INSMED Inc (Form: 10-Q, Received: 11/06/2015 08:29:32)

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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 September 30, 2015

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.)

10 Finderne Avenue, Building 10
Bridgewater, New Jersey		08807
(Address of principal executive offices)		(Zip Code)

(908) 977-9900

(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 x		Accelerated filer o

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 October 31, 2015, there were 61,803,749 shares of the registrant’s common stock, $0.01 par value, outstanding.

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INSMED INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2015

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1	Consolidated Financial Statements

	Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014	3

	Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2015 and 2014	4

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2015 and 2014	5

	Notes to Consolidated Financial Statements (unaudited)	6

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	28
ITEM 4	Controls and Procedures	28

PART II. OTHER INFORMATION

ITEM 1	Legal Proceedings	29
ITEM 1A	Risk Factors	29
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	29
ITEM 3	Defaults Upon Senior Securities	29
ITEM 4	Mine Safety Disclosures (Not Applicable)	29
ITEM 5	Other Information	30
ITEM 6	Exhibits	30

SIGNATURE		31
EXHIBIT INDEX		32

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. IPLEX is a registered trademark and ARIKAYCE, INSMED and CONVERT are trademarks of Insmed Incorporated. This Form 10-Q also contains trademarks of third parties. Each trademark of another company appearing in this Form 10-Q is the property of its owner.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

INSMED INCORPORATED

Consolidated Balance Sheets

(in thousands, except par value and share data)

	As of			As of
	September 30, 2015			December 31, 2014
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	310,969		$	159,226
Prepaid expenses and other current assets	8,289			5,488
Total current assets	319,258			164,714

In-process research and development	58,200			58,200
Fixed assets, net	8,052			7,534
Other assets	231			416
Total assets	$	385,741		$	230,864

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	10,857		$	9,249
Accrued expenses	9,903			9,638
Other current liabilities	682			743
Current portion of long-term debt	25,256			—
Total current liabilities	46,698			19,630

Other long-term liabilities	44			141
Debt, long-term	—			24,856
Total liabilities	46,742			44,627

Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 61,803,749 and 49,806,131 issued and outstanding shares at September 30, 2015 and December 31, 2014, respectively	618			498
Additional paid-in capital	896,099			656,519
Accumulated deficit	(557,718		)	(470,780		)
Total shareholders’ equity	338,999			186,237
Total liabilities and shareholders’ equity	$	385,741		$	230,864

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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014

Revenues	$	—		$	—		$	—		$	—

Operating expenses:
Research and development	19,221			15,200			54,631			41,493
General and administrative	11,024			8,204			30,272			22,806
Total operating expenses	30,245			23,404			84,903			64,299

Operating loss	(30,245		)	(23,404		)	(84,903		)	(64,299		)

Investment income	75			12			166			41
Interest expense	(725		)	(594		)	(2,165		)	(1,795		)
Other (expense) / income, net	(67		)	(4		)	(36		)	152
Loss before income taxes	(30,962		)	(23,990		)	(86,938		)	(65,901		)

Benefit from income taxes	—			—			—			(4,389		)

Net loss and comprehensive loss	$	(30,962	)	$	(23,990	)	$	(86,938	)	$	(61,512	)

Basic and diluted net loss per share	$	(0.50	)	$	(0.54	)	$	(1.51	)	$	(1.50	)

Weighted average basic and diluted common shares outstanding	61,774			44,082			57,565			40,882

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Nine months ended September 30,
	2015			2014
Operating activities
Net loss	$	(86,938	)	$	(61,512	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	1,342			697
Stock based compensation expense	11,757			8,592
Amortization of debt discount and debt issuance costs	343			283
Accrual of the end of term charge on the debt	57			86
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(2,616		)	(1,358		)
Accounts payable	1,340			2,546
Accrued expenses and other current liabilities	1,562			(818		)
Net cash used in operating activities	(73,153		)	(51,484		)

Investing activities
Purchase of fixed assets	(3,047		)	(3,814		)
Net cash used in investing activities	(3,047		)	(3,814		)

Financing activities
Payments on capital lease obligations	—			(48		)
Proceeds from exercise of stock options	5,001			847
Proceeds from issuance of common stock, net	222,942			108,016
Payment of debt issuance costs	—			(100		)
Net cash provided by financing activities	227,943			108,715

Net increase in cash and cash equivalents	151,743			53,417
Cash and cash equivalents at beginning of period	159,226			113,894

Cash and cash equivalents at end of period	$	310,969		$	167,311

Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,230		$	1,403
Cash received for taxes (proceeds from sales of New Jersey net operating losses)	$	994		$	4,389

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Basis of Presentation

Insmed is a global biopharmaceutical company focused on the unmet needs of patients with rare diseases. The Company’s lead product candidate is ARIKAYCE, or liposomal amikacin for inhalation (LAI), which is in late-stage development for patients with nontuberculous mycobacteria (NTM) lung disease, a rare and often chronic infection that is capable of causing irreversible lung damage and which can be fatal when left untreated. The Company’s earlier stage pipeline includes INS1009, a nebulized prodrug formulation of treprostinil that the Company is developing for the treatment of pulmonary arterial hypertension (PAH), a chronic, life-threatening disorder characterized by abnormally high blood pressure in the arteries between the heart and lungs.

The Company was incorporated in the Commonwealth of Virginia on November 29, 1999 and its principal executive offices are located in Bridgewater, New Jersey. During 2015 the Company formed subsidiaries in a number of countries in Europe in preparation for the commercialization of ARIKAYCE, upon approval in the European Union, and to support its global tax structure. The Company has operations in the United States (U.S.), Ireland, Germany, France, the United Kingdom and the Netherlands.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Transave, LLC, Insmed Pharmaceuticals, Inc., Insmed Limited, Celtrix Pharmaceuticals, Inc., Insmed Holdings Limited, Insmed Ireland Limited, Insmed France SAS, Insmed Germany GmbH and Insmed Netherlands B.V. All intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements are not included herein. The interim statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2014.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. The unaudited interim consolidated financial information presented herein reflects all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The Company is responsible for the unaudited interim consolidated financial statements included in this report.

Subsequent Events — The Company has evaluated all events and transactions since September 30, 2015 and identified no significant events requiring disclosure in or adjustment to these financial statements.

2. Summary of Significant Accounting Policies

The following are interim updates to certain of the policies described in “Note 2” to the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014:

Foreign currency — The Company has operations in the United States, Ireland, Germany, France, the United Kingdom and the Netherlands. The results of its non-U.S. dollar based operations are translated to U.S. dollars at the average exchange rates during the period. Assets and liabilities are translated at the exchange rate prevailing at the balance sheet date. Equity is translated at the prevailing exchange rate at the date of the equity transaction. Translation adjustments, when material, will be reflected in shareholders’ equity and included as a component of other comprehensive loss.

The Company realizes foreign currency transaction gains/(losses) in the normal course of business based on movements in the applicable exchange rates. These gains/(losses) are included as a component of other (expense) / income, net.

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

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· 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 categorized based upon the lowest level of significant input to the valuations. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments in Level 1 generally include U.S. treasuries and mutual funds listed in active markets.

The Company’s only assets and liabilities which were measured at fair value as of September 30, 2015 and December 31, 2014 were Level 1 and were comprised of cash and cash equivalents of $311.0 million and $159.2 million, respectively.

The Company’s cash and cash equivalents permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions. Cash equivalents consist of liquid investments with a maturity of three months or less from the date of purchase.

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers in or out of Level 1, Level 2 or Level 3 during the three and nine months ended September 30, 2015 and 2014.

As of September 30, 2015 and December 31, 2014, the Company held no securities that were in an unrealized gain or loss position. The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the securities were rated below investment grade; (3) how long the securities have been in an unrealized loss position; and (4) the Company’s ability and intent to retain the investment for a sufficient period of time for it to recover.

Net Loss Per Common Share - Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares and other dilutive securities outstanding during the period. Potentially dilutive securities from stock options, restricted stock units and warrants to purchase common stock 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 used to compute basic and diluted net loss per share for the three and nine months ended September 30, 2015 and 2014:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In thousands, except per share amounts)
Numerator:
Net loss	$	(30,962	)	$	(23,990	)	$	(86,938	)	$	(61,512	)
Denominator:
Weighted average common shares used in calculation of basic net loss per share	61,774			44,082			57,565			40,882
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 loss per share	61,774			44,082			57,565			40,882
Net loss per share:
Basic and diluted net loss per share	$	(0.50	)	$	(0.54	)	$	(1.51	)	$	(1.50	)

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The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of September 30, 2015 and 2014 as their effect would have been anti-dilutive (in thousands):

	2015	2014
Stock options to purchase common stock	5,241	4,674
Restricted stock units	44	21

3. Identifiable Intangible Assets

The Company believes there are no indicators of impairment relating to its in-process research and development intangible assets as of September 30, 2015.

4. Accrued Expenses

Accrued expenses consist of the following:

	As of September 30,		As of December 31,
	2015		2014
	(in thousands)

Accrued clinical trial expenses	$	4,258	$	2,113
Accrued compensation	3,208		4,317
Accrued technical operation expenses	1,136		762
Accrued office construction costs	—		1,500
Accrued professional fees	931		542
Accrued interest payable	193		258
Other accrued expenses	177		146
	$	9,903	$	9,638

5. Debt

On June 29, 2012, the Company and its domestic subsidiaries, as co-borrowers, entered into a Loan and Security Agreement with Hercules Technology Growth Capital, Inc. (“Hercules”) that originally allowed the Company to borrow up to $20.0 million (“Loan Agreement”) at an interest rate of 9.25%. On December 15, 2014, the Company and Hercules entered into a third amendment (the “Third Amendment”) to the Loan Agreement. In connection with the Third Amendment, the Company paid a commitment fee of $25,000, and at the closing, paid a facility fee of $125,000. Under the Third Amendment, the amount of borrowings was increased by $5.0 million to a total of $25.0 million and the interest-only period was extended through December 31, 2015. In addition, in the event the Company receives at least $90.0 million in cash proceeds from the completion of certain types of equity financings, subordinated debt financings, and/or up-front cash payments from corporate transactions prior to December 31, 2015, the Company has the option to extend the maturity date of the loan to January 1, 2018. If the Company elects to exercise such option, it must pay Hercules a $250,000 fee. The Company completed an equity financing in April 2015 of $222.9 million which qualifies as a financing event under the Loan Agreement.

The following table presents the components of the Company’s debt balance as of September 30, 2015 (in thousands):

Debt:
Notes payable	$	25,000
Accretion of end of term charge	371
Issuance fees paid to lender	(77		)
Discount from warrant	(38		)
Current portion of long-term debt	(25,256		)
Long-term debt	$	—

As of September 30, 2015, future principal repayments of the debt for each of the years ending December 31, 2015 and 2016 were as follows (in thousands):

Year Ending in December 31:
2015	$	—
2016 (due in full January 1, 2016)	25,000
	$	25,000

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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. The Company believes the estimated fair value at September 30, 2015 approximates the carrying amount.

6. Shareholders’ Equity

Common Stock — As of September 30, 2015, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 and 61,803,749 shares of common stock issued and outstanding. In addition, as of September 30, 2015, the Company had reserved 5,240,590 shares of common stock for issuance upon the exercise of outstanding common stock options and 43,798 for issuance upon the vesting of restricted stock units.

On April 6, 2015, the Company completed an underwritten public offering of 11,500,000 shares of the Company’s common stock, which included the underwriter’s exercise in full of its over-allotment option of 1,500,000 shares, at a price to the public of $20.65 per share. The Company’s net proceeds from the sale of the shares, after deducting the underwriter’s discount and offering expenses of $14.5 million, were $222.9 million.

On August 18, 2014, the Company completed an underwritten public offering of 10,235,000 shares of the Company’s common stock, which included the underwriter’s exercise in full of its over-allotment option of 1,335,000 shares, at a price to the public of $11.25 per share. The Company’s net proceeds from the sale of the shares, after deducting the underwriter’s discount and offering expenses of $7.1 million, were $108.0 million.

Preferred Stock — As of September 30, 2015 and December 31, 2014, the Company had 200,000,000 shares of preferred stock authorized with a par value of $0.01 and no shares of preferred stock were issued and outstanding.

7. Stock-Based Compensation

The Company’s current equity compensation plan, the 2015 Incentive Plan, was approved by shareholders at the Company’s Annual Meeting of Shareholders on May 21, 2015. The 2015 Incentive Plan is administered by the Compensation Committee and the Board of Directors of the Company. Under the terms of the 2015 Incentive Plan, the Company is authorized to grant a variety of incentive awards based on its common stock, including stock options (both incentive stock options and non-qualified stock options), performance options/shares and other stock awards, as well as the payment of incentive bonuses to all employees and non-employee directors. On May 21, 2015, 5,000,000 shares of the Company’s common stock were authorized and as of September 30, 2015, there were 4,338,355 shares remaining for future grants (or issuances) of stock options, stock appreciation rights, restricted stock, restricted stock units and incentive bonuses under the 2015 Incentive Plan. The 2015 Incentive Plan will terminate on April 9, 2025 unless it is extended or terminated earlier pursuant to its terms. In addition, from time to time, the Company makes inducement grants of stock options. These awards are made pursuant to the NASDAQ inducement grant exception as a component of new hires’ employment compensation in connection with the Company’s equity grant program. During the nine months ended September 30, 2015, the Company granted 227,000 inducement stock options to new employees.

Stock Options - The Company calculates the fair value of stock options granted using the Black-Scholes valuation model.

The following table summarizes the Company’s grant date fair value and assumptions used in determining the fair value of all stock options granted:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014

Volatility	78.1%-79.1%	84.1%-85.4%	78.1%-82.3%	83.1%-85.5%
Risk-free interest rate	1.49%-1.72%	1.62%-1.83%	1.31%-1.72%	1.46%-1.83%
Dividend yield	0.0%	0.0%	0.0%	0.0%
Expected option term (in years)	6.25	6.25	6.25	6.25
Weighted average fair value of stock options granted	$17.32	$10.10	$14.38	$11.74

For all periods presented, the volatility factor was based on the Company’s historical volatility since the closing of the Company’s 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 U.S. Treasury yield in effect at the date of grant. Forfeitures are based on

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the actual percentage of option forfeitures since the closing of the Company’s merger with Transave on December 1, 2010, and this is the basis for future forfeiture expectations.

From time to time, the Company grants performance-condition options to certain of the Company’s employees. Vesting of these options is subject to the Company achieving certain performance criteria established at the date of grant and the individuals fulfilling a service condition (continued employment). As of September 30, 2015 the Company had performance options totaling 168,334 shares outstanding which have not met the recognition criteria to date. For the three months ended March 31, 2015, approximately $1.5 million of non-cash compensation expense was recorded related to certain performance based options as the recognition criteria was met upon the marketing authorization application for ARIKAYCE being accepted for filing by the European Medicines Agency in February 2015.

The following table summarizes the Company’s aggregate stock option activity for the nine months ended September 30, 2015:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2014	4,400,106		$	10.59
Granted	1,740,150		$	20.68
Exercised	(471,138	)	$	10.61
Forfeited or expired	(428,528	)	$	14.93
Options outstanding at September 30, 2015	5,240,590		$	13.59	8.27	$	56,828
Vested and expected to vest at September 30, 2015	5,002,447		$	13.38	8.23	$	55,303
Exercisable at September 30, 2015	1,787,295		$	8.48	7.42	$	28,484

The total intrinsic value of stock options exercised during the three months ended September 30, 2015 and 2014 was $0.7 million and $0.8 million, respectively, and during the nine months ended September 30, 2015 and 2014 was $4.6 million and $1.5 million, respectively.

As of September 30, 2015, there was $30.5 million of unrecognized compensation expense related to unvested stock options which is expected to be recognized over a weighted average period of 2.6 years. Included above in unrecognized compensation expense was $1.4 million related to outstanding performance-based options. The following table summarizes the range of exercise prices and the number of stock options outstanding and exercisable:

Outstanding as of September 30, 2015					Exercisable as of September 30, 2015
			Weighted
			Average
			Remaining	Weighted
Range of Exercise		Number of	Contractual	Average	Number of	Weighted Average
Prices ($)		Options	Term (in years)	Exercise Price (S)	Options	Exercise Price ($)
3.03	3.29	153,878	6.26	3.05	128,915	3.05
3.40	3.40	708,314	6.95	3.40	531,236	3.40
3.60	6.90	584,572	7.20	6.01	343,412	5.95
6.96	12.44	702,620	7.66	11.34	351,382	11.23
12.58	13.94	545,475	8.66	12.77	131,828	12.78
14.04	16.07	808,650	8.75	15.34	120,324	14.43
16.19	20.49	646,581	8.59	19.53	174,573	19.65
20.92	22.14	107,300	9.40	21.54	5,625	21.54
22.76	22.76	823,700	9.65	22.76	—	—
22.84	27.38	159,500	9.68	23.80	—	—

Restricted Stock and Restricted Stock Units — The Company may grant Restricted Stock (“RS”) and Restricted Stock Units (“RSUs”) to eligible employees, including its executives, and non-employee directors. Each RS and 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. RS and RSU awards granted are generally valued at the market price of the Company’s common stock on the date of grant. The Company recognizes noncash compensation expense for the fair values of these RS and RSUs on a straight-line basis over the requisite service period of these awards. The following table summarizes the Company’s RSU award activity during the nine months ended September 30, 2015:

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			Weighted
	Number of		Average
	RSUs		Grant Price
Outstanding at December 31, 2014	20,502		$	19.47
Granted	49,776		16.07
Released	(26,480	)	18.72
Outstanding at September 30, 2015	43,798		$	16.06
Expected to vest	43,798		$	16.06

The following table summarizes the aggregate stock-based compensation recorded in the Consolidated Statements of Comprehensive Loss related to stock options and RSUs during the three and nine months ended September 30, 2015 and 2014:

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in millions)				(in millions)

Research and development expenses	$	0.8	$	1.4	$	3.1	$	3.6
General and administrative expenses	3.0		1.8		8.7		5.0

Total	$	3.8	$	3.2	$	11.8	$	8.6

8. Income Taxes

The benefit for income taxes was $0 and $4.4 million for the nine months ended September 30, 2015 and 2014, respectively. The benefit for income taxes recorded for the nine months ended September 30, 2014 solely reflects the reversal of a valuation allowance previously recorded against the Company’s New Jersey State net operating losses (“NOLs”) that resulted from the Company’s sale of a portion of its New Jersey State NOLs under the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) for cash of $4.4 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 Company is subject to U.S. federal, state and foreign income taxes. The statute of limitations for tax audit is open for the federal tax returns for the years ended 2011 and later and is generally open for certain states for the years 2010 and later. The Company’s U.S. federal tax return for the year ended December 31, 2013 is currently under audit by the Internal Revenue Service. The Company has incurred net operating losses since inception, with the exception of 2009. 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 recorded no such expense. As of September 30, 2015 and December 31, 2014, the Company has recorded no reserves for unrecognized income tax benefits, nor has it recorded any accrued interest or penalties related to uncertain tax positions. The Company does not anticipate any material changes in the amount of unrecognized tax positions over the next twelve months.

