Tobira Therapeutics
Tobira Therapeutics, Inc. (Form: 10-K, Received: 03/03/2016 16:50:45)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

x

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

For the fiscal year ended December 31, 2015

OR

o

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

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number 001-35953

 

TOBIRA THERAPEUTICS, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

03-0422069

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

701 Gateway Blvd., Suite 300

South San Francisco, CA

 

94080

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (650) 741-6625

 

Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.001 Per Share; Common stock traded on the NASDAQ stock market.

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES   o     NO   x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    YES   o      NO   x

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

o

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

o   (Do not check if a small reporting company)

  

Small reporting company

 

o

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

The aggregate market value of common stock held by non-affiliates of the Registrant as of June 30, 2015, the last business day of the Registrant’s most recently completed second quarter, was $186.2 million.

The number of shares of Registrant’s Common Stock outstanding as of February 26, 2016 was 18,815,689.

Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Stockholders, scheduled to be held on June 15, 2016, are incorporated by reference into Part III of this Report.

 

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Corporate Information

Tobira Therapeutics, Inc., or Tobira or the Company, is a clinical-stage biopharmaceutical company. On May 4, 2015, Regado Biosciences, Inc., or Regado, completed its business combination with Private Tobira, as defined below, in accordance with the terms of an Agreement and Plan of Merger and Reorganization, dated January 14, 2015 and amended on January 23, 2015, or the Merger Agreement. As used in this report, the term “Private Tobira” refers to Tobira Development, Inc. (formerly known as Tobira Therapeutics, Inc.) prior to the consummation of the Merger described in this report and references to the terms the "combined company”, “Tobira”, the "Company”, “we”, “our” and “us” refer to Private Tobira, prior to the consummation of the Merger described in this report and Tobira Therapeutics, Inc. (formerly known as Regado Biosciences, Inc.) and its subsidiaries upon the consummation of the Merger described in this report. The term "Regado" refers to the Regado Biosciences, Inc. and its subsidiaries prior to the Merger described in this report.

Forward-Looking Statements

This report contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include information concerning our expectations for the timing of clinical study results, including the CENTAUR, ORION and PERSEUS studies, and the timing and success of future development of cenicriviroc, or CVC, our possible or assumed future results of operations and expenses, business strategies and plans, trends, market sizing, competitive position, industry environment and potential growth opportunities, among other things. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in “Risk Factors” and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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Table of Contents

 

 

 

 

 

Page

PART I

  

 

  

 

Item 1.

 

Business

 

4

Item 1A.

 

Risk Factors

 

34

Item 1B.

 

Unresolved Staff Comments

 

59

Item 2.

 

Properties

 

60

Item 3.

 

Legal Proceedings

 

60

Item 4.

 

Mine Safety Disclosures

 

60

 

 

 

 

 

PART II

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

61

Item 6.

 

Selected Financial Data

 

63

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

64

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

73

Item 8.

 

Financial Statements and Supplementary Data

 

74

Item 9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

99

Item 9A.

 

Controls and Procedures

 

99

Item 9B.

 

Other Information

 

99

 

 

 

 

 

PART III

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

100

Item 11.

 

Executive Compensation

 

100

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

100

Item 13.

 

Certain Relationships and Related Transactions and Director Independence

 

100

Item 14.

 

Principal Accounting Fees and Services

 

100

 

 

 

 

 

PART IV

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

101

 

 

Signatures

 

102

 

 

 

 

 

 

 

Exhibit Index

 

103

 

 

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PAR T I

Item 1. Business.

Except for the historical information contained herein, the matters set forth in this Annual Report on Form 10-K, including statements regarding the Company’s plans, potential opportunities, financial or other expectations, projections, goals objectives, milestones, strategies, market growth, timelines, legal matters, product pipeline, clinical studies, product development and the potential benefits of its products under development are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the anticipated or estimated future results, including the risks and uncertainties associated with Tobira’s future operating performance and financial position, the market demand for and acceptance of Tobira’s products domestically and internationally, research, development and commercialization of new products domestically and internationally, obtaining and maintaining regulatory approvals domestically and internationally, including, but not limited to potential regulatory delays or rejections, risks associated with meeting the objectives of clinical studies, including, but not limited to, delays or failures in enrollment, and the occurrence of adverse safety events, risks relating to our ability to accomplish our business development objectives, and realize the anticipated benefit of any such transactions, and other risks set forth below under Item 1A. “Risk Factors” and other documents subsequently filed with or furnished to the Securities and Exchange Commission, or the SEC. These forward-looking statements are based on current information that may change and you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update any forward-looking statement to reflect events or circumstances after the date hereof.

References in this report to Tobira, the Company, we, our and us refer to Tobira Therapeutics, Inc. “Tobira” is a registered trademark of Tobira Pharmaceuticals, Inc. in the U.S. and/or other countries. Other trademarks or service marks appearing in this report may be trademarks or service marks of other owners.

Executive Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies to treat liver disease, inflammation, fibrosis and HIV. Our lead product candidate, cenicriviroc, or CVC, is a first-in-class immunomodulator and dual inhibitor of CCR2 and CCR5 being evaluated for the treatment of non-alcoholic steatohepatitis, or NASH, primary sclerosing cholangitis, or PSC, and as an adjunctive therapy to standard of care in HIV. We operate in one reportable segment in the United States of America.

CVC is an oral, once-daily, potent immunomodulator with a high binding affinity that blocks two chemokine receptors, CCR2 and CCR5, which are intricately involved in the inflammatory and fibrogenic pathways in NASH and PSC that cause liver damage and can lead to cirrhosis, liver cancer or liver failure. Tobira believes this novel approach will establish CVC as both a single-agent and as a cornerstone treatment in future combination regimens for NASH, for which there is currently no approved therapy.

We completed enrollment of the global Phase 2b study, CENTAUR, evaluating CVC in NASH patients with liver fibrosis in June 2015. We expect to announce the study’s primary endpoint in the third quarter of 2016. CENTAUR is comparing CVC to placebo in 289 patients over 2 years, with the primary endpoint, based on liver biopsy at year one of treatment. CVC has been granted Fast Track status for the treatment of NASH in patients with liver fibrosis, the patient population at highest risk of progression to both liver cirrhosis and liver cancer. To date, approximately 600 subjects have been dosed in completed studies with CVC, including 115 HIV infected subjects on treatment for up to 48 weeks and is generally well tolerated.

NASH is a severe type of non-alcoholic fatty liver disease, or NAFLD. NAFLD is one of the most common liver diseases and is associated with obesity and type-2 diabetes. It is characterized by the accumulation of fat in the liver with no other apparent causes. NASH occurs when the accumulation of liver fat is accompanied by inflammation and cellular damage. The inflammation can lead to fibrosis, or scarring, of the liver and can eventually progress to cirrhosis, portal hypertension, liver cancer and eventual liver failure. Once the disease advances beyond NASH to these life-threatening conditions, liver transplantation is the only alternative. In a recent study in the US Department of Veteran Affairs, the risk of developing liver cancer in the absence of cirrhosis is increased by five fold in patients with NASH compared to Hepatitis C.

The rising prevalence of obesity-related disorders has contributed to a rapid rise in the prevalence of NASH. In the United States, NASH affects an estimated 9 to 15 million people, or 3 to 5 percent of the population, with similar prevalence in the EU, China and other countries. Driven by the obesity epidemic, NASH is projected to become the leading cause of liver transplants by the year 2020.

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There are currently no approved therapies to treat NASH. Recent scientific adv ances in understanding NASH have led to the development of investigational drugs with the potential to address the disease through various mechanisms, but Tobira believes that it is the only company that is targeting the immuno-inflammatory pathways respon sible for fibrosis in NASH with CCR2/CCR5 inhibition.

In addition to NASH, we are expanding our CVC franchise to other indications. In January 2016 we initiated a Phase 2 proof of concept clinical study in patients with primary sclerosing cholangitis, or PSC, to evaluate the effects of 24 weeks of treatment with 150 mg of CVC.  PSC is a chronic, rare liver disease estimated to affect fewer than 50,000 people in the United States. PSC is characterized by progressive inflammation, fibrosis and stricture formation in liver ducts often associated with Inflammatory Bowel Disease (IBD). Inflammation and fibrosis of the bile ducts lead to progressive disease and destruction of the bile ducts, fibrosis, cirrhosis, cancer and ultimately resulting in liver failure and death. No treatments have been approved to date for PSC and patients often require a liver transplant.

The following chart illustrates the status of research and development activities for our product candidate that are under development:

 

 

For additional information regarding these studies please see http://www.clinicaltrials.gov.

Our Strategy

Our goal is to become a leading biopharmaceutical company developing and commercializing innovative immunomodulatory therapies for liver disease, fibrosis and inflammation. A key element is building a multi-therapy NASH focused company. To achieve our goal, we plan to:

 

·

Complete clinical development and seek regulatory approval of CVC in NASH . We plan to report the primary endpoint from our Phase 2b study in NASH in the third quarter of 2016. NASH is a disease driven by the growing epidemic of obesity, with a significant unmet need for approved therapies that are effective and well tolerated. We believe CVC is an excellent candidate for the chronic treatment of NASH due to its safety profile and first-in-class dual mechanism of action targeting fibrosis-generating cells.

 

·

Establish commercial capabilities to market CVC as a leading treatment for NASH . If approved, we intend to establish a specialty sales force and develop targeted commercial capabilities in key geographies to promote CVC to liver specialists and other physicians treating this disease. Patients with NASH are primarily managed by a concentrated group of liver specialists in the United States and Europe. We believe this will enable us to launch CVC in NASH in a cost-effective, targeted manner.

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·

Advance our leadership position in NASH through development of combination regimens. We believe that NASH will ultimately be a disease best treated through combination regimens.  We believe CVC has an attractive profile as a cornerstone therapy for combination regimens and we plan to pursue development of CVC in combination with other agents for NASH through collaboration, in-licensing or acquisition of addi tional product candidates for NASH.

 

·

Grow our pipeline through additional indications for CVC including orphan indications.   We believe that CVC has the potential to be an effective immunomodulatory treatment for other CCR2 and CCR5 mediated inflammatory and fibrotic driven diseases such as primary sclerosing cholangitis, or PSC, a rare disease.  We have initiated a proof of concept Phase 2 study of CVC in PSC.  We are also evaluating CVC in HIV as a potential adjunctive treatment for patients on anti-retroviral regimens through investigator-sponsored studies and will continue to seek collaborators or non-dilutive financing for HIV.

Nonalcoholic Fatty Liver Disease and Nonalcoholic Steatohepatitis

Nonalcoholic fatty liver disease, or NAFLD, is a common, often “silent”, liver disease associated with obesity related disorders, such as type-2 diabetes and metabolic syndrome, occurring in people who drink little or no alcohol and is characterized by the accumulation of fat in the liver with no other apparent causes. NAFLD affects one out of three Americans. At the beginning of the NAFLD spectrum is simple steatosis, which is characterized by a build-up of fat within the liver. Liver steatosis without inflammation is usually benign and slow or non-progressive. NASH is a more advanced and severe subtype of NAFLD where steatosis is complicated by liver-cell injury and inflammation, with or without fibrosis.

The rising prevalence of obesity-related disorders has contributed to a rapid increase in the prevalence of NASH. Approximately 10% to 20% of subjects with NAFLD will eventually progress to NASH. Data from the CDC’s Behavioral Risk Factors Surveillance Systems suggest that prevalence of obesity in the United States has risen rapidly over the last two decades, as illustrated in the chart below:

 

Source: Behavioral Risk Factors Surveillance System, CDC

 

NAFLD is the most common chronic liver disease in the US. Most US studies report a 10% to 35% prevalence rate of NAFLD; however, these rates vary with the study population and the method of diagnosis. Since approximately one-third of the US population is considered obese, the prevalence of NAFLD in the US population is likely to be about 30% or approximately 100 million Americans. NAFLD is not unique to the US. Reports from the rest of the world suggest that the prevalence rate ranges from 6% to 35% with a median of 20%.

NASH is a serious progressive form of NAFLD defined by the presence of hepatic steatosis and inflammation with hepatocyte injury, with or without fibrosis. Chronic liver inflammation is a precursor to fibrosis, which can progress to cirrhosis, end-stage liver disease and hepatocellular carcinoma. Due to the growing epidemic of obesity and diabetes, NASH is projected to become the most common cause of advanced liver disease and the most common indication for liver transplantation. The burden of NASH, combined with a lack of any approved therapeutic interventions, represents an unmet medical need.

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Liver biopsy is the current standard to diagnose NASH. In a US study of middle-aged individuals, the prevalence of histologically confirmed NASH was 12.2%. Current estimates place NASH prevalence at approximately 9 to 15 million in the US , or 3% to 5% of the US population, with similar prevalence in the EU an d China. The prevalence of NASH in the obese population ranges from 10% to 56% with a median of 33% . The prevalence of NASH is also increasing in developing regions, which has been attributed to people in these regions adopting more sedentary lifestyle s an d westernized diet consisting of processed food with high fat and fructose content.

Pathophysiology of NASH

NASH is a progressive form of NAFLD. NAFLD is increasingly recognized as the liver’s manifestation of insulin resistance and is often present with obesity-related disorders and type-2 diabetes. Altered lipid storage and metabolism, accumulation of cholesterol within the liver, oxidative stress resulting in increased hepatic injury, and bacterial translocation secondary to disruption of gut microbiota associated with high fructose-containing diet have all been implicated as important co-factors contributing to progression of NASH. The understanding of the mechanism of progression from healthy liver status through the stages of NAFLD to NASH and on to life-threatening complications continues to evolve. At the early stages of the spectrum of NAFLD, fat accumulates within the liver, a condition known as steatosis. Liver steatosis alone is normally benign and slow or non-progressive during the earlier stage of NAFLD, known as non-alcoholic fatty liver or NAFL. NASH defines a subgroup of NAFLD patients in whom steatosis is complicated by liver-cell injury and inflammation, a condition known as steatohepatitis. Although liver damage due to NASH has some of the characteristics of alcoholic liver disease, it occurs in people who drink little or no alcohol. NASH can lead to progressive liver fibrosis, cirrhosis and liver cancer. In addition to insulin resistance, altered fat storage and metabolism, accumulation of cholesterol within the liver and resulting cellular damage leading to increased hepatic injury have all been implicated as important co-factors contributing to the progression of NASH. The presence of liver cell damage, or ballooning, and/or fibrosis distinguishes NAFL from NASH.

The following image provides an overview of the progression of NAFLD from a healthy liver to cirrhosis:

 

 

The immune and inflammatory response to liver cell damage is mediated through a well-described signaling network of liver and immune cells. Kupffer cells, the resident liver macrophages, can sense tissue injury and are the first responders to liver cell damage. Activated Kupffer cells initiate an inflammatory response to liver injury. This includes active secretion of a signaling protein called CCL2, also known as monocyte chemotactic protein-1, or MCP-1, which is the ligand that binds to CCR2. Increased levels of CCL2 promote migration of bone marrow-derived pro-inflammatory monocytes that enter the liver, where they later mature into pro-inflammatory macrophages. Together, and through signaling proteins such as transforming growth factor beta, or TGF-β, and platelet-derived growth factor, or PDGF, Kupffer cells and pro-inflammatory macrophages can activate hepatic stellate cells, or HSCs, to transdifferentiate into myofibroblasts, the primary collagen-producing cell type responsible for liver fibrosis.

Current NASH Diagnosis, Endpoints and Treatment Options

Currently, NASH and NAFLD are underdiagnosed due to poor disease awareness, the insufficiency of non-invasive diagnostic tools and the lack of effective approved therapies. Patients are often diagnosed after a blood test demonstrating elevated levels of liver enzymes, alanine aminotransferase, or ALT, and aspartate aminotransferase, or AST. Advances in non-invasive diagnosis and composite scoring will continue to evolve for NASH, potentially offering alternatives for diagnosis. Liver biopsies are currently the standard for diagnosis of NASH. 

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Complete resolution of steatohepatitis, as defined by the absence of ballooning and minimal inflammation, with no worsening of fibrosis has been identified as a potentially approvable surrogate endpoint under subpart H accelerated approval. This endpoint i s being used in ongoing Phase 3 registrational studies. This endpoint was discussed at a November 2015 meeting of the Liver Forum and previously published in the journal Hepatology from findings of an FDA-AASLD workshop . The Liver Forum provides a sustaine d, disease-specific focus for stakeholder engagement and deliberation to clarify and advance the regulatory process for diagnostics and therapeutics to treat NASH and liver fibrosis .

Additionally, a one-point improvement in fibrosis stage with no worsening of steatohepatitis has also been identified as a potentially approvable surrogate endpoint.

These endpoints, described above, will be evaluated at year one and year two in our Phase 2b CENTAUR study.

A commonly used endpoint in Phase 2 studies is the NAFLD Activity Score, or NAS, which we are using as a primary endpoint in our fully-enrolled Phase 2b study. NAS evaluates and scores three categories on a low to high point scale system: (i) steatosis, score of 0-3, (ii) hepatocyte ballooning, which is a form of damage to liver cells, score of 0-2 and (iii) inflammation of the liver, score of 0-3. The three categories are totaled and scores range from 0 to 8, with a score of 0-2 mainly occurring in patients who are negative for NASH. Scores of 3-4 are borderline positive for NASH, while scores of 5-8 occur in patients largely considered to be diagnostic of NASH.

There are no approved therapies for NASH. The NASH market has a significant unmet need for pharmacological options that are effective and well tolerated. Current options for managing patients with NASH are suboptimal and primarily rely on lifestyle changes, off-label pharmacotherapy and bariatric surgery for weight loss. Each of the patient management options described below may provide some benefit, but all have limitations. We believe there are no other product candidates in development or approved that target the immuno-inflammatory pathways responsible for fibrosis, which is a key driver of progression of the disease.

Lifestyle Intervention. Lifestyle modifications, specifically weight loss, are recommended for NASH patients. However, lifestyle changes are only considered clinically significant when patients are able to reduce more than 7% of their body weight, which occurs in less than 50% of NASH patients.

Off-label Pharmacotherapy. Products utilized off label in the management of NASH comorbidities include vitamin E, insulin sensitizers such as pioglitazone, which are used for diabetic patients, and anti-hyperlipidemic agents, pentoxifylline, and ursodiol. High-dose vitamin E has been shown in a clinical study of non-diabetic patients to reduce inflammation but not fibrosis. Vitamin E is not recommended for NASH patients with type-2 diabetes due to lack of data, therefore the use of vitamin E is limited. Other off-label pharmacotherapies demonstrate inconsistent benefits or are associated with significant side effects.

Bariatric Surgery. Bariatric surgery is believed to impact NASH through dramatic weight loss, but it has significant complications and drawbacks. These include a host of perioperative risk factors, the need to adhere to post-surgical diet and nutritional regimens and high costs. A relatively small number of these procedures are performed annually on NASH patients compared to the overall NASH population, which we believe is due to the complications and drawbacks of bariatric surgery relative to NASH patient numbers. Because of the large number of patients who would require bariatric surgery for NASH, we also believe that the relatively high cost of this procedure makes its widespread adoption impractical. In addition, some retrospective and prospective studies have indicated that the procedure may worsen fibrosis.

Liver Transplant. Liver transplant is a last resort for life-threatening complications progressing from NASH. NASH is currently the third most common reason for liver transplants in United States and is projected to surpass alcohol-based cirrhosis and viral hepatitis to become the leading indication for liver transplant by 2020. The availability of liver donors is extremely limited and the cost of a liver transplant is a significant economic burden, with an estimated cost per procedure of approximately $577,000. Studies have demonstrated that approximately 23% of patients do not survive the five-year period post-transplant. There are currently only 6,500 liver transplants performed annually in the US.

Recent scientific advances in understanding the pathophysiology of NASH have led to the development of new investigational drugs with the potential to address the disease through various mechanisms. CVC’s immunomodulatory mechanism of action has the potential to play a differentiated role in the management of NASH. We believe that the eventual management of the disease will include multi-targeted combination treatment approaches.

