to: (x) Section 6.3(b) for both CF and Bronchiectasis; or (y) Sections 7.1(b) and 7.2(a) and the Parties have not entered into an additional agreement for a Secondary Indication in accordance with the provisions of Section 2.6.

15.5 Effects of Expiration or Termination

(a) Accrued Obligations . Expiration or sooner termination of this Agreement shall not release either Party hereto from any liability which at the time of such expiration or termination has already accrued to such Party, nor preclude either Party from pursuing any rights and remedies it may have hereunder or at law or in equity.

(b) Sublicenses. Upon the termination of this Agreement for any reason, any sublicenses granted by Transave hereunder shall survive (unless specified otherwise in the applicable sublicense agreement), provided that, upon request by PARI, each Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement, and agrees to pay directly to PARI the same amounts that would have been due to PARI from Transave under this Agreement with respect to such sublicense, had the Agreement not terminated.

(c) Return of Rights . Except as reasonably necessary for surviving rights or obligations under this Article 15, (i) all of PARI’s and Transave’s license rights under Articles 3.1 and 4 shall terminate, and (ii) each of Transave and PARI shall promptly return all Confidential Information then in possession in accordance with Section 11.4 of this Agreement.

(d) Survival. Articles 1, 9, 11, 13, 14, 15 and 16, Sections 2.6, 3.2, 3.4, 3.6, 8.2, 8.8, 10.3 for cases initiated before termination, 10.4 (except for the proviso at the end of the paragraph, which shall not survive), 12.4 and 15.5 shall survive any expiration or termination of this Agreement and Sections 8.4 and 8.6 shall survive the termination of this Agreement for a period of twelve (12) months. Except as set forth in this Section 15.5, all other Articles and Sections of this Agreement shall terminate upon termination of this Agreement.

Article 16 — Miscellaneous

16.1 Entire Agreement. This Agreement, which includes the Exhibits attached hereto, contains the entire agreement between PARI and Transave with respect to the transactions contemplated by this Agreement and supersedes all prior agreements, arrangements or understandings with respect thereto.

16.2 Notices. Every notice, election, demand, consent, request, approval, report, offer, acceptance, certificate, or other communication required or permitted under this Agreement or by applicable law shall be in writing and shall be deemed to have been delivered and received (a) when personally delivered, (b) on the seventh (7th) business day after which sent by registered or certified mail, postage prepaid, return receipt requested, (c) on the date on which transmitted by facsimile or other electronic means generating a receipt evidencing a successful transmission (provided that, on that same date, a copy of such notice is sent by registered or certified mail, postage prepaid, return receipt requested), or (d) on the third (3rd) business day after the business day on which deposited with a regulated public carrier (e.g., Federal Express) for overnight delivery (receipt verified), freight prepaid, addressed to the Party for whom intended at the mailing address or facsimile number set forth below, or such other mailing address or facsimile number, notice of which is given in a manner permitted by this Section 16.2:

If to Transave:	Transave, Inc
	11 Deer Park Drive, Suite 117
	Monmouth Jct., New Jersey 08852
	United States of America
	Phone: [***]
	Attn: [***]
	Fax: [***]

with a copy to:	Gunderson Dettmer Stough, Villeneuve
	Franklin & Hachigian, LLP
	610 Lincoln Street
	Waltham, MA 02451
	Phone: [***]
	Attn: [***]
	Fax: [***]

If to PARI:	PARI Pharma GmbH
	Moosstrasse 3, D-82319
	Starnberg, Germany
	Phone: [***]
	Fax: [***]
	Attn: [***]
	Title: [***]

with a copy to:	McGuireWoods LLP
	One James Center
	901 East Cary Street
	Richmond, Virginia 23219-4030
	Attn: [***]
	Fax: [***]

Any Party may by such notice change the address to which notice or other communications to it are to be delivered or mailed.

16.3 Choice of Law. This Agreement is construed in accordance with, and its performance is governed by, the laws of State of New York, excluding its or any other jurisdiction’s choice of law principles. Any dispute arising hereunder shall be brought exclusively in the state or federal courts located in the State of New York in the division of Manhattan. The Parties hereby consent to the exclusive jurisdiction and venue of such courts and waive any objections to the jurisdiction and venue thereof. In the event of any conflict between US and foreign laws, regulations and rules, US laws, regulations and rules shall govern. The UN Convention on contracts for the International Sale of Goods shall not apply to this Agreement.

16.4 Assignment. This Agreement shall not be assignable by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld, delayed or conditioned, except that without consent either Party may assign or transfer the rights and obligations of this Agreement to any Affiliate or to any successor to its business that related to the subject matter of this Agreement (whether by sale of assets or equity, merger, consolidation or otherwise) provided, however, that such assignment or transfer by Transave to a PARI Competitor shall require the prior written consent of PARI, to be granted in its sole discretion. This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and permitted assigns. Any assignment in contravention of the foregoing shall be null and void.

16.5 Waivers and Amendments. Any waiver of any term or condition of this Agreement, or any amendment or supplementation of this Agreement, shall be effective only if in writing signed by the Parties. A waiver of any breach or failure to enforce any of the terms or conditions of this Agreement shall not in any way affect, limit or waive a Party’s rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Agreement.

16.6 Severability . Both Parties hereby expressly state that it is the intention of neither Party to violate any law. If any of the provisions of this Agreement are held to be void or unenforceable, then such void or unenforceable provisions shall be replaced by valid and enforceable provisions which will achieve as far as possible the economic business intentions of the Parties .

16.7 Construction. The article and section headings contained in this Agreement are for the purpose of convenience and are not intended to define or limit the contents of such sections. Unless the context of this Agreement clearly requires otherwise, (a) references to the plural include the singular, the singular the plural, the part the whole, (b) references to any gender include all genders, (c) “or” has the inclusive meaning frequently identified with the phrase “and/or,” (d) “including” has the inclusive meaning frequently identified with the phrase “including but not limited to” or “including without limitation”, and (e) references to “hereunder” or “herein” relate to this Agreement.

16.8 Counterparts. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same

instrument. This Agreement may be executed in one or more counterparts, each of which shall be an original, but taken together constituting one and the same instrument. Execution of a facsimile copy shall have the same force and effect as execution of an original, and a facsimile signature shall be deemed an original and valid signature.

16.9 Further Assurances. Upon the reasonable request of either Party, the other Party shall execute any additional certificates or other documents that may be reasonably necessary to fully implement this Agreement.

16.10 Force Majeure. No failure or omission by either Party in the performance of any obligation of this Agreement shall be deemed a breach of this Agreement or create any liability if the same shall arise from any cause or causes beyond the reasonable control of such Party including, but not limited to the following which, for the purposes of this Agreement, shall be regarded as beyond the control of the Party in question: (a) any act or omission of any government; (b) any future rule, regulation or order issued by any governmental authority or by any officer, department, agency, or instrumentality thereof which makes such performance impossible or commercially unreasonable; or (c) any Act of God; fire; storm; flood; earthquake; accident; war; terrorism; rebellion; insurrection; riot; invasion; strike; and lockout.

16.11 Compliance with Applicable Laws and Standards. In conducting any activity under this Agreement or in connection with the development, manufacture, use, sale, offer for sale, importation and exportation of the Products, PARI and Transave shall comply with all Applicable Laws and Standards including, but not limited to, all import and export regulations of the applicable authorities in the Transave Territory.

16.12 Relationship of the Parties. In making and performing this Agreement, the Parties are acting, and intend to be treated, as independent entities and nothing contained in this Agreement shall be construed or implied to create an agency, partnership, joint venture, or employer and employee relationship between or among any of the Parties. Except as otherwise provided herein, no Party may make any representation, warranty or commitment, whether express or implied, on behalf of or incur any charges or expenses for or in the name of any other Party. No Party shall be liable for the act of any other party unless such act is expressly authorized in writing by such Party .

