10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

OR

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

For the transition period from                to

Commission File Number 000-30739

INSMED INCORPORATED

(Exact name of registrant as specified in its charter)

Virginia	54-1972729
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
700 US Highway 202/206,
Bridgewater, New Jersey	08807
(Address of principal executive offices)	(Zip Code)

(908) 977-9900

(Registrant’s telephone number including area code)

Not Applicable

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

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

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company ☐
Emerging growth company ☐

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

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

As of August 1, 2022, there were 119,975,265 shares of the registrant’s common stock outstanding.

INSMED INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2022

INDEX

PART I.  FINANCIAL INFORMATION
ITEM 1	Consolidated Financial Statements
	Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021	3
	Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2022 and 2021	4
	Consolidated Statements of Shareholders' Equity (unaudited) for the three and six months ended June 30, 2022 and 2021	5
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2022 and 2021	7
	Notes to Consolidated Financial Statements (unaudited)	8
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	39
ITEM 4	Controls and Procedures	39
PART II.  OTHER INFORMATION
ITEM 1	Legal Proceedings	39
ITEM 1A	Risk Factors	39
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	39
ITEM 5	Other Information	39
ITEM 6	Exhibits	40
SIGNATURE		41

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

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PART I.  FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

INSMED INCORPORATED

Consolidated Balance Sheets

(in thousands, except par value and share data)

	As of		As of
	June 30, 2022		December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	416,078	$	716,782
Marketable securities	138,790		—
Accounts receivable	29,481		24,351
Inventory	67,017		67,009
Prepaid expenses and other current assets	23,360		28,898
Total current assets	674,726		837,040
Marketable securities, non-current	9,764		50,043
Fixed assets, net	53,946		52,955
Finance lease right-of-use assets	17,178		9,256
Operating lease right-of-use assets	24,047		33,305
Intangibles, net	71,283		73,809
Goodwill	136,110		136,110
Other assets	66,300		50,990
Total assets	$	1,053,354	$	1,243,508
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	31,144	$	35,784
Accrued liabilities	58,770		60,665
Accrued compensation	18,653		28,581
Finance lease liabilities	212		609
Operating lease liabilities	5,037		9,527
Total current liabilities	113,816		135,166
Debt, long-term	783,977		566,588
Contingent consideration	55,600		75,668
Finance lease liabilities, long-term	23,135		14,103
Operating lease liabilities, long-term	18,201		21,441
Other long-term liabilities	14,384		20,074
Total liabilities	1,009,113		833,040
Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 119,865,023 and 118,738,266 issued and outstanding shares at June 30, 2022 and December 31, 2021, respectively	1,199		1,187
Additional paid-in capital	2,449,281		2,673,556
Accumulated deficit	(2,405,310)		(2,265,243)
Accumulated other comprehensive (loss) income	(929)		968
Total shareholders’ equity	44,241		410,468
Total liabilities and shareholders’ equity	$	1,053,354	$	1,243,508

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Product revenues, net	$	65,221	$	45,366	$	118,328	$	85,580
Operating expenses:
Cost of product revenues (excluding amortization of intangible assets)	16,395		10,837		28,586		20,681
Research and development	88,527		64,655		172,883		126,045
Selling, general and administrative	59,974		57,177		116,722		108,727
Amortization of intangible assets	1,263		1,263		2,526		2,526
Change in fair value of deferred and contingent consideration liabilities	(12,622)		—		(24,240)		—
Total operating expenses	153,537		133,932		296,477		257,979
Operating loss	(88,316)		(88,566)		(178,149)		(172,399)
Investment income	835		34		972		67
Interest expense	(3,357)		(10,319)		(6,648)		(17,878)
Loss on extinguishment of debt	—		(17,689)		—		(17,689)
Other expense, net	(4,306)		(159)		(5,555)		(202)
Loss before income taxes	(95,144)		(116,699)		(189,380)		(208,101)
Provision for income taxes	501		622		886		861
Net loss	$	(95,645)	$	(117,321)	$	(190,266)	$	(208,962)
Basic and diluted net loss per share	$	(0.80)	$	(1.07)	$	(1.60)	$	(1.97)
Weighted average basic and diluted common shares outstanding	119,602		109,580		119,267		106,328
Net loss	$	(95,645)	$	(117,321)	$	(190,266)	$	(208,962)
Other comprehensive income (loss):
Foreign currency translation (loss) income	(208)		334		(702)		231
Unrealized loss on marketable securities	(491)		—		(1,195)		—
Total comprehensive loss	$	(96,344)	$	(116,987)	$	(192,163)	$	(208,731)

    

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Shareholders' Equity (unaudited)

(in thousands)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance at March 31, 2021	103,279	$	1,033	$	2,122,743	$	(1,922,230)	$	90	$	201,636
Comprehensive loss:
Net loss						(117,321)				(117,321)
Other comprehensive income (loss)								334		334
Exercise of stock options and ESPP shares issuance	344	3		6,562						6,565
Net proceeds from issuance of common stock	11,500	115		269,771						269,886
Equity component of convertible debt issuance				196,063						196,063
Equity component of convertible debt redemption				(37,846)						(37,846)
Issuance of common stock for vesting of RSUs	116	1								1
Stock-based compensation expense				11,735						11,735
Balance at June 30, 2021	115,239	$	1,152	$	2,569,028	$	(2,039,551)	$	424	$	531,053
Balance at March 31, 2022	119,346	$	1,193	$	2,428,582	$	(2,309,665)	$	(230)	$	119,880
Comprehensive loss:
Net loss						(95,645)				(95,645)
Other comprehensive income (loss)								(699)		(699)
Exercise of stock options and ESPP shares issuance	345	4		6,440						6,444
Issuance of common stock for vesting of RSUs	174	2								2
Stock-based compensation expense				14,259						14,259
Balance at June 30, 2022	119,865	$	1,199	$	2,449,281	$	(2,405,310)	$	(929)	$	44,241

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Shareholders' Equity (unaudited)

(in thousands)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance at December 31, 2020	102,763	$	1,028	$	2,105,252	$	(1,830,589)	$	193	$	275,884
Comprehensive loss:
Net loss						(208,962)				(208,962)
Other comprehensive income (loss)								231		231
Exercise of stock options and ESPP shares issuance	760	7		13,518						13,525
Net proceeds from issuance of common stock	11,500	115		269,771						269,886
Equity component of convertible debt issuance				196,063						196,063
Equity component of convertible debt redemption				(37,846)						(37,846)
Issuance of common stock for vesting of RSUs	216	2								2
Stock-based compensation expense				22,270						22,270
Balance at June 30, 2021	115,239	$	1,152	$	2,569,028	$	(2,039,551)	$	424	$	531,053
Balance at December 31, 2021	118,738	$	1,187	$	2,673,556	$	(2,265,243)	$	968	$	410,468
Cumulative impact of ASU 2020-06 adoption				(264,609)		50,199				(214,410)
Comprehensive loss:
Net loss						(190,266)				(190,266)
Other comprehensive income (loss)								(1,897)		(1,897)
Exercise of stock options and ESPP shares issuance	795	8		13,252						13,260
Issuance of common stock for vesting of RSUs	332	4								4
Stock-based compensation expense				27,082						27,082
Balance at June 30, 2022	119,865	$	1,199	$	2,449,281	$	(2,405,310)	$	(929)	$	44,241

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Six Months Ended June 30,
	2022		2021
Operating activities
Net loss	$	(190,266)	$	(208,962)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2,244		4,773
Amortization of intangible assets	2,526		2,526
Stock-based compensation expense	27,082		22,270
Loss on extinguishment of debt	—		17,689
Amortization of debt issuance costs and accretion of debt discount	1,643		13,196
Finance lease amortization expense	1,365		539
Noncash operating lease expense	9,765		9,550
Change in fair value of deferred and contingent consideration liabilities	(24,240)		—
Changes in operating assets and liabilities:
Accounts receivable	(6,784)		(1,855)
Inventory	724		(11,557)
Prepaid expenses and other current assets	4,101		(7,484)
Other assets	(15,531)		(22,623)
Accounts payable	(3,558)		(11,158)
Accrued liabilities, accrued compensation and other	(16,533)		(10,629)
Net cash used in operating activities	(207,462)		(203,725)
Investing activities
Purchase of fixed assets	(4,605)		(4,666)
Purchase of marketable securities	(99,706)		—
Net cash used in investing activities	(104,311)		(4,666)
Financing activities
Proceeds from exercise of stock options, ESPP, and RSU vestings	13,264		13,527
Proceeds from issuance of common stock, net	—		269,886
Payment on extinguishment of 1.75% convertible senior notes due 2025	—		(12,578)
Payment of principal on 1.75% convertible senior notes due 2025	—		(225,000)
Proceeds from issuance of 0.75% convertible senior notes due 2028	—		575,000
Payment of debt issuance costs	—		(16,013)
Payments of finance lease principal	(494)		(522)
Net cash provided by financing activities	12,770		604,300
Effect of exchange rates on cash and cash equivalents	(1,701)		(338)
Net (decrease) increase in cash and cash equivalents	(300,704)		395,571
Cash and cash equivalents at beginning of period	716,782		532,756
Cash and cash equivalents at end of period	$	416,078	$	928,327
Supplemental disclosures of cash flow information:
Cash paid for interest	$	5,004	$	5,911
Cash paid for income taxes	$	1,194	$	997

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.                                    The Company and Basis of Presentation

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

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

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

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

     The Company had $416.1 million in cash and cash equivalents and marketable securities totaling $148.6 million as of June 30, 2022 and reported a net loss of $190.3 million for the six months ended June 30, 2022. Historically, the Company has funded its operations through public offerings of equity securities and debt financings. The Company expects to continue to incur consolidated operating losses, including losses in its US and certain international entities, while funding research and development (R&D) activities for ARIKAYCE, brensocatib, TPIP and its other pipeline programs, and continuing and commencing pre-commercial, commercialization and regulatory activities for ARIKAYCE, and funding other general and administrative activities.

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

Risks and Uncertainties - There are many uncertainties regarding the novel coronavirus (COVID-19) pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic will impact its patients, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially affect the Company's financial results and business operations for the six months ended June 30, 2022, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to

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

2.                                      Summary of Significant Accounting Policies

The following are the required interim disclosure updates to the Company's significant accounting policies described in Note 2 of the notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2021:

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

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

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

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

Each major category of financial assets and liabilities measured at fair value on a recurring basis is categorized based upon the lowest level of significant input to the valuations. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments in Level 1 generally include US treasuries and mutual funds listed in active markets. The Company's cash and cash equivalents permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions.

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

	June 30, 2022
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	416.1	$	416.1	$	—	$	—
Marketable securities	$	148.6	$	148.6	$	—	$	—
Deferred consideration	$	10.8	$	—	$	10.8	$	—
Contingent consideration liabilities	$	55.6	$	—	$	—	$	55.6

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

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the six months ended June 30, 2022, the Company purchased $99.7 million of additional marketable securities consisting of US Treasury Notes. There were no other transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2022.

As of June 30, 2022, the Company held $138.8 million and $9.8 million of current and non-current available-for-sale securities, respectively, net of an unrealized loss of $1.3 million recorded in accumulated other comprehensive income. Marketable securities maturing in one year or less are classified as current assets and marketable securities maturing in more

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than one year are classified as non-current assets. As of December 31, 2021, 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 security was rated below investment grade; (3) how long the security has been in an unrealized loss position; and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to recover. The Company has determined that there were no other-than-temporary impairments during the quarter ended June 30, 2022.

Deferred Consideration

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

The deferred consideration has been classified as a Level 2 recurring liability as its valuation utilizes an input, the Insmed share price on the valuation date, which is a directly observable input at the measurement date and for the duration of the liabilities' anticipated lives. Deferred consideration expected to be settled within twelve months or less is classified as a current liability and are included in accrued liabilities. As of June 30, 2022, the fair value of deferred consideration included in accrued liabilities was $3.5 million. Deferred consideration expected to be settled in more than twelve months is classified as a non-current liability and is included in other long-term liabilities. As of June 30, 2022, the fair value of deferred consideration included in other long-term liabilities was $7.3 million.

The following observable input was used in the valuation of the deferred consideration as of June 30, 2022:

	Fair Value as of June 30, 2022 (in millions)	Observable Input	Input Value
Deferred consideration	$10.8	Insmed share price as of June 30, 2022	$19.72

Contingent Consideration

The contingent consideration liabilities arose from the Business Acquisition in August 2021 (Note 13). The contingent consideration liabilities consist of developmental and regulatory milestones, a priority review voucher milestone and net sales milestones. Upon the achievement of certain development and regulatory milestone events, the Company is obligated to issue to Motus equityholders up to 5,348,572 shares in the aggregate and AlgaeneX equityholders up to 368,867 shares in the aggregate. The fair value of the development and regulatory milestones are estimated utilizing a probability-adjusted approach. At June 30, 2022, the weighted average probability of success was 42%. The development and regulatory milestones will be settled in shares of the Company's common stock. As such, there is no discount rate applied in the fair value calculation.

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

The contingent consideration liabilities for net sales milestones were valued using an option pricing model with Monte Carlo simulation. As of June 30, 2022, the fair value of these net sales milestones were deemed immaterial to the overall fair value of the contingent consideration.

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

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The following significant unobservable inputs were used in the valuation of the contingent consideration liabilities as of June 30, 2022 (in millions):

Contingent Consideration Liabilities	Fair Value as of June 30, 2022	Valuation Technique	Unobservable Inputs	Values
Development and regulatory milestones	$50.6	Probability-adjusted	Probabilities of success	14% - 95%
Priority review voucher milestone	$5.0	Probability-adjusted discounted cash flow	Probability of success	13.5%
			Discount rate	10.7%

The following table is a summary of the changes in the fair value of the Company's valuations for the deferred and contingent consideration liabilities for the six months ended June 30, 2022 (in thousands):

	December 31, 2021		Additions	Change in Fair Value	Adjustments	June 30, 2022
Deferred consideration	$	14,931	—	(4,172)	—	$	10,759
Contingent consideration	$	75,668	—	(20,068)	—	$	55,600

Convertible Notes

The estimated fair value of the liability component of the Company's 0.75% convertible senior notes due 2028 (the 2028 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of June 30, 2022 was $496.0 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2028 Convertible Notes. The $561.6 million carrying value of the 2028 Convertible Notes as of June 30, 2022 excludes the $13.4 million of the unamortized portion of the debt issuance costs.

The estimated fair value of the liability component of the Company's 1.75% convertible senior notes due 2025 (the 2025 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of June 30, 2022 was $208.3 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2025 Convertible Notes. The $222.4 million carrying value of the 2025 Convertible Notes as of June 30, 2022 excludes the $2.6 million of the unamortized portion of the debt issuance costs.

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

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The following table sets forth the reconciliation of the weighted average number of common shares used to compute basic and diluted net loss per share for the three and six months ended June 30, 2022 and 2021:

 

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in thousands, except per share amounts)
Numerator:
Net loss	$	(95,645)	$	(117,321)	$	(190,266)	$	(208,962)
Denominator:
Weighted average common shares used in calculation of basic net loss per share:	119,602		109,580		119,267		106,328
Effect of dilutive securities:
Common stock options	—		—		—		—
Restricted stock and RSUs	—		—		—		—
PSUs	—		—		—		—
Convertible debt securities	—		—		—		—
Weighted average common shares outstanding used in calculation of diluted net loss per share	119,602		109,580		119,267		106,328
Net loss per share:
Basic and diluted	$	(0.80)	$	(1.07)	$	(1.60)	$	(1.97)

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

 

	June 30,
	2022	2021
Common stock options	17,806	14,449
Unvested restricted stock and RSUs	1,619	1,125
PSUs	670	—
Convertible debt securities	23,438	23,438

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

The Company is exposed to risks associated with extending credit to customers related to the sale of products. The Company does not require collateral to secure amounts due from its customers. The Company uses an expected loss methodology to calculate allowances for trade receivables. The Company's measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company does not currently have a material allowance for collectible trade receivables. The following table presents the percentage of gross product revenue represented by the Company's three largest customers as of the six months ended June 30, 2022 and 2021.

	June 30,
	2022	2021
Customer A	36%	25%
Customer B	32%	23%
Customer C	19%	—%

The Company relies on third-party manufacturers and suppliers for manufacturing and supply of its products. The inability of the suppliers or manufacturers to fulfill supply requirements of the Company could materially impact future

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operating results. A change in the relationship with the suppliers or manufacturers, or an adverse change in their business, could materially impact future operating results.

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

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

The following table presents a summary of the Company's product revenues, net, by geographic location for the three and six months ended June 30, 2022 and 2021 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
US	$	47,190	$	41,754	$	87,972	$	79,008
Japan	15,849		—		26,525		—
Europe and rest of world	2,182		3,612		3,831		6,572
Total product revenues, net	$	65,221	$	45,366	$	118,328	$	85,580

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

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

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

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mandated discounts applicable to government-funded programs, (iii) a range of possible outcomes that are probability-weighted for the estimated payor mix, and (iv) information obtained from the Company's specialty pharmacies.

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

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

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

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

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

Cost of product revenues (excluding amortization of intangible assets) consist primarily of direct and indirect costs related to the manufacturing of ARIKAYCE sold, including third-party manufacturing costs, packaging services, freight, and allocation of overhead costs, in addition to royalty expenses and revenue-based milestone payments. Cost is determined using a standard cost method, which approximates actual cost, and assumes a FIFO flow of goods.

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

Business combinations and asset acquisitions - The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, Business Combinations, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

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

If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring

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entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values.

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

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

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

Impairment Assessment - The Company reviews the recoverability of its finite-lived intangible assets and long-lived assets for indicators of impairments. Events or circumstances that may require an impairment assessment include negative clinical trial results, a significant decrease in the market price of the asset, or a significant adverse change in legal factors or the manner in which the asset is used. If such indicators are present, the Company assesses the recoverability of affected assets by determining if the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found to not be recoverable, the Company measures the amount of the impairment by comparing to the carrying value of the assets to the fair value of the assets. The Company determined that no indicators of impairment of finite-lived intangible assets or long-lived assets existed at June 30, 2022.

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

Leases - A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly identified property, plant or equipment in exchange for consideration. Control of an asset is conveyed to the Company if the Company obtains the right to obtain substantially all of the economic benefits of the asset or the right to direct the use of the asset. The Company recognizes right-of-use (ROU) assets and lease liabilities at the lease commencement date based on the present value of future, fixed lease payments over the term of the arrangement. ROU assets are amortized on a straight-line basis over the term of the lease or are amortized based on consumption, if this approach is more representative of the pattern in

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which benefit is expected to be derived from the underlying asset. Lease liabilities accrete to yield and are reduced at the time when the lease payment is payable to the vendor. Variable lease payments are recognized at the time when the event giving rise to the payment occurs and are recognized in the consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments.

Leases are measured at present value using the rate implicit in the lease or, if the implicit rate is not determinable, the lessee's implicit borrowing rate. As the implicit rate is not typically available, the Company uses its implicit borrowing rate based on the information available at the lease commencement date to determine the present value of future lease payments. The implicit borrowing rate approximates the rate the Company would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.

Refer to Note 7 - Leases for details about the Company's lease portfolio, including required disclosures.

Recently Adopted Accounting Pronouncements - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also promote consistent application of and simplify US generally accepted accounting principles (GAAP) for other areas of Topic 740 by clarifying and amending the existing guidance. For public business entities, the guidance was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. The Company adopted this guidance January 1, 2021. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements and accompanying notes.

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

3.            Inventory

As of June 30, 2022 and December 31, 2021, the Company's inventory balance consists of the following (in thousands):

	June 30, 2022		December 31, 2021
Raw materials	$	29,320	$	29,541
Work-in-process	15,908		18,528
Finished goods	21,789		18,940
	$	67,017	$	67,009

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

4.                                      Intangibles, Net and Goodwill

 Intangibles, Net

Finite-lived Intangible Assets

As of June 30, 2022, the Company's finite-lived intangible assets consisted of acquired ARIKAYCE R&D and the milestones paid to PARI Pharma GmbH (PARI) for the license to use PARI's Lamira® Nebulizer System (Lamira) for the delivery of ARIKAYCE to patients as a result of the FDA and EC approvals of ARIKAYCE in September 2018 and October 2020, respectively. The Company began amortizing its acquired ARIKAYCE R&D and PARI milestones intangible assets in

16

October 2018, over ARIKAYCE's initial regulatory exclusivity period of 12 years. Amortization of these assets during each of the next five years is estimated to be approximately $5.1 million per year.

Indefinite-lived Intangible Assets

As of June 30, 2022, the Company's indefinite-lived intangible assets consisted of acquired in process research and development (IPR&D) from the Business Acquisition (Note 13). Indefinite-lived intangible assets are not amortized.