Overview of CCR2/CCR5 and NASH

CCR2 and CCR5, also known as C-C chemokine receptor type 2 and type 5, are implicated broadly in inflammation, fibrogenesis and liver disease.  Abundant evidence has consistently demonstrated that obesity creates a state of chronic inflammation that is associated

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with increased expression of pro-inflammatory cytokines and ch emokines from adipose tissue. This chronic inflammation is believed to underlie the development of insulin resistance and associated metabolic comorbidities such as type 2 diabetes mellitus , or T2DM , and NAFLD. During this development, adipose tissue macro phages accumulate through CCR2 and the ligand for this receptor, CCL2, or MCP-1, is considered to be pivotal for the development of insulin resistance. To date, the chemokine system is known to be comprised of approximately 40 chemokines and 20 chemokine r eceptors that belong to the seven-transmembrane G protein-coupled receptor family and, as a result, chemokines appear to exhibit a high degree of functional redundancy. Over the past two decades, the physiological and pathological properties of many of the se chemokines and their receptors have been elucidated.

Inflammation is a definitional feature of NASH and is mediated by interactions between CCR2 and CCR5, which are expressed on monocytes/macrophages, and their ligands CCL2 and CCL5, also known as RANTES, Regulation on Activation Normal T-cell Expressed and Secreted. Increased receptor and ligand expression is observed in subjects with NAFLD, NASH, and liver fibrosis.

Hepatic inflammation drives fibrogenesis and collagen deposition in the liver, whereas adipose tissue inflammation promotes insulin resistance, both of which are drivers of NASH disease progression. An ideal NASH drug candidate should have anti-inflammatory and antifibrotic effects, and attempt to correct the underlying metabolic disorder. CVC, an oral, dual CCR2/CCR5 antagonist, which has demonstrated potent anti-inflammatory and antifibrotic activity in multiple animal models of both acute and chronic liver and kidney injury. In HIV-infected subjects, CVC demonstrated that it reduced validated fibrosis scores APRI, FIB-4 and ELF; an improvement in such scores has recently been correlated to predict improvement in fibrosis in NASH. CVC has demonstrated a favorable tolerability profile in approximately 600 subjects in completed studies.

CVC for NASH

CVC is a first-in-class oral, long-acting, once-daily immunomodulator that is a potent dual inhibitor of CCR2 and CCR5 with anti-inflammatory and anti-fibrotic activity. CVC may improve NASH and stop the progression of fibrosis by:

 

·

Reducing chronic liver inflammation. We expect CVC to inhibit the CCR2 signaling pathway, blocking the excessive infiltration of pro-inflammatory cells, or monocytes and macrophages, to the liver initially triggered by cellular damage.

 

·

Disrupting immune signaling pathways within the liver. CVC inhibits the CCR2 and CCR5 signaling pathways, which are key mechanisms of immune cell activation and activation of Kupffer cells and HSCs, both key drivers of fibrogenesis.

CVC decreases recruitment, migration and infiltration of pro-inflammatory monocytes to the site of liver injury mainly via CCR2 inhibition, thereby reducing chronic liver inflammation and fibrosis. Due to its dual inhibitory activity on CCR2 and CCR5, CVC also disrupts important signaling pathways or “cross-talk” within the inflamed liver resulting in decreased Kupffer cell and HSC activity and reduced fibrogenesis, as illustrated by the following image:

 

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CVC blocks the binding of key ligands involved in the immuno-inflammator y casc ade, including CCL5, Macrophage Inflammatory Protein , MIP-1 a and MIP-1 b , to CCR5, and CCL2, also known as MCP-1, to CCR2.

The link between CCR2 and immune cell activation and fibrosis has been well established. In a study of fibrosis in mice, mice with a targeted deletion of CCR2 exhibited less immune cell activation and markedly reduced fibrosis. Levels of CCL2 in the liver have also been shown to correlate with the level of immune cell infiltration in the liver during fibrosis in humans and mice. In addition, a recent study in humans also demonstrated that subjects with confirmed NAFLD had increased levels of CCR2 expressing monocytes. In preclinical studies, CVC inhibited the binding of CCR2 at very low concentrations.

CCR5 has also been shown to play a central role in liver fibrosis. CCR5 is up-regulated in patients with liver cirrhosis, confirming the activation of this pathway in fibrogenesis. In a mouse model of fibrosis, mice without the expression of CCR5 exhibited reduced liver fibrosis and decreased activation of HSCs as compared to normal mice. In preclinical studies, CVC inhibited the binding of CCR5 at very low concentrations.

Non-Clinical & Clinical Studies

We have investigated CVC in a number of well-characterized animal models for inflammation, liver injury, NASH and liver fibrosis. We demonstrated significant anti-fibrotic activity of CVC and no adverse effects on vital organ systems. We believe that these models are relevant as they are representative of the pathophysiology of NASH and fibrosis in a clinical setting.

Mouse thioglycollate-induced sterile peritonitis model

A murine thioglycollate, or TG-induced model of peritonitis is commonly used to study inflammatory cell recruitment following injury. In this model, acute inflammation is induced by intraperitoneal injection of TG, resulting in a rapid increase in peripheral leukocyte and monocyte/macrophage migration into the peritoneal cavity, mainly attributed to local production of CCL2 by existing peritoneal macrophages. This study was designed to assess the effects of CVC on cell migration in vivo and to evaluate the effects of various CVC doses, methods of administration, once daily, or QD, vs twice daily, or BID, and plasma concentration on monocyte/macrophage recruitment.

In this study, C57BL/6 mice received either 5, 20 or 100 mg/kg of CVC, administered orally BID or 20 mg/kg/day of CVC administered orally QD. In addition, non-disease control, vehicle control, and positive control groups were also included.  In the positive control group, C57BL/6 mice received 1 mg/kg/day of dexamethasone, or DEX, administered QD by oral gavage. Mice were administered treatment on Days 1 through 5 and on Day 4, animals, except the non-disease group, received an intraperitoneal injection of 3.85% TG 2 hours post-dose. 48 hours post dose, clinical signs, body weights, peritoneal lavage cell counts, peripheral blood cell counts and CVC pharmacokinetics were evaluated in all groups. Cenicriviroc treatment led to significant decreases in monocyte/macrophage and leukocyte recruitment and migration, of similar or greater magnitude than those observed with the positive control dexamethasone. Results show that exposure to cenicriviroc was dose-related and correlated with the amount of reduction in monocyte/macrophage and leukocyte recruitment and migration.

The following image illustrates the dose-related anti-inflammatory effects in mice treated with CVC:

 

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Acute Liver Injury Models

Two models of acute liver injury have been conducted by one of our academic collaborators evaluating CVC and its effect on monocyte and macrophage driven inflammation and liver injury.  These studies conducted in mice showed the ability of CVC to block inflammation and improve liver injury in both acute and chronic settings.

In an acetaminophen induced liver injury model, the APAP model, fasted mice received acetaminophen at study start and CVC at study start and CVC at three hours compared with a vehicle control as well as control groups without acetaminophen.  At twelve hours, the animals were evaluated for various measures of inflammation and liver injury.  The animals treated with CVC showed a pronounced reduction in monocyte and macrophage infiltration in the liver with no significant impact on Kupffer cell levels in the liver, showing an ability to reduce the recruitment of inflammatory monocytes to the liver.  Also, the model showed an ability to reduce liver injury demonstrated by significant reduction in necrosis area of the liver tissue and significant reductions in ALT.

The results on monocyte and macrophage, or MoMF, and liver injury measures were:

 

MoMF

Liver Injury

 

 

**p<0.01; ***p<0.001

 

In another acute liver injury model, mice are administered a high dose of carbon tetrachloride, or CCl 4 , at baseline and CVC at baseline, twelve hours and twenty-four hours.  At 36 hours, the animals were evaluated for various measures of inflammation and liver injury.  Similar to the APAP model, the animals treated with CVC showed a pronounced reduction in monocyte and macrophage infiltration in the liver with no significant impact on Kupffer cell levels in the liver as well as statistically significant reductions in necrosis area and ALT.  Taken together, these models show the ability of CVC to impact infiltration of monocytes to the liver due to liver injury and impact the related liver injury.  We believe these models show the potential for CVC in human settings a liver inflammation and injury such as NASH.

The results of the CCl 4 model were as shown below:

 

MoMF

Liver Injury

 

 

**p<0.05; ***p<0.001

 

NASH Mouse Model

A NASH mouse model, combining glucose intolerance and high fat diet, two key components of NASH in humans, was used to study potential effects of CCR2 and CCR5 antagonism on liver fibrosis. Endpoints of the study included body and liver weight, plasma and liver biochemistry, histopathologic analyses and gene expression. In this model, insulin resistance was induced in male mice by a single injection of 200 µg streptozotocin, or STZ, 2 days after birth, followed by a high-fat diet, or HFD, beginning at four weeks of age. From six to nine weeks of age, three groups of animals (n=6/group) received CVC at doses of 0 (vehicle control), 20 (low dose)

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or 100 (high dose) mg/kg/day. At nine weeks of age, biochemical, gene expression and histological evaluations of th e liver were conducted in a blinded manner.

The following image shows the study design of the NASH mouse model:

 

 

In the week nine analysis, CVC treatment had no effect on body or liver weight, whole blood glucose or liver triglyceride levels. Mean measurements of ALT levels, which is an enzyme in the blood found mainly in the liver, were significantly decreased in both CVC treatment groups compared to the control group (133±80, 58±12 and 52±13, units/liter for vehicle, low and high dose CVC, respectively; p<0.05 1 ), as illustrated by the following chart:

 

___________________________________

A p-value is a statistical measurement that describes the probability that the observed effects of CVC were statistically significant compared to the control group. A p-value of less than 0.05 suggests statistical significance to the results observed.

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The mean percentage of fibrosis area was significantly decreased by CVC treatment relative to control (0.29% ± 0.14, 0.20% ± 0.06 and 0.61% ± 0.23 for 20 mg/kg/day, 100 mg/kg/day and control, respectively; p<0.01), as illustrated by the following chart:

 

 

In addition, gene expression of collagen type 1 in whole liver lysates decreased by 27%–37% with CVC treatment. Importantly, the mean NAS was significantly decreased with CVC treatment (5.3±0.5, 4.0±0.6 and 3.7±0.8 for vehicle, low and high dose CVC, respectively; p<0.05), primarily based on reduced inflammation and ballooning scores, as noted in the following table:

 

Score

Vehicle
(N=6)

CVC

20 mg/kg/day

(N=6)

CVC

100mg/kg/day

(N=6)

Steatosis

 

0

1

 

1

4

6

5

 

2

2

 

3

Lobular

inflammation

 

0

 

1

3

3

 

2

6

3

3

 

3

Hepatocyte

ballooning

 

0

1

 

1

3

2

 

2

6

3

3

NAS, mean (±SD)

5.3 (±0.5)

4.0 (±0.6)

3.7  (±0.8)

CVC vs vehicle

 

P<0.05

P<0.01

 

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Liver Fibrosis Rat M odel

The 12-week rat liver fibrosis model was utilized to determine if CVC has anti-fibrotic effects in rats with thioacetamide, or TAA, induced liver injury and evaluate the timing of treatment intervention relative to disease onset. TAA is a known toxin widely used for fibrosis induction in animal models. In this model, fibrosis was induced in male Sprague-Dawley rats by intraperitoneal, or IP, administration of TAA at a dose of 150mg/kg, 3 times a week, for 8 weeks. Rats received CVC at doses of 0 (vehicle control), 30 mg/kg/day (low dose) or 100 mg/kg/day (high dose), as illustrated by the following image:

 

 

With early intervention, or Group 1 (concurrent treatment of TAA and CVC for 8 weeks), liver collagen was significantly decreased by CVC at low and high dose (49% and 38%, respectively) compared to control (p<0.001). Protein levels of collagen type-1 protein and alpha smooth muscle actin were also decreased in the CVC treatment groups. With emerging fibrosis intervention, or Group 2 (TAA for 8 weeks, CVC from Weeks 4 to 8), the low dose of CVC significantly decreased liver collagen by 36% (p<0.001) but no reduction was seen with the high dose. CVC treatment had no effect once cirrhosis was established, or Group 3 (TAA for 8 weeks, CVC for 4 weeks after cessation of TAA administration).

The following image illustrates the anti-fibrotic effects in rats treated with CVC:

 

Phase I Study 121

We completed a Phase 1 study to compare the PK and safety of CVC in a total of 31 adult subjects with either mild to moderate liver impairment (Child-Pugh score of A or B, respectively; N=16) compared to healthy subjects with normal hepatic function matched for age, body weight and gender (N=15). Child-Pugh is a well-established medical score used to assess the severity of liver disease that incorporates total bilirubin, serum albumin, prothrombin time, ascites and hepatic encephalopathy. Cirrhotic patients can be classified

14


as having mild, or Child-Pugh A, moderate, or Child-Pugh B, or severe, or Child-Pugh C, liver impairment. Patients with “normal hepatic function” are those without known liver disease and do not meet the criteria of th e Child-Pugh classification.

The study assessed the PK, safety and tolerability of CVC in subjects with liver impairment compared with that of healthy subjects. CVC was administered orally, once daily for 14 days at 150mg. CVC concentrations were not increased in subjects with mild hepatic impairment compared to matched healthy controls and were increased by approximately 50% in subjects with moderate hepatic impairment. CVC was generally well tolerated, regardless of hepatic impairment. All adverse events, or AEs, were mild or moderate in severity, except for an AE of ‘liver function test abnormal’ of severe intensity reported in a moderately impaired subject with an 18-year history of cirrhosis and hepatitis C; this AE resolved, and CVC dosing was completed without treatment interruption. AEs occurring in ³ 2 subjects were headache (N=5), dry mouth (N=2), epigastric discomfort (N=2), and flatulence (N=2). No serious AEs were reported. Based on these findings, no dose adjustment is anticipated in patients with mild or moderate hepatic impairment.

In addition, CCL2, CCL5, as well as other CCR5 ligands MIP-1α and RANTES plasma levels were measured at baseline and after 1 and 2 weeks of CVC treatment. In the study, rapid and significant increases in CCL2 and CCL5 were observed after 1 and 2 weeks of treatment across all treatment groups. Higher CCL2 levels correlated with higher peak CVC concentration (r=0.39, p=0.03) and suggests a dose dependent effect. In matched controls in the moderately impaired group, TGF-β and RANTES increased during CVC treatment (p=0.008, Week 2 vs baseline). Increased CCL2 and CCL5 levels were not associated with increased markers of intestinal damage, or hepatic or systemic inflammation.

Phase 2b Double-Blind, Double-Dummy, 48-Week Study (Study 202)

Study 202 was a randomized, double-blind, double-dummy, 48-week Phase 2b study in antiretroviral treatment-naïve HIV-1 infected subjects with CCR5-tropic HIV-1 virus. The study evaluated the efficacy, safety, and tolerability of CVC 100 mg and CVC 200 mg compared to EFV; all administered orally in combination with emtricitabine and tenofovir disoproxil fumarate, or FTC/TDF. The dose of 200 mg of CVC is comparable to the 150 mg dose used in current ongoing studies in terms of CVC exposure levels. The results of this study were published in the journal AIDS in November 2015.

The following image provides an overview of the treatment design for Study 202:

 

R: Randomization

 

A greater proportion of CVC-treated than EFV-treated subjects completed the study, 42 (71%), 41 (73%), and 17 (61%) for the CVC 100 mg, CVC 200 mg, and EFV treatment arms, respectively. The percent of subjects with virologic success, defined as HIV-1 RNA < 50 copies/mL using the intent-to-treat, or ITT, population, was comparable among the 3 treatment arms at Week 24, which was the primary efficacy endpoint: 76% with CVC 100 mg, 73% with CVC 200 mg, and 71% with EFV. Virologic success was higher in the CVC arms than in the EFV arm at Week 48 at 68% with CVC 100 mg, 64% with CVC 200 mg, and 50% with EFV.

At both Week 24 and Week 48, the percentage of subjects with virologic non-response was higher in the CVC arms than in the EFV arm (Week 24: 12% with CVC 100 mg, 14% with CVC 200 mg and 4% with EFV; Week 48: 15% with CVC 100 mg, 20% with CVC 200 mg and 11% with EFV), and the percentage of subjects without virologic data was higher in the EFV arm than in the CVC arms (Week 24: 12% with CVC 100 mg, 13% with CVC 200 mg and 25% with EFV; Week 48: 17% with CVC 100 mg, 16% with CVC 200 mg and 39% with EFV). A PK/PD analysis revealed a trend towards improved virologic outcomes with increasing CVC concentration.

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CVC showed a favorable safety profile with fewer treatment-related AEs, fewer AEs of at least Grade 3 in severity, and fewer AEs leading to discontinuations compared to EFV as shown in the following table:

 

 

 

 

 

 

 

 

 

Adverse event, n (%)

  

CVC

100 mg

N=58

  

CVC

200 mg

N=57

  

EFV

600 mg

N=28

Subjects with at least one AE

  

51 (88%)

  

48 (84%)

  

27 (96%)

Grade 3

  

2 (3%)

  

3 (5%)

  

3 (11%)

Grade 4

  

0 (0%)

  

0 (0%)

  

1 (4%)

AEs leading to discontinuation

  

0 (0%)

  

1 (2%)

  

6 (21%)

Serious AEs

  

1 (2%)

  

1 (2%)

  

1 (4%)

Deaths

  

0 (0%)

  

0 (0%)

  

0 (0%)

Any Grade 2 or higher treatment-related

AE (occurring in 5%)

Abnormal dreams

  

1 (2%)

  

0 (0%)

  

3 (11%)

Insomnia

  

0 (0%)

  

0 (0%)

  

3 (11%)

Rash events

  

1 (2%)

  

0 (0%)

  

2 (7%)

Nausea

  

0 (0%)

  

2 (4%)

  

2 (7%)

 

Both doses of CVC were well tolerated and no apparent dose-relationship or dose-limiting toxicities were observed. No clinically relevant changes in electrocardiogram or vital parameters were observed during the 48-week treatment period.

 

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CVC treatment was associated with a favorable lipid profile and led to sustained reductions in total and LDL cholesterol over 48 weeks, as shown in the following charts:

 

 

Fibrosis and Inflammation Biomarkers from HIV Clinical Studies

As part of exploring the potential antifibrotic benefits of CVC in subjects with NASH and liver fibrosis, a retrospective analysis was performed to determine whether the antifibrotic activity of CVC observed in pre-clinical studies could also be seen in humans treated with CVC. We retrospectively calculated two well-established fibrosis risk scores, Fibrosis-4, or FIB-4, and AST to platelet ratio index, or APRI, in this HIV study. These fibrosis risk scores were calculated based on standard blood chemistry tests. A FIB-4 score below 1.45 and an APRI score below 0.5 have each independently been shown to be predictive of the absence of clinically significant liver fibrosis while a FIB-4 score above 1.45 and an APRI score above 0.5 are predictive of the presence of fibrosis. In addition, data presented at AASLD 2015 from the FLINT study showed that a treatment induced reduction in FIB-4 and APRI at week 24 correlated with a one-point or greater improvement in fibrosis stage in NASH patients, confirmed histologically.

Our pooled analysis of all CVC-treated subjects assessed the fibrosis scores at baseline and following 24 and 48 weeks of treatment and revealed that improvements of these fibrosis risk scores were observed with CVC over time. A total of 113 subjects were evaluable at baseline; 92 subjects had paired data at baseline and Week 24, and 80 subjects had paired data at baseline and Week 48.