16.13 Choice of Language. This Agreement, originally written in the English language, shall be governed by the English language. In the event any dispute arises with respect to this Agreement, the meanings of all terms and provisions of this Agreement shall be interpreted in their original English form. The governing language of all correspondence related to reporting, negotiation, disputes, arbitration and notice requirements shall be the English language. The Parties shall bear their own expenses for having text or other communications translated into the English language.

16.14 Injunctive Relief . Each Party hereto understands and agrees that the unauthorized use and the threatened use or disclosure of the other Party’s Intellectual Property, Project Intellectual Property or Confidential Information may cause irreparable, competitive harm and significant injury. Therefore, in the event of such unauthorized use or disclosure, in addition to all rights and remedies available to it at law and in equity, including the collection of damages, each Party hereto shall be entitled to seek immediate injunctive relief as is necessary to restrain any continuing or further breach of this Agreement without sharing or proving any actual damages sustained by such Party and without requirement of bond.

IN WITNESS WHEREOF, the Parties hereby have executed this Agreement, as of the Effective Date.

Transave:		PARI:

TRANSAVE, INC.		PARI PHARMA GMBH


By:	/s/ Tim Whitten	By:	/s/Martin Knoch

Name:	Tim Whitten	Name:	Martin Knoch

Title:	CEO/President	Title:	President

Date:	4/25/08	Date:	4/30/08

EXHIBIT 1.35

[***]

EXHIBIT 1.38

[***]

EXHIBIT 1.38A

[***]

EXHIBIT 2.2

[***]

EXHIBIT 4.1

[***]

EXHIBIT 7.5(a)

[***]

EXHIBIT 7.5(b)

[***]

EXHIBIT 7.6(a)

[***]

EXHIBIT 8.9

[***]

EXHIBIT 11.5

[***]

EXHIBIT 12.1

[***]

AMENDMENT NO. 1
TO LICENSE AGREEMENT BETWEEN
TRANSAVE, INC. AND PARI PHARMA GMBH

This first amendment (“Amendment No. 1”) effective the 24 th day of June, 2009 (“Effective Date”) is made to the License Agreement dated and effective the 25 th of April 2008 (“Agreement”) between PARI Pharma GmbH, a German corporation with a principal place of business at Moosstrasse 3, D-82319 Starnberg, Germany (“PARI”) and Transave, Inc., a Delaware corporation with registered Offices at 11 Deer Park Drive, Suite 117, Monmouth Junction, NJ 08852, United States of America (“Transave”). PARI and Transave shall be referred to collectively as the “ Parties .”

WHEREAS Transave and PARI desire to add to the Transave Field a Secondary Indication, Non-tuberculosis Mycobacteria infections, pursuant to Sections 1.50 and 2.6 of the Agreement; and

WHEREAS Transave and PARI desire to amend the Agreement to provide terms for the added indication.

NOW, THEREFORE, in consideration of the recitals set forth above, the mutual covenants, terms and conditions set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree to amend the Agreement as follows:

1. Section 1,54, line 2, delete “cystic fibrosis (CF) and/or bronchiectasis” and insert —cystic fibrosis (CF), bronchiectasis and/or Non-tuberculosis Mycobacteria infections—.

2. Section 2.5, line 5, delete “CF, Bronchiectasis or such Secondary Indication” and insert — CF, Bronchiectasis, Non-tuberculosis Mycobacteria infections or any other Secondary Indication,

3. Section 4.1, line 9, change “2.5.2” to —2.5—.

4. Section 4.2(a),

line 3, delete “CF and/or Bronchiectasis” and insert —CF, Bronchiectasis and/or Non-tuberculosis Mycobacteria infections—; and

line 26 (last line), delete “CF and Bronchiectasis” and insert —CF, Bronchiectasis and Non-tuberculosis Mycobacteria infections—.

5. Section 4.2(b), delete “PARI’s obligations under Section 4.2(a) shall be conditioned upon Transave complying with its diligence obligations as set forth in Sections 7.1 and 7.2.” and insert —PARI’s obligations under Section 4.2(a) with respect to CF, bronchiectasis and Non-tuberculosis Mycobacteria infections, respectively, shall be conditioned upon

Transave complying with its diligence obligations as set forth in Sections 7.1, 7.2 and 7.2A, respectively.—.

6. Section 6.3, first paragraph,

line 3, before “in the event Transave” insert —(a)—; and

line 6, after “in effect” insert —, and (b) in the event Transave has permanent!), discontinued to Exploit the Drug Product for CF in accordance with Section 7.1(a) and discontinued to Exploit the Drug Product for Bronchiectasis, then the Annual Minimum Royalty shall no longer be applicable for the Drug Product for CF or Bronchiectasis but the obligation to pay Annual Minimum Royalties for the Drug Product shall apply to Non-tuberculosis Mycobacteria infections—.

7. Section 6.3(b), lines 5-6, delete “CF or Bronchiectasis” and insert —CF, Bronchiectasis or Non-tuberculosis Mycobacteria infections—.

8. Section 7.2(b), line 4, delete “CF or any Secondary Indication” insert —CF, Non-tuberculosis Mycobacteria infections or any other Secondary Indication—.

9. Before Section 7.3, insert a new section 7.2A as follows:

“ 7.2A Transave Development and Commercialization Diligence for Non-tuberculosis Mycobacteria Infections.

(a) The Parties agree that Transave will use Commercially Reasonable Efforts to meet the following milestone with respect to Non-tuberculosis Mycobacteria infections:

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: Last patient to complete the Phase II Trial for Non-tuberculosis Mycobacteria infections		[***]
2. Other Diligence Milestones: see below

Within one hundred eighty (180) days following the final results of the Phase II Trial for Non-tuberculosis Mycobacteria infections, the Parties, acting in good faith, will negotiate additional milestones that meet reasonable industry standards. If no additional milestones are agreed to within such time period, and the lack of milestones is not mutually agreed by both parties, then at PARI’s option, PARI may by providing prompt written notice to Transave, (1) make the license granted to Transave under this Agreement non-exclusive and PARI’s non-compete obligations set forth in Section 4.2 shall terminate or (ii) terminate the license granted to Transave under this Agreement, in each case solely with respect to Non-tuberculosis Mycobacteria infections.

If Transave fails to meet a milestone within the applicable time period, other than any failure resulting from a breach of this Agreement by PARI, then, subject to the provisions of Section 7.3, PARI shall have the option to render Transave’s license hereunder non-exclusive solely with respect to Non-tuberculosis Mycobacteria infections and to terminate its obligation not to compete with Transave in Non-tuberculosis Mycobacteria infections as set forth in Section 4.2 of this Agreement. Such option must be exercised by sending the Diligence Termination Notice to Transave, and shall become effective on the thirtieth (30 th ) day following the date of the Diligence Termination Notice. If such milestone is still not met within twelve (12) months of the applicable time period, other than any failure resulting from a breach of this Agreement by PARI, then, subject to the provisions of Section 7.3, PARI shall have the option to terminate the license granted to Transave under this Agreement with respect to Non-tuberculosis Mycobacteria infections only by providing written notice thereof to Transave.

(b) For the avoidance of doubt, subject to the provisions of Section 7.2A(a), nothing in this Agreement shall impart any obligation on Transave to pursue the indication of Non-tuberculosis Mycobacteria infections, and Transave’s activity or lack of activity with respect to Non-tuberculosis Mycobacteria infections shall not affect in any way Transave’s rights in and to CF, Bronchiectasis or any other Secondary Indication.