At December 31, 2014, the Company had federal net operating loss carryforwards for income tax purposes of approximately $461.8 million. Due to the limitation on NOLs as more fully discussed below, $283.5 million of the NOLs are available to offset future taxable income, if any. The NOL carryovers and general business tax credits expire in various years beginning in 2018. For state tax purposes, the Company has approximately $63 million of New Jersey NOLs available to offset against future taxable income or to be sold as part of the New Jersey Transfer Program. The Company also has California and Virginia NOLs that are entirely limited due to Section 382 (as discussed below), in addition to changing state apportionment allocations, as the Company is now 100% resident in New Jersey.

During 2014, the Company completed an Internal Revenue Code Section 382 (“Section 382”) analysis in order to determine the amount of losses that are currently available for potential offset against future taxable income, if any. It was determined that the utilization of the Company’s NOL and general business tax credit carryforwards generated in tax periods up to and including December 2010 (the “December 2010 and prior NOLs”) were subject to substantial limitations under Section 382 due to ownership changes that occurred at various points from the Company’s original organization through December 2010. 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

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disposition of those shares, resulted in multiple changes in ownership, as defined by Section 382 since the Company’s formation in 1999. These ownership changes resulted in substantial limitations on the use of the Company’s NOLs and general business tax credit carryforwards up to and including December 2010. The Company continues to track all of its NOLs and tax credit carryforwards but has provided a full valuation allowance to offset those amounts.

9. Commitments and Contingencies

Commitments

The Company has an operating lease for office and laboratory space located in Bridgewater, NJ, its corporate headquarters, that terminates in November 2019. Future minimum rental payments under this lease are $3.1 million. The Company also holds a lease that expires in October 2016 for office space in Richmond, VA, the Company’s former corporate headquarters. Future minimum rental payments under this lease total approximately $0.5 million. During 2011, the Company 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 $0.2 million as of September 30, 2015. In December 2014, the Company entered into an agreement to sublet this space for the remainder of the lease term.

Rent expense charged to operations was $0.2 million and $0.4 million for the three months ended September 30, 2015 and 2014, respectively, and $0.6 million and $1.0 million for the nine months ended September 30, 2015 and 2014, respectively. Future minimum rental payments (net of sublease) required under the Company’s operating leases for the period from October 1, 2015 to December 31, 2015 and for each of the next five years are as follows (in thousands):

Year Ending December 31:

2015 (remaining)	$	303
2016	1,144
2017	741
2018	762
2019	718
2020	—
	$	3,668

On September 15, 2015, the Company entered into a Commercial Fill/Finish Services Agreement (the “Fill/Finish Agreement”) with Ajinomoto Althea, Inc., a Delaware corporation (“Althea”), for Althea to produce, on a non-exclusive basis, ARIKAYCE in finished dosage form. Under the Fill/Finish Agreement, the Company is obligated to pay a minimum of $2.7 million for the batches of ARIKAYCE produced each calendar year during the term of the Fill/Finish Agreement. The Fill/Finish Agreement is effective as of January 1, 2015, has an initial term that ends on December 31, 2017 and may be extended for additional two year periods upon mutual written agreement of the Company and Althea at least one year prior to the expiration of its then-current term.

Legal Proceedings

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

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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: failure or delay of European Medicines Agency, Health Canada, United States Food and Drug Administration and other regulatory reviews and approvals; competitive developments affecting the Company’s product candidates; delays in product development or clinical trials or other studies; patent disputes and other intellectual property developments relating to the Company’s product candidates; unexpected regulatory actions, delays or requests; the failure of clinical trials or other studies or results of clinical trials or other studies that do not meet expectations; the fact that subsequent analyses of clinical trial or study data may lead to different (including less favorable) interpretations of trial or study results or may identify important implications of a trial or study that are not reflected in Company’s prior disclosures, and the fact that trial or study results or subsequent analyses may be subject to differing interpretations by regulatory agencies; the inability to successfully develop the Company’s product candidates or receive necessary regulatory approvals; inability to make product candidates commercially successful; changes in anticipated expenses; changes in the Company’s financing requirements or ability to raise additional capital; our ability to complete development of, receive regulatory approval for, and successfully commercialize ARIKAYCE or INS1009; our estimates of expenses and future revenues and profitability; our plans to develop and market new products and the timing of these development programs; 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 property 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 risks, uncertainties and other factors, which may cause our actual results, performance and achievements and the timing of certain events to differ materially from the results, performance, achievements or timing discussed, projected, anticipated or indicated in any forward-looking statements. Such 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, 2014 filed with the Securities and Exchange Commission (SEC) on February 27, 2015 and on our subsequent quarterly reports on Form 10-Q filed in 2015. 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, 2014.

OVERVIEW

Insmed is a global biopharmaceutical company focused on the unmet needs of patients with rare diseases. Our lead product candidate is ARIKAYCE, or liposomal amikacin for inhalation (LAI), which is in late-stage development for patients with nontuberculous mycobacteria (NTM) lung disease, a rare and often chronic infection that is capable of causing irreversible lung damage and which can be fatal when left untreated. Our earlier stage pipeline includes INS1009, a nebulized prodrug formulation of treprostinil that we are developing for the treatment of pulmonary arterial hypertension (PAH), a chronic, life-threatening disorder characterized by abnormally high blood pressure in the arteries between the heart and lungs.

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We are conducting a global phase 3 clinical study of ARIKAYCE (the 212 or CONVERT study) in adult patients with NTM lung disease caused by Mycobacterium avium complex (MAC), which is the predominant infective species in NTM pulmonary disease in the U.S., Japan and Europe. In February 2015 the European Medicines Agency (EMA) validated our Marketing Authorization Application (MAA) for ARIKAYCE for NTM lung infections, as well as cystic fibrosis (CF) patients with Pseudomonas lung infections. In the third quarter of 2015, the EMA adopted our request to withdraw the Pseudomonas indication from our MAA. We will only seek approval of ARIKAYCE for the treatment of patients with refractory NTM lung infections caused by MAC. We chose to withdraw this indication after receiving a request from EMA for additional information with respect to the similarity of ARIKAYCE to the TobiPodhaler given this product’s orphan designation. While it is our view that ARIKAYCE is not similar to the TobiPodhaler, a comprehensive response to the EMA’s request would require us to divert significant resources from and potentially delay the regulatory advancement of the NTM indication. Given the significant need for approved medications for patients with NTM lung disease, we concluded the most appropriate near-term course of action for ARIKAYCE was to focus exclusively on advancing the regulatory review process for the NTM indication.

We recently submitted an Investigational New Drug application (IND) for INS1009 and expect to begin a phase 1 study in healthy subjects later this year. In addition to INS1009 our research team is evaluating other preclinical projects including additional formulations of treprostinil for use in a metered dose inhaler or delivered via subcutaneous injection. To complement our internal research, we are evaluating in-licensing and acquisition opportunities for a broad range of rare diseases.

The following table summarizes the current status of ARIKAYCE and INS1009 development:

Product Candidate/Target

Indications

Status

Next Expected Milestones

ARIKAYCE for patients with refractory nontuberculous mycobacteria (NTM) lung infections caused by MAC

· We are advancing the CONVERT study, which is designed to confirm the culture conversion results seen in our phase 2 clinical trial. The CONVERT study is investigating ARIKAYCE in adult non-CF patients with NTM lung infections caused by MAC that are refractory to treatment.

· In February 2015 the EMA validated our MAA for ARIKAYCE. We have received the EMA’s 120-day questions and are preparing our responses.

· We reported top-line clinical results from our phase 2 clinical trial in which ARIKAYCE did not meet the pre-specified level for statistical significance with respect to the primary endpoint, but demonstrated clearance of the infecting mycobacterial organism in the sputum with regard to the secondary endpoint of NTM culture conversion to negative.

· The FDA has designated ARIKAYCE as an orphan drug, a breakthrough therapy, and a qualified infectious disease product (QIDP) for NTM lung disease. Breakthrough therapy features intensive guidance on efficient drug development and allows for a rolling review. An application for a QIDP designated product is eligible for priority review.

· The Committee for Orphan Medicinal Products of the EMA has issued a

· We expect to complete enrollment in the CONVERT study in approximately eighteen to twenty-four months from the initiation of the trial.

· We anticipate responding to the EMA’s 120-day questions before the end of 2015.

· If approved, we expect ARIKAYCE would be the first approved inhaled antibiotic treatment specifically indicated for NTM lung infections in the U.S., Europe and Canada.

· We are developing plans to commercialize ARIKAYCE, if approved, in certain countries in Europe and in the U.S., and eventually Canada, Japan and certain other countries.

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	positive opinion for orphan designation for ARIKAYCE.

INS1009 (nebulized treprostinil prodrug) for pulmonary arterial hypertension (PAH)	· We recently submitted an IND to the FDA and plan to begin a phase 1 study of INS1009.	· We expect to commence a phase 1 single ascending dose study of INS1009 in healthy subjects in the fourth quarter of 2015.

Product Pipeline

ARIKAYCE

Our lead product candidate is ARIKAYCE, or LAI, a novel, once-daily formulation of amikacin that is in late-stage clinical development for patients with NTM lung infections, a rare and often chronic infection that is capable of causing irreversible lung damage and which can be fatal when left untreated. Amikacin solution for parenteral administration is an established drug that is effective against a variety of NTM; however, its use is limited by the need to administer it intravenously and by toxicity to hearing, balance, and kidney function (Peloquin et al., 2004). Our advanced pulmonary liposome technology uses charge-neutral liposomes to deliver amikacin directly to the lung where it is taken up by the lung macrophages where the NTM infection resides. This prolongs the release of amikacin in the lungs while minimizing systemic exposure thereby offering the potential for decreased systemic toxicities. ARIKAYCE is administered once-daily using an optimized, investigational eFlow® Nebulizer System manufactured by PARI Pharma GmbH, a novel, highly efficient and portable aerosol delivery system.

The CONVERT study

ARIKAYCE is currently being evaluated in a phase 3 randomized, open-label, global clinical study designed to confirm the culture conversion results seen in our phase 2 clinical trial. This phase 3 study, which is known as the CONVERT (or 212) study, is enrolling non-CF patients 18 years and older with a NTM lung infection caused by MAC that is refractory to a stable multi-drug regimen for at least six months with treatment either ongoing or completed within 12 months of screening. This subgroup of patients responded particularly well to treatment with ARIKAYCE in our completed phase 2 study. We believe this clinical trial will confirm the culture conversions seen in the phase 2 study and provide the basis for submitting a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA). After a screening period of approximately 10 weeks, eligible subjects will be randomized 2:1 to once-daily ARIKAYCE plus a multi-drug regimen or a multi-drug regimen alone. The primary efficacy endpoint is the proportion of patients who achieve culture conversion at month 6 (defined as 3 consecutive negative sputum cultures collected monthly) in the ARIKAYCE plus multi-drug regimen arm compared to the arm in which patients receive a multi-drug regimen alone. Key secondary and exploratory endpoints include the change from baseline in the six-minute walk test; comprehensive pharmacokinetic sampling conducted in lieu of a separate local pharmacokinetic study in Japanese patients; and off-treatment assessments to evaluate durability of effect.

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At month 8, after all sputum culture results are known up to and including month 6, patients will be assessed as converters or non-converters for the primary efficacy endpoint. A converter is defined as a patient with three consecutive monthly sputum samples at month 6 that test negative for the presence of MAC NTM bacteria. All non-converters in the study will be eligible to enter a separate open-label study known as the INS-312 study. All converters will continue on their randomized treatment regimen for 12 months beginning from the first negative culture that defined culture conversion. All converters will return for off-treatment follow-up visits. A 12 months off-treatment study visit will be the last study visit for the CONVERT study.

The protocol for the CONVERT study incorporates feedback from the FDA and the EMA via its scientific advice working party process, as well as local health authorities, including Japan’s Pharmaceuticals and Medical Devices Agency, and was approved in the U.S. by a central Institutional Review Board (IRB). We initiated the global trial in early 2015 and expect to complete enrollment in approximately eighteen to twenty-four months from the initiation of the trial. If the CONVERT study meets the primary endpoint of culture conversion at month 6, we believe we would be eligible to submit an NDA pursuant to 21 CFR 314 Subpart H (Accelerated Approval of New Drugs for Serious or Life-Threatening Illnesses), which permits FDA to approve a drug based on a “surrogate endpoint” provided the sponsor commits to study the drug further to verify and describe the drug’s clinical benefit. We believe that efficacy data from the CONVERT study after month 6 will suffice to meet this commitment. We expect to conduct CONVERT at over 100 sites in the United States, Europe, Australia, Asia and Canada. The CONVERT study is designed to enroll enough subjects to ensure at least 261 patients are evaluable for the primary endpoint at month 6.

Phase 2 study (112 study)

Our completed phase 2 study, which is also known as the 112 study, was a randomized, double-blind, placebo-controlled study that evaluated the efficacy and safety of ARIKAYCE in adults with NTM lung disease due to MAC or Mycobacterium abscessus ( M abscessus ) that was refractory to guideline-based therapy. The study included an 84-day double-blind phase in which patients were randomized 1:1 either to ARIKAYCE once-daily plus a multi-drug regimen or to placebo once-daily plus a multi-drug regimen. After completing the 84-day double-blind phase, patients had the option of continuing in an 84-day open-label phase during which all patients received ARIKAYCE plus a multi-drug regimen. The study also included 28-day and 12-month off-ARIKAYCE follow-up assessments to evaluate safety and durability of effect.

Eighty-nine patients were randomized and dosed in the study. Of the 80 patients who completed the 84-day study, 78 patients elected to continue in the open-label phase and received ARIKAYCE plus a multi-drug regimen for an additional 84 days. Seventy-six (76) percent (59/78) of patients who elected to continue in the open-label phase of the study completed the open-label study.

The primary efficacy endpoint of the study was a semi-quantitative measurement of the change in mycobacterial density on a seven-point scale from baseline (day 1) to the end of the randomized portion of the trial (day 84). ARIKAYCE did not meet the pre-specified level for statistical significance although there was a positive trend (p=0.148) in favor of ARIKAYCE. The p-value for the key secondary endpoint of culture conversion to negative at Day 84 was 0.01, in favor of ARIKAYCE.

After establishing the primary endpoint for the phase 3 CONVERT study, we explored the microbiologic outcomes from the 112 study using the more stringent definition of culture conversion, which is defined as at least three consecutive monthly sputum samples that test negative for NTM bacteria. This definition of culture conversion is commonly used in clinical practice. The preliminary results of these analyses are summarized below:

· Twenty patients who received ARIKAYCE in the 112 study achieved culture conversion status during the 168-day treatment phase of the study.

· Three additional patients achieved culture conversion by the 28-day off-ARIKAYCE follow-up assessment.

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Seventeen of the total 23 patients who achieved culture conversion during the study attended their 12-month off-ARIKAYCE follow-up visit. The NTM sputum culture results for these 17 patients are as follows:

· Eleven patients remained culture negative; nine of these patients were non-CF MAC and 2 were CF M. abscessus at the time of study entry.

· Three non-CF MAC patients could not produce sputum despite reasonable attempts.

· Two non-CF MAC patients were broth culture positive only, which may represent contamination (a false positive) or a new infection rather than a relapse.

· One non-CF M. abscessus patient was also broth culture positive only.

In contrast, of the patients who did not achieve culture conversion:

· Twenty eight patients provided sputum at the 12-month follow up visit, of which 6 patients had a negative culture.

· One patient could not produce sputum.

Eligibility for the 112 study required patients to have been on the American Thoracic Society/Infectious Disease Society of America (ATS/IDSA) guideline therapy for at least six months prior to screening and to have had persistently positive mycobacterial cultures.

During the double-blind phase, the majority of the patients in both treatment groups experienced at least one treatment-emergent adverse event (TEAE). All of the most common TEAEs, except diarrhea, occurred more frequently in the ARIKAYCE group than in the placebo group. Renal TEAEs were reported infrequently. Audiovestibular TEAEs were reported in similar proportions of patients in the two treatment groups in the double-blind phase and were reported infrequently in the open-label phase. TEAEs considered related by the investigator were reported more frequently in the ARIKAYCE group than in the placebo group in the double-blind phase (ARIKAYCE: 72.7%, placebo: 37.8%). However, in the open-label phase, the overall incidence of treatment-related adverse events was lower in the ARIKAYCE group than in the placebo group (ARIKAYCE: 48.6%, placebo: 60.5%).

One patient died during the double-blind phase of pneumonia and acute respiratory distress syndrome and one patient died during the open-label phase of multi-organ failure, intestinal ischemia, and urosepsis. None of the events in either patient were considered to be related to the study drug by the investigator. In the double-blind phase, serious adverse events were reported for a greater proportion of patients in the ARIKAYCE group than in the placebo group (18.2% versus 8.9%, respectively). In the double-blind phase, a greater proportion of patients in the ARIKAYCE treatment group than in the placebo group reported adverse events leading to study drug discontinuation (ARIKAYCE: 18.2%; placebo: 0%). The most commonly reported TEAEs leading to study drug discontinuation in the ARIKAYCE group were infective exacerbation of bronchiectasis (6.8%) and dyspnea (4.5%). The incidence of adverse events leading to discontinuation did not increase in the ARIKAYCE group with longer exposure to the study drug in the open-label phase compared with the double-blind phase (17.1% and 18.2%, respectively). In the open-label phase, 27.9% of patients in the placebo group reported adverse events leading to study drug discontinuation.

No clinically significant changes in laboratory values, vital signs, BMI, and pulmonary function tests were observed over the course of the study. The results discussed above are preliminary findings based on currently available data.

MAA for NTM

In the fourth quarter of 2014, we filed an MAA with the EMA seeking approval of ARIKAYCE for the treatment of NTM lung infections, as well as Pseudomonas lung infections in CF patients. The EMA’s review of the MAA is ongoing. We have received the EMA’s 120-day questions and we anticipate responding before the end of 2015. In the third quarter of 2015, the EMA adopted our request to withdraw the Pseudomonas indication from our MAA. We will only seek approval of ARIKAYCE for the treatment of patients with refractory NTM lung infections caused by MAC. We chose to withdraw this indication after receiving a request from EMA for additional information with respect to the similarity of ARIKAYCE to the TobiPodhaler given this product’s orphan designation. While it is our view that ARIKAYCE is not similar to the TobiPodhaler, a comprehensive response to the EMA’s request would require us to divert significant resources from and potentially delay the regulatory advancement of the NTM indication. Given the significant need for approved medications for patients with NTM lung disease, we concluded the most appropriate near-term course of action for ARIKAYCE was to focus exclusively on advancing the regulatory review process for the NTM indication.

NTM Market Opportunity

NTM is a rare and serious disorder associated with increased morbidity and mortality. There is an increasing rate of lung disease caused by NTM and this is an emerging public health concern worldwide. Patients with NTM lung disease may experience a multitude of symptoms such as fever, weight loss, cough, lack of appetite, night sweats, blood in the sputum, and lethargy. Patients with NTM lung disease frequently require lengthy hospital stays to manage their condition. There are no products specifically

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indicated for the treatment of NTM lung disease in the U.S., Europe and Canada. Current guideline-based approaches involve multi-drug regimens that may cause severe side effects and treatment can be as long as two years or more.

The prevalence of human disease attributable to NTM has increased over the past two decades. In a decade-long study (1997-2007), researchers found that the prevalence of NTM in the U.S. is increasing at approximately 8% per year and that those Medicare part B NTM patients over the age of 65 are 40% more likely to die over the period of the study than those who did not have the disease (Adjemian et al., 2012). A 2015 publication from co-authors from several US government departments stated that prior year statistics led to a projected 181,037 national annual cases in 2014 costing the US healthcare system approximately $1.7 billion (Strollo et al., 2015).

Our market research indicates that there are approximately 100,000 patients in the U.S., the EU5 (France, Germany, Italy, Spain and the United Kingdom), and Japan who have a confirmed diagnosis of NTM lung disease, of which an estimated 30 percent are refractory to current treatments. In 2012, in collaboration with the NIH, we funded a study performed by Clarity Pharma Research that showed there were an estimated 50,000 cases of pulmonary disease attributable to NTM in the U.S. in 2011 and that such cases were estimated to be growing at a rate of 10% per year. NTM is four to five times more prevalent than tuberculosis (TB) in the U.S. (Incidence of TB from Center for Disease Control and Prevention Morbidity and Mortality Weekly Report, March 2012). In 2013, we engaged Clarity Pharma Research to perform a similar chart audit study of NTM in Europe and Japan. Based on results of this study, researchers estimated that there are approximately 20,000 cases of pulmonary disease attributable to NTM within the EU5 and a total of approximately 30,000 in the 28 countries comprising the EU. In addition, there are nearly 32,000 cases in Japan. Although population-based data on the epidemiology of NTM infections in Europe are limited, consistent with U.S. prevalence trends, recent published studies concur that prevalence in Europe is increasing and, according to a study published in the Japanese journal Kekkaku in 2011, Japan has one of the world’s highest NTM disease rates.

NTM currently includes over 150 species. MAC is the predominant pathogenic species in NTM pulmonary disease in the U.S., Japan and Europe, followed by M. abscessus . Thus far, we have studied ARIKAYCE in two of the most common pathogenic species, MAC and M. abscessus.

We are studying the economic and societal implications of NTM lung infections. We have conducted a burden of illness study in the U.S. with a major medical benefits provider. This study showed that patients with NTM lung infections are costly to healthcare plans and ATS/IDSA guideline-based treatment results in healthcare savings as opposed to suboptimal treatment.

In partnership with one of the nation’s largest Medicare insurance providers, we recently presented the results of three claims-based studies.

· At the Interscience Conference of Antimicrobial Agents and Chemotherapy in September 2015 researchers reported a 36.1% increase (p<0.001) in the incidence of NTM infections between 2008 and 2013 with the greatest incidence (56.3%) for those members 65 to 74 years of age. Following diagnosis with NTM infection, over 50% of members were still in the plan after six years (Abraham et al.).

· At Infectious Disease Week in October 2015 researchers reported that patients with NTM are using significantly greater healthcare resources in the period preceding their diagnosis. Ordering mycobacterial testing of sputum earlier may help in preventing or delaying a diagnosis (Holt et al.).

· At the Academy of Managed Care Pharmacy conference in October 2015, researchers reported significantly higher resource utilization and cost patterns for patients with NTM lung infections than their matched controls both pre- and post-diagnosis. Patients who received optimal treatment based on the 2007 ATS/IDSA guidelines showed lower healthcare resource utilization and total medical costs than patients who received suboptimal treatment. These data suggest that healthcare plans should consider mechanisms to identify and appropriately treat patients with NTM lung disease (Abraham et al.).

We plan to repeat this type of research globally in support of our overall disease awareness and education efforts.

The FDA has designated ARIKAYCE as an orphan drug, a breakthrough therapy, and a qualified infectious disease product (QIDP) for NTM lung disease. Orphan designation features seven years of post-approval market exclusivity and QIDP features five years of post-approval exclusivity. In addition, an NDA for a QIDP designated product is also eligible for priority review designation

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by FDA. A priority review designation means FDA’s goal is to take action on the NDA within six months of FDA’s accepting the application as filed compared to 10 months under a standard review.

INS1009

INS1009 is an investigational sustained-release nebulized treprostinil prodrug that has the potential to address certain of the current limitations of existing inhaled prostanoid therapies in PAH. We believe that INS1009 may prolong duration of effect and may provide greater consistency in pulmonary arterial pressure reduction over time. Current inhaled prostanoid therapies must be dosed four to nine times per day. Reducing dose frequency therefore has the potential to ease patient burden and to positively impact compliance. Additionally, we believe that INS1009 over time may reduce side effects, including elevated heart rate, low blood pressure, and severity and/or frequency of cough, associated with high initial drug levels and local upper airway exposure when using current inhaled prostanoid therapies. In addition to INS1009, our research team is evaluating other preclinical projects including additional formulations of treprostinil for use in a metered dose inhaler or delivered via subcutaneous injection.

In late 2014, we had a pre-investigational new drug (pre-IND) meeting with the FDA for INS1009 and clarified that, subject to final review of the preclinical data, INS1009 could be eligible for an approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act (FDCA) (“505(b)(2) approval”). Like a traditional NDA that is submitted under Section 505(b)(1) of the FDCA, a 505(b)(2) NDA must include full safety and effectiveness reports, but unlike a traditional NDA the applicant may rely at least in part on studies not conducted by or for the applicant. The ability to rely on existing data to support safety and/or effectiveness can reduce the time and cost associated with traditional NDAs. We recently submitted an IND application and plan to commence a phase 1 trial before the end of 2015.

Market Opportunity

There is no cure for PAH. PAH is a serious, progressive rare disease affecting approximately 100,000 patients globally, including approximately 25,000 treated patients in the United States (Yang et al., 2006 ; Peacock et al. 2007; and Humbert et al. 2006). PAH ultimately leads to heart failure and the disease has a 15% one-year mortality rate (Kane et al., 2011). Several medications are used to treat PAH:

· Non-specific treatments such as anticoagulants, diuretics, and oxygen may be used. These drugs are not specifically approved for the treatment of PAH, but are commonly utilized. In specific circumstances, drugs such as digoxin or calcium channel blockers may also be used to treat PAH.

· Several drugs are approved specifically for the treatment of PAH. These drugs address three target pathophysiologic pathways: the endothelin pathway; the nitric oxide pathway; and the prostacyclin pathway. They may be used alone or in combination.

The long term outcomes of medically treated patients remain uncertain, and transplantation remains an option for patients who fail on drug therapy. Prostanoid formulations used to treat PAH include intravenous epoprostenol (prostacyclin), intravenous treprostinil (a prostacyclin analog), subcutaneous treprostinil, inhaled treprostinil, oral treprostinil and inhaled iloprost. All prostanoid compounds have the limitation of a short half-life in the body, including treprostinil.

For subcutaneous or intravenous administered treprostinil, continuous infusion is required and patients often experience injection site pain and increased risk of infection, respectively. Oral and inhaled forms of treprostinil require multiple dosing sessions per day with high and low cycling in blood levels. The initial high levels of drug and the local delivery of the drug may cause tolerability issues (cough, laryngeal irritation, emesis, hypotension and headache) and at the subsequent low levels of drug there may be reduced therapeutic benefit, especially in the overnight hours.

Our Strategy

Our strategy is to focus on the needs of patients with rare diseases. We are currently focused on the development and commercialization of ARIKAYCE, or LAI. There are currently no products indicated to treat NTM lung disease in North America or Europe. While we believe that ARIKAYCE has the potential to treat many different diseases, our initial focus is on securing regulatory approval and commercialization preparation for ARIKAYCE in NTM lung disease. Our earlier stage pipeline includes INS1009, a prodrug formulation of treprostinil.

Our current priorities are as follows:

· Continue conducting clinical trials to generate additional data supporting the safety and effectiveness of ARIKAYCE for the treatment of patients with NTM lung disease;

· Actively pursue approvals of ARIKAYCE to treat NTM lung disease through the submission of country-specific marketing authorizations to applicable regulatory bodies in the U.S., Europe, Canada, Japan and certain other countries;

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· Expand our product supply chain in support of clinical development and if approved, commercialization;

· Prepare for commercial launch of ARIKAYCE in Europe and the U.S., and eventually Canada, Japan and certain other countries;

· Advance the clinical development of INS1009, our nebulized treprostinil prodrug for PAH;

· Attempt to develop, acquire, in-license or co-promote promising late stage or commercial products that we believe are complementary to ARIKAYCE and our core competencies; and

· Continue to develop novel formulations of existing therapies, where such reformulation could materially improve the treatment paradigm for the underlying disease or enable pursuit of new indications.

Corporate Development

We also plan to develop, acquire, in-license or co-promote other products that address rare diseases. We are focused broadly on rare disease therapeutics and prioritizing those areas that best align with our core competencies and current therapeutic focus in the fields of pulmonology and infectious disease. Our current primary development focus is to obtain regulatory approval for ARIKAYCE in the EU, complete our global phase 3 CONVERT study, and prepare for commercialization, assuming regulatory approval in Europe, the U.S., Canada, Japan and certain other countries. We intend to file a New Drug Submission (NDS) application with Health Canada after we have approval for ARIKAYCE in the U.S. We anticipate that, if approved, ARIKAYCE would be the first once-a-day inhaled antibiotic treatment option available for the NTM indication in North America and Europe.

Manufacturing

We currently manufacture ARIKAYCE at Ajinimoto Althea (Althea) in the U.S. and increased the scale of manufacturing at this location during the last 12 months. In February 2014, we entered into a contract manufacturing agreement with Therapure Biopharma Inc. (Therapure) for the manufacture of ARIKAYCE at the larger scales necessary to support commercialization. We expect this location to be fully operational by the end of 2015. We have also identified certain second source suppliers for our supply chain, and plan to implement supply and quality agreements in preparation for commercialization of ARIKAYCE. In July 2014, we entered into a commercialization agreement with PARI Pharma GmbH (PARI), the manufacturer of our drug delivery nebulizer, to address our commercial supply needs. We recently filed an IND with the FDA for INS1009, our investigational nebulized treprostinil prodrug for use in the treatment of PAH, and plan to manufacture INS1009 at third party locations.

KEY COMPONENTS OF OUR STATEMENT OF OPERATIONS

Revenues

We currently do not recognize any revenue from product sales or other sources.

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 candidates 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 candidates for clinical study are primarily related to activities at contract manufacturing organizations that manufacture ARIKAYCE and INS1009 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 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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Since 2011, we have focused our development activities principally on our proprietary, advanced liposomal technology designed specifically for inhalation lung delivery. In 2013, we completed a phase 3 trial in Europe and Canada in which we evaluated ARIKAYCE in CF patients with Pseudomonas lung infections. In 2014, we completed a phase 2 clinical trial in the U.S. and Canada of ARIKAYCE in patients with NTM lung disease. In 2015, we commenced a global phase 3 trial for ARIKAYCE for patients with NTM lung disease. In 2015 we also completed an open label extension study in which CF patients that completed our phase 3 trial received ARIKAYCE for a period of two years. The majority of our research and development expenses have been for our ARIKAYCE development programs. Our development efforts in 2015 principally relate to the development of ARIKAYCE in the NTM indication and, to a lesser extent, for INS1009 for PAH.

Our clinical trials 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

· 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 flow 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, pre-commercial, corporate development, information technology, program management 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 preparation for commercialization activities for our product candidates, specifically in Europe.

Debt Issuance Costs

Debt issuance costs are amortized to interest expense using the effective interest rate method over the term of the debt. Our balance sheet reflects debt net of debt issuance costs paid to the lender and reflects debt issuance costs paid to other third parties as other assets.

Investment Income and Interest Expense

Investment income consists of interest and dividend income earned on our cash and cash equivalents. Interest expense consists primarily of interest costs related to our debt.

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2015 and 2014

Net Loss

Net loss for the quarter ended September 30, 2015 was $31.0 million, or ($0.50) per common share—basic and diluted, compared with a net loss of $24.0 million, or ($0.54) per common share—basic and diluted, for the quarter ended September 30, 2014. The $7.0 million increase in our net loss for the quarter ended September 30, 2015 as compared to the same period in 2014 was primarily due to:

· Increased research and development expenses of $4.0 million primarily resulting from an increase in clinical trial expenses related to the ARIKAYCE phase 3 CONVERT study and expenses related to research activities for INS1009, our treprostinil prodrug candidate for PAH; and

· Increased general and administrative expenses of $2.8 million primarily resulting from an increase in pre-commercial activities in Europe and an increase in noncash stock-based compensation as compared to the prior year period.

Research and Development Expenses

Research and development expenses for the quarters ended September 30, 2015 and 2014 were comprised of the following:

	Quarters Ended September 30,				Increase (decrease)
	2015		2014		$			%
External Expenses
Clinical development & research	$	6,515	$	3,226	$	3,289		102.0	%
Manufacturing	5,713		4,706		1,007			21.4	%
Regulatory and quality assurance	956		1,245		(289		)	-23.2	%
Subtotal—external expenses	$	13,184	$	9,177	$	4,007		43.7	%
Internal Expenses
Compensation and related expenses	$	4,464	$	4,687	$	(223	)	-4.8	%
Other internal operating expenses	1,573		1,336		237			17.7	%
Subtotal—internal expenses	$	6,037	$	6,023	$	14		0.2	%
Total	$	19,221	$	15,200	$	4,021		26.5	%

Research and development expenses increased to $19.2 million during the quarter ended September 30, 2015 from $15.2 million in the same period in 2014. The $4.0 million increase was primarily due to a $3.3 million increase in external clinical development and research expenses related to the ARIKAYCE phase 3 CONVERT study and expenses pertaining to research activities for INS1009. We expect research and development expenses to increase in 2015 as compared to 2014 due primarily to the clinical trial activity related to the ARIKAYCE phase 3 CONVERT study and also for research expenses related to the INS1009 program.

General and Administrative Expenses

General and administrative expenses for the quarters ended September 30, 2015 and 2014 were comprised of the following:

	Quarters Ended September 30,				Increase (decrease)
	2015		2014		$		%
General & administrative	$	7,508	$	6,489	$	1,019	15.7	%
Pre-commercial expenses	3,516		1,715		1,801		105.0	%
Total general & administrative expenses	$	11,024	$	8,204	$	2,820	34.4	%

General and administrative expenses increased to $11.0 million during the quarter ended September 30, 2015 from $8.2 million in the same period in 2014. The $2.8 million increase was primarily due to pre-commercial expenses related to the build out of our European operations and an increase in noncash stock-based compensation expense. We expect general and administrative expenses to increase in 2015 as compared to 2014 due, in part, to an increase in expenditures related to pre-commercial activities in certain European markets.

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Interest Expense

Interest expense was $0.7 million during the quarter ended September 30, 2015 as compared to $0.6 million in the same period in 2014. The $0.1 million increase in interest expense in 2015 relates to an increase in our borrowings from Hercules. In December 2014, we entered into a third amendment to the Loan and Security Agreement with Hercules which increased our borrowings $5.0 million to a total of $25.0 million.

Comparison of the Nine Months Ended September 30, 2015 and 2014

Net Loss

Net loss for the nine months ended September 30, 2015 was $86.9 million, or ($1.51) per common share—basic and diluted, compared with a net loss of $61.5 million, or ($1.50) per common share—basic and diluted, for the nine months ended September 30, 2014. The $25.4 million increase in our net loss for the nine months ended September 30, 2015 as compared to the same period in 2014 was primarily due to:

· Increased research and development expenses of $13.1 million primarily resulting from an increase in clinical trial expenses related to the ARIKAYCE phase 3 CONVERT study and expenses related to research activities for INS1009; and

· Increased general and administrative expenses of $7.5 million resulting from an increase in compensation expenses, including an increase in noncash stock-based compensation related to the vesting of certain performance-based stock options, an increase in pre-commercial expenses in Europe and fees and expenses related to the build-out of our European operations and global tax infrastructure.

In addition, the nine months ended September 30, 2014 included a $4.4 million benefit from income taxes resulting from the sale of a portion of our New Jersey State NOLs under the State of New Jersey’s Technology Business Tax Certificate Transfer Program for cash, net of commissions. The reason for the decrease in tax benefit in 2015 was due to timing, as we recognized the full tax benefits of the 2014 sales of NOLs in calendar year 2014, while the 2013 sales of NOLs were recognized in the first quarter of 2014.

Research and Development Expenses

Research and development expenses for the nine months ended September 30, 2015 and 2014 were comprised of the following:

	Nine Months Ended September 30,				Increase (decrease)
	2015		2014		$			%
External Expenses
Clinical development & research	$	18,393	$	8,705	$	9,688		111.3	%
Manufacturing	16,141		12,255		3,886			31.7	%
Regulatory and quality assurance	1,897		3,763		(1,866		)	-49.6	%
Subtotal—external expenses	$	36,431	$	24,723	$	11,708		47.4	%
Internal Expenses
Compensation and related expenses	$	13,795	$	13,131	$	664		5.1	%
Other internal operating expenses	4,405		3,639		766			21.1	%
Subtotal—internal expenses	$	18,200	$	16,770	$	1,430		8.5	%
Total	$	54,631	$	41,493	$	13,138		31.7	%

Research and development expenses increased to $54.6 million during the nine months ended September 30, 2015 from $41.5 million in the same period in 2014. The $13.1 million increase was primarily due to a $9.7 million increase in external clinical development and research expenses related to the ARIKAYCE phase 3 CONVERT study and expenses related to research activities for INS1009. In addition manufacturing expenses increased $3.9 million primarily due to an increase in production related to our clinical and research programs. We expect research and development expenses to increase in 2015 as compared to 2014 due primarily to the clinical trial activity related to the ARIKAYCE phase 3 CONVERT study and also for research expenses related to the INS1009 program.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2015 and 2014 were comprised of the following:

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	Nine Months Ended September 30,				Increase (decrease)
	2015		2014		$		%
General & administrative	$	22,840	$	17,096	$	5,744	33.6	%
Pre-commercial expenses	7,432		5,710		1,722		30.2	%
Total general & administrative expenses	$	30,272	$	22,806	$	7,466	32.7	%

General and administrative expenses increased to $30.3 million during the nine months ended September 30, 2015 from $22.8 million in the same period in 2014. The $7.5 million increase was primarily due to higher compensation related expenses due to an increase in headcount, a $1.5 million increase in noncash stock-based compensation expense related to certain performance based stock options as the recognition criteria was met upon the MAA for ARIKAYCE being accepted for filing by the EMA in February 2015, an increase in pre-commercial expenses in Europe and fees and expenses related to the build-out of our European operations and global tax infrastructure. These increases were partially offset by a decrease in pre-commercial spend in the U.S. We expect general and administrative expenses to increase in 2015 as compared to 2014 due, in part, to an increase in expenditures related to pre-commercial activities in certain European markets.