The following chart illustrates the decreasing proportion of CVC-treated subjects with elevated FIB-4 and APRI scores:

 

A study was also completed evaluating Enhanced Liver Fibrosis Index, or ELF index, in the subjects treated with CVC compared to those treated with efavirenz.  ELF is a three-part biomarker fibrosis panel consisting of hyaluronic acid, procollagen III N-terminal propeptide and tissue inhibitor of malloproteinases 1.  The ELF index has been validated to correlate with the histology-based metavir

17


fibrosis score.  The analysis showed that subjects treated with CVC 200mg daily showed a statistically significant red uction in ELF after 48 weeks of treatment compared to no change in the subjects treated with efavirenz.   The mean ELF Index at baseline in the CVC group was 10.53 ± 2.117 and was 9.13 ± 0.99 in the efavirenz group. After 48 weeks, the mean ELF index decrea sed to 8.28 ± 0.88 in the CVC group (p< 0.0001, Wilcoxon paired sample comparison), vs. 9.284 ± 1.06 (p= 0.6322 ) in the efavirenz group.

The charts below illustrate the changes observed:

 

Cenicriviroc Group

Efavirenz Group

 

CVC was also shown to lower plasma levels of soluble CD14, or sCD14, a biomarker of monocyte activation, inflammation, and of bacterial translocation. Serum levels of sCD14 have been shown to be correlated with increased hepatic CD14 expression and liver inflammation in NASH patients and be significantly associated with diagnosis of NASH.

The chart below illustrates the decrease in sCD14 levels observed in our Phase 2b study in HIV-1 infected subjects:

 

In addition, our pooled analysis of all CVC treated subjects with elevated fibrosis scores at baseline revealed that reductions in sCD14 were positively correlated with both reductions in APRI and FIB-4 fibrosis scores.

Decreases in sCD14 observed in CVC-treated patients were significantly correlated with improvements in APRI and FIB-4 scores at Week 48, suggesting that decreases in monocyte activation were associated with decreased risk of clinically significant liver fibrosis.

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Safety and Pharmacokinetic s of CVC

We have conducted several nonclinical studies to characterize the mechanism, efficacy, safety and toxicology of CVC. We have demonstrated the safety of CVC in animals, with no behavioral or physiologic changes observed in treated animals or notable effects on cardiovascular, respiratory or other systems. No significant safety findings were observed across preclinical studies that evaluated dose levels of CVC and with oral doses in rodents up to greater than 38 fold the currently used clinical dose level equivalents. CVC has nanomolar potency against both CCR2 and CCR5. In ex-vivo studies, CVC inhibited CCR5 with an IC 50 of 3.1 nanomoles and CCR2 with an IC 50 of 5.9 nanomoles.

CVC has been evaluated in a total of 16 completed Phase 1 and Phase 2 clinical trials in approximately 600 subjects including healthy volunteers, patients with liver impairment, and patients with HIV. CVC has demonstrated a favorable safety and tolerability profile, including in a 48-week Phase 2b study of CVC in which 115 HIV infected patients were treated with CVC. Across the completed clinical trials, most adverse events observed had been mild or moderate in severity. The most commonly reported treatment-emergent adverse effects were nausea, diarrhea, headache, rash, fatigue and upper respiratory tract infection. CVC has also been tested in Phase 1 and Phase 2 clinical studies in regimens including pioglitazone, ritonavir, atazanavir/ritonavir, darunavir/ritonavir, tenofovir disoproxil fumarate, efavirenz, dolutegravir, midazolam and emtricitabine/tenofovir disoproxil fumarate.

A Phase 1, single-center, open-label, randomized, 3-period fixed-sequence crossover study (Study 652-1-122; NCT02342067) was undertaken with the primary objectives of the study to evaluate the steady-state PK of CVC administered with and without pioglitazone, or PGZ, to evaluate the steady-state PK of PGZ and its principal active metabolites administered with and without CVC. The study also evaluated the safety and tolerability of CVC administered with and without PGZ.

The results from this study showed that co-administration of CVC and PGZ resulted in modest reductions in steady-state Cmax and AUC0-τ for both drugs. This interaction was not considered clinically significant. Co-administration of CVC with PGZ did not demonstrate a meaningful effect on the steady-state Cmax and AUC0-τ for PGZ active metabolites. CVC administered alone or in combination with PGZ was well tolerated, with all TEAEs being reported as mild in severity. The results from this study suggest that dose adjustment is not required when CVC and PGZ are co-administered.

The pharmacokinetic and pharmacodynamic, or PK/PD, characteristics of CVC have been well characterized. Pharmacokinetics refers to the study of drug absorption, distribution, metabolism and elimination when administered to patients. Pharmacodynamics refers to the study of the effects a drug has on a patient, including the mechanism of action of the drug and effects of various doses or concentrations of the drug. We have shown good bioavailability of CVC as an oral, single tablet formulation. With a long half-life of 30-40 hours, CVC is dosed once daily, making it convenient for long-term treatment and improved patient adherence. No dose-limiting toxicities have been observed to date.

The company is also conducting a series of Phase 3 enabling studies. These include a Phase 1 single and multiple-dose, open-label study in healthy subjects to assess the effect of acid reducing agents on the pharmacokinetics of CVC, and a Phase 1 open-label study in healthy adult subjects to assess the effect of CVC on the pharmacokinetics of HMG-CoA reductase inhibitors, including rosuvastatin, atorvastatin and simvastatin, caffeine and digoxin.

Ongoing Clinical Studies

CENTAUR

CVC is currently being evaluated in our fully enrolled global Phase 2b CENTAUR study (identifier NCT02217475) and we expect to announce the study's Year 1 primary endpoint in the third quarter of 2016. CENTAUR is comparing CVC to placebo in 289 patients enrolled with confirmed NASH and liver fibrosis. CVC has been granted Fast Track status for the treatment of NASH in patients with liver fibrosis, the patient population at highest risk of progression to both liver cirrhosis and liver cancer. The CENTAUR study includes surrogate key secondary endpoints identified as suitable for registrational studies in findings of an FDA and industry workshop reported in Hepatology. Additionally, output from discussions at the Liver Forum meeting in November 2015 recommended two surrogate endpoints for use in NASH Phase 3 trials. CENTAUR incorporates these endpoints as secondary endpoints, namely complete resolution of steatohepatitis and no worsening of fibrosis and/or at least one point improvement in fibrosis with no worsening of steatohepatitis.

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The CENTAUR st udy design, along with the study’s endpoints are depicted below:

 

Patients will receive either a single 150 mg tablet of CVC or matching placebo. Liver biopsies are performed at screening, year 1 and year 2, all of which are read by a central pathologist. The study duration is 2 years with a primary endpoint at year 1. The study is being conducted globally across 81 active sites. A total of 289 subjects were enrolled in 11 countries (166 in the USA, 94 in the European Union, 29 in the Asia-Pacific region.

The objective of the study is to assess hepatic histologic improvement in NAS after one year of CVC treatment versus placebo relative to screening biopsy. This improvement is defined by a minimum 2-point improvement in NAS without progression of fibrosis. The key secondary objective of this study is to evaluate NASH resolution with no worsening of fibrosis.

The baseline characteristics of the study population enrolled in the CENTAUR Phase 2b study were presented at HepDART in December 2015 and are as follows:

 

·

The mean age of enrolled subjects is 54.1 years (standard deviation [SD] 10.59).

 

·

The mean BMI is 33.86 kg/m2 (SD 6.49). Most of the subjects (88.6%) have a BMI > 25 kg/m2 with at least one metabolic syndrome criterion.

 

·

The majority of the subjects have type 2 diabetes (52.9%).

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The majority of subjects have a confirmed NAS ³ 5 (74.0%) and moderate-to-severe fibrosis, i.e. NASH CRN stage 2-3 (66.8%). Subjects have a total mean NAS of 5.3 (SD 1.03) with mean scores of 1.5 (SD 0.50) for hepatocellular ballooning, 1.4 (SD 0.57) for steatosis and 2.4 (SD 0.57) for lobular inflammation. The graphic below summarizes the liver histology characteristics:

 

Fibrosis stage has been shown to be associated with long-term overall mortality, liver transplantation, and liver-related events. Therefore, subjects with liver fibrosis are likely to benefit most from treatment in order to achieve resolution of NASH and prevention of fibrosis progression. Additionally, inclusion of a high-risk population with NASH and fibrosis is also expected to reduce the likelihood of spontaneous improvement, allowing detection of a greater difference between CVC treatment and placebo. This population has also been highlighted by regulatory agencies as the population to study in registrational trials.

ORION

As NASH is a multi-factorial disease, we initiated ORION to explore CVC’s role as a metabolic agent. Extensive studies have shown CVC’s effects on inflammation and fibrogenesis, however the impact CVC has on metabolic pathways is less well defined.

Insulin resistance is associated with inflammation of the adipose tissue resulting from the overexpression of CCR2 and CCR5 and the infiltration of macrophages, which is key to the development of NAFLD and progression to NASH, as well as other diabetes-related complications. ORION will help us to further understand the full spectrum of activity of CVC on the metabolic mechanisms of fatty liver disease.

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ORION is a fully e nrolled Phase 2a, randomized, double-blind, placebo-controlled study evaluating the treatment effects of CVC in 4 5 obese adults , defined as a BMI ≥ 30 kg/m 2 , with prediabetes or diabetes and suspected NAFLD. The primary outcome of ORION will measure changes in insulin sensitivity in peripheral and adipose tissue over a 24-week period and will include an interim analysis at 12 weeks.

 

Primary Sclerosing Cholangitis

Primary sclerosing cholangitis, or PSC, is a rare, serious, idiopathic chronic cholestatic liver disease characterized by progressive inflammation and destruction of bile ducts with life-threatening complications. More than 60% of cases occur in men. Inflammation and fibrosis of the bile ducts leading to formation of a beaded pattern and multifocal bile duct strictures are the hallmark of this progressive disease, leading to destruction of the bile ducts, fibrosis, cirrhosis, portal hypertension, cancer and ultimately hepatic decompensation resulting in liver failure. It is estimated that approximately 44,000 people in the United States suffer from PSC, with approximately 3,200 new cases diagnosed per year.

PSC is usually diagnosed by preliminary assessment of liver biochemistry, with or without reported symptoms, and confirmed by cholangiography, typically magnetic resonance cholangiopancreatography or endoscopic retrograde cholangiopancreatography, or ERCP. Alkaline Phosphatase, or ALP, is elevated in most PSC patients, consistent with cholestasis, and ALT and GGT are also typically elevated, but not in all cases. Bilirubin is often normal in early-stage PSC but increases with progression of the disease. The mean age at diagnosis is 40 years. Approximately 75% of PSC patients have overlapping inflammatory bowel disease, principally ulcerative colitis.

Median survival for PSC patients has been previously estimated as nine years from diagnosis in symptomatic patients, depending upon stage of the disease at the time of diagnosis. Complications involving the biliary tree are common and include cholangitis as well as ductal strictures and gallstones, both of which may require frequent endoscopic or surgical interventions. PSC is often complicated by the development of malignancies, with cholangiocarcinoma being the most common.

Liver transplant is currently the only treatment shown to improve clinical outcomes. Ursodiol is often used for the treatment of PSC due to improvements in liver biochemistry following initiation of therapy. Despite general biochemical improvement, ursodiol has not been shown to improve transplant-free survival and, at high doses, has been associated with increased risk for serious complications. However, as there are no approved drugs for the treatment of PSC, some physicians treat patients with ursodiol, typically at a dose of 13 to 15 mg/kg/day. PSC is the fourth leading indication for liver transplant. However, the post-transplant recurrence rate of PSC has been shown to be as high as 20%.

CVC for PSC

Chemokines play a major role in selectively recruiting monocytes, neutrophils and lymphocytes, and in inducing chemotaxis. CCL2 is one of the key chemokines that regulates migration and infiltration of monocytes/macrophages. The importance of monocytes/macrophages, Kupffer cells and HSCs in liver inflammation and fibrogenesis is established. The main chemokine receptors for CCL2 and CCL5, CCR2 and CCR5, respectively, are expressed on monocytes/macrophages, Kupffer cells and HSCs and their role

22


in activation of these cells is well documented. Overexpression of CCL2 has been observed in PSC patient samples and in PSC preclinical models. Genetic data have indicated that the CCR5-Δ32 deletion polymorphism is pro tective for PSC and that a polymorphism resulting in overexpression of CCL5 is associated with PSC. However, other genetic studies have produced conflicting results.

Bile duct ligation, or BDL, models are used to evaluate potential efficacy of agents in PSC. In a rat BDL model of cholestasis, the effects of high and low dose CVC (15 mg/kg and 50 mg/kg, respectively) were evaluated on liver histology, portal pressure, as well as serum and tissue biomarkers. BDL-induced increases in mean portal pressure were significantly attenuated with high-dose CVC compared to vehicle-treated BDL controls (p < 0.05). Across all groups, mean portal pressure was positively correlated with ED-1+ and α-SMA+ area percent, suggesting that the significant decrease in portal pressure observed for high dose CVC was likely attributed to decreased liver macrophage infiltration and hepatic stellate cell activation.

PERSEUS – A Phase 2 Proof-of-Concept Clinical Trial: CVC as Therapy in PSC

In January 2016, we initiated a Phase 2, single-arm, open label, proof-of-concept clinical trial to evaluate the effects of 24 weeks of treatment with 150 mg of CVC in patients with PSC. The primary endpoint is the percent change from baseline through week 24 of serum ALP levels. In addition, CVC’s effect on other secondary liver function endpoints will be assessed. This trial is anticipated to enroll approximately 25 patients in the United States and Canada.

 

Other Indications

First line therapy for HIV is generally recommended to be a combination of three or more anti-HIV drugs sometimes referred to as Highly Active Antiretroviral Therapy, or HAART. We believe there is a potential medical need for an adjunctive treatment for HIV. Although HIV patients who tolerate HAART are living longer, HAART is not curative and therefore life-long treatment is required. Furthermore, despite recently approved potent and well-tolerated classes of third agent drugs, including integrase inhibitors, patients with HIV face chronic toxicity and are developing and dying from “age-related diseases” approximately a decade younger than their uninfected counterparts. Some age-related diseases observed with increasing frequency in HIV patients despite viral suppression on HAART include cardiovascular, cerebrovascular, renal, immunologic, neurologic and bone diseases. A 10-year Veterans Health Administration study, or the VA study, of over 10,000 HIV patients showed that patients taking tenofovir DF, a component of the tenofovir disoproxil fumarate/emtricitabine, or TDF/FTC, are at increased risk for clinically significant irreversible kidney toxicity. Even after accounting for demographics, HIV-related factors, comorbidities and other antiretroviral drugs, the VA study found that tenofovir DF remained independently associated with an elevated risk of proteinuria, rapid decline in kidney function and development of chronic kidney disease.

We believe that CVC has the potential to be an effective immunomodulatory treatment for other CCR2 and CCR5 mediated inflammatory and fibrotic driven diseases. We plan to continue to explore options for collaborations to potentially advance CVC as an adjunctive therapy to standard of care for HIV as well as other potential indications for CVC.

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Commercialization

We believe that the market for the treatment of NASH and PSC are specialty care markets driven by a concentrated group of physicians. Most patients are treated by physicians who specialize in the treatment of liver disease, including hepatologists and certain gastroenterologists and endocrinologists.

Our current plan is to commercialize CVC ourselves in North America and Europe if it is approved. We anticipate that our commercialization efforts will include our internal commercial organization, sales people, other specialists, and other contracted outside resources who will focus on the specialist physicians who manage care for NASH and PSC patients. Outside of the United States and Europe, subject to obtaining necessary marketing approvals, we likely will seek to commercialize CVC through distribution or other collaboration arrangements. We also plan to develop combination therapies for the treatment of NASH that may offer partnership opportunities.

Competition

The biopharmaceutical industry is characterized by rapidly evolving technology and intense competition. A large number of companies of all sizes, including major pharmaceutical companies and specialized biotechnology companies, engage in activities similar to our activities. Many of our competitors have substantially greater financial and other resources available to them and some of our competitors’ current or future products and technologies may be in direct competition with ours.

We are aware of several companies with development programs targeting NASH in clinical trials including Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, Cempra, Inc., Conatus Pharmaceuticals Inc., Galectin Therapeutics, Inc., Galmed Medical Research Ltd., Genfit Corp., Gilead Sciences, Inc., Immuron Ltd., Intercept Pharmaceuticals, Inc., MediciNova, Inc., NGM Biopharmaceuticals, Inc., Nimbus Therapeutics, Novartis AG, Novo Nordisk A/S, NuSirt Biopharma, Inc., Shire plc, Takeda Pharmaceutical Company Limited, or Takeda, Viking Therapeutics, Inc. and Zydus Cadilla.

Many of the agents in development target metabolic mechanisms in NASH, such as peroxisome proliferator-activated receptors, or PPAR, agonists and farnesoid X, or FXR, receptor agonists. Other agents in development target fibrosis, such as targeting the collagen cross-linking enzyme lysyl oxidase-like 2, or LOXL2. We are not aware of a competitor with an active development program for NASH targeting CCR2/CCR5 inhibition. We believe that targeting CCR/CCR5 inhibition will allow us to pursue combination strategies with other agents. 

Additionally, we are aware of the following companies with development programs in PSC: Acorda Therapeutics, Inc./Biotie Therapies Corp., Gilead Sciences, Inc., Intercept Pharmaceuticals, Inc., and Shire plc.

Manufacturing

We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on third party contract manufacturers, or CMO, for all our required raw materials, drug substance and drug product needs for preclinical research and clinical trials. We do not have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates if they are approved. If any of our products are approved by any regulatory agency, we intend to enter into agreements with a third party contract manufacturer and one or more back-up manufacturers for the commercial production of those products. Development and commercial quantities of any products that we develop will need to be manufactured in facilities, and by processes, that comply with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. See Item 1A. “Risk Factors”.

Intellectual Property Rights

Patents

We own and have licensed a number of our patents relating to our products, which in the aggregate are believed to be of material importance to us in the operation of our business. See Item 1A. “Risk Factors”.

The proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important to our business. We have sought patent protection in the United States and internationally for CVC and related product candidates, and any other inventions to which we have rights, where available and when appropriate. Our policy is to pursue, maintain and defend patent rights in strategic areas, whether developed internally or licensed from third parties, and to protect the technology, inventions and improvements that are commercially important to the development of our business.

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Our commercial success will depend in part on obtaining and maintaining patent protectio n and trade secret protection of our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against third party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes.

We own exclusively several patents covering CVC which we obtained from Takeda, and have also licensed intellectual property relating to CVC from Takeda. Patents owned by or licensed to us covering CVC composition of matter are expected to expire in the United States in 2022, before any potential patent term extensions or exclusivity protection or adjustments for patent office delays, and in 2023 when such adjustments for patent office delays are considered. We own or have rights to additional patents and pending patent applications that cover formulations, combination products, and use of CVC to treat various indications with expected patent expiration dates in the United States that range from 2022 (for issued patents) to potentially 2036 (for currently-filed provisional patent applications if patents were to issue on non-provisional applications filed thereon).

Our patent portfolio for CVC contains patents directed to the composition of matter of CVC. As of May 5, 2015, we owned one issued U.S. patent and several corresponding foreign patents directed specifically to the composition of matter of CVC. Foreign patents for the composition of matter of CVC have been granted in Canada, Japan and the European Union (with corresponding validations in 18 European countries: Austria, Belgium, Switzerland, Czech Republic, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Ireland, Italy, Netherlands, Portugal, Sweden, Slovak Republic and Turkey). We expect that the composition of matter CVC patent, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, will expire in 2023 (U.S.) when adjustments for patent office delays are considered, and 2022 (international). It is possible that the term of a composition of matter patent in the United States could be extended up to five additional years under the provisions of the Hatch-Waxman Act. Patent term extension may also be available in certain foreign countries upon regulatory approval.

