This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to them. In some cases you can identify forward-looking statements by words such as "may," "will," "should," "could," "would," "expect," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. Examples of these statements include, but are not limited to, statements regarding: the implications of interim or final results of our clinical trials, the progress of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products and technology, our ability to identify new product candidates, the potential of such product candidates to lead to the development of commercial products, our anticipated timing for initiation or completion of our clinical trials for any of our product candidates, our future operating expenses, our future losses, our future expenditures for research and development, and the sufficiency of our cash resources. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A of this quarterly report on Form 10-Q and our other filings with the SEC. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report on Form 10-Q. You should read this quarterly report on Form 10-Q completely and with the understanding that our actual future results may be materially different from those we expect. Except as required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included in Part I, Item 1 of this quarterly report on Form 10-Q and with the audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2007.

Overview

We use our proprietary inhalation technologies to enhance the therapeutic benefits and commercial attractiveness of proven drugs while minimizing risk by capitalizing on their known safety, efficacy and commercialization history. We have several proprietary product candidates in clinical development which address large market opportunities, including our two most advanced product candidates, Unit Dose Budesonide, or UDB, for pediatric asthma and MAP0004 for migraine. UDB is our proprietary nebulized version of budesonide intended to treat pediatric asthma in children from 12 months to eight years of age. UDB is designed to be administered more quickly and to provide efficacy at lower doses than conventional nebulized budesonide, which is the current leading treatment for pediatric asthma. MAP0004 is our proprietary orally inhaled version of dihydroergotamine intended to treat migraine. MAP0004 is designed to provide faster onset and longer lasting pain relief than triptans, the class of drugs most often prescribed for treating migraine.

We announced positive results from Phase 2 clinical studies of UDB and MAP0004 in early 2007 and initiated a Phase 3 clinical program for UDB in January 2008. For our MAP0004 migraine program we received a special protocol assessment, or SPA, from the U.S. Food and Drug Administration, or FDA, in January 2008 and initiated a Phase 3 clinical program in July 2008. We hold worldwide commercialization rights for each of our product candidates and intend to market UDB and MAP0004 in the United States through our own focused sales force targeting pediatricians for UDB and neurologists and headache specialists for MAP0004. Our program for UDB includes Phase 3 pivotal efficacy clinical trials as well as trials of the uptake of UDB by the body, known as pharmacokinetic trials, and with respect to MAP0004, our program includes Phase 3 pivotal efficacy clinical trials as well as a pharmacokinetic trial and a trial of the effect of MAP0004 on the body, known as a pharmacodynamic trial.

Our product portfolio also includes two earlier stage product candidates, both of which highlight the broad applicability of our technologies to a diverse range of potential future products. MAP0005 is our proprietary combination of an inhaled corticosteroid and a long-acting beta-agonist for the potential treatment of asthma and chronic obstructive pulmonary disease, or COPD, and MAP0001 is our proprietary form of insulin for the potential treatment of Type 1 and Type 2 diabetes via pulmonary delivery using our proprietary TempoŽ inhaler. We have no current intention to further develop either of these earlier stage product candidates independently.

We are a development stage company and have not generated any product revenues. Since our inception, we have incurred losses and have an accumulated deficit of $154.1 million as of September 30, 2008. We have financed our operations through equity financing, debt financing and the issuance of convertible notes. Prior to our initial public offering, or IPO, in October 2007, we had received net proceeds of $106.7 million from the issuance of convertible notes payable and convertible preferred stock. With the completion of our IPO we received net proceeds of $62.1 million after deducting expenses and underwriters' discounts and commissions. In 2006, we entered into loan facility agreements and borrowed $10.0 million to finance working capital and $1.0 million to finance equipment purchases, or the 2006 Working Capital Loan. In May 2008, we entered into an agreement to borrow $20.0 million, or the 2008 Working Capital Loan, in order to repay the 2006 Working Capital Loan and to support general corporate purposes.

We expect to continue to incur net losses for the next several years as we continue to develop our current product candidates, develop, acquire or in-license additional products or product candidates, expand clinical trials for our product candidates currently in clinical development, expand our research and development activities, seek regulatory approvals and engage in commercialization preparation activities in anticipation of potential FDA approval of our product candidates. We will need to expand our commercial organization to launch any products. Significant capital is required to launch a product, and many expenses are incurred before revenues are received. We are unable to predict the extent of any future losses or when we will become profitable, if at all.