10. Section 7.3, line 2,: delete “Section 7.1(b) and/or 7.2(a)” and insert —Section 7.1(b), 7.2(a) and/or 7.2A(a)—.

11. Section 15.4,

line 10, delete “Section 6.3(b) for both CF and Bronchiectasis” and insert — Section 6.3(b) for CF, Bronchiectasis and Non-tuberculosis Mycobacteria infections—; and

line 11, after “7.1(b) and 7.2(a)” insert — and 7.2A(a)—.

IN WITNESS WHEREOF, the Parties have executed this Amendment No.1 as of the Effective Date indicated above.

TRANSAVE, INC.			PARI PHARMA GMBH


By:	/s/ Tim Whitten		By:	/s/ Martin Knoch
	Tim Whitten			Martin Knoch
	President and CEO			President


Date:		July 14, 2009	Date:		July 6, 2009

ASSIGNMENT AND AMENDMENT NO. 2
TO LICENSE AGREEMENT BETWEEN
TRANSAVE, INC. AND PARI PHARMA GMBH

This assignment and second amendment (“Amendment No, 2”) effective the 22 nd day of December, 2010 (“Effective Date”) to the License Agreement dated and effective the 25 th of April 2008, between PARI Pharma GmbH, a German corporation with a principal place of business at Moosstrasse 3, D-82319 Starnberg, Germany (“PARI”) and Transave, Inc., a Delaware corporation (“Transave Inc.”), as amended by Amendment No. 1 the 24 th day of June 2009 (collectively, the “Agreement”), is entered into between PARI, Transave, LLC, a Delaware limited liability company and successor to Transave, Inc. (“Transave LLC”) and Insmed Incorporated, a Virginia corporation with registered Offices at 8720 Stony Point Parkway, Suite 200, Richmond, VA 23235 (“Insmed”). PARI, Transave, LLC and Insmed shall be referred to collectively as the “Parties.”

WHEREAS, pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 1, 2010, by and among Insmed, River Acquisition Co., a Delaware corporation and wholly owned subsidiary of Insmed, Transave, LLC, a wholly owned subsidiary of Insmed, Transave, Inc. and the Stockholders’ Agent named therein, Transave, Inc. was merged with and into Transave, LLC (the “Merger”);

WHEREAS, upon effectiveness of the Merger, the separate corporate existence of Transave, Inc. ceased and, by virtue of the Merger, Transave, LLC, as the surviving company, succeeded to all of the rights, Privileges, powers, franchises, liabilities and obligations of Transave, Inc.;

WHEREAS, the Merger constitutes a Sale of Business Transaction under the Agreement and Transave, LLC and Insmed are successors in interest to Transave, Inc., including for the purposes of Section 5.3(e) of the Agreement;

WHEREAS, the Parties desire that all rights and obligations of Transave, Inc. and Transave, LLC under the License Agreement be assigned to and assumed by Insmed, pursuant to Section 16.4 of the License Agreement; and

WHEREAS the Parties desire to modify the milestones for CF, Bronchiectasis and Non-tuberculosis Mycobacteria infections under the Agreement, all as set forth herein.

1. Capitalized terms used but not defined in this Amendment No. 2 will have the meanings ascribed to them in the Agreement.

2. The CF Milestone Activity and Milestone Deadline chart set forth in Section 7.1(b) of the Agreement is hereby amended as follows (deletions shown as strikethrough and insertions shown in underlining):

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: first Phase III Trial for CF begins		[***]
2. Diligence Milestone 2: first submission of an MAA application for CF in the Transave Territory		[***]

3. Section 7.1(b)(i) of the Agreement is hereby amended by replacing the date of [***] with [***] and the date of [***] with [***]

4. Section 7.1(b)(ii) of the Agreement is hereby amended by replacing the date of [***] with [***] and the date of [***] with [***]

5. The Bronchiectasis Milestone Activity and Milestone Deadline chart set forth in Section 7.2(a) of the Agreement is hereby amended as follows (deletions shown as strikethrough and insertions shown in underlining):

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: Last patient to complete the Phase II Trial for Bronchiectasis		[***]
2. Diligence Milestone 2: First Phase III Trial for Bronchiectasis begins		[***]
3. Diligence Milestone 3: First submission of an MAA application for Bronchiectasis in the Transave Territory		[***]

6. The Non-tuberculosis Mycobacteria Infections Milestone Activity and Milestone Deadline chart set forth in Section 7.2(a) is hereby amended as follows (deletions shown as strikethrough and insertions shown in underlining):

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: Phase II or III Trial for Non-tuberculosis Mycobacteria infections begins		[***]
2. Other Diligence Milestones: see below

7. Pursuant to Section 16.4 of the Agreement, all rights of Transave, Inc. and Transave, LLC into and under the Agreement, and all obligations and liabilities of Transave, Inc. and Transave, LLC thereunder, are hereby assigned to Insmed, and Insmed hereby accepts such assignment of rights and assumes such obligations and liabilities, and from and alter the date hereof Insmed shall be substituted for Transave Inc. as a party to the License Agreement.

8. The second milestone event and second milestone payment set forth in Section 5.2 of the Agreement is hereby amended as follows (deletions shown as strikethrough and insertions shown in underlining):

2. Initiation of the first Phase III Trial of Drug Product with the Device

[***]
[***]
either in cash, Qualified Stock or a combination of cash and Qualified Stock

9. As partial consideration for this Amendment No. 2, Insmed agrees to pay PARI a fee of [*] immediately upon execution hereof.

10. Upon execution, this Amendment No. 2 shall be made a part of the Agreement and shall be incorporated therein by reference. Except as provided herein, all other terms and conditions of the Agreement shall remain in full force and effect.

[Signatures an Following Page]

IN WITNESS WHEREOF, the Parties have executed this Amendment No. 2 as of the Effective Date indicated above.

INSMED INCORPORATION

PARI PHARMA GMBH

By:

/s/ Timothy Whitten

By:

/s/ Martin Knoch

Timothy Whitten

Martin Knoch

President and CEO

President

Date:

12/22/10

Date:

01/03/11

TRANSAVE, LLC

By: Insmed Incorporated, Managing Member

By:

/s/ Timothy Whitten

Timothy Whitten

President and CEO

Date:

12/22/10

AMENDMENT NO. 3
TO LICENSE AGREEMENT BETWEEN
TRANSAVE, INC. AND PARI PHARMA GMBH

This third amendment (“Amendment No. 3”) effective the 6 th day of March, 2012 (“Effective Date”) to the License Agreement dated and effective the 25 th of April 2008, between PARI Pharma GmbH, a German corporation with a principal place of business at Moosstrasse 3, D-82319 Starnberg, Germany (“PARI”) and Transave, Inc., a Delaware corporation, as amended by Amendment No. 1 the 24 th day of June 2009 and Assignment and Amendment No. 2 the 22 nd day of December 2010 (collectively, the “Agreement”), is entered into between PARI and Insmed Incorporated (successor in interest to Transave, Inc), with registered offices at 9 Deer Park Drive, Suite C, Monmouth Junction, NJ 08852 (“Insmed”). PARI and Insmed shall be referred to collectively as the “ Parties .”

WHEREAS the Parties desire to modify the milestones for CF, Bronchiectasis and Non-tuberculosis Mycobacteria infections under the Agreement.

1. Capitalized terms used but not defined in this Amendment No. 3 will have the meanings ascribed to them in the Agreement. Where revisions are made, the revisions are to be made to the most recent agreed upon language in effect as of the implementation of the Assignment and Amendment No. 2.