Our patent portfolio also includes patents directed to CVC compound classes, pharmaceutical compositions, combination products, methods of synthesis and methods of use of CVC to treat HIV and certain inflammation, autoimmune and other indications. As of February 26, 2016, we owned three issued U.S. patents and several corresponding foreign patents directed to such subject matter. Foreign patents have been granted in Canada, Japan and the European Union (where the EP patent directed to CVC compound classes, their pharmaceutical compositions, use of CVC compound classes for treating HIV, and method of making CVC compound classes has validations in 4 European countries: Germany, France, United Kingdom, and Ireland; and the EP patent directed to use of CVC for treating inflammation, autoimmune and other diseases, combo therapy of CVC, and process of making CVC has validations in 18 European countries: Austria, Belgium, Switzerland, Czech Republic, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Ireland, Italy, Netherlands, Portugal, Sweden, Slovak Republic and Turkey). We also own pending applications in the United States and Japan directed to such subject matter.

We expect that the CVC compound class, pharmaceutical compositions, methods of synthesis, and methods of use patents, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, will expire in 2023 (U.S.) and 2022 (international), and that the CVC combination products patents will expire in 2022 (United States and international). In addition, our patent portfolio includes pending applications directed to CVC product formulations, combination products, and other therapeutic use of CVC. These patent applications, if issued as patents, will have potential patent expiration dates ranging from 2034 to 2036. Below is a summary of our patents and patent applications and the projected patent terms and, if applicable, extension dates:

 

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Trademarks and Other Intellectual Property Rights

Our intellectual property also includes copyrights, confidential and trade secret information.

Our trademarks are protected under the common law and/or by registration in the United States and other countries. We consider these trademarks in the aggregate to be of material importance in the operation of our business.

In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems.

Collaborations and License Agreements

Takeda License

In August 2007, we entered into an exclusive license agreement with Takeda relating to CVC (then known as TAK-652) and TAK-220 and its salts. Under the agreement, Takeda assigned to us certain patents relating to CVC and TAK-220. Takeda also agreed not to enforce certain ancillary patents relating to CVC and TAK-220 against us and granted us an exclusive license under know-how and other information relating to CVC and TAK-220, in each case on a worldwide basis to manufacture, develop and commercialize both product candidates globally. The agreement was amended in November 2009 to update the lists of assigned patents and ancillary patents.

Under the agreement, we agreed to use commercially reasonable efforts to develop CVC for the treatment of HIV infection and, if we choose to develop CVC for any other indication or choose to develop TAK-220, we must use commercially reasonable efforts with respect to such development activities. We must also use commercially reasonable efforts to obtain regulatory approval for licensed products we develop in the U.S. and Europe, and in any other countries we deem appropriate. In addition, we must achieve first commercial sale of a licensed product within a specified period of time after receipt of regulatory approval therefor, subject to certain exceptions. Finally, we must use commercially reasonable efforts to maintain, apply for patent term extensions with respect to, and take action against infringement of the patents assigned to us under the agreement. During the term of the agreement, we may not develop or commercialize any CCR5 antagonist products, other than CVC and TAK-220, for any indications for which we are developing or commercializing CVC and TAK-220.

Under the agreement, we paid to Takeda an upfront license fee of $3.0 million and are obligated to pay to Takeda up to $102.0 million in the aggregate in development and sales milestones. We are also obligated to pay to Takeda tiered royalties based on aggregate annual net sales of all licensed products from the high single digit to the low double digit percentage of net sales, subject to certain reductions and exceptions. Our obligation to pay royalties to Takeda expires on a country-by-country basis on the later of either expiration of the last to expire patent assigned to us under the agreement, or the earlier of the twelfth anniversary of the first commercial sale of the product or one or more generic versions of the product achieving a certain market share in such country.

Our agreement with Takeda continues in effect on a country-by-country and licensed product-by-licensed product basis until the expiration of our obligation to pay royalties to Takeda in such country with respect to such licensed product. Either we or Takeda may terminate the agreement for the other party’s material breach of the agreement, except that Takeda may terminate the agreement only with respect to the applicable licensed product if we materially breach our non-compete obligations. We may terminate the agreement under certain circumstances if we determine that further development or sale of licensed products is not feasible. If we terminate the agreement under such circumstances or Takeda terminates the entire agreement for our material breach, we would lose our right to use the know-how and other information relating to CVC and TAK-220 that was licensed to us by Takeda and, upon Takeda’s request, we must assign back to Takeda or abandon the patents assigned to us under the agreement and transfer to Takeda other materials and intellectual property that we developed during the term of the agreement.

Duke University

As part of the merger with Regado Biosciences, Tobira acquired the rights to intellectual property covering the discovery and development of two-component drug systems consisting of a therapeutic aptamer and its specific active control agent. These aptamers are single strands of nucleic acids, or oligonucleotides, which are chemically synthesized. The intellectual property portfolio included a license from Duke University, or Duke, as well as company generated patent filings. As of November 2015, issued and pending patents relating to the aptamer program had expiration dates between 2023 and 2036.

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In November 2015, we entered an agreement with Duke to terminate our license and rel ease our financial obligations with Duke. Additionally, we assigned our aptamer intellectual property to Duke and provided a payment of $0.1 million. In exchange, we are entitled to receive a percentage of payments, if any, received by Duke from the licens e or sale of the assigned intellectual property.

Government Regulation and Product Approval

Government authorities in the United States, at the federal, state and local level, and analogous authorities in other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products such as those we are developing. Our product candidates must be approved by the FDA through the new drug application, or NDA, process before they may be legally marketed in the United States and by the European Medicines Agency, or EMA, through the marketing authorization application, or MAA, process before they may be legally marketed in Europe. Our product candidates will be subject to similar requirements in other countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

United States Government Regulation

NDA Approval Processes

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and the FDA’s implementing regulations. An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

 

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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;

 

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submission to the FDA of an investigational new drug, or IND, application which must take effect before human clinical trials may begin;

 

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approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;

 

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performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, regulations to establish the safety and efficacy of the proposed drug product for each indication;

 

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preparation and submission to the FDA of an NDA;

 

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review of the product by an FDA advisory committee, where appropriate or if applicable;

 

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satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product or its components are produced to assess compliance with current good manufacturing practices, or GMP, regulations and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

 

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payment of user fees and securing FDA approval of the NDA; and

 

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compliance with any post-approval requirements, including potential requirements for a risk evaluation and mitigation strategies, or REMS, and post-approval outcomes studies required by the FDA.

Once a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND application sponsor must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first Phase lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND, and may affect one or more specific studies or all studies conducted under the IND.

All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must timely

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report to FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure, or any findi ngs from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug. An IRB at each institution participating in the clinical trial must review and approve the protocol before a clinical trial commences at tha t institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations.

Human clinical trials are typically conducted in three sequential Phases that may overlap or be combined:

 

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Phase 1 . The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, and especially when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients who already have the condition.

 

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Phase 2 . Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

 

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Phase 3 . Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product approval and labeling claims. The FDA generally requires two adequate and well controlled Phase 3 clinical trials, but in some cases may accept a single large trial with confirmatory evidence.

Human clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In some cases, clinical trials are overseen by an independent group of qualified experts organized by the trial sponsor, which is called the clinical monitoring board or data safety monitoring board. This group provides authorization for whether or not a trial may move forward at designated check points. These decisions are based on the limited access to data from the ongoing trial.

During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next Phase of development.

Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of the product in accordance with GMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug and the manufacturer must develop methods for testing the quality, purity and potency of the drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its proposed shelf-life.

The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver of such fees may be obtained under specified limited circumstances. The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. It may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.

Once the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is GMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory

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committee, but it generally follows such recommenda tions. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured and tested. After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response lette r. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider its application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction, in a resubmission of the NDA, the FDA will issue an approval letter.

Fast Track, Breakthrough Therapy, Priority Review and Accelerated Approval

The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are fast track designation, breakthrough therapy designation and priority review designation.

Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product’s NDA before the application is complete.

A product may also be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.

The FDA may also designate an NDA for priority review if it is for a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed drug represents a significant improvement when compared with other available therapies. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on the NDA from 12 months to eight months.

Finally, the FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or another clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval. Accelerated approval is generally contingent on a sponsor’s agreement to conduct additional post-approval studies to verify and describe the drug’s clinical benefit.

Post-approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with GMP regulations and other laws. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from GMP requirements and impose reporting and documentation requirements upon the sponsor and any third party

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manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain GMP compliance.

Failure to comply with the applicable U.S. requirements at any time during the product development process or approval process, or after approval, may subject us to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:

 

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warning or untitled letters;

 

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refusal to approve pending applications;

 

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withdrawal of an approval;

 

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imposition of a clinical hold;

 

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product seizures;

 

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total or partial suspension of production or distribution; or

 

·

injunctions, fines, disgorgement, or civil or criminal penalties.

The FDA strictly regulates the marketing, labeling, advertising and promotion of drug products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance are often issued revised or reinterpreted by the agency. It is impossible to predict whether legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be issued or changed or what the impact of such changes, if any, may be.

Regulation Outside of the United States

In addition to regulations in the United States, we will be subject to regulations of other countries governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Under EU regulatory systems, a company may submit an MAA either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides for the grant of a single marketing authorization that is valid for all EU member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.

Other Healthcare Laws

Although we currently do not have any products on the market, if our drug candidates are approved and we begin commercialization, we may be subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting and physician sunshine laws and regulations.

The federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchase, order, or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, and can also result in criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. In addition, many

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states have adopted laws similar to the Anti-Kickback Statute. S ome of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, the a bsence of guidance in the form of regulations or court decisions, and the potential for additional legal or regulatory change in this area, it is possible that our future sales and marketing practices and/or our future relationships with physicians might b e challenged under these laws, which could harm us.

Another significant statute that may apply to us in the future is the federal False Claims Act. The federal False Claims Act prohibits anyone from knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Manufacturers can be held liable under these laws if they are deemed to ‘‘cause’’ the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. Penalties for False Claims Act violations include three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim, the potential for exclusion from participation in federal healthcare programs, and, although the federal False Claims Act is a civil statute, False Claims Act violations may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline in our stock price. In addition, private individuals have the ability to bring actions under the federal False Claims Act, and certain states have enacted laws modeled after the federal False Claims Act.

Because we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs, we will have to develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the rules and program requirements to which we will or may become subject. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

More generally, The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, is expected to have a significant impact on the healthcare industry. The Affordable Care Act is expected to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things, the Affordable Care Act expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare prescription drug benefit. We cannot predict the impact of the Affordable Care Act on pharmaceutical companies, as many of the reforms require the promulgation of detailed regulations implementing the statutory provisions, some of which has not yet occurred. In the coming years, additional legislative and regulatory changes could be made to governmental health programs that could significantly impact pharmaceutical companies and the success of our product candidates.

Coverage and Reimbursement

Sales of our products will depend, in part, on the extent to which the costs of our products will be covered by third party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could limit our net revenue and results. If these third party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products after approved as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis. Decreases in third party reimbursement for our products once approved or a decision by a third party payor to not cover our products could reduce or eliminate utilization of our products and have a material adverse effect on our sales, results of operations and financial condition. In addition, state and federal healthcare reform measures have been and will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures.

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In addition, in some non-U.S. jurisdictions, the pr oposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medi cinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable re imbursement and pricing arrangements for any of our products. Historically, reimbursement and pricing for products launched in the European Union do not follow those of the United States and generally tend to be significantly lower.

Product Liability Insurance

We maintain clinical trial insurance with $10.0 million in coverage in the United States and local policies in other countries of various amounts based on local requirements.

Employees

As of February 26, 2016, we had 19 full-time employees, including 10 engaged in research, development, and regulatory activities, and 9 in general and administrative functions.

Financial Information about Segments

We operate in a single accounting segment in the United States of America. We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies to treat liver disease, inflammation, fibrosis and HIV.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to: presenting only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; having reduced disclosure obligations regarding executive compensation in our periodic reports and proxy or information statements; being exempt from the requirements to hold a non-binding advisory vote on executive compensation or seek stockholder approval of any golden parachute payments not previously approved; and not being required to adopt certain accounting standards until those standards would otherwise apply to private companies.

Although we are still evaluating our options under the JOBS Act, we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company” and thus the level of information we provide may be different than that of other public companies. If we do take advantage of any of these exemptions, some investors may find our securities less attractive, which could result in a less active trading market for our common stock, and our stock price may be more volatile. As an “emerging growth company” under the JOBS Act, we are permitted to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. However, we are electing not to take advantage of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.

We could remain an “emerging growth company” until the earliest to occur of:

 

·

the last day of December 2018;

 

·

the last day of the first fiscal year in which our annual gross revenues exceed $1.0 billion;

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·

the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which woul d occur if the market value of our common stock held by non-affiliates exceeded $700 .0  million as of the last business day of the second fiscal quarter of such fiscal year; or

 

·

the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.

General Information

Tobira was incorporated in Delaware in December 2001.

Our principal executive offices are located at 701 Gateway Boulevard, Suite 300, South San Francisco, California 94080. Our telephone number is (650) 741-6625 and our e-mail address is info@tobiratherapeutics.com . Our Internet website address is www.tobiratherapeutics.com. No portion of our website is incorporated by reference into this Annual Report on Form 10-K.

You are advised to read this Annual Report on Form 10-K in conjunction with other reports and documents that we file from time to time with the Securities and Exchange Commission, or the SEC. In particular, please read our definitive proxy statement, which will be filed with the SEC in connection with our 2016 annual meeting of stockholders, our quarterly reports on Form 10-Q and any current reports on Form 8-K that we may file from time to time. You may obtain copies of these reports after the date of this annual report directly from us or from the SEC at the SEC’s Public Reference Room at 100 F Street, N.E. Washington, D.C. 20549. In addition, the SEC maintains information for electronic filers (including Tobira) at its website at www.sec.gov. The public may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We make our periodic and current reports available on our internet website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

Legal Proceedings

 

On February 2, 2015, a purported stockholder of Regado filed a putative class-action lawsuit (captioned Maiman v. Regado Biosciences, Inc. , C.A. No. 10606-CB) in the Court of Chancery for the State of Delaware, or the Court, challenging the proposed stock-for-stock merger of Regado with Tobira, or the Proposed Merger. On February 25, 2015, a second, related putative class action (captioned Gilboa v. Regado Biosciences, Inc. , C.A. No. 10720-CB) was filed in the Court challenging the Proposed Merger. On May 4, 2014, the Proposed Merger was consummated and Tobira became a wholly-owned subsidiary of Regado and changed its name to Tobira Development, Inc. The complaints name as defendants: (i) each member of Regado’s Board of Directors, (ii) Regado, (iii) Private Tobira, and (iv) Landmark Merger Sub Inc. Plaintiffs alleged that Regado’s directors breached their fiduciary duties to Regado’s stockholders by, among other things, (a) agreeing to merge Regado with Private Tobira for inadequate consideration, (b) implementing a process that was distorted by conflicts of interest, and (c) agreeing to certain provisions of the Merger Agreement that are alleged to favor Private Tobira and deter alternative bids. Plaintiffs also generally alleged that the entity defendants aided and abetted the purported breaches of fiduciary duty by the directors. On March 25, 2015, the Court consolidated the two actions and assigned lead counsel for plaintiffs (captioned In re Regado Biosciences, Inc. Stockholder Litigation, Consolidated C.A. No. 10606-CB). On March 27, 2015, plaintiffs filed a consolidated amended complaint, a motion for expedited proceedings and a motion for preliminary injunction. On April 20, 2015, the parties agreed in principle to resolve the litigation (subject to approval by the Court) and signed a memorandum of understanding setting forth the terms of a proposed settlement to provide additional disclosures related to the Merger Agreement and to cover Court-awarded fees. On April 23, 2015, as part of the proposed settlement, Regado provided additional disclosures to its stockholders. Since then, the parties have engaged in confirmatory discovery and are currently preparing a stipulation of settlement to be submitted to the Court for approval. As of December 31, 2015, the Company is unable to reasonably estimate an amount and/or a range of loss until the Company is made aware of the fees awarded by the Court to the plaintiffs under the proposed settlement, if any, as administered under settlement law. The Company maintains D&O insurance and tail coverage with deductibles of $2.0 million and $1.5 million, respectively.

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Item 1A. Risk Factors.

You should carefully consider the risks described below, together with all of the other information included in or incorporated by reference into this report, before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we do not currently believe are important to an investor may also harm our business operations. If any of the events, contingencies, circumstances or conditions described in the following risks actually occurs, our business, financial condition or our results of operations could be seriously harmed. If that happens, the trading price of our common stock could decline and you may lose part or all of the value of any of our shares held by you.

Risks Related to our Business

We have limited operating history, have incurred significant operating losses since inception and we expect to incur significant losses for the foreseeable future. We may never become profitable or, if achieved, be able to sustain profitability.

We have incurred significant operating losses since inception and expect to incur significant losses for the foreseeable future as we continue our clinical trial and development programs for cenicriviroc, or CVC, and other future product candidates. As of December 31, 2015, we had an accumulated deficit of $163.4 million. Losses have resulted principally from costs incurred in our clinical trials, research and development programs and from our general and administrative expenses. As of December 31, 2015, we had cash and cash equivalents including restricted cash of $62.8 million. In the future, we intend to continue to conduct research and development, clinical testing, regulatory compliance activities and, if CVC or other future product candidates is approved, sales and marketing activities that, together with anticipated general and administrative expenses, will likely result in our incurring further significant losses for the foreseeable future.

We currently generate no revenue from product sales, and we may never be able to commercialize CVC or other future product candidates. We do not currently have the required regulatory approvals to market CVC or any other future product candidates, and we may never receive them. We may not be profitable even if we or any of our potential future development partners succeed in commercializing any of our product candidates. Because of the numerous risks and uncertainties associated with developing and commercializing our product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

Our business depends on the success of CVC, which is still under development. If we are unable to obtain regulatory approval for or successfully commercialize CVC, our business will be materially harmed.

CVC, a dual inhibitor of chemokine receptor type 2, or CCR2, and type 5, or CCR5, with anti-fibrotic and anti-inflammatory effects in liver disease models and antiviral effects on HIV has been the sole focus of our product development. Successful continued development and ultimate regulatory approval of CVC is critical to the future success of our business. We have invested, and will continue to invest, a significant portion of our time and financial resources in the development of CVC. We will need to raise sufficient funds for, and successfully enroll and complete, our ongoing clinical development program for CVC in NASH and PSC. The future regulatory and commercial success of this product candidate is subject to a number of risks, including the following:

 

·

we may not have sufficient financial and other resources to complete the necessary clinical trials for CVC;

 

·

we may not be able to obtain adequate evidence of efficacy and safety for CVC in NASH, PSC, HIV or any other indication;

 

·

we do not know the degree to which CVC will be accepted as a therapy, even if approved;

 

·

in our clinical programs, we may experience variability in patients, adjustments to clinical trial procedures and the need for additional clinical trial sites, which could delay our clinical trial progress;

 

·

the results of our clinical trials may not meet the level of statistical or clinical significance required by the U.S. Food and Drug Administration, or FDA, or comparable foreign regulatory bodies for marketing approval;

 

·

patients in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to CVC, which could delay or prevent further clinical development;

 

·

the standards implemented by clinical or regulatory agencies may change at any time;

 

·

the FDA and other foreign regulatory agencies have not issued guidance on development standards or endpoints for commercial approval of drugs for NASH or PSC and, if issued in the future, that guidance may call for additional or different clinical trials or endpoints than those included in our program;

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·

the FDA or foreign regulatory agencies may require efficacy endpoints for a Phase 3 clinical trial for the treatment of NASH or PSC that differ from the endpoints of our current or future trials, which may require us to conduct additional clinical trials;

 

·

the mechanism of action of CVC is complex and we do not know the degree to which it will translate into a medical benefit in NASH or PSC;

 

·

if approved for NASH or PSC, CVC will likely compete with the off-label use of currently marketed products and other therapies in development; and

 

·

we may not be able to obtain, maintain or enforce our patents and other intellectual property rights.