Critical Accounting Policies

The accounting policies that we consider to be our most critical (those that are most important to the portrayal of our financial condition and results of operations and that require our most difficult, subjective or complex judgments), the effects of those accounting policies applied and the judgments made in their application are summarized in "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Financial Overview

Research and Development Expenses

Research and development expenses consist of: (i) expenses incurred under agreements with contract research organizations and investigative sites, which conduct our clinical trials and a substantial portion of our pre-clinical studies; (ii) milestone payments paid to our collaborative partners who work on our processing and supply of clinical trial material ; (iii) the cost of manufacturing and supplying clinical trial materials; (iv) payments to contract service organizations, as well as consultants; (v) employee-related expenses, which include salaries and benefits; (vi) facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, depreciation of leasehold improvements and equipment and laboratory and other supplies; and (vii) stock-based compensation expense. All research and development expenses are expensed as incurred.

Conducting a significant amount of research and development is central to our business model. Through September 30, 2008, we had incurred approximately $114.0 million in research and development expenses since our inception in 2003. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of the clinical trials. We plan to increase our research and development expenses for the foreseeable future in order to complete development of our two most advanced product candidates, UDB and MAP0004, and earlier-stage research and development projects.

The following table summarizes the percentages of our research and development expenses related to our two most advanced product candidates and other earlier stage projects. The percentages summarized in the following table reflect costs directly attributable to each development candidate, which are tracked on a project basis. A portion of our internal costs, including indirect costs relating to our product candidates, are not tracked on a project basis and are allocated based on management's estimate.

                                                                                                     Period from
                                                                                                    July 3, 2003
                                           Three Months Ended           Nine months Ended        (Date of Inception)
                                              September 30,               September 30,                Through
                                                                                                    September 30,
                                           2008           2007         2008          2007               2008
Our most advanced product candidates:
UDB                                            47 %           34 %         50 %          37 %                     45 %
MAP0004                                        45 %           56 %         42 %          54 %                     46 %
Other projects                                  8 %           10 %          8 %           9 %                      9 %

Total 100 % 100 % 100 % 100 % 100 %

The process of conducting pre-clinical studies and clinical trials necessary to obtain FDA approval is costly and time consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others, the quality of the product candidate's early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result of the uncertainties discussed above, the uncertainty associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. We are currently focused on developing our two most advanced product candidates. However, we will need to raise substantial additional capital in the future in order to complete the development and potential commercialization of UDB, MAP0004 and other product candidates.

Sales, General and Administrative Expenses

Sales, general and administrative expenses consist primarily of compensation for executive, finance, marketing, legal and administrative personnel, including share-based compensation. Other sales, general and administrative expenses include facility costs not otherwise included in research and development expenses, legal and accounting services, other professional services, the cost of market research activities and consulting fees. Through September 30, 2008, we had incurred approximately $30.3 million in sales, general and administrative expenses since our inception in 2003. We expect these expenses to increase as we continue to grow our business.

Results of Operations

Comparison of Three and Nine months Ended September 30, 2008 and 2007



                                       Three Months Ended                                           Nine months Ended
                                          September 30,           Increase/       % Increase/         September 30,           Increase/       % Increase/
                                        2008          2007        (Decrease)      (Decrease)        2008          2007        (Decrease)      (Decrease)
                                                (in thousands, except percentages)                          (in thousands, except percentages)
Research and development expenses    $    16,815     $ 7,510     $      9,305             124 %   $  41,614     $ 18,343     $     23,271             127 %
Sales, general and administrative
expenses                                   3,380       2,366            1,014              43 %       9,685        6,823            2,862              42 %
Interest income                              453         621             (168 )           -27 %       1,894        1,612              282              17 %
Interest expense                            (621 )      (336 )           (285 )            85 %      (1,437 )     (1,017 )           (420 )            41 %
Other expense, net                            -         (251 )            251               *          (278 )       (619 )            341             -55 %

* Percentage removed as it is not meaningful.

Research and Development Expenses. The increase in research and development expenses for the three and nine months ended September 30, 2008 as compared to the same periods in 2007 was primarily driven by an increase of $7.4 million and $17.3 million, respectively, related to clinical expenses to support Phase 3 clinical programs initiated in 2008 for our two lead program candidates, UDB and MAP0004, and an increase of $1.3 million and $4.1 million, respectively, in personnel related expenses and stock-based compensation in support of these Phase 3 clinical programs.

Sales, General and Administrative Expenses.The increase in sales, general and administrative expenses for the three months ended September 30, 2008 as compared to the same period in 2007 was primarily related to increases of $0.4 million in personnel related expenses and stock-based compensation, as well as an increase of $0.5 million due to professional fees, outside services and other administrative related costs. The increase in sales, general and administrative expenses for the nine months ended September 30, 2008 as compared to the same period in 2007 was primarily related to increases of $2.0 million in personnel related expenses and stock-based compensation, as well as an increase of $0.9 million due to professional fees, outside services and other administrative related costs, partially offset by a decrease in non-recurring IPO expenses incurred in the prior year.

Interest Income. The decrease in interest income for the three months ended September 30, 2008 as compared to 2007 was due primarily to a decrease in market interest rates. The increase in interest income for the nine months ended September 30, 2008 as compared to 2007 was due primarily to higher average cash balances during that period resulting from proceeds raised from the completion of our IPO in October 2007, partially offset by the decrease in market interest rates. We expect our interest income to fluctuate in the future with changes in average investment balances and market interest rates.

Interest Expense.Interest expense increased for the three months and nine months ended September 30, 2008 as compared to the same periods in 2007 as a result of an increase in long-term debt related to the 2008 Working Capital Loan. We expect our interest expense to fluctuate in the future with average debt balances.

Other Income (Expense), Net. Other income (expense), net for the three and nine months ended September 30, 2007 primarily consisted of the change in carrying value of warrants to purchase redeemable convertible preferred stock. At the time of our IPO, the warrants to purchase preferred stock converted into warrants to purchase common stock with the carrying value included in equity and no further expense was incurred. Other income (expense), net, for the nine months ended September 30, 2008 primarily consisted of expenses related to the 2008 Working Capital Loan and the debt extinguishment related to the 2006 Working Capital Loan and gains of $91,000 due to the sale of investments.

Liquidity and Capital Resources

We have incurred losses and negative cash flow since our inception in July 2003 and, as of September 30, 2008, we had an accumulated deficit of $154.1 million. We will continue to be in a loss position until sufficient revenue can be generated to offset our expenses, and we anticipate that we will continue to incur net losses for the next several years. We expect that our research and development, and sales, general, and administrative expenses may continue to increase and, as a result, we will need to generate significant net product sales, royalty and other revenues to achieve profitability.

We have financed our operations through equity financing, debt financing and issuance of convertible notes. Prior to our IPO in October 2007, we had received net proceeds of $106.7 million from the issuance of convertible notes payable and convertible preferred stock. Through our IPO we received net proceeds of $62.1 million after deducting expenses and underwriters' discounts and commissions. In 2006,

we entered into the 2006 Working Capital Loan and borrowed $10.0 million to finance working capital and $1.0 million to finance equipment purchases. In May 2008, we entered into the 2008 Working Capital Loan and borrowed $20.0 million in order to repay the 2006 Working Capital Loan and to support general corporate purposes.

As of September 30, 2008, we had approximately $63.0 million in cash, cash equivalents and short-term investments. Our cash and short-term investment balances are held in a variety of interest bearing instruments, including commercial paper, corporate debt, U.S. government and agency securities and money market funds. Cash in excess of immediate requirements is invested in accordance with our investment policy primarily with a view to capital preservation and liquidity.

We believe that we may need to raise additional capital in the next 12 months in order to continue with our clinical trial development efforts. In addition, we will need to raise substantial additional capital in the future in order to complete the development and commercialization of UDB and MAP0004 given the cost of developing and commercializing two product candidates in parallel, and to fund the development and commercialization of our future product candidates. Until we can generate a sufficient amount of product revenue, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. Such funding, if needed, may not be available on favorable terms, if at all. In the event we are unable to obtain additional capital, we may delay or reduce the scope of our current R&D programs and other expenses.

The following table shows a summary of our cash flows for the periods indicated:

                                                 Nine months Ended
                                                   September 30,
                                                2008          2007
                                                  (In thousands)
                Cash provided by (used in):
                Operating activities          $ (41,360 )   $ (21,399 )
                Investing activities          $  19,979     $  (7,653 )
                Financing activities          $  10,544     $  49,864

Net cash used in operating activities. Net cash used in operating activities primarily reflects the net loss for those periods as we continue as a development stage company. The net loss in each period was reduced in part by non-cash depreciation and amortization, stock-based compensation and changes in operating assets and liabilities. The increase for the nine months ended September 30, 2008 as compared to the same period of 2007 was primarily driven by an increase in operating expenses related to our clinical development programs and an increase in headcount across all departments.

Net cash used in investing activities. Net cash used in investing activities was primarily related to investment activity, with more maturities than purchases of investments in 2008 as compared to 2007. Purchase of property and equipment also increased over the prior year period due to our company's growth.

Net cash provided by financing activities. Net cash provided by financing activities for the nine months ended September 30, 2008 was primarily attributable to the issuance of $20.0 million in debt in May 2008, offset by the repayment of $8.3 million for the 2006 Working Capital Loan. Issuance of Series D convertible preferred stock in the nine months ended September 30, 2007 provided $50.2 million in financing.

Contractual Obligations

As of September 30, 2008, future minimum payments under lease obligations and
debt obligations were as follows (in thousands).



                                                    Payments due by period
                                                  Less                            More
                                                  than       1-3        3-5       than
                                       Total     1 Year     Years      Years     5 Years
                                                        (in thousands)
     Contractual Obligations:
     Debt (1)                         $ 24,990   $ 6,609   $ 18,381   $    -    $      -
     Operating lease obligation (2)      4,631     1,019      3,612        -           -

     Total                            $ 29,621   $ 7,628   $ 21,993   $    -    $      -

(1) Represents principal maturities, net of premium, including interest. In May 2008, we entered into the 2008 Working Capital Loan and borrowed $20.0 million in order to repay the 2006 Working Capital Loan and to support general corporate purposes. Please see "Note 3. Long-Term Debt" in the notes to the condensed consolidated financial statements in this Form 10-Q for additional information relating to debt.

The table above reflects only payment obligations for development products that are fixed and determinable. Milestone payments and royalty payments under our license and supply agreements are not included in the table above because we cannot, at this time, determine when or if the related milestones will be achieved or the events triggering the commencement of payment obligations will occur. Please see "Note 5. License and Supply Agreements" in the notes to the condensed consolidated financial statement in this Form 10-Q for additional information.

Recent Accounting Pronouncements

We adopted Emerging Issues Task Force (EITF) Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities," on a prospective basis for new contracts entered into on or after January 1, 2008. EITF Issue No. 07-3 states that nonrefundable advance payments for future research and development activities should be deferred and recognized as an expense as the goods are delivered or the related services are performed. Entities should then continue to evaluate whether they expect the goods to be delivered or services to be rendered and, if an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. The adoption of EITF Issue No. 07-3 did not have a material impact on our financial position or results of operations

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods of those fiscal years. The adoption of SFAS 157 for financial assets and liabilities did not have a material impact on our condensed consolidated financial position, results of operations or cash flows. Relative to SFAS 157, the FASB issued FSP FAS 157-1, FAS 157-2, and FAS 157-3. FSP FAS 157-1 amends SFAS 157 to exclude SFAS 13 and its related interpretive accounting pronouncements that address leasing transactions, while FSP FAS 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. FSP FAS 157-3 clarifies the application of SFAS 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. This FSP is effective immediately and includes those periods for which financial statements have not been issued. We have considered FSP FAS 157-3 in its determination of estimated fair values as of September 30, 2008, and the impact was not material. We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities. We will adopt FAS 157 as it is applied to non-financial assets and non-financial liabilities at the beginning of 2009, and we do not expect the adoption of this pronouncement to have a material impact on our consolidated financial statements. Please see Note 2. Certain Balance Sheet Components.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159) effective for us January 1, 2008. SFAS 159 permits companies to choose to measure certain financial instruments and other items at fair value. We chose not to elect the fair value option for financial assets and liabilities existing at January 1, 2008, and did not elect the fair value option on financial assets and . . .