2. The CF Milestone Activity and Milestone Deadline chart set forth in Section 7.1(b) of the Agreement is hereby amended as follows:

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: first Phase III Trial for CF begins		[***]
2. Diligence Milestone 2: first submission of an MAA application for CF in the Transave Territory		[***]

3. Section 7.1(b)(i) of the Agreement is hereby amended by replacing the date of [***] with [***] and the date of [***] with [***]

4. Section 7.1(b)(ii) of the Agreement is hereby amended by replacing the date of [***] with the date of [***] and the date of [***] with the date of [***]

5. The Bronchiectasis Milestone Activity and Milestone Deadline chart set forth in Section 7.2(a) of the Agreement is hereby amended as:

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: Last patient to complete the Phase II Trial for Bronchiectasis		[***]
2. Diligence Milestone 2: First Phase III Trial for Bronchiectasis begins		[***]
3. Diligence Milestone 3: First submission of an MAA application for Bronchiectasis in the Transave Territory		[***]

6. The Non-tuberculosis Mycobacteria Infections Milestone Activity and Milestone Deadline chart set forth in Section 7.2(a) is hereby amended as follows:

Milestone Activity		Milestone Deadline
1. Diligence Milestone 1: Phase II or III Trial for Non-tuberculosis Mycobacteria infections begins		[***]
2. Other Diligence Milestones: see below

7. In consideration of PARI’s agreement to the extensions of the various Milestone Deadlines as set forth above and PARI’s continued upholding of exclusivity in the field of Bronchiectasis, Insmed has the option to pay PARI [***]

8. Upon execution, this Amendment No. 3 shall be made a part of the Agreement and shall be incorporated therein by reference. Except as provided herein, all other terms and conditions of the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the Parties have executed this Amendment No. 3 as of the Effective Date indicated above.

INSMED INCORPORATED		PARI PHARMA GMBH


By:	/s/ Tim Whitten	By:	/s/ Martin Knoch
	Tim Whitten		Martin Knoch
	President and CEO		President


Date:	March 8, 2012	Date:	March 6, 2012

AMENDMENT NO. 4
TO LICENSE AGREEMENT BETWEEN
TRANSAVE, INC. AND PARI PHARMA GMBH

This fourth amendment (“ Amendment No. 4 ”) effective May 21, 2012 (“ Amendment No. 4 Effective Date ”) to the License Agreement dated and effective the 25 th of April 2008 between PARI Pharma GmbH, a German corporation with a principal place of business at Moosstrasse 3, D-82319 Starnberg, Germany (“ PARI ”) and Transave, Inc., a Delaware corporation, as amended by Amendment No. 1 the 24 th day of June 2009, Assignment and Amendment No. 2 the 22 nd day of December 2010, and Amendment No. 3 the 6 th day of March 2012 (collectively, the “ Agreement ”), is entered into between PARI and Insmed Incorporated (successor in interest to Transave, Inc.), with registered offices at 9 Deer Park Drive, Suite C, Monmouth Junction, NJ 08852 (“ Insmed ”). PARI and Insmed shall be referred to collectively as the “ Parties ”.

WHEREAS, during the performance of the Agreement, the Parties have made an invention that is directed, in part, to methods of delivering aminoglycosides with a certain nebulization rate, which nebulization rate may be achieved by using the Device of PARI; and

WHEREAS, the Parties now desire to amend the terms and conditions of the Agreement to assign such invention to Insmed such that Insmed will have the sole ownership of such invention.

1. Definitions . Capitalized terms used but not defined in this Amendment No. 4 will have the meanings ascribed to them in the Agreement. A new definition is hereby added to the Agreement:

“ Assigned Invention ” means solely the invention described in the invention disclosure attached to Amendment No. 4 as Exhibit A, [***]

2. Assignment of Invention. Notwithstanding anything to the contrary in the Agreement, Insmed shall solely own all right, title and interest in and to the Assigned Invention, which shall be deemed Transave Intellectual Property for purposes of the Agreement and shall be excluded from the definition of Project Intellectual Property. PARI hereby assigns and transfers to Insmed all of its right, title and interest in and to the Assigned Invention free and clear of any encumbrance throughout the world. Upon Insmed’s request and at Insmed’s cost and expense, PARI shall take, and shall cause its employees and agents to take, all further acts reasonably required to evidence and effect such assignment and transfer to Insmed. For clarity, as the sole owner of Project Data, Insmed shall have the rights, subject to the restrictions set forth in Section

3.2(b) of the Agreement and this Amendment No. 4, to use Project Data in connection with the practice of the Assigned Invention and in support of the filing, prosecution and maintenance of the Assigned Invention Patents (as defined in Paragraph 3 below).

3. Patent Prosecution. As the sole owner of the Assigned Invention, Insmed shall have the sole right and discretion, at its cost and expense, to prepare, file, prosecute and maintain patent applications and patents, including provisionals, additions, divisionals, continuations, substitutions, continuations-in-part, together with re-examinations, reissues, renewals or extensions thereof and all foreign counterparts of the forgoing claiming the Assigned Invention anywhere in the world (the “ Assigned Invention Patent(s) ”), and shall solely own all Assigned Invention Patents. Insmed shall not file or amend any claims in Assigned Invention Patents that [***]. In addition, to the extent that any changes are made that impact or affect PARI Intellectual Property, the Project Intellectual Property or otherwise expand coverage beyond the Transave Field or Non-Compete in Section 4.2 of the Agreement, Insmed shall not file any divisional, continuation, or continuation-in-part of any Assigned Invention Patent without PARI’s prior written approval. Upon Insmed’s request and at Insmed’s cost and expense, PARI shall provide Insmed all reasonable assistance and cooperation in connection with the prosecution and maintenance of the Assigned Invention Patents. Insmed shall keep PARI reasonably informed on the status of Assigned Invention Patents.

4. Joint Ownership of Assigned Invention Patents . Notwithstanding anything to the contrary contained in the Agreement or this Amendment No. 4, if any Assigned Invention Patent contains or is amended to contain any claim that claims, in addition to the Assigned Invention, any embodiment of (i) the Device, (ii) any part of the Device, (iii) any method to manufacture the Device, or (iv) any method of using the Device, then Insmed shall and hereby does transfer and assign to PARI one undivided half interest in such Assigned Invention Patents that include such a claim, so that such Assigned Invention Patents are jointly owned by Insmed and PARI. This Paragraph 4 survives any termination or expiration of the Agreement.

5. PARI Sole Ownership of Assigned Invention Patent(s) . Notwithstanding anything to the contrary contained in the Agreement or this Amendment No. 4, if any Assigned Invention Patent contains or is amended to contain any independent claim that claims any embodiment of (i) the Device, (ii) any part of the Device, (iii) any method to manufacture the Device, or (iv) any method of using the Device, but which does not claim the Assigned Invention, then Insmed shall and hereby does transfer and assign to PARI all right, title and

interest in and to the Assigned Invention Patent that contains said independent claim. This Paragraph 5 survives any termination or expiration of the Agreement.

6. License to PARI. Insmed hereby grants to PARI a non-exclusive, perpetual, world-wide, transferable, irrevocable, royalty-free, fully paid-up, sublicenseable license to practice the Assigned Invention and Assigned Invention Patents (the “Assigned Invention Licenses” ) (i) during the Royalty Term and thereafter outside the Transave Field; and, in addition, (ii) upon early termination of the Agreement by PARI due to Section 15.2 or 15.4, inside the Transave Field to include liposomal aminoglycoside formulations other than Arikace. PARI shall not, and shall not permit any of its Affiliates to, and shall use commercially reasonable efforts to prohibit any of its sublicensees to, (A) practice the Assigned Invention inside the Transave Field, during the Royalty Term, or (B) practice the Assigned Invention in connection with Arikace after earlier termination by PARI under Section 15.2 or 15.4. This Paragraph 5 survives any termination or expiration of the Agreement.