A rollforward of the Company's intangible assets for the six months ended June 30, 2022 and June 30, 2021 is as follows (in thousands):

Intangible Asset	December 31, 2021		Additions		Amortization		June 30, 2022
Acquired ARIKAYCE R&D	$	42,439	$	—	$	(2,425)	$	40,014
Acquired IPR&D	29,600		—		—		29,600
PARI milestones	1,770		—		(101)		1,669
	$	73,809	$	—	$	(2,526)	$	71,283
Intangible Asset	December 31, 2020		Additions		Amortization		June 30, 2021
Acquired ARIKAYCE R&D	$	47,289	$	—	$	(2,425)	$	44,864
PARI milestones	1,972		—		(101)		1,871
	$	49,261	$	—	$	(2,526)	$	46,735

Goodwill

The Company's goodwill balance of $136.1 million as of June 30, 2022, resulted from the Business Acquisition (Note 13). 

5.    Fixed Assets, Net

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

Asset Description	Estimated Useful Life (years)	June 30, 2022		December 31, 2021
Lab equipment	7	$	14,144	$	11,862
Furniture and fixtures	7	6,306		5,799
Computer hardware and software	3-5	7,053		7,264
Office equipment	7	89		89
Manufacturing equipment	7	1,203		1,145
Leasehold improvements	2-10	37,009		36,073
Construction in progress (CIP)	—	27,447		27,784
		93,251		90,016
Less: accumulated depreciation		(39,305)		(37,061)
		$	53,946	$	52,955

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6.                                      Accrued Liabilities

As of June 30, 2022 and December 31, 2021, the Company's accrued liabilities balance consists of the following (in thousands):

 

	June 30, 2022		December 31, 2021
Accrued clinical trial expenses	$	17,019	$	19,410
Accrued professional fees	11,336		10,678
Accrued technical operation expenses	4,816		6,187
Accrued royalty payable	7,182		6,655
Accrued interest payable	2,175		2,175
Accrued sales allowances and related costs	11,470		8,275
Deferred consideration	3,459		4,883
Accrued construction costs	105		551
Other accrued liabilities	1,208		1,851
	$	58,770	$	60,665

7.                                    Leases

The Company's lease portfolio consists primarily of office and laboratory space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's leases of its corporate headquarters and a research facility in San Diego, which are classified as finance leases. The terms of the Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred. These short-term leases are not material to the Company's financial position. Furthermore, the Company does not separate lease and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees and it does not sublease any of its leased assets.

The Company outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, the Company has the right to direct how and for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with the manufacturing facilities is the sum of the minimum guarantees over the life of the production contracts.

The Company also records variable consideration for variable lease payments in excess of fixed fees or minimum guarantees. Variable consideration related to the Company's leasing arrangements was $1.5 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $1.6 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively. Variable costs related to CMO manufacturing agreements are direct costs related to the manufacturing of ARIKAYCE and are capitalized within inventory in the Company's consolidated balance sheet, while the variable costs related to other leasing arrangements, not related to the manufacturing of ARIKAYCE, have been classified within operating expenses in the Company's consolidated statements of comprehensive loss.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	9,287	$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	166	$	2,100	$	507	$	8,641

In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company entered into certain agreements with Patheon UK Limited (Patheon) related to increasing its long-term production capacity for ARIKAYCE commercial inventory. The Company has determined that these agreements with Patheon contain an embedded lease for the manufacturing facility and the specialized equipment contained therein. Costs of $36.3 million incurred by the

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Company under these additional agreements have been classified within other assets in the Company's consolidated balance sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to establish an operating lease ROU asset and operating lease liability.

8.                                    Debt

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

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

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

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

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

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immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, or (v) if the Company sends a notice of redemption, a holder may surrender all or any portion of its convertible notes to which the notice of redemption relates for conversion at any time on or after the date the applicable notice of redemption was sent until the close of business on (a) the second business day immediately preceding the related redemption date or (b) if the Company fails to pay the redemption price on the redemption date as specified in such notice of redemption, such later date on which the redemption price is paid. To date, there have not been any holder-initiated redemption requests of either series of convertible notes.

Each series of convertible notes can be settled in cash, common stock, or a combination of cash and common stock at the Company's option, and thus, the Company determined the embedded conversion options in both series of convertible notes are not required to be separately accounted for as a derivative. The 2025 Convertible Notes and 2028 Convertible Notes have remaining terms of approximately 2.54 years and 5.92 years, respectively. The following table presents the carrying value of the Company's debt balance (in thousands):

 

	June 30, 2022		December 31, 2021
Face value of outstanding convertible notes	$	800,000	$	800,000
Debt issuance costs, unamortized	(16,023)		(11,539)
Discount on debt	—		(221,873)
Debt, long-term	$	783,977	$	566,588

As of June 30, 2022, future principal repayments of the notes for each of the years through maturity were as follows (in thousands):

 

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

Interest Expense

Interest expense related to debt and finance leases for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Contractual interest expense	$	2,062	$	2,052	$	4,125	$	4,021
Amortization of debt issuance costs	821		457		1,643		807
Accretion of debt discount	—		7,482		—		12,389
Total convertible debt interest expense	2,883		9,991		5,768		17,217
Finance lease interest expense	474		328		880		661
Interest expense	$	3,357	$	10,319	$	6,648	$	17,878

In accordance with the Company's transition using the modified retrospective method upon adopting ASU 2020-06, Debt — Accounting for Convertible Instruments, on January 1, 2022, the Company ceased accreting debt discount.

9.                                      Shareholders’ Equity

Common Stock — As of June 30, 2022, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 per share and 119,865,023 shares of common stock issued and outstanding. In addition, as of June 30, 2022, the Company had reserved 17,805,766 shares of common stock for issuance upon the exercise of outstanding stock options, 1,619,225 shares of common stock for issuance upon the vesting of RSUs and 670,168 shares for issuance upon the vesting of PSUs. The Company has also reserved 23,438,430 shares of common stock in the aggregate for issuance upon conversion of the 2025 Convertible Notes and 2028 Convertible Notes, subject to adjustment in accordance with the applicable indentures. In

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connection with the Business Acquisition, the Company reserved 9,406,112 shares of the Company’s common stock, subject to certain closing-related reductions. The shares of the Company’s common stock reserved in connection with the Motus acquisition were partly issued as acquisition consideration at closing, and will also be issued upon the first, second and third anniversaries of the closing date of the acquisition and upon the achievement of certain development and regulatory milestone events, subject to certain reductions. The shares of the Company’s common stock reserved in connection with the AlgaeneX acquisition will be issued upon the achievement of a development milestone event, subject to certain reductions.

Of the 9,406,112 shares reserved, subject to certain closing-related reductions, the Company issued 2,889,367 shares of the Company's common stock in connection with the Business Acquisition (Note 13) in the third quarter of 2021, after certain closing-related deductions.

In the second quarter of 2021, the Company completed an underwritten public offering of 11,500,000 shares of the Company's common stock, including 1,500,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares from the Company, at a public offering price of $25.00 per share. The Company's net proceeds from the sale of the shares, after deducting the underwriting discounts and offering expenses of $17.5 million, were $270.1 million.

In the first quarter of 2021, the Company entered into a sales agreement with SVB Leerink LLC (now known as SVB Securities LLC) (SVB Securities), to sell shares of the Company's common stock, with aggregate gross sales proceeds of up to $250.0 million, from time to time, through an “at the market” equity offering program (the ATM program), under which SVB Securities acts as sales agent. As of June 30, 2022, the Company had not sold or issued any shares under the ATM program.

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

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

10.                                Stock-Based Compensation

The Company's current equity compensation plan, the Insmed Incorporated 2019 Incentive Plan (as amended, the 2019 Incentive Plan), was approved by shareholders at the Company's Annual Meeting of Shareholders in May 2019. The 2019 Incentive Plan is administered by the Compensation Committee of the Board of Directors of the Company. Under the terms of the 2019 Incentive Plan, the Company is authorized to grant a variety of incentive awards based on its common stock, including stock options (both incentive stock options and non-qualified stock options), RSUs, performance options/shares and other stock awards to eligible employees and non-employee directors. On May 16, 2019, upon the approval of the 2019 Incentive Plan by shareholders, 3,500,000 shares were authorized for issuance thereunder, plus any shares subject to then-outstanding awards under the Company's 2017 Incentive Plan, the 2015 Incentive Plan and the 2013 Incentive Plan that subsequently were canceled, terminated unearned, expired, were forfeited, lapsed for any reason or were settled in cash without the delivery of shares. On May 12, 2020, at the Company's 2020 Annual Meeting of Shareholders, the Company's shareholders approved an amendment of the 2019 Incentive Plan providing for the issuance of an additional 4,500,000 shares under the plan. On May 12, 2021, at the Company's 2021 Annual Meeting of Shareholders, the Company's shareholders approved the second amendment to the 2019 Incentive Plan providing for the issuance of an additional 2,750,000 shares under the plan. On May 11, 2022, at the Company's 2022 Annual Meeting of Shareholders, the Company's shareholders approved the third amendment to the 2019 Incentive Plan, providing for the issuance of an additional 3,000,000 shares under the plan. As of June 30, 2022, 2,145,104 shares remain available for future issuance under the 2019 Incentive Plan. The 2019 Incentive Plan will terminate on May 16, 2029 unless it is extended or terminated earlier pursuant to its terms. In addition, from time to time, the Company makes inducement grants of stock options to new hires, which awards are made pursuant to the Nasdaq's inducement grant exception to the shareholder approval requirement for grants of equity compensation. During the six months ended June 30, 2022, the Company granted inducement stock options covering 471,790 shares of the Company's common stock to new employees.

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

Stock Options — As of June 30, 2022, there was $122.5 million of unrecognized compensation expense related to unvested stock options.

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

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

Restricted Stock Units — As of June 30, 2022, there was $32.5 million of unrecognized compensation expense related to unvested RSU awards.

Performance Stock Units — In January 2022, the Company issued 271,612 PSUs. For these PSUs, there are two performance conditions, a service condition, and a market condition. The performance conditions are the issuance of a press release announcing certain top-line results from a clinical trial and the acceptance of a new drug application (NDA) by the FDA for brensocatib. The service condition is continuous employment with the Company through the later of the third anniversary of the grant date of the PSU award and the date an NDA for brensocatib is accepted by the FDA. The potential payout of the awards ranges from 0% to 250% of the target, dependent on a market condition that is based on the Company's total shareholder return compared to a defined peer group. Due to the multiple vesting conditions, uncertain timing and variable payout of these PSUs, a Monte Carlo simulation was performed to determine the fair value of the awards. Compensation cost will be recognized on the date the performance conditions become probable, with an initial recording of the cumulative expense that would have been recognized if the PSU expense had been recognized on a straight-line basis since the date of grant. The remaining unamortized fair value of the awards will then be expensed prospectively on a straight-line basis over the remaining service period. Since the market condition is reflected in the grant-date fair value and is not a condition for the award to vest, it does not impact the requisite service period. The volatility, risk-free interest rate and weighted-average grant date fair value of the PSUs granted are 65.4%, 1.03% and $39.12, respectively. Any forfeitures that occur after compensation cost recognition commences will result in the cumulative reversal of expense in the period in which the forfeiture occurs. As of June 30, 2022, there was $10.5 million of unrecognized compensation expense related to unvested PSU awards, which assumes a payout of 100% of the target.

The following table summarizes the aggregate stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to stock options and RSUs during the three and six months ended June 30, 2022 and 2021, respectively (in millions): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	6.7	$	4.4	$	12.3	$	8.1
Selling, general and administrative	7.6		7.4		14.8		14.2
Total	$	14.3	$	11.8	$	27.1	$	22.3

There was no stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to PSUs during the three and six months ended June 30, 2022, as the performance conditions associated with the PSU awards were not probable as of June 30, 2022.

11.                                 Income Taxes

The Company recorded a provision for income taxes of $0.5 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and $0.9 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively. The provisions are primarily a result of certain of the Company's international subsidiaries, which had taxable income during the periods. Additionally, the Company is impacted by certain state taxes which effectively impose income tax on modified gross revenues. In jurisdictions where the Company has net losses, there was a full valuation allowance recorded against the Company's deferred tax assets and therefore no tax benefit was recorded.

The Company is subject to US federal and state income taxes and the statute of limitations for tax audit is open for the Company's federal tax returns for the years ended 2018 and later, and is generally open for certain states for the years 2017 and later. The Company has incurred net operating losses since inception, except for the year ended December 31, 2009. Such loss carryforwards would be subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. As of June 30, 2022 and December 31, 2021, the Company had recorded reserves for unrecognized income tax benefits against certain deferred tax assets in the US. However, given the Company’s valuation allowance position, these reserves do not have an impact on the balance sheet as of June 30, 2022 and December 31, 2021 or the consolidated statements of comprehensive loss for the three and six months ended June 30, 2022 and 2021. The Company has not recorded any accrued interest or penalties related to uncertain tax positions. The Company does not anticipate any material changes in the amount of unrecognized tax positions over the next 12 months.

12.                               Commitments and Contingencies

Rent expense charged to operations was $1.9 million and $1.1 million for the three months ended June 30, 2022 and 2021, respectively, and $3.9 million and $2.3 million for the six months ended June 30, 2022 and 2021, respectively.

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Legal Proceedings

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

13.     Business Acquisition

On August 4, 2021, the Company acquired all of the equity interests of Motus and AlgaeneX, each a privately held, preclinical stage company. In connection with the closing of the Company’s acquisition of Motus, the Company issued an aggregate of 2,889,367 shares of the Company’s common stock, following certain closing-related reductions, to Motus’s former stockholders and option holders and certain individuals who are entitled to receive a portion of the acquisition consideration (collectively, Motus equityholders), subject to certain adjustments. The Company is obligated to issue to Motus equityholders an aggregate of 184,433 shares of the Company’s common stock on each of the first, second and third anniversaries of the closing date and up to 5,348,572 shares in the aggregate upon the achievement of certain development and regulatory milestone events, and to pay to the Motus equityholders an aggregate of $35 million upon the achievement of certain net sales-based milestones and a portion of the value of a priority review voucher (to the extent issued to the Company), in each case, subject to certain reductions.

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

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

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

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

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

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

Cautionary Note Regarding Forward-Looking Statements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•failure to obtain, or delays in obtaining, regulatory approvals for ARIKAYCE outside the US, Europe or Japan, or for our product candidates in the US, Europe, Japan or other markets, including separate regulatory approval for Lamira and other product candidate devices in each market and for each usage;

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

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

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

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

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

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

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

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

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

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

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

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

•risk that our operations are subject to a material disruption in the event of a cybersecurity attack or issue;

•business disruptions or expenses related to the upgrade to our enterprise resource planning system;

•our limited experience operating internationally;

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

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

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

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

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

We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Any forward-looking statement is based on information current as of the date of this Quarterly Report on Form 10-Q and speaks only as of the date on which such statement is made. Actual events or results may differ materially from the results, plans, intentions or expectations anticipated in these forward-looking statements as a result of a variety of factors, many of which are beyond our control. More information on factors that could cause actual results to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (SEC), including, but not limited to, those described in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q and included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021.

OVERVIEW

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

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

Our clinical-stage pipeline includes brensocatib and TPIP. Brensocatib is a small molecule, oral, reversible inhibitor of DPP1, which we are developing for the treatment of patients with bronchiectasis, CF and other neutrophil-mediated diseases, including CRSsNP and HS. TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for PH-ILD and PAH.

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

Principal Product/Product Candidate	Status	Next Expected Milestones
ARIKAYCE for MAC lung disease	• We continue to focus on the commercialization of ARIKAYCE. We commenced commercial shipments of ARIKAYCE in the US in October 2018, in Europe in November 2020, and in Japan in July 2021. • In December 2020, we commenced the post-marketing confirmatory frontline clinical trial program for ARIKAYCE in patients with MAC lung disease, consisting of the ARISE trial and the ENCORE trial. We are currently enrolling patients for these trials and are running these global studies in parallel.	• We will continue to advance the post-marketing confirmatory, frontline clinical trial program for ARIKAYCE. In ARISE, we anticipate completing enrollment by the end of 2022 and sharing data during 2023. In ENCORE, we anticipate completing enrollment by the end of 2023.
Brensocatib (oral reversible inhibitor of DPP1) for bronchiectasis and other neutrophil-mediated diseases	• In June 2020, we announced full results from our global, randomized, double-blind placebo-controlled Phase 2 WILLOW study, which were published online in the New England Journal of Medicine in September 2020. • In December 2020, we commenced a Phase 3 trial (the ASPEN trial) through which we will seek to confirm the positive results seen in the WILLOW study. We are currently enrolling patients globally for this trial.	• We will continue to advance the ASPEN trial and anticipate completing enrollment in the first quarter of 2023. • We are advancing a clinical development program for brensocatib in CF. The Phase 2 pharmacokinetics/pharmacodynamics multiple-dose study is underway, and we anticipate having results from the CF transmembrane conductance regulator (CFTR) arm of the study by the end of 2022. • We plan to explore the potential of brensocatib in additional neutrophil-mediated diseases, including CRSsNP and HS.
TPIP (dry-powder inhalation formulation of a treprostinil prodrug) for PH-ILD and PAH	• In February 2021, we announced topline results from the Phase 1 study of TPIP in healthy volunteers. Data from the study supports continued development into Phase 2 with once-daily dosing. • We are advancing the development of TPIP in both PH-ILD and PAH. • We currently have two parallel Phase 2 studies ongoing, both with a 16-week treatment period: a study in patients with PH-ILD to assess safety and tolerability; and a study in PAH patients to evaluate the effect of TPIP on pulmonary vascular resistance (PVR) and six-minute walk distance.	• We will continue to advance our Phase 2 development work in both PH-ILD and PAH.

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

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Our Strategy

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

Our current priorities are as follows:

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

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

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

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

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

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

•Advance the brensocatib program in CF and other neutrophil mediated diseases, such as CRSsNP and HS;

•Advance the Phase 2 TPIP development programs;

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

•Expand our pipeline through corporate development.

 ARIKAYCE for Patients with MAC Lung Disease

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

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

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

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In October 2020, the FDA approved an sNDA for ARIKAYCE, adding important efficacy data regarding the durability and sustainability of culture conversion to the ARIKAYCE label. The data, which are from the Phase 3 CONVERT study of ARIKAYCE, demonstrate that the addition of ARIKAYCE to guideline-based therapy (GBT) was associated with sustained culture conversion through the end of treatment as well as durable culture conversion three months post-treatment compared with GBT alone.

Accelerated Approval

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

As a condition of accelerated approval, we must conduct a post-marketing confirmatory clinical trial. In December 2020, we commenced the post-marketing confirmatory frontline clinical trial program for ARIKAYCE in patients with MAC lung disease. The frontline clinical trial program consists of the ARISE trial, an interventional study designed to validate cross-sectional and longitudinal characteristics of a PRO tool in MAC lung disease, and the ENCORE trial, designed to establish the clinical benefits and evaluate the safety of ARIKAYCE in patients with newly diagnosed MAC lung disease using the PRO tool validated in the ARISE trial. We are running these global studies in parallel and approximately 200 sites are expected to be initiated for these clinical trials. The frontline clinical program is intended to fulfill the FDA’s post-marketing requirement to allow for full approval of ARIKAYCE by the FDA, and verification and description of clinical benefit in the ENCORE trial will be necessary for full approval of ARIKAYCE.

Regulatory Pathway Outside of the US

In October 2020, the EC granted marketing authorization for ARIKAYCE for the treatment of NTM lung infections caused by MAC in adults with limited treatment options who do not have CF. We have launched ARIKAYCE in Germany, the Netherlands, Wales, and Scotland, and plan to launch in other European Union (EU) countries and the UK, subject to local reimbursement processes. Effective September 1, 2022, patient supply of ARIKAYCE in Germany will be enabled by import from other EU countries. We have worked with the German National Association of Statutory Health Insurance Funds (GKV-SV) towards an agreement on the price of ARIKAYCE that would allow us effectively to serve the needs of patients in Germany; however, to date, we have been unable to reach an agreement. Ensuring an uninterrupted supply of medicine for patients in Germany is our top priority, and we are working to ensure that physicians and pharmacists have the information they need to obtain ARIKAYCE for their patients through the importation pathway. Discussions remain ongoing with the GKV-SV with the goal of reaching an agreement and re-initiating direct access to ARIKAYCE.

In March 2021, Japan's MHLW approved ARIKAYCE for the treatment of patients with NTM lung disease caused by MAC who did not sufficiently respond to prior treatment with a multidrug regimen. In July 2021, we launched ARIKAYCE in Japan.

Further Research and Lifecycle Management

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

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

The ENCORE trial is a randomized, double-blind, placebo-controlled Phase 3b study to evaluate the efficacy and safety of an ARIKAYCE-based regimen in patients with newly diagnosed MAC lung disease. Patients will be randomized 1:1 to receive ARIKAYCE plus background regimen or placebo plus background regimen once daily for 12 months. Patients will then discontinue all study treatments and remain in the trial for three months for the assessment of durability of culture conversion. The primary endpoint is change from baseline to Month 13 in respiratory symptom score. The key secondary endpoint is the proportion of subjects achieving durable culture conversion at Month 15. The study is currently enrolling patients and is expected to enroll approximately 250 patients. We anticipate completing enrollment by the end of 2023.