Of the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of applications for marketing authorization to regulatory authorities and even fewer are approved for commercialization. Furthermore, even if we do receive regulatory approval to market CVC, any such approval may be subject to limitations on the indicated uses or patient populations for which we may market the product. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, we cannot assure you that CVC will be successfully developed or commercialized. If we or any of our potential future development partners are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize CVC, we may not be able to generate sufficient revenue to continue our business.

We do not intend to progress CVC as an anti-retroviral therapy for HIV unless we raise significant non-dilutive financing and/or identify a strategic partner who will fund this program, which we might not achieve. We may not be able to secure such a strategic partner or non-dilutive financing.

We anticipate that future cash requirements to advance our HIV program will be significant and we only plan to advance it in collaboration with a strategic partner or with non-dilutive financing. If we are not able to collaborate with a strategic partner or secure non-dilutive financing, we may be unable to initiate further clinical studies for this program and may never be able to commercialize CVC in HIV. If we are unable to commercialize CVC in HIV or if we experience significant delays in advancing the program, our business may be adversely affected.

The results of preclinical studies and early clinical trials are not always predictive of future results. Any product candidate we or any of our future development partners advance into clinical trials, including CVC, may not have favorable results in later clinical trials, if any, or receive regulatory approval.

Drug development has inherent risk. We or any of our potential future development partners will be required to demonstrate through adequate and well-controlled clinical trials that our product candidates are safe and effective, with a favorable benefit-risk profile, for use in their target indications before we can seek regulatory approvals for their commercial sale. Clinical studies are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. Delay or failure can occur at any stage of development, including after commencement of any of our clinical trials. In addition, success in early clinical trials does not mean that later clinical trials will be successful, because later-stage clinical trials may be conducted in broader patient populations and involve different study designs. Furthermore, our future trials will need to demonstrate sufficient safety and efficacy in larger patient populations for approval by regulatory authorities. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results. In addition, only a small percentage of drugs under development result in the submission of applications for marketing authorization to regulatory authorities and even fewer are approved for commercialization.

We cannot be certain that any of our ongoing or future clinical trials will be successful, and any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications.

Because CVC has not yet received regulatory approval, it is difficult to predict the time and cost of development and our ability to successfully complete clinical development and obtain the necessary regulatory approvals for commercialization.

CVC has not yet received regulatory approval and unexpected problems may arise that can cause us to delay, suspend or terminate our development efforts. Further, CVC has not yet demonstrated efficacy in humans for NASH or PSC, and the long-term safety consequences of dual inhibition of CCR2 and CCR5 receptors is not known. Regulatory approval of new product candidates such as CVC can be more expensive and take longer than approval for candidates for the treatment of more well understood diseases with previously approved products. While we have received Fast Track designation for CVC for the treatment of NASH in patients with liver fibrosis, we may not benefit from any accelerated timelines or other regulatory benefits from this designation.

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Any termination or suspension of, or delays in the commencement or completion of, our ongoing and planned clinical trials could result in increased costs to us, delay or limit our abilit y to generate revenue and adversely affect our commercial prospects.

In order to continue development of CVC, we will need to submit the results of clinical and preclinical testing to the FDA and other regulatory bodies, along with other information including information about product candidate chemistry, manufacturing and controls, clinical results and potential clinical trial protocols. We may rely in part on preclinical, clinical and quality data generated by contract research organizations, or CROs, and other third parties for regulatory submissions for our product candidates. If these third parties do not provide us with data in a timely manner, we will not be able to make timely regulatory submissions for our product candidates, which may delay our plans for our clinical trials and potential product approvals. Furthermore, if those third parties do not make this data available to us, we will likely have to develop all necessary preclinical and clinical data on our own, which will lead to significant delays and increase development costs of the product candidate. Delays in the commencement or completion of our ongoing or future clinical trials for CVC or other future product candidates could significantly affect our product development costs. We do not know whether our current or planned trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

 

·

regulatory agencies failing to grant permission to proceed or placing the clinical trial on hold;

 

·

subjects failing to enroll or remain in our trial at the rate we expect;

 

·

subjects choosing an alternative treatment for the indication for which we are developing the product candidates, or participating in competing clinical trials;

 

·

lack of adequate funding to continue the clinical trial;

 

·

subjects experiencing severe or unexpected drug-related adverse effects;

 

·

a facility manufacturing our product candidate or any of its components being ordered by the FDA or other government or regulatory authorities to temporarily or permanently suspend operations due to violations of current good manufacturing practices, or GMP, regulations, or other applicable requirements;

 

·

any changes to our manufacturing process that may be necessary or desired;

 

·

third party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, GMP regulations or other regulatory requirements, or our CROs or other third parties not performing data collection or analysis in a timely or accurate manner;

 

·

inspections of clinical trial sites by regulatory authorities or the finding of regulatory violations by regulatory authorities or an institutional review board, or IRB, that require us to undertake corrective action, that results in suspension or termination of one or more sites or the imposition of a clinical hold on the entire trial or that prohibits us from using some or all of the data in support of our marketing applications;

 

·

third party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications; or

 

·

one or more IRBs refusing to approve, suspending or terminating the trial at an investigational site, precluding enrollment of additional subjects or withdrawing its approval of the trial.  

Product development costs will increase if we have delays in testing or approval of CVC or if we need to perform more or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the cost, timing or successful completion of a clinical trial. If we experience delays in completion of our clinical trials, or if we, the FDA or other regulatory authorities, IRBs, other reviewing entities or any of our clinical trial sites suspend or terminate any of our clinical trials, the commercial prospects for a product candidate may be harmed and our ability to generate product revenues will be delayed. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Further, if one or more clinical trials are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of CVC or other future product candidates could be significantly reduced.

We have not yet determined the details of any potential Phase 3 trial designs, including identification of a primary endpoint that the FDA or other regulatory authorities would deem acceptable in a study for the treatment of NASH or PSC. If the FDA or other regulatory authorities determine that Phase 3 studies would require substantially different endpoints than those addressed in our ongoing or future clinical trials, we may need to conduct additional Phase 2 clinical trials of CVC.

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If we encounter difficulties enrolling and retaining patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

Patient enrollment and retention, both significant factors in the timing of clinical trials, are affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, patient willingness to undergo a liver biopsy in our NASH trials, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and disadvantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Potential patients for CVC may not be adequately diagnosed or identified with the diseases which we are targeting or may not meet the entry criteria for our studies.

We will be required to identify and enroll a sufficient number of patients with NASH or PSC for each of our ongoing and planned clinical trials of CVC in these indications, which we may fail to do. Also, we may encounter difficulties in identifying and enrolling NASH patients with a stage of disease appropriate for our ongoing or future clinical trials. We may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible patients to participate in the clinical trials required by the FDA or other foreign regulatory agencies. In addition, the process of finding and diagnosing patients may prove costly. Our inability to enroll a sufficient number of patients for any of our clinical trials would result in significant delays or may require us to abandon one or more clinical trials.

Any product candidate in our current or future clinical trials may cause unacceptable adverse events or have other properties that may delay or prevent its regulatory approval or commercialization or limit its commercial potential.

Unacceptable adverse events observed in studies of our product candidates in current or future clinical trials could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications and markets. This in turn could prevent us from completing development or commercializing the affected product candidate and generating revenue from its sale. If any of our product candidates cause unacceptable adverse events in clinical trials, we may not be able to obtain regulatory approval or commercialize such product candidate.

Our product candidates are subject to extensive regulation, compliance with which is costly and time consuming, and such regulation may cause unanticipated delays in, or prevent the receipt of the required approvals for, commercialization of our product candidates.

The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA in the United States and by comparable foreign regulatory agencies. We are not permitted to market our product candidates until we receive regulatory approval from the FDA or comparable foreign regulatory bodies. The process of obtaining regulatory approval is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved, as well as the target indications and patient populations. Regulatory agencies may change their approval policies or regulations and have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval or testing of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.

The FDA or comparable foreign regulatory authorities can delay, limit or deny approval of a product candidate for many reasons, including the following:

 

·

such authorities may disagree with the design or implementation of our or any of our potential future development partners’ clinical trials;

 

·

we or any of our potential future development partners may be unable to demonstrate to the satisfaction of the FDA or other regulatory authorities that a product candidate is safe and effective for any indication;

 

·

the results of clinical trials may not demonstrate the appropriateness of the dose or the safety or efficacy required by such authorities for approval;

 

·

we or any of our potential future development partners may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

·

such authorities may disagree with our interpretation or the quality of data from preclinical studies or clinical trials;

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·

such authorities ma y find deficiencies in the manufacturing processes or facilities of third party manufacturers with which we or any of our potential future development partners contract for clinical and commercial supplies; or

 

·

the approval policies or regulations of such authorities may significantly change in a manner rendering our or any of our potential future development partners’ clinical data insufficient for approval.

With respect to foreign markets, approval procedures vary among countries and, in addition to the aforementioned risks, can involve additional product testing, administrative review periods and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased cautiousness by the FDA and comparable foreign regulatory authorities in reviewing new drugs based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us or any of our potential future development partners from commercializing our product candidates.

Coverage and reimbursement may be limited or unavailable in certain market segments for CVC and other future product candidates, which could make it difficult for us to sell our product candidates.

Market acceptance and sales of CVC and other future product candidates will depend significantly on the availability of adequate insurance coverage and reimbursement from third party payors for any of our product candidates and may be affected by existing and future healthcare reform measures. Government authorities and third party payors, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. Reimbursement by a third party payor may depend upon a number of factors including the third party payor’s determination that use of a product candidate is:

 

·

a covered benefit under its health plan;

 

·

safe, effective and medically necessary;

 

·

appropriate for the specific patient;

 

·

cost-effective; and

 

·

neither experimental nor investigational.

Obtaining coverage and reimbursement approval for a product candidate from a government or other third party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of the applicable product candidate. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Further, reimbursement amounts may not support the demand for, or the price of, our product candidates. If reimbursement is not available or is available only in limited levels, we may not be able to commercialize certain of our product candidates profitably, or at all, even if approved.

Third party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. They may also refuse to provide coverage of approved product candidates for medical indications other than those for which regulatory authorities have granted market approvals. As a result, significant uncertainty exists as to whether and how much third party payors will reimburse patients for their use of newly approved drugs, which in turn may put pressure on the pricing of drugs or force prescribers to use generic drugs. We expect to experience pricing pressures in connection with the sale of our product candidates, if approved, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals as well as country, regional or local healthcare budget limitations.

Even if we obtain marketing approval for CVC or any other product candidate, it could be subject to restrictions or withdrawal from the market and will be subject to post-marketing requirements, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.

Even if regulatory approval is obtained, the FDA or comparable regulatory authorities may still impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly and time consuming post-approval studies, post-market surveillance or clinical trials. Following approval, if any, of CVC or any other product candidate, such candidate will also be subject to ongoing FDA and comparable foreign regulatory agency requirements governing labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping, reporting of safety and other post-market information, import and export. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with GMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents. If we or a regulatory agency discovers previously unknown problems with a

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product, such as adverse events o f unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requesting a recall or withdrawal of the produc t from the market or suspension of manufacturing.

If we or the manufacturing facilities for CVC, or any other product candidate that may receive regulatory approval, if any, fail to comply with applicable regulatory requirements, a regulatory agency may:

 

·

issue warning letters or untitled letters;

 

·

seek an injunction or impose civil or criminal penalties or monetary fines;

 

·

suspend or withdraw regulatory approval;

 

·

suspend any ongoing clinical trials;

 

·

refuse to approve pending applications or supplements or any subsequent applications or supplements we may file;

 

·

suspend or impose restrictions on operations, including costly new manufacturing requirements; or

 

·

seize or detain products, refuse to permit the import or export of products or request us to initiate a product recall.

The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue.

The FDA has the authority to require a risk evaluation and mitigation strategy, or REMS, as part of a NDA or after approval, which may impose further requirements or restrictions on the distribution or use of a drug, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry.

In addition, if CVC or any other future product candidate is approved, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. However, if we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to FDA prohibitions on the sale or marketing of our products or significant fines and penalties, and the imposition of these sanctions could also affect our reputation and position within the industry.

Even if we receive regulatory approval for CVC or any other product candidate, we still may not be able to successfully commercialize it, and the revenue that we generate from its sales, if any, could be limited.

Even if CVC or any other future product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payors or the medical community. Coverage and reimbursement of our product candidates by third party payors, including government payors, is also generally necessary for commercial success. The degree of market acceptance of our product candidates will depend on a number of factors, including:

 

·

demonstration of clinical efficacy and safety compared to other products;

 

·

the limitation of our targeted patient population and other limitations or warnings contained in any approved product labeling;

 

·

acceptance of a new formulation by healthcare providers and their patients;

 

·

the prevalence and severity of any adverse effects;

 

·

new procedures or methods of treatment that may be more effective in treating or may reduce the incidences of NASH or other conditions for which our products are intended to treat;

 

·

pricing and cost-effectiveness;

 

·

the effectiveness of our or any future collaborators’ sales and marketing strategies;

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·

our ability to obtain and maintain sufficient t hird party coverage or reimbursement from government healthcare programs, including Medicare and Medicaid, private health insurers and other third party payors;

 

·

unfavorable publicity relating to the product candidate; and

 

·

the willingness of patients to pay out-of-pocket in the absence of third party coverage.

If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors or patients, we may not generate sufficient revenue from that product candidate and may not become or remain profitable. Our efforts to educate the medical community and third party payors on the benefits of CVC or any other future product candidates may require significant resources and may never be successful. In addition, our ability to successfully commercialize our product candidate will depend on our ability to manufacture our products, differentiate our products from competing products and defend and enforce our intellectual property rights relating to our products.

If the market opportunity for CVC for the treatment of NASH or PSC is smaller than we believe, our future revenue may be adversely affected, and our business may suffer.

If the size of the market opportunity for CVC in NASH or PSC is smaller than we anticipate, we may not be able to achieve profitability and growth. While we are initially targeting CVC for the treatment of NASH, a disease we believe to be one of the most prevalent chronic liver diseases worldwide, our projections of the number of people who have NASH, as well as the subset of people with the disease who have the potential to benefit from treatment with CVC, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations and market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of this disease. The number of patients may turn out to be lower than expected. The effort to identify patients with the diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible. For example, NASH is often undiagnosed and may be left undiagnosed for a long time. A definitive diagnosis of NASH is currently based on a histological assessment of a liver biopsy, which impacts the ability to easily identify patients. If improved diagnostic techniques for identifying NASH patients who will benefit from treatment are not developed, our market opportunity may be smaller than we currently anticipate. Additionally, the potentially addressable patient population may be limited or may not be amenable to treatment with CVC, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business. PSC is a rare disease and, therefore, may have a limited market opportunity. Our estimates of the number of patients impacted by PSC may be incorrect and the market opportunity may be smaller than expected.

If we fail to develop and commercialize other product candidates, we may be unable to grow our business.

Although the development and commercialization of CVC is our primary focus, as part of our longer-term growth strategy, we plan to evaluate the development and commercialization of other therapies related to immune-mediated, inflammatory, orphan and other diseases. We will evaluate internal opportunities and also may choose to in-license or acquire other product candidates as well as commercial products to treat patients suffering from immune-mediated or orphan or other disorders with high unmet medical needs and limited treatment options. These other product candidates will require additional, time-consuming development efforts prior to commercial sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives.

We rely on third parties to conduct our clinical trials. If these third parties do not meet our deadlines and budget or otherwise conduct the trials as required, our clinical development programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.

We are dependent on third parties to conduct all of our clinical trials. Accordingly, the timing of the initiation and completion of these trials is controlled by such third parties and may occur at times substantially different from our estimates. Specifically, we use CROs to conduct our clinical trials and rely on medical institutions, clinical investigators, CROs and consultants to conduct our trials in accordance with our clinical protocols and regulatory requirements. Our CROs, investigators, and other third parties play a significant role in the conduct of these trials and subsequent collection and analysis of data.

There is no guarantee that any CROs, investigators, or other third parties on which we rely for administration and conduct of our clinical trials will devote adequate time and resources to such trials or perform as contractually required or within the estimated budget. If any of these third parties fails to meet expected deadlines, fails to adhere to our clinical protocols or otherwise performs in a

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substandard manner, our clinical trials may be extended, delayed or terminated. If any of these third parties do not complete their contracted activities or have delays or unexpected costs, we may incur si gnificant additional costs to complete our clinical studies. If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in our ongoing clinical trials unless we are able to transfe r those subjects to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with s uch services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or if we fail to adequately disclose such compensation pursuant to FDA regulations, the integrity of the data generated at the applicable clinical trial site may be jeopardized.

We also regularly allow independent clinical investigators to conduct studies with our products that may not be completely under our control. Such investigator initiated studies may be conducted in a manner that results in unexpected data or events that are damaging to the value of our programs.

We rely on third parties to supply the components of and manufacture CVC for our clinical trials and commercialization, which is a complex process. Our dependence on third parties could adversely impact our business.

We are dependent on third-parties to supply the components of and manufacture CVC. If these third party suppliers do not supply sufficient quantities of materials to us on a timely basis and in accordance with applicable specifications, GMP regulations and other regulatory requirements, there could be a significant interruption of our supplies, which would adversely affect clinical development of the product candidate. Furthermore, if any of our contract manufacturers cannot successfully manufacture material that conforms to our specifications and within regulatory requirements, we will not be able to secure and/or maintain regulatory approval, if any, for our product candidates.

We will also rely on our contract manufacturers to purchase from third party suppliers the materials necessary to produce our product candidates for our anticipated clinical trials. We have limited control over the process or timing of the acquisition of raw materials by our contract manufacturers. Moreover, we currently do not have agreements in place for the commercial production of these raw materials. Any significant delay in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial could considerably delay completion of that clinical trial, product candidate testing and potential regulatory approval of that product candidate.

We do not expect to have the resources or capacity to internally commercially manufacture CVC or any other future product candidates, if approved, and will likely continue to be dependent on third party manufacturers. Our dependence on third parties to manufacture and supply us with clinical trial materials and any approved product candidates may adversely affect our ability to develop and commercialize our product candidates on a timely basis.

The process of drug manufacturing is complex, highly regulated and subject to several risks, including:

 

·

the manufacturing of compounds is complex, and only a limited number of manufacturers will be capable of manufacturing CVC and other future product candidates;

 

·

the manufacturing of compounds is susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination;

 

·

the manufacturing facilities in which CVC and other future product candidates are made could be adversely affected by labor shortages, natural disasters, power failures and numerous other factors; and

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·

we and our contract manufacturers must comply with GMP regulations and guidelines. Although we are ultimately responsible for ensuring that our product candidates are manufactured in accordance with GMP regulations and guidance, we are not involved in the day-to-day operations of our contract manufacturers. We and our contract manufacturers may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. We and our contract manufacturers are subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. Any failure to follow GMP or other regulatory requirements or any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging or storage of our products as a result of a failure of our facilities or the facilities or operatio ns of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercialize our product candidates, including leading to significant delays in the availability o f product candidates for our clinical studies or the termination or hold on a clinical study or the delay or prevention of filing or approval of marketing applications for our product candidates. Significant noncompliance could also result in the impositio n of sanctions, including warning or untitled letters, fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizur es or recalls of products, operating restrictions and criminal prosecutions, any of which could be costly and damage our reputation. If we are not able to maintain regulatory compliance, we may not be permitted to market our product candidates and/or may b e subject to product recalls, seizures, injunctions, or criminal prosecution. 

Any adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.

We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize product candidates.

We may choose to enter into development or other strategic partnerships in the future, including collaborations with major biotechnology or pharmaceutical companies. The negotiation process for collaborations is time consuming and complex. We may not be successful in our efforts to establish a development partnership or other alternative arrangements for any of our product candidates and programs. Even if we are successful in our efforts to establish development partnerships, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such development partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved product candidate are disappointing. Any delay in entering into development partnership agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market.