7. Section 1.48 shall hereby be replaced in its entirety as follows:

“Royalty Term” means, on a country-by-country basis, the period commencing on the date of First Commercial Sale of Drug Product and continuing until the later of (a) Expiration of the (i) last Valid Claim covering the particular Device or (ii) the Assigned Invention Patents, in each case in the particular country in which any Product is sold or [***] after the First Commercial Sale of the Drug Product in such country in the Transave Territory.

6. Termination by PARI. Section 15.4 (ii) of the Agreement shall hereby be replaced in its entirety as follows:

[***]

7. Miscellaneous. Upon execution, this Amendment No. 4 shall be made part of the Agreement and shall be incorporated therein by reference. Except as provided herein, all other terms and conditions of the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the Parties have executed this Amendment No. 4 as of the Amendment No. 4 Effective Date indicated above.

INSMED INCORPORATED		PARI PHARMA GMBH

By:	/s/ Tim Whitten	By:	/s/ Dr. Martin Knoch

Name:	Tim Whitten	Name:	Dr. Martin Knoch

Title:	President and CEO	Title:	President

Date:	May 12, 2012	Date:	May 12, 2012

INSMED — Confidential Invention Disclosure

[***]

Exhibit 10.3

AMENDED AND RESTATED

2000 STOCK INCENTIVE PLAN

As amended through March 15, 2013

INSMED INCORPORATED

AMENDED AND RESTATED

2000 STOCK INCENTIVE PLAN

ARTICLE I

DEFINITIONS

1.01. Acquiring Person

Acquiring Person means a Person who, considered alone or together with all Control Affiliates and Associates of that Person, is or becomes directly or indirectly the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of securities representing at least fifty percent (50%) of the Company’s then outstanding securities entitled to vote generally in the election of the Board.

1.02. Administrator

Administrator means the Board, the Committee, or any delegate of the Committee that is appointed in accordance with Article III.

1.03. Affiliate

Affiliate means any “parent corporation” or “subsidiary corporation” (within the meaning of Section 424 of the Code) of the Company, including a corporation that becomes an Affiliate after the adoption of this Plan.

1.04. Agreement

Agreement means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of a Stock Award, an award of Performance Shares or an Option granted to such Participant.

1.05. Associate

Associate, with respect to any Person, is defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. An Associate does not include the Company or a majority-owned subsidiary of the Company.

1.06. Board

Board means the Board of Directors of the Company.

1.07. Change in Control

Change in Control means (i) a Person is or becomes an Acquiring Person; (ii) holders of the securities of the Company entitled to vote thereon approve any agreement with a Person (or, if such approval is not required by applicable law and is not solicited by the Company, the closing of such an agreement) that involves the transfer of all or substantially all of the Company’s total assets on a consolidated basis, as last reported in the Company’s consolidated financial statements filed with the Securities and Exchange Commission; (iii) holders of the securities of the Company entitled to vote thereon approve a transaction (or, if such approval is not required by applicable law and is not solicited by the Company, the closing of such a transaction) pursuant to which the Company will undergo a merger, consolidation, or statutory share exchange with a Person, regardless of whether the Company is intended to be the surviving or resulting entity after the merger, consolidation, or statutory share exchange, other than a transaction that results in the voting securities of the Company carrying the right to vote in elections of persons to the Board outstanding immediately prior to the closing of the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the Company’s voting securities carrying the right to vote in elections of persons to the Company’s Board, or such securities of such surviving entity, outstanding immediately after the closing of such transaction; (iv) the Continuing Directors cease for any reason to constitute a majority of the Board; or (v) holders of the securities of the Company entitled to vote thereon approve a plan of complete liquidation of the Company or an agreement for the sale or liquidation by the Company of substantially all of the Company’s assets (or, if such approval is not required by applicable law and is not solicited by the Company, the commencement of actions constituting such a plan or the closing of such an agreement).

1.08. Code

Code means the Internal Revenue Code of 1986, and any amendments thereto.

1.09. Committee

Committee means the Compensation Committee of the Board or, if the Compensation Committee is not composed solely of two or more persons who satisfy the “non-employee director” and “outside director” requirements of Rule 16b-3 and Section 162(m) of the Code, respectively, Committee means such other committee of the Board composed solely of two or more individuals who satisfy such criteria.

1.10. Common Stock

Common Stock means the common stock of the Company.

1.11. Company

Company means Insmed Incorporated.

1.12. Continuing Director

Continuing Director means any member of the Board, while a member of the Board and (i) who was a member of the Board immediately following the closing of the transactions contemplated by the Form S-4 filed by the Company with the Securities and Exchange Commission in 2000, or (ii) whose nomination for or election to the Board was recommended or approved by a majority of the Continuing Directors.

1.13. Control Affiliate

Control Affiliate with respect to any Person, means an affiliate as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

1.14. Exchange Act

Exchange Act means the Securities Exchange Act of 1934, as amended.

1.15. Fair Market Value

Fair Market Value means, on any given date, the reported “closing” price of a share of Common Stock on the primary exchange on which shares of Common Stock are listed. If, on any given date, no share of Common Stock is traded on an established stock exchange, then Fair Market Value shall be determined with reference to the next preceding day that the Common Stock was so traded.

1.16. Option

Option means a stock option granted under this Plan that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement. Where capitalized, the word “Option” is not intended to include any option granted by an Affiliate as to which the Company has assumed the Affiliate’s obligation to deliver Common Stock.

1.17. Participant

Participant means an employee of the Company or an Affiliate, a member of the Board (whether or not such Board member is employed by the Company or an Affiliate), or any non-employee advisor or service provider of the Company or an Affiliate, who satisfies the requirements of Article IV and is selected by the Administrator to receive, a Stock Award, an Option, a Performance Share, or a combination thereof.

1.18. Performance Shares

Performance Shares means an award, in the amount determined by the Administrator, stated with reference to a specified number of shares of Common Stock, that in accordance with the terms of an Agreement entitles the holder to receive a cash payment or shares of Common Stock or a combination thereof.

1.19. Person

Person means any human being, firm, corporation, partnership, or other entity. “Person” also includes any human being, firm, corporation, partnership, or other entity as defined in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term “Person” does not include the Company or any Related Entity, and the term Person does not include any employee-benefit plan maintained by the Company or any Related Entity, and any person or entity organized, appointed, or established by the Company or any Related Entity for or pursuant to the terms of any such employee-benefit plan, unless the Board determines that such an employee-benefit plan or such person or entity is a “Person”.

1.20. Plan

Plan means the Insmed Incorporated 2000 Stock Incentive Plan, as amended by action of the Board on January 30, 2002, and approved by the shareholders of the Company at its annual meeting on May 1, 2002, and as amended and restated by action of the Board on March 30 , 2005, and approved by the shareholders of the Company at its annual meeting on May 11 , 2005.

1.21. Related Entity

Related Entity means any entity that is part of a controlled group of corporations or is under common control with the Company within the meaning of Sections 1563(a), 414(b) or 414(c) of the Code.

1.22. Rule 16b-3

Rule 16b-3 means Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act.

1.23. Stock Award

Stock Award means shares of Common Stock awarded to a Participant under Article VIII.

ARTICLE II

PURPOSES

The Plan is intended to assist the Company and its Affiliates in recruiting and retaining individuals or entities with ability and initiative by enabling such persons to participate in the future success of the Company and its Affiliates and to associate their interests with those of the Company and its shareholders. The Plan is intended to permit the grant of both Options qualifying under Section 422 of the Code (“incentive stock options”) and Options not so qualifying, and the grant of Stock Awards and Performance Shares, and to permit issuance of shares of Common Stock on exercise of options granted by an Affiliate if the Company has assumed the obligations of the Affiliate under those options, all in accordance with the Plan and procedures that may be established by the Administrator. No Option that is intended to be an incentive stock option shall be invalid for failure to qualify as an incentive stock option. The proceeds received by the Company from the sale of shares of Common Stock pursuant to this Plan shall be used for general corporate purposes.