We initiated the frontline clinical trial program of ARIKAYCE in December 2020 and are running the ARISE and ENCORE trials in parallel in approximately 200 sites.

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

Product Pipeline

Brensocatib

Brensocatib is a small molecule, oral, reversible inhibitor of DPP1, which we licensed from AstraZeneca in October 2016. DPP1 is an enzyme responsible for activating neutrophil serine proteases (NSPs) in neutrophils when they are formed in the bone marrow. Neutrophils are the most common type of white blood cell and play an essential role in pathogen destruction and inflammatory mediation. Neutrophils contain the NSPs (including neutrophil elastase, proteinase 3, and cathepsin G) that have been implicated in a variety of inflammatory diseases. In chronic inflammatory lung diseases, neutrophils accumulate in the airways and result in excessive active NSPs that cause lung destruction and inflammation. Brensocatib may decrease the damaging effects of inflammatory diseases such as bronchiectasis by inhibiting DPP1 and its activation of NSPs.

Based on the positive results of the WILLOW study discussed below, in December 2020 we commenced our Phase 3 trial, ASPEN, which will investigate brensocatib in bronchiectasis. ASPEN is a global, randomized, double-blind, placebo-controlled Phase 3 study to assess the efficacy, safety, and tolerability of brensocatib in patients with bronchiectasis. Patients with bronchiectasis due to CF may not be enrolled in the study. Patients will be randomized to receive brensocatib 10 mg, brensocatib 25 mg, or placebo once daily for 52 weeks. The primary endpoint is the rate of pulmonary exacerbations over the 52-week treatment period. Secondary endpoints include time to first pulmonary exacerbation, percentage of subjects who remain pulmonary exacerbation-free, change from baseline in post-bronchodilator FEV1, rate of severe pulmonary exacerbations, change from baseline in the Bronchiectasis (QOL-B) Respiratory Symptoms Domain Score, and incidence and severity of treatment-emergent adverse events (AEs). This study is currently enrolling patients and is expected to enroll approximately 1,620 patients (540 in each arm) at approximately 460 sites in 40 countries. We anticipate completing enrollment in the first quarter of 2023.

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

In June 2020, the FDA granted breakthrough therapy designation for brensocatib for the treatment of adult patients with non-cystic fibrosis bronchiectasis (NCFBE) for reducing exacerbations. The FDA's breakthrough therapy designation is designed to expedite the development and review of therapies that are intended to treat serious or life-threatening diseases and for which preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy. The benefits of breakthrough therapy designation include more frequent communication and meetings with FDA,

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eligibility for rolling and priority review, intensive guidance on an efficient drug development program, and organizational commitment from the FDA involving senior managers. In November 2020, brensocatib was granted access to the PRIME scheme from the European Medicines Agency (EMA) for patients with NCFBE.

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

The WILLOW Study

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

WILLOW Efficacy Data

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

WILLOW Safety and Tolerability Data

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

Further Research and Development

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

We are currently advancing a clinical development program for brensocatib in CF. The CF Therapeutics Development Network (CFTDN) has sanctioned our study protocol for brensocatib in CF. The CFTDN is an organization composed of specialists in CF clinical research and is the largest CF clinical trials network globally. Feedback from the CFTDN does not have any bearing on FDA regulatory approval. The Phase 2, multiple-dose, pharmacokinetics/pharmacodynamics study, which includes both patients who are on background CFTR modulator drugs and patients who are not on CFTR modulator drugs, is underway. We have completed enrollment in the CFTR modulator group and are on track to have results from this arm of the study by the end of 2022. We also plan to explore the potential of brensocatib in additional neutrophil-mediated diseases, including CRSsNP and HS.

Market Opportunity for brensocatib in bronchiectasis

Bronchiectasis is a severe, chronic pulmonary disorder in which the bronchi become permanently dilated due to a cycle of infection, inflammation, and lung tissue damage. The condition is marked by frequent pulmonary exacerbations requiring antibiotic therapy and/or hospitalizations. Symptoms include chronic cough, excessive sputum production, shortness of breath, and repeated respiratory infections, which can worsen the underlying condition. Based on information from external sources, including market research funded by us and third parties, and internal analyses and calculations, we estimate the potential addressable market at launch in the US, the European 5 (comprised of France, Germany, Italy, Spain and the UK) and Japan will be as follows (approximately):

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Potential Market	Estimated Number of Patients Diagnosed with Bronchiectasis
United States	450,000
European 5	400,000
Japan	150,000

Today, there are no approved therapies in the US, Europe, or Japan for the treatment of patients with bronchiectasis.

Treprostinil Palmitil Inhalation Powder

TPIP is an investigational inhaled formulation of a treprostinil prodrug that has the potential to address certain of the current limitations of existing prostanoid therapies. We believe that TPIP prolongs duration of effect and may provide patients with 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 has the potential to ease patient burden and improve compliance. Additionally, we believe that TPIP may be associated with fewer side effects, including severity and/or frequency of cough, headache, throat irritation, nausea, flushing and dizziness that are associated with high initial drug levels and local upper airway exposure when using current inhaled prostanoid therapies. We believe TPIP may offer a differentiated product profile for PH-ILD and PAH.

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

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

We are advancing the development of TPIP with two studies in patients with PAH. The first is an open-label, proof-of-mechanism study to understand the impact of a single dose of TPIP on PVR over a 24-hour period. The second will aim to investigate the effect of TPIP on PVR and six-minute walk distance over a 16-week treatment period using an up-titration, once-daily dosing schedule. One patient has completed the 24-hour period study at a dose of 112.5 micrograms. This patient also went on to complete the 16-week extension period study and was titrated to a dose of 320 micrograms once daily, which was found to be safe and tolerable. We did not observe any safety concerns with TPIP, and the data suggested a trend towards improvement in various cardiac measures during the study period. Beyond PAH, we continue to explore potential development pathways for TPIP in patients with other rare pulmonary disorders, including PH-ILD. We initiated a Phase 2 study in patients with PH-ILD using an up-titration, once-daily dosing schedule in early 2022.

Translational Medicine

Our translational medicine efforts are comprised of the Company’s preclinical programs, advanced through our internal research and development and augmented through business development activities. In March 2021, we acquired a proprietary protein deimmunization platform, called Deimmunized by Design, focused on the reengineering of therapeutic proteins to evade immune recognition and reaction. In August 2021, we acquired Motus and AlgaeneX, preclinical stage companies engaged in the research, development and manufacturing of gene therapies for rare genetic disorders. We believe that animal studies may demonstrate the viability of these potential medicines to address serious unmet medical needs in various therapeutic areas.

Corporate Development

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

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KEY COMPONENTS OF OUR RESULTS OF OPERATIONS

Product Revenues, Net

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

Cost of Product Revenues (Excluding Amortization of Intangible Assets)

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

Research and Development (R&D) Expenses

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

Selling, General and Administrative (SG&A) Expenses

SG&A expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for our non-employee directors and personnel serving in our executive, finance and accounting, legal and compliance, commercial and pre-commercial, corporate development, field sales, information technology and human resource functions. SG&A expenses also include professional fees for legal services, consulting services, including commercial activities, insurance, board of director fees, tax and accounting services and certain milestones related to ARIKAYCE.

Amortization of Intangible Assets

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

Change in Fair Value of Deferred and Contingent Consideration Liabilities

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

Investment Income and Interest Expense

Investment income consists of interest and dividend income earned on our cash and cash equivalents and marketable securities. Interest expense consists primarily of the accretion of debt discount, contractual interest costs and the amortization of debt issuance costs related to our debt. Debt discount was accreted prior to the adoption of ASU 2020-06, and debt issuance costs are amortized, to interest expense using the effective interest rate method over the term of the debt. Our balance sheet

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reflects debt, net of the debt discount, debt issuance costs paid to the lender, and other third-party costs. Unamortized debt issuance costs associated with extinguished debt are expensed in the period of the extinguishment.

RESULTS OF OPERATIONS

COVID-19 Update

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

Though we continue to see use of ARIKAYCE, including new patient adds and continued prescription renewals, there remains a general uncertainty regarding the impact of COVID-19 on all aspects of our business, including how it will impact our patients, physicians, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially affect our financial results and business operations through the six months ended June 30, 2022, we are unable to predict the impact that COVID-19 will have on our financial position and operating results in future periods due to these and other numerous uncertainties. We will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary.

Comparison of the Three Months Ended June 30, 2022 and 2021

Overview - Operating Results

Our operating results for the three months ended June 30, 2022, included the following:

•Product revenues, net, increased $19.9 million as compared to the same period in the prior year as a result of the growth in ARIKAYCE sales;

•Cost of product revenues (excluding amortization of intangible assets) increased $5.6 million as compared to the same period in the prior year as a result of the increase in sales volumes of ARIKAYCE;

•R&D expenses increased $23.9 million as compared to the same period in the prior year primarily resulting from increases in clinical development and research costs for our ongoing clinical trials;

•SG&A expenses increased $2.8 million as compared to the same period in the prior year resulting primarily from increases in other internal expenses due to resuming certain internal commercial activities and increased travel expenses;

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

•Change in fair value of contingent consideration liabilities was $(12.6) million, primarily as a result of the change in our share price; and

•Interest expense decreased $7.0 million as compared to the same period in the prior year due to the cessation of accreting debt discount in accordance with the adoption of ASU 2020-06.

Product Revenues, Net

Product revenues, net, consists of net sales of ARIKAYCE. The following table summarizes revenue by geography for the three months ended June 30, 2022 and 2021 (in thousands):

	Three Months Ended June 30,				Increase (decrease)
	2022		2021		$		%
US	$	47,190	$	41,754	$	5,436	13.0%
Japan	15,849		—		15,849		NA
Europe and rest of world	2,182		3,612		(1,430)		(39.6)%
Total product revenues, net	$	65,221	$	45,366	$	19,855	43.8%

Product revenues, net, for the three months ended June 30, 2022 increased to $65.2 million as compared to $45.4 million in the same period in 2021, an increase of 43.8% as a result of the launch of ARIKAYCE in Japan and growth in ARIKAYCE sales in the US.

Cost of Product Revenues (excluding amortization of intangible assets)

Cost of product revenues (excluding amortization of intangible assets) for the three months ended June 30, 2022 and 2021 were comprised of the following (in thousands):

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	Three Months Ended June 30,						Increase (decrease)
	2022			2021			$		%
Cost of product revenues (excluding amortization of intangible assets)	$	16,395		$	10,837		$	5,558	51.3	%
Cost of product revenues, as % of revenues	25.1		%	23.9		%

Cost of product revenues (excluding amortization of intangible assets) increased by $5.6 million, or 51.3%, to $16.4 million for the three months ended June 30, 2022 as compared to $10.8 million in the same period in 2021. The increase in cost of product revenues (excluding amortization of intangibles) in the three months ended June 30, 2022 was primarily attributable to the increase in product revenues discussed above.

R&D Expenses

R&D expenses for the three months ended June 30, 2022 and 2021 were comprised of the following (in thousands):

	Three Months Ended June 30,				Increase (decrease)
	2022		2021		$		%
External Expenses
Clinical development and research	$	31,333	$	23,498	$	7,835	33.3	%
Manufacturing	13,922		9,593		4,329		45.1	%
Regulatory, quality assurance, and medical affairs	5,993		3,313		2,680		80.9	%
Subtotal—external expenses	$	51,248	$	36,404	$	14,844	40.8	%
Internal Expenses
Compensation and benefit related expenses	$	24,469	$	18,914	$	5,555	29.4	%
Stock-based compensation	6,647		4,434		2,213		49.9	%
Other internal operating expenses	6,163		4,903		1,260		25.7	%
Subtotal—internal expenses	$	37,279	$	28,251	$	9,028	32.0	%
Total R&D expenses	$	88,527	$	64,655	$	23,872	36.9	%

R&D expenses increased to $88.5 million during the three months ended June 30, 2022 from $64.7 million in the same period in 2021. The $23.9 million increase was primarily due to a $7.8 million increase in clinical development and research costs related to the ongoing Phase 3 ASPEN trial of brensocatib and the ARIKAYCE frontline clinical trial program. The increase was also due to a $7.8 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in headcount, as well as a $4.3 million increase in manufacturing expenses to support ongoing clinical trials.

External R&D expenses by product for the three months ended June 30, 2022 and 2021 were comprised of the following (in thousands):

	Three Months Ended June 30,				Increase (decrease)
	2022		2021		$		%
ARIKAYCE external R&D expenses	$	17,131	$	13,510	$	3,621	26.8	%
Brensocatib external R&D expenses	20,404		16,203		4,201		25.9	%
Other external R&D expenses	13,713		6,691		7,022		104.9	%
Total external R&D expenses	$	51,248	$	36,404	$	14,844	40.8	%

We expect R&D expenses to continue to increase in 2022 relative to 2021 primarily due to our clinical trial activities and related spend, including our Phase 3 ASPEN trial of brensocatib, our confirmatory clinical trial of ARIKAYCE in a frontline treatment setting for patients with MAC lung disease, our TPIP clinical trials and our research efforts in translational medicine.    

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SG&A Expenses

SG&A expenses for the three months ended June 30, 2022 and 2021 were comprised of the following (in thousands):

 

	Three Months Ended June 30,				Increase (decrease)
	2022		2021		$		%
Compensation and benefit related expenses	$	22,047	$	21,339	$	708	3.3	%
Stock-based compensation	7,612		7,302		310		4.2	%
Professional fees and other external expenses	21,434		22,235		(801)		(3.6)	%
Facility related and other internal expenses	8,881		6,301		2,580		40.9	%
Total SG&A expenses	$	59,974	$	57,177	$	2,797	4.9	%

SG&A expenses increased to $60.0 million during the three months ended June 30, 2022 from $57.2 million in the same period in 2021. The $2.8 million increase resulted primarily from a $2.6 million increase in other internal expenses due to resuming certain internal commercial meetings and increased travel expenses. We expect SG&A expenses to continue to increase due, in part, to commercial readiness activities for brensocatib.

Amortization of Intangible Assets

Amortization of intangible assets for both the three months ended June 30, 2022 and 2021 was $1.3 million. Amortization of intangible assets is comprised of amortization of acquired ARIKAYCE R&D and amortization of the milestones paid to PARI for the FDA and EC approvals of ARIKAYCE.

Change in Fair Value of Deferred and Contingent Consideration Liabilities

The change in fair value of deferred and contingent consideration liabilities for the three months ended June 30, 2022 was $(12.6) million. The change is related to the fair value of the potential future consideration to be paid to former equityholders of the acquired businesses. Adjustments to the fair value are due to changes in: the probability of achieving milestones; our stock price; or certain other estimated assumptions.

Interest Expense

Interest expense decreased to $3.4 million for the three months ended June 30, 2022 as compared to $10.3 million in the same period in 2021 due to the cessation of accreting debt discount in accordance with the adoption of ASU 2020-06.

Comparison of the Six Months Ended June 30, 2022 and 2021

Overview - Operating Results

Our operating results for the six months ended June 30, 2022, included the following:

•Product revenues, net, increased $32.7 million as compared to the same period in the prior year as a result of the growth in ARIKAYCE sales;

•Cost of product revenues (excluding amortization of intangible assets) increased $7.9 million as compared to the same period in the prior year as a result of the increase in sales volumes of ARIKAYCE;

•R&D expenses increased $46.8 million as compared to the same period in the prior year primarily resulting from increases in clinical development and research costs for our ongoing clinical trials;

•SG&A expenses increased $8.0 million as compared to the same period in the prior year resulting primarily from increases in other internal expenses and compensation and benefit related costs;

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

•Change in fair value of contingent consideration liabilities was $(24.2) million, primarily as a result of the change in our share price; and

•Interest expense decreased $11.2 million as compared to the same period in the prior year due to the cessation of accreting debt discount in accordance with the adoption of ASU 2020-06.

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Product Revenues, Net

Product revenues, net, consists of net sales of ARIKAYCE. The following table summarizes revenue by geography for the six months ended June 30, 2022 and 2021 (in thousands):

	Six Months Ended June 30,				Increase (decrease)
	2022		2021		$		%
US	$	87,972	$	79,008	$	8,964	11.3%
Japan	26,525		—		26,525		NA
Europe and rest of world	3,831		6,572		(2,741)		(41.7)%
Total product revenues, net	$	118,328	$	85,580	$	32,748	38.3%

Product revenues, net, for the six months ended June 30, 2022 increased to $118.3 million as compared to $85.6 million in the same period in 2021, an increase of 38.3% as a result of the launch of ARIKAYCE in Japan and growth in ARIKAYCE sales in the US.

Cost of Product Revenues (excluding amortization of intangible assets)

Cost of product revenues (excluding amortization of intangible assets) for the six months ended June 30, 2022 and 2021 were comprised of the following (in thousands):

	Six Months Ended June 30,						Increase (decrease)
	2022			2021			$		%
Cost of product revenues (excluding amortization of intangible assets)	$	28,586		$	20,681		$	7,905	38.2	%
Cost of product revenues, as % of revenues	24.2		%	24.2		%

Cost of product revenues (excluding amortization of intangible assets) increased by $7.9 million, or 38.2%, to $28.6 million for the six months ended June 30, 2022 as compared to $20.7 million in the same period in 2021. The increase in cost of product revenues (excluding amortization of intangibles) in the six months ended June 30, 2022 was attributable to the increase in product revenues discussed above.

R&D Expenses

R&D expenses for the six months ended June 30, 2022 and 2021 were comprised of the following (in thousands):

	Six Months Ended June 30,				Increase (decrease)
	2022		2021		$		%
External Expenses
Clinical development and research	$	64,434	$	46,929	$	17,505	37.3	%
Manufacturing	24,295		16,811		7,484		44.5	%
Regulatory, quality assurance, and medical affairs	10,989		7,205		3,784		52.5	%
Subtotal—external expenses	$	99,718	$	70,945	$	28,773	40.6	%
Internal Expenses
Compensation and benefit related expenses	$	48,964	$	38,411	$	10,553	27.5	%
Stock-based compensation	12,262		8,118		4,144		51.0	%
Other internal operating expenses	11,939		8,571		3,368		39.3	%
Subtotal—internal expenses	$	73,165	$	55,100	$	18,065	32.8	%
Total R&D expenses	$	172,883	$	126,045	$	46,838	37.2	%

R&D expenses increased to $172.9 million during the six months ended June 30, 2022 from $126.0 million in the same period in 2021. The $46.8 million increase was primarily due to a $17.5 million increase in clinical development and research costs related to the ongoing Phase 3 ASPEN trial of brensocatib and the ARIKAYCE frontline clinical trial program. The increase was also due to a $14.7 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in headcount, as well as a $7.5 million increase in manufacturing expenses to support ongoing clinical trials.

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External R&D expenses by product for the six months ended June 30, 2022 and 2021 were comprised of the following (in thousands):

	Six Months Ended June 30,				Increase (decrease)
	2022		2021		$		%
ARIKAYCE external R&D expenses	$	33,809	$	28,150	$	5,659	20.1	%
Brensocatib external R&D expenses	42,130		25,800		16,330		63.3	%
Other external R&D expenses	23,779		16,995		6,784		39.9	%
Total external R&D expenses	$	99,718	$	70,945	$	28,773	40.6	%

We expect R&D expenses to continue to increase in 2022 relative to 2021 primarily due to our clinical trial activities and related spend, including our Phase 3 ASPEN trial of brensocatib, our confirmatory clinical trial of ARIKAYCE in a frontline treatment setting for patients with MAC lung disease, our TPIP clinical trials and our research efforts in translational medicine.    

SG&A Expenses

SG&A expenses for the six months ended June 30, 2022 and 2021 were comprised of the following (in thousands):

 

	Six Months Ended June 30,				Increase (decrease)
	2022		2021		$		%
Compensation and benefit related expenses	$	45,000	$	43,092	$	1,908	4.4	%
Stock-based compensation	14,818		14,152		666		4.7	%
Professional fees and other external expenses	41,175		39,198		1,977		5.0	%
Facility related and other internal expenses	15,729		12,285		3,444		28.0	%
Total SG&A expenses	$	116,722	$	108,727	$	7,995	7.4	%

SG&A expenses increased to $116.7 million during the six months ended June 30, 2022 from $108.7 million in the same period in 2021. The $8.0 million increase resulted primarily from a $3.4 million increase in other internal expenses resulting from increased travel expenses, increased licenses and software fees and resuming certain internal commercial meetings, as well as a $2.6 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in global headcount. We expect SG&A expenses to continue to increase due, in part, to commercial readiness activities for brensocatib.

Amortization of Intangible Assets

Amortization of intangible assets for both the six months ended June 30, 2022 and 2021 was $2.5 million. Amortization of intangible assets is comprised of amortization of acquired ARIKAYCE R&D and amortization of the milestones paid to PARI for the FDA and EC approvals of ARIKAYCE.

Change in Fair Value of Deferred and Contingent Consideration Liabilities

The change in fair value of deferred and contingent consideration liabilities for the six months ended June 30, 2022 was $(24.2) million. The change is related to the fair value of the potential future consideration to be paid to former equityholders of the acquired businesses. Adjustments to the fair value are due to changes in: the probability of achieving milestones; our stock price; or certain other estimated assumptions.