Interest Expense

Interest expense was $2.2 million during the nine months ended September 30, 2015 as compared to $1.8 million in the same period in 2014. The $0.4 million increase in interest expense in 2015 relates to an increase in our borrowings from Hercules. In December 2014, we entered into a third amendment to the Loan and Security Agreement with Hercules which increased our borrowings $5.0 million to a total of $25.0 million.

Benefit from Income Taxes

The benefit for income taxes was $0 and $4.4 million for the nine months ended September 30, 2015 and 2014, respectively. The benefit for income taxes recorded for the nine months ended September 30, 2014 solely reflects the reversal of a valuation allowance previously recorded against our New Jersey State net operating losses (NOLs) that resulted from the sale of a portion of our New Jersey State NOLs under the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) for cash of $4.4 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 reason for the decrease in tax benefit in 2015 was due to timing, as we recognized the full tax benefits of the 2014 sales of NOLs in calendar year 2014, while the 2013 sales of NOLs were recognized in the first quarter of 2014.

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 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 research and development activities and commercial launch activities, and we do not expect material revenues for at least the next two years.

We believe we currently have sufficient funds to meet our financial needs for at least the next twelve months. We may opportunistically raise additional capital and may do so 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 other technologies, to commercialize our product candidates or to purchase other products. 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. During the remainder of 2015 and in 2016, we plan to continue to fund further clinical development of ARIKAYCE and INS1009, support efforts to obtain regulatory approvals and prepare for commercialization in certain European countries. Our cash requirements in 2015 and 2016 will be impacted by a number of factors, the most significant of which, being the enrollment rates and other expenses related to the CONVERT study.

On April 6, 2015, we completed an underwritten public offering of 11.5 million shares of our common stock, which included the underwriter’s exercise in full of its over-allotment option of 1.5 million shares, at a price to the public of $20.65 per share. Our net proceeds from the sale of the shares, after deducting the underwriter’s discount and offering expenses of $14.5 million, were $222.9 million.

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Cash Flows

As of September 30, 2015, we had total cash and cash equivalents of $311.0 million, as compared with $159.2 million as of December 31, 2014. The $151.7 million increase was due primarily to net proceeds received from the issuance of 11.5 million shares of our common stock in April 2015 offset by the use of cash in operating activities. Our working capital was $272.6 million as of September 30, 2015.

Net cash used in operating activities was $73.2 million and $51.5 million for the nine months ended September 30, 2015 and 2014, respectively. The net cash used in operating activities during 2015 and 2014 was primarily for the clinical, regulatory and pre-commercial activities related to ARIKAYCE.

Net cash used in investing activities was $3.0 million and $3.8 million for the nine months ended September 30, 2015 and 2014, respectively. The net cash used in investing activities during 2015 was primarily related to payments for the build out of our headquarters and lab facility in Bridgewater, New Jersey, as well as investments in an enterprise resource planning system.

Net cash provided by financing activities was $227.9 million and $108.7 million for the nine months ended September 30, 2015 and 2014, respectively. Net cash provided by financing activities in 2015 included net proceeds of $222.9 million received from the issuance of 11.5 million common shares in April 2015 and proceeds of $5.0 million received from stock option exercises. Net cash provided by financing activities in 2014 included $108.0 million from the issuance of common stock and cash received from stock option exercises.

Contractual Obligations

On June 29, 2012, we and our domestic subsidiaries, as co-borrowers, entered into a Loan and Security Agreement with Hercules that allowed us to borrow up $20.0 million (“Loan Agreement”) at an interest rate of 9.25%. On December 15, 2014, we entered into a third amendment (the “Third Amendment”) to the Loan Agreement with Hercules. In connection with the Third Amendment, we paid a commitment fee of $25,000, and at the closing, paid a facility fee of $125,000. Under the Third Amendment, the amount of borrowings was increased by $5.0 million to a total of $25.0 million and the interest-only period was extended through December 31, 2015. In addition, in the event we receive at least $90.0 million in cash proceeds from the completion of certain types of equity financings, subordinated debt financings, and/or up-front cash payments from corporate transactions prior to December 31, 2015, we have the option to extend the maturity date of the loan to January 1, 2018. If we elect to exercise the option, we are required to pay Hercules a $250,000 fee. We completed an equity financing in April 2015 of $222.9 million which qualifies as a financing event under the Loan Agreement.

We have an operating lease for office and laboratory space located in Bridgewater, NJ, our corporate headquarters, that expires in November 2019. Future minimum rental payments under this lease total approximately $3.1 million. We hold a lease that expires in October 2016 for office space in Richmond, VA, the site of our former corporate headquarters. Future minimum rental payments under this lease total approximately $0.5 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. In December 2014, we entered into an agreement to sublet this space for the remainder of the lease term. We expect to collect proceeds from the sublease in the amount of $0.3 million over the remaining term of the lease.

On September 15, 2015, we entered into a Commercial Fill/Finish Services Agreement (the “Fill/Finish Agreement”) with Ajinomoto Althea, Inc., a Delaware corporation (“Althea”), for Althea to produce, on a non-exclusive basis, ARIKAYCE in finished dosage form. Under the Fill/Finish Agreement, we are obligated to pay a minimum of $2.7 million for the batches of ARIKAYCE produced each calendar year during the term of the Fill/Finish Agreement. The Fill/Finish Agreement is effective as of January 1, 2015, has an initial term that ends on December 31, 2017 and may be extended for additional two year periods upon mutual written agreement of the Company and Althea at least one year prior to the expiration of its then-current term.

As of September 30, 2015, future payments under our long-term debt agreements, capital leases, minimum future payments under non-cancellable operating leases (net of sublease) and minimum future payment obligations are as follows:

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			As of September 30, 2015 Payments Due By Period
	Total		Less than 1 year		1 - 3 Years		4 - 5 Years		After 5 Years
	(In thousands)
Debt obligations
Debt maturities	$	25,000	$	25,000	$	—	$	—	$	—
Contractual interest	1,174		1,174		—		—		—
Capital lease obligations
Debt maturities	—		—		—		—		—
Contractual interest	—		—		—		—		—
Operating leases	3,668		1,223		1,535		910		—
Purchase obligations	5,400		2,025		3,375		—		—
Total contractual obligations	$	35,242	$	29,422	$	4,910	$	910	$	—

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

We currently have a licensing agreement with PARI for the use of the optimized eFlow Nebulizer System for delivery of ARIKAYCE in treating patients with NTM infections, CF and bronchiectasis. 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 ARIKAYCE and the device, first receipt of marketing approval in the US for ARIKAYCE and the device, and first receipt of marketing approval in a major EU country for ARIKAYCE and the device. In addition, PARI is entitled to receive royalty payments on commercial sales of ARIKAYCE pursuant to the licensing agreement. In July 2014, we entered into a Commercialization Agreement (the “PARI Agreement”) with PARI for the manufacture and supply of eFlow nebulizer systems and related accessories (the “Device”) as optimized for use with our proprietary liposomal amikacin for inhalation. The PARI Agreement has an initial term of fifteen years from the first commercial sale of the Device (the “Initial Term”). The term of the PARI Agreement may be extended by us for an additional five years by providing written notice to PARI at the least one year prior to the expiration of the Initial Term.

In 2004 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 ARIKAYCE. If ARIKAYCE 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 global sales milestones are met within 5 years of the drug commercialization, we would owe an additional $3.9 million in additional payments. Since there is significant development risk associated with ARIKAYCE, we have not accrued these obligations.

In 2009 and 2012, we entered into a cooperative research and development agreement (CRADA) with the National Institute of Allergy and Infectious Diseases (NIAID) to design and conduct our phase 2 study of ARIKAYCE 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 ARIKAYCE 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.

In February 2014, we entered into a contract manufacturing agreement with Therapure for the manufacture of ARIKAYCE at the larger scales necessary to support commercialization. Pursuant to the agreement, we are collaborating with Therapure to construct a production area for the manufacture of ARIKAYCE in Therapure’s existing manufacturing facility in Mississauga, Ontario, Canada. We expect to pay Therapure approximately $12 million for the build out of the construction area and related manufacturing costs, of which approximately $11 million has been paid as of September 30, 2015. Therapure will manufacture ARIKAYCE for us on a non-exclusive basis. The agreement has an initial term of five years from the first date on which Therapure delivers ARIKAYCE to us after we obtain permits related to the manufacture of ARIKAYCE.

In December 2014, we entered into Work Order 1 (the “Work Order”), pursuant to a Master Agreement for Services with SynteractHCR, Inc. (“Synteract”), dated as of August 27, 2014, as amended on December 23, 2014, pursuant to which we retained Synteract to perform implementation and management services in connection with certain clinical trials pursuant to a specific protocol of pharmaceutical products under development by us or under our control. Synteract is providing comprehensive services for protocol INS-212, a randomized, open-label, multicenter study of liposomal amikacin for inhalation in adult patients with NTM lung infections caused by MAC complex that are refractory to treatment. Prior to the execution of the Work Order, Synteract was providing such services pursuant to a Letter of Intent, dated August 25, 2014. The Work Order covers services related to INS-212 only and any additional study or services will be subject to the negotiation and execution of an additional work order. It is anticipated that aggregate

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costs to us relating to this Work Order will be approximately $33 million over the period of the study. In April 2015, we entered into a work order with Synteract to perform implementation and management services for protocol INS-312, a study in which all non-converters from the INS-212 study will be eligible to enter a separate open-label study.

Future Funding Requirements

We may need to raise additional capital to fund our operations, to develop and commercialize ARIKAYCE, to develop INS1009, and to develop, acquire, in-license or co-promote other products that address orphan or rare diseases. Our future capital requirements may be substantial and will depend on many factors, including:

· the timing and cost of our anticipated clinical trials of ARIKAYCE for the treatment of patients with NTM lung infections;

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

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

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

· the costs of our manufacturing-related activities;

· the costs associated with commercializing ARIKAYCE 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 April 2015, we generated net proceeds of $222.9 million from the issuance of 11.5 million shares of common stock. We believe we currently have sufficient funds to meet our financial needs for the next twelve months. 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. 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.

To date, we have not generated any revenue from ARIKAYCE. 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, ARIKAYCE.

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

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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, stock-based compensation, identifiable 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. There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014. For the required interim updates of our accounting policies see Note 2 to our Consolidated Financial Statements — “Summary of Significant Accounting Policies” in this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2015, our cash and cash equivalents were in cash accounts or were invested in money market funds. Such accounts or investments are not insured by the federal government.

As of September 30, 2015, we had $25.0 million of fixed rate borrowings that bear interest at 9.25% outstanding under a Loan and Security Agreement we entered into originally in June 2012. A hypothetical 10% change in interest rates occurring on September 30, 2015 would not have had a material effect on the fair value of our debt as of that date, nor would it have had a material effect on our future earnings or cash flows.

The majority of our business is conducted in US dollars. However, we do conduct certain transactions in other currencies, including Euros, British Pounds, and Japanese Yen. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations and during the three and nine months ended September 30, 2015 and 2014, 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 of September 30, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the periodic reports that we file or submit with the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation as of September 30, 2015, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

On September 1, 2015 we implemented an enterprise resource planning (“ERP”) system on a company-wide basis, which is expected to improve the efficiency of certain financial and related transaction processes. The implementation resulted in business and operational changes, which required changes to some of our internal controls over financial reporting that were in place as of June 30, 2015. The controls in place under the new system have been evaluated by management as of September 30, 2015 and management believes that the internal controls are operating effectively. Aside from the implementation of the ERP system, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2015 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

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. Management does not expect that the ultimate costs to resolve these matters will materially adversely affect our business, financial position, or results of operations.

ITEM 1A. RISK FACTORS

Except for the historical information in this report on Form 10-Q, 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 and 10-K/A for the year ended December 31, 2014 and our subsequent quarterly reports on Form 10-Q. 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, 2014 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2015, except for the following update:

Risks Related to Our Reliance on Third Parties

We rely on Ajinomoto Althea, Inc., a third party manufacturer, to supply ARIKAYCE. Any disruption in the supply of ARIKAYCE could have a material adverse effect on our business.

We are dependent upon Ajinomoto Althea, Inc. (“Althea”) to provide an adequate supply of ARIKAYCE both for our clinical trials and for commercial sale in the event ARIKAYCE receives marketing approval. On September 15, 2015, we entered into a Commercial Fill/Finish Services Agreement with Althea to produce ARIKAYCE. Althea has the right to terminate this agreement upon written notice for our uncured material breach, if we are the subject of specified bankruptcy or liquidation events, or without cause with 24 months’ prior written notice. In the event Althea terminates the supply agreement and ceases to supply ARIKAYCE, we cannot be certain that we would be able identify another willing supplier for ARIKAYCE on terms we require or that are favorable to us. A disruption in the supply of ARIKAYCE could delay, impair, or prevent clinical trials, the development and commercialization of ARIKAYCE and adversely affect our business, financial condition, results of operations and prospects.

Althea currently manufactures ARIKAYCE at a relatively small scale. In order to meet potential commercial demand, if ARIKAYCE is approved, we have identified Therapure in Canada as an alternate site of manufacture that operates at a larger scale. Therapure may not be able to successfully transfer the ARIKAYCE manufacturing process to their site, or we may not be able to obtain regulatory approvals for ARIKAYCE produced at Therapure’s facility. We may not be able to secure an alternative source of ARIKAYCE at an adequate scale of production.

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 September 30, 2015.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

A list of exhibits filed herewith is included on the Exhibit Index, which immediately 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: November 6, 2015	By	/s/ Andrew T. Drechsler
		Andrew T. Drechsler
		Chief Financial Officer

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EXHIBIT INDEX

10.1 Commercial Fill/Finish Services Agreement between Insmed Incorporated and Ajinomoto Althea, Inc., dated as of September 15, 2015.*

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 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.

32.1 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.

32.2 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.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

*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 Securities and Exchange Commission.

Exhibit 10.1

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN ASTERISK ***, HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

COMMERCIAL FILL/FINISH SERVICES AGREEMENT

This COMMERCIAL FILL/FINISH SERVICES AGREEMENT (the “Agreement” ) is executed on the dates set forth on the signature page, and effective as of the 1 st day of January, 2015 ( “ Effective Date ” ) by and between INSMED INCORPORATED , a Virginia corporation, with a place of business at 10 Finderne Avenue, Building 10, Bridgewater, NJ 08807 ( “Client” ), and AJINOMOTO ALTHEA, INC. , a Delaware corporation, with a place of business located at 11040 Roselle Street, San Diego, CA 92121 ( “Althea” ).

WHEREAS Client and Althea previously entered into that certain Drug Product Production and Clinical Supply Agreement dated July 8, 2009, under which Althea manufactured clinical supply of drug product for Client;

WHEREAS Althea has the expertise and the fill/finish facility suitable for the production of Client’s product known as inhaled liposomal amikacin;

WHEREAS the parties now wish for Althea to perform fill/finish services for the Production of Client Product (capitalized terms defined below);

NOW, THEREFORE , in consideration of the premises and the undertakings, terms, conditions and covenants set forth below, the parties hereto agree as follows:

1. DEFINITIONS.

1.1 “Affiliate” of a party hereto shall mean any entity that controls or is controlled by such party, or is under common control with such party. For purposes of this definition, an entity shall be deemed to control another entity if it owns or controls, directly or indirectly, at least 50% of the voting equity of another entity (or other comparable interest for an entity other than a corporation).

1.2 “Althea SOPs” shall mean Althea’s Standard Operating Procedures, which will be customized on a product specific basis, as necessary, for manufacture of Client Product.

1.3 “ Althea Supplied Components ” shall mean Components supplied by Althea or its vendors.

1.4 “ Althea Supplied Equipment ” shall mean any equipment owned by Althea at the Facility for use in the Production of the Client Product.

1.5 “Batch” shall mean a specific quantity of Client Product mutually agreed upon between Client and Althea, and that (a) is intended to have uniform character and quality within specified limits, and (b) is Produced according to a single manufacturing order during the same cycle of manufacture.

1.6 “Binding Portion” is defined in Section 3.1(a) (Binding Portion).

1.7 “ Cancellation ” is defined in Section 3.2 (Cancellation).

1.8 “Cancellation Fee” is defined in Section 3.2 (Cancellation).

1.9 “Certificate of Analysis” shall mean a certificate of analysis that certifies that a Batch meets the release Specifications.

1.10 “cGMP” shall mean current Good Manufacturing Practices as described by (i) 21 U.S.C. § 351(a)(2)(B) and in Parts 210 and 211 of Title 21 of the United States’ Code of Federal Regulations (“C.F.R”), (ii) the supplementary requirements for biologics set forth in Parts 600 to 680 of Title 21 of the C.F.R. (as applicable), (iii) the latest FDA and International Conference on Harmonization (ICH) guidance documents pertaining to manufacturing and quality control practice, Commission Directive 2003/94/EEC of 08 October 2003; and (iv) the EC Guide to Good Manufacturing Practice for Medicinal Licensed Products, in each case as applicable to Production, including corresponding guidance documents and any corresponding laws, rules or regulations of any applicable foreign jurisdiction, as each may be updated and amended from time to time provided that Althea shall have no obligation to Produce Client Product in compliance with any cGMP requirements other than (i)-(iv) above, except as expressly specified in the Quality Agreement.

1.11 “Client Product” shall mean inhaled liposomal amikacin in finished dosage form to be Produced by Althea using the Drug Substance.

1.12 “ Client Supplied Components ” shall mean Components supplied by Client or its vendors, including any Drug Substance.

1.13 “Client Supplied Equipment” shall mean any equipment owned by Client at the Facility for use in the Production of the Client Product.

1.14 “Components” shall mean all components used by Althea in Production of Client Product under this Agreement.

1.15 “Confidential Information” shall have the meaning set forth in Section 9.1.

1.16 “Defect” is defined in Section 4.1. Client Product that is subject to a Defect may be referred to herein as “ Defective ”.

1.17 “Drug Substance” shall mean the drug substance to be supplied by Client and processed into Client Product in accordance with the Quote.

1.18 “Facility” shall mean Althea’s facilities located at *** and ***.

1.19 “FDA” shall mean the United States Food and Drug Administration or any successor entity thereto.

1.20 “ Forecast ” is defined in Section 3.1 (Forecast).