ARTICLE III

ADMINISTRATION

The Plan shall be administered by the Administrator. The Administrator shall have authority to grant Stock Awards, Performance Shares, and Options upon such terms (not inconsistent with the provisions of this Plan), as the Administrator may consider appropriate. Such terms may include conditions (in addition to those contained in this Plan), on the exercisability of all or any part of an Option or on the transferability or forfeitability of a Stock Award or an award of Performance Shares. Notwithstanding any such conditions, the Administrator may, in its discretion, (i) accelerate the time at which any Option may be exercised, or the time at which a Stock Award may become

transferable or nonforfeitable, or the time at which an award of Performance Shares may be settled, including without limitation, providing for any of the foregoing upon a Change in Control, or (ii) suspend the forfeiture of any award made under this Plan. In addition, the Administrator shall have complete authority to interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the administration of the Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Administrator shall not be construed as limiting any power or authority of the Administrator. Any decision made, or action taken, by the Administrator or in connection with the administration of this Plan shall be final and conclusive. Neither the Administrator nor any member of the Committee shall be liable for any act done in good faith with respect to this Plan or any Agreement, Option, Stock Award or award of Performance Shares. All expenses of administering this Plan shall be borne by the Company.

The Committee, in its discretion, may delegate to one or more officers of the Company all or part of the Committee’s authority and duties with respect to grants and awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Committee’s delegate or delegates that were consistent with the terms of the Plan.

ARTICLE IV

ELIGIBILITY

Any employee of the Company or an Affiliate, any member of the Board (whether or not such Board member is employed by the Company or an Affiliate), and any other Person who provides services to the Company or an Affiliate is eligible to participate in this Plan if the Administrator, in its sole discretion, determines that such Person has contributed significantly or can be expected to contribute significantly to the profits or growth of the Company or an Affiliate.

ARTICLE V

COMMON STOCK SUBJECT TO PLAN

5.01. Common Stock Issued

Upon the award of Common Stock pursuant to a Stock Award or in settlement of a Performance Share award, the Company may issue Common Stock from its authorized but unissued Common Stock. Upon the exercise of any Option or an option granted by an Affiliate of the Company if the Company has assumed the obligations of the Affiliate under those options, the Company may deliver to the Participant (or the Participant’s broker if the Participant so directs), shares of Common Stock from its authorized but unissued Common Stock.

5.02. Aggregate Limit

The maximum aggregate number of shares of Common Stock that may be issued under the Plan is 3,925,000, which number represents an increase of 3,000,000 shares of Common Stock over the previously reserved and available number of shares (925,000). No more than 3,925,000 shares of Common Stock may be issued in the form of Options that are intended to qualify as incentive stock options. The maximum aggregate number of shares of Common Stock that may be issued under this Plan shall be subject to adjustment as provided in Article IX.

5.03. Reallocation of Shares

If an Option or an option granted by an Affiliate as to which the Company has assumed the Affiliate’s obligation to deliver Common Stock is terminated, in whole or in part, for any reason other than its exercise the number of shares allocated to the Option, option, or portion thereof may be reallocated to other Options, Performance Shares, and Stock Awards to be granted under this Plan. If an award of Performance Shares is terminated, in whole or in part, for any reason other than its settlement with shares of Common Stock, the number of shares allocated to the Performance Share award or portion thereof may be reallocated to other Options, Performance Shares and Stock Awards to be granted under this Plan. If a Stock Award is forfeited, in whole or in part, for any reason, the number of shares of Common Stock allocated to the Stock Award or portion thereof may be reallocated to other Options, Performance Shares, and Stock Awards to be granted under this Plan. In addition, the shares of Common Stock underlying any Option, Performance Share or Stock Award that are held back upon

exercise of an Option or settlement of a Performance Share or Stock Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting or satisfied without the issuance of Common Stock shall be added back to the shares of Common Stock available for issuance under the Plan.

5.04. Participant Sub-limit

The maximum number of shares of Common Stock subject to Options, Performance Shares and Stock Awards that may be granted to any Participant shall not exceed 1,500,000 shares in the aggregate in any calendar year. Such maximum number is subject to adjustment as provided in Article IX.

ARTICLE VI

OPTIONS

6.01. Award

In accordance with the provisions of Article IV, the Administrator will designate each individual to whom an Option is to be granted and will specify the number of shares of Common Stock covered by such awards.

6.02. Option Price

The price per share for shares of Common Stock purchased on the exercise of an Option shall be determined by the Administrator on the date of grant, but shall not be less than the Fair Market Value on the date the Option is granted.

6.03. Maximum Option Period

The maximum period in which an Option may be exercised shall be determined by the Administrator on the date of grant, except that no Option that is an incentive stock option shall be exercisable after the expiration of ten years from the date such Option was granted. The terms of any Option that is an incentive stock option may provide that it is exercisable for a period less than such maximum period.

6.04. Nontransferability

Except as provided in Section 6.05, each Option granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. In the event of any transfer of an Option (by the Participant or his transferee), the Option must be transferred to the same person or persons or entity or entities. Except as provided in Section 6.05, during the lifetime of the Participant to whom the Option is granted, the Option may be exercised only by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant.

6.05. Transferable Options

Section 6.04 to the contrary notwithstanding, if the Agreement provides, an Option that is not an incentive stock option may be transferred by a Participant to the Participant’s immediate “family members,” trusts for the benefit of such persons, or to a partnership in which those persons are the only partners. The holder of an Option transferred pursuant to this Section shall be bound by the same terms and conditions that governed the Option during the period that it was held by the Participant; provided, however, that such transferee may not transfer the Option except by will or the laws of descent and distribution. For purposes hereof, “family member” shall mean a Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant of the Participant), a trust in which these persons (or the Participant) have more than 50 percent of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than 50 percent of the voting interests.

6.06. Status as Employee or Service Provider

For purposes of determining the applicability of Section 422 of the Code (relating to incentive stock options), or in the event that the terms of any Option provide that it may be exercised only during employment or service or within a specified period of time after termination of employment or service, the Administrator may decide to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment or service.

6.07. Exercise

Subject to the provisions of this Plan and the applicable Agreement, an Option may be exercised in whole at any time or in part from time to time at such times and in compliance with such requirements as the Administrator shall determine; provided, however, that incentive stock options (granted under the Plan and all plans of the Company and its Affiliates) may not be first exercisable in a calendar year for shares of Common Stock having a Fair Market Value (determined as of the date an Option is granted) exceeding $100,000. An Option granted under this Plan may be exercised with respect to any number of whole shares less than the full number for which the Option could be exercised. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan and the applicable Agreement with respect to the remaining shares subject to the Option.

6.08. Payment

Subject to rules established by the Administrator and unless otherwise provided in an Agreement, payment of all or part of the Option price may be made in cash (including cash paid by a broker pursuant to a Participant’s instructions to sell shares subject to the Option and deliver the exercise price), a cash equivalent acceptable to the Administrator, or with shares of Common Stock. If shares of Common Stock are used to pay all or part of the Option price, the sum of the cash and cash equivalent and the Fair Market Value (determined as of the day preceding the date of exercise) of the shares surrendered must not be less than the Option price of the shares for which the Option is being exercised.

6.09. Shareholder Rights

No Participant shall have any rights as a shareholder with respect to shares subject to his Option until the date of exercise of such Option.