In addition, our strategic partners may terminate any agreements they enter into with us, and we may not be able to adequately protect our rights under these agreements. Furthermore, our strategic partners will likely negotiate for certain rights to control decisions regarding the development and commercialization of our product candidates, if approved, and may not conduct those activities in the same manner as we do.

Moreover, if we fail to maintain development or other strategic partnerships related to our product candidates that we may choose to enter into, then:

 

·

the development of certain of our current or future product candidates may be terminated or delayed;

 

·

our cash expenditures related to development of certain of our current or future product candidates would increase significantly, and we may need to seek additional financing;

 

·

we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have not budgeted; and

 

·

we will bear all of the risk related to the development of any such product candidates.

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We may form strategic alliances in the future, and we may not realize the benefits of such alliances.

We may form strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our existing business, including for the continued development or commercialization of CVC or other future product candidates. These relationships or those like them may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. We cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net income that justifies such transaction.

We have discontinued our investment in the aptamer program and we have transferred the related intellectual property to Duke University, or Duke, and may never realize any benefit from this program.

We have discontinued investment in our aptamer program and transferred all related intellectual property to Duke University. While our agreement with Duke provides for potential licensing payments to Tobira, realization of any benefit from this agreement is unlikely given the early stage of the program. In addition, we have no involvement or control in the ongoing development of the aptamer program and no assurances that any efforts will be made to advance the program.

If our competitors develop treatments for the target indications of our product candidates that are approved more quickly than ours, marketed more successfully or demonstrated to be safer or more effective than our product candidates, our commercial opportunity will be reduced or eliminated.

We operate in highly competitive segments of the biotechnology and biopharmaceutical markets. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research institutions. Our product candidates, if successfully developed and approved, may compete with established therapies as well as with new treatments that may be introduced by our competitors. Many of our competitors have significantly greater financial, product candidate development, manufacturing and marketing resources than we do. Large pharmaceutical and biotechnology companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. In addition, universities and private and public research institutes may be active in research in our target indications, and they or their licensees could be in direct competition with us. We also may compete with these organizations to recruit management, scientists and clinical development personnel. We will also face competition from these third parties in establishing clinical trial sites, registering subjects for clinical trials and in identifying and in-licensing new product candidates. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Additionally, we may face competition from developing countries, where costs may be cheaper.

New developments, including the development of other pharmaceutical technologies and methods of treating disease, occur in the pharmaceutical and life sciences industries at a rapid pace. Developments by competitors may render our product candidates obsolete or noncompetitive. Competition in drug development is intense. We anticipate that we will face intense and increasing competition as new treatments enter the market and advanced technologies become available.

There are currently no therapeutic products approved for the treatment of NASH. There are several commercially available products that are currently used off label for NASH, such as vitamin E (an antioxidant), diabetes medications (such as pioglitazone), antihyperlipidemic agents (such as gemfibrozil), pentoxifylline, ursodeoxycholic acid and others. In addition, there are numerous drugs in development for the treatment of NASH. We are aware of several companies with development programs targeting NASH in clinical trials including Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, Cempra, Inc., Conatus Pharmaceuticals Inc., Galectin Therapeutics Inc., Galmed Medical Research Ltd., Genfit Corp., Gilead Sciences, Inc., Immuron Ltd., Intercept Pharmaceuticals, Inc., MediciNova, Inc., NGM Biopharmaceuticals, Inc., Nimbus Therapeutics Inc, Novartis AG, Novo Nordisk A/S, NuSirt Biopharma, Inc., Shire plc, Takeda Pharmaceutical Company Limited, or Takeda, Viking Therapeutics, Inc. and Zydus Cadilla. Many of the agents in development target metabolic mechanisms in NASH, such as peroxisome proliferator-activated receptors, or PPAR, agonists and farnesoid X, or FXR, receptor agonists. Other agents in development target fibrosis, such as targeting the collagen cross-linking enzyme lysyl oxidase-like 2, or LOXL2. We are not aware of a competitor with an active development program for NASH targeting CCR2/CCR5 inhibition.

There are currently no therapeutic products approved for the treatment of PSC. Ursodeoxycholic acid is the most studied therapy for PSC. Although several studies have shown that there is improvement in liver biochemistries, there is a long history of inconclusive trials failing to demonstrate positive clinical outcomes or increased transplant-free survival compared to placebo. In addition, there are drugs in development for the treatment of PSC. We are aware of several companies with development programs targeting PSC in clinical trials, including Acorda Therapeutics, Inc./Biotie Therapies Corp., Gilead Sciences, Inc., Intercept Pharmaceuticals, Inc. and Shire plc.

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W e are aware of several companies that market therapies in HIV , including Bristol-Myers Squibb Company, Gilead Sci ences Inc., Janssen Pharmaceuticals Inc. and ViiV Healthcare . Other companies are also developing novel HIV therapies and vaccines.

Even if we obtain regulatory approval for our product candidates, the availability and price of our competitors’ products could limit the demand or the price we are able to charge, for our product candidates. Several generic products are already available and more will become available for the indications we are targeting with our product candidates. Our business will be harmed if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug products or choose to reserve our product candidates for use in limited circumstances. Our inability to compete with existing or subsequently introduced drug products would have a material adverse impact on our business.

We have no sales, marketing, reimbursement or distribution capabilities, and we will have to invest significant resources to develop these capabilities.

We have no internal sales, marketing, reimbursement or distribution capabilities. If CVC or any other future product candidates ultimately receives regulatory approval, we may not be able to effectively market and distribute the product candidate. We will have to invest significant amounts of financial and management resources to develop internal sales, distribution and marketing capabilities, some of which will be committed prior to any confirmation that CVC or any other future product candidates will be approved, if at all. We may not be able to hire consultants or external service providers to assist us in sales, marketing, reimbursement and distribution functions on acceptable financial terms or at all. Even if we decide to establish sales, marketing, reimbursement and distribution functions, we could face a number of additional related risks, including the following:

 

·

we may not be able to attract and build an effective marketing department or sales force;

 

·

the cost of establishing a marketing department or sales force may exceed our available financial resources or may exceed our expectations of the required staffing level or cost and the revenues generated by CVC or any other product candidates that we may develop, in-license or acquire; and

 

·

our direct sales, reimbursement and marketing efforts may not be successful.

If we lose key scientists or management personnel, or if we fail to recruit additional highly skilled personnel, our ability to identify, develop and commercialize products will be impaired.

We are highly dependent on principal members of our management team and scientific staff, including our Chief Executive Officer, Laurent Fischer, M.D., and our Chief Medical Officer, Éric Lefebvre, M.D. These executives each have significant pharmaceutical industry experience. The loss of any member of our management team or scientific staff, including Drs. Fischer and Lefebvre, would impair our ability to identify, develop and market new products. Our management and other employees may voluntarily terminate their employment with us at any time. The loss of the services of these or other key personnel, or the inability to attract and retain additional qualified personnel, could result in delays to development or approval, loss of sales and diversion of management resources. In addition, we depend on our ability to attract and retain other highly skilled personnel. Competition for qualified personnel is intense, and the process of hiring and integrating such qualified personnel is often lengthy. We may be unable to recruit such personnel on a timely basis, if at all, which would negatively impact our development and commercialization programs.

Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. This lack of insurance means that we may not receive adequate compensation for the loss of the services of these individuals.

We may encounter difficulties in managing our growth and expanding our operations successfully.

As of February 26, 2016, we had 19 full-time employees. We will need to grow our organization substantially to continue development and pursue the potential commercialization of CVC and other future product candidates, as well as function as a public company. As we seek to advance CVC and other product candidates, we will need to expand our financial, development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management and require us to retain additional internal capabilities. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, clinical and regulatory, financial, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to so accomplish could prevent us from successfully growing our company.

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Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approva l of and commercialize our product candidates and may affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding healthcare systems that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the FDA or other agency regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the United States Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

In the United States, the Medicare Modernization Act of 2003, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for outpatient prescription drug purchases by the elderly with a new Part D program. In addition, this legislation authorized Medicare Part D prescription drug plans to use formulas where they can limit the number of drugs that will be covered in any therapeutic class. Notwithstanding the expansion of federal coverage of drug products, there is pressure to contain and reduce costs.

More recently, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, which is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The Affordable Care Act, among other things:

 

·

imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs”;

 

·

increased the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%;

 

·

expanded the 340B drug discount program;

 

·

required collection of rebates for drugs paid by Medicaid managed care organizations;

 

·

revised the definition of “average manufacturer price” for Medicaid drug rebate reporting purposes, which could increase the amount of Medicaid drug rebates due to states;

 

·

required manufacturers to participate in a coverage gap discount program, under which they must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; and

 

·

mandated a further shift in the burden of Medicaid payments to the states.

Although it is too early to determine the full effect of the Affordable Care Act on our business, the law appears likely to continue the pressure on pharmaceutical pricing, especially under Medicare, and may also increase our regulatory burdens and operating costs.

Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not achieve its targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reductions to several government programs. These reductions include aggregate reductions to Medicare payments to providers, managed care organizations, and prescription drug plan sponsors, of 2% per fiscal year, which went into effect on April 1, 2013.

There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future or their full impact. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

 

·

the demand for any product candidates for which we may obtain regulatory approval;

 

·

our ability to set a price that we believe is fair for our product candidates;

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·

our ability to generate revenue and achieve or maintain profitability;

 

·

the level of taxes that we are required to pay; and

 

·

the availability of capital.

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, results of operations and financial condition could be adversely affected.

Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy laws and regulations by both the federal government and the states in which we conduct our business. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of these laws. The regulations that may affect our ability to operate include, without limitation:

 

·

the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to entities that provide coding and billing advice to customers;

 

·

the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formula managers on the other;

 

·

federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

 

·

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and

 

·

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third party payor, including commercial insurers.

Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution under the Anti-Kickback Statute, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. We have consulting arrangements with physicians who provide various services to us. Payment for some of these consulting services is not made on a per-hour basis. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.

Recent legislation has strengthened the above laws. The Affordable Care Act, among other things, amends the intent requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

The Affordable Care Act also imposes new reporting and disclosure requirements on drug manufacturers for any “transfer of value” made or distributed to prescribers and other healthcare providers. In addition, drug manufacturers will also be required to report and disclose any investment interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (and up to an aggregate of $1.0 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported in an annual submission.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states mandate implementation of compliance programs and/or the tracking and reporting of gifts, compensation, and other remuneration to physicians. The need to build and maintain a robust compliance program with different compliance and/or reporting requirements increases the possibility that a healthcare company may violate one or more of the requirements.

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If our operations are found to be in violation of any of the laws described above or any other governmental laws and regula tions that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructurin g of our operations, any of which could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Governments may impose price controls, which may adversely affect our future profitability.

We intend to seek approval to market our product candidates in both the United States and in foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product candidates. In many foreign countries the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of CVC or other future product candidates.

We face an inherent risk of potential product liability as a result of the clinical testing of CVC and other future product candidates and will face an even greater risk if we commercialize our product candidates. For example, we may be sued if CVC or our other product candidates allegedly cause injury or are found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts.

If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease the commercialization of our product candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

·

decreased demand for CVC or our other product candidates;

 

·

injury to our reputation;

 

·

withdrawal of clinical trial participants;

 

·

costs to defend the related litigation;

 

·

a diversion of management’s time and our resources;

 

·

substantial monetary awards to trial participants or patients;

 

·

product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

·

loss of revenue;

 

·

the inability to commercialize CVC or our other product candidates; and

 

·

a decline in our stock price.

We maintain clinical trial insurance with $10.0 million in coverage in the United States and local policies in other countries of various amounts based on local requirements, which we believe is sufficient to cover foreseeable claims that may be made against us and is customary for similarly situated companies in our industry. However, we cannot be certain that such insurance will be sufficient to cover all claims that may be made against us and any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Furthermore, our inability to obtain and retain sufficient clinical trial insurance at an acceptable cost to protect against potential liability claims could prevent or inhibit the commercialization of CVC or our other product candidates.

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Our term loan with Oxford contains restrictions that may l imit our flexibility in operating our business.

In June 2014, and as amended in May 2015 and August 2015, we entered into a loan and security agreement with Oxford Finance LLC, or Oxford, pursuant to which we borrowed an aggregate principal amount of $15.0 million. Amounts outstanding under the term loan are secured by all of our existing and future assets, excluding intellectual property unless otherwise determined by applicable judicial authority. The agreement contains various covenants that require Oxford’s approval to engage in specified types of transactions. These covenants require approval to, among other things:

 

·

incur or assume certain debt;

 

·

merge or consolidate;

 

·

change the nature of our business;

 

·

dispose of certain assets;

 

·

grant liens on our assets including our intellectual property;

 

·

make certain investments;

 

·

pay dividends; and

 

·

enter into material transactions with affiliates.

A breach of any of these covenants or a material adverse change to our business could result in a default under the loan. In the case of an event of default under the loan, Oxford could elect to declare all amounts outstanding to be immediately due and payable, commence and prosecute bankruptcy and/or other insolvency proceedings, or proceed against the collateral granted to Oxford as security for the loan.

We and any of our future development partners will be required to report to regulatory authorities if any approved products cause or contribute to adverse events, and any failure to do so would result in sanctions that would materially harm our business.

If we and any of our future development partners are successful in commercializing our products, the FDA and foreign regulatory authorities would require that we and any of our future development partners report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any of our future development partners may fail to report adverse events we become aware of within the prescribed timeframe or we may fail to receive notice of such events from our CROs within the prescribed time period. We and any of our future development partners may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we and any of our future development partners fail to comply with our reporting obligations, the FDA or a foreign regulatory authority could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products or delay in approval of future products.

Our internal computer systems, or those of our development partners, third party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.

Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidate could be delayed. We plan to update the financial systems technology associated with our general ledger accounting in 2016. Should the new systems not be implemented successfully, or if the systems do not perform in a satisfactory manner once the update is complete, our business and operations could be adversely affected.

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Business disruptions could seriously harm our future revenues and financial condition and increase our costs and ex penses.

Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third party manufacturers to produce CVC and our other product candidates. Our ability to obtain clinical supplies of CVC or our other product candidates could be disrupted if the operations of these suppliers are affected similarly.

Risks Relating to Our Intellectual Property

Our rights to develop and commercialize our product candidates are subject in part to the terms and conditions of a license to CVC granted to us by Takeda.

CVC is based in part on patents that we have licensed on an exclusive basis and other intellectual property licensed from Takeda Pharmaceutical Company Limited, or Takeda. Takeda holds certain rights with respect to CVC in the license agreement. This license imposes various commercial, contingent payment, royalty, insurance, indemnification, and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license, in which event we would lose valuable rights under our collaboration agreements and our ability to develop product candidates.

Either party may terminate the license agreement under certain circumstances, including a material breach of the agreement by the other. In the event we terminate our license, or if Takeda terminates our license due to our breach, all rights to CVC, including any intellectual property we develop with respect to CVC or licensed or developed by us under this agreement will revert or otherwise be licensed back to Takeda on an exclusive basis. Any termination or reversion to Takeda of our rights to develop or commercialize CVC, including any reacquisition by Takeda of our rights, will have a material adverse effect on our business.

We may fail to comply with any of our obligations under existing agreements pursuant to which we license rights or technology, which could result in the loss of rights or technology that are material to our business.

We are a party to a license agreement with Takeda that is important to our business, and we may enter into additional licenses in the future. Under our agreement from Takeda, Takeda has assigned and licensed to us certain patents and know-how relating to CVC. This license agreement imposes various commercial, contingent payment, royalty, insurance, indemnification, and other obligations on us. If we fail to comply with these obligations, Takeda may have the right to terminate the license agreement, in which event we would lose valuable rights to CVC and would be unable to develop or market CVC.

With respect to certain patents under our license agreement with Takeda and in some cases with respect to any license we may enter into in the future, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, including with respect to the patents assigned to us from Takeda, we control the prosecution of patents resulting from licensed or assigned technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business, and scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including but not limited to:

 

·

the scope of rights granted under the license agreement and other interpretation-related issues;

 

·

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

·

the sublicensing of patent and other rights;

 

·

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

·

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and

 

·

the priority of invention of patented technology.

If disputes over intellectual property and other rights that we have licensed or acquired from third parties prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

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Our success depends on our ability to protect our intellectual property and our proprietary technologies.

Our commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our product candidates, proprietary technologies, and their uses as well as our ability to operate without infringing upon the proprietary rights of others. We can provide no assurance that our patent applications or those of our licensors will result in additional patents being issued or that issued patents will afford sufficient protection against competitors with similar technology, nor can there be any assurance that the patents issued will not be infringed, designed around or invalidated by third parties. Even issued patents may later be found unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. This failure to properly protect the intellectual property rights relating to our product candidates could have a material adverse effect on our financial condition and results of operations.

Composition-of-matter patents on the biological or chemical active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property and provide the broadest scope of patent protection for pharmaceutical products, as such patents provide protection without regard to any method of use. While we have issued composition-of-matter patents in the United States and other countries for CVC, we cannot be certain that the claims in our issued composition-of-matter patents will not be found invalid or unenforceable if challenged. We cannot be certain that the claims in our patent applications covering composition-of-matter or formulations of our other product candidates will be considered patentable by the United States Patent and Trademark Office, or USPTO, and courts in the United States or by the patent offices and courts in foreign countries, nor can we be certain that the claims in our issued composition-of-matter patents will not be found invalid or unenforceable if challenged. Even if our patent applications covering formulations of our product candidates issue as patents, the formulation patents protect a specific formulation of a product and may not be enforced against competitors making and marketing a product that has the same active pharmaceutical ingredient in a different formulation. Method-of-use patents protect the use of a product for the specified method or for treatment of a particular indication. This type of patent may not be enforced against competitors making and marketing a product that has the same active pharmaceutical ingredient but used for a method not included in the patent. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.

Our issued composition of matter patents for CVC are expected to expire in the United States as early as 2023. Our additional patents and pending patent applications that cover formulations, combination products and use of CVC to treat various indications are expected to expire at various times that range from 2023 (for issued patents) to potentially 2036 (for currently-filed provisional patent applications if patents were to issue on non-provisional applications filed thereon).

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:

 

·

the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case;

 

·

patent applications may not result in any patents being issued;

 

·

patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

 

·

our competitors, many of whom have substantially greater resources than we do and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate our ability to make, use, and sell our potential product candidates;

 

·

there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns;

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·

countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates; and

 

·

companies may also disregard intellectual property rights and manufacture counterfeit products that could reduce sales of our products.

In addition, we rely on the protection of our trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, we cannot provide any assurances that all such agreements have been duly executed, and third parties may still obtain this information or may come upon this or similar information independently. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets. If any of these events occurs or if we otherwise lose protection for our trade secrets or proprietary know-how, our business may be harmed.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a ‘‘first inventor to file’’ system in which the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, in which case a patent may become subject to post-grant proceedings including opposition, derivation, reexamination, inter partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope or enforceability of, or invalidate, our patent rights, which could adversely affect our competitive position.

Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental and commercialization efforts.

The biotechnology industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As the biotechnology industry expands and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties. Because patent applications are maintained in secrecy until the application is published, we may be unaware of third party patents that may be infringed by commercialization of CVC or our other product candidates. Moreover, because patent applications can take many years to issue, there may be currently-pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, identification of third party patent rights that may be relevant to our technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Any claims of patent infringement asserted by third parties would be time consuming and could likely:

 

·

result in costly litigation;

 

·

divert the time and attention of our technical personnel and management;

 

·

cause development delays;

 

·

prevent us from commercializing CVC or our other product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law;

 

·

require us to develop non-infringing technology, which may not be possible on a cost-effective basis; or

 

·

require us to enter into royalty or licensing agreements.

Although no third party has asserted a claim of patent infringement against us as of the filing date of this report, others may hold proprietary rights that could prevent CVC or our other product candidates from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities relating to our product candidate or processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market CVC or our other product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign our product candidate or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing CVC or our other product candidates, which could harm our business, financial condition and operating results.