1.21 “Firm Portion” is defined in Section 3.1(b) (Firm Portion).

1.22 “Invention” shall mean any creative work, invention, innovation, improvement, development, discovery, trade secret, method, know-how, process, technique or the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which contained, and whether or not patentable or copyrightable.

1.23 “Intellectual Property” shall mean all intellectual property rights, privileges and priorities provided under applicable international, national, federal, state or local law, rule, regulation, statute, ordinance, order, judgment, decree, permit, franchise, license, or other government restriction or requirement of any kind relating to intellectual property, whether registered or unregistered, in any country, including: (a) all (i) patents and patent applications (including any patent that in the future may issue in connection therewith and all divisions, continuations, continuations-in-part, extensions, additions, registrations, confirmations, reexaminations, supplementary protection certificates, renewals or reissues thereto or thereof), (ii) copyrights and copyrightable works, including reports, software, databases and related items, and (iii) trademarks, service marks, trade names, brand names, product names, corporate names, logos and trade dress, the goodwill of any business symbolized thereby, and all common-law rights relating thereto; and (b) all registrations, applications, recordings, rights of enforcement, rights of recovery based on past infringement and any and all claims of action related thereto and licenses or other similar agreements related to the foregoing.

1.24 “Labeling” shall mean all labels and other written, printed, or graphic matter upon: (i) Client Product or any container, carton, or wrapper utilized with Client Product or (ii) any written material accompanying Client Product.

1.25 “Master Batch Record” or “MBR” shall mean the document approved and mutually executed in writing by both parties, and as may be amended from time to time in accordance with this Agreement and the Quality Agreement, specifying or referencing the complete set of formal instructions agreed upon by the Parties for the Production of Client Product, including material descriptions, the formula, processing procedures, and in-process testing Specifications, Specifications and Labeling and shipping Specifications.

1.26 “Production” or “Produce” shall mean all steps and activities necessary to produce Client Product to be performed by Althea as set forth in the Quote and the MBR, including, as applicable, the complex formulation, filling, packaging, inspection, Labeling, testing, quality control and release.

1.27 “Purchase Price” shall mean the amount(s) to be paid by Client for Production of Client Product as set forth in Exhibit B.

1.28 “Quality Agreement” shall mean that particular quality agreement entered into by the parties dated December 10, 2014, as may be amended by the parties in accordance with its terms to add Production activities.

1.29 “Quote” shall mean the quotation(s) mutually executed by the parties, and made a part of this Agreement in Exhibit A describing the Production and other services to be performed hereunder, the prices therefor and the payment schedule. Each Quote shall be substantially in the form agreed in the first such Quote.

1.30 “Recall” shall mean any of the following: (a) the removal or correction of a product that an applicable Regulatory Authority considers to be in violation of the laws it administers and against which such Regulatory Authority would initiate legal action, (b) the removal or correction of a product which involves a minor violation that would not be subject to legal action by an applicable Regulatory Authority or which involves no violation, (c) removal or

correction of a product that has not been marketed distributed or released for sale or use, or (iv) some other field correction or other corrective action.

1.31 “Regulatory Authority” shall mean any agency or authority responsible for regulation of Client Product in the United States or any foreign regulatory jurisdiction in which Client has marketing authorization for the Client Product, provided that Althea shall have no obligation to Produce Client Product in compliance with the requirements of any Regulatory Authority other than the US FDA and the EU EMA, except to the extent expressly specified in the Quality Agreement.

1.32 “ Regulations ” is defined in Section 5.5(a) (Regulatory Compliance).

1.33 “ Reimbursement Value ” shall mean the actual cost paid by the Client for the applicable Client-Supplied Component(s) at the time of replacement, as evidenced by supporting documentation to be provided to Althea upon request.

1.34 “Rejects” is defined in Section 4.9.

1.35 “Released Executed Batch Record” shall mean the completed Batch record and associated deviation reports, investigation reports, and Certificates of Analysis created by Althea for each Batch of Client Product that is released by Althea, in the standard form described in the Quality Agreement.

1.36 “Specifications” shall mean the specifications for Client Product or Components, as applicable, set forth in a writing signed by both parties.

1.37 “Term” shall mean the Initial Term and any Renewal Term.

2. PRODUCTION.

2.1 Non-Exclusive . Client hereby engages Althea on a non-exclusive basis to Produce the Client Product under the terms and conditions of this Agreement. Nothing in this Agreement restricts Client from Producing the Product directly or engaging the services of any third party for the Production of Product.

2.2 Validation. All equipment, including any Client Supplied Equipment, used in Production of Client Product and the Production process shall be validated by Althea in accordance with the validation protocol(s) and timelines described in the Quality Agreement. Althea shall not use any equipment in Production of Client Product that has not been validated in accordance with this Section 2.2 (Validation).

2.3 Master Batch Record. Althea and Client shall negotiate in good faith to draft and approve in writing a mutually-signed Master Batch Record prior to commencement of Production. Any proposed change to the Master Batch Record shall be reviewed by the parties and shall not be implemented until approved in a mutually-signed writing by Althea and by Client. Althea shall Produce each Batch of Client Product in accordance with the Master Batch Record. Althea shall assign each Batch of Client Product a unique Batch number. Althea shall document any deviation(s) from the Master Batch Record that occur during Production of Client Product as required by cGMP in the Released Executed Batch Record for such Batch. Althea

shall provide Client with the Released Executed Batch Record in a form reasonably suitable for Client’s submission to the Regulatory Authorities which are specified by Client.

2.4 Quality Agreement . The parties shall comply with the terms and conditions of the Quality Agreement. If there is any conflict between the terms and conditions of the Quality Agreement and this Agreement, then the terms and conditions of this Agreement shall govern and control.

2.5 Client Supplied Components

(a) Delivery; Use of Client Supplied Components . Client shall use commercially reasonable efforts to deliver the Client Supplied Components to Althea, at Client’s sole cost and expense, in quantities sufficient to enable Althea to Produce and deliver the Client Product by the delivery set forth in the Purchase Order for such Client Product; provided, however , that Client’s non-provision or delay of Client Supplied Components, or defective Client-Supplied Components to Althea in accordance with this Section 2.5(a) (Delivery; Use of Client Supplied Components) shall not be considered a breach of this Agreement, but may result in non-delivery or delay of Client Product or defective Client Product at Client’s sole risk. Delivery of Client Supplied Components shall be made *** (INCOTERMS 2010). Althea shall store the Client Supplied Components in accordance with the requirements set forth in the Quality Agreement and the MBR. Althea shall use the Client Supplied Components only to Produce the Client Product and for no other purpose. Notwithstanding the foregoing, Althea agrees that upon prior written notice from Client, Althea shall commence commercially reasonable efforts to source the Components then supplied by Client (other than Drug Substance) and specified in the notice, and the parties shall amend this Section 2.5 (Client Supplied Components) to reflect such change.

(b) Damage/Discrepancie s. Within *** (***) business days following Althea’s receipt of the Client Supplied Components, Althea shall inform Client in writing of any damage to the Client Supplied Components received that is visually obvious (e.g., damaged or punctured containers) (“ Damage Notice ”) or discrepancies in quantity received (“ Discrepancy Notice ”). Client shall replace such damaged Client Supplied Components or provide additional Client Supplied Components to resolve such discrepancy in quantity received within *** (***) days of receipt of such Damage Notice or Discrepancy Notice. The parties agree to negotiate in good faith to adjust any Product delivery dates that either party believes would be delayed by such damage or discrepancy in quantity received.

(c) Analytical Testing . Althea shall perform analytical testing on the Client Supplied Components in accordance with the Quality Agreement, and shall inform Client of any failure of the Client Supplied Components to conform to the Specifications, as set forth in the Quality Agreement. Althea shall not be obligated to process any Client-Supplied Components that fail such testing, except upon mutual written agreement of the parties including appropriate waivers and indemnifications by Client. Althea shall inform Client of any failure of the Client Supplied Components to conform to the Specifications promptly after discovering such failure in accordance with the Quality Agreement. The disposition of such Client Supplied Components shall be determined in accordance with the Quality Agreement.

(d) Lost Client-Supplied Components . If any Client Supplied Component (other than Drug Substance which shall be subject to section 4.8) is lost, damaged or contaminated due to Althea’s negligence or willful misconduct, Althea shall, at Client’s option, (i) reimburse Client for the Reimbursement Value of such material within *** (***) days after the end of the applicable Calendar Quarter in which such loss, damage or contamination occurs, or (ii) credit Client such Reimbursement Value against future invoices for any Product owing hereunder.

(e) Title . As between the Parties, Client shall at all times retain title to the Client Supplied Components and the Client Supplied Equipment. Althea shall not, as a result of Althea’s possession of the Client Supplied Components and/or Client Supplied Equipment, grant or permit the existence of any third party lien, mortgage or security interest on the Client Supplied Components and/or Client Supplied Equipment, or any portion of either and, if Althea, as a result of Althea’s possession of the Client Supplied Components and/or Client Supplied Equipment, grants or permits the existence of any third party lien, mortgage or security interest on the Client Supplied Components and/or Client Supplied Equipment or any portion thereof, then Althea shall pay all costs associated with securing the release of any such liens and other encumbrances. Client shall at all times maintain adequate insurance covering Client Supplied Components and/or Client Supplied Equipment, and shall be responsible for the repair, maintenance and failure of Client Supplied Components and/or Client Supplied Equipment, except as the parties may otherwise agree in writing.

3. FORECASTS, CANCELLATION, PAYMENT, RESERVATION FEE

3.1 Forecast . Within *** (***) days of the execution and delivery of this Agreement and approval of the Master Batch Record in accordance with Section 2.3 (Master Batch Record) or at least *** (***) days prior to the start of Production, whichever is earliest, Client shall provide an *** (***) month forecast of the quantities of Client Product that Client intends to order from Althea in each month (the “ Forecast ”), beginning with the date scheduled for commencement of Production. The Forecast shall be rolled forward and updated by Client on or before the first day of each calendar quarter thereafter.

(a) Binding Portion . Upon written acceptance of the Binding Portion (defined below) by Althea within *** (***) days of its receipt, which shall not be unreasonably withheld, the first *** (***) months of each Forecast shall be binding on Client and Althea and shall obligate Althea to Produce, sell and deliver to Client and shall obligate Client to purchase, the specified quantity of Client Product, all in accordance with the terms and conditions of this Agreement (the “ Binding Portion ”). Neither party may change the Binding Portion absent mutual written agreement, except as provided in sections 3.2 and 3.3 below.

(b) Firm Portion . Upon written acceptance of the Firm Portion by Althea within *** (***) days of its receipt, which shall not be unreasonably withheld, the second *** (***) months of each Forecast shall be binding on Client and Althea and shall obligate Althea to Produce, sell and deliver to Client the specified quantity of Product, all in accordance with the terms and conditions of this Agreement (the “ Firm Portion ”); provided, however , that Client shall have the right to increase or decrease the amount of Product described in the Firm Portion (“ Firm Portion Period ”) of such Forecast by no more than *** percent (***%) when compared to the amount of Product described in such Firm Portion Period for the prior Forecast for such

period. Such change for any given period may be made only once, absent written agreement by Althea. By way of example and not limitation, if a Forecast describes an amount of Product equaling *** (***) Batches in a period when first forecast, then Client would have the right to increase or decrease the amount of Product described in the subsequent Forecast for the same period while it is a Firm Portion Period by up to *** percent (***%), that is, up or down by *** (***) Batches in the aggregate.

(c) Non-Binding . The last *** (***) months of each Forecast are non-binding on both parties and not subject to any forecasting restrictions, and shall be subject to Althea’s written acceptance within *** (***) days of its receipt, not to be unreasonably withheld.

(d) Purchase Orders . Within *** (***) days of Althea’s acceptance of the Binding Portion, Client shall submit to Althea a purchase order for any portion of such Binding Portion that does not have an issued purchase order. Each purchase order shall include the purchase order number for each Batch to be Produced, delivery schedule, and any other elements necessary to ensure the timely Production and delivery of Client Product (“ Purchase Order ”). A Purchase Order shall only issue for the Binding Portion.

(e) Reservation Fee . Client shall be responsible for providing Althea with a minimum annual payments of $*** for total Batches in each calendar year of the Term (the “ Reservation Fee ”) so that Althea may maintain the manufacturing suite for the Client Product at the Facility. For clarity, Batches included in the Reservation Fee and the calculations of this paragraph include all Process Validation batches, Aseptic Process Validation batches, and engineering batches. At the end of each calendar year during the Term, Althea shall determine if Client’s payments for such calendar year exceeded the Reservation Fee and, if not, invoice Client for such Outstanding Amount (as defined below) no later than February 15. The “ Outstanding Amount ” is determined by calculating (i) the Reservation Fee less (ii) the total amount calculated by adding all payments made by Client for Batches (excluding without limitation Components procurement costs, project management fees and inventory management fees) received by Althea from Client during that calendar year. Client shall only be responsible for the Outstanding Amount if such amount is greater than zero. Invoices for the Outstanding Amount, if any, shall be subject to the payment terms of section 3.5.

3.2 Cancellation of Fill/Finish . Client may issue a written notice of cancellation for any Batch with any notice period and at any time prior to the actual Production of such Batch by Althea regardless of whether or not a Purchase Order was issued (“ Cancellation ”). “Cancellation” also includes any termination of this Agreement, other than due to Althea’s breach, and any postponement or delay of any Batch by Client other than as provided in section 3.3 below. In the event of a Cancellation by Client of any Batch(es) or the Fill/Finish Production portion of any Batches for which a Purchase Order was issued (or should have issued in accordance with section 3.1) for the Binding Portion of the Forecast, Client shall pay Althea a fee (“ Cancellation Fee ”) for the Cancellation of the Fill/Finish Production based on the following:

Days Notice to Althea
Prior to Scheduled Delivery Date		Cancellation Fee
***		***
***		***
***		***
***		***

3.3 Postponement . Client may postpone the Production of any Batch (or Fill/Finish Production) of Client Product, with at least *** (***) days prior written notice to Althea, to a date within *** (***) months without payment of a Cancellation Fee, provided (i) such date is available, (ii) Althea is able, using commercially reasonable efforts, to use the vacated facilities and timeslots for other customer(s). Such postponement without a Cancellation Fee shall only be available once in any 6 month period.

3.4 Delays. Althea shall promptly notify Client in writing if the delivery date(s) described in any Purchase Order will not be met (a “ Delay ”). Such notice shall include the reasons for such Delay and the proposed new schedule for the completion of Production of the Client Product described in such Purchase Order. Subject to the provisions regarding Force Majeure below and unless the parties mutually agree otherwise, the party responsible for Delays in Production shall be determined as follows:

(a) Client is responsible for Delays caused by delivery delays of or variation from Specifications of Drug Substance or other Client Supplied Components, any Client-supplied or special-purpose equipment used in Production (except as provided in (b) below) or caused by Client’s delay in providing any payments or any information or approvals reasonably necessary to continue Production.

(b) Althea is responsible for Delays due to its negligent or willful failure to maintain its Facility, systems or Althea Supplied Equipment, or a non-conformity with Specifications of Althea Supplied Components, or due to Althea’s failure to provide Client or its designee with reasonable access to the Client Supplied Equipment for routine maintenance, or Althea’s negligence or willful failure in any maintenance of Client-supplied or special-purpose equipment, which maintenance has been assumed by Althea by written agreement, in each case other than due to force majeure.

(c) Althea is responsible for Delays due to its failure to follow any requirement of the Master Batch Record.

The price for each Batch that is Delayed for which Althea is responsible as described above in this Section 3.4 (Delays) shall be reduced by *** Dollars ($***) for each month for which such Batch is Delayed more than *** (***) days until the delivery by Althea of the Released Executed Batch Record as set forth in section 4.1 The aggregate amount of such price reduction shall not exceed *** ($***) in the aggregate for all Batches in any single Delay or series of related Delays.

3.5 Invoices; Payment.

(a) Invoices . Althea shall issue invoices for the Purchase Price for each submitted Purchase Order in accordance with the payment schedule set forth in the Quote.

(b) Payment . Client shall pay all invoices by wire in accordance with the instructions below within *** (***) days of the invoice receipt. No tax or other withholding shall be made from payments due hereunder.

Althea’s wire instructions are as follows:

Beneficiary: Ajinomoto Althea, Inc.
***

Bank: ***

SWIFT #:                                            ***
Transit #:                                             ***
Account #:                                     ***

3.6 Default in Payment Obligations. Any payment for undisputed invoices due under this Agreement not received by the due date shall bear interest at the lesser of (i) the maximum rate permitted by law, and (ii) ***percent (***%) per month on the outstanding balance compounded monthly, provided that interest shall apply to any disputed amounts ultimately due Althea. In addition to all other remedies available to Althea, if Client does not pay an undisputed invoice in the time periods described in Section 3.5(b), then any prepayments or other amounts owed to or held for Client under this Agreement shall be automatically applied to invoices more than *** (***) days past due and Althea may suspend performance of this Agreement.

4. DELIVERY AND ACCEPTANCE OF CLIENT PRODUCT.

4.1 Release and Acceptance. Within *** (***) business days from the date of Althea’s determination that a Batch is free from Defects and is suitable for release to Client, Althea shall forward to Client, or Client’s designee, copies of the Released Executed Batch Record. Within *** (***) business days after receipt by Client of the Released Executed Batch Record, Client shall review such Release Executed Batch Record and perform such other testing, inspection and review as Client deems necessary and appropriate, to confirm whether Client Product conforms to the quantity ordered, the Specifications and cGMP and notify Althea whether it accepts or rejects the Client Product and, if applicable, provide shipping instructions. If Client does not notify Althea within such time that such Batch does not conform to the quantities, Specifications or cGMP (a “ Defect ”), and that it rejects such Batch, then Client shall be deemed to have accepted the Batch and waived its right to revoke acceptance. Title and risk of loss for Client Product shall pass to Client on the earliest of: its acceptance of the Client Product, the expiration of such *** (***) day period, unless Client has rejected the Batch, or shipment of the Client Product to Client or its designee. Client shall maintain appropriate insurance for Client-Supplied Components and Client Product for all periods in which it has title and risk of loss.

4.2 Delivery; Storage .

(a) Delivery. Althea shall ship all released Client Product to Client or to Client’s designated consignee in accordance with Client instructions. All shipments shall be shipped *** (INCOTERMS 2010) Facility by *** or other carrier agreed in writing, at Client’s expense. All shipping instructions of Client shall be accompanied by the name and address of the recipient and the shipping date.

(b) Exporter of Record. Client shall be the exporter of record for any Client Product shipped out of the United States. Client shall be responsible for obtaining and paying for any licenses, clearances or other governmental authorization(s) necessary for the exportation from the United States. As between the parties Client shall be solely responsible for preparing and filing the shipper’s export declaration and any other documentation required for the export, provided that Althea shall provide Client with reasonably requested assistance.

(c) Storage. In the event Client has not provided shipping instructions for Client Product or requests that Althea hold such released Batch in storage, Althea shall store such Client Product under conditions that comply with the Quality Agreement and assess a storage fee for all such Client Product (if any) at the price set forth in Exhibit B or, if none, at Althea’s then current standard rates. Storage may be at Althea’s or its qualified subcontractors’ storage facilities, provided that Althea shall be liable for the performance of such qualified subcontractors’ in performing the obligations described hereunder. Althea shall not be obligated to store Client Product for more than *** (***) days after acceptance under Section 4.1. If Client does not take delivery thereof within such *** (***) day period, Althea may, upon *** (***) days’ prior written notice, destroy or dispose of such Client Product in accordance with applicable regulations, at Client’s expense.

4.3 Delivery Shortfalls . Althea shall make up any shortages in the delivered Client Product as promptly as possible, and will deliver to Client a corrective action plan within *** (***) days after receipt of Client’s notification of such shortfall. For clarity, yields are subject to variances and uncertainties, and are not guaranteed. Unexpected yields shall not be the responsibility of Althea unless due to the negligence or willful misconduct of Althea in adhering to a requirement of the MBR.

4.4 *** . Client may revoke such deemed acceptance only in the event of a *** that meets all of the following: (i) *** (ii) ***, (iii) *** and (iv) Client shall have provided notice to Althea within *** of first learning of any ***, and prior to the expiration date of the corresponding Batch, but in no event later than *** from the date of shipment by Althea of the corresponding Batch (each, a “ *** ”).

4.5 Notification . If Client believes any Batch of Client Product is Defective (including without limitation, any ***), then it shall notify Althea by telephone, including a detailed explanation of the non-conformity, and shall confirm such notice in writing via overnight delivery to Althea. Upon receipt of such notice, Althea will investigate such alleged Defect, and (i) if Althea agrees such Client Product is Defective, deliver to Client a corrective action plan within *** (***) days after receipt of Client’s written notice of Defect, or (ii) if Althea disagrees with Client’s determination that the Batch of Client Product is non-conforming, Althea shall so notify Client by telephone within *** (***) days of receipt of notice of Defect and shall confirm such notice in writing by overnight delivery. Nothing herein shall be construed to alter the deadline for a notice of acceptance or rejection of Client Product under section 4.1, unless mutually agreed in writing by the parties.

4.6 Third Party Testing . If the parties dispute whether the Batch of Client Product is Defective, samples of the Batch in dispute will be submitted to a mutually acceptable independent laboratory for testing, whose determination of Defect, and the cause thereof if Defective, shall be binding upon the parties. To the extent such laboratory finds that the Batch is

not Defective, Client shall pay the costs of such laboratory; however, to the extent such laboratory finds that the Batch is Defective, Althea shall pay the costs of such laboratory.

4.7 Exclusive Remedy for Defective Client Product. In the event Althea agrees, or the independent laboratory determines following Client’s rejection of a Batch, that such Batch of Client Product is Defective and such Defect is due to the negligence or willful misconduct of Althea, then Althea shall, as directed by Client, either (a) at Althea’s expense, replace such non-conforming Client Product within *** (***) days from receipt of replacement Drug Substance from Client (such Drug Substance to be at Client’s expense subject to section 4.8 below) or (b) if not already paid, cancel the invoices for such Batch and refund any materials prepayments or, or, in the event of a *** refund any payments received for the non-conforming Client Product. For clarity and by way of example, if Client Product is Defective due to non-conforming Drug Substance or other Client Supplied Components, then Client will not be entitled to the foregoing remedies. Except as set forth in section 4.8 and section 5.7 this paragraph sets forth Client’s sole and exclusive remedy for Defective Client Product.

4.8 Cost of Replacement Drug Substance . In the case where Client Product is Defective such that Client is entitled to remedies under Section 4.7 (Exclusive Remedy for Defective Client Product), then Althea shall file a claim under its Professional Liability policy for the lost Drug Substance (“Lost Drug Substance”). Client shall be entitled to reimbursement by Althea up to the amount of any insurance proceeds received under such policy to cover the Reimbursement Value of any Lost Drug Substance. For clarity, Client is responsible for losses of Drug Substance not caused by the negligence of Althea or in excess of such proceeds and for maintaining its own insurance, including property insurance, in amounts adequate to cover such losses..

4.9 Disposition of Rejects . The parties agree that the default handling of Defective Client Product (“ Rejects ”) shall be destruction at Client’s expense, unless the rejection is due to a Defect giving rise to Client’s remedies under Section 4.7 (Exclusive Remedy for Defective Client Product), in which case such destruction shall be at Althea’s expense. No storage of Rejects by Althea shall be required unless by mutual written agreement of the parties. Client shall notify Althea in writing prior to Althea’s destruction of Rejects of any alternative disposition instructions for Rejects. Absent timely disposition instructions as set forth above, Althea shall dispose of Rejects in accordance with Althea’s SOPs and applicable law.

5. COMPLIANCE.

5.1 Vendor and Supplier Audit and Certification: Althea shall certify and audit all vendors and suppliers of Althea Supplied Components, and provide Client with documentation of such audit results and certifications as Client may reasonably request.

5.2 Material Safety Data Sheet; Acceptable Materials. Client shall provide Althea a material safety data sheet (“ MSDS ”) for Client Supplied Components (including Bulk Product) and Client Product and Althea shall conform to established safety practices and procedures set forth therein and shall store and handle Client Supplied Components (including Bulk Product) and Client Product as required by the MBR and all applicable laws and regulations. Althea is under no obligation to produce, nor shall Client ship or cause to be shipped to Althea without specific prior written approval, any materials which: (a) contain a penicillin, cephalosporin, high-

potent product, DEA controlled substance or radio label, or (b) have an Occupational Exposure Limit of less than 1 µg/m 3 . Althea understands and agrees that the Drug Substance may have unpredictable and unknown biological and/or chemical properties and should be used with caution and that Althea shall not use Drug Substance for testing in or treatment of humans. Althea shall immediately notify Client of any unusual health or environmental occurrence of which it has knowledge relating to Client Product, including any claim or complaint by any employee of Althea or any of its Affiliates or third party contractors. Althea agrees to advise Client immediately of any safety or toxicity problems of which it becomes aware regarding the Client Product. Client shall ensure such MSDSs are promptly updated as needed.

5.3 Regulatory Authority Visits. Althea shall advise Client immediately if any Regulatory Authority visits the Facility or makes a written inquiry regarding Althea’s Production of Client Product, but in no case later than *** (***) hours after learning of such visit or inquiry.

5.4 Audits. Client shall have the right to inspect Althea Batch records and the portions of the Facility used for Production of Client Product. Client audits shall not occur more than once per calendar year, except as set forth below, unless such additional audit(s) are for cause. All audits shall be performed at mutually agreed upon times during normal business hours and shall not last for more than two days. If the parties agree to audits more than one time in a calendar year or for more than two days, Client agrees to reimburse Althea for Althea’s reasonable expenses incurred in hosting the additional audit day(s) unless such audit was for cause. All audited data that is owned by Althea will be treated as Confidential Information of Althea, and Client shall not be permitted to remove or copy such data without Althea’s prior consent.

5.5 Regulatory Compliance.

(a) Unless otherwise stated, Althea is responsible for compliance with all Federal, State and local laws and regulations as they apply generally to the Facility or generally to the Production of Client Product, provided that Althea shall have no obligation for compliance with the requirements of any non-U.S. laws or regulations, except to the extent of cGMP requirements of a Regulatory Authority or as otherwise expressly specified in the Quality Agreement (“ Regulations ”). Althea shall be solely responsible for all contact with Regulatory Authorities with respect thereto, provided that Althea shall give Client a reasonable opportunity, where feasible, to comment on any correspondence with Regulatory Authorities which would reasonably be expected to have a material impact on Production of Client Product.

(b) Client shall be responsible for compliance with all Regulations as they apply to all other aspects of the Production, including the Client Supplied Components, specific approval to manufacture Client Product at the Facility and other compliance issues specific to the manufacture of Client Product, and the use, Labeling and sale of Client Product, which responsibility shall include, without limitation, all contact with Regulatory Authorities regarding the foregoing. Althea shall use its commercially reasonable efforts to assist Client in obtaining necessary regulatory approvals.

5.6 Client Product Recalls.

(a) Althea and Client shall maintain records necessary to permit a Recall of any of the Client Products delivered to Client or customers of Client or its Affiliates, affected voluntarily or under a threat of, or a directive by, any governmental agency. Each party shall give immediate notice by telephone (with written confirmation) to the person identified for such notice in the Quality Agreement in the event any Client Product should be Recalled. Client shall decide whether to initiate a Recall and shall control such Recall, and Althea shall reasonably cooperate with Client in connection with any Recall.

(b) To the extent that a Recall results from or arises out of a *** then: ***.

6. CHANGES IN PRODUCTION.

6.1 Changes to Master Batch Records. Each party agrees to notify the other promptly of any requested changes to the Client Product, Production, Specifications or the MBR. Within a reasonable time after such notification, Althea shall provide an estimate of any additional fees and costs required and a time line for implementation. No change(s) to any of the foregoing shall be effective or binding unless reduced to writing and signed by both parties.

6.2 Product-Specific Changes. If Facility, equipment, process or system changes are required of Althea as a result of requirements set forth by the FDA or in any other Regulations, and such required changes apply only to the Production and supply of one or more Client Products, then Client and Althea will review such requirements and agree in writing to the changes, and Client shall bear the reasonable costs thereof.

6.3 General Changes. If such required changes apply generally to the Client Product as well as to other products produced by Althea for itself or for third parties, then Client shall pay a pro rata amount of the reasonable cost of such required changes based upon the proportion of time that the Facility is dedicated to the Production of Client Product relative to the production of such other products.

6.4 Unused Materials. In the event of changes requested by Client or to comply with any regulatory requirement, Client shall reimburse Althea for any Althea-Supplied Components that cannot reasonably be used by Althea or returned for credit.

7. TERM AND TERMINATION.

7.1 Term. This Agreement shall commence on the Effective Date and continue for a period of three (3) years (“ Initial Term ”) and may be extended by the parties for additional two (2) year periods upon mutual written agreement of the parties (each such additional period, a “ Renewal Term ”), provided such mutual agreement occurs at least one (1) year prior to the expiration of the then-current Term and shall thereafter expire, unless sooner terminated pursuant to Section 7.2 herein.

7.2 Termination. This Agreement may be terminated as follows:

(a) Termination for Breach. Either party may terminate this Agreement upon the material breach of any provision of this Agreement, including any representation,

warranty or covenant, by the other party if such breach is not cured by the breaching party within thirty (30) days after receipt by the breaching party of written notice of such breach.

(b) Termination for Financial Matters. This Agreement may be terminated immediately by either party by giving the other party written notice thereof in the event such other party becomes insolvent, makes a general assignment for the benefit of its creditors, or proceedings are commenced in any court by or against such party seeking (a) such party’s reorganization, liquidation, dissolution, arrangement or winding up, or the composition or readjustment of its debts, (b) the appointment of a receiver or trustee for or over such party’s property, or (c) similar relief in respect of such party under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debt.

(c) Termination for Convenience. Client shall have the right to terminate this Agreement, without cause, with twelve (12) months prior written notice to Althea. Althea shall have the right to terminate this Agreement, without cause, with twenty-four (24) months prior written notice to Client.

7.3 Consequences of Expiration or Termination.

(a) Accrued Obligations . Expiration or termination of this Agreement for any reason shall not exempt either party from paying or reimbursing, as applicable, any amounts outstanding and due such other party at the time of such expiration or termination.

(b) Purchase of Client Product & Reimbursement of Expenses .

(i) Upon expiration or termination of this Agreement except termination by Althea under section 7.1(a) or 7.1(b), Althea shall Produce and deliver, and Client shall purchase in accordance with the provisions hereof, any and all amounts of Client Product ordered pursuant to Purchase Orders submitted by Client prior to the date on which notice of such termination is given, or prior to the expiration date, as applicable.

(ii) In addition, upon termination of this Agreement by Althea pursuant to Section 7.2(a) (Termination for Breach) or 7.2(b) (Termination for Financial Matters), or termination by Client pursuant to Section 7.2(c) (Termination for Convenience), Client shall be liable to purchase or pay for (1) any Production-in-progress pursuant to the Binding Portion of the Forecast, (2) the reasonable and documented costs of Althea Supplied Components or other commitments that were ordered or entered into by Althea for the Production of the Batches set forth in the Firm or Binding Portion of the Forecast to the extent such orders are not cancelable or returnable and (3) any Cancellation Fees due.

(c) Transitional Manufacturing Obligations. In the event of termination of this Agreement by either Party except termination by Althea under section 7.1(a) or 7.1(b), Client shall have the right, in its sole discretion and upon written notice to Althea have Althea provide to Client, at Client’s cost and expense at Althea’s then-current technology transfer rates, such assistance as Client may reasonably require in transferring Production of the Client Product performed by Althea hereunder to an alternative manufacturer.

7.4 Survival. Termination, expiration, cancellation or abandonment of this Agreement through any means or for any reason shall be, except as set forth in to Article 7,

without prejudice to any accrued obligation or the rights and remedies of either party with respect to any antecedent breach of any of the provisions of this Agreement. The provisions of the following Articles and Sections shall survive expiration or termination of this Agreement: Articles 1 (Definitions), 8 (Force Majeure), 9 (Confidentiality), 10 (Inventions), 12 (Limitation of Liability and Waiver of Property Claims), 13 (Indemnification), 14 (Insurance), and 15 (General Provisions); and Sections 2.5(e) (Title), 3.6 (Default in Payment Obligations), 5.5 (Regulatory Compliance), 5.6 (Client Product Recalls), 7.3(c) (Transitional Manufacturing Obligations), 7.4 (Survival), 11.2(a) (Client Product), and 11.4 (Disclaimer of Warranties).

8. FORCE MAJEURE

Failure of either party to perform under this Agreement (except the obligation to make payments) shall not subject such party to any liability to the other if such failure is caused by acts of God, acts of terrorism, fire, explosion, flood, drought, war, riot, sabotage, embargo, strikes or other labor trouble, compliance with any order or regulation of any government entity, or by any cause beyond the reasonable control of the affected party, whether or not foreseeable, provided that written notice of such event is promptly given to the other party. In the case of a force majeure event, Althea shall use commercially reasonable efforts to assist Client to arrange for the Production of Client Product through subcontracting or other means as appropriate to provide Client Product. The responsibility for any differential in the cost for such Production will be mutually agreed upon by the parties. However, if Althea is unable to provide a solution for the Production of Client Product within *** days of such event, Client may terminate this Agreement as specified in Section 7.2(c) (Termination for Convenience) and the requirements of Section 7.3(b) (Purchase of Client Product) shall not apply.

9. CONFIDENTIALITY.

9.1 Confidentiality. For purposes of this Agreement “Confidential Information” means all information of a party (the “ Disclosing Party ” ) received by the other party (the “ Receiving Party ”) in connection with this Agreement including all data, inventions and information developed in or as a result of the performance of this Agreement, whether in oral, written, graphic or electronic form. Without limiting the generality of the foregoing, all Inventions and Intellectual Property of either party shall be deemed the “Confidential Information” of such party. Receiving Party shall: (a) use Disclosing Party’s Confidential Information only for the purposes set forth in this Agreement; (b) receive, maintain and hold the Disclosing Party’s Confidential Information in strict confidence and to use the same methods and degree of care (but at least reasonable care) to prevent disclosure of such Confidential Information as it uses to prevent disclosure of its own proprietary and Confidential Information and to protect against its dissemination to unauthorized parties; (c) not to disclose, or authorize or permit the disclosure of any of Disclosing Party’s Confidential Information to any third party without the prior written consent of the Disclosing Party; and (d) except as needed to fulfill its obligations hereunder, return or destroy any of Disclosing Party’s Confidential Information to the Disclosing Party at the request of the Disclosing Party and to retain no copies or reproductions thereof, except that the Receiving Party may retain a single archival copy of the Confidential Information for the sole purpose of determining the scope of obligations incurred under this Agreement.

9.2 Limitations. The Receiving Party shall not be obligated to treat information as Confidential Information of the Disclosing Party if the Receiving Party can show by competent written evidence that such information: (a) was already known to the Receiving Party without any obligations of confidentiality prior to receipt from the Disclosing Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure, other than through any act or omission of the Receiving Party in breach of any obligation of confidentiality; (d) was disclosed to the Receiving Party, by a third party who was not under any obligation, direct or indirect, to Disclosing Party with respect to confidentiality or non-use; or (e) was independently discovered or developed by the Receiving Party without the use of or reference to the Disclosing Party’s Confidential Information.

9.3 Authorized Disclosure. Notwithstanding Section 9.1, the Receiving Party may disclose Confidential Information, without violating its obligations under Article 9, to the extent the disclosure is required by a valid order of a court or other governmental body having jurisdiction; provided, however, that the Receiving Party gives reasonable prior written notice to the Disclosing Party of such required disclosure in order to allow Disclosing Party, at its option and expense, to seek a protective order preventing or limiting the disclosure and/or requiring that the Confidential Information so disclosed be used only for the purposes for which the law or regulation requires, or for which the order was issued, and continues to treat such information as confidential under this Agreement. The Receiving Party will limit access to the Confidential Information of the Disclosing Party to only those of the Receiving Party’s employees, consultants, or professional advisors having a need to know and who are bound by obligations of confidentiality and non-use consistent with those set forth herein. Notwithstanding the foregoing, Althea shall be permitted to disclose Client Product information to third party developmental and analytical service providers who have a need to know such information in connection with performance of its obligations hereunder, provided such providers shall be subject to confidentiality agreements consistent with this Article 9.

9.4 Injunctive Relief. The parties expressly acknowledge and agree that any breach or threatened breach of this Article 9 may cause immediate and irreparable harm to the Disclosing Party which may not be adequately compensated by damages. Each party therefore agrees that in the event of such breach or threatened breach and in addition to any remedies available at law, the Disclosing Party shall have the right to seek equitable and injunctive relief in connection with such a breach or threatened breach.

9.5 Public Announcements. Neither party shall publicize or make any announcement concerning this Agreement or the other party which includes the identity, name(s) or other trademarks of the other party or its Confidential Information, or the identity of Client Product or the financial terms of this Agreement without the other party’s prior written consent provided, however, that either party may (a) disclose the terms of this Agreement insofar as required to comply with applicable securities laws, provided that in the case of such disclosures the party proposing to make such disclosure notifies the other party reasonably in advance of such disclosure and cooperates to minimize the scope and content of such disclosure, and (b) disclose the terms of this Agreement to such party’s investors, professional advisors or potential investors, acquirers, or merger candidates who are bound by obligations of confidentiality and non-use consistent with those set forth herein. Each party agrees that it shall cooperate fully and in a timely manner with the other with respect to any disclosures to the

Securities and Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of Confidential Information of either party included in any such disclosure.

9.6 Duration of Confidentiality. All obligations of confidentiality and non-use imposed upon the parties under this Agreement shall expire *** (***) years after the expiration of the Term; provided, however, that Confidential Information which constitutes the trade secrets of a party if expressly labeled as such by the Disclosing Party at the time of disclosure shall be kept confidential indefinitely, subject to the limitations set forth in Sections 9.2 (Limitations) and 9.3 (Authorized Disclosure).

10. INVENTIONS.

10.1 Existing Intellectual Property; Client’s Intellectual Property. Each party shall own and continue to own its patents, trademarks, copyrights, trade secrets, data and other Intellectual Property, without conferring any interests therein to the other party. Without limiting the generality of the preceding sentence, Client shall retain all right, title and interest arising under the United States Patent Act, the United States Trademark Act, the United States Copyright Act and all other applicable laws, rules and regulations in and to (a) all Client Product, all data associated therewith, Labeling and trademarks associated with Client Product and (b) any Inventions that are conceived, reduced to practice, or created by a party or jointly created by the parties in the course of performing its obligations under this Agreement, or an improvement(s) to such Invention (“ Project Inventions ”) in each case (a) and (b) that (i) are derived from Client’s Confidential Information or (ii) are specific to proprietary Client Product or Drug Substance (the foregoing collectively, “Client’s Intellectual Property” ). Neither Althea nor any third party shall acquire any right, title or interest in Client’s Intellectual Property by virtue of this Agreement or otherwise, except to the extent expressly provided herein. Althea hereby assigns to Client all of Althea’s right, title and interest in, to and under Client’s Intellectual Property.

10.2 Althea-Owned Project Inventions; License Grant. Althea shall solely own all Project Inventions that are conceived, reduced to practice, or created solely by Althea or its agents in the course of performing its obligations under this Agreement that are not Client’s Intellectual Property (“ Althea-Owned Project Inventions ”). Althea hereby grants Client, solely to the extent necessary or useful for Client to Produce the Client Product to the same extent as Althea is obligated to do under this Agreement, the following licenses: (a) a fully-paid, royalty-free non-exclusive license, with the right to grant sublicenses, to practice each Althea-Owned Project Invention; and (b) a non-exclusive license or sublicense, as applicable, with the right to grant sublicenses unless prohibited under the terms of a license between Althea and a third party, under all other intellectual property rights owned or controlled by Althea, subject to Client paying Althea only an amount equal to any payments that Althea is obligated to make to third parties as a direct result of a sublicense under intellectual property rights of a third party; provided , however , that Client covenants not to exercise the foregoing licenses unless and until this Agreement expires or terminates.

10.3 Disclaimer. Except as otherwise expressly provided herein, nothing contained in this Agreement shall be construed or interpreted, either expressly or by implication, estoppel or otherwise, as: (i) a grant, transfer or other conveyance by either party to the other of any right, title, license or other interest of any kind in any of its Inventions or other Intellectual Property,

(ii) creating an obligation on the part of either party to make any such grant, transfer or other conveyance or (iii) requiring either party to participate with the other party in any cooperative development program or project of any kind or to continue with any such program or project.

10.4 Rights in Inventions. The party owning any Invention shall have the world wide right to control the drafting, filing, prosecution and maintenance of patents covering the Inventions including decisions about the countries in which to file patent applications. Patent costs associated with the patent activities described in this Section shall be borne by the sole owner. Each party will cooperate with the other party in the filing and prosecution of patent applications. Such cooperation will include, but not be limited to, furnishing supporting data and affidavits for the prosecution of patent applications and completing and signing forms needed for the prosecution, assignment and maintenance of patent applications.

10.5 Confidentiality of Inventions. Inventions shall be and any disclosure of information by one party to the other under the provisions of this Article 10 shall be subject to the provisions of Article 9. It shall be the responsibility of the party preparing a patent application to obtain the written permission of the other party to use or disclose the other party’s Confidential Information in the patent application before the application is filed and for other disclosures made during the prosecution of the patent application, such permission not to be unreasonably withheld or delayed.

11. REPRESENTATIONS AND WARRANTIES.

11.1 Mutual Representations. Each party hereby represents and warrants to the other party that (a) such party is duly organized, validly existing, and in good standing under the laws of the place of its establishment or incorporation, (b) such party has taken all action necessary to authorize it to enter into this Agreement and perform its obligations under this Agreement, (c) this Agreement will constitute the legal, valid and binding obligation of such party, and (d) neither the execution of this Agreement nor the performance of such party’s obligations hereunder will conflict with, result in a breach of, or constitute a default under any provision of the organizational documents of such party, or of any law, rule, regulation, authorization or approval of any government entity, or of any agreement to which it is a party or by which it is bound.

11.2 Althea Representations, Warranties and Covenants.

(a) Client Product . Althea represents and warrants that Client Product shall be Produced in accordance with the Specifications and cGMP.

(b) Permits, Resources and Compliance . Althea represents and warrants that: (i) it has obtained (or will obtain prior to Producing Client Product), and will remain in compliance with during the Term, all permits, licenses and other authorizations which are required under Regulations generally applicable to its operations and the Facility; (ii) except as may be expressly excluded under this Agreement, it has, and shall at all times during the Term retain, all equipment, personnel and other materials, resources and expertise that are necessary to perform its obligations under this Agreement; and (iii) as of the Effective Date, the Facility is in compliance with cGMP and all other laws and Regulations generally applicable to its operations and the Facility, and shall maintain such compliance at all times during the Term, provided that

Althea makes no warranty or representation as to any compliance which is specific to Production or Client Product. If at any time any representation or warranty in this Section 11.2(b) is no longer true or accurate for any reason, Althea shall immediately notify Client in writing of such fact and Client shall have the right to terminate this Agreement pursuant to Section 7.2(a) (Termination for Breach).

(c) Not Debarred; No Convictions . Althea represents and warrants that it is not, nor is reasonably likely to become (based on a conviction by the courts or a finding of fault by any applicable Governmental Authority): (i) debarred pursuant to the Generic Drug Enforcement Act of 1992 (21 U.S.C. § 335a) , as amended from time-to-time; (ii) disqualified from participating in clinical trials pursuant to 21 C.F.R. §312.70 , as amended from time-to-time; (iii) disqualified as a testing facility under 21 C.F.R. Part 58, Subpart K , as amended from time-to- time; (iv) excluded, debarred or suspended from or otherwise ineligible to participate in a “Federal Health Care Program” as defined in 42 U.S.C. 1320a-7b(f) , as amended from time-to-time, or any other governmental payment, procurement or non-procurement program; or (v) included on the HHS/OIG List of Excluded Individuals/Entities, the General Services Administration’s List of Parties Excluded from Federal Programs, or the FDA Debarment List, each as amended from time-to-time. Althea represents and warrants that it shall not hire or retain as an officer, employee or any person who has been convicted of a misdemeanor or felony under the Food, Drug, and Cosmetic Act or under the laws regulating any federal healthcare program by the U.S. Department of Health and Human Services. If at any time a representation and warranty in this Section 11.2(c) (Not Debarred; No Convictions) is no longer true or accurate for any reason, Althea shall immediately notify Client in writing of such fact.

(d) Intellectual Property . Althea represents and warrants that it has no knowledge that its Production of Client Products hereunder will infringe or misappropriate any third party’s Intellectual Property.

11.3 Client Warranties: Client represents and warrants that (a) it has the right to give Althea any Client Supplied Components and information provided by Client hereunder, and that Althea has the right to use such components and information for the Production of Client Product, and (b) as of the Effective Date Client has no knowledge of any patents or other Intellectual Property that would be infringed or misappropriated by Althea’s Production of Client Product or performance of any other of its obligations under this Agreement. Client further warrants that the Drug Substance provided to Althea hereunder conforms to its Specifications.

11.4 Disclaimer of Warranties. Except as expressly set forth in this Agreement, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Without limiting the foregoing, Althea makes no representation or warranty, and Client expressly waives all claims against all Althea Indemnitees arising out of or in connection with any claims relating to the stability, efficacy, safety, or toxicity of any Client Product, provided that such Client Product has been Produced in accordance with this Agreement, the Quality Agreement, the Specifications and cGMP and is not Defective. Althea makes no representation or warranty with respect to compliance or permits specific to Client Product or Drug Substance or their manufacture, nor related to the sale, marketing, distribution or use of Drug Substance or Client Product, nor with respect to the Labeling of Client Product. Althea makes no representation or

warranty with respect to the sale, marketing, Labeling, distribution or use of the Drug Substance or, except as expressly set forth in Section 11.2(a) (Client Product), the Client Product.

12. LIMITATION OF LIABILITY AND WAIVER OF PROPERTY CLAIMS.

12.1 Mutual Limitation of Liability. Client’s sole and exclusive remedies for any covenants, representations or warranties related to failure to deliver conforming Client Product are set forth in sections 4.5, 4.7, 4.8 and 5.6. EXCEPT FOR A PARTY’S OBLIGATIONS UNDER SECTION 9 (CONFIDENTIALITY) AND SECTION 13 (INDEMNIFICATION), UNDER NO CIRCUMSTANCES SHALL A PARTY BE LIABLE FOR LOSS OF USE OR PROFITS OR OTHER INDIRECT, COLLATERAL, SPECIAL, CONSEQUENTIAL, PUNITIVE OR OTHER DAMAGES, LOSSES, OR EXPENSES, INCLUDING WITH RESPECT TO ALTHEA THE COST OF A RECALL OR COST OF COVER IN CONNECTION WITH, OR BY REASON OF THE PRODUCTION AND DELIVERY OF CLIENT PRODUCT UNDER THIS AGREEMENT REGARDLESS OF WHETHER SUCH CLAIMS OR DAMAGES ARE FORESEEABLE OR ARE FOUNDED IN TORT OR CONTRACT.

12.2 Althea Limitation of Liability . EXCEPT FOR ALTHEA’S LIABILITY UNDER SECTIONS 9 (CONFIDENTIALITY) AND 13 (INDEMNIFICATION), IN NO EVENT SHALL ALTHEA’S AGGREGATE LIABILITY UNDER THIS AGREEMENT EXCEED THE AMOUNT OF FEES PAID BY CLIENT TO ALTHEA UNDER THIS AGREEMENT. THIS LIMITATION SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

12.3 Waiver of Property Claims. All Althea Supplied Components and equipment used by Althea in the Production of Client Product (collectively, “Althea Property” ) shall at all times remain the property of Althea and Althea assumes risk of loss for such property until delivery of Client Product to a common carrier as specified under Section 4.2(a) (Delivery) or when risk of loss otherwise shifts to Client. Althea hereby waives any and all rights of recovery against Client and its Affiliates, and against any of their respective directors, officers, employees, agents or representatives, for any loss or damage to Althea Property. Except as set forth in Section 4.8 (Replacement of Drug Substance and Client Supplied Components), Client assumes all risk of loss at all times for all Client Supplied Components and Client equipment. Client assumes risk of loss for all Client Product upon delivery to a common carrier as specified under Section 4.2(a) (Delivery) or when risk of loss otherwise shifts to Client.

13. INDEMNIFICATION.

13.1 Client Indemnification. Client hereby agrees to defend, indemnify and hold harmless Althea and its Affiliates and their respective officers, directors, employees, contractors, consultants and agents (each, an “ Althea Indemnitee ”) from and against any and all losses, damages, liabilities, expenses and costs, including reasonable legal expenses and attorneys’ fees ( “Losses” ), to which any Althea Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any third party including property damage, death or personal injury (a “Claim” ) against an Althea Indemnitee arising or resulting, directly or indirectly, from (a) Client’s storage, disposal, promotion, labeling, marketing, distribution, forward processing, use or sale of Client Product or Client Supplied Components, (b) Client’s

negligence or willful misconduct, (c) Client’s breach of this Agreement, (d) any claim that the use, sale, marketing or distribution of Drug Substance or Client Product by Client, the production of Drug Substance, or the Production of Client Product by Althea in accordance with the Specifications, infringes or misappropriates the patent, trademark, copyright or other intellectual property rights of any third party, or (e) Client’s employees or contractors, including any personal injury/workman’s compensation, employment- or benefit-related claims; except to the extent any such Loss(es) are caused solely by the gross negligence or willful misconduct of the Althea Indemnitees or are within any of the matters indemnified by Althea in Section 13.2 below.

13.2 Althea Indemnification. Althea hereby agrees to defend, indemnify and hold harmless Client and its Affiliates and any of their respective directors, officers, employees, subcontractors and agents (each, a “Client Indemnitee” ) from and against any and all Losses to which any Company Indemnitee may become subject as a result of any Claim arising solely from (a) an Althea Indemnitee’s negligence or willful misconduct, (b) Althea’s breach of this Agreement, or (c) Althea’s employees or contractors, including any personal injury/workman’s compensation, employment- or benefit-related claims; except to the extent any such Loss(es) are caused solely by or are within any of the matters indemnified by Client in Section 13.1 above.

13.3 Indemnitee Obligations. A party that makes a claim for indemnification under this Article 13 shall promptly notify the other party (the “Indemnitor” ) in writing of any action, claim or other matter in respect of which such party, intends to claim such indemnification; provided, however, that failure to provide such notice within a reasonable period of time shall not relieve the Indemnitor of any of its obligations hereunder except to the extent the Indemnitor is prejudiced by such failure. The indemnified party shall permit the Indemnitor, at its discretion, to settle any such action, claim or other matter, and the indemnified party agrees to the complete control of such defense or settlement by the Indemnitor. Notwithstanding the foregoing, the Indemnitor shall not enter into any settlement that would adversely affect the indemnified party’s rights hereunder, or impose any obligations on the indemnified party other than customary mutual general release terms, without indemnified party’s prior written consent, which shall not be unreasonably withheld or delayed. No such action, claim or other matter shall be settled without the prior written consent of the Indemnitor, which shall not be unreasonably withheld or delayed. The indemnified party shall fully cooperate with the Indemnitor and its legal representatives in the investigation and defense of any action, claim or other matter covered by the indemnification obligations of this Article 13. The indemnified party shall have the right, but not the obligation, to be represented in such defense by counsel of its own selection and at its own expense.

14. INSURANCE.

14.1 Client Insurance. Client shall procure and maintain, from the Effective Date through the date that is one year after the expiration date of all Client Product Produced under this Agreement, commercial general liability insurance, including product liability and contractual liability coverage (the “Client Insurance” ). The Client Insurance shall cover amounts not less than $*** per occurrence. Client shall provide certificates of such insurance to Althea upon request. If Client fails to furnish such certificates or endorsements, or if at any time during the Term Althea is notified of the cancellation or lapse of the Client Insurance, and Client fails to rectify the same within *** (***) days after notice from Althea, Althea, at its option, may

terminate this Agreement. Any deductible and/or self-insurance retention shall be the sole responsibility of Client. Such insurance shall include

(a) Workers Compensation & Employers Liability coverage providing statutory benefits in the state of operations for Client.

(b) Commercial General Liability Insurance, including Product Liability and coverage, on an occurrence basis, including Products Liability coverage in an amount not less than $*** per Occurrence. The Commercial General Liability Insurance policy shall name Althea as an additional insured on a Primary and Non-Contributory basis. If the Products Liability coverage is provided on a Claims Made policy form, then notwithstanding anything to the contrary in the Agreement, the Products Liability coverage shall be maintained until *** (***) years after the expiration date of any Product is Produced under this Agreement.

14.2 Althea Insurance. Althea shall procure and maintain, from the Effective Date through the date that is one year after the expiration date of all Client Product Produced under this Agreement insurance coverage as follows (the “Althea Insurance” ). Althea shall provide certificates of such insurance to Client upon request. If Althea fails to furnish such certificates or endorsements, or if at any time during the Term Client is notified of the cancellation or lapse of the Althea Insurance, and Althea fails to rectify the same within *** (***) days after notice from Client, Client, at its option, may terminate this Agreement. Any deductible and/or self-insurance retention shall be the sole responsibility of Althea:

(a) Commercial General Liability Insurance, including Product Liability and coverage, on an occurrence basis with minimum limits of $*** per Occurrence. The Commercial General Liability Insurance policy shall name Client as an additional insured on a Primary and Non-Contributory basis. If the Products Liability coverage is provided on a Claims Made policy form, then notwithstanding anything to the contrary in the Agreement, the Products Liability coverage shall be maintained until *** (***) years after the expiration date of any Product is Produced under this Agreement.

(b) Workers Compensation & Employers Liability coverage providing statutory benefits in the state of operations for Althea.

(c) Property Insurance, including flood and earthquake coverage, covering the the Facility and Althea’s equipment and property.

(d) Professional Liability, Errors & Omissions Liability coverage in an amount not less than $*** per occurrence.

14.3 Waiver of Subrogation. Each party hereby waives and shall cause its insurers to waive any and all rights of recovery against the other party and its Affiliates, and against any of their respective directors, officers, employees, agents or representatives, for any loss or damage that is covered by insurance whether or not such insurance is described in this Agreement, or should have been covered by insurance described in this Agreement, but for the such party’s failure to procure or maintain it.

15. GENERAL PROVISIONS.

15.1 Notices. Any notice to be given under this Agreement must be in writing and delivered either in person, by any method of mail (postage prepaid) requiring return receipt, or by overnight courier or facsimile confirmed thereafter by any of the foregoing, to the party to be notified at its address given below, or at any address such party has previously designated by prior written notice to the other. Notice shall be deemed sufficiently given for all purposes upon the actual delivery thereof at the address designated in accordance with this paragraph.

If to Client: Insmed Incorporated
10 Finderne Avenue, Building 10
Bridgewater, New Jersey 08807
Attn: CFO

Telephone: (908) 977-9900
Facsimile: (908) 526-4047

with a copy to:

Insmed Incorporated
10 Finderne Avenue, Building 10
Bridgewater, New Jersey 08807
Attn: General Counsel

Telephone: (908) 977-9900
Facsimile: (908) 526-4047

If to Althea: Ajinomoto Althea, Inc.
11040 Roselle Street
San Diego, CA 92121
Attn: Chief Financial Officer

Telephone: (858) 882-0123
Facsimile: (858) 882-0133

15.2 Entire Agreement; Amendment. The parties hereto acknowledge that this Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior written or oral agreements or understandings with respect to the subject matter hereof. No modification of any of the terms of this Agreement, or of any attachments or Appendices, shall be deemed to be valid unless in writing and signed by an authorized agent or representative of both parties hereto. No course of dealing or usage of trade shall be used to modify the terms and conditions herein.

15.3 Waiver. None of the provisions of this Agreement shall be considered waived by any party hereto unless such waiver is agreed to, in writing, by authorized agents of both parties. The failure of a party to insist upon strict conformance to any of the terms and conditions hereof, or failure or delay to exercise any rights provided herein or by law shall not be deemed a waiver of any rights of any party hereto.

15.4 Assignment. This Agreement may not be assigned or transferred by either party including by operation of law without the prior written consent of the other, which consent will not be unreasonably withheld or delayed; provided, however, that either party may assign this Agreement including by operation of law without the other party’s consent to an Affiliate or in connection with the transfer or sale of all or substantially all of the business of such party to which this Agreement relates, whether by merger, sale of stock, sale of assets or otherwise, provided that if such assignment is to an Affiliate, the assigning party shall be jointly responsible for Affiliate’s obligations hereunder. Any attempted assignment of this Agreement not in compliance with this Section 15.4 (Assignment) shall be null and void. No assignment shall relieve either party of the performance of any accrued obligation that such party may then have under this Agreement. This Agreement shall inure to the benefit of and be binding upon each party signatory hereto, its successors and permitted assigns, subsidiaries and Affiliates.

15.5 Taxes. Client shall bear the cost of all national, state, municipal or other sales, use, excise, import, property, value added, or other similar taxes, assessments or tariffs assessed upon or levied against the Production or sale of Client Product pursuant to this Agreement or the sale or distribution of Client Product by Client (or at Client’s sole expense, defend against the imposition of such taxes and expenses). Althea shall notify Client of any such taxes that any governmental authority is seeking to collect from Althea, and Client may assume the defense thereof in Althea’s name, if necessary, and Althea agrees to fully cooperate in such defense to the extent of the capacity of Althea, at Client’s expense. Althea shall pay all national, state, municipal or other taxes on the income resulting from the sale by Althea of the Client Product to Client under this Agreement, including gross income, adjusted gross income, supplemental net income, gross receipts, excess profit taxes, or other similar taxes.

15.6 Independent Contractor. Althea shall act as an independent contractor for Client in providing the services required hereunder and neither party shall be considered an agent or employer of, or joint venturer with, the other party or its employees.

15.7 Governing Law; Limitations. Any action brought related to this Agreement or the activities contemplated hereunder shall be governed in all respects by the laws of the State of New York, without regard to the principles of conflicts of laws.

15.8 Dispute Resolution. Prior to initiating any court, administrative or other action on a claim, dispute, demand or assertion related to this Agreement or the services hereunder (collectively, a “Dispute”), the claimant shall give notice to the other party, detailing the nature of the Dispute and the facts relevant thereto and the parties shall in good faith attempt to resolve such Dispute. No court, administrative or other action shall be filed or otherwise initiated until the parties have exhausted good faith settlement attempts by first, direct negotiation and second, mediation by a mutually-agreeable professional mediator under the appropriate Mediation Procedures of the American Arbitration Association. The defending party shall be entitled to recover from the other party, in addition to any other damages awarded, all of its attorneys fees incurred in any action initiated in violation of this section, regardless of outcome. The site of the mediation shall be in a place mutually agreed. The costs of mediation shall be borne equally by the parties.

15.9 Attorney’s Fees. The successful party in any litigation or other dispute resolution proceeding to enforce the terms and conditions of this Agreement shall be entitled to

recover from the other party reasonable attorney’s fees and related costs involved in connection with such litigation or dispute resolution proceeding.

15.10 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the parties shall negotiate in good faith with a view to the substitution therefor of a suitable and equitable provision in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision; provided, however , that the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law.

15.11 Headings; Rules of Construction . The captions and headings to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement. Unless specified to the contrary, references to Articles, Sections or Exhibits shall refer to the particular Articles, Sections or Exhibits of or to this Agreement and references to this Agreement include all Exhibits hereto. Unless context otherwise clearly requires, whenever used in this Agreement:

(a) the words “include” or “including” shall be deemed to be followed by the phrase “but not limited to” or “without limitation” or words of similar import;

(b) the word “day,” “quarter” or “year” (and derivatives thereof, e.g., “quarterly”) shall mean a calendar day, calendar quarter or calendar year unless otherwise specified (and “annual” or “annually” refer to a calendar year);

(c) the word “hereof,” “herein,” “hereby” and derivative or similar word refers to this Agreement (including any Exhibits);

(d) the word “or” shall have its inclusive meaning identified with the phrase “and/or;”

(e) the words “will” and “shall” shall have the same obligatory meaning;

(f) words of any gender include the other gender; and

(g) words using the singular or plural number also include the plural or singular number, respectively.

15.12 Interpretation . Althea and Client have each participated in negotiations and due diligence and consulted their respective counsel regarding this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

15.13 Counterparts . This Agreement may be executed in one (1) 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. Signatures to this Agreement that are transmitted by facsimile, electronic

mail in “portable document format” (“.pdf”), or by any other electronic means intended to preserve the original graphic and pictorial appearance of this Agreement will have the same effect as physical delivery of the paper document bearing an original signature

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly-authorized representatives as of the Effective Date above.

INSMED INCORPORATED		AJINOMOTO ALTHEA, INC.


By:	/s/ Andrew T. Drechsler	By:	/s/ Martha J. Demski

Name:	Andrew T. Drechsler	Name:	Martha J. Demski

Title:	CFO	Title:	SVP/CFO

Date:	9/10/15	Date:	9/15/15

EXHIBIT A

Quote(s)

Presents

October 2014

CONFIDENTIAL

Sales Quote #5646

1. EXECUTIVE SUMMARY

Amikacin is an FDA approved drug with established efficacy. ARIKAYCE is a liposomal formulation of Amikacin, an FDA-approved IV aminoglycoside antibiotic that has proven efficacy in the treatment of gram-negative infections. It is a member of the aminoglycoside class of antibiotics. Amikacin has been long recognized as one of the most potent/effective treatments for gram-negative infections including Pseudomonas, as well as non-tuberculosis mycobacterium (NTM). The value of the systemic use of IV Amikacin has been limited by issues of nephrotoxicity (damage to the kidney) and ototoxicity (damage to the ear).

ARIKAYCE may be desirable because it delivers high, sustained levels of drug to the lung while potentially minimizing systemic exposure well below known toxicity levels.

This proposal outlines the pricing of manufacturing of one cGMP commercial lot of Arikayce® for 2015 at the *** kg scale. Pricing is valid through December 31, 2015. Insmed may issue Purchase Orders (POs) against this general/blanket proposal for each ARIKAYCE lot requested through December 31, 2015. All project management and inventory management fees will be billed monthly from Sales Quote #5647.

Upon signature of this proposal by Insmed and Ajinomoto Althea, a project manager at Ajinomoto Althea will put a proposed schedule together. The actual project timeline may vary pending the availability of facilities, equipment, raw materials and the successful transfer of documents.

All product development and manufacturing activities will take place at Ajinomoto Althea located in San Diego, CA 92121.

This Proposal is governed by the terms and conditions of the Drug Product Production and Clinical Supply Agreement effective as of July 8, 2009 between Ajinomoto Althea (formerly known as Althea Technologies, Inc.) and Insmed Incorporated (formerly known as Transave, Inc.).

2. CONTACT INFORMATION

Insmed Incorporated	Ajinomoto Althea, Inc.

Suzan Lanz Sr. Director, Supply Chain & Logistics Princeton Corporate Plaza 9 Deer Park Drive, Suite C Monmouth Junction, NJ 08852-1923 p. ***	Anish Parikh Senior Director, Business Development 11040 Roselle Street San Diego, CA 92121 p. * f. *

3. FILL/FINISH

Formulation and Fill/Finish Deliverables, and Pricing

Service Description	Unit	Unit Price		Total Price

Commercial Manufacturing - *L scale [FF] - Complex Formulation - GMP Fill/Finish up to * vials - In-Process testing - 100% Visual Inspection - Bulk Packaging and Carton Labeling - Waste Disposal Deliverable: Executed QA reviewed batch record and Drug product	***	$	***	$	***

4. SHIPPING AND STORAGE

Shipping & Storage Deliverables, and Pricing

Service Description	Unit	Unit Price		Total Price
	***	$	***	$	***
Shipment of Testing Samples [SS]

- Includes the shipping management and preparation to designated destination within US - Samples will ship via a pre-qualified shipper and one temperature monitor per box

Additional shipments beyond quoted units will be $** each and invoiced upon shipment*

	***	$	***	$	***
Handling & Packaging of Drug Product [SS]

- Includes the shipping management and preparation of product - Verification of shipment of products from Ajinomoto Althea to a client specified destination (within US) - Preparation of domestic shipping documentation

	***	$	***	$	***
Shipment of Drug Product [SS]

- Assumes product is shipped with a validated dedicated service arranged by Ajinomoto Althea with a temperature monitor - Shipping rates as charged per courier

An additional fee of $** will incur should Insmed’s courier account be used, in lieu of Althea’s, or Insmed arranges for the shipment. Fees will be invoiced upon shipment.*

5. MATERIALS, COMPONENTS & EQUIPMENT COSTS

Materials, Components & Equipment Deliverables and Pricing

Service Description	Unit		Unit Price		Total Price
	***	%	$	***	$	***
Fill/Finish & Validation : Materials and Components			***		***

- Purchase and release container closure components, all bulk and compounding containers, tubing, filters, assemblies, filling needles, and excipients - USP water and WFI for FF use - Supply and release client specified components - Miscellaneous fill/finish equipment - Ajinomoto Althea uses qualified vendors for the procurement of USP/EU compliant materials

Estimate due upon placement of purchase order by Ajinomoto Althea, excluding markup, shipping and taxes, if applicable. Upon release of the lot by Quality Assurance and acceptance by the customer, a final invoice will be issued for any additional costs and markup. Any over/under charges will be credited/invoiced.

6. PAYMENT SCHEDULE

Milestone	%To Be Billed			Activity Total		Est. Invoice Amount
PREPAYMENT
Prepayment	***		%	$	***	$	***
Due upon signature. Excludes shipping and storage. No activities will begin until upfront payment is received.
FILL/FINISH
cGMP Formulation & Fill/Finish	***		%	$	***	$	***
Billed upon Completion
cGMP Formulation & Fill/Finish	***		%	$	***	$	***
Billed upon Release of Product
SUPPORTING SERVICES
Handling & Packaging of Final Product	***		%	$	***	$	***
Billed upon shipment of each batch

Prepayment	$	***
Service Total	$	***
Sub-Total	$	***

SHIPPING / MATERIALS / EQUIPMENT
Shipment of Testing Samples	***		%	$	***	$	***
Billed upon each shipment
Shipment of Final Product	***		%	$	***	$	***
Billed upon shipment of each batch
Materials and Components: Fill/Finish	***		%	$	***	$	***
Due upon placement of purchase order by Althea, excluding markup, shipping and taxes, if applicable. Upon release of the lot by Quality Assurance and acceptance by the customer, a final invoice will be issued for any additional costs and markup of ***%. Any over/under charges will be credited/invoiced.
Grand Total	$	***

Unless otherwise stated on this payment schedule, all invoices are payable net *** days from invoice date, subject to payment terms in the Supply Agreement or Terms & Conditions as applicable.

7. AUTHORIZATIONS

IN WITNESS WHEREOF, the parties hereto have each caused this Proposal/Statement of Work, including the general assumptions, and terms and conditions following this page, to be executed by their duly-authorized representatives as of October 2014.

INSMED INCORPORATED		AJINOMOTO ALTHEA, INC.

By:	/s/ Andrew T. Drechsler	By:	/s/ Eric Deneroff
Name:	Andrew T. Drechsler	Name:	Eric Deneroff
Title:	Chief Financial Officer	Title:	Vice President, Sales & Business Development
Date:	October 27, 2014	Date:	October 27, 2014

PO Number:

BLANKET CONTRACT:

COMMERCIAL CGMP MANUFACTURING OF ARIKAYCE®

PREPARED FOR

JULY, 2015

CONFIDENTIAL

Sales Quote #6219

1. CONTACT INFORMATION

Insmed Incorporated		Ajinomoto Althea, Inc.

Suzan Lanz		Anish Parikh
Sr. Director, Supply Chain & Logistics		Senior Director, Business Development
Princeton Corporate Plaza		11040 Roselle Street
9 Deer Park Drive, Suite C		San Diego, CA 92121
Monmouth Junction, NJ 08852-1923		p. ***
p. ***		f. ***

2. EXECUTIVE SUMMARY

Amikacin is an FDA approved drug with established efficacy. ARIKAYCE® is a liposomal formulation of Amikacin, an FDA-approved IV aminoglycoside antibiotic that has proven efficacy in the treatment of gram-negative infections. It is a member of the aminoglycoside class of antibiotics. Amikacin has been long recognized as one of the most potent/effective treatments for gram-negative infections including Pseudomonas, as well as non-tuberculosis mycobacterium (NTM). The value of the systemic use of IV Amikacin has been limited by issues of nephrotoxicity (damage to the kidney) and ototoxicity (damage to the ear).

ARIKAYCE® may be desirable because it delivers high, sustained levels of drug to the lung while potentially minimizing systemic exposure well below known toxicity levels.

This proposal outlines the pricing of manufacture of one cGMP commercial lot of ARIKAYCE® for 2015 at the *** kg scale. Pricing is valid through December 31, 2015. Insmed may issue Purchase Orders (POs) against this general/blanket proposal for each ARIKAYCE® lot requested through December 31, 2015. All project management and inventory management fees will be billed monthly from Sales Quote #5647.

Upon signature of this proposal by Insmed and Althea, a project manager at Althea will schedule a project kickoff meeting and begin the process of drafting a project schedule. The actual project timeline may vary pending the availability of facilities, equipment, and raw materials.

All product development and manufacturing activities will take place at Althea located in San Diego, CA 92121.

3. DRUG PRODUCT MANUFACTURING

Formulation and Fill/Finish: Deliverables and Pricing

Service Description	Unit	Unit Price		Total Price

cGMP Formulation & Fill/Finish: Commercial Manufacturing of ARIKAYCE® - *L Scale [FF] - Complex formulation - cGMP fill/finish of up to * vials - In-process testing - 100% visual inspection - Bulk packaging and carton labeling - Waste disposal	***	$	***	$	***


* Refer to Pricing Matrix Deliverable: Executed QA reviewed batch record and Drug product

2015 Pricing Matrix

Number of Fills	Tiered Pricing
Fills ***	$	***
Fills ***	$	***
Fills ***	$	***

4. SHIPPING

Shipping: Deliverables and Pricing

Service Description	Unit	Unit Price		Total Price

Shipment of Testing Samples [SS] - Includes the shipping management and preparation to designated destination within US - Samples will ship via a pre-qualified shipper and one temperature monitor per box Additional shipments beyond quoted units will be $** each and invoiced upon shipment*	***	$	* *	$	***

Shipping Preparation of Final Drug Product [SS] - Includes the shipping management and preparation of product - Verification of shipment of products from Althea to a client specified destination (within US) - Preparation of domestic shipping documentation	***	$	* *	$	***

Shipment of Final Drug Product [SS] - Assumes product is shipped with a validated dedicated service arranged by Althea with a temperature monitor (within US) - Shipping rates as charged per courier An additional fee of $** will incur should Insmed’s courier account be used, in lieu of Althea’s, or Insmed arranges for the shipment. Fees will be invoiced upon shipment.*	***	$	* *	$	* *

5. MATERIALS, COMPONENTS & EQUIPMENT

Materials, Components & Equipment: Deliverables and Pricing

Service Description	Unit		Unit Price		Total Price

Drug Product Manufacturing: Materials and Components - Purchase and release container closure components, all bulk and compounding containers, tubing, filters, assemblies, filling needles, and excipients - USP water and WFI for FF use - Supply and release client specified components - Miscellaneous fill/finish equipment - Althea uses qualified vendors for the procurement of USP/EU compliant materials Estimate due upon placement of purchase order by Althea, excluding markup, shipping and taxes, if applicable. Upon delivery of the released executed batch record, a final invoice will be issued for any additional costs and markup. Any over/under charges will be credited/invoiced.	* *	%	$	* *	$	* *

6. PAYMENT SCHEDULE

Milestone	%To Be Billed		Activity Total		Est. Invoice Amount
PREPAYMENT
Prepayment
Due upon signature. Excludes shipping and materials. No activities will begin until upfront payment is received.	***	%	$	***	$	***
DRUG PRODUCT MANUFACTURING
GMP Formulation & Fill/Finish: Commercial Manufacturing of ARIKAYCE® - L Scale*
Billed upon completion per lot	***	%	$	***	$	***
GMP Formulation & Fill/Finish: Commercial Manufacturing of ARIKAYCE® - L Scale*
Billed upon release of product per lot	***	%	$	***	$	***
SUPPORTING SERVICES
Shipping Preparation of Final Drug Product
Billed upon shipment of each batch	***	%	$	***	$	***

Prepayment			$	***
Service Total			$	***
Subtotal *			$	***

SHIPPING / MATERIALS / EQUIPMENT
Shipment of Testing Samples	***	%	$	***	$	***
Billed upon each shipment
Shipment of Final Drug Product
Billed upon shipment of each batch	***	%	$	***	$	***
Materials and Components: Drug Product Manufacturing
Due upon placement of purchase order by Althea, excluding markup, shipping and taxes, if applicable. Upon delivery of the released executed batch record, a final invoice will be issued for any additional costs and markup of ***%. Any over/under charges will be credited/invoiced.	***	%	$	***	$	***
Grand Total *			$	***

* Price per fill to be adjusted according to Pricing Matrix

Unless otherwise stated on this payment schedule, all invoices are payable net *** days from invoice date, subject to payment terms in the Supply Agreement as applicable.

7. AUTHORIZATIONS

	INSMED INCORPORATED		AJINOMOTO ALTHEA, INC.


By:	/s/ Andrew T. Drechsler	By:	/s/ Jennifer Cannon, Ph.D.
Name:	Andrew T. Drechsler	Name:	Jennifer Cannon, Ph.D.
Title:	Chief Financial Officer	Title:	Sr. Director, Commercial Strategy
Date:	July 1, 2015	Date:	July 1, 2015

PO Number:

EXHIBIT B

PURCHASE PRICE

Price: As set forth in Quote(s), attached as Exhibit A, when mutually executed by the parties, beginning with Quote *** (2015). The parties shall negotiate in good faith to establish a *** based on *** by the end of the *** quarter of ***.

Beginning January 1 2016, Althea may increase the Purchase Price and/or Storage Price *** per calendar year by no more than PPI. “PPI” shall mean the rate equal to the increase (if any) in the most recent ***, ***, series code ***, published by the United States Department of Labor, Bureau of Labor Statistics, or comparable successor index for the prior year. For example, if Althea elects to increase the Purchase Price in May of 2016, PPI will be determined by the PPI for May 2015 thru April 2016 (or the closest 1-year period for which data is published). For clarity, the cost of Components is separate from the Purchase Price and the price for Components shall at all times be based on Althea’s actual cost of said Components.

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: November 6, 2015
	/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: November 6, 2015
	/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 September 30, 2015 (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)

November 6, 2015

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)

November 6, 2015