Interest Expense

Interest expense decreased to $6.6 million for the six months ended June 30, 2022 as compared to $17.9 million in the same period in 2021 due to the cessation of accreting debt discount in accordance with the adoption of ASU 2020-06.

LIQUIDITY AND CAPITAL RESOURCES

 Overview

     There is considerable time and cost associated with developing potential pharmaceutical products to the point of regulatory approval and commercialization. We commenced commercial shipments of ARIKAYCE in October 2018. We expect to continue to incur consolidated operating losses, including losses at our US and certain international entities, as we plan to fund R&D for ARIKAYCE, brensocatib, TPIP and our other pipeline programs, continue pre-commercial, commercialization and regulatory activities for ARIKAYCE, and other general and administrative activities.

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

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

In the first quarter of 2021, we entered into a sales agreement with SVB Securities to sell shares of our common stock, with aggregate gross sales proceeds of up to $250.0 million, from time to time, through an ATM program, under which SVB Securities acts as sales agent. As of June 30, 2022, we had not sold or issued any shares under the ATM program.

We may need to raise additional capital to fund our operations, including the Phase 3 ASPEN study, the continued commercialization of ARIKAYCE, the ARISE and ENCORE clinical trials related to ARIKAYCE, launch readiness activities for the potential launch of brensocatib, if approved, other clinical trials for brensocatib, TPIP, and our future product candidates, and to develop, acquire, in-license or co-promote other products or product candidates, including those that address orphan or rare diseases. While we believe we currently have sufficient funds to meet our financial needs for at least the next 12 months, we expect to opportunistically raise additional capital and may do so through equity or debt financing(s), strategic transactions or otherwise. Our cash requirements for the next 12 months will be impacted by a number of factors, the most significant of which we expect to be the ASPEN trial, expenses related to our commercialization efforts and our ARISE and ENCORE clinical trials for ARIKAYCE, and other development activities for brensocatib, and to a lesser extent, expenditures related to the clinical development of TPIP and other product candidates.

Cash Flows

As of June 30, 2022, we had cash and cash equivalents of $416.1 million, as compared with $716.8 million as of December 31, 2021. In addition, as of June 30, 2022, we had marketable securities of $148.6 million. The $300.7 million decrease in cash and cash equivalents was primarily due to the purchase of marketable securities and cash used in operating activities. Our working capital was $560.9 million as of June 30, 2022, as compared with $701.9 million as of December 31, 2021.

Net cash used in operating activities was $207.5 million and $203.7 million for the six months ended June 30, 2022 and 2021, respectively. The net cash used in operating activities during the six months ended June 30, 2022 and 2021 was primarily for the commercial, clinical and manufacturing activities related to ARIKAYCE, as well as other SG&A expenses and clinical trial expenses related to brensocatib and TPIP. The increase in cash used in operating activities for the six months ended June 30, 2022 compared to the corresponding period in 2021 was primarily due to the increase in net loss, excluding the adjustments to reconcile net loss to net cash used in operating activities, partially offset by the decrease in working capital, driven primarily by deposits paid in 2021 to our CROs for our initiated clinical trials and the $12.5 million milestone payment to AstraZeneca in 2021 related to the first dosing in our Phase 3 ASPEN trial.

Net cash used in investing activities was $104.3 million and $4.7 million for the six months ended June 30, 2022 and 2021, respectively. The increase in 2022 is due to purchases of marketable securities.

Net cash provided by financing activities was $12.8 million and $604.3 million for the six months ended June 30, 2022 and 2021, respectively. The decrease in 2022 is due to net cash proceeds from the issuance and extinguishment of debt during the six months ended June 30, 2021.

Contractual Obligations

There were no material changes outside of the ordinary course of business in our contractual obligations during the six months ended June 30, 2022 from those disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Off-Balance Sheet Arrangements

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

CRITICAL ACCOUNTING ESTIMATES

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There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. For the required interim disclosure updates related to our accounting policies and estimates, see Note 2 to our consolidated financial statements — Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q.

ITEM 3.                                                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2022, our cash and cash equivalents were in cash accounts and money market funds. Our investments in money market funds are not insured by the federal government. As of June 30, 2022, our marketable securities were invested in US treasury notes with an original maturity of greater than 90 days.

As of June 30, 2022, we had $800.0 million of convertible notes outstanding. Our 2025 Convertible Notes and our 2028 Convertible Notes bear interest at a coupon rate of 1.75% and 0.75%, respectively. If a 10% change in interest rates had occurred on June 30, 2022, it would not have had a material effect on the fair value of our debt as of that date, nor would it have had a material effect on our future earnings or cash flows.

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

ITEM 4.                                                CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

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

PART II. OTHER INFORMATION

ITEM 1.                                                LEGAL PROCEEDINGS

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

ITEM 1A.                                       RISK FACTORS

Our business is subject to substantial risks and uncertainties. You should carefully consider the risk factors set forth below as well as the other information contained in this Quarterly Report on Form 10-Q and in our other public filings in evaluating our business, including our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 17, 2022. Any of the risks and uncertainties described below and in our other filings with the SEC, either alone or taken together, could materially and adversely affect our business, financial condition, results of operations, prospects for growth, and the value of an investment in our common stock. In addition, these risks and uncertainties could cause actual results to differ materially from those expressed or implied by forward-looking statements contained in this Form 10-Q (please read the Cautionary Note Regarding Forward-Looking Statements in this Form 10-Q).

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

None.

ITEM 5.    OTHER INFORMATION

None.

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ITEM 6.    EXHIBITS

Exhibit Index

3.1	Articles of Incorporation of Insmed Incorporated, as amended through June 14, 2012 (incorporated by reference from Exhibit 3.1 to Insmed Incorporated’s Annual Report on Form 10-K filed on March 18, 2013).
3.2	Amended and Restated Bylaws of Insmed Incorporated (incorporated by reference from Exhibit 3.1 to Insmed Incorporated’s Current Report on Form 8-K filed on March 30, 2020).
10.1**	Employment Agreement, effective as of May 23, 2022, between Insmed Incorporated and J. Drayton Wise.
31.1	Certification of William H. Lewis, Chair and Chief Executive Officer (Principal Executive Officer) of Insmed Incorporated, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2	Certification of Sara Bonstein, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of Insmed Incorporated, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1	Certification of William H. Lewis, Chair and Chief Executive Officer (Principal Executive Officer) of Insmed Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
32.2	Certification of Sara Bonstein, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of Insmed Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101	The following materials from Insmed Incorporated’s quarterly report on Form 10-Q for the quarter ended June 30, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, (ii) Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2022 and 2021, (iii) Consolidated Statements of Shareholders' Equity for the three and six months ended June 30, 2022 and 2021, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021, (v) Notes to the Unaudited Consolidated Financial Statements, and (vi) Cover Page.
104	The cover page from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in iXBRL and contained in Exhibit 101.
* Certain portions of this exhibit have been redacted.
** Management contract or compensatory plan or arrangement.

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SIGNATURE

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

		INSMED INCORPORATED
Date: August 4, 2022	By	/s/ Sara Bonstein
		Sara Bonstein
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EX-10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is effective on May 23, 2022 (the “Effective Date”), by and between Insmed Incorporated, a Virginia corporation (“Insmed”), and J. Drayton Wise (hereinafter, the “Executive” and collectively with Insmed, the “Parties”). When referring to the Executive, the term “he” or “she” throughout this Agreement is intended to be gender neutral.

WITNESSETH:

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

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

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

a.“Accrued Obligations” means:

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

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

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

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

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

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

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

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

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

g.“Cause” means:

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

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

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

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

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

h.“Change in Control” means:

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

ii.During any period of two consecutive years (not including any period prior to the Effective Date) individuals who constitute the Board on the Effective Date (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by Insmed’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual

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whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

iii.Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving Insmed or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of Insmed, or the acquisition of assets or stock of another entity by Insmed or any of its subsidiaries (each a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the Persons who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Insmed or all or substantially all of Insmed’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) of Insmed or such Acquiring Corporation) beneficially owns, directly or indirectly, more than 40% of the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

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

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

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

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

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

d.“Confidential Information” means all trade secrets and information disclosed to the Executive or known by the Executive as a consequence of or through the unique position of his employment with Insmed or any Affiliate (including information conceived, originated, discovered or developed by the Executive and information acquired by Insmed or any Affiliate from others) prior to, on or after the date hereof, and not generally or publicly known (other than as a result of unauthorized disclosure by the Executive), about Insmed or any Affiliate or its business. Confidential Information includes, but is not limited to, inventions, ideas, designs, computer programs, circuits, schematics, formulas, algorithms, trade secrets, works of authorship, mask works, developmental or experimental work, processes, techniques, improvements, methods of manufacturing, know-how, data, financial information and forecasts, product plans, marketing plans and strategies, price lists, customer lists and contractual obligations and terms thereof, data, documentation and other information, in whatever form disclosed, relating to Insmed or any Affiliate, including, but not limited to, financial statements, financial projections, business plans, listings and contractual obligations and terms thereof, components of intellectual property, unique designs, methods of manufacturing or other technology of Insmed or any Affiliate.

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

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

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

h.“Good Reason” means the occurrence of any of the following: (i) a material diminution in the Executive’s base compensation; (ii) a material diminution in the Executive’s authority, duties, or responsibilities; (iii) a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Executive is required to report; (iv) Insmed’s or any Affiliate’s requiring the Executive to be based at any office or location outside of 50 miles from the location of

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employment or service as of the Effective Date, except for travel reasonably required in the performance of the Executive’s responsibilities; or (v) any other action or inaction that constitutes a material breach by Insmed of this Agreement. For purposes of this Agreement, Good Reason shall not be deemed to exist unless the Executive’s termination of employment for Good Reason occurs within six months following the initial existence of one of the conditions specified in clauses (i) through (v) above, the Executive provides Insmed with written notice of the existence of such condition within 90 days after the initial existence of the condition, and Insmed fails to remedy the condition within 30 days after its receipt of such notice.

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

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

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

l.“Restricted Period” shall be the Executive’s period of employment with Insmed and the one year period immediately following the termination thereof.

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

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

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

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

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

3.Duties of Executive. During the Term of Employment, the Executive shall be employed and serve as the Chief Commercial Officer and shall have such duties typically associated with such title, including, without limitation, leading global commercial operations and playing a key management and leadership role for Insmed. The Executive shall faithfully and diligently perform all services consistent with his position as may be assigned to him

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

4.Compensation.

a.Base Salary. The Executive shall receive a Base Salary at the annual rate of $500,000.00 during the Term of Employment, with such Base Salary payable in installments consistent with Insmed’s normal payroll schedule, subject to applicable withholding and other taxes. The Base Salary shall be reviewed, at least annually, for merit increases and may, by action and in the discretion of the Board, be increased at any time or from time to time, but may not be decreased from the then current Base Salary.

b.Bonuses. During the Term of Employment, the Executive shall participate in Insmed’s annual incentive compensation plan, program and/or arrangements applicable to senior-level executives, as established and modified from time to time by the Compensation Committee of the Board in its sole discretion. The Executive shall have a target bonus opportunity under such plan or program equal to 40% of his current Base Salary (the “Target Bonus”). The actual bonus payout, if any, shall be based on the satisfaction of performance criteria to be established by the Compensation Committee of the Board within the first three months of each fiscal year that begins during the Term of Employment. Payment of annual incentive compensation awards shall be made in the same manner and at the same time that other senior-level executives receive their annual incentive compensation awards and, except as otherwise provided herein, will be subject to the Executive’s continued employment through the applicable payment date.

5.Expense Reimbursement and Other Benefits.

a.Reimbursement of Expenses. Upon the submission of proper substantiation by the Executive, and subject to such rules and guidelines as Insmed may from time to time adopt with respect to the reimbursement of expenses of executive personnel, Insmed shall reimburse the Executive for all reasonable expenses actually paid or incurred by the Executive during the Term of Employment in the

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course of and pursuant to the business of Insmed. The Executive shall account to Insmed in writing for all expenses for which reimbursement is sought and shall supply to Insmed copies of all relevant invoices, receipts or other evidence reasonably requested by Insmed.

b.Compensation/Benefit Programs. During the Term of Employment, the Executive shall be entitled to participate in all medical, dental, hospitalization, accidental death and dismemberment, disability, travel and life insurance plans, and any and all other plans as are from time to time offered by Insmed to its executive personnel, including savings, pension, profit-sharing and deferred compensation plans, subject to the general eligibility and participation provisions set forth in such plans; provided, however, that (i) the Executive’s right to participate in such plans will not affect Insmed’s right to amend or terminate any such plan in accordance with the terms of such plan, and (ii) the Executive acknowledges that the Executive will have no vested rights under any such plan except as expressly provided under the terms thereof.

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

d.Stock Options. As a material inducement to entering into this Agreement, the Executive has received an award of restricted stock units (“RSU”) and an option to purchase a number of common shares of Insmed having an aggregate value of $2,100,000. The value of the RSUs is $525,000. The RSUs will vest on a four-year vesting schedule, with twenty-five percent (25%) vesting on each of the first, second, third, and fourth anniversaries of the grant date, so that the entire grant will be fully vested on the fourth anniversary of the grant date, subject to Executive’s continued employment with Insmed on each vesting date. The value of the options is $1,575,000. The number of shares underlying the options will be determined using a Black-Scholes calculation based upon the closing price on the grant date. The exercise price per share will be equal to the fair market value per share determined based upon the closing price of an Insmed common share on the grant date. The options will vest on a four-year vesting schedule, with twenty-five percent (25%) of the shares subject to the option vesting on the first anniversary of the grant date and twelve and one-half percent (12.5%) of the shares subject to the option vesting every six months thereafter through the fourth anniversary of the grant date, so that the entire grant will be fully vested on the fourth anniversary of the grant date, subject to Executive’s continued employment with Insmed on each vesting date. The terms and conditions of the restricted stock unit award and options will be consistent with Insmed’s standard RSU award agreement and stock option award agreement.

e.Vacation. The Executive shall be entitled to take vacation time as per Insmed’s Professional Judgment Vacation Policy. This policy provides the Executive the

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ability, with advanced approval from his manager, to take vacation days as and when appropriate throughout the calendar year.

6.Termination.

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

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

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

d.Death. In the event that the Term of Employment is terminated due to the Executive’s death, the Executive’s estate shall be entitled to (i) the Accrued Obligations, payable as and when those amounts would have been paid had the

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Term of Employment not ended, (ii) any earned but unpaid Bonus in respect to any completed fiscal year that has ended on or prior to the Termination Date, payable within 2 ½ months following the last day of the month in which the Termination Date occurs, (iii) the Pro-Rata Bonus, payable within 2 ½ months following the end of the fiscal year in which the Termination Date occurs, and (iv) any insurance benefits to which he and his beneficiaries are entitled as a result of his death.

e.Termination Without Cause or Resignation with Good Reason. Insmed may terminate the Term of Employment without Cause, and the Executive may terminate the Term of Employment for Good Reason, at any time upon written notice. If the Term of Employment is terminated by Insmed without Cause (other than due to the Executive’s death or Disability) or by the Executive for Good Reason, in either case prior to the date of a Change in Control or more than two years after a Change in Control, the Executive shall be entitled to the following:

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

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

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

iv.The Severance Amount, payable in equal installments consistent with Insmed’s normal payroll schedule over the 12 month period beginning with the first regularly scheduled payroll date that occurs after the later of (a) 30 days following the Termination Date or (b) the effective date of the Release;

v.Provided that the Executive timely elects continued coverage under COBRA, Insmed will reimburse the Executive for the monthly COBRA cost of continued health and dental coverage of the Executive and his qualified beneficiaries paid by the Executive under the health and dental plans of Insmed, less the amount that the Executive would be required to contribute for health and dental coverage if the Executive were an active employee of Insmed, for 12 months (or, if less, for the duration that such COBRA coverage is available to Executive); and

vi.Accelerated vesting of any time-based Equity Awards that would have otherwise vested within 12 months following the Termination Date.

f.Termination by Executive Without Good Reason. The Executive may terminate his employment without Good Reason by providing Insmed 30 days’ written notice of such termination. In the event of a termination of employment by the Executive under this Section 6(f), the Executive shall be entitled only to the Accrued Obligations payable as and when those amounts would have been

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payable had the Term of Employment not ended. In the event of termination of the Executive’s employment under this Section 6(f), Insmed may, in its sole and absolute discretion, by written notice, accelerate such date of termination and still have it treated as a termination without Good Reason.

g.Change in Control of Insmed. If the Executive’s employment is terminated by Insmed (or any entity to which the obligations and benefits under this Agreement have been assigned, pursuant to Section 11) without Cause or by the Executive for Good Reason during the 24 month period immediately following a Change in Control, then the Executive shall be entitled to the same payments, rights and benefits described in Section 6(e), subject to the following enhancements:

i.One and a half times the Target Bonus paid in a lump-sum on the first regularly scheduled payroll date that occurs after the later of (a) 30 days following the Termination Date or (b) the effective date of the Release;

ii.the Pro-Rata Bonus, as defined in this Section 6(g), paid in a lump-sum on the first regularly scheduled payroll date that occurs after the later of (a) 30 days following the Termination Date or (b) the effective date of the Release. For the purposes of this Section 6(g), and only this Section 6(g), “Pro-Rata Bonus” means the Target Bonus, as defined in Section 4(b), for the fiscal year in which the Termination Date occurs, multiplied by the following fraction: (x) the number of days that the Executive was employed by Insmed during the fiscal year, divided by (y) 365

iii.One and a half times the Severance Amount paid in a lump-sum on the first regularly scheduled payroll date that occurs after the later of (a) 30 days following the Termination Date or (b) the effective date of the Release

iv.Provided that the Executive timely elects continued coverage under COBRA, Insmed will reimburse the Executive for the monthly COBRA cost of continued health and dental coverage of the Executive and his qualified beneficiaries paid by the Executive under the health and dental plans of Insmed, less the amount that the Executive would be required to contribute for health and dental coverage if the Executive were an active employee of Insmed, for 18 months, rather than 12 months (or, if less, for the duration that such COBRA coverage is available to Executive); and

v.All Equity Awards will vest in full (other than any performance-vesting restricted stock units, which shall vest in accordance with the applicable award agreement).

h.Release. All rights, payments and benefits due to the Executive under this Article 6 (other than the Accrued Obligations or any insurance benefits to which the Executive or his beneficiaries are entitled as a result of the Executive’s death or Disability) shall be conditioned on the Executive’s execution of a separate separation agreement to be provided by Insmed at that time that includes a general release of claims against Insmed and its Affiliates substantially in the form

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attached hereto as Exhibit A (the “Release”) and on that Release becoming effective and irrevocable within 30 days following the Termination Date, or within 45 days if required by law.

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

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

ii.All determinations required to be made under this Section 6(i) shall be made by a tax or compensation consulting firm of national reputation selected by Insmed (the “Consulting Firm”), which shall provide detailed supporting calculations both to Insmed and the Executive within 20 business days of the date of termination or such earlier time as is requested by Insmed and an opinion to the Executive that he has substantial

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authority not to report any excise tax on his Federal income tax return with respect to any Payments. Any such determination by the Consulting Firm shall be binding upon Insmed and the Executive. Within five business days thereafter, Insmed shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement. All fees and expenses of the Consulting Firm incurred in connection with the determinations contemplated by this Section 6(i) shall be borne by Insmed.

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

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

k.Return of Insmed Property. Following the Termination Date, the Executive or his personal representative shall return all Insmed property in his possession,

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

l.Compliance with Section 409A.

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

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

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

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

v.Taxable Reimbursements and In-Kind Benefits.

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a.Any reimbursements by Insmed to the Executive of any eligible expenses under this Agreement that are not excludable from the Executive’s income for Federal income tax purposes (the “Taxable Reimbursements”) shall be made by no later than the last day of the taxable year of the Executive following the year in which the expense was incurred.

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

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

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

7.Restrictive Covenants.