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Moreover, we may be subject to a third party preissuance submission of prior art to the USPTO or in addition to interference proceeding s, may become involved in opposition, derivation, reexamination,  inter partes  review, post-grant review or other post-grant proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceedin g or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize pro ducts without infringing third party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercia lize current or future product candidates.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming, and unsuccessful. Further, our issued patents could be found invalid or unenforceable if challenged in court.

If we or any of our future development partners were to initiate legal proceedings against a third party to enforce a patent directed at one of our product candidates, or one of our future product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or insufficient written description. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on such product candidate. Such a loss of patent protection would have a material adverse impact on our business.

Interference proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.

Our vendors or employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

We are exposed to the risk of vendor or employee fraud or other misconduct. Misconduct by vendor or employees could include intentional failures to comply with FDA and other regulatory authority regulations, provide accurate information to these regulatory authorities, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately, disclose unauthorized activities to us, or comply with securities laws. Vendor or employee misconduct could also involve the improper use of information obtained in the course of clinical trials, including for illegal insider trading activities, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter vendor or employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.

We currently have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop our product candidates. Because our programs may require the use of proprietary rights held by third parties, the growth of our business

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may depend in part on our ab ility to acquire, in-license, or use these proprietary rights. For example, our product candidates may require specific formulations to work effectively and efficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third party intellectual property ri ghts is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment.

We may collaborate with U.S. and foreign academic institutions and industry collaborators to accelerate our preclinical or clinical research. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.

If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of that program and our business and financial condition could suffer.

We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we engage the services of consultants, in addition to our employees, to assist us in the development of our product candidates. Many of these employees and consultants, and many of our employees, were previously employed at, or may have previously provided or may be currently providing consulting services to, other biotechnology or pharmaceutical companies including our competitors or potential competitors. We may become subject to claims that our company, our employees or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management team.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to research and develop and to manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our advisors, employees, third party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with in the future will usually expect to be granted rights to publish data arising out of such collaboration, provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rights arising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from any such publication. In the future we may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

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If we d o not obtain protection under the Hatch-Waxman Amendments by extending the patent terms for CVC or our other product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of CVC or other product candidates, one or more of our United States patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.

We may not be able to protect our intellectual property rights throughout the world.

While we have issued composition-of-matter patents directed at CVC in the United States and other countries, filing, prosecuting and defending patents on CVC and our other product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries may not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. For example, India and China have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Although we currently do not have issued patents in these particular jurisdictions, to the extent we are able to obtain such patents, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to a third party. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

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Risks Related to Our Financial Position and Need for Capital

If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop and commercialize CVC and other future product candidates.

Although we believe that our existing cash and cash equivalents will be sufficient to fund our current operations through at least the next 12 months, we will require substantial future capital in order to complete the remaining clinical development for CVC and our other product candidates and to potentially commercialize these product candidates. We expect our spending levels to increase in connection with our clinical trials of CVC, as well as other corporate activities. The amount and timing of any expenditure needed to implement our development and commercialization programs will depend on numerous factors, including:

 

·

the type, number, scope, progress, expansion costs, results of and timing of our ongoing or future clinical trials or the need for additional clinical trials of CVC or any of our other product candidates which we are pursuing or may choose to pursue in the future;

 

·

the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;

 

·

the costs and timing of obtaining or maintaining manufacturing for CVC and any of our other product candidates, including commercial manufacturing if any product candidate is approved;

 

·

the costs and timing of establishing sales marketing, and reimbursement capabilities and enhanced internal controls over financial reporting;

 

·

the terms and timing of establishing and maintaining collaborations, license agreements and other partnerships;

 

·

costs associated with any new product candidates that we may develop, in-license or acquire;

 

·

the effect of competing technological and market developments; and

 

·

the costs associated with operating as a public company.

Some of these factors are outside of our control. We do not expect our existing capital resources to be sufficient to enable us to fund the completion of our clinical trials and commercialization of our product candidates. We expect that we will need to raise additional funds in the future.

We have not sold any products, and we do not expect to sell or derive revenue from any product sales for the foreseeable future. We may seek additional funding through future debt and equity financing, as well as potential additional collaborations or strategic partnerships with other companies or through non-dilutive financings. Additional funding may not be available to us on acceptable terms or at all and covenants related to our term loan with Oxford may limit funding alternatives available to us. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline.

If we are unable to obtain funding on a timely basis, we will be unable to complete ongoing and planned clinical trials for CVC and any of our other product candidates and we may be required to significantly curtail some or all of our activities. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to our product candidates or some of our technologies or otherwise agree to terms unfavorable to us.

Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments may be limited by provisions of the Internal Revenue Code.

As of December 31, 2015, we had federal and state net operating loss carryforwards of approximately $110.1 million and $10.7 million, respectively. The federal loss carryforwards will begin expiring in 2020, and the state loss carryforwards will begin expiring in 2016, unless previously utilized. The Company also had federal and California research and development credit carryforwards totaling $2.9 million and $0.7 million, respectively. The federal research and development credit carryforwards will begin to expire in 2033, unless previously utilized. The California research credits do not expire.

These net operating losses have been fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Similar rules may apply under state tax laws.

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We are required to file federal and state income tax returns in the United States and various other state jurisdictions. The preparation of these income tax returns requires the Company to interpret the applicable tax laws and reg ulations in effect which could affect the amount of tax paid to these jurisdictions.

Risks Relating to Ownership of Our Common Stock

The price of our common stock has been, and may continue to be, volatile.

Historically, the market price of our common stock has fluctuated over a wide range, and it is likely that the price of our common stock will continue to be volatile in the future. The market price of our common stock could be impacted due to a variety of factors, including, in addition to global and industry-wide events:

 

·

the losses we may incur;

 

·

developments in patent or other proprietary rights owned or licensed by us, our collaborative partners or our competitors;

 

·

public concern as to the safety and efficacy of products developed by us or others; and

 

·

litigation.

In addition, due to one or more of the foregoing factors in one or more future quarters, our results of operations may fall below the expectations of securities analysts and investors. In that event, the market price of our common stock could materially decline.

Our executive officers, directors and principal stockholders will have the ability to control all matters submitted to our stockholders for approval.

Our executive officers, directors and stockholders who beneficially owned more than 5% of our common stock, in the aggregate, beneficially own shares representing approximately 71.1% of our common stock as estimated as of December 31, 2015. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, will control the election of directors and approval of any merger, consolidation, sale of all or substantially all of our assets or other business combination or reorganization. This concentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire. The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may delay or prevent a merger, acquisition or other change of control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions include:

 

·

classifying our board of directors into three classes;

 

·

authorizing the issuance of “blank check” convertible preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

 

·

limiting the removal of directors by the stockholders;

 

·

requiring a supermajority vote of stockholders to amend our certificate of incorporation or bylaws;

 

·

prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

 

·

eliminating the ability of stockholders to call a special meeting of stockholders;

 

·

establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; and

 

·

establishing Delaware as the exclusive jurisdiction for certain stockholder litigation against us. 

56


In additi on, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the mem bers of our management team. In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Although we believe these provisions together provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders.

Your investment may be diluted by exercises of outstanding options and warrants.

As of February 26, 2016, we had outstanding options to purchase an aggregate of 3,284,327 shares of our common stock at a weighted average exercise price of $12.23 per share and warrants to purchase an aggregate of 64,657 shares of our common stock at a weighted average exercise price of $11.72 per share. The exercise of such outstanding options and warrants will result in dilution of your investment. In addition, as described below, you may experience additional dilution if we issue common stock in the future. As a result of this dilution, you may receive significantly less than the full purchase price you paid for the shares in the event of liquidation.

Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. Such future sales may be through Cowen and Company, LLC and may be made in sales deemed to be at-the-market equity offerings as defined in Rule 415 promulgated under the Securities Act of 1933, as discussed in more detail in our Registration Statement on Form S-3, filed with the Securities and Exchange Commission on June 4, 2015. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities.

If we are unable to satisfy the continued listing requirements of The NASDAQ stock market, or NASDAQ, our common stock could be delisted and the price and liquidity of our common stock may be adversely affected.

Our common stock may lose value and our common stock could be delisted from NASDAQ due to several factors or a combination of such factors. While our common stock is currently listed on NASDAQ, there can be no assurance that we will be able to maintain such listing. To maintain the listing of our common stock on NASDAQ, we are required to meet certain listing requirements, including, among others, a requirement to maintain a minimum closing bid price of $1.00 per share. If our common stock trades below the $1.00 minimum closing bid price requirement for 30 consecutive business days or if we do not meet other listing requirements, we may be notified by NASDAQ of non-compliance. There can be no assurance that the per share trading price of our common stock will remain above $1.00 per share or that we will be able to continue to meet other listing requirements. If our common stock is delisted, market liquidity for our common stock could be severely affected, and our stockholders’ ability to sell their shares of our common stock could be limited. In addition, our common stock could be subject to “penny stock” rules which impose additional disclosure requirements on broker-dealers and could further negatively impact our market liquidity for our common stock and our stockholders’ ability to sell their shares of our common stock. Accordingly, a delisting of our common stock from NASDAQ would negatively affect the value of our common stock. Delisting could also have other negative results, including, but not limited to, the loss of institutional investor interest.

We are incurring significantly increased costs and devote substantial management time as a result of operating as a public company and such costs are likely to increase particularly after we are no longer an “emerging growth company.”

As a public company, we are incurring significant legal, accounting and other expenses that we did not incur as a private company. For example, we are required to comply with certain of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the Securities and Exchange Commission, and NASDAQ, our stock exchange, including the establishment and maintenance of effective disclosure and financial

57


contro ls and changes in corporate governance practices. Compliance with these requirements has increased and will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, our managem ent and other personnel need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort to ward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.

However, for as long as we remain an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an “emerging growth company.”

Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.0 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three year period. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.

If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, investors’ views of us and, as a result, the value of our common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act, our management is required to report upon the effectiveness of our internal control over financial reporting. When and if we are a “large accelerated filer” or an “accelerated filer” and are no longer an “emerging growth company,” each as defined in the Exchange Act, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company, we intend to take advantage of an exemption available to emerging growth companies from these auditor attestation requirements. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we will need to upgrade our systems including information technology; implement additional financial and management controls, reporting systems, and procedures; and hire additional accounting and finance staff. If we or, if required, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline.

58


We do not anticipate paying cash dividends on our common stock, and a ccordingly, stockholders must rely on stock appreciation for any return on their investment.

We have never declared or paid any cash dividend on our common stock and do not anticipate paying cash dividends on our common stock in the future. Our loan and security agreement with Oxford prohibits us from paying cash dividends. As a result, the only return to stockholders will be appreciation in the price of our common stock, which may never occur. Investors seeking cash dividends should not invest in our common stock.

We are now subject to and may in the future be subject to securities litigation, which is expensive and could divert management attention.

Our stock price has fluctuated in the past and may be volatile in the future, and in the past, companies that have experienced volatility in the market price of their stock have been subject to an increased incidence of securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. For example, in February 2015, two putative class action lawsuits were filed in the Court of Chancery for the State of Delaware against us and certain of our directors on alleging that certain of our directors breached their fiduciary duties in connection with the Merger. For more information, see Part I, Item 3. “Legal Proceedings”.

Risks Relating to the Merger

The integration of Tobira and Tobira Development will require significant resources and may not be successful.

There is limited history of Tobira (formerly known as Regado Biosciences, Inc.) and Tobira Development as a combined company. As a result, there can be no guarantee that the two companies will operate together successfully as a combined company. Integration of the companies and consolidation of their operations will require considerable management time, which could result in the diversion of management resources from other important matters.

The failure to successfully integrate the merged businesses in the expected timeframe could adversely affect the combined company’s future results.

The failure to successfully integrate and to manage successfully the challenges presented by the integration process may result in the combined company’s failure to achieve some or all of the anticipated benefits of the Merger.

Potential difficulties that may be encountered in the integration process include the following:

 

·

using the combined company’s cash and other assets efficiently to develop the business of the combined company;

 

·

appropriately managing the liabilities of the combined company;

 

·

potential unknown or currently unquantifiable liabilities associated with the Merger and the operations of the combined company; and

 

·

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by integrating the companies’ operations.

The operations of the combined company may be adversely affected by the integration.

The combined company will be subject to various risks following the consummation of the Merger, including:

 

·

interruption of the operations of the combined companies; and

 

·

anticipated and unanticipated costs relating to additional administrative or operating expenses of each business.

These and other factors could adversely affect the combined business and operating results.

 

 

Item 1B. Unresolved Staff Comments.

None.

 

 

59


Item 2. Pr operties.

We lease our approximately 7,400 square-foot corporate headquarters facility located in South San Francisco, California. We believe our facility is adequate for current needs. Our lease expires in August 2019, and we have the option to extend the lease for five additional years at fair market value. We may need to acquire additional space if our business continues to grow. We continue to evaluate our facility requirements and believe that appropriate space will be available to accommodate our future needs.

 

 

Item 3. Legal Proceedings.

On February 2, 2015, a purported stockholder of Regado filed a putative class-action lawsuit (captioned Maiman v. Regado Biosciences, Inc. , C.A. No. 10606-CB) in the Court of Chancery for the State of Delaware, or the Court, challenging the proposed stock-for-stock merger of Regado with Tobira, or the Proposed Merger. On February 25, 2015, a second, related putative class action (captioned Gilboa v. Regado Biosciences, Inc. , C.A. No. 10720-CB) was filed in the Court challenging the Proposed Merger. On May 4, 2014, the Proposed Merger was consummated and Tobira became a wholly-owned subsidiary of Regado and changed its name to Tobira Development, Inc. The complaints name as defendants: (i) each member of Regado’s Board of Directors, (ii) Regado, (iii) Private Tobira, and (iv) Landmark Merger Sub Inc. Plaintiffs alleged that Regado’s directors breached their fiduciary duties to Regado’s stockholders by, among other things, (a) agreeing to merge Regado with Private Tobira for inadequate consideration, (b) implementing a process that was distorted by conflicts of interest, and (c) agreeing to certain provisions of the Merger Agreement that are alleged to favor Private Tobira and deter alternative bids. Plaintiffs also generally alleged that the entity defendants aided and abetted the purported breaches of fiduciary duty by the directors. On March 25, 2015, the Court consolidated the two actions and assigned lead counsel for plaintiffs (captioned In re Regado Biosciences, Inc. Stockholder Litigation, Consolidated C.A. No. 10606-CB). On March 27, 2015, plaintiffs filed a consolidated amended complaint, a motion for expedited proceedings and a motion for preliminary injunction. On April 20, 2015, the parties agreed in principle to resolve the litigation (subject to approval by the Court) and signed a memorandum of understanding setting forth the terms of a proposed settlement to provide additional disclosures related to the Merger Agreement and to cover Court-awarded fees. On April 23, 2015, as part of the proposed settlement, Regado provided additional disclosures to its stockholders. Since then, the parties have engaged in confirmatory discovery and are currently preparing a stipulation of settlement to be submitted to the Court for approval. As of December 31, 2015, the Company is unable to reasonably estimate an amount and/or a range of loss until the Company is made aware of the fees awarded by the Court to the plaintiffs under the proposed settlement, if any, as administered under settlement law. The Company maintains D&O insurance and tail coverage with deductibles of $2.0 million and $1.5 million, respectively.

 

 

Item 4. Mine Safety Disclosures.

Not applicable.

 

 

60


PART II

 

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Price Range of Common Stock

Our common stock is traded on the NASDAQ stock market under the symbol “TBRA” as of May 5, 2015, the date after our Merger with Regado. Prior to May 5, 2015, our common stock was traded on the NASDAQ stock market under the symbol “RGDO” since August 22, 2013. The following table sets forth the quarterly high and low sales prices per share of our common stock. The per share prices below reflect a one for nine reverse stock split effected on May 4, 2015:

 

 

 

Price Range

 

 

 

2015

 

 

2014

 

Fiscal Quarter

 

High

 

 

Low

 

 

High

 

 

Low

 

First

 

$

14.49

 

 

$

7.38

 

 

$

126.90

 

 

$

43.20

 

Second

 

 

24.31

 

 

 

10.44

 

 

 

120.51

 

 

 

44.55

 

Third

 

 

19.56

 

 

 

8.75

 

 

 

63.18

 

 

 

8.64

 

Fourth

 

 

13.75

 

 

 

8.81

 

 

 

10.71

 

 

 

7.20

 

 

On February 26, 2016, the last reported sales price of our common stock was $7.47 per share as reported by NASDAQ. As of February 26, 2016, there were approximately 47 stockholders of record of our common stock.

Comparative Stock Performance Graph

The comparative stock performance graph below compares our cumulative total stockholder return on our common stock with the cumulative total returns of the NASDAQ Composite Index and the NASDAQ Biotechnology Index from August 22, 2013, the date our stock first commenced trading, through December 31, 2015. The graph tracks the performance of a $100 investment in our common stock and in each index with the reinvestment of dividends, if any. We did not declare or pay any dividends during this period. The period prior to May 5, 2015, includes financial information of Regado, our predecessor company. The comparisons in the graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock.

 

 

61


Dividends

We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our common stock. Future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors that our board of directors may deem relevant.

Securities Authorized For Issuance Under Equity Compensation Plans

Information about our equity compensation plans is incorporated by reference to Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this report.

 

 

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Item 6. Selected Financial Data.

The following tables set forth selected financial data and is not intended to replace the financial statements and its accompanying notes included elsewhere in this report. The selected Statements of Operations and Comprehensive Loss Data for the years ended December 31, 2015, 2014 and 2013 and the selected Balance Sheet Data as of December 31, 2015 and 2014 were derived from our audited financial statements included elsewhere in this report. Our historical results are not necessarily indicative of results expected in the future. You should read the selected financial data below (in thousands, except share and per share data) in conjunction with the section Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and accompanying notes in this report.

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Statements of Operations and Comprehensive Loss Data:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

24,672

 

 

$

12,181

 

 

$

12,413

 

General and administrative

 

 

10,871

 

 

 

7,840

 

 

 

2,764

 

Impairment of intangible assets

 

 

17,315

 

 

 

 

 

 

 

Total operating expenses

 

 

52,858

 

 

 

20,021

 

 

 

15,177

 

Loss from operations

 

 

(52,858

)

 

 

(20,021

)

 

 

(15,177

)

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(3,091

)

 

 

(4,989

)

 

 

(3,684

)

Change in fair value of preferred stock warrant

   liabilities

 

 

1,939

 

 

 

1,181

 

 

 

272

 

Loss before income tax benefit (expense)

 

 

(54,010

)

 

 

(23,829

)

 

 

(18,589

)

Income tax benefit (expense)

 

 

4,393

 

 

 

(271

)

 

 

 

Net loss and comprehensive loss

 

$

(49,617

)

 

$

(24,100

)

 

$

(18,589

)

Net loss per share, basic and diluted

 

$

(4.08

)

 

$

(59.72

)

 

$

(47.31

)

Weighted-average common shares outstanding,

   basic and diluted

 

 

12,168,354

 

 

 

403,539

 

 

 

392,926

 

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

62,765

 

 

$

6,512

 

Working capital (deficit)

 

 

55,828

 

 

 

(31,047

)

Total assets

 

 

65,469

 

 

 

8,346

 

Convertible notes, related party (1)

 

 

 

 

 

29,770

 

Term loan

 

 

15,074

 

 

 

14,789

 

Convertible preferred stock (1)

 

 

 

 

 

61,982

 

Accumulated deficit (2)

 

 

(163,377

)

 

 

(113,760

)

Total stockholders' equity (deficit) (1)(2)

 

 

42,771

 

 

 

(109,382

)

 

(1)

In connection with the Merger, Private Tobira’s convertible notes and accrued interest were converted to 3,532,756 shares of Series B preferred stock. Private Tobira’s Series A and B preferred stock was converted to 3,916,772 shares of Private Tobira common stock. Upon the close of the Merger, all resultant Private Tobira common stock was exchanged for 10,654,460 shares of Regado common stock, as renamed Tobira and as discussed elsewhere in this report.