6.10. Disposition of Shares

A Participant shall notify the Company of any sale or other disposition of shares acquired pursuant to an Option that was an incentive stock option if such sale or disposition occurs (i) within two years of the grant of an Option or (ii) within one year of the issuance of shares to the Participant. Such notice shall be in writing and directed to the Secretary of the Company.

ARTICLE VII

PERFORMANCE SHARE AWARDS

7.01. Award

In accordance with the provisions of Article IV, the Administrator will designate each individual to whom an award of Performance Shares is to be made and will specify the number of shares covered by such awards.

7.02. Earning the Award

The Administrator, on the date of the grant of an award, shall prescribe that the Performance Shares, or portion thereof, will be earned, and the Participant will be entitled to receive payment pursuant to the award of Performance Shares, only upon the satisfaction by the Company, an Affiliate or the Participant of performance objectives and such other criteria as may be prescribed by the Administrator for the performance measurement period. The performance objectives may be based on Fair Market Value, Common Stock price appreciation, gross revenues, operating profit, or net earnings before or after taxes, return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, return on sales, cash flow per share, book value per share,

market share, economic value added, market value added, productivity, level of expenses, new product development, peer group comparisons of any of the foregoing, or other measures as the Administrator may select. No payments will be made with respect to Performance Shares unless, and then only to the extent that, the Administrator certifies that such objectives have been achieved.

7.03. Payment

In the discretion of the Administrator, the amount payable when an award of Performance Shares is earned may be settled in cash, by the issuance of shares of Common Stock, or a combination thereof.

7.04. Shareholder Rights

No Participant shall, as a result of receiving an award of Performance Shares, have any rights as a shareholder until (and then only to the extent that) the award of Performance Shares is earned and settled in shares of Common Stock. After an award of Performance Shares is earned and settled in shares, a Participant will have all the rights of a shareholder as described in Section 8.05.

7.05. Nontransferability

Except as provided in Section 7.06, Performance Shares granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. No right or interest of a Participant in any Performance Shares shall be liable for, or subject to, any lien, obligation, or liability of such Participant.

7.06. Status as Employee or Service Provider

In the event that the terms of any Performance Share award provide that no payment will be made unless the Participant completes a stated period of employment or service, the Administrator may decide to what extent leaves of absence for government or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment or service.

ARTICLE VIII

STOCK AWARDS

8.01. Award

In accordance with the provisions of Article IV, the Administrator will designate each individual to whom a Stock Award is to be made and will specify the number of shares covered by such awards.

8.02. Vesting

The Administrator, on the date of the award, may prescribe that a Participant’s rights in a Stock Award shall be forfeitable or otherwise restricted for a period of time or subject to such conditions as may be set forth in the Agreement.

8.03. Performance Objectives

In accordance with Section 8.02, the Administrator may prescribe that Stock Awards will become vested or transferable or both based on objectives stated with respect to the Participant’s continued employment or service with the Company or an Affiliate for a specified period, or the Company’s, an Affiliate’s, or the Participant’s achievement of performance related objectives such as those measured by Fair Market Value, Common Stock stock price appreciation, gross, operating, or net earnings before or after taxes, return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, return on sales, cash flow per share, book value per share, market share, economic value added, market value added, productivity, level of expenses, new product development, peer group comparisons of any of the foregoing, or other measures the Administrator may select. If the Administrator, on the date of award, prescribes that a Stock Award shall become nonforfeitable and transferable only upon the attainment of performance objectives, the shares subject to such Stock Award shall become nonforfeitable and transferable only to the extent that the Administrator certifies that such objectives have been achieved.

8.04. Status as Employee or Service Provider

In the event that the terms of any Stock Award provide that shares may become transferable and nonforfeitable thereunder only after completion of a specified period of employment or service, the Administrator may decide in each case to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment or service.

8.05. Shareholder Rights

Prior to their forfeiture (in accordance with the applicable Agreement and while the shares of Common Stock granted pursuant to the Stock Award may be forfeited or are nontransferable), a Participant will have all rights of a shareholder with respect to a Stock Award, including the right to receive dividends and vote the shares; provided, however, that during such period (i) a Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of shares granted pursuant to a Stock Award, (ii) the Company shall retain custody of the certificates evidencing shares granted pursuant to a Stock Award, and (iii) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to each Stock Award. The limitations set forth in the preceding sentence shall not apply after the shares granted under the Stock Award are transferable and are no longer forfeitable.

ARTICLE IX

ADJUSTMENT UPON CHANGE IN COMMON STOCK

The maximum number of shares as to which Options, Performance Shares, and Stock Awards may be granted pursuant to this Plan; the terms of outstanding Stock Awards, Options, and Performance Shares; and the per individual limitations on the number of shares of Common Stock for which Options, Performance Shares, and Stock Awards may be granted shall be adjusted as the Committee shall determine to be equitably required in the event that (i) the Company (a) effects one or more stock dividends, stock split-ups, subdivisions or consolidations of shares or (b) engages in a transaction to which Section 424 of the Code applies or, (ii) there occurs any other event which, in the judgment of the Committee necessitates such action. Any determination made under this Article IX by the Committee shall be final and conclusive.

The issuance by the Company of stock of any class, or securities convertible into stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of stock or obligations of the Company convertible into such stock or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the maximum number of shares as to which Options, Performance Shares, and Stock Awards may be granted; the per individual limitations on the number of shares for which Options, Performance Shares, and Stock Awards may be granted; or the terms of outstanding Stock Awards, Options, or Performance Shares.

The Board or Committee may make Stock Awards and may grant Options and Performance Shares in substitution for performance shares, phantom shares, stock awards, stock options, stock appreciation rights, or similar awards held by an individual who becomes an employee or service provider of the Company or an Affiliate in connection with a transaction described in the first paragraph of this Article IX. Notwithstanding any provision of the Plan, the terms of such substituted Stock Awards, Options or Performance Shares shall be as the Board or Committee, in its discretion, determines is appropriate. Any substituted Stock Awards, Options or Performance Shares granted under the Plan shall not count against the share limitation set forth in Section 5.02.

ARTICLE X

COMPLIANCE WITH LAW AND APPROVAL OF

REGULATORY BODIES

No Option shall be exercisable, no shares of Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Company is a party, and the rules of all domestic stock exchanges on which the Company’s shares may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any stock certificate issued to evidence shares of Common Stock when a Stock Award is granted, Performance Share is settled or for which an Option is exercised may bear such legends and statements as the Administrator may deem advisable to assure compliance with federal and state laws and regulations. No Option shall be exercisable, no Stock Award or Performance Share shall be granted, no shares of Common Stock shall be

issued, no certificate for shares of Common Stock shall be delivered, and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Administrator may deem advisable from regulatory bodies having jurisdiction over such matters.

ARTICLE XI

MERGERS AND OTHER TRANSACTIONS

Upon the consummation of an Acquisition, the Board may, on the same basis or on different basis as the Board shall specify, upon written notice to the affected optionees, provide that one or more Options then outstanding must be exercised, in whole or in part, within a specified number of days of the date of such notice, at the end of which period such Options shall terminate, or provide that one or more Options then outstanding, in whole or in part, shall be terminated in exchange for a cash payment equal to the excess of the fair market value (as determined by the Board in its sole discretion) for the shares subject to such Options over the exercise price thereof; provided, however, that before terminating any portion of an Option that is not vested or exercisable (other than in exchange for a cash payment), the Board must first accelerate in full the exercisability of the portion that is to be terminated.

For purposes hereof, an “Acquisition” means (i) the sale of the Company by merger in which the shareholders of the Company in their capacity as such no longer own a majority of the outstanding equity securities of the Company (or its successor); or (ii) any sale of all or substantially all of the assets or capital stock of the Company (other than a spin-off or similar transaction); or (iii) any other acquisition of the business of the Company, as determined by the Board.

ARTICLE XII

ADDITIONAL CONDITIONS APPLICABLE TO

NONQUALIFIED DEFERRED COMPENSATION

UNDER SECTION 409A OF THE CODE

In the event any Stock Option or Stock Award under the Plan is granted with an exercise price of less than 100% of the Fair Market Value on the date of grant (regardless of whether or not such exercise price is intentionally or unintentionally priced at less than Fair Market Value), or such grant is materially modified and deemed a new grant at a time when the Fair Market Value exceeds the exercise price, or any other award granted under the Plan is otherwise determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code (a “409A Award”), the following additional conditions shall apply and shall supersede any contrary provisions of this Plan or the terms of any agreement relating to such 409A Award.

12.01 Exercise and Distribution

Except as provided in Section 12.02 hereof, no 409A Award shall be exercisable or distributable earlier than upon one of the following:

(i) Specified Time . A specified time or a fixed schedule set forth in the written instrument evidencing the 409A Award, but not later than after the expiration of ten years from the date such Award was granted.

(ii) Separation from Service . Separation from service (within the meaning of Section 409A of the Code (“Section 409A”)) by the 409A Award recipient; provided however, if the 409A Award recipient is a “key employee” (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s Stock is publicly traded on an established securities market or otherwise, exercise or distribution under this Section may not be made before the date that is six months after the date of separation from service.

(iii) Death . The date of death of the 409A Award recipient.

(iv) Disability . The date the 409A Award recipient becomes disabled (within the meaning of Section 12.03(ii) hereof).

(v) Unforeseeable Emergency . The occurrence of an unforeseeable emergency (within the meaning of Section 12.03(iii) hereof), but only if the net value (after payment of the exercise price) of the number of shares of Stock that become issuable does not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the exercise, after taking into account the extent to which the emergency is

or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the participant’s other assets (to the extent such liquidation would not itself cause severe financial hardship).

(vi) Change in Control Event . The occurrence of a Change in Control Event (within the meaning of Section 12.03(i) hereof), including the Company’s discretionary exercise of the right to accelerate vesting of such grant upon a Change in Control Event or to terminate the Plan or any 409A Award granted hereunder within 12 months of the Change in Control Event.

12.02 No Acceleration

A 409A Award may not be accelerated or exercised prior to the time specified in Section 12.01 hereof, except in the case of one of the following events:

(i) Domestic Relations Order . The 409A Award may permit the acceleration of the exercise or distribution time or schedule to an individual other than the Participant as may be necessary to comply with the terms of a domestic relations order (as defined in Section 414(p)(1)(B) of the Code).

(ii) Conflicts of Interest . The 409A Award may permit the acceleration of the exercise or distribution time or schedule as may be necessary to comply with the terms of a certificate of divestiture (as defined in Section 1043(b)(2) of the Code).

(iii) Change in Control Event . The Administrator may exercise the discretionary right to accelerate the vesting of such 409A Award upon a Change in Control Event or to terminate the Plan or any 409A Award granted thereunder within 12 months of the Change in Control Event and cancel the 409A Award for compensation.

12.03 Definitions

Solely for purposes of this Article 12 and not for other purposes of the Plan, the following terms shall be defined as set forth below:

(i) “Change in Control Event” means the occurrence of a change in the ownership of the Company, a change in effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company (as defined in IRS Notice 2005-1, Q&A-11, Q&A-12, Q&A-13 and Q&A-14).

(ii) “Disabled” means a grantee (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company or its Subsidiaries.

(iii) “Unforeseeable Emergency” means a severe financial hardship to the grantee resulting from an illness or accident of the grantee, the grantee’s spouse, or a dependent (as defined in Section 152(a) of the Code) of the grantee, loss of the grantee’s property due to casualty, or similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the grantee.

ARTICLE XIII

GENERAL PROVISIONS

13.01. Effect on Employment and Service

Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof), shall confer upon any individual any right to continue in the employ or service of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate to terminate the employment or service of any individual at any time with or without assigning a reason therefor.

13.02. Unfunded Plan

The Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Company to

any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company.

13.03. Rules of Construction

Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.

13.04. Tax Withholding

Each Participant shall, no later than the date as of which the value of an Option, Performance Share or Stock Award or any shares of Common Stock or other amounts received thereunder first becomes includable in the gross income of the Participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax obligations being satisfied by the grantee.

Subject to approval by the Administrator, a Participant may elect to have the minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Common Stock to be issued pursuant to any Option, Performance Share or Stock Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Common Stock owned by the Participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.

ARTICLE XIV

AMENDMENT

The Board may amend or terminate this Plan from time to time; however, any material Plan amendments (other than amendments that curtail the scope of the Plan), including any Plan amendments that (i) increase the number of shares reserved for issuance under the Plan, (ii) permit repricing of outstanding Options or reduce the price at which shares or Options may be offered under the Plan, or (iii) expand the type of awards available under, materially expand the eligibility to participate in, or materially extend the term of the Plan, shall be subject to approval by the Company shareholders entitled to vote at a meeting of shareholders. In addition, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or to ensure that compensation earned under certain awards qualifies as performance-based compensation under Section 162(m) of the Code, Plan amendments shall be subject to approval by the Company shareholders entitled to vote at a meeting of shareholders. The Administrator may, at any time, amend or cancel any outstanding award granted under the Plan for the purpose of satisfying changes in law or for any other lawful purpose, but no amendment shall, without a Participant’s consent, adversely affect any rights of such Participant under any Stock Award, Option, or Performance Share outstanding at the time such amendment is made.

ARTICLE XV

DURATION OF PLAN

No Stock Award, Option or Performance Share may be granted under this Plan after May 11, 2015. No Option that is intended to qualify as an incentive stock option may be granted under this Plan after March 30, 2015. Stock Awards, Options and Performance Shares granted before such dates shall remain valid in accordance with their terms.

ARTICLE XVI

EFFECTIVE DATE OF PLAN

Options, Stock Awards and Performance Shares may be granted under this Plan upon its adoption by the Board; provided that, unless this Plan is approved by a majority of the votes cast by the Company’s shareholders,

voting either in person or by proxy, at a duly held shareholders’ meeting at which a quorum is present or by the written unanimous consent of the shareholders within twelve months before or after this Plan is adopted by the Board, no Option shall be exercisable, no Performance Share shall be settled, and no Stock Award shall be effective.

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 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: May 7, 2013
	/s/ William H. Lewis
	William H. Lewis
	Chief Executive Officer
	(Principal Executive Officer)

EXHIBIT 31.2

Section 302 Certification

I, Andrew T. Drechsler, Chief Financial Officer of Insmed Incorporated, certify that:

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

(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: May 7, 2013
	/s/ Andrew T. Drechsler
	Andrew T. Drechsler
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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

Solely for the purposes of complying with 18 U.S.C. § 1350, I, William Lewis, Chief Executive Officer of Insmed Incorporated (the “Company”), hereby certify, based on my knowledge, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2013 (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
Chief Executive Officer
(Principal Executive Officer)

May 7, 2013

This certification accompanies the Quarterly Report on 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. A signed original of this statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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

Solely for the purposes of complying with 18 U.S.C. § 1350, I, Andrew T. Drechsler, Chief Financial Officer of Insmed Incorporated (the “Company”), hereby certify, based on my knowledge, that:

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

/s/ Andrew T. Drechsler
Andrew T. Drechsler
Chief Financial Officer
(Principal Financial and Accounting Officer)

May 7, 2013