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

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of a group which exercises direct or indirect control of, more than five percent of any class of capital stock of such corporation.

b.Non-solicitation of Employees and Certain Other Third Parties. At all times during the Restricted Period, the Executive shall not, directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity (i) employ or attempt to employ or enter into any contractual arrangement with any employee, consultant or individual contractor performing services for Insmed, or any Affiliate, unless such employee, consultant or independent contractor has not been employed or engaged by Insmed for a period in excess of six months, and/or (ii) call on, solicit, or engage in business with, any of the actual or targeted prospective customers or clients of Insmed or any Affiliate on behalf of any person or entity in connection with any Competitive Activity, nor shall the Executive make known the names and addresses of such actual or targeted prospective customers or clients, or any information relating in any manner to the trade or business relationships of Insmed or any Affiliates with such customers or clients, other than in connection with the performance of the Executive’s duties under this Agreement, and/or (iii) persuade or encourage or attempt to persuade or encourage any persons or entities with whom Insmed or any Affiliate does business or has some business relationship to cease doing business or to terminate its business relationship with Insmed or any Affiliate or to engage in any Competitive Activity on its own or with any competitor of Insmed or any Affiliate.

c.Confidential Information. The Executive shall not at any time divulge, communicate, use to the detriment of Insmed or any Affiliate or for the benefit of any other person or persons, or misuse in any way, any Confidential Information pertaining to the business of Insmed. Any Confidential Information or data now or hereafter acquired by the Executive with respect to the business of Insmed or any Affiliate (which shall include, but not be limited to, information concerning Insmed’s or any Affiliate’s financial condition, prospects, technology, customers, suppliers, sources of leads and methods of doing business) shall be deemed a valuable, special and unique asset of Insmed and its Affiliates that is received by the Executive in confidence and as a fiduciary, and the Executive shall remain a fiduciary to Insmed and its Affiliates with respect to all of such information. Upon request by Insmed, the Executive shall deliver promptly to Insmed upon termination of his services for Insmed, or at any time thereafter as Insmed may request, all memoranda, notes, records, reports, manuals, drawings, designs, computer files in any media and other documents (and all copies thereof) containing such Confidential Information. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to restrict or prohibit Executive from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including the U.S. Equal Employment Opportunity Commission

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(“EEOC”), the Department of Labor (“DOL”), the National Labor Relations Board (“NLRB”), the Department of Justice (“DOJ”), the Securities and Exchange Commission (“SEC”), the Congress, and any agency Inspector General (collectively, the “Regulators”), or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation. Federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.

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

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

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f.Acknowledgment by Executive. The Executive acknowledges and confirms that the restrictive covenants contained in this Section 7 (including without limitation the length of the term of the provisions of this Section 7) are reasonably necessary to protect the legitimate business interests of Insmed and its Affiliates, and are not overbroad, overlong, or unfair and are not the result of overreaching, duress or coercion of any kind. The Executive further acknowledges and confirms that the compensation payable to the Executive under this Agreement is in consideration for the duties and obligations of the Executive hereunder, including the restrictive covenants contained in this Section 7, and that such compensation is sufficient, fair and reasonable. The Executive further acknowledges and confirms that his full, uninhibited and faithful observance of each of the covenants contained in this Section 7 will not cause him any undue hardship, financial or otherwise, and that enforcement of each of the covenants contained herein will not impair his ability to obtain employment commensurate with his abilities and on terms fully acceptable to him or otherwise to obtain income required for the comfortable support of him and his family and the satisfaction of the needs of his creditors. The Executive acknowledges and confirms that his special knowledge of the business of Insmed and its Affiliates is such as would cause Insmed and its Affiliates serious injury or loss if he were to use such ability and knowledge to the benefit of a competitor or were to compete with Insmed or its Affiliates in violation of the terms of this Section 7. The Executive further acknowledges that the restrictions contained in this Section 7 are intended to be, and shall be, for the benefit of and shall be enforceable by, Insmed’s successors and assigns. The Executive expressly agrees that upon any breach or violation of the provisions of this Section 7, Insmed shall be entitled to seek in addition to any other rights or remedies it may have, to (i) temporary and/or permanent injunctive relief in any court of competent jurisdiction as described in Section 7(i) hereof, and (ii) such damages as are provided at law or in equity. The existence of any claim or cause of action against Insmed or its Affiliates, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement of the restrictions contained in this Section 7.

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

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

i.Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained in Section 7 of this

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

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

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

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

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

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

e.The Executive is not debarred under the provisions of the U.S. Generic Drug Enforcement Act of 1992, including without limitation, 21 U.S.C. 335a or under the provisions of any equivalent legislation or regulation, and to the Executive’s knowledge he is not under investigation or otherwise aware of any circumstances which may result in being debarred or excluded from participation in any federal or state healthcare program; and

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

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

10.Taxes. All payments or transfers of property made by Insmed to the Executive or his estate or beneficiaries shall be subject to the withholding of such amounts relating to

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taxes as Insmed may reasonably determine it should withhold pursuant to any applicable law or regulation.

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

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

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

14.Entire Agreement. This Agreement, together with the exhibit attached hereto, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between the Executive and Insmed (or any of its Affiliates) with respect to such subject matter including any prior employment agreements or amendments thereto entered into between the Parties. This Agreement may not be modified in any way unless by a written instrument signed by both Insmed and the Executive.

15.Notices. All notices required or permitted to be given hereunder shall be in writing and shall be personally delivered by courier, sent by registered or certified mail, return receipt requested or sent by confirmed facsimile transmission addressed as set forth herein. Notices personally delivered, sent by facsimile or sent by overnight courier shall be deemed given on the date of delivery and notices mailed in accordance with the foregoing shall be deemed given upon receipt by the addressee, as evidenced by the return receipt thereof. Notice shall be sent (i) if to Insmed, addressed to, 700 US Highway 202/206, Bridgewater, NJ 08807-1704, Attention: General Counsel, and (ii) if to the Executive, to

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

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

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

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

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

20.Damages; Attorneys’ Fees. Nothing contained herein shall be construed to prevent Insmed or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. Each party shall bear its own costs and attorneys’ fees.

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

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

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other employment or otherwise in any way to mitigate the amount of any payment provided for hereunder.

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

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

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

26.Indemnification.

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

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

c.The Executive hereby undertakes and agrees to repay to Insmed any advances made pursuant to this Section 26 if and to the extent that it shall ultimately be

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found that the Executive is not entitled to be indemnified by Insmed for such amounts.

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

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

[Signatures on Following Page]

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

INSMED:

Insmed Incorporated, a Virginia corporation

By: /s/ William H. Lewis

Name: William H. Lewis

Title: Chair and CEO

EXECUTIVE:

/s/ J. Drayton Wise ______________

Name: J. Drayton Wise

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Exhibit A

General Release of Claims

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

2.Nothing in this General Release of Claims restricts or prohibits Executive from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including the U.S. Equal Employment Opportunity Commission (“EEOC”), the Department of Labor (“DOL”), the National Labor Relations Board (“NLRB”“), the Department of Justice (“DOJ”), the

24

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

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

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

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

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

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

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

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

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EX-31.1

EXHIBIT 31.1

Section 302 Certification

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

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

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

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

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

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

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

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

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

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

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

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

Date:  August 4, 2022

/s/ William H. Lewis

William H. Lewis

Chair and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Section 302 Certification

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

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

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

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

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

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

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

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

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

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

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

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

Date:  August 4, 2022

/s/ Sara Bonstein

Sara Bonstein

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with this Quarterly Report on Form 10-Q of Insmed Incorporated (the "Company") for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William H. Lewis, Chief Executive Officer of the Company, certify, pursuant to 18 USC. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2003, that:

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

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

/s/ William H. Lewis

William H. Lewis

Chairman and Chief Executive Officer

(Principal Executive Officer)

August 4, 2022

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

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with this Quarterly Report on Form 10-Q of Insmed Incorporated (the "Company") for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sara Bonstein, Chief Financial Officer of the Company, certify, pursuant to 18 USC. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2003, that:

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

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

/s/ Sara Bonstein

Sara Bonstein

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 4, 2022

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

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Cover Page - shares	6 Months Ended
	Jun. 30, 2022	Aug. 01, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2022
Document Transition Report	false
Entity File Number	000-30739
Entity Registrant Name	INSMED INC
Entity Incorporation, State or Country Code	VA
Entity Tax Identification Number	54-1972729
Entity Address, Address Line One	700 US Highway 202/206
Entity Address, City or Town	Bridgewater
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	08807
City Area Code	908
Local Phone Number	977-9900
Title of 12(b) Security	Common stock, par value $0.01 per share
Trading Symbol	INSM
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		119,975,265
Entity Central Index Key	0001104506
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 416,078	$ 716,782
Marketable securities	138,790	0
Accounts receivable	29,481	24,351
Inventory	67,017	67,009
Prepaid expenses and other current assets	23,360	28,898
Total current assets	674,726	837,040
Marketable securities, non-current	9,764	50,043
Fixed assets, net	53,946	52,955
Finance lease right-of-use assets	17,178	9,256
Operating lease right-of-use assets	24,047	33,305
Intangibles, net	71,283	73,809
Goodwill	136,110	136,110
Other assets	66,300	50,990
Total assets	1,053,354	1,243,508
Current liabilities:
Accounts payable	31,144	35,784
Accrued liabilities	58,770	60,665
Accrued compensation	18,653	28,581
Finance lease liabilities	212	609
Operating lease liabilities	5,037	9,527
Total current liabilities	113,816	135,166
Debt, long-term	783,977	566,588
Contingent consideration	55,600	75,668
Finance lease liabilities, long-term	23,135	14,103
Operating lease liabilities, long-term	18,201	21,441
Other long-term liabilities	14,384	20,074
Total liabilities	1,009,113	833,040
Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 119,865,023 and 118,738,266 issued and outstanding shares at June 30, 2022 and December 31, 2021, respectively	1,199	1,187
Additional paid-in capital	2,449,281	2,673,556
Accumulated deficit	(2,405,310)	(2,265,243)
Accumulated other comprehensive (loss) income	(929)	968
Total shareholders’ equity	44,241	410,468
Total liabilities and shareholders’ equity	$ 1,053,354	$ 1,243,508

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares (in shares)	500,000,000	500,000,000
Common stock, issued shares (in shares)	119,865,023	118,738,266
Common stock, outstanding shares (in shares)	119,865,023	118,738,266

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Consolidated Statements of Comprehensive Loss (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Statement of Comprehensive Income [Abstract]
Product revenues, net	$ 65,221	$ 45,366	$ 118,328	$ 85,580
Revenue from Contract with Customer, Product and Service [Extensible List]	Product [Member]	Product [Member]	Product [Member]	Product [Member]
Operating expenses:
Cost of product revenues (excluding amortization of intangible assets)	$ 16,395	$ 10,837	$ 28,586	$ 20,681
Cost, Product and Service [Extensible List]	Product [Member]	Product [Member]	Product [Member]	Product [Member]
Research and development	$ 88,527	$ 64,655	$ 172,883	$ 126,045
Selling, general and administrative	59,974	57,177	116,722	108,727
Amortization of intangible assets	1,263	1,263	2,526	2,526
Change in fair value of deferred and contingent consideration liabilities	(12,622)	0	(24,240)	0
Total operating expenses	153,537	133,932	296,477	257,979
Operating loss	(88,316)	(88,566)	(178,149)	(172,399)
Investment income	835	34	972	67
Interest expense	(3,357)	(10,319)	(6,648)	(17,878)
Loss on extinguishment of debt	0	(17,689)	0	(17,689)
Other expense, net	(4,306)	(159)	(5,555)	(202)
Loss before income taxes	(95,144)	(116,699)	(189,380)	(208,101)
Provision for income taxes	501	622	886	861
Net loss	$ (95,645)	$ (117,321)	$ (190,266)	$ (208,962)
Basic net loss per share (in dollars per share)	$ (0.80)	$ (1.07)	$ (1.60)	$ (1.97)
Diluted net loss per share (in dollars per share)	$ (0.80)	$ (1.07)	$ (1.60)	$ (1.97)
Weighted average basic common shares outstanding (in shares)	119,602	109,580	119,267	106,328
Weighted average diluted common shares outstanding (in shares)	119,602	109,580	119,267	106,328
Net loss	$ (95,645)	$ (117,321)	$ (190,266)	$ (208,962)
Other comprehensive income (loss):
Foreign currency translation (loss) income	(208)	334	(702)	231
Unrealized loss on marketable securities	(491)	0	(1,195)	0
Total comprehensive loss	$ (96,344)	$ (116,987)	$ (192,163)	$ (208,731)

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Consolidated Statements of Shareholders' Equity (unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment	Common Stock	Additional Paid-in Capital	Additional Paid-in Capital Cumulative Effect, Period of Adoption, Adjustment	Accumulated Deficit	Accumulated Deficit Cumulative Effect, Period of Adoption, Adjustment	Accumulated Other Comprehensive Income (Loss)
Balance (in shares) at Dec. 31, 2020			102,763
Balance at Dec. 31, 2020	$ 275,884		$ 1,028	$ 2,105,252		$ (1,830,589)		$ 193
Comprehensive loss:
Net loss	(208,962)					(208,962)
Other comprehensive income (loss)	231							231
Exercise of stock options and ESPP shares issuance (in shares)			760
Exercise of stock options and ESPP shares issuance	13,525		$ 7	13,518
Net proceeds from issuance of common stock (in shares)			11,500
Equity component of convertible debt redemption	269,886		$ 115	269,771
Equity component of convertible debt issuance	196,063			196,063
Equity component of convertible debt redemption	(37,846)			(37,846)
Issuance of common stock for vesting of RSUs (in shares)			216
Issuance of common stock for vesting of RSUs	2		$ 2
Stock-based compensation expense	22,270			22,270
Balance (in shares) at Jun. 30, 2021			115,239
Balance at Jun. 30, 2021	531,053		$ 1,152	2,569,028		(2,039,551)		424
Balance (in shares) at Dec. 31, 2020			102,763
Balance at Dec. 31, 2020	275,884		$ 1,028	2,105,252		(1,830,589)		193
Balance (in shares) at Dec. 31, 2021			118,738
Balance at Dec. 31, 2021	$ 410,468	$ (214,410)	$ 1,187	2,673,556	$ (264,609)	(2,265,243)	$ 50,199	968
Comprehensive loss:
Accounting Standards Update [Extensible Enumeration]	Accounting Standards Update 2020-06
Balance (in shares) at Mar. 31, 2021			103,279
Balance at Mar. 31, 2021	$ 201,636		$ 1,033	2,122,743		(1,922,230)		90
Comprehensive loss:
Net loss	(117,321)					(117,321)
Other comprehensive income (loss)	334							334
Exercise of stock options and ESPP shares issuance (in shares)			344
Exercise of stock options and ESPP shares issuance	6,565		$ 3	6,562
Net proceeds from issuance of common stock (in shares)			11,500
Equity component of convertible debt redemption	269,886		$ 115	269,771
Equity component of convertible debt issuance	196,063			196,063
Equity component of convertible debt redemption	(37,846)			(37,846)
Issuance of common stock for vesting of RSUs (in shares)			116
Issuance of common stock for vesting of RSUs	1		$ 1
Stock-based compensation expense	11,735			11,735
Balance (in shares) at Jun. 30, 2021			115,239
Balance at Jun. 30, 2021	531,053		$ 1,152	2,569,028		(2,039,551)		424
Balance (in shares) at Dec. 31, 2021			118,738
Balance at Dec. 31, 2021	410,468	$ (214,410)	$ 1,187	2,673,556	$ (264,609)	(2,265,243)	$ 50,199	968
Comprehensive loss:
Net loss	(190,266)					(190,266)
Other comprehensive income (loss)	(1,897)							(1,897)
Exercise of stock options and ESPP shares issuance (in shares)			795
Exercise of stock options and ESPP shares issuance	13,260		$ 8	13,252
Issuance of common stock for vesting of RSUs (in shares)			332
Issuance of common stock for vesting of RSUs	4		$ 4
Stock-based compensation expense	27,082			27,082
Balance (in shares) at Jun. 30, 2022			119,865
Balance at Jun. 30, 2022	$ 44,241		$ 1,199	2,449,281		(2,405,310)		(929)
Comprehensive loss:
Accounting Standards Update [Extensible Enumeration]	Accounting Standards Update 2020-06
Balance (in shares) at Mar. 31, 2022			119,346
Balance at Mar. 31, 2022	$ 119,880		$ 1,193	2,428,582		(2,309,665)		(230)
Comprehensive loss:
Net loss	(95,645)					(95,645)
Other comprehensive income (loss)	(699)							(699)
Exercise of stock options and ESPP shares issuance (in shares)			345
Exercise of stock options and ESPP shares issuance	6,444		$ 4	6,440
Issuance of common stock for vesting of RSUs (in shares)			174
Issuance of common stock for vesting of RSUs	2		$ 2
Stock-based compensation expense	14,259			14,259
Balance (in shares) at Jun. 30, 2022			119,865
Balance at Jun. 30, 2022	$ 44,241		$ 1,199	$ 2,449,281		$ (2,405,310)		$ (929)

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Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Operating activities
Net loss	$ (190,266)	$ (208,962)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2,244	4,773
Amortization of intangible assets	2,526	2,526
Stock-based compensation expense	27,082	22,270
Loss on extinguishment of debt	0	17,689
Amortization of debt issuance costs and accretion of debt discount	1,643	13,196
Finance lease amortization expense	1,365	539
Noncash operating lease expense	9,765	9,550
Change in fair value of deferred and contingent consideration liabilities	(24,240)	0
Changes in operating assets and liabilities:
Accounts receivable	(6,784)	(1,855)
Inventory	724	(11,557)
Prepaid expenses and other current assets	4,101	(7,484)
Other assets	(15,531)	(22,623)
Accounts payable	(3,558)	(11,158)
Accrued liabilities, accrued compensation and other	(16,533)	(10,629)
Net cash used in operating activities	(207,462)	(203,725)
Investing activities
Purchase of fixed assets	(4,605)	(4,666)
Purchase of marketable securities	(99,706)	0
Net cash used in investing activities	(104,311)	(4,666)
Financing activities
Proceeds from exercise of stock options, ESPP, and RSU vestings	13,264	13,527
Proceeds from issuance of common stock, net	0	269,886
Payment on extinguishment of 1.75% convertible senior notes due 2025	0	(12,578)
Payment of principal on 1.75% convertible senior notes due 2025	0	(225,000)
Proceeds from issuance of 0.75% convertible senior notes due 2028	0	575,000
Payment of debt issuance costs	0	(16,013)
Payments of finance lease principal	(494)	(522)
Net cash provided by financing activities	12,770	604,300
Effect of exchange rates on cash and cash equivalents	(1,701)	(338)
Net (decrease) increase in cash and cash equivalents	(300,704)	395,571
Cash and cash equivalents at beginning of period	716,782	532,756
Cash and cash equivalents at end of period	416,078	928,327
Supplemental disclosures of cash flow information:
Cash paid for interest	5,004	5,911
Cash paid for income taxes	$ 1,194	$ 997

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Consolidated Statements of Cash Flows (unaudited) (Parenthetical) - Convertible Notes	Jun. 30, 2022
1.75% convertible senior notes due 2025
Interest rate (as a percent)	1.75%
0.75% convertible senior notes due 2028
Interest rate (as a percent)	0.75%

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The Company and Basis of Presentation

6 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company and Basis of Presentation

The Company and Basis of Presentation

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

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

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

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

     The Company had $416.1 million in cash and cash equivalents and marketable securities totaling $148.6 million as of June 30, 2022 and reported a net loss of $190.3 million for the six months ended June 30, 2022. Historically, the Company has funded its operations through public offerings of equity securities and debt financings. The Company expects to continue to incur consolidated operating losses, including losses in its US and certain international entities, while funding research and development (R&D) activities for ARIKAYCE, brensocatib, TPIP and its other pipeline programs, and continuing and commencing pre-commercial, commercialization and regulatory activities for ARIKAYCE, and funding other general and administrative activities.

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

Risks and Uncertainties - There are many uncertainties regarding the novel coronavirus (COVID-19) pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic will impact its patients, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially affect the Company's financial results and business operations for the six months ended June 30, 2022, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to

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

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The following are the required interim disclosure updates to the Company's significant accounting policies described in Note 2 of the notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2021:

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

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

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

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

Each major category of financial assets and liabilities measured at fair value on a recurring basis is categorized based upon the lowest level of significant input to the valuations. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments in Level 1 generally include US treasuries and mutual funds listed in active markets. The Company's cash and cash equivalents permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions.

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

	June 30, 2022
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	416.1	$	416.1	$	—	$	—
Marketable securities	$	148.6	$	148.6	$	—	$	—
Deferred consideration	$	10.8	$	—	$	10.8	$	—
Contingent consideration liabilities	$	55.6	$	—	$	—	$	55.6

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

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the six months ended June 30, 2022, the Company purchased $99.7 million of additional marketable securities consisting of US Treasury Notes. There were no other transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2022.

As of June 30, 2022, the Company held $138.8 million and $9.8 million of current and non-current available-for-sale securities, respectively, net of an unrealized loss of $1.3 million recorded in accumulated other comprehensive income. Marketable securities maturing in one year or less are classified as current assets and marketable securities maturing in more

than one year are classified as non-current assets. As of December 31, 2021, 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 security was rated below investment grade; (3) how long the security has been in an unrealized loss position; and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to recover. The Company has determined that there were no other-than-temporary impairments during the quarter ended June 30, 2022.

Deferred Consideration

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

The deferred consideration has been classified as a Level 2 recurring liability as its valuation utilizes an input, the Insmed share price on the valuation date, which is a directly observable input at the measurement date and for the duration of the liabilities' anticipated lives. Deferred consideration expected to be settled within twelve months or less is classified as a current liability and are included in accrued liabilities. As of June 30, 2022, the fair value of deferred consideration included in accrued liabilities was $3.5 million. Deferred consideration expected to be settled in more than twelve months is classified as a non-current liability and is included in other long-term liabilities. As of June 30, 2022, the fair value of deferred consideration included in other long-term liabilities was $7.3 million.

The following observable input was used in the valuation of the deferred consideration as of June 30, 2022:

	Fair Value as of June 30, 2022 (in millions)	Observable Input	Input Value
Deferred consideration	$10.8	Insmed share price as of June 30, 2022	$19.72

Contingent Consideration

The contingent consideration liabilities arose from the Business Acquisition in August 2021 (Note 13). The contingent consideration liabilities consist of developmental and regulatory milestones, a priority review voucher milestone and net sales milestones. Upon the achievement of certain development and regulatory milestone events, the Company is obligated to issue to Motus equityholders up to 5,348,572 shares in the aggregate and AlgaeneX equityholders up to 368,867 shares in the aggregate. The fair value of the development and regulatory milestones are estimated utilizing a probability-adjusted approach. At June 30, 2022, the weighted average probability of success was 42%. The development and regulatory milestones will be settled in shares of the Company's common stock. As such, there is no discount rate applied in the fair value calculation.

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

The contingent consideration liabilities for net sales milestones were valued using an option pricing model with Monte Carlo simulation. As of June 30, 2022, the fair value of these net sales milestones were deemed immaterial to the overall fair value of the contingent consideration.

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

The following significant unobservable inputs were used in the valuation of the contingent consideration liabilities as of June 30, 2022 (in millions):

Contingent Consideration Liabilities	Fair Value as of June 30, 2022	Valuation Technique	Unobservable Inputs	Values
Development and regulatory milestones	$50.6	Probability-adjusted	Probabilities of success	14% - 95%
Priority review voucher milestone	$5.0	Probability-adjusted discounted cash flow	Probability of success	13.5%
			Discount rate	10.7%

The following table is a summary of the changes in the fair value of the Company's valuations for the deferred and contingent consideration liabilities for the six months ended June 30, 2022 (in thousands):

	December 31, 2021		Additions	Change in Fair Value	Adjustments	June 30, 2022
Deferred consideration	$	14,931	—	(4,172)	—	$	10,759
Contingent consideration	$	75,668	—	(20,068)	—	$	55,600

Convertible Notes

The estimated fair value of the liability component of the Company's 0.75% convertible senior notes due 2028 (the 2028 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of June 30, 2022 was $496.0 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2028 Convertible Notes. The $561.6 million carrying value of the 2028 Convertible Notes as of June 30, 2022 excludes the $13.4 million of the unamortized portion of the debt issuance costs.

The estimated fair value of the liability component of the Company's 1.75% convertible senior notes due 2025 (the 2025 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of June 30, 2022 was $208.3 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2025 Convertible Notes. The $222.4 million carrying value of the 2025 Convertible Notes as of June 30, 2022 excludes the $2.6 million of the unamortized portion of the debt issuance costs.

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

The following table sets forth the reconciliation of the weighted average number of common shares used to compute basic and diluted net loss per share for the three and six months ended June 30, 2022 and 2021:

 

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in thousands, except per share amounts)
Numerator:
Net loss	$	(95,645)	$	(117,321)	$	(190,266)	$	(208,962)
Denominator:
Weighted average common shares used in calculation of basic net loss per share:	119,602		109,580		119,267		106,328
Effect of dilutive securities:
Common stock options	—		—		—		—
Restricted stock and RSUs	—		—		—		—
PSUs	—		—		—		—
Convertible debt securities	—		—		—		—
Weighted average common shares outstanding used in calculation of diluted net loss per share	119,602		109,580		119,267		106,328
Net loss per share:
Basic and diluted	$	(0.80)	$	(1.07)	$	(1.60)	$	(1.97)

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

 

	June 30,
	2022	2021
Common stock options	17,806	14,449
Unvested restricted stock and RSUs	1,619	1,125
PSUs	670	—
Convertible debt securities	23,438	23,438

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

The Company is exposed to risks associated with extending credit to customers related to the sale of products. The Company does not require collateral to secure amounts due from its customers. The Company uses an expected loss methodology to calculate allowances for trade receivables. The Company's measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company does not currently have a material allowance for collectible trade receivables. The following table presents the percentage of gross product revenue represented by the Company's three largest customers as of the six months ended June 30, 2022 and 2021.

	June 30,
	2022	2021
Customer A	36%	25%
Customer B	32%	23%
Customer C	19%	—%

The Company relies on third-party manufacturers and suppliers for manufacturing and supply of its products. The inability of the suppliers or manufacturers to fulfill supply requirements of the Company could materially impact future

operating results. A change in the relationship with the suppliers or manufacturers, or an adverse change in their business, could materially impact future operating results.

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

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

The following table presents a summary of the Company's product revenues, net, by geographic location for the three and six months ended June 30, 2022 and 2021 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
US	$	47,190	$	41,754	$	87,972	$	79,008
Japan	15,849		—		26,525		—
Europe and rest of world	2,182		3,612		3,831		6,572
Total product revenues, net	$	65,221	$	45,366	$	118,328	$	85,580

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

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

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

mandated discounts applicable to government-funded programs, (iii) a range of possible outcomes that are probability-weighted for the estimated payor mix, and (iv) information obtained from the Company's specialty pharmacies.

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

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

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

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

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

Cost of product revenues (excluding amortization of intangible assets) consist primarily of direct and indirect costs related to the manufacturing of ARIKAYCE sold, including third-party manufacturing costs, packaging services, freight, and allocation of overhead costs, in addition to royalty expenses and revenue-based milestone payments. Cost is determined using a standard cost method, which approximates actual cost, and assumes a FIFO flow of goods.

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

Business combinations and asset acquisitions - The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, Business Combinations, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

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

If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring

entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values.

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

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

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

Impairment Assessment - The Company reviews the recoverability of its finite-lived intangible assets and long-lived assets for indicators of impairments. Events or circumstances that may require an impairment assessment include negative clinical trial results, a significant decrease in the market price of the asset, or a significant adverse change in legal factors or the manner in which the asset is used. If such indicators are present, the Company assesses the recoverability of affected assets by determining if the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found to not be recoverable, the Company measures the amount of the impairment by comparing to the carrying value of the assets to the fair value of the assets. The Company determined that no indicators of impairment of finite-lived intangible assets or long-lived assets existed at June 30, 2022.

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

Leases - A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly identified property, plant or equipment in exchange for consideration. Control of an asset is conveyed to the Company if the Company obtains the right to obtain substantially all of the economic benefits of the asset or the right to direct the use of the asset. The Company recognizes right-of-use (ROU) assets and lease liabilities at the lease commencement date based on the present value of future, fixed lease payments over the term of the arrangement. ROU assets are amortized on a straight-line basis over the term of the lease or are amortized based on consumption, if this approach is more representative of the pattern in

which benefit is expected to be derived from the underlying asset. Lease liabilities accrete to yield and are reduced at the time when the lease payment is payable to the vendor. Variable lease payments are recognized at the time when the event giving rise to the payment occurs and are recognized in the consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments.

Leases are measured at present value using the rate implicit in the lease or, if the implicit rate is not determinable, the lessee's implicit borrowing rate. As the implicit rate is not typically available, the Company uses its implicit borrowing rate based on the information available at the lease commencement date to determine the present value of future lease payments. The implicit borrowing rate approximates the rate the Company would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.

Refer to Note 7 - Leases for details about the Company's lease portfolio, including required disclosures.

Recently Adopted Accounting Pronouncements - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also promote consistent application of and simplify US generally accepted accounting principles (GAAP) for other areas of Topic 740 by clarifying and amending the existing guidance. For public business entities, the guidance was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. The Company adopted this guidance January 1, 2021. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements and accompanying notes.

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

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Inventory

6 Months Ended

Jun. 30, 2022

Inventory Disclosure [Abstract]

Inventory

Inventory

As of June 30, 2022 and December 31, 2021, the Company's inventory balance consists of the following (in thousands):

	June 30, 2022		December 31, 2021
Raw materials	$	29,320	$	29,541
Work-in-process	15,908		18,528
Finished goods	21,789		18,940
	$	67,017	$	67,009

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

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Intangibles, Net and Goodwill

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Intangibles, Net and Goodwill

Intangibles, Net and Goodwill

 Intangibles, Net

Finite-lived Intangible Assets

As of June 30, 2022, the Company's finite-lived intangible assets consisted of acquired ARIKAYCE R&D and the milestones paid to PARI Pharma GmbH (PARI) for the license to use PARI's Lamira® Nebulizer System (Lamira) for the delivery of ARIKAYCE to patients as a result of the FDA and EC approvals of ARIKAYCE in September 2018 and October 2020, respectively. The Company began amortizing its acquired ARIKAYCE R&D and PARI milestones intangible assets in

October 2018, over ARIKAYCE's initial regulatory exclusivity period of 12 years. Amortization of these assets during each of the next five years is estimated to be approximately $5.1 million per year.

Indefinite-lived Intangible Assets

As of June 30, 2022, the Company's indefinite-lived intangible assets consisted of acquired in process research and development (IPR&D) from the Business Acquisition (Note 13). Indefinite-lived intangible assets are not amortized.

A rollforward of the Company's intangible assets for the six months ended June 30, 2022 and June 30, 2021 is as follows (in thousands):

Intangible Asset	December 31, 2021		Additions		Amortization		June 30, 2022
Acquired ARIKAYCE R&D	$	42,439	$	—	$	(2,425)	$	40,014
Acquired IPR&D	29,600		—		—		29,600
PARI milestones	1,770		—		(101)		1,669
	$	73,809	$	—	$	(2,526)	$	71,283
Intangible Asset	December 31, 2020		Additions		Amortization		June 30, 2021
Acquired ARIKAYCE R&D	$	47,289	$	—	$	(2,425)	$	44,864
PARI milestones	1,972		—		(101)		1,871
	$	49,261	$	—	$	(2,526)	$	46,735

Goodwill

The Company's goodwill balance of $136.1 million as of June 30, 2022, resulted from the Business Acquisition (Note 13).

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Fixed Assets, Net

6 Months Ended

Jun. 30, 2022

Property, Plant and Equipment [Abstract]

Fixed Assets, Net

Fixed Assets, Net

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

Asset Description	Estimated Useful Life (years)	June 30, 2022		December 31, 2021
Lab equipment	7	$	14,144	$	11,862
Furniture and fixtures	7	6,306		5,799
Computer hardware and software	3-5	7,053		7,264
Office equipment	7	89		89
Manufacturing equipment	7	1,203		1,145
Leasehold improvements	2-10	37,009		36,073
Construction in progress (CIP)	—	27,447		27,784
		93,251		90,016
Less: accumulated depreciation		(39,305)		(37,061)
		$	53,946	$	52,955

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Accrued Liabilities

6 Months Ended

Jun. 30, 2022

Payables and Accruals [Abstract]

Accrued Liabilities

Accrued Liabilities

As of June 30, 2022 and December 31, 2021, the Company's accrued liabilities balance consists of the following (in thousands):

 

	June 30, 2022		December 31, 2021
Accrued clinical trial expenses	$	17,019	$	19,410
Accrued professional fees	11,336		10,678
Accrued technical operation expenses	4,816		6,187
Accrued royalty payable	7,182		6,655
Accrued interest payable	2,175		2,175
Accrued sales allowances and related costs	11,470		8,275
Deferred consideration	3,459		4,883
Accrued construction costs	105		551
Other accrued liabilities	1,208		1,851
	$	58,770	$	60,665

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Leases

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

Leases

Leases

The Company's lease portfolio consists primarily of office and laboratory space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's leases of its corporate headquarters and a research facility in San Diego, which are classified as finance leases. The terms of the Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred. These short-term leases are not material to the Company's financial position. Furthermore, the Company does not separate lease and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees and it does not sublease any of its leased assets.

The Company outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, the Company has the right to direct how and for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with the manufacturing facilities is the sum of the minimum guarantees over the life of the production contracts.

The Company also records variable consideration for variable lease payments in excess of fixed fees or minimum guarantees. Variable consideration related to the Company's leasing arrangements was $1.5 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $1.6 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively. Variable costs related to CMO manufacturing agreements are direct costs related to the manufacturing of ARIKAYCE and are capitalized within inventory in the Company's consolidated balance sheet, while the variable costs related to other leasing arrangements, not related to the manufacturing of ARIKAYCE, have been classified within operating expenses in the Company's consolidated statements of comprehensive loss.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	9,287	$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	166	$	2,100	$	507	$	8,641

In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company entered into certain agreements with Patheon UK Limited (Patheon) related to increasing its long-term production capacity for ARIKAYCE commercial inventory. The Company has determined that these agreements with Patheon contain an embedded lease for the manufacturing facility and the specialized equipment contained therein. Costs of $36.3 million incurred by the

Company under these additional agreements have been classified within other assets in the Company's consolidated balance sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to establish an operating lease ROU asset and operating lease liability.

Leases

Leases

The Company's lease portfolio consists primarily of office and laboratory space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's leases of its corporate headquarters and a research facility in San Diego, which are classified as finance leases. The terms of the Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred. These short-term leases are not material to the Company's financial position. Furthermore, the Company does not separate lease and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees and it does not sublease any of its leased assets.

The Company outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, the Company has the right to direct how and for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with the manufacturing facilities is the sum of the minimum guarantees over the life of the production contracts.

The Company also records variable consideration for variable lease payments in excess of fixed fees or minimum guarantees. Variable consideration related to the Company's leasing arrangements was $1.5 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $1.6 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively. Variable costs related to CMO manufacturing agreements are direct costs related to the manufacturing of ARIKAYCE and are capitalized within inventory in the Company's consolidated balance sheet, while the variable costs related to other leasing arrangements, not related to the manufacturing of ARIKAYCE, have been classified within operating expenses in the Company's consolidated statements of comprehensive loss.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	9,287	$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	166	$	2,100	$	507	$	8,641

In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company entered into certain agreements with Patheon UK Limited (Patheon) related to increasing its long-term production capacity for ARIKAYCE commercial inventory. The Company has determined that these agreements with Patheon contain an embedded lease for the manufacturing facility and the specialized equipment contained therein. Costs of $36.3 million incurred by the

Company under these additional agreements have been classified within other assets in the Company's consolidated balance sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to establish an operating lease ROU asset and operating lease liability.

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Debt

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Debt

Debt

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

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

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

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

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

immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, or (v) if the Company sends a notice of redemption, a holder may surrender all or any portion of its convertible notes to which the notice of redemption relates for conversion at any time on or after the date the applicable notice of redemption was sent until the close of business on (a) the second business day immediately preceding the related redemption date or (b) if the Company fails to pay the redemption price on the redemption date as specified in such notice of redemption, such later date on which the redemption price is paid. To date, there have not been any holder-initiated redemption requests of either series of convertible notes.

Each series of convertible notes can be settled in cash, common stock, or a combination of cash and common stock at the Company's option, and thus, the Company determined the embedded conversion options in both series of convertible notes are not required to be separately accounted for as a derivative. The 2025 Convertible Notes and 2028 Convertible Notes have remaining terms of approximately 2.54 years and 5.92 years, respectively. The following table presents the carrying value of the Company's debt balance (in thousands):

 

	June 30, 2022		December 31, 2021
Face value of outstanding convertible notes	$	800,000	$	800,000
Debt issuance costs, unamortized	(16,023)		(11,539)
Discount on debt	—		(221,873)
Debt, long-term	$	783,977	$	566,588

As of June 30, 2022, future principal repayments of the notes for each of the years through maturity were as follows (in thousands):

 

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

Interest Expense

Interest expense related to debt and finance leases for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Contractual interest expense	$	2,062	$	2,052	$	4,125	$	4,021
Amortization of debt issuance costs	821		457		1,643		807
Accretion of debt discount	—		7,482		—		12,389
Total convertible debt interest expense	2,883		9,991		5,768		17,217
Finance lease interest expense	474		328		880		661
Interest expense	$	3,357	$	10,319	$	6,648	$	17,878

In accordance with the Company's transition using the modified retrospective method upon adopting ASU 2020-06, Debt — Accounting for Convertible Instruments, on January 1, 2022, the Company ceased accreting debt discount.

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Shareholders' Equity

6 Months Ended

Jun. 30, 2022

Equity [Abstract]

Shareholders' Equity

Shareholders’ EquityCommon Stock — As of June 30, 2022, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 per share and 119,865,023 shares of common stock issued and outstanding. In addition, as of June 30, 2022, the Company had reserved 17,805,766 shares of common stock for issuance upon the exercise of outstanding stock options, 1,619,225 shares of common stock for issuance upon the vesting of RSUs and 670,168 shares for issuance upon the vesting of PSUs. The Company has also reserved 23,438,430 shares of common stock in the aggregate for issuance upon conversion of the 2025 Convertible Notes and 2028 Convertible Notes, subject to adjustment in accordance with the applicable indentures. In

connection with the Business Acquisition, the Company reserved 9,406,112 shares of the Company’s common stock, subject to certain closing-related reductions. The shares of the Company’s common stock reserved in connection with the Motus acquisition were partly issued as acquisition consideration at closing, and will also be issued upon the first, second and third anniversaries of the closing date of the acquisition and upon the achievement of certain development and regulatory milestone events, subject to certain reductions. The shares of the Company’s common stock reserved in connection with the AlgaeneX acquisition will be issued upon the achievement of a development milestone event, subject to certain reductions.

Of the 9,406,112 shares reserved, subject to certain closing-related reductions, the Company issued 2,889,367 shares of the Company's common stock in connection with the Business Acquisition (Note 13) in the third quarter of 2021, after certain closing-related deductions.

In the second quarter of 2021, the Company completed an underwritten public offering of 11,500,000 shares of the Company's common stock, including 1,500,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares from the Company, at a public offering price of $25.00 per share. The Company's net proceeds from the sale of the shares, after deducting the underwriting discounts and offering expenses of $17.5 million, were $270.1 million.

In the first quarter of 2021, the Company entered into a sales agreement with SVB Leerink LLC (now known as SVB Securities LLC) (SVB Securities), to sell shares of the Company's common stock, with aggregate gross sales proceeds of up to $250.0 million, from time to time, through an “at the market” equity offering program (the ATM program), under which SVB Securities acts as sales agent. As of June 30, 2022, the Company had not sold or issued any shares under the ATM program.

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

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

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company's current equity compensation plan, the Insmed Incorporated 2019 Incentive Plan (as amended, the 2019 Incentive Plan), was approved by shareholders at the Company's Annual Meeting of Shareholders in May 2019. The 2019 Incentive Plan is administered by the Compensation Committee of the Board of Directors of the Company. Under the terms of the 2019 Incentive Plan, the Company is authorized to grant a variety of incentive awards based on its common stock, including stock options (both incentive stock options and non-qualified stock options), RSUs, performance options/shares and other stock awards to eligible employees and non-employee directors. On May 16, 2019, upon the approval of the 2019 Incentive Plan by shareholders, 3,500,000 shares were authorized for issuance thereunder, plus any shares subject to then-outstanding awards under the Company's 2017 Incentive Plan, the 2015 Incentive Plan and the 2013 Incentive Plan that subsequently were canceled, terminated unearned, expired, were forfeited, lapsed for any reason or were settled in cash without the delivery of shares. On May 12, 2020, at the Company's 2020 Annual Meeting of Shareholders, the Company's shareholders approved an amendment of the 2019 Incentive Plan providing for the issuance of an additional 4,500,000 shares under the plan. On May 12, 2021, at the Company's 2021 Annual Meeting of Shareholders, the Company's shareholders approved the second amendment to the 2019 Incentive Plan providing for the issuance of an additional 2,750,000 shares under the plan. On May 11, 2022, at the Company's 2022 Annual Meeting of Shareholders, the Company's shareholders approved the third amendment to the 2019 Incentive Plan, providing for the issuance of an additional 3,000,000 shares under the plan. As of June 30, 2022, 2,145,104 shares remain available for future issuance under the 2019 Incentive Plan. The 2019 Incentive Plan will terminate on May 16, 2029 unless it is extended or terminated earlier pursuant to its terms. In addition, from time to time, the Company makes inducement grants of stock options to new hires, which awards are made pursuant to the Nasdaq's inducement grant exception to the shareholder approval requirement for grants of equity compensation. During the six months ended June 30, 2022, the Company granted inducement stock options covering 471,790 shares of the Company's common stock to new employees.

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

Stock Options — As of June 30, 2022, there was $122.5 million of unrecognized compensation expense related to unvested stock options.

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

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

Restricted Stock Units — As of June 30, 2022, there was $32.5 million of unrecognized compensation expense related to unvested RSU awards.

Performance Stock Units — In January 2022, the Company issued 271,612 PSUs. For these PSUs, there are two performance conditions, a service condition, and a market condition. The performance conditions are the issuance of a press release announcing certain top-line results from a clinical trial and the acceptance of a new drug application (NDA) by the FDA for brensocatib. The service condition is continuous employment with the Company through the later of the third anniversary of the grant date of the PSU award and the date an NDA for brensocatib is accepted by the FDA. The potential payout of the awards ranges from 0% to 250% of the target, dependent on a market condition that is based on the Company's total shareholder return compared to a defined peer group. Due to the multiple vesting conditions, uncertain timing and variable payout of these PSUs, a Monte Carlo simulation was performed to determine the fair value of the awards. Compensation cost will be recognized on the date the performance conditions become probable, with an initial recording of the cumulative expense that would have been recognized if the PSU expense had been recognized on a straight-line basis since the date of grant. The remaining unamortized fair value of the awards will then be expensed prospectively on a straight-line basis over the remaining service period. Since the market condition is reflected in the grant-date fair value and is not a condition for the award to vest, it does not impact the requisite service period. The volatility, risk-free interest rate and weighted-average grant date fair value of the PSUs granted are 65.4%, 1.03% and $39.12, respectively. Any forfeitures that occur after compensation cost recognition commences will result in the cumulative reversal of expense in the period in which the forfeiture occurs. As of June 30, 2022, there was $10.5 million of unrecognized compensation expense related to unvested PSU awards, which assumes a payout of 100% of the target.

The following table summarizes the aggregate stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to stock options and RSUs during the three and six months ended June 30, 2022 and 2021, respectively (in millions): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	6.7	$	4.4	$	12.3	$	8.1
Selling, general and administrative	7.6		7.4		14.8		14.2
Total	$	14.3	$	11.8	$	27.1	$	22.3

There was no stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to PSUs during the three and six months ended June 30, 2022, as the performance conditions associated with the PSU awards were not probable as of June 30, 2022.

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Income Taxes

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company recorded a provision for income taxes of $0.5 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and $0.9 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively. The provisions are primarily a result of certain of the Company's international subsidiaries, which had taxable income during the periods. Additionally, the Company is impacted by certain state taxes which effectively impose income tax on modified gross revenues. In jurisdictions where the Company has net losses, there was a full valuation allowance recorded against the Company's deferred tax assets and therefore no tax benefit was recorded.

The Company is subject to US federal and state income taxes and the statute of limitations for tax audit is open for the Company's federal tax returns for the years ended 2018 and later, and is generally open for certain states for the years 2017 and later. The Company has incurred net operating losses since inception, except for the year ended December 31, 2009. Such loss carryforwards would be subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. As of June 30, 2022 and December 31, 2021, the Company had recorded reserves for unrecognized income tax benefits against certain deferred tax assets in the US. However, given the Company’s valuation allowance position, these reserves do not have an impact on the balance sheet as of June 30, 2022 and December 31, 2021 or the consolidated statements of comprehensive loss for the three and six months ended June 30, 2022 and 2021. The Company has not recorded any accrued interest or penalties related to uncertain tax positions. The Company does not anticipate any material changes in the amount of unrecognized tax positions over the next 12 months.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and ContingenciesRent expense charged to operations was $1.9 million and $1.1 million for the three months ended June 30, 2022 and 2021, respectively, and $3.9 million and $2.3 million for the six months ended June 30, 2022 and 2021, respectively.

Legal Proceedings

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

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Business Acquisition

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Business Acquisition

Business Acquisition

On August 4, 2021, the Company acquired all of the equity interests of Motus and AlgaeneX, each a privately held, preclinical stage company. In connection with the closing of the Company’s acquisition of Motus, the Company issued an aggregate of 2,889,367 shares of the Company’s common stock, following certain closing-related reductions, to Motus’s former stockholders and option holders and certain individuals who are entitled to receive a portion of the acquisition consideration (collectively, Motus equityholders), subject to certain adjustments. The Company is obligated to issue to Motus equityholders an aggregate of 184,433 shares of the Company’s common stock on each of the first, second and third anniversaries of the closing date and up to 5,348,572 shares in the aggregate upon the achievement of certain development and regulatory milestone events, and to pay to the Motus equityholders an aggregate of $35 million upon the achievement of certain net sales-based milestones and a portion of the value of a priority review voucher (to the extent issued to the Company), in each case, subject to certain reductions.

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

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

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

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

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

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Fair Value Measurements

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

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

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

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

Each major category of financial assets and liabilities measured at fair value on a recurring basis is categorized based upon the lowest level of significant input to the valuations. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments in Level 1 generally include US treasuries and mutual funds listed in active markets. The Company's cash and cash equivalents permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions.

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

	June 30, 2022
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	416.1	$	416.1	$	—	$	—
Marketable securities	$	148.6	$	148.6	$	—	$	—
Deferred consideration	$	10.8	$	—	$	10.8	$	—
Contingent consideration liabilities	$	55.6	$	—	$	—	$	55.6

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

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the six months ended June 30, 2022, the Company purchased $99.7 million of additional marketable securities consisting of US Treasury Notes. There were no other transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2022.

As of June 30, 2022, the Company held $138.8 million and $9.8 million of current and non-current available-for-sale securities, respectively, net of an unrealized loss of $1.3 million recorded in accumulated other comprehensive income. Marketable securities maturing in one year or less are classified as current assets and marketable securities maturing in more

than one year are classified as non-current assets. As of December 31, 2021, 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 security was rated below investment grade; (3) how long the security has been in an unrealized loss position; and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to recover. The Company has determined that there were no other-than-temporary impairments during the quarter ended June 30, 2022.

Deferred Consideration

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

The deferred consideration has been classified as a Level 2 recurring liability as its valuation utilizes an input, the Insmed share price on the valuation date, which is a directly observable input at the measurement date and for the duration of the liabilities' anticipated lives. Deferred consideration expected to be settled within twelve months or less is classified as a current liability and are included in accrued liabilities. As of June 30, 2022, the fair value of deferred consideration included in accrued liabilities was $3.5 million. Deferred consideration expected to be settled in more than twelve months is classified as a non-current liability and is included in other long-term liabilities. As of June 30, 2022, the fair value of deferred consideration included in other long-term liabilities was $7.3 million.

The following observable input was used in the valuation of the deferred consideration as of June 30, 2022:

	Fair Value as of June 30, 2022 (in millions)	Observable Input	Input Value
Deferred consideration	$10.8	Insmed share price as of June 30, 2022	$19.72

Contingent Consideration

The contingent consideration liabilities arose from the Business Acquisition in August 2021 (Note 13). The contingent consideration liabilities consist of developmental and regulatory milestones, a priority review voucher milestone and net sales milestones. Upon the achievement of certain development and regulatory milestone events, the Company is obligated to issue to Motus equityholders up to 5,348,572 shares in the aggregate and AlgaeneX equityholders up to 368,867 shares in the aggregate. The fair value of the development and regulatory milestones are estimated utilizing a probability-adjusted approach. At June 30, 2022, the weighted average probability of success was 42%. The development and regulatory milestones will be settled in shares of the Company's common stock. As such, there is no discount rate applied in the fair value calculation.

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

The contingent consideration liabilities for net sales milestones were valued using an option pricing model with Monte Carlo simulation. As of June 30, 2022, the fair value of these net sales milestones were deemed immaterial to the overall fair value of the contingent consideration.

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

The following significant unobservable inputs were used in the valuation of the contingent consideration liabilities as of June 30, 2022 (in millions):

Contingent Consideration Liabilities	Fair Value as of June 30, 2022	Valuation Technique	Unobservable Inputs	Values
Development and regulatory milestones	$50.6	Probability-adjusted	Probabilities of success	14% - 95%
Priority review voucher milestone	$5.0	Probability-adjusted discounted cash flow	Probability of success	13.5%
			Discount rate	10.7%

Net Loss Per Share

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

Concentration of Credit Risk

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

The Company is exposed to risks associated with extending credit to customers related to the sale of products. The Company does not require collateral to secure amounts due from its customers. The Company uses an expected loss methodology to calculate allowances for trade receivables. The Company's measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company does not currently have a material allowance for collectible trade receivables. The following table presents the percentage of gross product revenue represented by the Company's three largest customers as of the six months ended June 30, 2022 and 2021.

	June 30,
	2022	2021
Customer A	36%	25%
Customer B	32%	23%
Customer C	19%	—%

The Company relies on third-party manufacturers and suppliers for manufacturing and supply of its products. The inability of the suppliers or manufacturers to fulfill supply requirements of the Company could materially impact future

operating results. A change in the relationship with the suppliers or manufacturers, or an adverse change in their business, could materially impact future operating results.

Revenue Recognition

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

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

The following table presents a summary of the Company's product revenues, net, by geographic location for the three and six months ended June 30, 2022 and 2021 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
US	$	47,190	$	41,754	$	87,972	$	79,008
Japan	15,849		—		26,525		—
Europe and rest of world	2,182		3,612		3,831		6,572
Total product revenues, net	$	65,221	$	45,366	$	118,328	$	85,580

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

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

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

mandated discounts applicable to government-funded programs, (iii) a range of possible outcomes that are probability-weighted for the estimated payor mix, and (iv) information obtained from the Company's specialty pharmacies.

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

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

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

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

Inventory and Cost of Product Revenues (Excluding Amortization of Intangible Assets)

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

Cost of product revenues (excluding amortization of intangible assets) consist primarily of direct and indirect costs related to the manufacturing of ARIKAYCE sold, including third-party manufacturing costs, packaging services, freight, and allocation of overhead costs, in addition to royalty expenses and revenue-based milestone payments. Cost is determined using a standard cost method, which approximates actual cost, and assumes a FIFO flow of goods.

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

Business Combinations and Asset Acquisitions

Business combinations and asset acquisitions - The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, Business Combinations, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

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

If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring

entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values.

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

Indefinite-Lived Intangible Assets and Goodwill

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

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

Impairment Assessment - The Company reviews the recoverability of its finite-lived intangible assets and long-lived assets for indicators of impairments. Events or circumstances that may require an impairment assessment include negative clinical trial results, a significant decrease in the market price of the asset, or a significant adverse change in legal factors or the manner in which the asset is used. If such indicators are present, the Company assesses the recoverability of affected assets by determining if the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found to not be recoverable, the Company measures the amount of the impairment by comparing to the carrying value of the assets to the fair value of the assets. The Company determined that no indicators of impairment of finite-lived intangible assets or long-lived assets existed at June 30, 2022.

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

Leases

Leases - A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly identified property, plant or equipment in exchange for consideration. Control of an asset is conveyed to the Company if the Company obtains the right to obtain substantially all of the economic benefits of the asset or the right to direct the use of the asset. The Company recognizes right-of-use (ROU) assets and lease liabilities at the lease commencement date based on the present value of future, fixed lease payments over the term of the arrangement. ROU assets are amortized on a straight-line basis over the term of the lease or are amortized based on consumption, if this approach is more representative of the pattern in

which benefit is expected to be derived from the underlying asset. Lease liabilities accrete to yield and are reduced at the time when the lease payment is payable to the vendor. Variable lease payments are recognized at the time when the event giving rise to the payment occurs and are recognized in the consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments.

Leases are measured at present value using the rate implicit in the lease or, if the implicit rate is not determinable, the lessee's implicit borrowing rate. As the implicit rate is not typically available, the Company uses its implicit borrowing rate based on the information available at the lease commencement date to determine the present value of future lease payments. The implicit borrowing rate approximates the rate the Company would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.

Refer to Note 7 - Leases for details about the Company's lease portfolio, including required disclosures.

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

Recently Adopted Accounting Pronouncements - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also promote consistent application of and simplify US generally accepted accounting principles (GAAP) for other areas of Topic 740 by clarifying and amending the existing guidance. For public business entities, the guidance was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. The Company adopted this guidance January 1, 2021. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements and accompanying notes.In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, to reduce the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the number of accounting models for convertible debt instruments is reduced, which results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Only convertible instruments that meet the definition of a derivative or are issued with substantial premiums will continue to be subject to the separation models. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a share of convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021. The Company transitioned using the modified retrospective method. The impact of adopting ASU 2020-06 on January 1, 2022 resulted in an opening balance sheet adjustment increasing debt by $221.9 million, increasing issuance costs classified to debt by $6.1 million, decreasing the deferred tax liability by $1.4 million, and causing an increase to retained earnings of $50.2 million, with an offsetting reduction to additional paid-in-capital of $264.6 million, net of tax.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Schedule of Carrying Value and Fair Value of Assets and Liabilities

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

	June 30, 2022
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	416.1	$	416.1	$	—	$	—
Marketable securities	$	148.6	$	148.6	$	—	$	—
Deferred consideration	$	10.8	$	—	$	10.8	$	—
Contingent consideration liabilities	$	55.6	$	—	$	—	$	55.6

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

Summary of Observable Inputs in Valuation of Deferred Consideration

The following observable input was used in the valuation of the deferred consideration as of June 30, 2022:

	Fair Value as of June 30, 2022 (in millions)	Observable Input	Input Value
Deferred consideration	$10.8	Insmed share price as of June 30, 2022	$19.72

Summary of Significant Unobservable Inputs Used in the Valuation of the Contingent Consideration Payables

The following significant unobservable inputs were used in the valuation of the contingent consideration liabilities as of June 30, 2022 (in millions):

Contingent Consideration Liabilities	Fair Value as of June 30, 2022	Valuation Technique	Unobservable Inputs	Values
Development and regulatory milestones	$50.6	Probability-adjusted	Probabilities of success	14% - 95%
Priority review voucher milestone	$5.0	Probability-adjusted discounted cash flow	Probability of success	13.5%
			Discount rate	10.7%

The following table is a summary of the changes in the fair value of the Company's valuations for the deferred and contingent consideration liabilities for the six months ended June 30, 2022 (in thousands):

	December 31, 2021		Additions	Change in Fair Value	Adjustments	June 30, 2022
Deferred consideration	$	14,931	—	(4,172)	—	$	10,759
Contingent consideration	$	75,668	—	(20,068)	—	$	55,600

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

The following table sets forth the reconciliation of the weighted average number of common shares used to compute basic and diluted net loss per share for the three and six months ended June 30, 2022 and 2021:

 

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in thousands, except per share amounts)
Numerator:
Net loss	$	(95,645)	$	(117,321)	$	(190,266)	$	(208,962)
Denominator:
Weighted average common shares used in calculation of basic net loss per share:	119,602		109,580		119,267		106,328
Effect of dilutive securities:
Common stock options	—		—		—		—
Restricted stock and RSUs	—		—		—		—
PSUs	—		—		—		—
Convertible debt securities	—		—		—		—
Weighted average common shares outstanding used in calculation of diluted net loss per share	119,602		109,580		119,267		106,328
Net loss per share:
Basic and diluted	$	(0.80)	$	(1.07)	$	(1.60)	$	(1.97)

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

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

 

	June 30,
	2022	2021
Common stock options	17,806	14,449
Unvested restricted stock and RSUs	1,619	1,125
PSUs	670	—
Convertible debt securities	23,438	23,438

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

The following table presents the percentage of gross product revenue represented by the Company's three largest customers as of the six months ended June 30, 2022 and 2021.

	June 30,
	2022	2021
Customer A	36%	25%
Customer B	32%	23%
Customer C	19%	—%

Revenue from External Customers by Geographic Areas

The following table presents a summary of the Company's product revenues, net, by geographic location for the three and six months ended June 30, 2022 and 2021 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
US	$	47,190	$	41,754	$	87,972	$	79,008
Japan	15,849		—		26,525		—
Europe and rest of world	2,182		3,612		3,831		6,572
Total product revenues, net	$	65,221	$	45,366	$	118,328	$	85,580

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Inventory (Tables)

6 Months Ended

Jun. 30, 2022

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

As of June 30, 2022 and December 31, 2021, the Company's inventory balance consists of the following (in thousands):

	June 30, 2022		December 31, 2021
Raw materials	$	29,320	$	29,541
Work-in-process	15,908		18,528
Finished goods	21,789		18,940
	$	67,017	$	67,009

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Intangibles, Net and Goodwill (Tables)

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Rollforward of Intangible Assets

A rollforward of the Company's intangible assets for the six months ended June 30, 2022 and June 30, 2021 is as follows (in thousands):

Intangible Asset	December 31, 2021		Additions		Amortization		June 30, 2022
Acquired ARIKAYCE R&D	$	42,439	$	—	$	(2,425)	$	40,014
Acquired IPR&D	29,600		—		—		29,600
PARI milestones	1,770		—		(101)		1,669
	$	73,809	$	—	$	(2,526)	$	71,283
Intangible Asset	December 31, 2020		Additions		Amortization		June 30, 2021
Acquired ARIKAYCE R&D	$	47,289	$	—	$	(2,425)	$	44,864
PARI milestones	1,972		—		(101)		1,871
	$	49,261	$	—	$	(2,526)	$	46,735

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Fixed Assets, Net (Tables)

6 Months Ended

Jun. 30, 2022

Property, Plant and Equipment [Abstract]

Schedule of Fixed Assets

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

Asset Description	Estimated Useful Life (years)	June 30, 2022		December 31, 2021
Lab equipment	7	$	14,144	$	11,862
Furniture and fixtures	7	6,306		5,799
Computer hardware and software	3-5	7,053		7,264
Office equipment	7	89		89
Manufacturing equipment	7	1,203		1,145
Leasehold improvements	2-10	37,009		36,073
Construction in progress (CIP)	—	27,447		27,784
		93,251		90,016
Less: accumulated depreciation		(39,305)		(37,061)
		$	53,946	$	52,955

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Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2022

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities

As of June 30, 2022 and December 31, 2021, the Company's accrued liabilities balance consists of the following (in thousands):

 

	June 30, 2022		December 31, 2021
Accrued clinical trial expenses	$	17,019	$	19,410
Accrued professional fees	11,336		10,678
Accrued technical operation expenses	4,816		6,187
Accrued royalty payable	7,182		6,655
Accrued interest payable	2,175		2,175
Accrued sales allowances and related costs	11,470		8,275
Deferred consideration	3,459		4,883
Accrued construction costs	105		551
Other accrued liabilities	1,208		1,851
	$	58,770	$	60,665

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Leases (Tables)

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

Summary of Supplemental Noncash Disclosures included in Consolidated Financial Statements

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	9,287	$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	166	$	2,100	$	507	$	8,641

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Debt (Tables)

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Components of Debt Balance

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

	June 30, 2022		December 31, 2021
Face value of outstanding convertible notes	$	800,000	$	800,000
Debt issuance costs, unamortized	(16,023)		(11,539)
Discount on debt	—		(221,873)
Debt, long-term	$	783,977	$	566,588

Schedule of Future Principal Repayments of Debt

As of June 30, 2022, future principal repayments of the notes for each of the years through maturity were as follows (in thousands):

 

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

Summary of Interest Expense

Interest expense related to debt and finance leases for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Contractual interest expense	$	2,062	$	2,052	$	4,125	$	4,021
Amortization of debt issuance costs	821		457		1,643		807
Accretion of debt discount	—		7,482		—		12,389
Total convertible debt interest expense	2,883		9,991		5,768		17,217
Finance lease interest expense	474		328		880		661
Interest expense	$	3,357	$	10,319	$	6,648	$	17,878

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Summary of Allocation of Employee Stock-Based Compensation

The following table summarizes the aggregate stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to stock options and RSUs during the three and six months ended June 30, 2022 and 2021, respectively (in millions): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	6.7	$	4.4	$	12.3	$	8.1
Selling, general and administrative	7.6		7.4		14.8		14.2
Total	$	14.3	$	11.8	$	27.1	$	22.3

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The Company and Basis of Presentation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash and cash equivalents	$ 416,078		$ 416,078		$ 716,782
Marketable securities	148,600		148,600
Net loss	$ (95,645)	$ (117,321)	$ (190,266)	$ (208,962)

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Summary of Significant Accounting Policies - Fair Value Measurements (Details) - USD ($) $ in Millions	Jun. 30, 2022	Dec. 31, 2021
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Marketable securities	$ 148.6
Recurring basis | Carrying Value
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash and cash equivalents	416.1	$ 716.8
Marketable securities	148.6	50.0
Deferred consideration	10.8	14.9
Contingent consideration liabilities	55.6	75.7
Recurring basis | Fair Value | Level 1
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash and cash equivalents	416.1	716.8
Marketable securities	148.6	50.0
Deferred consideration	0.0	0.0
Contingent consideration liabilities	0.0	0.0
Recurring basis | Fair Value | Level 2
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash and cash equivalents	0.0	0.0
Marketable securities	0.0	0.0
Deferred consideration	10.8	14.9
Contingent consideration liabilities	0.0	0.0
Recurring basis | Fair Value | Level 3
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash and cash equivalents	0.0	0.0
Marketable securities	0.0	0.0
Deferred consideration	0.0	0.0
Contingent consideration liabilities	$ 55.6	$ 75.7

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Summary of Significant Accounting Policies - Narrative (Details)		1 Months Ended	3 Months Ended	6 Months Ended		12 Months Ended
	Aug. 04, 2021 shares	Aug. 31, 2021 sale shares	Sep. 30, 2021 shares	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Dec. 31, 2021 USD ($) security	Jan. 01, 2022 USD ($)	May 31, 2021 USD ($)	Jan. 31, 2018 USD ($)
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Marketable securities, additional				$ (99,700,000)
Fair value transfers in or out of Level 1, Level 2, or Level 3				0	$ 0
Current available-for-sale securities				138,800,000
Noncurrent available-for-sale securities				9,800,000
Unrealized loss				$ (1,300,000)
Unrealized gain or loss | security						0
Accounting Standards Update [Extensible Enumeration]				Accounting Standards Update 2020-06		Accounting Standards Update 2020-06
Debt, long-term				$ 783,977,000		$ 566,588,000
Unamortized debt issuance costs				16,023,000		11,539,000
Accumulated deficit				(2,405,310,000)		(2,265,243,000)
Additional paid-in capital				2,449,281,000		2,673,556,000
Accounting Standards Update 2020-06
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Accumulated deficit							$ 50,200,000
Cumulative Effect, Period of Adoption, Adjustment | Accounting Standards Update 2020-06
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Debt, long-term							221,900,000
Unamortized debt issuance costs							6,100,000
Deferred tax liabilities							1,400,000
Additional paid-in capital							$ (264,600,000)
Carrying Value | Recurring basis
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Deferred consideration				10,800,000		14,900,000
Level 2 | Fair Value | Recurring basis
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Deferred consideration				10,800,000		$ 14,900,000
0.75% convertible senior notes due 2028 | Level 2 | Fair Value | Recurring basis
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Convertible senior notes				496,000,000
0.75% convertible senior notes due 2028 | Level 2 | Carrying Value | Recurring basis
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Convertible senior notes				$ 561,600,000
0.75% convertible senior notes due 2028 | Convertible Notes
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Proceeds from issuance of 0.75% convertible senior notes due 2028				0.75%
Unamortized debt issuance costs				$ 13,400,000				$ 15,700,000
1.75% convertible senior notes due 2025 | Level 2 | Fair Value | Recurring basis
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Convertible senior notes				208,300,000
1.75% convertible senior notes due 2025 | Level 2 | Carrying Value | Recurring basis
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Convertible senior notes				$ 222,400,000
1.75% convertible senior notes due 2025 | Convertible Notes
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Proceeds from issuance of 0.75% convertible senior notes due 2028				1.75%
Unamortized debt issuance costs				$ 2,600,000					$ 14,200,000
Development and regulatory milestones
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted-average probability of reaching milestone, percentage				42.00%
Accrued Liabilities, Current
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Deferred consideration				$ 3,500,000
Other Noncurrent Liabilities
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Deferred consideration				7,300,000
Motus
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Shares issued in acquisition (in shares) | shares	2,889,367		2,889,367
Shares issued upon milestone achievements (in shares) | shares	5,348,572
Motus | Level 2
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Deferred consideration				$ 10,800,000
Motus | Priority review voucher milestone
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Potential payout percentage		50.00%
Potential payout, average sales prices, percentage		50.00%
Number of publicly disclosed sales used to determine average sales price owed to equity holders | sale		3
Motus | Second anniversary of closing date
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Shares issued in acquisition (in shares) | shares	184,433
Motus | Third anniversary of closing date
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Shares issued in acquisition (in shares) | shares	184,433
Motus | First anniversary of closing date
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Shares issued in acquisition (in shares) | shares	184,433
AlgaeneX
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Shares issued upon milestone achievements (in shares) | shares		368,867

XML

Summary of Significant Accounting Policies - Significant Observable Inputs of Deferred Business Acquisition Liabilities (Details) - Motus - USD ($) $ / shares in Units, $ in Millions	Jun. 30, 2022	Aug. 31, 2021
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Share price used to calculate issuable shares (in dollars per share)		$ 27.11
Insmed share price as of June 30, 2022
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Share price used to calculate issuable shares (in dollars per share)	$ 19.72
Level 2
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Deferred consideration	$ 10.8

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Summary of Significant Accounting Policies - Significant Unobservable Inputs Of Contingent Consideration Liability (Details) $ in Millions	Jun. 30, 2022 USD ($)
Development and regulatory milestones | Probabilities of success | Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	0.14
Development and regulatory milestones | Probabilities of success | Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	0.95
Priority review voucher milestone | Probabilities of success
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	13.5
Priority review voucher milestone | Discount rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	10.7
Level 3 | Development and regulatory milestones
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Contingent consideration liabilities	$ 50.6
Level 3 | Priority review voucher milestone
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Contingent consideration liabilities	$ 5.0

XML

Summary of Significant Accounting Policies - Changes in the Fair Value of Deferred and Contingent Consideration Liabilities (Details) - Level 3 - Recurring basis $ in Thousands	6 Months Ended
	Jun. 30, 2022 USD ($)
Deferred Consideration
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	$ 14,931
Additions	0
Change in Fair Value	(4,172)
Adjustments	0
Ending balance	10,759
Contingent Consideration
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	75,668
Additions	0
Change in Fair Value	(20,068)
Adjustments	0
Ending balance	$ 55,600

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Summary of Significant Accounting Policies - Net Loss Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Numerator:
Net loss	$ (95,645)	$ (117,321)	$ (190,266)	$ (208,962)
Denominator:
Weighted average common shares used in calculation of basic net loss per share (in shares)	119,602	109,580	119,267	106,328
Effect of dilutive securities:
Dilutive securities, convertible debt (in shares)	0	0	0	0
Weighted average common shares outstanding used in calculation of diluted net loss per share (in shares)	119,602	109,580	119,267	106,328
Net loss per share:
Basic (in dollars per share)	$ (0.80)	$ (1.07)	$ (1.60)	$ (1.97)
Diluted (in dollars per share)	$ (0.80)	$ (1.07)	$ (1.60)	$ (1.97)
Common stock options
Effect of dilutive securities:
Dilutive securities, share-based payment (in shares)	0	0	0	0
Restricted stock and RSUs
Effect of dilutive securities:
Dilutive securities, share-based payment (in shares)	0	0	0	0
PSUs
Effect of dilutive securities:
Dilutive securities, share-based payment (in shares)	0	0	0	0

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Summary of Significant Accounting Policies - Anti-dilutive Securities (Details) - shares shares in Thousands	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Common stock options
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	17,806	14,449
Unvested restricted stock and RSUs
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	1,619	1,125
PSUs
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	670	0
Convertible debt securities
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	23,438	23,438

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Summary of Significant Accounting Policies - Concentration Risk (Details) - Sales Revenue, Product Line - Customer Concentration Risk	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Customer A
Concentration Risk [Line Items]
Concentration risk, percentage	36.00%	25.00%
Customer B
Concentration Risk [Line Items]
Concentration risk, percentage	32.00%	23.00%
Customer C
Concentration Risk [Line Items]
Concentration risk, percentage	19.00%	0.00%

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Summary of Significant Accounting Policies - Summary of Revenues by Geographic Location (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Disaggregation of Revenue [Line Items]
Product revenues, net	$ 65,221	$ 45,366	$ 118,328	$ 85,580
UNITED STATES
Disaggregation of Revenue [Line Items]
Product revenues, net	47,190	41,754	87,972	79,008
JAPAN
Disaggregation of Revenue [Line Items]
Product revenues, net	15,849	0	26,525	0
Europe And The Rest Of The World
Disaggregation of Revenue [Line Items]
Product revenues, net	$ 2,182	$ 3,612	$ 3,831	$ 6,572

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Inventory - Schedule of Inventory, Current (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Inventory Disclosure [Abstract]
Raw materials	$ 29,320	$ 29,541
Work-in-process	15,908	18,528
Finished goods	21,789	18,940
Inventory, Net	$ 67,017	$ 67,009

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Intangibles, Net and Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021	Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]
Intangible assets estimated useful life			12 years
Amortization of intangible assets, 2022	$ 5,100		$ 5,100
Amortization of intangible assets, 2023	5,100		5,100
Amortization of intangible assets, 2024	5,100		5,100
Amortization of intangible assets, 2025	5,100		5,100
Amortization of intangible assets, 2026	5,100		5,100
Goodwill	136,110		136,110		$ 136,110
Finite-lived Intangible Assets [Roll Forward]
Intangibles, gross					73,809	$ 49,261
Additions			0	$ 0
Amortization	(1,263)	$ (1,263)	(2,526)	(2,526)
Intangibles, net	71,283	46,735	71,283	46,735	73,809
Goodwill	136,110		136,110		136,110
Acquired ARIKAYCE R&D
Finite-lived Intangible Assets [Roll Forward]
Intangibles, gross					42,439	47,289
Additions			0	0
Amortization			(2,425)	(2,425)
Intangibles, net	40,014	44,864	40,014	44,864
Acquired IPR&D
Finite-lived Intangible Assets [Roll Forward]
Intangibles, gross					29,600
Additions			0
Amortization			0
Intangibles, net	29,600		29,600
PARI milestones
Finite-lived Intangible Assets [Roll Forward]
Intangibles, gross					$ 1,770	$ 1,972
Additions			0	0
Amortization			(101)	(101)
Intangibles, net	$ 1,669	$ 1,871	$ 1,669	$ 1,871

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Fixed Assets, Net (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 93,251	$ 90,016
Less: accumulated depreciation	(39,305)	(37,061)
Fixed assets, net	$ 53,946	52,955
Lab equipment
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	7 years
Fixed assets, gross	$ 14,144	11,862
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	7 years
Fixed assets, gross	$ 6,306	5,799
Computer hardware and software
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 7,053	7,264
Computer hardware and software | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	3 years
Computer hardware and software | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	5 years
Office equipment
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	7 years
Fixed assets, gross	$ 89	89
Manufacturing equipment
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	7 years
Fixed assets, gross	$ 1,203	1,145
Leasehold improvements
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 37,009	36,073
Leasehold improvements | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	2 years
Leasehold improvements | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (years)	10 years
Construction in progress (CIP)
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 27,447	$ 27,784

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Accrued Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Payables and Accruals [Abstract]
Accrued clinical trial expenses	$ 17,019	$ 19,410
Accrued professional fees	11,336	10,678
Accrued technical operation expenses	4,816	6,187
Accrued royalty payable	7,182	6,655
Accrued interest payable	2,175	2,175
Accrued sales allowances and related costs	11,470	8,275
Deferred consideration	3,459	4,883
Accrued construction costs	105	551
Other accrued liabilities	1,208	1,851
Total accrued expenses	$ 58,770	$ 60,665

XML

Leases - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Lessee, Lease, Description [Line Items]
Variable lease, cost	$ 1.5	$ 0.2	$ 1.6	$ 0.3
Lease cost, future right-of-use asset			$ 36.3
Minimum
Lessee, Lease, Description [Line Items]
Remaining lease term			1 year
Maximum
Lessee, Lease, Description [Line Items]
Remaining lease term			10 years 10 months

XML

Leases - Lease, costs (Details) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Lease, Cost [Abstract]
Finance right-of-use assets obtained in exchange for lease obligations	$ 0	$ 0	$ 9,287	$ 0
Operating right-of-use assets obtained in exchange for lease obligations	$ 166	$ 2,100	$ 507	$ 8,641

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Debt - Narrative (Details) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended		6 Months Ended
	May 31, 2021 USD ($) day $ / shares	Jan. 31, 2018 USD ($) day $ / shares	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Dec. 31, 2021 USD ($)
Debt Instrument [Line Items]
Underwriting discounts and commissions and other offering expenses | $			$ 16,023		$ 16,023		$ 11,539
Net proceeds | $					0	$ 575,000
Loss on extinguishment of debt | $			0	$ 17,689	0	$ 17,689
0.75% convertible senior notes due 2028
Debt Instrument [Line Items]
Initial conversion rate	0.0307692	30.7692
1.75% convertible senior notes due 2025
Debt Instrument [Line Items]
Initial conversion rate	0.0255384	25.5384
Convertible Notes | 0.75% convertible senior notes due 2028
Debt Instrument [Line Items]
Aggregate principal amount | $	$ 575,000
Option to purchase additional debt | $	75,000
Underwriting discounts and commissions and other offering expenses | $	15,700		13,400		$ 13,400
Net proceeds | $	$ 559,300
Initial conversion price (in dollars per share) | $ / shares	$ 32.50
Remaining discount amortization period					5 years 11 months 1 day
Convertible Notes | 0.75% convertible senior notes due 2028 | Conversion Term (i)
Debt Instrument [Line Items]
Threshold trading days	5
Threshold consecutive trading days	5
Threshold percent of stock price trigger	98.00%
Convertible Notes | 0.75% convertible senior notes due 2028 | Conversion Term (ii)
Debt Instrument [Line Items]
Threshold trading days	45
Threshold consecutive trading days	10
Threshold percent of stock price trigger	10.00%
Convertible Notes | 0.75% convertible senior notes due 2028 | Conversion Term (iii)
Debt Instrument [Line Items]
Threshold trading days following fundamental change	30
Convertible Notes | 0.75% convertible senior notes due 2028 | Conversion Term (iv)
Debt Instrument [Line Items]
Threshold trading days	20
Threshold consecutive trading days	30
Threshold percent of stock price trigger	130.00%
Convertible Notes | 1.75% convertible senior notes due 2025
Debt Instrument [Line Items]
Aggregate principal amount | $		$ 450,000
Option to purchase additional debt | $		50,000
Underwriting discounts and commissions and other offering expenses | $		14,200	$ 2,600		$ 2,600
Net proceeds | $		$ 435,800
Repurchased amount | $	$ 225,000
Loss on extinguishment of debt | $	$ 17,700
Initial conversion price (in dollars per share) | $ / shares		$ 39.16
Remaining discount amortization period					2 years 6 months 14 days
Convertible Notes | 1.75% convertible senior notes due 2025 | Conversion Term (i)
Debt Instrument [Line Items]
Threshold trading days		5
Threshold consecutive trading days		5
Threshold percent of stock price trigger		98.00%
Convertible Notes | 1.75% convertible senior notes due 2025 | Conversion Term (ii)
Debt Instrument [Line Items]
Threshold trading days		45
Threshold consecutive trading days		10
Threshold percent of stock price trigger		10.00%
Convertible Notes | 1.75% convertible senior notes due 2025 | Conversion Term (iii)
Debt Instrument [Line Items]
Threshold trading days following fundamental change		30
Convertible Notes | 1.75% convertible senior notes due 2025 | Conversion Term (iv)
Debt Instrument [Line Items]
Threshold trading days		20
Threshold consecutive trading days		30
Threshold percent of stock price trigger		130.00%

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Debt - Components of Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Debt Disclosure [Abstract]
Face value of outstanding convertible notes	$ 800,000	$ 800,000
Debt issuance costs, unamortized	(16,023)	(11,539)
Discount on debt	0	(221,873)
Debt, long-term	$ 783,977	$ 566,588

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Debt - Future Principal Repayments of Debt (Details) $ in Thousands	Jun. 30, 2022 USD ($)
Year Ending December 31:
2022	$ 0
2023	0
2024	0
2025	225,000
2026	0
2027 and thereafter	575,000
Total	$ 800,000

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Debt - Interest Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Debt Disclosure [Abstract]
Contractual interest expense	$ 2,062	$ 2,052	$ 4,125	$ 4,021
Amortization of debt issuance costs	821	457	1,643	807
Accretion of debt discount	0	7,482	0	12,389
Total convertible debt interest expense	2,883	9,991	5,768	17,217
Finance lease interest expense	474	328	880	661
Interest expense	$ 3,357	$ 10,319	$ 6,648	$ 17,878

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Shareholders' Equity - Narrative (Details) - USD ($) $ / shares in Units, $ in Millions		3 Months Ended
	Aug. 04, 2021	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Jun. 30, 2022	Dec. 31, 2021
Class of Stock [Line Items]
Common stock, authorized shares (in shares)						500,000,000	500,000,000
Common stock, par value (in dollars per share)						$ 0.01	$ 0.01
Common stock, issued shares (in shares)						119,865,023	118,738,266
Common stock, outstanding shares (in shares)						119,865,023	118,738,266
Offering price per share (in dollars per share)			$ 25.00		$ 23.25
Payments of stock issuance costs			$ 17.5		$ 13.5
Preferred stock, authorized (in shares)						200,000,000
Preferred stock, par value (in dollars per share)						$ 0.01
Preferred stock, shares issued (in shares)						0
Preferred stock, shares outstanding (in shares)						0
Motus
Class of Stock [Line Items]
Common stock shares reserved for issuance (in shares)						9,406,112
Shares issued in acquisition (in shares)	2,889,367	2,889,367
Public Stock Offering
Class of Stock [Line Items]
Shares sold in offering (in shares)			11,500,000		11,155,000
Aggregate net proceeds from stock offering			$ 270.1		$ 245.9
Over-Allotment Option
Class of Stock [Line Items]
Shares sold in offering (in shares)			1,500,000		1,455,000
ATM Program
Class of Stock [Line Items]
Common stock authorized, aggregate gross sales proceeds (up to)				$ 250.0
Convertible debt securities
Class of Stock [Line Items]
Common stock shares reserved for issuance (in shares)						23,438,430
Common stock options
Class of Stock [Line Items]
Common stock shares reserved for issuance (in shares)						17,805,766
Unvested restricted stock and RSUs
Class of Stock [Line Items]
Common stock shares reserved for issuance (in shares)						1,619,225
PSUs
Class of Stock [Line Items]
Common stock shares reserved for issuance (in shares)						670,168

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Stock-Based Compensation - Narrative (Details) - USD ($)				1 Months Ended	3 Months Ended	6 Months Ended
	May 12, 2021	May 12, 2020	May 15, 2018	Jan. 31, 2022	Jun. 30, 2022	Jun. 30, 2022	May 16, 2019
Stock-Based Compensation
Inducement stock options granted to new employees (in shares)						471,790
Common stock options
Stock-Based Compensation
Unrecognized compensation expense related to unvested stock options					$ 122,500,000	$ 122,500,000
Performance options
Stock-Based Compensation
Options outstanding (in shares)					114,780	114,780
PSUs issued				271,612
Potential award payout				100.00%
Volatility rate				65.40%
Risk-free interest rate				1.03%
Weighted average grant date fair value (in dollars per share)				$ 39.12
Unrecognized compensation expense					$ 10,500,000	$ 10,500,000
Allocated share-based compensation expense					0	0
Performance options | Minimum
Stock-Based Compensation
Potential award payout				0.00%
Performance options | Maximum
Stock-Based Compensation
Potential award payout				250.00%
Unvested restricted stock and RSUs
Stock-Based Compensation
Unrecognized compensation expense related to unvested RSU awards					$ 32,500,000	$ 32,500,000
2019 Incentive Plan
Stock-Based Compensation
Shares of common stock, maximum authorized for issuance (in shares)							3,500,000
Number of additional shares authorized (in shares)	3,000,000	4,500,000
Shares available for grant (in shares)					2,145,104	2,145,104
2019 Incentive Plan, Second Amendment
Stock-Based Compensation
Number of additional shares authorized (in shares)	2,750,000
2018 ESPP
Stock-Based Compensation
Shares of common stock, maximum authorized for issuance (in shares)			1,000,000
Number of additional shares authorized (in shares)			1,200,000
Percentage of outstanding shares			2.00%

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Stock-Based Compensation - Restricted Stock and Restricted Stock Units (Details) - Stock options and RSUs - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Stock-Based Compensation
Allocated share-based compensation expense	$ 14.3	$ 11.8	$ 27.1	$ 22.3
Research and development
Stock-Based Compensation
Allocated share-based compensation expense	6.7	4.4	12.3	8.1
Selling, general and administrative
Stock-Based Compensation
Allocated share-based compensation expense	$ 7.6	$ 7.4	$ 14.8	$ 14.2

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Income Taxes (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 501,000	$ 622,000	$ 886,000	$ 861,000
Deferred tax benefit			0
Unrecognized tax benefits, interest and penalties accrued	$ 0		$ 0		$ 0

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Commitments and Contingencies - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Commitments and Contingencies Disclosure [Abstract]
Rent expense charged to operations	$ 1.9	$ 1.1	$ 3.9	$ 2.3

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Business Acquisition - Narrative (Details) $ / shares in Units, $ in Millions			1 Months Ended	3 Months Ended
	Aug. 04, 2021 USD ($) shares	May 24, 2021 days	Aug. 31, 2021 USD ($) $ / shares shares	Sep. 30, 2021 shares
Business Acquisition [Line Items]
Consecutive trading day period | days		45
Motus and AlgaeneX
Business Acquisition [Line Items]
Fair value of total consideration | $			$ 165.5
Motus
Business Acquisition [Line Items]
Shares issued in acquisition (in shares)	2,889,367			2,889,367
Shares issued upon milestone achievements (in shares)	5,348,572
Cash to be paid upon achievement of milestones | $	$ 35.0
Share price used to calculate issuable shares (in dollars per share) | $ / shares			$ 27.11
Motus | First anniversary of closing date
Business Acquisition [Line Items]
Shares issued in acquisition (in shares)	184,433
Motus | Second anniversary of closing date
Business Acquisition [Line Items]
Shares issued in acquisition (in shares)	184,433
Motus | Third anniversary of closing date
Business Acquisition [Line Items]
Shares issued in acquisition (in shares)	184,433
AlgaeneX
Business Acquisition [Line Items]
Shares issued upon milestone achievements (in shares)			368,867
Cash paid in acquisition | $			$ 1.5
Share price used to calculate issuable shares (in dollars per share) | $ / shares			$ 27.11