(2)

Includes the impairment of intangible assets of $17.3 million.

63


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the section of this report entitled “Selected financial data” and our financial statements and accompanying notes included elsewhere in this report. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk factors.”

ABOUT TOBIRA THERAPEUTICS

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of therapies to treat liver disease, inflammation, fibrosis and HIV. Our lead product candidate, cenicriviroc, or CVC, is a first-in-class immunomodulator and dual inhibitor of CCR2 and CCR5 being evaluated for the treatment of non-alcoholic steatohepatitis, or NASH, primary sclerosing cholangitis, or PSC, and as an adjunctive therapy to standard of care in HIV . We operate in one reportable segment in the United States of America.

On May 4, 2015, Regado Biosciences, Inc. (Regado) completed its business combination with Tobira Therapeutics, Inc., or prior to the completion of the Merger described below, Private Tobira or, after the completion of the Merger described below, Public Tobira, in accordance with the terms of an Agreement and Plan of Merger and Reorganization, dated January 14, 2015 and amended on January 23, 2015, or the Merger Agreement. In connection with and immediately following the consummation of the Merger, Regado filed an amendment to the amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to change its name to Tobira Therapeutics, Inc.

BASIS OF PRESENTATION

Research and Development Expenses

Research and development expenses primarily consist of costs associated with our research activities, including the preclinical and clinical development of our product candidates. We expense research and development expenses as incurred. We contract with clinical research organizations to manage our clinical trials under agreed upon budgets for each study, with oversight by our clinical program managers. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received. We do not track our employee and facility related research and development costs by project, as we typically use our employee and infrastructure resources across multiple research and development programs. We believe that the allocation of such costs would be arbitrary and would not be meaningful. Our research and development costs are controlled through our internal budget and forecast process.

Our research and development expenses consist primarily of:

 

·

salaries and related expenses for employee personnel, including benefits, travel and expenses related to stock-based compensation granted to personnel in development functions;

 

·

external expenses paid to clinical trial sites, contract research organizations and consultants that conduct our clinical trials;

 

·

expenses related to drug formulation development and the production of nonclinical and clinical trial supplies, including fees paid to contract manufacturers;

 

·

expenses related to preclinical studies;

 

·

expenses related to compliance with drug development regulatory requirements; and

 

·

other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of equipment, and other supplies.

We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we conduct our clinical programs. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Our research and development expenses were relatively consistent in fiscal years 2013 and 2014 and increased in fiscal year 2015. We expect that our research and development expenses will continue to increase in the future. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate is affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. Accordingly, we may never succeed in achieving marketing approval for any of our product candidates.

64


Research and development expenses by major programs or categor ies were as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Phase 2b CENTAUR study

 

$

14,421

 

 

$

4,085

 

 

$

 

Other clinical studies (1)

 

 

1,936

 

 

 

1,045

 

 

 

5,084

 

Preclinical studies

 

 

1,055

 

 

 

349

 

 

 

1,472

 

Contract manufacturing

 

 

1,957

 

 

 

1,717

 

 

 

2,329

 

Internal and unallocated research and development expense

 

 

5,303

 

 

 

4,985

 

 

 

3,528

 

Total research and development expense

 

$

24,672

 

 

$

12,181

 

 

$

12,413

 

 

(1)

Other clinical studies primarily reflect expenditures for drug interaction and bioavailability studies, the Phase 2a ORION study, the Phase 2 PERSEUS study, a Phase 1 pioglitazone safety combination study, a Phase 1 hepatic impairment study and a Phase 2b HIV study.

Certain research and development expenses by major programs or categories have been reclassified to reflect their current nature.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and stock-based compensation expense for employees in executive, finance, business development and support functions. Other significant general and administrative expenses include the costs associated with obtaining and maintaining our patent portfolio, professional fees for accounting, auditing, consulting, legal services, travel and allocated overhead expenses.

We expect that our general and administrative expenses may increase in the future as we expand our operating activities as well as maintain and expand our patent portfolio. We expect these potential increases will likely include compensation, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and expenses associated with investor relations.

Impairment of Intangible Assets

Impairment of intangible assets consists of impairment of IPR&D and goodwill resulting from the decision to discontinue investment in developing the intellectual property related to Regado’s aptamer platform.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest expense and gains and losses resulting from remeasurement of our preferred stock warrant liabilities.

Interest expense consists of cash interest expense on our outstanding loan with Oxford Finance LLC, or the Oxford Loan, and non-cash interest expense for stated interest on our convertible notes, amortization of debt discount, beneficial conversion features and debt issuance costs on our convertible notes and the Oxford Loan.

In connection with the Merger, the preferred stock warrants converted from warrants on preferred stock to warrants on common stock resulting in the reclassification of the preferred stock warrant liability to additional paid-in capital. As a result, we will no longer record any revaluation adjustments.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

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We recognize net deferred tax assets to the exten t that we believe these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected futur e taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes, in the period such determination is made.

We follow the accounting guidance on accounting for uncertainty in income taxes. The guidance prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities based on the technical merits of the position. We have not recognized interest or penalties in our Statements of Operations and Comprehensive Loss since inception.

As of December 31, 2015, we had federal and state net operating loss carryforwards of approximately $110.1 million and $10.7 million, respectively. The federal loss carryforwards will begin expiring in 2020, and the state loss carryforwards will begin expiring in 2016, unless previously utilized. We also had federal and California research and development credit carryforwards totaling $2.9 million and $0.7 million, respectively. The federal research and development credit carryforwards will begin to expire in 2033, unless previously utilized. The California research credits do not expire.

Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership percentage change rules provided by the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization. In 2015, we performed an analysis on annual limitation as a result of ownership changes that may have occurred through December 2015. Our analysis indicates that changes occurred during 2004, 2005, 2007, and 2014. As a result of these changes, our net operating loss and tax credit carryforwards have been limited and are reflected in our disclosures. However, due to a lack of historical earnings and uncertainties surrounding our ability to generate future taxable income to realize the remaining tax assets, a full valuation allowance has been established to offset our net deferred tax assets.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements require us to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities as of the date of the financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development expenses and stock-based compensation expense. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Business Combinations

Accounting for acquisitions requires extensive use of estimates and judgment to measure the fair value of the identifiable tangible and intangible assets acquired, including in-process research and development and liabilities assumed. Additionally, we must determine whether an acquired entity is considered a business or a set of net assets because the excess of the purchase price over the fair value of net assets acquired can only be recognized as goodwill in a business combination. We accounted for the Merger with Regado as a business combination under the acquisition method of accounting. Consideration paid to acquire Regado was measured at fair value and included the exchange of Regado’s common stock, Series F preferred stock and vested stock options. The allocation of the purchase price resulted in recognition of intangible assets related to in-process research and development and goodwill. The key assumptions in determining the fair value of intangible assets were assessing the timing and estimated costs to complete the in-process projects, projecting regulatory approvals, developing an appropriate discount rate and the estimated future cash flows.

In-Process Research and Development

In-process research and development, or IPR&D, represents the fair value assigned to research and development assets that were not fully developed as of the completion of the Merger. IPR&D acquired in a business combination is capitalized on our balance sheet at its acquisition-date fair value. Until a project is completed, the asset is accounted for as an indefinite-lived intangible asset subject to impairment testing. Upon completion of a project, the carrying value of the related IPR&D is reclassified to intangible assets and is amortized over the estimated useful life of the asset. We evaluate the potential impairment of intangible assets if events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.

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IPR&D , recognized in the Merger, consist ed of intellectual property related to Regado’s aptamer platform, including patents from Duke University and wa s valued based on the estimated net present value of fu ture cash flows expected to be generated from commercialization. Following the Merger, we attempted to license or partner the aptamer intellectual property to a third party. Given the expense to maintain the intellectual property and limited commercial int erest, we decided to discontinue investment in the aptamer platform. As a result of this indicator of impairment, during 2015, we calculated and compared the fair value of the IPR&D to the carrying value to assess the recoverability of the asset and record ed an impairment of the IPR&D of $ 12.2 million which is included under the caption “Impairment of intangible assets” in the accompanying Statements of Operations and Comprehensive Loss. Subsequently , we entered into an agreement with Duke to terminate our license and release our financial obligations with Duke. Additionally, we assigned our aptamer intellectual property to Duke and provided a payment of $ 0.1 million. In exchange, we are entitled to receive a percentage of payments, if any, received by Duke from the license or sale of the assigned intellectual property.

Goodwill

Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired under the acquisition method of accounting. Goodwill is not amortized but is evaluated for impairment as of October 31 of each year or if indicators of impairment exist that would, more likely than not, reduce the fair value from its carrying amount.

We recorded goodwill related to the Merger on May 4, 2015. As noted above under In-Process Research and Development, we were unable to divest or license the aptamer platform and have discontinued investment in the Regado business. We determined the fair value was less than the carrying value and impaired the IPR&D associated with our acquisition of Regado during 2015. Further, we determined the Regado operations acquired in the Merger had not been integrated with the Company and thus no benefit was realized. As a result, we recorded an impairment of goodwill of $5.1 million in accordance with applicable guidance, which is included under the caption “Impairment of intangible assets” in the accompanying Statements of Operations and Comprehensive Loss.

Preferred Stock Warrants

We issued freestanding warrants to purchase shares of our convertible preferred stock. We account for our warrants as either equity or liabilities based upon the characteristics and provisions of each instrument. The warrants are recorded as a liability on our balance sheet at their fair value on the date of issuance and are revalued at each subsequent balance sheet date, with fair value changes recognized as increases or reductions to other income (expense), net in the accompanying Statements of Operations and Comprehensive Loss. The warrant liabilities will continue to be re-measured to fair value until such time as the warrants are no longer outstanding or the underlying securities into which the warrants are exercisable no longer contain deemed liquidation provisions that are outside the control of the Company. We estimate the fair value of these liabilities using option pricing models and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life, expected yield, and risk-free interest rate.

In connection with the Merger, the warrants to purchase shares of Series B preferred stock issued in connection with the convertible notes expired unexercised. Additionally, the warrants to purchase shares of Series B preferred stock issued in connection with term loans converted to warrants to purchase common stock. The associated preferred stock warrant liability was revalued to fair value and reclassified to additional paid-in capital.

Research and Development Expenses

Research and development expenses consist primarily of fees paid to contract research organizations and other vendors for clinical, non-clinical and manufacturing services, salaries and related overhead expenses, consultant expenses, costs related to producing materials and costs related to compliance with regulatory requirements.

We recognize research and development expenses as incurred, typically estimated based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, manufacturing steps completed, or information provided by vendors on their actual costs incurred. We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. We determine the estimates as of each balance sheet date based on facts and circumstances known to us at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the estimate accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are capitalized as prepaid expenses and recognized as expense in the period that the related goods are consumed or services are performed.

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We may pay fees to third-parties for clinical, non-clinical and manufacturing services that are based on contractual milestones that may result in uneven payment flows . There may be instances in which vendor payments will exceed the level of services provided and result in a prepayment of the research and development expense.

RESULTS OF OPERATIONS

Comparison of the Years Ended December 31, 2015 and 2014

The following table provides comparative results of operations for the years ended December 31, 2015 and 2014 (in thousands):

 

 

 

Year Ended December 31,

 

 

Increase/

 

 

 

2015

 

 

2014

 

 

(Decrease)

 

Research and development

 

$

24,672

 

 

$

12,181

 

 

$

12,491

 

General and administrative

 

 

10,871

 

 

 

7,840

 

 

 

3,031

 

Impairment of intangible assets

 

 

17,315

 

 

 

 

 

 

17,315

 

Other income (expense), net

 

 

(1,152

)

 

 

(3,808

)

 

 

(2,656

)

 

Research and Development Expenses

Our research and development expenses were $24.7 million for the year ended December 31, 2015 compared to $12.2 million for the same period in 2014. Research and development expenses increased in the 2015 period primarily due to $10.4 million of increased clinical trial expenses for our Phase 2b CENTAUR study as the study was fully enrolled in 2015 whereas the study was in the initiation stages in the comparable 2014 period, $0.9 million for our Phase 2a ORION study which commenced during 2015, $0.7 million for the Phase 1 pioglitazone safety combination study, $0.7 million in preclinical combination and toxicology studies, $0.3 million in personnel and consultant expenses supporting the increased research and development activities, $0.2 million in process development activities and $0.1 million of planning and initiating expense for our Phase 2 PERSEUS study. These increases were offset by a decrease of $1.0 million due to completion of our Phase 1 study in patients with hepatic impairment during 2014. We expect our research and development expenses to increase over time as we advance our programs for CVC.

General and Administrative Expenses

Our general and administrative expenses were $10.9 million for the year ended December 31, 2015 compared to $7.8 million for the same period in 2014. General and administrative expenses increased in the 2015 period primarily due to $3.8 million of increased expenses consisting of salaries, benefits and overhead as a result of increased headcount, directors and officers insurance and investor relations expenses which are reflective of our growth as a public company, $1.7 million of legal and accounting services for general corporate purposes, $1.2 million of merger related expenses consisting primarily of legal and accounting services and $0.3 million in patent maintenance costs primarily due to incremental costs associated with the aptamer patents acquired from Regado in the Merger, which was subsequently divested. The year ended December 31, 2014 included $4.1 million of general and administrative expense related to a planned initial public offering and preparation for external reporting which were expensed when we entered into the Merger Agreement with Regado. We believe general and administrative expenses may increase over time as we advance our programs and expand our operating activities.

Impairment of Intangible Assets

We recorded an impairment of intangible assets related to our IPR&D and goodwill of $17.3 million during the year ended December 31, 2015, following the decision to discontinue investment in developing the intellectual property related to Regado’s aptamer platform. Subsequently, we entered into an agreement with Duke to terminate our license and release our financial obligations with Duke. Additionally, we assigned our aptamer intellectual property to Duke and provided a payment of $0.1 million.

Other Income (Expense), Net

Changes in components of other income (expense), net were as follows:

Interest Expense

Interest expense was $3.1 million for the year ended December 31, 2015 compared with $5.0 million for the same period in 2014.  The decrease was primarily driven by $2.5 million in interest expense on our convertible notes as a result of conversion to equity in connection with the Merger on May 4, 2015. This decrease was partially offset by a $0.6 million increase in stated interest and debt discount accretion due to the full year impact of the Oxford Loan that commenced in June 2014.

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Change i n Fair Value of Preferred Stock Warrant Liabilities

The change in fair value of preferred stock warrant liabilities for the year ended December 31, 2015 resulted in an increase in other income (expense), net of $1.9 million from $1.2 million for the same period in 2014. On May 4, 2015, in connection with the Merger, the preferred stock warrant liabilities were revalued to fair value and reclassified to additional paid-in capital.

Comparison of the Years Ended December 31, 2014 and 2013

The following table sets forth our results of operations for the years ended December 31, 2014 and 2013 (in thousands):

 

 

 

Year Ended December 31,

 

 

Increase/

 

 

 

2014

 

 

2013

 

 

(Decrease)

 

Research and development

 

$

12,181

 

 

$

12,413

 

 

$

(232

)

General and administrative

 

 

7,840

 

 

 

2,764

 

 

 

5,076

 

Other income (expense), net

 

 

(3,808

)

 

 

(3,412

)

 

 

396

 

 

Research and Development Expenses. 

Our research and development expenses were $12.2 million for the year ended December 31, 2014 compared to $12.4 million for the same period in 2013. The decrease in research and development expenses of $0.2 million in 2014 was primarily due to decreases of $2.6 million in clinical trial expenses as we completed our Phase 2b trial in HIV infected patients, $1.8 million in lower spending on drug interaction studies and bioavailability studies, $1.1 million in lower preclinical activities and $0.8 million in lower manufacturing activities. These decreases were partially offset by increases of $4.1 million in expenses for our Phase 2b CENTAUR study, $1.0 million on our Phase 1 study in hepatically impaired patients, $0.6 million in 2014 annual performance bonuses and $0.2 million in regulatory expenses supporting our NASH program.

General and Administrative Expenses. 

General and administrative expenses were $7.8 million for the year ended December 31, 2014 compared to $2.8 million for the same period in 2013. The increase in general and administrative expenses of $5.1 million in 2014 resulted from expensing approximately $4.1 million in a planned initial public offering and preparation for external reporting which were expensed when we entered into the Merger Agreement, $0.3 million of stock-based compensation expense related to stock options granted in 2014, $0.3 million in compensation related expenses in 2014, $0.1 million for legal fees supporting patent filings and maintenance, $0.1 million in legal fees associated with the Merger, $0.1 million in severance expense and $0.1 million of allocated overhead expenses for rent and depreciation related to the corporate headquarters.

Other Income (Expense), Net.

Changes in components of other income (expense), net were as follows:

Interest Expense.

Interest expense increased from $3.7 million for the year ended December 31, 2013 to $5.0 million for the same period in 2014. The increase in interest expense of $1.3 million was due to an increase in interest of $1.0 million associated with the issuance of $8.0 million in convertible notes in March 2014 and incremental interest on previously outstanding convertible notes, increased interest expense for term loan outstanding with Oxford of $0.5 million due to a higher average term loan balance than the comparable period in 2013, and due to the accretion of the debt discount for preferred stock warrants issued in connection with the Oxford term loan. These increases were offset by lower accretion of debt discounts associated with convertible debt-to-interest expense of $0.2 million as they became fully accreted in 2014.

Change in Fair Value of Preferred Stock Warrant Liabilities.

The change in fair value of preferred stock warrant liabilities for the year ended December 31, 2014 resulted in an increase in other income (expense), net from $0.3 million in 2013 to $1.2 million in 2014.

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LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have incurred net losses and negative cash flows from our operations. We incurred net losses of $49.6 million, $24.1 million and $18.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we had an accumulated deficit of $163.4 million.

As of December 31, 2015, we had cash and cash equivalents including restricted cash of $62.8 million. To date, our operations have been financed primarily by net proceeds from the sale of preferred and common stock, the Merger with Regado, issuance of convertible notes, and the issuance of senior term loans. We believe our cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months.

On March 6, 2015, we issued convertible notes for $13.0 million, or the March 2015 Notes, which converted into common stock on May 4, 2015.

On May 4, 2015, we completed our Merger with Regado which provided $33.2 million in cash and cash equivalents. Immediately following the Merger, we raised $27.0 million in aggregate gross proceeds.

On June 3, 2015, we filed a shelf registration on Form S-3 with the SEC for the issuance and sale of up to an aggregate offering price of $150.0 million of shares of our common stock, preferred stock, warrants to purchase common stock, and units comprised of any combination of the foregoing. Included in the shelf registration, we may issue and sell up to an aggregate offering price of up to $40.0 million of our common stock through an at-the-market sales agreement with Cowen and Company, LLC. During August 2015, we sold an aggregate of 1,141,970 shares of common stock for gross proceeds of $15.1 million pursuant to the sales agreement.

Our primary uses of capital are, and we expect will continue to be, funding research efforts and the development of our product candidates, compensation and related expenses, hiring additional staff, including clinical, scientific, operational, financial, and management personnel, and costs associated with operating as a public company.  We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our product candidates. Specifically, we have incurred and we expect to continue to incur substantial expenses in connection with our Phase 2b CENTAUR study of CVC in patients with NASH and liver fibrosis as well as our Phase 2 PERSEUS study of CVC in patients with PSC. We currently project that we will announce our primary endpoint of Phase 2b CENTAUR study in the third quarter of 2016.

We plan to continue to fund losses from operations and capital funding needs through future equity and/or debt financings, as well as potential additional collaborations or strategic partnerships with other companies. The sale of additional equity or convertible debt could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations. We can provide no assurance that financing will be available in the amounts we need or on terms acceptable to us, if at all. If we are not able to secure adequate additional funding we may be forced to delay, make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially har