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TABLE OF CONTENTS
Proteon Therapeutics, Inc. Index to Financial Statements

Table of Contents

As filed with the Securities and Exchange Commission on March 14, 2019.

Registration No. 333-                  

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1

REGISTRATION STATEMENT
Under
The Securities Act of 1933



Proteon Therapeutics, Inc.

(Exact name of Registrant as specified in its charter)



Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  2836
(Primary Standard Industrial
Classification Code Number)
  20-4580525
(I.R.S. Employer
Identification Number)



200 West Street
Waltham, MA 02451
(781) 890-0102
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



Timothy P. Noyes
President and Chief Executive Officer
Proteon Therapeutics, Inc.
200 West Street
Waltham, MA 02451
(781) 890-0102 x1021
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Please send copies of all communications to:

Julio E. Vega, Esq.
Morgan, Lewis & Bockius LLP
One Federal Street
Boston, MA 02110
(617) 951-8000

Approximate date of commencement of the proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          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 definitions 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 o   Non-accelerated filer o   Smaller reporting company ý

Emerging growth company ý

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



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee(2)

 

Common Stock, $0.001 par value per share

  $50,000,000   $6,060

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)
Calculated based on Rule 457(o) based on an estimate of the proposed maximum offering price.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION,   DATED MARCH 14, 2019

Preliminary Prospectus

LOGO

                  Shares

Proteon Therapeutics, Inc.

Common Stock

Proteon Therapeutics, Inc. is offering                  shares of our common stock in this offering.

Our common stock is listed on the Nasdaq Global Market under the symbol "PRTO." The last reported sale price of our common stock on the Nasdaq Global Market on March              , 2019 was $             per share. The final public offering price will be determined through negotiation between us and the lead underwriters in the offering and the recent market price used throughout the prospectus may not be indicative of the final offering price.

We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

Investing in our common stock involves risks. See "Risk Factors" beginning on page 14.

 
  Per Share   Total  

Public offering price

  $                 $                

Underwriting discount and commissions(1)

  $                 $                

Proceeds, before expenses, to us

  $                 $                

(1)
We have agreed to reimburse the underwriters for certain expenses. See "Underwriting."

We have granted the underwriters a 30-day option to purchase up to a total of                      additional shares of common stock on the same terms and conditions set forth above.

The underwriters expect to deliver the shares of common stock to purchasers on or about                           , 2019.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


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TABLE OF CONTENTS

 
  Page

Prospectus Summary

  1

Risk Factors

  14

Special Note Regarding Forward-Looking Statements

  71

Market, Industry and Other Data

  73

Use of Proceeds

  74

Market Price of Common Stock

  75

Dividend Policy

  75

Capitalization

  76

Dilution

  78

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

  80

Business

  93

Management

  131

Executive and Director Compensation

  142

Certain Relationships and Related Party Transactions

  151

Principal Stockholders

  153

Description of Capital Stock

  158

Shares Eligible For Future Sale

  164

Material United States Federal Income Tax Consequences to Non-U.S. Holders of Our Common Stock

  166

Underwriting

  171

Legal Matters

  175

Experts

  175

Where You Can Find More Information

  175

Index to Financial Statements

  F-1



        Unless the context requires otherwise, references in this prospectus to "Proteon," "the Company," "we," "us" and "our" refer to Proteon Therapeutics, Inc.

        In this prospectus, we refer to our subsidiary Proteon Therapeutics Limited as "Proteon UK."

        You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus, or of any sale of our common stock.

        Through and including                      , 2019 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.


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PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus and does not contain all the information that you should consider in making your investment decision. You should read the entire prospectus, including our financial statements and related notes and the information set forth in the sections titled "Risk Factors," "Special Note Regarding Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" before deciding whether to purchase shares of our common stock. Unless the context otherwise requires, we use the terms "Proteon," "our company," "we," "us" and "our" in this prospectus to refer to Proteon Therapeutics, Inc.

Company Overview

        We are a late-stage biopharmaceutical company focused on the development of novel, first-in-class pharmaceuticals to address the needs of patients with renal and vascular disease. Our product candidate, vonapanitase, is a recombinant human elastase that we are developing to improve vascular access outcomes in patients with chronic kidney disease, or CKD, undergoing or planning for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We believe data from our completed Phase 2 and Phase 3 clinical trials of vonapanitase support that a one-time, local application of investigational vonapanitase during surgical creation of a radiocephalic fistula for hemodialysis may improve fistula use for hemodialysis and secondary patency (time to fistula abandonment), thereby improving patient outcomes and reducing the burden on patients and the healthcare system. We are not aware of any products approved in the United States or Europe that would compete with vonapanitase for the improvement of fistula use for hemodialysis and secondary patency.

        We are currently running our second Phase 3 trial, PATENCY-2, which is a multicenter, randomized, double-blind, placebo-controlled trial enrolling patients in the United States and Canada with CKD undergoing surgical creation of a radiocephalic arteriovenous fistula for hemodialysis. PATENCY-2 has co-primary endpoints of fistula use for hemodialysis and secondary patency (i.e., time to fistula abandonment), each of which demonstrated improvements in PATENCY-1, our first Phase 3 trial, and have the same definitions as in PATENCY-1. Proteon has received written confirmation from the U.S. Food and Drug Administration (FDA) that, if PATENCY-2 is successful in showing statistical significance (p£0.05) on each of the co-primary endpoints, the PATENCY-2 trial together with data from previously completed studies would provide the basis for a Biologics License Application (BLA) submission, which we expect to submit in the fourth quarter of 2019 if PATENCY-2 is successful in showing statistical significance (p£0.05) on each of the co-primary endpoints. In addition, we received scientific advice from the European Medicines Agency (EMA) in 2018. Based on the EMA discussions, Proteon expects to submit a Marketing Authorization Application (MAA) to the EMA in the first half of 2020 if PATENCY-2 is successful.

        Vonapanitase received Breakthrough Therapy designation from the FDA in May 2017 for hemodialysis vascular access indications. Vonapanitase previously received Fast Track designation from the FDA and has received orphan drug designations for vonapanitase in the United States and European Union for hemodialysis vascular access indications.


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        We retain worldwide commercial rights to vonapanitase. If approved by regulatory authorities, we intend to commercialize this product in the United States ourselves with a specialty hospital sales force, focused primarily on vascular surgeons, and intend to seek one or more collaborators to commercialize the product in additional markets. Our patents include claims covering formulations, methods of manufacturing and uses of elastases, providing protection in the United States until 2030 and the European Union through 2028, and with potential extension through 2033 in the United States and the European Union.

Established Medical Need

        The need to improve vascular access outcomes is well established in the hemodialysis community. The health-related and economic costs of creating vascular accesses and addressing access dysfunction and associated complications have led to a global effort to address the problem. In 2004, the Centers for Medicare and Medicaid Services, or CMS, announced the "Fistula First" initiative to increase the use of fistulas while reducing complications. According to Fistula First, fistulas should be considered for every patient needing hemodialysis because, compared to other forms of vascular access, fistulas last longer, require fewer surgical and endovascular interventions, are associated with lower rates of infection, hospitalization and death, and are less costly. As a result of these efforts, fistula use has approximately doubled since 2004 to 67% of United States hemodialysis patients in 2018. Although arteriovenous fistulas are the preferred form of vascular access, they suffer from a high rate of failure, typically due to insufficient blood flow, precluding hemodialysis. We are not aware of products approved in the United States or Europe that would compete with vonapanitase for the improvement of fistula use for hemodialysis and secondary patency.

        For patients on hemodialysis, fistula non-use or abandonment is associated with a number of poor outcomes, many of which are associated with prolonged catheter exposure. One of the primary goals of the Fistula First campaign is to reduce the use of catheters, which is considered the worst form of vascular access. Patients dialyzing with a catheter average 18 hospital days per patient-year, which is approximately twice the rate of patients dialyzing with a fistula. Catheter exposure results in a substantially higher rate of infections, especially catheter-related bacteremia, due to the challenges of inserting and maintaining a foreign body through the skin. Infection is the second leading cause of death in hemodialysis patients, and catheter use is independently associated with increased risk of infectious, cardiovascular, and all-cause mortality compared to fistula use.

        Because the clinical implications of fistula non-use and abandonment are severe, health care providers are aggressive in monitoring and intervening upon fistulas in an attempt to increase fistula use and reduce the rate of fistula abandonment. . In less than a decade, the rate of procedures has approximately doubled. The function of usable fistulas can usually be restored via corrective procedures, either an intervention such as angioplasty, which is dilation of a blood vessel with a balloon, or a surgical revision. These procedures, however, are invasive, painful and associated with a number of complications. These procedures are also costly and often need to be repeated. It was reported that fistulas that fail to become usable resulted in incremental costs to Medicare of up to more than $21,000 in the first year and more than $10,000 in each of the second and third years following fistula creation. In addition, a recent study indicated that the total cost to Medicare for managing hemodialysis vascular access was more than $2.8 billion in 2013. This amount excludes costs of managing vascular access in predialysis patients and dialysis patients covered by Medicare Advantage HMOs or other non-Medicare payers, as well as patient co-pays and deductibles.

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Vonapanitase

        Vonapanitase is a recombinant human elastase under development as a treatment to improve vascular access outcomes in patients with CKD undergoing or planning for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We have completed four multicenter, randomized, double-blind, placebo-controlled studies evaluating vonapanitase compared to placebo in patients with CKD, including the first of two Phase 3 clinical trials, PATENCY-1. We also completed patient enrollment in our second Phase 3 clinical trial, PATENCY-2, in March 2018 and expect to release top-line data in late-March 2019. Vonapanitase received Breakthrough Therapy designation from the FDA in May 2017 for hemodialysis vascular access. The FDA awards Breakthrough Therapy designations to expedite the development and review of investigational drugs that are intended to treat serious or life-threatening conditions when preliminary clinical evidence indicates that the treatment may offer a substantial improvement over currently available therapies on one or more clinically significant endpoints. Vonapanitase previously received Fast Track designation from the FDA which is also designed to facilitate the development and expedite the review of drugs and biologics to treat serious conditions and address an unmet medical need. We also received orphan drug designations for vonapanitase in the United States and European Union for hemodialysis vascular access indications.

Our First Phase 3 Clinical Trial, PATENCY-1

        In December 2016, we announced that the PATENCY-1 trial did not meet its primary endpoint of improved primary unassisted patency compared to placebo (p=0.254). Primary unassisted patency was defined as the length of time from fistula surgical creation to the first occurrence of a fistula thrombosis or corrective procedure to restore or maintain patency (blood flow). While not statistically significant, vonapanitase treated patients demonstrated a 17% reduction in the risk of primary unassisted patency loss over one year. At the end of one year, 42% of vonapanitase-treated patients maintained primary unassisted patency, compared to 31% of placebo-treated patients. Median patency, the time at which 50% of patients in a group lost primary unassisted patency, was 171 days in the placebo group and 214 days in the vonapanitase treatment group based on the Kaplan-Meier estimates.

        Secondary patency, the secondary endpoint in the PATENCY-1 trial, was defined as the length of time from surgical creation until fistula abandonment. Results suggested that vonapanitase may have improved secondary patency compared to placebo, as vonapanitase-treated patients demonstrated a 34% reduction in the risk of secondary patency loss (p=0.048). At the end of one year, 74% of vonapanitase-treated patients maintained secondary patency, compared to 61% of placebo-treated patients.

        Results also suggested that vonapanitase may have improved fistula use for hemodialysis, one of the PATENCY-1 trial's tertiary endpoints. 39% of vonapanitase-treated patients achieved unassisted use of their fistula for hemodialysis, compared to 25% of placebo-treated patients (p=0.035). 64% of vonapanitase-treated patients used their fistula for dialysis (unassisted or assisted), compared to 44% of placebo-treated patients (p=0.006). Use for hemodialysis was defined as use of the fistula for hemodialysis for at least 90 days or, if hemodialysis was not initiated at least 90 days prior to the patient's last visit, for at least 30 days prior to the patient's last visit and in use at the patient's last visit. Unassisted use was defined as use without prior loss of primary unassisted patency.

Safety Data

        Vonapanitase is administered topically at the vascular access and only acts locally. We have not observed systemic activity or systemic toxicity in our preclinical animal studies, even following

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single-dose intravenous administration at very high multiples of the Phase 3 clinical trial doses. Safety evaluations in Phase 2 and Phase 3 clinical trials included ascertainment of adverse events, physical examinations, ultrasounds of the fistulas and nearby vessels, vital signs and laboratory studies. In the PATENCY-1 trial, no significant safety signals were identified, and no patients were considered positive for anti-drug antibodies. The events were generally consistent with the medical events experienced by CKD patients undergoing fistula creation surgery. The percentages of serious adverse events, or SAEs, was also similar between the treatment groups in the PATENCY-1 trial (placebo 14.7%, vonapanitase 13.9%).

Our Ongoing Phase 3 Clinical Trial, PATENCY-2

        Our ongoing Phase 3 clinical trial, PATENCY-2, is the second of two randomized, double-blind Phase 3 trials, comparing a 30 microgram dose of investigational vonapanitase to placebo. As in PATENCY-1, PATENCY-2 enrolled patients with CKD undergoing surgical creation of a radiocephalic fistula for hemodialysis. Patients were randomized 2:1, vonapanitase to placebo, and are being followed for a period of 12 months. In March 2018, we completed enrollment of a total of 603 treated patients at 39 centers in the U.S. and Canada. We expect to report top-line data in late March 2019.

        Following our review of the complete data sets from the PATENCY-1 trial and discussions with the FDA, we amended the protocol for the PATENCY-2 trial. The protocol amendment reordered the existing endpoints for the study, establishing fistula use for hemodialysis and secondary patency (time to fistula abandonment) as co-primary endpoints, each of which demonstrated improvements in the PATENCY-1 trial. Other efficacy endpoints in the amended protocol include unassisted fistula use for hemodialysis, primary unassisted patency, unassisted fistula maturation by ultrasound criteria, fistula maturation by ultrasound criteria, the rate of procedures performed to the fistula, and the rate of procedures to restore or maintain fistula patency. We also increased the planned enrollment for this study from 300 to 600 patients. The increased sample size for the PATENCY-2 trial provides power to detect the differences observed in the PATENCY-1 trial for fistula use for hemodialysis and secondary patency of 98% and 88%, respectively, with a p-value £0.05 for each of the co-primary endpoints. We received written confirmation from the FDA that, if PATENCY-2 is successful in showing statistical significance (p-value£0.05) on each of the co-primary endpoints, the PATENCY-2 trial together with data from previously completed studies would provide the basis for a BLA submission.

Other Programs, Indications and Trials

        In addition to vascular access indications, we are investigating vonapanitase as a treatment for patients with symptomatic peripheral artery disease, or PAD. Patients with lower extremity PAD suffer from stenosis formation in the arteries providing blood to the legs. Approximately 800,000 patients in the United States undergo an endovascular procedure, typically balloon angioplasty with or without stenting or vein bypass surgery. While these procedures work acutely to restore blood flow, they suffer from poor long-term durability, resulting in the need for repeat procedures. We believe that vonapanitase may improve the outcomes associated with angioplasty procedures, resulting in prolonged intervention-free patency while reducing the need for implantation of a permanent stent. In the fourth quarter of 2016, we initiated a Phase 1 study of vonapanitase delivered via a drug-delivery catheter in symptomatic PAD patients undergoing angioplasty of an artery below the knee. We completed the enrollment and treatment of 24 patients before the end of 2018 in this Phase 1 study. We expect to follow each of these patients for period of up to seven months. We expect to enroll up to an additional 16 patients in this study before the end of 2019 and to follow each of these patients for a period of up to seven months.

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        We are also considering an arteriovenous graft trial. An arteriovenous graft is a synthetic tube to connect a vein and an artery placed in a surgical procedure. In 2012, we completed a Phase 1/2 randomized, double-blind, placebo-controlled, dose-escalation trial in 89 patients undergoing placement of an arteriovenous graft. Adverse events were consistent with the medical conditions experienced by patients with CKD undergoing graft surgery and showed no significant differences between groups. Some of the data showed indications of efficacy, especially in secondary patency, which is an approvable endpoint for hemodialysis access. After reviewing the results from our second Phase 3 clinical trial, and if sufficient funds become available, we may commence a clinical trial of vonapanitase in patients undergoing placement of an arteriovenous graft.

Commercial Opportunity

        Arteriovenous fistulas are the gold standard of vascular access for hemodialysis, given they are associated with fewer complications and reduced rates of hospitalization as compared to other forms of vascular access. We estimate there are approximately 130,000 fistulas created in the United States annually, 35-40% of which are radiocephalic fistulas.

        The need to improve vascular access outcomes for patients is well established in the hemodialysis community. Achieving a usable fistula for vascular access and maintaining the patency (blood flow) of such fistula enables the hemodialysis patient to avoid use of a dialysis catheter, the worst form of vascular access because of the increased risk of serious infection, hospitalization and death. Patients with a usable fistula also avoid the need for additional surgical procedures to create new forms of vascular access.

        Vascular access failure also results in substantially higher healthcare costs. It was reported that fistulas that fail to become usable resulted in incremental costs to Medicare of more than $21,000 in the first year and more than $10,000 in each of the second and third years following fistula creation. A recent study indicated that the total cost to Medicare for managing hemodialysis vascular access in patients with End Stage Renal Disease, or ESRD was more than $2.8 billion in 2013. This amount excludes costs of managing vascular access in predialysis patients and dialysis patients covered by Medicare Advantage HMOs or other non-Medicare payers, as well as patient co-pays and deductibles.

        If approved, vonapanitase will be administered primarily by vascular surgeons, who we believe are acutely aware of the clinical need and are receptive to new therapies. We believe vonapanitase will be reimbursed appropriately as costs related to fistula surgical placement, which is typically performed in the hospital outpatient setting, are not included in the end stage renal disease, or ESRD, bundle, the single bundled payment from Medicare for a number of the costs of hemodialysis treatments, medications, labs and supplies for patients with end stage renal disease. We estimate a sales force of approximately 75-100 representatives will enable us to call on the approximately 1,000 providers that account for more than 50% of the fistula surgical creations covered by Medicare annually in the United States.

Our Strengths

        We believe our company and vonapanitase possess the following attributes that increase the likelihood that we will be successful in developing and commercializing vonapanitase:

    §
    Expected to complete pivotal Phase 3 trials for radiocephalic fistula placement in late March 2019.    We are completing our second Phase 3 clinical trial in radiocephalic fistulas using a 30 microgram dose of vonapanitase, the population and dose in which, in a prespecified analysis, we observed an improvement in use for hemodialysis and secondary patency (time to abandonment) with vonapanitase in our first Phase 3 trial. We expect to announce top-line results from PATENCY-2, our second Phase 3 trial, in March 2019.

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    §
    Co-primary endpoints in second Phase 3 trial are pre-specified endpoints in our first Phase 3 trial.    After announcing top-line results from the PATENCY-1 trial in December 2016, we amended the protocol for the PATENCY-2 trial. The protocol amendment reordered the endpoints for this ongoing trial, establishing fistula use for hemodialysis and secondary patency (time to fistula abandonment) as co-primary endpoints., each of which demonstrated improvements in the PATENCY-1 trial. The co-primary endpoints in our second Phase 3 trial have the same definitions as those used in our first Phase 3 trial and the inclusion and exclusion criteria are the same for both Phase 3 trials.
    §
    Regulatory pathway to approval in the U.S. and Europe has been communicated.    Vonapanitase has received Breakthrough Therapy, Fast Track and Orphan Drug designations from the FDA, and Orphan Medicinal Product designation from the European Commission, for hemodialysis vascular access indications. In March 2017, we also received written confirmation from the FDA that, if PATENCY-2 is successful in showing statistical significance (p£0.05) on each of the co-primary endpoints, the PATENCY-2 trial together with data from previously completed studies would provide the basis for a BLA submission. If the PATENCY-2 trial is successful, we expect to submit a BLA to the FDA in the fourth quarter of 2019. We further expect to submit an MAA to the EMA in first half of 2020 if the PATENCY-2 trial is successful.
    §
    Safety profile expected to support regulatory approval.    Based on results from our clinical trials and preclinical studies, we believe vonapanitase, which is administered once and only acts locally, has demonstrated a safety profile that will support approval if our planned Phase 3 clinical program is successful. At our end of Phase 2 meeting with the FDA, we confirmed that we do not need to conduct any additional preclinical studies to support a BLA filing.
    §
    Unmet medical need.    The need to improve vascular access outcomes for patients is well established in the hemodialysis community. Achieving a usable fistula for vascular access and maintaining the patency (blood flow) of such fistula enables the hemodialysis patient to avoid use of a dialysis catheter, the worst form of vascular access because of the increased risk of serious infection, hospitalization and death. Vascular access failure also results in substantially higher healthcare costs. It was reported that fistulas that fail to become usable resulted in incremental costs to Medicare of more than $21,000 in the first year and more than $10,000 in each of the second and third years following fistula creation. A recent study indicated that the total cost to Medicare for managing hemodialysis vascular access in patients with End Stage Renal Disease, or ESRD was more than $2.8 billion in 2013.
    §
    Substantial and readily-addressable market opportunity.    In the United States, we estimate a sales force of approximately 75-100 representatives will enable us to call on the approximately 1,000 providers that account for more than 50% of the fistula surgical creations covered by Medicare annually. We believe vonapanitase will be supported by key stakeholders, including referring nephrologists, patient advocacy groups, large dialysis organizations and payors. We believe vonapanitase will be reimbursed adequately as costs related to fistula surgical placement, which is typically performed in the hospital outpatient setting, are not included in the ESRD bundle.
    §
    Experienced team.    Our executive management team has extensive experience in the renal and vascular disease fields through their substantial involvement in companies such as Abbott, AMAG, GelTex, Genzyme, Glaxo and Merck. Our Chief Executive Officer and Chief Medical Officer were senior executives at GelTex, a biopharmaceutical company, where they played leading roles in the development and commercialization of Renagel, a treatment for hemodialysis patients that led to Genzyme's acquisition of GelTex for more than $1 billion. Our Senior Vice President of Commercial was a senior executive at AMAG Pharmaceuticals, a biopharmaceutical company, where he played a leading role in the commercialization of Feraheme for iron-deficiency anemia in adults with CKD.

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Our Strategy

        Our strategy is to develop and commercialize vonapanitase for patients suffering from renal and vascular diseases, beginning with patients with CKD undergoing surgical creation of a radiocephalic fistula. Key elements of our strategy include our plans to:

    §
    complete clinical development of vonapanitase and seek regulatory approval in the United States in its lead indication for radiocephalic fistulas;
    §
    commercialize vonapanitase directly in the United States;
    §
    establish partnerships for the development and commercialization of vonapanitase in all or parts of Europe and other countries outside of the United States, including Asia;
    §
    pursue indications for vonapanitase in peripheral artery disease;
    §
    pursue additional vascular access indications, including arteriovenous grafts, for vonapanitase; and
    §
    in-license or acquire additional product opportunities.

Risks Associated with Our Business

        Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, among others, the following:

    §
    we have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future;
    §
    we will require substantial additional financing to achieve our goals, and failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, any commercialization efforts or other operations;
    §
    we are substantially dependent on the success of our current product candidate, vonapanitase, and cannot guarantee that this product candidate will successfully complete Phase 3 clinical trials, receive regulatory approval or be successfully commercialized;
    §
    in our first Phase 3 trial of vonanpanitase, the primary endpoint did not meet statistical significance;
    §
    vonapanitase may not have favorable results in later clinical trials or receive regulatory approval;
    §
    the denial or delay of regulatory approval of vonapanitase or any additional product candidates would prevent or delay commercialization and have a material adverse effect on our potential to generate revenue, our business and our results of operations;
    §
    if we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they are approved, we may be unable to generate product revenues;
    §
    even if vonapanitase or any additional product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption necessary for commercial success;
    §
    vonapanitase or any additional product candidates, if approved, may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration and expansion;
    §
    we and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity; and

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    §
    if our efforts to protect our intellectual property related to vonapanitase or any additional product candidates are not adequate, we may not be able to compete effectively in our market.

Corporate Information

        Proteon was incorporated under the laws of the State of Delaware in March 2006, and at that time, acquired Proteon Therapeutics, LLC, our predecessor, which was formed in June 2001. Our executive offices are located at 200 West Street, Waltham, Massachusetts 02451, and our telephone number is (781) 890-0102. Our website address is www.ProteonTherapeutics.com. The information contained on, or accessible through, our website does not constitute part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.


Implications of Being an Emerging Growth Company

        We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (1) December 31, 2019, (2) the last day of the fiscal year (a) in which we have total annual gross revenue of at least $1.07 billion, or (b) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 in this prospectus as the "JOBS Act," and references in this prospectus to "emerging growth company" shall have the meaning ascribed to it in the JOBS Act.

        As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

    §
    reduced disclosure about our executive compensation arrangements;
    §
    exemption from the non-binding shareholder advisory votes on executive compensation or golden parachute arrangements;
    §
    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and
    §
    reduced disclosure of financial information in this prospectus, such as being permitted to include only two years of audited financial information and two years of selected financial information 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.

        We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

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THE OFFERING

Common stock we are offering

                           shares

Common stock outstanding after giving effect to this offering

                           shares

Option to purchase additional shares

The underwriters have a 30-day option to purchase a total of                           additional shares of common stock.

Use of proceeds

The net proceeds from this offering will be approximately $          million, or approximately $          million if the underwriters exercise their option to purchase additional shares in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use the net proceeds of this offering to fund: the preparation and submission of a BLA with the FDA and an MAA with the EMA; continued commercial infrastructure build and prelaunch activities in support of a potential commercial launch of vonapanitase in the United States; further establishment and expansion of commercial drug supply chain and in anticipation of a potential commercial launch; continued development of vonapanitase in peripheral artery disease; and for other general corporate purposes, including general and administrative expenses (including personnel-related costs), potential future development programs, early-stage research and development, capital expenditures, and working capital. See "Use of Proceeds."

Risk factors

See "Risk Factors" beginning on page 13 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

NASDAQ Global Market Symbol

"PRTO"



        In this prospectus, unless otherwise indicated, the number of shares of common stock outstanding and the other information based thereon is based on 19,243,651 shares of common stock outstanding as of December 31, 2018 and does not reflect:

    §
    22,112,775 shares of common stock issuable upon conversion of all shares of Series A Convertible Preferred Stock without giving effect to the 9.985% Cap;
    §
    4,597,226 shares of common stock issuable upon exercise of stock options outstanding as of December 31, 2018 at a weighted-average exercise price of $5.12 per share;
    §
    566,885 shares of common stock reserved for future issuance as of December 31, 2018 under our Amended and Restated 2014 Equity Incentive Plan, or our 2014 Equity Incentive Plan; and
    §
    118,120 shares of common stock reserved for future issuance as of December 31, 2018 under 2014 Employee Stock Purchase Plan.

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        Unless otherwise indicated, all information in this prospectus reflects or assumes the following:

    §
    no exercise of stock options on or after                  , 2019; and
    §
    no exercise by the underwriters of their option to purchase up to a total of                   additional shares of common stock in this offering.

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SUMMARY FINANCIAL DATA

        The following summary financial data for the years ended December 31, 2018, 2017 and 2016 have been derived from our audited financial statements included elsewhere in this prospectus. You should read this data together with our audited financial statements and related notes included elsewhere in this prospectus and the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our interim period results are not necessarily indicative of results to be expected in any future period.

        The information set forth below should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus and with our consolidated financial statements and notes thereto included elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace the

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consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

 
  Year Ended December 31,  
 
  2018   2017   2016  
 
  (in thousands, except share and per share data)
 

Operating expenses:

                   

Research and development

  $ 11,848   $ 21,686   $ 18,869  

General and administrative

    9,524     8,676     9,836  

Total operating expenses

    21,372     30,362     28,705  

Loss from operations

    (21,372 )   (30,362 )   (28,705 )

Other income:

                   

Investment income

    436     259     193  

Other income (expense), net

    207     139     (14 )

Total other income

    643     398     179  

Net loss

  $ (20,729 ) $ (29,964 ) $ (28,526 )

Foreign currency translation adjustment

  $ (1 ) $ 6   $  

Unrealized gain (loss) on available-for-sale investments

    20     (20 )   11  

Comprehensive loss

  $ (20,710 ) $ (29,978 ) $ (28,515 )

Reconciliation of net loss to net loss attributable to common stockholders:

                   

Net loss

  $ (20,729 ) $ (29,964 ) $ (28,526 )

Accretion of convertible preferred stock to redemption value

        (6,747 )    

Net loss attributable to common stockholders

  $ (20,729 ) $ (36,711 ) $ (28,526 )

Net loss per share attributable to common stockholders—basic and diluted

  $ (1.15 ) $ (2.13 ) $ (1.72 )

Weighted-average common shares outstanding used in net loss per share attributable to common stockholders—basic and diluted

    18,102,219     17,274,326     16,561,799  

Supplemental disclosure of stock-based compensation expense:

                   

Included in operating expenses, above, are the following amounts for non-cash stock-based compensation expense:

                   

Research and development

  $ 1,142   $ 1,109   $ 1,114  

General and administrative

    2,287     2,118     2,229  

Total

  $ 3,429   $ 3,227   $ 3,343  

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  December 31,  
 
  2018   2017  
 
  (in thousands)
 

Balance Sheet Data:

             

Cash, cash equivalents and available-for-sale investments

  $ 21,867   $ 42,141  

Working capital

    20,158     34,240  

Total assets

    23,521     43,979  

Convertible preferred stock

    21,523     21,523  

Common stock and additional paid in capital

    209,385     202,971  

Total stockholders' equity

    20,443     34,739  

(1)
See Note 2 within the notes to our financial statements appearing elsewhere in this prospectus for a description of the method used to calculate basic and diluted net loss per common share and pro forma basic and diluted net loss per common share.

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the following risks are realized, our business, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment. 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 currently believe to be immaterial may also adversely affect our business.


Risks Related to Our Financial Condition and Need for Additional Capital

We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern.

        We may be forced to delay or reduce the scope of our development programs and/or limit or cease our operations if we are unable to obtain additional funding to support our current operating plan. As of December 31, 2018, we had approximately $21.9 million in existing cash, cash equivalents and marketable securities. Based on these available cash resources, we believe our cash and cash equivalents and available-for-sale investments as of December 31, 2018 will be sufficient to fund our operations into the first quarter of 2020; however, we do not have sufficient cash on hand to support current operations for at least the next twelve months from the date of filing this registration statement of which this prospectus forms a part. This condition raises substantial doubt about our ability to continue as a going concern within one year after the date that our 2018 financial statements were issued. Management's plans in this regard are described in Note 1 of the consolidated financial statements included elsewhere in this registration statement of which this prospectus forms a part. We cannot guarantee that we will be able to obtain sufficient additional funding when needed or that such funding, if available, will be obtainable on terms satisfactory to us. In the event that these plans cannot be effectively realized, there can be no assurance that we will be able to continue as a going concern.

We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur losses for the foreseeable future.

        We are a late-stage biotechnology company, and we have not commercialized any products or generated any revenues from the sale of products. We have incurred losses from operations in each year since our inception, and our net losses were $20.7 million and $30.0 million for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, we had an accumulated deficit of $210.5 million. We do not expect to generate any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become profitable.

        We have devoted substantially all of our efforts and our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed our operations primarily through the sale of equity securities and, prior to our initial public offering, the sale of convertible debt. Our current product candidate, vonapanitase, is in clinical trials and we have no commercial sales, which, together with our limited operating history, make it difficult to assess our future viability. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings or strategic collaborations. We have not completed pivotal clinical trials for any product candidate and it could be several years, if ever, before we have vonapanitase or any future product candidates ready for

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commercialization. Even if we successfully complete our pivotal clinical trials and obtain regulatory approval to market vonapanitase or any additional product candidates, our future revenues will depend upon the size of any markets in which vonapanitase or any additional product candidates have received approval, our ability to achieve sufficient market acceptance, reimbursement from third-party payors and other factors.

        We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

        The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, any commercialization efforts or other operations.

        Our operations have consumed substantial amounts of cash since inception. As of December 31, 2018, our cash, cash equivalents and available-for-sale investments were $21.9 million. Our research and development expenses were $11.8 million and $21.7 million for the years ended December 31, 2018 and 2017, respectively. We believe that we will continue to expend substantial resources for the foreseeable future developing vonapanitase and any additional product candidates. These expenditures will include costs associated with research and development, potentially acquiring new technologies, potentially obtaining regulatory approvals and manufacturing products, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to fund and successfully complete the development and commercialization of vonapanitase or any additional product candidates.

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        We began enrolling patients in our first Phase 3 clinical trial of vonapanitase during the third quarter of 2014 for patients undergoing creation of radiocephalic fistulas, completed patient enrollment in October 2015 and released top-line data in December 2016. We enrolled the first patient in our second Phase 3 trial in August 2015, completed enrollment in March 2018 and expect to release top-line data in late March 2019. Based on our current operating plan, and absent any future financings or strategic partnerships, we believe that our existing cash, cash equivalents and available-for-sale investments will be sufficient to fund our projected operating expenses and capital expenditure requirements into the first quarter of 2020, allowing us to report top-line data from our second Phase 3 trial of vonapanitase in radiocephalic fistulas, named PATENCY-2. Our cash runway could be shortened if there are any significant and unexpected increases in spending on development programs or more rapid progress of development programs than anticipated. In addition, we initiated two Phase 1 clinical trials of vonapanitase in patients with PAD in the fourth quarter of 2016. We completed the enrollment of 24 patients before the end of 2018 in the Phase 1 trial evaluating vonapanitase as an adjunct to angioplasty for PAD below the knee. We expect to enroll up to an additional 16 patients in this study before the end of 2019 and to follow each of these patients for a period of up to seven months. We may begin patient enrollment in the Phase 1 trial evaluating vonapanitase as a monotherapy for PAD above the knee if sufficient funds become available. We may also initiate other small Phase 1 or Phase 1/2 trials in additional indications, which would further reduce our capital resources. However, we do not expect to initiate any other Phase 2 or Phase 3 trials prior to receiving and reviewing data from our second Phase 3 clinical trial. Furthermore, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

        Additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize vonapanitase or any additional product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, or at all. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than would otherwise be ideal and we may be required to relinquish rights to vonapanitase or any additional product candidates, or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

        If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any approved products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially adversely affect our business, financial condition and results of operations. In addition, as noted above, we and our auditors have identified conditions and events that raise substantial doubt as to our ability to continue as a going concern if we are unable to obtain funding on a timely basis.

We have never generated any revenue from product sales and may never be profitable.

        As a company, we have never obtained regulatory approval for, or commercialized, any product candidate. Our ability to generate substantial revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, vonapanitase or any additional

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product candidates. We do not anticipate generating revenues from product sales for at least the next several years, if ever. If vonapanitase or any additional product candidates fail in clinical trials or do not gain regulatory approval, or if vonapanitase or any additional product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our ability to generate future revenues from product sales depends heavily on our success in:

        Even if vonapanitase or any additional product candidates that we may develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the United States Food and Drug Administration, or the FDA, the European Medicines Agency, or EMA, or other regulatory agencies, domestic or foreign, to perform clinical trials and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations. Our failure to become and remain profitable would depress the market price of our Common Stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.


Risks Related to Clinical Development, Regulatory Review and Approval of Our Product

We are substantially dependent on the success of our current product candidate, vonapanitase, and cannot guarantee that this product candidate will successfully complete Phase 3 clinical trials, receive regulatory approval or be successfully commercialized.

        We currently have no products approved for commercial distribution. We have invested substantially all of our efforts and financial resources in the development of our current product

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candidate, vonapanitase. Our business depends entirely on the successful development and commercialization of vonapanitase, in vascular access or additional indications, which may never occur. Our ability to generate revenues in the near term is substantially dependent on our ability to develop, obtain regulatory approval for, and then successfully commercialize vonapanitase. We currently generate no revenues from sales of any products, and we may never be able to develop or commercialize a marketable product.

        Vonapanitase will require additional clinical development, regulatory approval, commercial manufacturing arrangements, establishment of a commercial organization, significant marketing efforts and further investment before we generate any revenues from product sales. We are not permitted to market or promote vonapanitase for any indication before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive this regulatory approval for any of our product candidates. If we do not receive FDA approval and successfully commercialize vonapanitase, we will not be able to generate revenue from vonapanitase in the United States in the foreseeable future, or at all. Moreover, any significant delays in obtaining approval for and commercializing vonapanitase will have a substantial adverse impact on our business and financial condition.

        We have not previously submitted a Biologics License Application, or BLA, to the FDA, or similar drug or biologic approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that vonapanitase or any additional product candidates will be successful in clinical trials or receive regulatory approval. In our first Phase 3 clinical trial, our primary efficacy endpoint of primary unassisted patency did not show statistically significant benefit for the 30 microgram dose versus placebo. While analyses of the first Phase 3 trial's other efficacy endpoints, including fistula use for hemodialysis and secondary patency, suggested clinically meaningful improvements over placebo, we cannot assure you that these results will be repeated in our second Phase 3 trial. Following our review of the data from our first Phase 3 clinical trial of vonapanitase and discussions with the FDA, we amended the protocol for our second Phase 3 clinical trial in the first quarter of 2017 to increase the planned enrollment from 300 to 500 patients, which we subsequently increased to 600 patients in the second quarter of 2017. We also re-ordered the endpoints to include co-primary endpoints of fistula use for hemodialysis and secondary patency, each of which are required to show a statistically significant benefit (p£0.05) in order to provide the basis for a BLA submission for vonapanitase as a single pivotal trial. Even though our second Phase 3 trial will evaluate co-primary endpoints for vonapanitase that showed improvements in our first Phase 3 clinical trial, there are risks of failure inherent at any stage of product development, and we may not demonstrate efficacy with regard to the co-primary endpoints of our ongoing Phase 3 clinical trial or our reordering of the endpoints could otherwise adversely affect the success of the second Phase 3 trial, or unexpected adverse events may occur. Further, vonapanitase or any additional product candidates may not receive regulatory approval even if they are successful in clinical trials. If approved for marketing by applicable regulatory authorities, our ability to generate revenues from vonapanitase will depend on our ability to, among other things:

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        If we develop vonapanitase for other indications, including arteriovenous grafts, brachiocephalic fistula and symptomatic PAD, or develop additional product candidates, we will face similar risks and challenges.

Clinical development is a lengthy and expensive process with an uncertain outcome due to many factors. Because the results of early clinical trials are not necessarily predictive of future results, vonapanitase may not have favorable results in current or future clinical trials or receive regulatory approval.

        Clinical development is expensive, difficult to design and implement, takes many years to complete and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and vonapanitase is subject to the risks of failure inherent in drug and biological development, including failure to demonstrate efficacy in a pivotal clinical trial or in the patient population we intend to enroll, the occurrence of severe or medically or commercially unacceptable adverse events, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a drug and biological product is not approvable. Results observed in earlier clinical trials may not be replicated in current or future clinical trials. For example, our first Phase 3 clinical trial of vonapanitase failed to meet its primary endpoint of primary unassisted patency, despite encouraging results from our Phase 2 trial. In addition, as is common with clinical trials, we explored a number of endpoints in our Phase 2 clinical trial of vonapanitase. We also analyzed the data from our Phase 2 and Phase 3 clinical trials of vonapanitase in a number of ways. Product candidates such as vonapanitase in Phase 3 clinical trials may fail to demonstrate sufficient efficacy despite having progressed through earlier clinical trials, even if certain analyses of primary, secondary or tertiary endpoints in those early trials showed statistical significance. Companies may suffer significant setbacks in late-stage clinical trials due to lack of efficacy, site or investigator issues, manufacturing or formulation changes or adverse safety profiles, even after earlier clinical trials have shown promising results. During the course of our clinical development, we modified our vonapanitase drug product formulation for our Phase 3 trials and commercial launch in order to facilitate ease of administration and fill and finish of vials at our 30 microgram dose. Our formulation changes could adversely affect results in our clinical trials, requiring us to make further formulation changes. In addition, following our review of the data from our first Phase 3 clinical trial of vonapanitase and discussions with the FDA, we amended the protocol for our second Phase 3 trial to include co-primary endpoints of fistula use for hemodialysis and secondary patency, each of which was studied in earlier clinical trials. Our reordering of the endpoints could adversely affect the success of the second Phase 3 trial. Additional changes or interactions with the FDA could also cause us to delay or repeat clinical trials, or could cause FDA to request additional studies or data, and we could incur unexpected costs that would have an adverse effect on our business, operating results, financial condition and prospects.

        The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. We have limited experience in designing clinical trials and we may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical

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and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of vonapanitase or any additional product candidates.

        In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial visit schedule or protocols, changes in practice patterns outside of the protocols and the rate of dropout among clinical trial participants. Any Phase 3 or other clinical trial that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market vonapanitase or any additional product candidate.

        Any delay or failure in our clinical trials would delay our obtaining, or make us unable to obtain, applicable regulatory approvals, which would prevent us from commercializing vonapanitase or any additional product candidates, generating revenues and achieving and sustaining profitability.

If clinical trials of vonapanitase or any additional product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA and comparable foreign regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of vonapanitase or any additional product candidates.

        We are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable foreign regulatory authorities, such as the EMA, impose similar restrictions. We may never receive these regulatory approvals. We must have completed extensive preclinical development and clinical trials to demonstrate the safety and efficacy of the product candidate in humans before we will be able to obtain these approvals. Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome.

        Any inability to successfully complete clinical development could result in additional costs to us and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. If, following submission, our BLA is not accepted for substantive review (i.e., filing) or approved, the FDA may require that we conduct additional clinical or preclinical trials, manufacture additional validation batches or develop additional analytical test methods before it will reconsider our application. If the FDA requires additional studies or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, the FDA may not consider any additional required trials that we perform and complete to be sufficient.

        In addition, if (1) we are required to conduct additional clinical trials or other testing of or generate data pertaining to vonapanitase beyond the trials and testing that we contemplate, (2) we are unable to successfully complete clinical trials or other testing of vonapanitase or any additional product candidates, (3) the results of these trials or tests are unfavorable, uncertain or are only

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modestly favorable, or (4) there are unacceptable safety concerns associated with vonapanitase or any additional product candidates, we, in addition to incurring additional costs, may:

        In general, the FDA requires two adequate and well-controlled clinical trials to demonstrate the effectiveness of a product candidate. In December 2016, we announced that our first Phase 3 clinical trial did not meet its primary endpoint of improved primary unassisted patency compared to placebo (p=0.254). Based on our interactions with the FDA, we believe that, if the results for each of the co-primary endpoints of our second Phase 3 clinical trial show statistical significance (p£0.05), our second Phase 3 trial together with data from previously completed studies will provide the basis for a BLA submission for vonapanitase to the FDA. However, even with robust p-values, there is no guarantee that the results of the second Phase 3 trial will be sufficient for a BLA submission, filing or approval, and the FDA, EMA or other foreign regulatory authorities may require that we conduct additional trials.

We may be unable to obtain regulatory approval for vonapanitase or any additional product candidates under applicable regulatory requirements. The denial or delay of any approvals would prevent or delay commercialization and have a material adverse effect on our potential to generate revenue, our business and our results of operations.

        Vonapanitase and any additional product candidates are subject to extensive governmental regulations relating to, among other things, research, clinical trials, approval, manufacturing, recordkeeping, labeling, storage, advertising, promotion, distribution, import, export and commercialization. In order to obtain regulatory approval for the commercial sale of any product candidate, we must demonstrate through extensive preclinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. Vonapanitase is still in development and is subject to the risks of failure inherent in drug or biologic development. We have not received approval to market any product candidate from regulatory authorities in any jurisdiction. We have only limited experience in conducting and managing the clinical trials, and in submitting and supporting the applications necessary to gain marketing approvals, and we expect to rely on third-parties, including clinical research organizations, or CROs, to assist us in this process. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trial sites by, the regulatory authorities. Vonapanitase may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. We may gain regulatory approval for vonapanitase or any additional product candidates in some but not all of the territories available or some but not all of the target indications, resulting in limited commercial opportunity for the product, or we may never obtain regulatory approval for vonapanitase or any additional product candidates in any jurisdiction.

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        The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA, EMA and other foreign regulatory authorities also have substantial discretion in the drug and biologics approval process. The number and types of preclinical studies and clinical trials that will be required for regulatory approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate. Approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary among jurisdictions, and there may be varying interpretations of data obtained from preclinical studies or clinical trials, either of which may cause delays or limitations in the approval or the decision not to approve an application. Regulatory agencies can delay, limit or deny approval of a product candidate for many reasons, including:

        It is possible that neither vonapanitase nor any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or any future collaborators to commence product sales. We do not know whether any clinical trials will begin as planned, or will be revised prior to or during the conduct of the study, completed on time or conducted at all. Any delay in obtaining, or failure to obtain, required approvals would materially adversely affect our ability to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.

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We may face difficulty in enrolling patients for clinical trials.

        We may find it difficult to enroll patients in our clinical trials, which could delay or prevent completion of clinical trials of vonapanitase or any additional product candidates. Identifying and qualifying patients to participate in clinical trials of vonapanitase or any additional product candidates are critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing product candidates. The enrollment timeline for patients can be lengthy and there are a limited number of sites from which we can enroll certain patients. If patients are unwilling to participate in our trials because of negative publicity from adverse events or for other reasons, including the results of completed or competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products may be delayed or prevented. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical trials altogether. We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by numerous factors including:

        We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.

If we experience any of a number of possible unforeseen events in connection with clinical trials of vonapanitase or any additional product candidates, potential marketing approval or commercialization of vonapanitase or any additional product candidates could be delayed or prevented.

        If we experience delays in clinical testing, we will be delayed in obtaining regulatory approvals and commercializing our product candidates, our costs may increase and our business may be harmed. We do not know whether any future clinical trials that have not started will begin as planned, whether the design will be revised prior to or during conduct of the study, completed on schedule or conducted at all. Our product development costs may increase if we experience delays in clinical testing or changes to clinical protocols. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business, results of operations

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and prospects. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent marketing approval of vonapanitase or any additional product candidates, including:

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        Product development costs for us will increase if we experience delays in testing or pursuing marketing approvals, and we may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of vonapanitase or any additional product candidates. We do not know whether any future clinical trials that have not yet started will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize vonapanitase or any additional product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize vonapanitase or any additional product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical trial delays may ultimately lead to the denial of marketing approval of vonapanitase or any additional product candidates.

Any product for which we obtain FDA approval will be subject to extensive ongoing regulatory requirements, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

        Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical research, labeling, advertising and promotional activities for the product, will be subject to continual requirements of, and review by, the FDA and comparable regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, tracking, tracing, investigation, notification, and disposition obligations under the Drug Quality and Security Act, registration and listing requirements, current good manufacturing practices, or cGMPs, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of our product candidates, they may withdraw approval, require labeling changes or establishment of a risk evaluation and mitigation strategy, or REMS, or similar risk mitigation strategy, impose significant restrictions on a product's indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.

        Even if regulatory approval of a product is granted, the approval will be subject to limitations on the indicated uses for which the product may be marketed and may be subject to other conditions of approval. We and our contract manufacturers will be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs and other regulatory requirements. In addition, approval may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Discovery after approval of previously unknown

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problems with any such products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:

        Accordingly, assuming we receive marketing approval for vonapanitase or any additional product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, distribution, product surveillance, post-marketing studies and quality control.

Vonapanitase may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of approved labeling, or result in significant negative consequences following any potential marketing approval.

        As with many pharmaceutical and biological products, treatment with vonapanitase or any additional product candidates may produce undesirable side effects or adverse reactions or events. These adverse events may occur despite our belief, based on our preclinical and clinical trials to date, that vonapanitase has a favorable safety profile. For instance, vonapanitase shows a high degree of structural similarity with other human serine proteases, which are proteins that cut other proteins to activate, inactivate or degrade these other proteins, and it is theoretically possible that if anti-vonapanitase antibodies are developed that they could cross-react with one or more of those

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other proteases because of the structural similarity, and prompt an adverse reaction. However, we have not seen any evidence of such cross-reactivity in our preclinical or clinical trials to date.

        Based on our Phase 2 and Phase 3 trials, adverse side effects that could occur with treatment with vonapanitase include fistula surgical incision pain, venous stenosis, procedural pain, fistula thrombosis, steal syndrome and hypoesthesia. If any of these adverse events occur in rates or severity exceeding placebo and unacceptable to regulatory authorities or IRBs, if anti-vonapanitase antibodies develop and are associated with cross-reactivity to other proteases, or unknown serious events emerge, our clinical trials could be suspended or terminated by us, IRBs, or the applicable regulatory authorities, and the FDA, the EMA or other foreign regulatory authorities could order us to cease further development of, or deny approval of, vonapanitase or any additional product candidates for any or all targeted indications. The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial. If we elect or are required to delay, suspend or terminate any clinical trial of vonapanitase or any additional product candidates, the commercial prospects of these product candidates will be harmed and our ability to generate product revenues from any of these product candidates will be delayed or eliminated.

        In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, including more limited patient populations, may require that contraindications, warnings or precautions be included in the product labeling, including a boxed warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-market requirements, or may approve a product candidate with labeling that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of these occurrences may harm our business, financial condition and prospects significantly.

Even if we obtain and maintain approval for vonapanitase or additional product candidates from the FDA, we may never obtain approval for vonapanitase or additional product candidates outside of the United States, which would limit our market opportunities and adversely affect our business.

        Even if we obtain approval of a product candidate in the United States from the FDA, such approval does not ensure approval of that product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of vonapanitase or any additional product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products, if approved for sale, is also subject to approval. Moreover, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval in another jurisdiction.

        If the PATENCY-2 trial is successful, we would expect to submit a Marketing Authorization Application, or MAA, to the EMA in the first half of 2020. However, based on additional data including the data from the PATENCY-2 trial and assuming sufficient funds become available, we may decide or be required to commence a clinical trial of vonapanitase in Europe for patients

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undergoing creation of radiocephalic fistulas. If we decide to commence a clinical trial of vonapanitase in Europe, we expect results from this trial to be available two to three years after the first patient is enrolled. Obtaining an approval is a lengthy and expensive process and the EMA has its own procedures for approval of product candidates. Even if a product candidate is approved, the EMA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of product candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of vonapanitase or any additional product candidates in those countries.

We may not be able to maintain Orphan Drug designation or obtain or maintain orphan drug exclusivity for vonapanitase.

        We have obtained Orphan Drug designation from the FDA for vonapanitase. In the United States, under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States for a preventive drug. The first NDA or BLA applicant to receive FDA approval for a particular drug or biologic to treat a particular disease with FDA Orphan Drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug or biologic for the same disease, except in limited circumstances. Orphan drug exclusivity may be lost if the FDA determines, among other reasons, that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

        Even if we obtain orphan drug exclusivity for vonapanitase, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve a product containing the same principal molecular structural features for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

        In response to a recent court decision regarding the plain meaning of the exclusivity provision of the Orphan Drug Act and increased scrutiny by legislators, the FDA may undertake a reevaluation of aspects of its orphan drug regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be harmed.

A breakthrough therapy, fast track product, priority review, or other designation by the FDA for our product candidates may not lead to faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

        We have received Breakthrough Therapy and Fast Track product designations for vonapanitase for hemodialysis vascular access indications. As applicable, we may seek Breakthrough Therapy, Fast Track, Priority Review, or other designations for other uses of vonapanitase. Breakthrough Therapy and Fast Track product designations are designed to facilitate the clinical development and expedite the review of drugs and biologics intended to treat a serious or life-threatening condition

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which demonstrate the potential to address an unmet medical need. Priority Review designation is intended to speed the FDA marketing application review timeframe for drugs and biologics that treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. For drugs and biologics that have been designated as Breakthrough Therapy or Fast Track products, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development. Sponsors of drugs and biologics designated as Breakthrough Therapy or Fast Track products may also be able to submit marketing applications on a rolling basis, meaning that the FDA may review portions of a marketing application before the sponsor submits the complete application to the FDA, as long as the sponsor pays the user fee upon submission of the first portion of the marketing application. For products that receive a Priority Review designation, the FDA's marketing application review goal is shortened to six months, as opposed to ten months under standard review. This review goal is based on the date the FDA accepts the marketing application for review (i.e., filing), which typically occurs two months after the date of submission.

        Designation as a Breakthrough Therapy, Fast Track product, Priority Review product, or under another program is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a Breakthrough Therapy, Fast Track product, Priority Review product, or other designation, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of any such designation for a product candidate may not result in a faster development process, review or approval compared to drugs and biologics considered for approval under conventional FDA procedures and does not assure ultimate marketing approval by the FDA. In addition, the FDA may later decide that the products no longer meet the conditions for qualification as a Breakthrough Therapy, Fast Track product or under another designation program or decide that the time period for FDA review or approval will not be shortened.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

        Because we have limited financial and managerial resources, we have focused on developing one product candidate, vonapanitase, and have focused on developing this product candidate for specific indications that we identify as most likely to succeed, in terms of both its regulatory approval and commercialization. As such, we are currently primarily focused on the development of vonapanitase for vascular access, and our Phase 3 trials will be limited to the application of vonapanitase in radiocephalic fistulas.

        In the future we intend to pursue additional indications such as the application of vonapanitase in brachiocephalic fistula creation and/or patients undergoing placement of an arteriovenous graft and/or patients with symptomatic PAD. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

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Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Department of Health and Human Services' Office of Inspector General, state attorneys general, members of Congress and the public.

        While the FDA does not restrict physicians from prescribing approved drugs and biologics for uses outside of the products' approved labeling, known as off-label use, pharmaceutical manufacturers are prohibited from promoting and marketing their products for such uses. Violations, including promotion of our products for off-label uses, are subject to enforcement letters, inquiries, investigations, civil and criminal sanctions by the government, corporate integrity agreements, debarment from government contracts, debarment and exclusion from participation in federal healthcare programs. Additionally, comparable foreign regulatory authorities will heavily scrutinize advertising and promotion of any product candidate that obtains approval outside of the United States.

        In the United States, engaging in the impermissible promotion of our products for off-label uses can also subject us to false claims litigation under federal and state statutes, which can lead to civil and criminal penalties and fines, debarment from government contracts, exclusion from participation in federal healthcare programs and corporate integrity agreements with governmental authorities that materially restrict the manner in which a company promotes or distributes drug and biologic products. These false claims statutes include the federal civil False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government decides to intervene and prevails in the lawsuit, the individual will share in any fines or settlement funds. If the government does not intervene, the individual may proceed on his or her own. Since 2004, these False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements regarding certain sales practices promoting off-label product uses involving fines that are as much as $3.0 billion.

        This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our approved products, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on our business, financial condition, results of operations and prospects. The FDA's policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval, and the sale and promotion of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

If we are found in violation of federal or state "fraud and abuse" laws or other healthcare laws and regulations, we may be required to pay a penalty and/or be suspended from participation in federal or state healthcare programs, which may adversely affect our business, financial condition and results of operation.

        We may also be subject to various federal and state laws pertaining to healthcare "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug or biologic manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a

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particular drug or biologic. Other laws that we may be subject to include the civil False Claims Act, criminal False Claims Act, the HIPAA fraud and abuse provisions, the Civil Monetary Penalties statute, Section 1927 of the Social Security Act, the Veterans Health Care Act, the Foreign Corrupt Practices Act, federal and state statutes and regulations pertaining to payments made to physicians and other health care providers, the HIPAA privacy and security provisions, and other analogous state laws. Due to the breadth of the statutory provisions, it is possible that our practices might be challenged under anti-kickback, healthcare, or other fraud and abuse laws. Moreover, recent healthcare reform legislation has strengthened these laws. For example, the Patient Protection and Affordable Care Act, or ACA, among other things, amends the intent requirement of the federal anti-kickback and certain of the criminal healthcare fraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent to violate it. In addition, the ACA clarifies that the government may assert that a claim that includes items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. False claims laws prohibit anyone from knowingly presenting, or causing to be presented for payment, to government third-party payors (including Medicare and Medicaid) claims for reimbursed drugs, or biologics or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Liability may also arise from false certification of compliance with laws and regulations that are conditions of payment. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws, and other healthcare statutes are punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid) and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. We may further be subject to such other actions as debarment from government contracts and future orders under existing contracts, refusal to allow us to enter into supply contracts, including government contracts, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our business.

        Given the significant penalties and fines that can be imposed on companies and individuals if convicted or found liable, allegations of violations under fraud and abuse laws often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If the government were to allege or convict us or our executive officers of violating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions under the False Claims Act. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities. Further, an increasing number of state laws require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state authorities.

        Similar rigid restrictions are imposed on the promotion and marketing of medicinal products in the European Union and other countries. Laws (including those governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution partners can have adverse implications for us.

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We may not be able to comply with requirements of foreign jurisdictions in conducting trials outside of the United States.

        To date, we have not conducted any clinical trials outside of the United States and Canada. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country, should we attempt to do so, is subject to numerous risks unique to conducting business in foreign countries, including:


Risks Related to Commercialization of Our Product

If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they are approved, we may be unable to generate product revenues.

        We currently do not have a commercial infrastructure for the marketing, sale and distribution of biological products. In order to commercialize our products, we must build our marketing, sales and distribution capabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. If vonapanitase is approved by the FDA, we plan to build a specialty sales force in the United States of approximately 75-100 representatives, supported by reimbursement specialists and a medical affairs team. We may seek to further penetrate the United States market in the future by expanding our sales force or through collaborations with other pharmaceutical or biotechnology companies or third party manufacturing and sales organizations. If approved for marketing outside the United States, we may commercialize outside the United States with our own specialty sales force and/or with a commercial partner.

        As a company we have no prior experience in the marketing, sale and distribution of biological products, and there are significant risks involved in the building and managing of a commercial infrastructure. The establishment and development of our own sales force and related compliance plans to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We, or our future collaborators, will have to compete with other companies to recruit, hire, train, manage and retain marketing and sales personnel. In the event we are unable to develop a marketing and sales infrastructure, we may not be able to commercialize vonapanitase or any additional product candidates, which would limit our ability to generate product revenues. Our ability to generate product revenues would be impaired by:

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        Although our current plan is to hire most of our sales personnel only if vonapanitase is approved by the FDA, we will incur expenses prior to product launch in recruiting this sales force and developing a marketing and sales infrastructure. If the commercial launch of vonapanitase is delayed as a result of FDA requirements or other reasons, we would incur these expenses prior to being able to realize any revenue from sales of vonapanitase. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing vonapanitase or any additional product candidates.

        In the event we are unable to hire a sales force or collaborate with a third-party marketing and sales organization to commercialize any approved product candidates outside the United States, our ability to generate product revenues may be limited. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization efforts.

Even if vonapanitase or any additional product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use necessary for commercial success.

        The commercial success of vonapanitase and any product candidates that we may develop will depend upon the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community. Even if the FDA approves vonapanitase or one or more of our future product candidates, physicians and patients may not accept and use them. Our efforts to educate physicians, patients, healthcare payors and others in the medical community about the benefits of vonapanitase or any other future product candidate may require significant resources and may never be successful. Acceptance and use of any of our products will depend upon a number of factors including:

        Because we expect sales of vonapanitase, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure of vonapanitase to gain market acceptance would harm our business and would require us to seek additional financing.

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Vonapanitase or any additional product candidates, if approved, may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration and expansion.

        The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical, biotechnology and medical device companies, academic institutions, governmental agencies and public and private research institutions. While we believe that vonapanitase's features, safety and efficacy will differentiate it from any competitive products that may become available in the future, we expect to face potential competition from many different sources, including larger and better-funded pharmaceutical, specialty pharmaceutical and biotechnology companies and medical device companies, as well as from academic institutions and governmental agencies and public and private research institutions that may develop potentially competitive products or technologies.

        Some of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, marketing and selling approved products than we do. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

        The key competitive factors affecting the success of vonapanitase, if approved, are likely to be its efficacy, safety, convenience, price, and the availability of reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, more convenient or less expensive than any products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.

        We are not aware of products approved in the United States or Europe that would compete with vonapanitase for the improvement of fistula use for hemodialysis and secondary patency. We are aware of companies with therapies in development including Vascular Therapies, Enceladus Pharmaceuticals, Symic Biomedical, Aplagon, and Athera Biotechnologies. In addition, we are aware of companies with approved catheter-based devices for percutaneous fistula creation, including Becton, Dickinson and Company (as successor to TVA Medical) and Avenu Medical. We are also aware of companies developing other vascular access technologies, including BioConnect Systems, Phraxis, Brookhaven Medical, Fist Assist, Laminate Medical Technologies and Stent Tek. Other technologies in development include new synthetic grafts, including those that may be developed by companies that currently compete in the graft market, such as W.L. Gore, C.R. Bard and Maquet, as well as tissue engineered grafts, including those in development by Cytograft and Humacyte. Finally, vonapanitase's commercial success could be affected by the development of technologies to improve the outcomes of interventions to restore patency, including stents, stent grafts and drug-coated balloons.

Vonapanitase, or any additional product candidates for which we seek approval as biologic products, may face competition sooner than anticipated.

        The enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the ACA, created an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as "interchangeable" based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original

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branded product was approved under a BLA. Certain changes, however, and supplements to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the 12-year exclusivity period.

        The BPCIA is complex and is still being interpreted and implemented by the FDA. ACA is also facing increased scrutiny by legislators. As a result, the ultimate impact, implementation, meaning and continued effectiveness of BPCIA are subject to uncertainty. While it is uncertain whether any aspects of BPCIA may change, any such changes could have a material adverse effect on the future commercial prospects for our biological products.

        We believe that vonapanitase, or any additional product candidates approved as a biological product under a BLA, should qualify for the BPCIA's 12-year period of exclusivity. However, there is a risk that BPCIA will be repealed or amended, or the FDA will not consider vonapanitase or any additional product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated.

        Additionally, this period of regulatory exclusivity does not preclude submission or regulatory approval of a company's own traditional BLA, as it would an application via the abbreviated pathway. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. It is possible that payers will give reimbursement preference to biosimilars even over reference biologics absent a determination of interchangeability.

If the government or other third-party payors fail to provide adequate and timely coverage and payment rates for vonapanitase or any additional product candidates or if surgeons or hospitals choose not to use vonapanitase, our revenue and prospects for profitability will be limited.

        In both domestic and foreign markets, sales of our future products will depend substantially upon the availability of timely coverage and reimbursement from government and other third-party payors. The majority of incident and prevalent hemodialysis patients have Medicare coverage, while other patients have other third-party payors, including other government health programs such as Medicaid, managed care providers, private health insurers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug and biologic products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Vonapanitase or any additional product candidates, if approved, may face competition from other therapies, biologics, and drugs for limited financial resources. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to the satisfaction of outpatient clinics, hospitals, other target customers and their third-party payors. These post-marketing studies might require us to commit a significant amount of management time and financial and other resources. Our future products might not ultimately be considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.

        Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate to allow us to establish or maintain a market share sufficient to realize a sufficient return on our investments. If reimbursement is not available, or is available only to limited levels, our product candidates may be competitively

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disadvantaged, and we, or our collaborators, may not be able to successfully commercialize our product candidates. Alternatively, securing favorable reimbursement terms may require us to compromise pricing and prevent us from realizing an adequate margin over cost. In addition, in the United States, no uniform policy of coverage and reimbursement for drug and biologic products exists among third-party payors. Therefore, coverage and reimbursement for drug and biologic products can differ significantly from payor to payor. Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for our products or product candidates for which we receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a negative effect on our business, results of operations, financial condition and prospects.

        Government programs impose price controls on pharmaceutical and biological products and penalties for increasing commercial prices at rates that exceed the government inflation index, which may limit the commercial price we charge and our realization on sales. For example, at the federal level, the Trump administration's budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a "Blueprint" to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. Although a number of these, and other proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Further, the net reimbursement for drug and biologic products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs and biologics from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any our product candidates for which we obtain marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.


Risks Related to Dependence on Third Parties

We and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.

        We currently have a relationship with only one supplier, Lonza, for the manufacturing of the API for vonapanitase for clinical testing purposes, and intend to continue to use Lonza as our sole or primary supplier of the API for vonapanitase in the future. We have used two companies, Jubilant HollisterStier and Patheon Manufacturing Services Inc. (formerly DSM Pharmaceuticals), to vial and

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make our vonapanitase finished product. We also expect to rely upon third parties to produce materials required for the commercial production of vonapanitase or any additional product candidates if we succeed in obtaining the necessary regulatory approvals. This may increase the risk that we will not have sufficient quantities of our product candidates to conduct our clinical trials or such quantities at an acceptable cost, which could result in the delay, prevention, or impairment of clinical development and commercialization of our product candidates.

        All entities involved in the preparation of drugs or biologics for clinical trials or commercial sale, including our existing contract manufacturers, are subject to extensive regulation. Ingredients of a finished therapeutic biologic product approved for commercial sale or used in clinical trials must be manufactured in accordance with cGMPs and equivalent foreign standards. These regulations govern manufacturing processes and procedures (including record-keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of product candidate that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA's cGMPs regulations enforced by the FDA through its facilities inspection program. Any failure by our third-party manufacturers to comply with cGMPs, or failure to scale-up and validate manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner for the process validation required in connection with a BLA submission, could lead to a delay in, or failure to obtain, regulatory approval of vonapanitase or any additional product candidates. For example, on November 27, 2013, our third-party supplier of finished biological product, Jubilant HollisterStier, received a Warning Letter from the FDA alleging that the company was not complying with cGMPs. We received a letter from the FDA on February 13, 2014, stating that the Warning Letter does not impact the batch of finished product we are using for our Phase 3 clinical trials. However, if Jubilant HollisterStier or any other third-party supplier does not have an acceptable cGMP compliance status at the time of review by the FDA of any BLA we might submit, approval of the BLA would be delayed. This third party supplier or other third parties could encounter similar difficulties that could impede our clinical trials, approval or commercialization.

        Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must also pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of vonapanitase or any additional product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidate or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities and quality systems do not pass a pre-approval plant inspection from the FDA or a comparable foreign authority, approval of our product candidate by the FDA or the equivalent approvals in other jurisdictions will not be granted until the regulatory authority is satisfied that the facility complies with applicable regulations.

        Regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such

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remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

        If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug or biologic product or revocation of a pre-existing approval. If any such event occurs, our business, financial condition and results of operations may be materially harmed.

Currency fluctuations in the Swiss Franc and changes in exchange rates could adversely affect our business by increasing our costs and cause our profitability to decline.

        Our contract with Lonza for the manufacturing of the API is denominated in Swiss Francs. Therefore, fluctuations in the exchange rate for Swiss Francs may affect our operating results. On January 15, 2015, the Swiss National Bank announced an edit to its policy of fixing the Swiss Franc and Euro exchange rate, which caused volatility in the currency markets for Swiss Francs and an immediate increase in their value, making our contractual payments to Lonza more expensive based on the current exchange rates. In the second quarter of 2015, we entered into forward foreign currency contracts to purchase Swiss Francs to reduce our foreign currency exposure under our contract with Lonza, all of which have been settled and are no longer outstanding. We have purchased Swiss Francs to mitigate our exposure to fluctuations in the U.S. dollar value of forecasted transactions denominated in Swiss Francs. In the future we may purchase additional forward foreign currency contracts to hedge certain forecasted transactions, including those with Lonza, and reduce exposures to foreign currency fluctuations. Any use of these derivative instruments would be intended to mitigate a portion of the exposure of these risks with the intent to reduce our risk or cost, but generally would not fully offset any change in operating results as a consequence of fluctuations in foreign currencies. Any significant foreign exchange rate fluctuations could adversely affect our financial condition and results of operations and any use of derivative instruments may not offset such fluctuations and could exacerbate their impact on our financial condition and results of operations.

We rely on third parties to conduct some or all aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing, and plan to continue to rely on such third parties if we receive marketing approvals. These third parties may not perform satisfactorily.

        We do not currently, and do not expect in the future, to independently conduct all aspects of our product manufacturing, protocol development, research and monitoring and management of our clinical programs. Vonapanitase API is produced by our contract manufacturer, Lonza. Vonapanitase finished product is produced by our contract fill/finish provider, Jubilant HollisterStier. Release testing and stability for API and finished product is performed by PPD, Inc. We currently rely, and expect to continue to rely, on third parties with respect to these items for our continued and future clinical studies as well as for commercialization, if we receive regulatory marketing approval. While we will have agreements governing their activities, we will have limited influence over their actual day-to-day performance. Nevertheless, we will be responsible for ensuring that the manufacturing is conducted in accordance with regulatory requirements such as cGMPs. Our reliance on the third parties does not relieve us of our regulatory responsibilities.

        Any of these third parties may terminate their engagements with us under the terms of our agreements upon notice to us. If we need to enter into alternative arrangements, our product candidate development and eventual commercialization activities may be delayed. Our reliance on these third parties for research and development activities, and eventual commercial supply, reduces our day-to-day control over these activities but does not relieve us of our responsibility to ensure

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compliance with all required legal, regulatory and scientific standards and any applicable trial protocols. For example, for vonapanitase or any additional product candidates that we develop and commercialize on our own, we will remain responsible for ensuring that the product is manufactured in accordance with cGMPs, each of our clinical trials is conducted in accordance with GCPs and its protocol and is analyzed in accordance with its statistical analysis plan for the clinical trial.

        If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our protocols, we may be delayed in completing, or unable to complete, the clinical trials required to support future approval of vonapanitase or any additional product candidates, and, if ultimately approved for marketing, may not be able to produce a sufficient amount of commercial supply.

        We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidate, vonapanitase, for our clinical trials, and eventual commercial supply, if we receive regulatory approval. There are a small number of suppliers for certain raw materials that we use to manufacture vonapanitase. These suppliers may not sell these raw materials to our manufacturers at the times we need them or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. We will need supply of finished product as part of the process validation and for any stability or other tests in connection with a BLA submission and also to conduct additional clinical trials, for example for additional vonapanitase indications. We will further require finished product for commercialization if we receive regulatory approval. Any significant delay in the supply of vonapanitase's ingredients due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of vonapanitase or any additional product candidate, and commercialization as we believe that replacing Lonza as the manufacturer of our API would take one to two years and replacement of any of our other manufacturers may take a substantial amount of time. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidate, our ability to commercially launch and/or generate revenues from the sale of any approved product would be impaired. Reliance on third-party manufacturers entails exposure to risks to which we would not be subject if we manufactured the product candidate ourselves, including:

Any of these events could lead to delays in the development of vonapanitase or any additional product candidates, including delays in our clinical trials, or failure to obtain regulatory approval for our product candidates, or it could impact our ability to successfully commercialize vonapanitase or any additional product candidates. Some of these events could be the basis for FDA or other

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regulatory action, including Warning Letters, injunction, recall, seizure or total or partial suspension of production. Any of these events could have a material adverse effect on our business.

We rely on third parties to conduct, supervise and monitor our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for, or commercialize, vonapanitase or any additional product candidates and our business could be substantially harmed.

        We rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their actual day-to-day performance. Nevertheless, we will be responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, and legal, regulatory and scientific standards and recognize that our reliance on the CROs does not relieve us of our regulatory responsibilities.

        We and our CROs are required to comply with the FDA's GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA and comparable foreign regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable and the FDA, the EMA, or other foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications. In addition, we are required to report certain financial interests of our third-party investigators if these relationships provide for a financial interest in the outcome of the study because of the way the payment was arranged (e.g., a royalty) or because the investigator has a proprietary interest in the product (e.g., a patent) or because the investigator has an equity interest in the sponsor of the covered study exceeding certain financial thresholds. The FDA or comparable foreign regulatory authorities may question the integrity of the data from those clinical trials conducted by principal investigators who previously served or currently serve as scientific advisors or consultants to us from time to time and receive cash compensation in connection with such services.

        Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and efficacy of vonapanitase or any additional product candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.

        Our CROs are not our employees, and we are therefore unable to monitor on a day-to-day basis whether or not they devote sufficient time and resources to our clinical and preclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, vonapanitase or any additional product candidates. If any such event were to occur, we may be subject to regulatory enforcement actions, our financial results and the commercial prospects for vonapanitase or any additional product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

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        If any of our relationships with these third-party CROs terminates, we may not be able to enter into arrangements with alternate CROs or to do so on commercially reasonable terms. Further, switching or adding additional CROs involves additional costs and requires management time and focus. In addition, a transition period may be required when a new CRO commences work. As a result, delays may occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

        We also rely on other third parties to store and distribute our products for the clinical trials that we conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of vonapanitase or any additional product candidates or commercialization of our product, if approved, producing additional losses and depriving us of potential product revenue.

We may seek to form partnerships in the future with respect to vonapanitase or any additional product candidates, and we may not realize the benefits of such partnerships.

        We may form partnerships, create joint ventures or collaborations or enter into licensing arrangements with third parties for the development and commercialization of vonapanitase or any additional product candidates. We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Any delays in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market. Moreover, we may not be successful in our efforts to establish a strategic partnership or other collaborative arrangement for any additional product candidates. For example, potential partners may consider that our research and development pipeline is insufficiently developed to justify a collaborative effort, or that vonapanitase or any additional product candidates and programs do not have the requisite commercial or clinical potential in the target population. Even if we are successful in establishing such a strategic partnership or collaboration, we cannot be certain that, following such a strategic transaction or license, we will be able to progress the development and commercialization of the applicable product candidates as envisioned, or that we will achieve the revenues that would justify such transaction.


Risks Related to Our Intellectual Property

If our efforts to protect our intellectual property related to vonapanitase or any additional product candidates are not adequate, we may not be able to compete effectively in our market.

        We rely upon a combination of patents, patent applications, know-how and confidentiality agreements to protect the intellectual property related to our only product candidate, vonapanitase, and will use a similar strategy to protect any additional product candidates. The patent position of biotechnology companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology patents. The patent applications that we own may fail to result in issued patents with claims that cover vonapanitase or any additional product candidates in the United States or in other countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, and prior art that is not before the

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patent examiners, as well as prior art that is before the patent examiners, could be used by a third party to invalidate a patent or could be relied on to prevent a patent from issuing from a pending patent application. Even if patents do successfully issue and even if these patents cover vonapanitase or any additional product candidates, third parties may challenge their validity, enforceability or scope, which may result in our patents being narrowed or invalidated.

        Furthermore, even if they are unchallenged, our patents and patent applications may not adequately provide exclusivity for vonapanitase or any additional product candidates, prevent others from designing around our patents with similar products that are outside the scope of our patents, or prevent others from operating in jurisdictions in which we did not pursue patent protection. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

        If patent applications we hold with respect to vonapanitase or any additional product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for vonapanitase or any additional product candidates, it could dissuade companies from collaborating with us. As of December 31, 2018 we own 41 issued patents and own 15 pending patent applications, most of which cover aspects of vonapanitase or its use. We cannot offer any assurances about which, if any, of the pending patent applications will issue as patents, the breadth of any such patents or any of our currently issued patents, or whether any issued patents will be challenged by third parties or will be found invalid and unenforceable if challenged. Any successful challenge to these patent applications, or patents that may issue from them, or to currently issued patents owned by us, could deprive us of rights necessary for the successful commercialization of vonapanitase or any other product candidate that we may develop. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file a patent application relating to any particular aspect of a product candidate. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be initiated by these third parties, or by the USPTO itself, to determine who was the first to invent any of the subject matter covered by the patent claims of our patents and patent applications.

        In the United States, for patent applications filed prior to March 16, 2013, assuming the other requirements for patentability are met, the first to invent is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. Certain of our currently pending utility patent applications are examined under the system in place before March 16, 2013. Third parties are allowed to submit prior art prior to the issuance of a patent by the USPTO, and may become involved in reexamination, inter partes review or interference proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position with respect to third parties.

        In addition, patents have a limited lifespan. In most countries, the statutory term of a patent is 20 years from the earliest domestic priority date claimed. In the United States, for applications filed after June 7, 1995, the statutory term of a patent is 20 years from earliest non-provisional priority date claimed. Various extensions of patent protection may be available in particular countries; however, in all circumstances, the life of a patent, and the protection it affords, has a limited term. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a product under patent protection could be reduced. We expect to seek extensions of patent protection where these are available in any countries where we are prosecuting patents. Such possible extensions include those permitted under the Drug Price Competition and Patent Term Restoration Act of 1984 in the United States, which permits up to five years' extension of patent

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protection and no more than fourteen years following product approval for a single patent that covers an FDA-approved drug or biologic that contains an active ingredient or salt or ester of the active ingredient that has not previously been marketed. The scope of protection available during an extension of a patent claiming a product is limited to the approved product itself for approved uses, and the scope of protection available during an extension of a patent claiming a method of using a product is limited to the uses claimed in the patent and approved for the product. The actual length of the extension is calculated by adding one half of the time between the IND effective date and a company's initial submission of a marketing application, plus the entire time between the submission of the marketing application and the FDA's approval of the application. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data, and then may be able to launch their product earlier than might otherwise be the case.

        Any loss of, or failure to obtain, patent protection could have a material adverse impact on our business. We may be unable to prevent competitors from entering the market with a product that is similar to or the same as our products.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of proprietary information.

        We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. Nonetheless, despite these precautions, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our know-how may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

        Enforcing a claim that a third party illegally obtained and is using any of our know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willing than United States courts to protect know-how. Misappropriation or unauthorized disclosure of our know-how could impair our competitive position and may have a material adverse effect on our business.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful, and which may lead to a finding that our patents are invalid and/or unenforceable.

        Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary to enforce or defend our intellectual property rights, to protect our know-how and/or to determine the validity and scope of our own intellectual property rights. Intellectual property litigation can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to litigate intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement

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proceeding, a court may decide that our patents are invalid or unenforceable, and may refuse to stop the other party from using the technology at issue, including on the grounds that our patents are invalid or unenforceable or do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. 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.

Third-party claims of intellectual property infringement or misappropriation may prevent or delay our development and commercialization efforts.

        Our commercial success depends in part on our ability to develop, manufacture, market and sell vonapanitase or any additional product candidates, and to use proprietary technologies without infringing the patents and proprietary rights of third parties. There is a substantial amount of litigation and adversarial proceedings, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, reexamination, and inter partes review proceedings before the USPTO and corresponding foreign patent offices. Third parties own patent rights both within and outside the United States in the fields in which we are developing and may develop vonapanitase or any additional product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that vonapanitase or any additional product candidates may be subject to claims of infringement of the patent rights of third parties.

        Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims that may cover vonapanitase or any additional product candidates and/or the use, manufacture, sale and/or offer for sale of vonapanitase or any additional product candidates. We are aware of European Patent No. EP 1 012 307 B1, or the '307 patent, which claimed, among other things, autocatalytically cleavable zymogenic precursor of a serine protease wherein a naturally occurring non-autocatalytic cleavage site is replaced in the zymogenic precursor by an autocatalytic cleavage site. The '307 patent expired on August 12, 2018.

        In some cases, we may have failed to identify relevant third-party patents or patent applications. For example, applications filed before November 29, 2000, and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published but, only after a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering vonapanitase or future product candidates could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover vonapanitase or any additional product candidates and/or the use, manufacture, sale and/or offer for sale of vonapanitase or any additional product candidates.

        If any valid and enforceable third-party patents were held by a court of competent jurisdiction to cover vonapanitase or any additional product candidates and/or their use, manufacture, sale, and/or offer for sale, the holders of any of these patents may be able to block our ability to develop and commercialize the applicable product candidate until the patent expired or unless we obtain a license. Licenses may not be available on acceptable terms, if at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or

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be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.

        Some of our early research of recombinant expression of vonapanitase, but not the corresponding development work, utilized some technology under license from a third party. The third party may contend that we use the licensed technology for our commercial recombinant expression of vonapanitase. Litigation may be necessary to defend against such a claim. Even if we are successful in defending against such a claim, litigation could result in substantial costs and be a distraction to management. If we are not successful in defending against such a claim, in addition to paying monetary damages, we may have to reconfigure the vonapanitase expression system, which would materially adversely affect our commercial development efforts.

        Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to commercialize vonapanitase or any additional product candidates. We may face a claim of misappropriation if a third party believes that we inappropriately obtained and used trade secrets of that third party. If we are found to have misappropriated a third party's trade secrets, we may be prevented from further using such trade secrets, limiting our ability to develop vonapanitase or any additional product candidates, and we may be required to pay damages.

        Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, any litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

        During the course of any patent or other intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our products, programs, or intellectual property could be diminished. Accordingly, the market price of our Common Stock may decline.

If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our current product candidate, vonapanitase, or any additional product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

        We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking patents intended to cover our products and compositions, their methods of use and any other inventions that are important to the development of our business. We also rely on know-how to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

        Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our current patents and any future patents that may issue, preserve the confidentiality of our know-how and operate without infringing the valid and enforceable patents

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and proprietary rights of third parties. We also rely on know-how and in-licensing opportunities to develop, strengthen and maintain the proprietary position of vonapanitase or any additional product candidates.

        We cannot provide any assurances that any of our pending patent applications will mature into issued patents and, if they do, that such patents or our currently issued patents will include claims with a scope sufficient to protect vonapanitase or any additional product candidates or otherwise provide any competitive advantage. For example, one of our patents that may provide coverage for vonapanitase only covers particular formulations. As a result, this patent would not prevent third-party competitors from creating, making and marketing alternative formulations that fall outside the scope of our patent claims. There can be no assurance that any such alternative formulations will not be equally effective.

        Moreover, other parties have developed technologies that may be related or competitive to our approach, and may have filed or may file patent applications and may have received or may receive patents that may overlap or conflict with our patent applications, either by claiming the same methods or formulations or by claiming subject matter that could dominate our patent position. These third party patent positions may limit or even eliminate our ability to obtain patent protection for certain inventions.

        The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented. United States patents and patent applications may also be subject to interference proceedings, ex parte reexamination, or inter partes review proceedings, and challenges in district court. Patents may be subjected to opposition, revocation proceedings, or comparable proceedings lodged in various foreign, both national and regional, patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize vonapanitase or any additional product candidates.

        Furthermore, though a patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Even if a patent issues and is held to be valid and enforceable, competitors may be able to design around our patents, such as using pre-existing or newly developed technology. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or know-how by consultants, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If these developments were to occur, they could have a material adverse effect on our sales.

        In addition, proceedings to enforce or defend our patents, if and when issued, could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly. These proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents, if and

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when issued, covering vonapanitase or any additional product candidates, are invalidated or found unenforceable, our financial position and results of operations would be materially and adversely impacted. In addition, if a court found that valid, enforceable patents held by third parties covered vonapanitase, or any additional product candidates, our financial position and results of operations would also be materially and adversely impacted.

        The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

        We rely upon unpatented know-how to maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and our confidential know-how could become known to others through such breaches or violations. Further, our know-how could otherwise become known or be independently discovered by our competitors. Further, the term of confidentiality requirements for current and terminated agreements with some of our consultants, contract manufacturing or research organizations and other third parties is finite.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

        We enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. For example, even if we have a consulting agreement in place with an academic advisor pursuant to which the academic advisor is required to assign any inventions developed in connection with providing services to us, the academic advisor may not have the right to assign these inventions to us, as it may conflict with his or her obligations to assign all intellectual property to his or her employing institution.

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        Litigation may be necessary to defend against these and other claims challenging inventorship or ownership of inventions. If we are unsuccessful in defending against any of these claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

        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.

Issued patents covering vonapanitase or covering any additional product candidates could be found invalid or unenforceable if challenged in court.

        If we initiated legal proceedings against a third party to enforce a patent, if and when issued, covering vonapanitase or any additional product candidate, the defendant could counterclaim that the patent covering our product candidate 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 include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions include allegations 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 administrative bodies in the United States or abroad, even outside the context of litigation. These mechanisms include reexamination and inter partes review in the United States and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. These proceedings could result in revocation or amendment of our patents in such a way that they no longer cover, for example, vonapanitase or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, including 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 the applicable product candidate. A loss of patent protection would have a material adverse impact on our business.

We will not seek to protect our intellectual property rights in all jurisdictions throughout the world, and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

        Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. In addition, the laws of some foreign countries do 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

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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 do not pursue and obtain 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 products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.

        The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

        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. 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, could put 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.

Some of our intellectual property may have been discovered through government funded programs and thus may be subject to federal regulations such as government "march-in" rights, certain reporting requirements, and a preference for United States industry. Compliance with these regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with foreign manufacturers.

        Some of our intellectual property rights may have been generated through the use of United States government funding and therefore are subject to certain federal regulations. For example, our patents relating to some therapeutic uses of vonapanitase and associated systems and kits that include a catheter, which we refer to as the "therapy family," arose from research funded by the United States government. As a result, the United States government has certain rights to this

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intellectual property pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act. These United States government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the United States government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations, also referred to as "march-in rights." The United States government also has the right to take title to these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the United States government may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us or the applicable licensor to expend substantial resources. In addition, the United States government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for United States manufacturers may limit our ability to contract with foreign product manufacturers for products covered by the applicable intellectual property.

        We currently do not plan to apply for additional United States government funding, but if we do, and we discover compounds or drug or biological candidates as a result of such funding, intellectual property rights to these discoveries may be subject to the applicable provisions of the Bayh-Dole Act.

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent protection for vonapanitase, our business may be materially harmed.

        Depending upon the timing, duration and specifics of the first FDA marketing approval of vonapanitase and, if applicable, any additional product candidates, a United States patent that we own or license 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 extension of one patent that covers an FDA-approved drug or biologic that contains an active ingredient or salt or ester of the active ingredient that has not previously been marketed for up to five years and no more than fourteen years after product approval for patent term lost during product development and the FDA regulatory review process. The length of the extension is calculated by adding one half of the time between the IND effective date and a company's initial submission of a marketing application, plus the entire time between the submission of the marketing application and the FDA's approval of the application. During this period of extension, the scope of protection is limited to the approved product for approved uses (for patents claiming a product) and any use claimed by the patent and approved for the product (for patents claiming a method of using a product).

        Although we plan on seeking patent term restoration for our products, it may not be granted if, for example, we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the applicable time period or

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the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term restoration or the term of any such patent restoration is less than we request, our competitors may be able to enter the market and compete against us sooner than we anticipate, and our ability to generate revenues could be materially adversely affected.

Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

        As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States has in recent years implemented wide-ranging patent reform legislation, the Leahy-Smith America Invents Act, or America Invents Act. The America Invents Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications will be prosecuted, provides expanded opportunities for post-grant administrative review of patents before the USPTO, and may also affect patent litigation. The USPTO developed new regulations and procedures to govern administration of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, in particular the first to file provisions, only became effective on March 16, 2013. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This requires us to be cognizant of the time from invention to filing of a patent application. Thus, for our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. Moreover, some of the patent applications in our portfolio will be subject to examination under the pre-America Invents Act law and regulations, while other patents applications in our portfolio will be subject to examination under the law and regulations, as amended by the America Invents Act. This introduces additional complexities and costs into the prosecution and management of our portfolio.

        In addition, the America Invents Act and recent Supreme Court and U.S. Court of Appeals for the Federal Circuit decisions limit where a patentee may file a patent infringement suit, and the America Invents Act provides opportunities for third parties to challenge any issued patent in the USPTO. These provisions apply to all of our U.S. patents, even those filed before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a federal court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims because it may be easier for them to do so relative to challenging the patent in a federal court action. It is not clear what, if any, impact the America Invents Act will have on the operation of our business. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any patents that may issue from our patent applications, all of which could have a material adverse effect on our business and financial condition.

        In addition, recent United States Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. The full impact of these decisions is not yet known. For example, on March 20, 2012 in Mayo Collaborative Services v. Prometheus Laboratories, Inc., the Court held that several claims drawn to measuring drug metabolite levels from patient samples and correlating them to drug doses were not patent-eligible subject matter. The decision appears to impact diagnostics patents that

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merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to obtain patent protection for certain inventions. Additionally, on June 13, 2013 in Association for Molecular Pathology v. Myriad Genetics, Inc., the Court held that claims to isolated genomic DNA are not patent-eligible, but claims to complementary DNA molecules are patent-eligible because they are not a natural product. The effect of the decision on patents for other isolated natural products is uncertain. On June 19, 2014 in Alice Corporation Pty. Ltd. v. CLS Bank International, et al., a case involving patent claims directed to a method for mitigating settlement risk, the Court held that the patent eligibility of claims directed to abstract ideas, products of nature, and laws of nature should be determined using the same framework set forth in Prometheus. The USPTO has issued a series of guidelines setting forth procedures for determining subject matter eligibility of claims directed to abstract ideas, products of nature, and laws of nature in line with the Prometheus, Myriad and Alice decisions. This guidance does not limit the application of Myriad to DNA, but, rather, applies the decision to other natural products. The USPTO's interpretation of the case law and new guidelines for examination may influence, possibly adversely, prosecution and defense of certain types of claims in our portfolio.

        In addition to increasing uncertainty with regard to our ability to obtain future patents, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on these and other decisions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our current or future patents.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

        Our employees have been previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors, or at universities or academic medical centers. We also engage advisors and consultants who are concurrently employed at universities or who perform services for other entities. Although we are not aware of any claims currently pending against us, we may be subject to claims that we or our employees, advisors or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. We may in the future also be subject to claims that an employee, advisor or consultant performed work for us that conflicts with that person's obligations to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work performed for us. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we are unsuccessful in defending against such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize vonapanitase or any additional product candidates, which would materially adversely affect our commercial development efforts.

Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.

        The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the

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practice of our technology, we may not be able to exercise or extract value from our intellectual property rights fully or at all. The following examples are illustrative:

        Should any of these events occur, they could significantly harm our business and results of operations.


Risks Related to Our Business and Industry

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our products, conduct our clinical trials and commercialize our product candidates.

        Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our senior management team, in particular, Timothy Noyes, our President and Chief Executive Officer, Steven Burke, our Senior Vice President and Chief Medical Officer, George Eldridge, our Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary, Scott Toner, our Senior Vice President of Commercial, and Daniel Gottlieb, our Vice President, Corporate Development, as well as the other principal members of our management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services of any member of our senior management or scientific team or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

        Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. We do not currently carry "key person" insurance on the lives of members of executive management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy including, F. Nicholas Franano, our scientific founder. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

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We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.

        We are currently a small company and in order to commercialize our potential products, we will need to increase the scope of our operations and expand our use of our third-party contractors. We plan to continue to build our compliance, financial and operating infrastructure to ensure the maintenance of a well-managed company including hiring additional staff within our regulatory, medical, clinical and commercial groups. We intend to build in-house medical and commercial organizations in the United States if the PATENCY-2 trial is successful. We currently do not have a sales and marketing capability and therefore intend to recruit a specialty sales force of approximately 75-100 representatives upon vonapanitase's approval in the United States. We will need to expand our employment base and operations when we are in the full commercial stages of our current potential product's life cycle. The physical expansion of our operations may lead to significant costs, and may divert financial resources from other projects, such as the development of our product candidates.

        Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, train, maintain and integrate additional employees. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our future financial performance and our ability to commercialize our potential products 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:

        If our management is unable to effectively manage our expected expansion, our expenses may increase more than expected, and our ability to successfully develop and gain regulatory approval of our product candidates and generate or increase our revenue, if such product candidates are approved, could be reduced and we may not be able to implement our business strategy. In addition, product candidates that we may acquire or develop in the future may be intended for patient populations that are large. In order to continue development and marketing of these product candidates, if approved, we would need to significantly expand our operations. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

        Upon completion of our Initial Public Offering, or IPO, we became subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required

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to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

        These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

If product liability lawsuits are successfully brought against us, our insurance may be inadequate and we may incur substantial liability.

        We face an inherent risk of product liability claims as a result of the clinical testing of vonapanitase or any additional product candidates. We will face an even greater risk if we commercially sell vonapanitase or any additional product candidate that we develop. We maintain primary product liability insurance and excess product liability insurance that cover our clinical trials, and we plan to maintain insurance against product liability lawsuits for commercial sale of our potential products. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials and, in the future, commercial use of our potential products, for which our insurance coverage may not be adequate, and the cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial.

        For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical 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, negligence, strict liability or a breach of warranties. Large judgments have been awarded in class action lawsuits based on drugs or biologics that had unanticipated adverse effects. 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 commercialization of vonapanitase or any additional product candidates. Regardless of the merits or eventual outcome, liability claims may result in:

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        We currently have a $5 million product liability insurance coverage in connection with our clinical trials and we will need to increase our insurance coverage if and when we begin selling vonapanitase or any additional product candidates if and when they receive marketing approval. However, the product liability insurance we will need to obtain in connection with the commercial sales of vonapanitase or any additional product candidates if and when they receive regulatory approval may be unavailable in meaningful amounts or at a reasonable cost. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of vonapanitase or any additional product candidates if and when they obtain regulatory approval, which could materially adversely affect our business, financial condition, results of operations, cash flows and prospects.

        Additionally, we do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers' compensation, products liability and directors' and officers' insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would materially adversely affect our financial position, cash flows and results of operations.

If we engage in acquisitions in the future, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.

        We may attempt to acquire businesses, technologies, services, products or product candidates in the future that we believe are a strategic fit with our business. We have no present agreement regarding any material acquisitions. If we do undertake any acquisitions, however, the process of integrating an acquired business, technology, service, products or product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management's attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, actual or contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.

We currently have our API produced for us by a contract manufacturer exclusively in one manufacturing facility and if this or any future facility, any facility we use for storage of the finished product or our equipment were damaged or destroyed, our ability to continue to operate our business would be materially harmed.

        Our executive offices are located in Waltham, Massachusetts, and our API is manufactured at Lonza's facility located in Visp, Switzerland. We expect that Lonza plans to utilize this facility in the future to support commercial production if our product candidate is approved. We have manufactured our entire finished product for the ongoing Phase 3 clinical trial of vonapanitase and currently store the finished product in only one location. Extended delays in our Phase 3 clinical trial causing us to need to manufacture new clinical supply would cause a significant disruption in our operations and cause us to incur unexpected costs to manufacture new finished product. In addition, we have completed three drug substance process validation runs at Lonza's facility in Visp, Switzerland and currently store such material in only one location. We are vulnerable to natural disasters, such as severe storms and other events that could disrupt our operations. We do not carry insurance for natural disasters and we may not carry sufficient business interruption insurance

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to compensate us for losses that may occur. If the current manufacturing facility or any future facility, stored product or equipment were damaged or destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business would be materially harmed.

        If supply is interrupted, there could be a significant disruption in our clinical development and commercial supply. If the supply is interrupted after approval of the BLA, an alternative manufacturer would need to be qualified through a BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and would likely result in a delay in our desired clinical and commercial timelines.

        These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of vonapanitase or any additional product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

Our business and operations would suffer in the event of system failures or security breaches.

        Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber attacks, natural disasters, terrorism, war and telecommunication and electrical failures. If issues were to arise and cause interruptions in our operations, it could result in a material disruption of our drug and biologic development programs or could cause loss of critical data or the unauthorized disclosure, access, acquisition, alteration, or use of personal or other confidential information. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. 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 of vonapanitase or any additional product candidates could be delayed. We may also be vulnerable to cyber attacks by hackers, or other malfeasance. This type of breach of our cybersecurity may compromise our confidential information and/or our financial information and detrimentally impact our business or result in significant legal and financial exposure and/or reputational harm.

        In addition, while we select third-party vendors and business partners carefully and routinely evaluate the cybersecurity of our CROs and other key vendors, we do not control their actions. Any problems caused by these third parties, including those resulting from cyber attacks and security breaches at a vendor, could result in material delays in our development programs and regulatory approval efforts and adversely affect our business. Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.

        There are also numerous federal, state, and local laws and regulations in the United States and around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using, cross-border transfer, and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with, may result in regulatory fines or penalties, and may be inconsistent between countries and jurisdictions or conflict

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with other requirements. We strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Several proposals are pending before federal, state, and foreign legislative and regulatory bodies that could affect our business. Any failure or perceived failure by us to comply with our privacy-related obligations to third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include personally identifiable information or other user data, may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including clinical sites, regulators or potential partners, to lose trust in us, which could have an adverse effect on our business.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.

        We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA and foreign regulators, provide accurate information to the FDA and foreign regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, and report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have a Code of Business Conduct and Ethics, but it is not always possible to identify and deter 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 comply with these laws or regulations. If any 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, including the imposition of significant fines or other sanctions.

We have broad discretion in our use of our cash and cash equivalents and may not use them effectively.

        Our management has broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not improve our results of operations or enhance the value of our Common Stock. The failure of our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our Common Stock to decline and delay the development of our product candidates. Pending their use to fund our operations, we may invest our cash and cash equivalents in a manner that does not produce income or that loses value.

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Federal legislation may increase the difficulty and cost for us to commercialize vonapanitase and may affect the prices we may obtain, and impair our ability to profitably sell vonapanitase, if approved.

        In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for vonapanitase, restrict or regulate post-approval activities and affect our ability to profitably sell vonapanitase, if approved. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, targets or interpretations will be changed, or what the impact of such changes on the marketing approvals of vonapanitase, 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 pharmaceutical industry has been significantly affected by legislative initiatives. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug and biologic purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs and biologics. Cost reduction initiatives and other provisions of this legislation could decrease the coverage of, or the reimbursement rate that we receive for, vonapanitase, if approved, and could seriously harm our business. While the MMA applies only to reimbursement of drugs and biologics under the Medicare program, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from non-governmental payors.

        In March 2010, President Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 or, collectively, the ACA, which substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. Among the provisions of the ACA of importance to our business, including, without limitation, our ability to commercialize, and the prices we may obtain for, vonapanitase, if approved for sale, are the following:

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        Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013. In January 2013 the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. More recently, the Tax Cuts and Jobs Act of 2017 eliminated certain requirements of the ACA, including the individual mandate. In addition, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the ACA. On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called "Cadillac" tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among other things, also amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the "donut hole." The full impact on our business of the ACA and other new laws is uncertain but may result in additional reductions in Medicare and other healthcare funding. In addition, it is unclear whether there will be additional judicial challenges and other administrative or legislative changes, including modification, repeal, or replacement of all, or certain provisions of, the ACA. Nor is it clear whether other legislative changes will be adopted, if any, or how such changes would affect the demand for vonapanitase, if approved.

        We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates, if approved.

        Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration's budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a

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"Blueprint" to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The HHS has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. For example, in August 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. Although a number of these, and other proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, individual states in the United States have become increasingly aggressive in implementing regulations designed to contain pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our product candidates, if approved, or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.

        Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA 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 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.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.

        In international markets, reimbursement and health care payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, particularly the countries of the European Union, 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. To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. There can be no assurance that our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that the third-party payors' reimbursement policies will not adversely affect our ability to sell our products profitably. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

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Risks Related to Our Common Stock and This Offering

We are an "emerging growth company" and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our Common Stock may be less attractive to investors.

        We are an "emerging growth company," or EGC, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs, including: 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 may take advantage of these reporting exemptions until we are no longer an EGC. We will remain an EGC until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

        We cannot predict whether investors will find our Common Stock less attractive if we rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not EGCs.

        Even after we no longer qualify as an EGC, we may still qualify as a "smaller reporting company" which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our Common Stock less attractive because we will rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

The market price for our Common Stock may be volatile, which could contribute to the loss of your investment.

        Fluctuations in the price of our Common Stock could contribute to the loss of all or part of your investment. Prior to our IPO, there was no public market for our Common Stock. We are now listed on NASDAQ, but we cannot predict the extent to which investor interest in our Company will lead to the development of or sustain an active trading market on NASDAQ or otherwise or how liquid that market might become. If an active trading market for our Common Stock does not develop or is not sustained, the market price and liquidity of our Common Stock will be materially and adversely affected and it may be difficult for stockholders to sell their shares of Common Stock at prices that

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are attractive to them, or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our Common Stock.

        If an active market for our Common Stock develops and continues, the trading price of our Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect the price of our Common Stock and stockholders may also be unable to sell their shares of Common Stock at prices that are attractive to them due to fluctuations in the market price of our Common Stock. In such circumstances the trading price of our Common Stock may not recover and may experience a further decline.

        Factors affecting the trading price of our Common Stock may include:

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        Broad market and industry factors may materially harm the market price of our Common Stock irrespective of our operating performance. The stock market in general, and NASDAQ and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be predictable. A loss of investor confidence in the market for technology or software stocks or the stocks of other companies which investors perceive to be similar to us, the opportunities in the digital simulation market or the stock market in general, could depress our stock price regardless of our business, prospects, financial conditions or results of operations.

Actual or potential sales of our Common Stock by our employees, including our executive officers, pursuant to pre-arranged stock trading plans could cause our stock price to fall or prevent it from increasing for numerous reasons, and actual or potential sales by such persons could be viewed negatively by other investors.

        In accordance with the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, a number of our employees, including executive officers, have adopted and may continue to adopt stock trading plans pursuant to which they have arranged to sell shares of our Common Stock from time to time in the future. Generally, sales under such plans by our executive officers and directors require public filings. Actual or potential sales of our Common Stock by such persons could cause the price of our Common Stock to fall or prevent it from increasing for numerous reasons. For example, a substantial number of shares of our Common Stock becoming available (or being perceived to become available) for sale in the public market could cause the market price of our Common Stock to fall or prevent it from increasing. Also, actual or potential sales by such persons could be viewed negatively by other investors.

The resale of the shares of Common Stock issuable upon the conversion of our Series A Convertible Preferred Stock could adversely affect the prevailing market price of our Common Stock and cause stockholders to experience dilution.

        On August 2, 2017, we issued and sold 22,000 shares of our Series A Convertible Preferred Stock, par value $0.001 per share, for a purchase price of $1,000 per share, or an aggregate purchase price of $22.0 million. Each share of Series A Convertible Preferred Stock is convertible into approximately 1,005 shares of our Common Stock at a conversion price of $0.9949 per share, provided that any conversion of Series A Convertible Preferred Stock by a holder into shares of Common Stock is prohibited if, as a result of such conversion, the holder, together with its affiliates and any other person or entity whose beneficial ownership of our Common Stock would be aggregated with such holder's for purposes of Section 13(d) of the Exchange Act, would beneficially own more than 9.985% of the total number of shares of our Common Stock issued and outstanding after giving effect to such conversion (the "Blocker"). Pursuant to the registration statement that we filed with the SEC for the resale by holders of our Series A Preferred Convertible Stock, as selling stockholders, of the aggregate 22,112,775 shares of Common Stock that are issuable upon

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conversion of the Series A Convertible Preferred Stock, the outstanding shares of Series A Convertible Preferred Stock may, at each holder's election, be converted into our Common Stock, subject to the Blocker. Although we cannot predict if and when the holders of Series A Convertible Preferred Stock may sell such shares in the public market, any converted shares of Common Stock will be available for immediate resale and be able to be freely sold in the open market. The conversion of shares of Series A Convertible Preferred Stock into shares of Common Stock will result in substantial dilution to holders of our Common Stock. Further, the sale of a significant amount of these shares of Common Stock in the open market or the perception that these sales may occur could adversely affect prevailing market prices of our Common Stock, including causing the market price of our Common Stock to decline or become highly volatile.

We are highly dependent on our ability to raise additional capital and raising additional funds through debt or equity financing could be dilutive and may cause the market price of our Common Stock to decline.

        Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings, and potentially through strategic partnerships with third parties. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for our current stockholders and the terms may include liquidation or other preferences that adversely affect the rights of our current stockholders. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our Common Stock to decline and existing stockholders may not agree with our financing plans or the terms of such financings. Moreover, the incurrence of debt financing could result in a substantial portion of our operating cash flow being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on our operations, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additional funding may not be available to us on acceptable terms, or at all.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our Common Stock could decline.

        The trading market for our Common Stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our Common Stock, the lack of research coverage may adversely affect the market price of our Common Stock. Furthermore, if one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

        As of December 31, 2018, our executive officers, directors, current 5% or greater stockholders, and their respective affiliates together beneficially own or control, in aggregate, more than 50% of the shares of our outstanding Common Stock. As a result, these executive officers, directors and principal stockholders, acting together, will have substantial influence over most matters that require approval by our stockholders, including the election of directors, any merger, consolidation or sale of

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all or substantially all or of our assets or any other significant corporate transaction. Corporate action might be taken even if other stockholders oppose such action. These stockholders may delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain control of our company, even if such change of control would benefit our other stockholders. This concentration of stock ownership may adversely affect investors' perception of our corporate governance or delay, prevent or cause a change in control of our company, any of which could adversely affect the market price of our Common Stock.

Future sales and issuances of our Common Stock or rights to purchase Common Stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

        We have filed a registration statement permitting shares of Common Stock issued in the future, pursuant to our employee benefit plans, to be freely resold by plan participants in the public market, subject to applicable lock-up agreements, applicable vesting schedules and, for shares held by directors, executive officers and other affiliates, volume limitations under Rule 144 for shares. Our 2014 Amended and Restated Employee Incentive Plan and 2014 Employee Stock Purchase Plan also contain a provision for the annual increase of the number of shares reserved for issuance under such plan, which shares we also intend to register in the future as such annual increase occurs. If the shares we may issue from time to time under our employee benefit plans are sold, or if it is perceived that they will be sold, by the award recipient in the public market, the trading price of our Common Stock could decline.

        We expect that significant additional capital will be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell Common Stock, convertible securities or other equity securities in one or more transactions, including in at-the-market offerings, at prices and in a manner we determine from time to time. 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, preferences and privileges senior to the holders of our Common Stock.

We will continue to incur substantial costs as a result of operating as a public company, and our management will continue to devote substantial time to new compliance initiatives and corporation governance policies.

        As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, and rules of the SEC and those of NASDAQ impose various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

        The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting the later of our second annual report on Form 10-K or the first annual report on

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Form 10-K following the date on which we are no longer an EGC. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.

        Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our Common Stock, and could adversely affect our ability to access the capital markets.

We do not expect to pay any cash dividends for the foreseeable future.

        You should not rely on an investment in our Common Stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our Common Stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. Accordingly, investors must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our Common Stock.

We will have broad discretion in how we use the proceeds from this offering. We may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline.

        We have considerable discretion in the application of the net proceeds from this offering. We intend to continue to use the net proceeds to fund: the preparation and submission of a BLA with the FDA and an MAA with the EMA; continued commercial infrastructure build and prelaunch activities in support of a potential commercial launch of vonapanitase in the United States; further establishment and expansion of commercial drug supply chain and in anticipation of a potential commercial launch; continued development of vonapanitase in peripheral artery disease; and for other general corporate purposes, including general and administrative expenses (including personnel-related costs), potential future development programs, early-stage research and development, capital expenditures, and working capital. As a result, investors will be relying upon management's judgment with only limited information about our specific intentions for the use of the net proceeds. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds in a manner that does not produce income or that loses value.

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Our ability to use our net operating loss carryovers and certain other tax attributes may be limited.

        As described above under "—Risks Related to Our Financial Condition and Need for Additional Capital," we have incurred net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. Under the Internal Revenue Code, as amended (the "Code"), a corporation is generally allowed a deduction for net operating losses, or NOLs, carried over from a prior taxable year. Under that provision, we can carry forward our NOLs to offset our future taxable income, if any, until such NOLs are used or expire. The same is true of other unused tax attributes, such as tax credits.

        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, Sections 382 and 383 of the Code, limit the corporation's ability to use carryovers of its pre-change NOLs, credits and certain other tax attributes to reduce its tax liability for periods after the ownership change. We completed a preliminary analysis to determine if there were changes in ownership for tax years through 2017, as defined by Section 382 of the Internal Revenue Code that would limit our ability to utilize certain net operating loss and tax credit carryforwards and it was preliminarily determined a change in ownership occurred in 2017. With this change in ownership, as defined by Section 382, we believe utilization of our net operating losses and tax credits carryforwards have become limited. As a result, this could result in increased U.S. federal income tax liability for us if we generate taxable income in a future period. Limitations on the use of NOLs and other tax attributes could also increase our state tax liability. The use of our tax attributes will also be limited to the extent that we do not generate positive taxable income in future tax periods.

Substantial future sales or perceived potential sales of our common stock in the public market could cause the price of our common stock to decline significantly.

        Sales of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline significantly. Upon completion of this offering, we will have             shares of common stock outstanding, assuming the underwriters do not exercise their option to purchase additional shares. Upon completion of this offering, approximately             shares of our common stock beneficially owned by our executive officers, directors, and certain shareholders will be subject to lock-up agreements that prohibit, subject to certain exceptions, the disposal of any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for a period of             days after the date of this prospectus. Any or all of these shares may be released prior to the expiration of the lock-up period at the discretion of the designated representatives. To the extent shares are released before the expiration of the lock-up period and sold into the market, the market price of our common stock could decline significantly.

        All of the shares sold in this offering and the remaining shares not subject to the lock-up period will be freely tradeable.

        The holders of approximately              million shares of our common stock, or approximately         % of our total outstanding common stock as of December 31, 2018, are entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting schedules. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

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We could be subject to securities class action litigation.

        In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology companies, including our company, have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business.

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the net tangible book value of your shares.

        The public offering price of our common stock will be substantially higher than the net tangible book value per share of common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. Based on the assumed public offering price of $             per share, which is the last reported sale price of our common stock on the Nasdaq Global Market on                    , 2019, you will experience immediate dilution of $             per share, representing the difference between our as adjusted net tangible book value per share after giving effect to this offering and the assumed public offering price. Furthermore, if the underwriters exercise their option to purchase shares or our previously issued options to acquire common stock at prices below the assumed public offering price are exercised, you will experience further dilution. See "Dilution" for a more detailed description of the dilution to new investors in the offering.

Provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law may have anti- takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

        Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions that:

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        These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

        In addition, because we are incorporated in the State of Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.

        Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock, and could also affect the price that some investors are willing to pay for our Common Stock.

        Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and federal court within the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

        Our amended and restated certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware and federal court within the State of Delaware will be exclusive forums for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation described above. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. These forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to, statements about:

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        All forward-looking statements in this prospectus 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 these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under "Risk Factors," and elsewhere in this prospectus. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

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MARKET, INDUSTRY AND OTHER DATA

        This prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for certain medical conditions, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

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USE OF PROCEEDS

        The net proceeds from this offering will be approximately $              million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, we estimate that our net proceeds from this offering will be approximately $              million.

        We expect to use the net proceeds of this offering as follows:

        We believe that the net proceeds from the offering, together with our existing cash and cash equivalents and investments, will be sufficient to fund our projected operating expenses and capital expenditure requirements into         . However, this may change if there are any significant increases beyond our expectations in spending on development, regulatory or commercial activities or more rapid progress of such development, regulatory or commercial programs than anticipated.

        Our expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions, which could change in the future as our plans and business conditions evolve. The amount and timing of our actual expenditures will depend upon numerous factors, including the scope and results of our regulatory activities, the nature and scope of our launch preparation activities, including our prelaunch spending associated with building a commercial infractruture, and other factors or unforeseen cash needs. As a result, our management will have broad discretion over the use of the net proceeds from this offering.

        Pending the use of the proceeds from this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities, certificates of deposit or government securities.

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MARKET PRICE OF COMMON STOCK

        Our common stock has been listed on the Nasdaq Global Market under the symbol "PRTO" since October 22, 2014. Prior to that date, there was no public trading market for our common stock. The following table sets forth for the period indicated the high and low intraday sale price per share of our common stock as reported on the Nasdaq Global Market:

Year Ended December 31, 2017:   High   Low  

First Quarter

  $ 2.20   $ 1.40  

Second Quarter

  $ 1.95   $ 1.10  

Third Quarter

  $ 2.20   $ 1.25  

Fourth Quarter

  $ 2.75   $ 1.60  

 

Year Ended December 31, 2018:   High   Low  

First Quarter

  $ 2.85   $ 1.85  

Second Quarter

  $ 2.90   $ 2.00  

Third Quarter

  $ 2.80   $ 1.81  

Fourth Quarter

  $ 2.38   $ 1.50  

        The last reported sale price of our common stock on the Nasdaq Global Market on             , 2019 was $             per share. As of             , 2019, there were              holders of record of our common stock. This number does not reflect beneficial owners whose shares are held in street name.


DIVIDEND POLICY

        We have never declared or paid any cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends to holders of our common stock in the foreseeable future.

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CAPITALIZATION

        The following table sets forth our cash and capitalization as of December 31, 2018 on:

        You should read this table together with the information contained in this prospectus, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and related notes included elsewhere in this prospectus.

 
  As of
December 31, 2018
 
 
  Actual   As Adjusted  
 
  (audited)
  (unaudited)
 
 
  (in thousands)
 

Cash, cash equivalents and available-for-sale investments

  $ 21,867        

Preferred stock, par value $0.001 per share; 10,000,000 shares authorized

             

Series A convertible preferred stock, 22,000 shares authorized, issued and outstanding at December 31, 2018 actual and as adjusted

    22        

Common stock, par value $0.001 per share; 100,000,000 shares authorized at December 31, 2018 actual and as adjusted; 19,243,651 shares issued and outstanding at December 31, 2018 actual and as adjusted, respectively

    19        

Additional paid-in capital

    209,366        

Accumulated deficit

    (210,470 )      

Accumulated other comprehensive income

    5        

Total stockholders' equity

    20,443        

Total capitalization

  $ 20,443        

        The information above is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual offering price and other terms of this offering determined at pricing.

        A $1.00 increase (decrease) in the assumed offering price of $             per share, which was the last reported sale price of our common stock on the Nasdaq Global Market on                   , 2019, would increase (decrease) the amount of cash and cash equivalents, additional paid-in capital, total stockholders' equity (deficit) and total capitalization on an as adjusted basis by approximately $              million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares offered by us would increase (decrease) cash and cash equivalents, total stockholders' equity (deficit) and total capitalization on an as adjusted basis by approximately $              million, assuming the assumed offering price remains the same, and after deducting

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estimated underwriting discounts and commissions and estimated offering expenses payable by us. A one million share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed offering price of $             per share, which was the last reported sale price of our common stock on the Nasdaq Global Market on                  , 2019, would increase each of cash and cash equivalents and total stockholders' (deficit) equity by approximately $              million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a one million share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed offering price of $             per share, which was the last reported sale price of our common stock on the Nasdaq Global Market on                  , 2019, would decrease each of cash and cash equivalents and total stockholders' (deficit) equity by approximately $              million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual offering price and other terms of this offering determined at pricing.

        The table above does not include the following potentially dilutive shares of common stock outstanding at December 31, 2018:

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DILUTION

        If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering.

        Our historical net tangible book equity as of December 31, 2018 was $20.4 million, or $0.49 per share of common stock, assuming 41,356,426 shares of common stock outstanding as of December 31, 2018. Historical net tangible book value per share is determined by dividing our total tangible assets less total liabilities by the number of shares of common stock outstanding, which is 19,243,651 shares, and assuming conversion of all shares of Series A Convertible Preferred Stock into 22,112,775 shares of common stock.

        After giving further effect to our issuance and sale of             shares of our common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of December 31, 2018 would have been $              million, or $             per share. This represents an immediate increase in as adjusted net tangible book value per share of $             to existing stockholders and immediate dilution of $             in as adjusted net tangible book value per share to new investors purchasing common stock in this offering.

        Dilution per share to new investors is determined by subtracting as adjusted net tangible book value per share after this offering from the offering price per share paid by new investors. The following table illustrates this dilution on a per share of common stock basis when including conversion of all of the shares of Series A Convertible Preferred Stock and assuming the underwriters do not exercise their option to purchase additional shares of common stock:

Assumed public offering price per share

        $                

Historical net tangible book value per share as of December 31, 2018

  $ 0.49        

Increase per share attributable to this offering

  $                      

As adjusted net tangible book value per share to give effect to this offering

        $                

Dilution in net tangible book value per share to new investors in this offering

        $                

        If the underwriters exercise their option to purchase additional shares in full or if any additional shares are issued in connection with outstanding options, you will experience further dilution. If the underwriters exercise their option to purchase additional shares in full, the following will occur:

        The following table summarizes, on the same as adjusted as of December 31, 2018, the total number of shares of common stock purchased from us, the total cash consideration paid to us and

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the average price per share of common stock paid by our existing owners and by new investors purchasing shares of common stock in this offering:

 
  Shares Purchased   Total Consideration    
 
 
  Average Price
Per Share
 
(in thousands, except share and per share amounts)
  Number   Percent   Amount   Percent  

Existing stockholders

    41,356,426               % $ 230,913               % $                

Investors participating in this offering

                                                         

Total

                                    100.0 % $                   100.0 % $                

        The foregoing tables and calculations are based upon assuming 41,356,426 shares of common stock outstanding as of December 31, 2018 which includes 19,243,651 shares of common stock outstanding and assumes conversion of all shares of series A preferred stock into 22,112,775 shares of common stock.

        Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. New investors will experience further dilution if any of our outstanding options or warrants are exercised, new options are issued and exercised under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities for lower consideration per share than in this offering in the future.

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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 "Summary financial data," "Selected financial data" and our financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, they may not be predictive of results or developments in future periods.

Overview

        We are a late-stage biopharmaceutical company focused on the development of novel, first-in-class pharmaceuticals to address the medical needs of patients with kidney and vascular disease. Our product candidate, vonapanitase, is a recombinant human elastase that we are developing to improve vascular access outcomes in patients with chronic kidney disease, or CKD, undergoing or preparing for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We believe the data from our completed Phase 2 and Phase 3 clinical trials of vonapanitase in patients undergoing creation of an arteriovenous fistula support that a one-time, local application of vonapanitase during surgical creation of a radiocephalic fistula for hemodialysis may improve fistula use for hemodialysis and secondary patency (time to fistula abandonment), thereby improving patient outcomes and reducing the burden on patients and the healthcare system. We are currently evaluating vonapanitase in our second Phase 3 trial, PATENCY-2, for vonapanitase in radiocephalic fistulas, our initial indication. Following our review of the complete data sets from our first Phase 3 trial, PATENCY-1 and discussions with the U.S. Food and Drug Administration, or FDA, we amended the protocol for the PATENCY-2 trial in the first quarter of 2017. The protocol amendment reordered the existing endpoints for this ongoing trial, establishing fistula use for hemodialysis and secondary patency as co-primary endpoints. We also increased the planned enrollment for this trial from 300 to 600 patients. The increased sample size provides power to detect the differences observed in the PATENCY-1 trial for fistula use for hemodialysis and secondary patency of 98% and 88%, respectively, with a p-value £0.05 for each of the co-primary endpoints. We received written confirmation from the FDA that, if PATENCY-2 is successful in showing statistical significance (p-value £0.05) on each of the co-primary endpoints, the PATENCY-2 trial together with data from previously completed studies would provide the basis for a Biologics License Application, or BLA, submission as a single pivotal study, in which case no additional studies would need to be conducted prior to submitting the BLA. Vonapanitase also received Breakthrough Therapy designation from the FDA in May 2017 for hemodialysis vascular access. The FDA awards Breakthrough Therapy designations to expedite the development and review of investigational drugs that are intended to treat serious or life-threatening conditions when preliminary clinical evidence indicates that the treatment may offer a substantial improvement over currently available therapies on one or more clinically significant endpoints. In March 2018, we completed the enrollment of 603 treated patients in the PATENCY-2 trial at 39 centers in the U.S. and Canada. We expect to report top-line data from the PATENCY-2 trial in late March 2019 and, if the PATENCY-2 trial is successful, we expect to submit a BLA to the FDA in fourth quarter of 2019.

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We further expect to submit a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, in the first half of 2020 if the PATENCY-2 trial is successful.

        We commenced business operations in June 2001 and incorporated in March 2006. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of vonapanitase, protecting our intellectual property and providing general and administrative support for these operations. To date, we have not generated any product revenue and have primarily financed our operations through the private placement of our equity securities, business development activities, convertible note financings, and our initial public offering, or IPO, completed in October 2014.

        As of December 31, 2018, we had received an aggregate of $200.1 million in net proceeds comprised of $115.5 million from the issuance of private equity securities, $7.7 million from the issuance of convertible notes, $10.0 million from business development activities, $0.2 million from government grants, $62.5 million from our IPO and $4.2 million from the sale of Common Stock under our at-the-market, or ATM, program with Cowen and Company, LLC.

        We have never been profitable and have incurred net losses in each year since inception. As of December 31, 2018, we had an accumulated deficit of $210.5 million and our net loss for the year ended December 31, 2018 was $20.7 million. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect our research and development expenses to increase as we continue the clinical trials of, and seek regulatory approval for, vonapanitase. If we obtain regulatory approval for vonapanitase, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we expect that our general and administrative costs will increase as we grow and operate as a public company. As a result, we will need to generate significant revenue if we are to achieve profitability, and we may never be able to do so.

        We believe that our cash and cash equivalents and available-for-sale investments at December 31, 2018 will be sufficient to fund our operating expenses and capital expenditure requirements into the first quarter of 2020. We believe that these funds will be sufficient to enable us to report top line data from the PATENCY-2 trial, our second Phase 3 trial of vonapanitase in radiocephalic fistulas, and to fund our ongoing development and chemistry, manufacturing and controls, or CMC, activities. To continue as a going concern, we must secure additional funding to support our current operating plan. As of December 31, 2018, we had approximately $21.9 million in existing cash, cash equivalents and marketable securities. Based on these available cash resources, we do not have sufficient cash on hand to support current operations for at least the next twelve months from the date of filing our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. This condition raises substantial doubt about our ability to continue as a going concern. For more information, refer to "—Liquidity and Capital Resources" below and Note 1 to our consolidated financial statements included elsewhere in this prospectus.

        We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for vonapanitase, which we expect will take a number of years and is subject to significant uncertainty. We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. Additionally, we currently use third-party clinical research organizations, or CROs, to carry out our clinical development activities and we do not yet have a sales organization. If we obtain regulatory approval for vonapanitase, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we may seek to further fund our operations through public or private equity or debt financings or other sources, including strategic collaborations. We may, however, be unable

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to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise additional capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop vonapanitase or any additional product candidates, if developed.

Financial Overview

Research and Development Expenses

        Research and development expenses consist primarily of costs incurred for the development of vonapanitase, which include:

        We expense research and development costs to operations as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.

        We cannot determine with certainty the duration and completion costs of the current or future clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of vonapanitase. We may never succeed in achieving regulatory approval for vonapanitase. The duration, costs and timing of clinical trials and development of vonapanitase will depend on a variety of factors, which include:

        A change in any of these factors could mean a significant change in the costs and timing associated with the development of vonapanitase. For example, if the FDA, EMA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Our current development activities and future plans include the following:

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Marketing, General and Administrative Expenses

        Marketing, general and administrative expenses consist principally of salaries and related costs for personnel, including stock-based compensation and travel expenses, in executive and other administrative functions. Other marketing, general and administrative expenses also include professional fees for legal, patent review, consulting and accounting services as well as facility related costs. We anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with our NASDAQ listing and SEC requirements, director and officer liability insurance premiums and investor relations costs associated with being a public company.

        Additionally, if and when we believe a regulatory approval of vonapanitase appears likely, we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations.

Investment Income

        Investment income consists of interest income earned on our cash, cash equivalents and marketable securities.

Other Income (Expense), Net

        Other income (expense), net consists of the gain realized from non-cash gains and losses from currency exchange rate fluctuations on transactions or balances denominated in a foreign currency. This foreign currency exposure is the result of a contract with the manufacturer of active pharmaceutical ingredient, or API for our lead product candidate, vonapanitase, which requires us to make payments in Swiss Francs.

Critical Accounting Policies and Significant Judgments and Estimates

        Our management's discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with accounting

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principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include estimates related to clinical trial accruals, stock-based compensation expense, embedded derivatives and reported amounts of revenues and expenses during the reported period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

        While our significant accounting policies are described in more detail in the notes to our consolidated financial statements and related notes appearing elsewhere in this Annual Report, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

        As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We routinely confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to CROs in connection with clinical trials and vendors related to manufacturing, development and distribution of clinical supplies.

        We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense (prepaid expense). Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differs from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred.

        We enter into forward foreign currency contracts to reduce our foreign currency exposure. We record these derivative financial instruments on the consolidated balance sheet at fair value. Although these derivative contracts are intended to economically hedge foreign exchange risk, we have not elected to apply hedge accounting. As such, changes in the fair value of these instruments are recorded directly in earnings as a component of other income (expense) as they occur. We

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execute derivative instruments with financial institutions that we judge to be credit-worthy, defined as institutions that hold an investment-grade credit rating.

        We issue stock-based awards to employees and non-employees, generally in the form of stock options. We account for our stock-based awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation, ("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock options and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. We account for stock-based awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees, which requires the fair value of the award to be remeasured at fair value as the award vests.

        Our stock-based awards are subject to either service or performance-based vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Compensation expense related to awards to non-employees with service-based vesting conditions is recognized on the then-current fair value at each financial reporting date prior to the measurement date over the associated service period of the award, which is generally the vesting term, using the accelerated attribution method. Compensation expense related to awards to employees with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable. Compensation expense related to awards to non-employees with performance-based vesting conditions is recognized based on the then-current fair value at each financial reporting date prior to the measurement date over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable.

        Described below is the methodology we have utilized in measuring stock-based compensation expense. Following the consummation of our IPO, stock option values have been determined based on the quoted market price of our common stock.

        We estimate the fair value of our stock-based awards to employees and non-employees using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, including (i) the expected volatility of our stock, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. During 2018 we began to estimate our volatility by using a blend of our stock price history, for the length of time we have market data for our stock and the historical volatility of similar public companies for the expected term of each grant. For these analyses, we select companies with comparable characteristics to ours including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of our stock-based awards. During 2018 we began to estimate our volatility by using a blend of our stock price history, for the length of time we have market data for our stock and the historical volatility of similar public companies for the expected term of each grant. We account for forfeitures as they occur. We estimate the expected life of our employee stock options using the "simplified" method, whereby, the expected life equals the average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option were based on the U.S. Treasury yield curve in effect during the period the options were granted.

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        We have computed the fair value of employee and director stock options at date of grant using the following weighted-average assumptions:

 
  Year Ended
December 31,
 
 
  2018   2017  

Weighted average expected volatility

    93.5 %   94.5 %

Expected term (in years)

    6.07     6.06  

Risk free interest rate

    2.55 %   2.09 %

Expected dividend yield

    0 %   0 %

Results of Operations

Comparison of the Years Ended December 31, 2018 and 2017

        The following table summarizes our results of operations for the years ended December 31, 2018 and 2017 (in thousands):

 
  Year Ended
December 31,
   
 
 
  Period-to-Period
Change
 
 
  2018   2017  

Operating expenses:

                   

Research and development

  $ 11,848   $ 21,686   $ (9,838 )

General and administrative

    9,524     8,676     848  

Total operating expenses

    21,372     (30,362 )   (8,990 )

Loss from operations

    (21,372 )   (30,362 )   8,990  

Other income:

                   

Investment income

    436     259     177  

Other income, net

    207     139     68  

Total other income

    643     398     245  

Net Loss

  $ (20,729 ) $ (29,964 ) $ 9,235  

        Research and Development Expenses.    The following table identifies research and development expenses on both an external and internal basis for the years ended December 31, 2018 and 2017 (in thousands):

 
  Year Ended
December 31,
   
 
 
  Period-to-Period
Change
 
 
  2018   2017  

External vonapanitase research and development expenses

  $ 7,401   $ 16,955   $ (9,554 )

Internal research and development expenses

    4,447     4,731     (284 )

Total research and development expenses

  $ 11,848   $ 21,686   $ (9,838 )

        During the year ended December 31, 2018, our total research and development expense decreased by $9.8 million compared to the year ended December 31, 2017 primarily due to $9.6 million in decreased external expenses. The decrease of $9.6 million in external expenses was primarily driven by $7.8 million in decreased expenses for our manufacturing pre-validation and validation efforts and by $1.8 million in decreased expenses for our ongoing clinical trials. Our internal research and development expenses decreased by $0.3 million in the year ended December 31, 2018 as compared to the year ended December 31, 2017 due primarily to decreased personnel costs.

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        Marketing, General and Administrative Expenses.    During the year ended December 31, 2018, our total marketing, general and administrative expenses increased by $0.8 million as compared to the year ended December 31, 2017 primarily due to increases in overhead and personnel costs to support our ongoing corporate activities.

        Investment Income.    During the year ended December 31, 2018, investment income increased by $0.2 million primarily due to an increase in interest income on our cash, cash equivalents, and marketable securities

        Other Income, Net.    During the year ended December 31, 2018, other expense, increased by $0.1 million as compared to the year ended December 31, 2017 primarily due to the increase in the foreign currency remeasurement gain.

Comparison of the Years Ended December 31, 2017 and 2016

        The following table summarizes our results of operations for the years ended December 31, 2017 and 2016 (in thousands):

 
  Years Ended
December 31,
   
 
 
  Period-to-Period
Change
 
 
  2017   2016  

Operating expenses:

                   

Research and development

  $ 21,686   $ 18,869   $ 2,817  

General and administrative

    8,676     9,836     (1,160 )

Total operating expenses

    30,362     28,705     1,657  

Loss from operations

    (30,362 )   (28,705 )   (1,657 )

Other income (expense):

                   

Investment income

    259     193     66  

Other income (expense), net

    139     (14 )   153  

Total other income

    398     179     219  

Net loss

  $ (29,964 ) $ (28,526 ) $ (1,438 )

        Research and Development Expenses.    The following table identifies research and development expenses on both an external and internal basis for the years ended December 31, 2017 and 2016 (in thousands):

 
  Year Ended
December 31,
   
 
 
  Period-to-Period
Change
 
 
  2017   2016  

External vonapanitase research and development expenses

  $ 16,955   $ 13,669   $ 3,286  

Internal research and development expenses

    4,731     5,200     (469 )

Total research and development expenses

  $ 21,686   $ 18,869   $ 2,817  

        During the year ended December 31, 2017, our total research and development expenses increased by $2.8 million compared to the year ended December 31, 2016 primarily due to $3.3 million in increased external expenses. The increase of $3.3 million in external expenses was primarily driven by $4.1 million in increased expenses for our manufacturing pre-validation and offset by $0.8 million in decreased expenses for our ongoing clinical trials. Our internal research and development expenses decreased by $0.5 million in the year ended December 31, 2017 as compared to the year ended December 31, 2016 due primarily to decreased personnel costs.

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        Marketing, General and Administrative Expenses.    During the year ended December 31, 2017, our total marketing, general and administrative expenses were $1.2 million lower as compared to the year ended December 31, 2016 primarily due to reductions in overhead and personnel costs in the year ended December 31, 2017 of $1.2 million to support our ongoing corporate activities.

        Investment Income.    During the year ended December 31, 2017, investment income increased by $0.1 million primarily due to an increase in interest income of $0.1 million.

        Other Income (expense), Net.    During the year ended December 31, 2017, other expense, increased by $0.2 million as compared to the year ended December 31, 2016 primarily due to foreign currency remeasurement gain for cash denominated in Swiss Francs and the change in the fair value associated with the forward foreign currency contracts we entered into in the second quarter of 2015. As of December 31, 2016, all forward foreign currency contracts had been settled and are no longer outstanding.

Liquidity and Capital Resources

        Since our inception and through the year ended December 31, 2018, we had received $200.1 million in net proceeds comprised of $115.5 million from the issuance of private equity securities, $7.7 million from the issuance of convertible notes, $10.0 million from business development activities, $0.2 million from government grants, $62.5 million from our IPO and $4.2 million from the sale of Common Stock under our now-terminated at-the-market, or ATM, program with Cowen and Company, LLC. As of December 31, 2018, our cash and cash equivalents and available-for-sale investments totaled $21.9 million.

        On August 2, 2017 we received net proceeds of approximately $21.5 million from the issuance of Series A convertible preferred stock to new and existing investors at a price per share of $1,000. In aggregate, we issued 22,000 shares of Series A convertible preferred stock, each share of which is convertible into approximately 1,005 shares of our Common Stock at a conversion price of $0.9949 per share.

        On November 12, 2015, we entered into a Sales Agreement with Cowen to establish an at-the-market equity offering program, or ATM program, pursuant to which Cowen was able, with the Company's authorization, to offer and sell up to $40 million in aggregate amount of our Common Stock from time to time under our registration statement on Form S-3, File No. 333-207965, which was declared effective January 12, 2016. Our ATM program was terminated effective as of February 7, 2019, when our new shelf registration statement on Form S-3, File No. 333-228865, was declared effective by the SEC.

        We expect to incur increasing operating losses for at least the next several years as we (i) conduct our clinical trials for vonapanitase, thereafter seeking marketing approval for vonapanitase assuming successful trial outcomes, (ii) pursue development of vonapanitase for additional indications, and (iii) prepare for commercial operations. We may not be able to complete the development and initiate commercialization of vonapanitase if, among other things, our clinical trials are not successful, and the FDA does not approve vonapanitase or does not approve vonapanitase when we expect.

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        We believe that our cash and cash equivalents and available-for-sale investments as of December 31, 2018 will be sufficient to fund our operations into the first quarter of 2020. We believe that these funds will be sufficient to enable us to report top line data from our second Phase 3 trial of vonapanitase in radiocephalic fistulas, named PATENCY-2 and to fund our ongoing development and CMC activities through this date.

        Pursuant to the requirements of Accounting Standards Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management's plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of management's plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. See Note 1 to the consolidated financial statements included elsewhere in this prospectus for a further discussion of our liquidity and the conditions and events which raise substantial doubt regarding our ability to continue as a going concern.

        Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including:

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        The following table summarizes our sources and uses of cash for the years ended December 31, 2018 and 2017 (in thousands):

 
  Years Ended
December 31,
 
 
  2018   2017  

Net cash used in operating activities

  $ (23,233 ) $ (22,352 )

Net cash provided by (used in) investing activities

    18,427     (16,099 )

Net cash provided by financing activities

    2,985     23,049  

Effect of exchange rate changes on cash

    22     180  

Net decrease in cash, cash equivalents, and restricted cash

  $ (1,799 ) $ (15,222 )

        Net cash used in operating activities was $23.2 million for the year ended December 31, 2018 compared to $22.4 million for the year ended December 31, 2017. The increase of $0.8 million in cash used in operating activities was primarily driven by a $10.3 million increase in cash outflows related to changes in the components of working capital, principally related to a decrease in accounts payable and accrued expense offset by a decrease in our net loss of $9.2 million, and a $0.3 million increase related to non cash items as compared to the year ended December 31, 2017.

        Net cash provided by investing activities was $18.4 million for the year ended December 31, 2018 compared to $16.1 million used in the year ended December 31, 2017. The change of $34.5 million in cash provided by investing activities was primarily driven by an increase in cash inflows of $15.1 million due to increased proceeds from maturities and sale of investments, a decrease in cash outflows of $17.4 million from the purchases of available-for-sale investments and an increase in cash inflows of $2.0 million due to increased proceeds from the sales of available-for-sale investments, as compared to the year ended December 31, 2017.

        Net cash provided by financing activities was $3.0 million for the year ended December 31, 2018 compared to $23.0 million used in the year ended December 31, 2017. The decrease of $20.1 million in net cash provided by financing activities as compared to the year ended December 31, 2017 was due to the $21.5 million of proceeds from the issuance of Series A Convertible Preferred Stock, net of issuance costs, in the year ended December 31, 2017 and a decrease in cash inflows of $0.1 million due to the exercise of stock options, offset by an increase in cash inflows of $1.5 million in proceeds from the issuance of Common Stock, net of issuance costs, as compared to year ended December 31, 2017.

        The following table summarizes our sources and uses of cash for the years ended December 31, 2017 and 2016 (in thousands):

 
  Years Ended
December 31,
 
 
  2017   2016  

Net cash used in operating activities

  $ (22,352 ) $ (23,687 )

Net cash (used in) provided by investing activities

    (16,099 )   19,916  

Net cash provided by financing activities

    23,049     208  

Effect of exchange rate changes on cash

    180     (76 )

Net decrease in cash and cash equivalents

  $ (15,222 ) $ (3,639 )

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        Net cash used in operating activities was $22.4 million for the year ended December 31, 2017 compared to $23.7 million for the year ended December 31, 2016. The decrease of $1.3 million in cash used in operating activities was primarily driven by a $2.7 million decrease in cash inflows related to changes in the components of working capital offset by an increase in our net loss of $1.4 million, as compared to the year ended December 31, 2016.

        Net cash used in investing activities was $16.1 million for the year ended December 31, 2017 compared to $19.9 million provided in the year ended December 31, 2016. The change of $36.0 million in cash used in investing activities was primarily driven by a decrease in cash inflows of $43.0 million due to decreased proceeds from maturities and sale of investments offset by a decrease in cash outflows of $6.8 million due to decreased purchases of available-for-sale investments and a decrease in cash outflows of $0.2 million due to decreased capital equipment purchases as compared to the year ended December 31, 2016.

        Net cash provided by financing activities for the year ended December 31, 2017 increased by $22.8 million compared to the year ended December 31, 2016 due to net proceeds of $21.5 million from our preferred equity financing in August 2017 and $1.3 million from the sale of Common Stock under our ATM program.

Off-Balance Sheet Arrangements

        We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the applicable regulations of the SEC.

Contractual Obligations

        The following table summarizes our outstanding contractual obligations as of payment due date by period at December 31, 2018:

 
  Total   Less than
1 Year
  1 to 3 Years   3 to 5 Years   More than
5 Years
 

Operating Leases(1)

  $ 207   $ 207   $          

(1)
In July 2009 we entered into a multi-year non-cancelable lease for our offices in Waltham, Massachusetts. In October 2011, we amended the lease extending its expiration to December 2014. In August 2014, we amended the lease extending its expiration to June 2018 with one optional one-year extension period. In August 2017, we amended the lease extending its expiration to September 2019 with one optional one-year extension period. The minimum lease payments above do not include common area maintenance charges or real estate taxes.

        The contractual obligation table does not include, due to the uncertainty of the occurrence of these events requiring payment under these agreements, any potential future royalty payments we may be required to make under our license assignment with Johns Hopkins University and does not include any potential future payments we may be required to make under our manufacturing agreement with Lonza, due to the uncertainty of the occurrence of the events requiring payment under those agreements.

JOBS Act

        In April 2012, the Jumpstart Our Business Startups Act, or JOBS Act was enacted in the United States. Section 107 of the JOBS Act provides that an "emerging growth company," or EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act

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for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies.

Qualitative and Quantitative Disclosures about Market Risk

        The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2018, we had cash equivalents and available-for-sale investments of $21.9 million consisting primarily of investments in U.S. Treasuries and certificates of deposit. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term marketable securities. Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio. We have the ability to hold our marketable securities until maturity, and therefore, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a change in market interest rates on our investments.

        We contract with CROs and contract manufacturers internationally. Transactions with one of our contract manufacturers is settled in Swiss Francs and therefore, while we believe we have some foreign currency exposure, we have entered into forward foreign currency contracts to purchase Swiss Francs to manage this risk. The last outstanding forward foreign currency contract was executed during December 2016.

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BUSINESS

Overview

        We are a late-stage biopharmaceutical company focused on the development of novel, first-in-class pharmaceuticals to address the needs of patients with renal and vascular disease. Our product candidate, vonapanitase, is a recombinant human elastase that we are developing to improve vascular access outcomes in patients with chronic kidney disease, or CKD, undergoing or planning for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We believe data from our completed Phase 2 and Phase 3 clinical trials of vonapanitase support that a one-time, local application of investigational vonapanitase during surgical creation of a radiocephalic fistula for hemodialysis may improve fistula use for hemodialysis and secondary patency (time to fistula abandonment), thereby improving patient outcomes and reducing the burden on patients and the healthcare system.

        Arteriovenous fistulas are the gold standard of vascular access for hemodialysis, given they are associated with fewer complications and reduced rates of hospitalization as compared to other forms of vascular access. We estimate there are approximately 130,000 fistulas created in the United States annually, 35-40% of which are radiocephalic fistulas. To create an arteriovenous fistula, a surgeon transects a vein and sutures it to the side of a nearby artery, typically in the arm. Radiocephalic fistulas created in the forearm are the preferred form of arteriovenous fistula because they preserve the maximum number of future sites for vascular accesses (i.e., the potential use of other vascular access sites further up in the arm) and are associated with the lowest rate of serious complications such as steal syndrome (hand ischemia).

        However, radiocephalic fistulas suffer from a high rate of failure, typically due to insufficient blood flow, precluding hemodialysis. Recent data demonstrate that within one year of surgical creation of a radiocephalic fistula:

        The need to improve vascular access outcomes for patients is well established in the hemodialysis community. Achieving a usable fistula for vascular access and maintaining the patency (blood flow) of such fistula enables the hemodialysis patient to avoid use of a dialysis catheter, the worst form of vascular access because of the increased risk of serious infection, hospitalization and death. Patients with a usable fistula also avoid the need for additional surgical procedures to create new forms of vascular access. Finally, as each patient has only a limited number of vascular access sites, fistula abandonment increases the risk that the patient may exhaust all permanent access sites and be subjected to chronic use of a dialysis catheter.

        Vascular access failure also results in substantially higher healthcare costs. It was reported that fistulas that fail to become usable resulted in incremental costs to Medicare of more than $21,000 in the first year and more than $10,000 in each of the second and third years following fistula creation. A recent study indicated that the total cost to Medicare for managing hemodialysis vascular access in patients with End Stage Renal Disease, or ESRD was more than $2.8 billion in 2013. This amount excludes costs of managing vascular access in predialysis patients and dialysis patients covered by

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Medicare Advantage HMOs or other non-Medicare payers, as well as patient co-pays and deductibles.

        Because the clinical implications of fistula non-use and abandonment are severe, health care providers are aggressive in monitoring and intervening upon fistulas in an attempt to increase fistula use and reduce the rate of fistula abandonment. In less than a decade, the rate of procedures has approximately doubled. The function of usable fistulas can usually be restored via corrective procedures, either an intervention such as angioplasty, which is dilation of a blood vessel with a balloon, or a surgical revision. These procedures, however, are invasive, painful and associated with a number of complications. These procedures are also costly and often need to be repeated. Fistula patients in the United States on average require greater than 1.5 procedures per year, each of which typically costs Medicare between $5,000 and $15,000.

        For a fistula to become usable for hemodialysis, it must experience substantial increases in lumen diameter and blood flow through a process known as outward vascular remodeling. The acute increase in blood flow following fistula creation stimulates a cell signaling process that leads to an upregulation of endogenous elastases in the fistula. Elastases bind to and fragment elastin fibers that in turn stimulate cellular proliferation and differentiation. These stimulated cells, known as myofibroblasts, remodel the fistula leading to increased lumen diameter and blood flow. While vonapanitase's exact mechanism is not known, nonclinical studies have shown that vonapanitase fragments elastin fibers in the vessel wall and thus may augment endogenous elastase activity in the fistula. Nonclinical research has also demonstrated that elastin fragments stimulate myofibroblast proliferation and differentiation necessary for outward vascular remodeling and that elastin fragments may inhibit the migration of myofibroblasts to the vessel lumen that can cause intimal hyperplasia. In our fistula program, we are studying the administration of vonapanitase once at the time of fistula creation, whereby a surgeon would administer drops of vonapanitase onto the surface of the artery and vein of a fistula for 10 minutes followed by a saline irrigation. Based on clinical and nonclinical studies, we believe that a one-time, local application of investigational vonapanitase to the external surface of the vessels during fistula surgical creation may enhance outward vascular remodeling and inhibit neointimal hyperplasia, thereby reducing the risk of fistula failure.

        PATENCY-1, the first of two multicenter, randomized, double-blind, placebo-controlled Phase 3 clinical trials, evaluated the safety and efficacy of a single dose of investigational vonapanitase in patients with CKD who underwent surgical creation of a radiocephalic arteriovenous fistula for hemodialysis. We reported top-line data from the PATENCY-1 trial in December 2016. While this trial did not meet the primary endpoint of improving primary unassisted patency, we are encouraged that vonapanitase demonstrated clinically meaningful improvements in other efficacy endpoints, including:

        Reported adverse events were also comparable between the vonapanitase and placebo arms of the study. These events were consistent with the medical events experienced by patients with CKD undergoing surgical creation of a radiocephalic fistula.

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        Our ongoing Phase 3 clinical trial, PATENCY-2, is the second Phase 3 trial of investigational vonapanitase in patients with CKD undergoing surgical creation of a radiocephalic fistula for hemodialysis. After announcing top-line results from the PATENCY-1 trial in December 2016, we had discussions with the U.S. Food and Drug Administration, or FDA, regarding changes to the PATENCY-2 trial. Following our review of the complete data sets from the PATENCY-1 trial and discussions with the FDA, we amended the protocol for the PATENCY-2 trial. The protocol amendment reordered the endpoints for this ongoing trial, establishing fistula use for hemodialysis and secondary patency as co-primary endpoints. The protocol amendment also increased the planned enrollment for this trial from 300 to 500 patients, which we subsequently increased to 600 patients. The increased sample size for the PATENCY-2 trial provides power to detect the differences observed in the PATENCY-1 trial for fistula use for hemodialysis and secondary patency of 98% and 88%, respectively, with a p-value £0.05 for each of the co-primary endpoints. In connection with these changes, we received written confirmation from the FDA that, if PATENCY-2 is successful in showing statistical significance (p£0.05) on each of the co-primary endpoints, the PATENCY-2 trial together with data from previously completed studies would provide the basis for a Biologics License Application, or BLA, submission as a single pivotal study, in which case no additional studies would need to be conducted prior to submitting the BLA. We completed enrollment in the PATENCY-2 trial in March 2018 and expect to report top-line data in late March 2019. If the PATENCY-2 trial is successful, we expect to submit a BLA to the FDA in the fourth quarter of 2019 and a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, in first half of 2020.

        Vonapanitase received Breakthrough Therapy designation from the FDA in May 2017 for hemodialysis vascular access indications. The FDA awards Breakthrough Therapy designations to expedite the development and review of investigational drugs that are intended to treat serious or life-threatening conditions when preliminary clinical evidence indicates that the treatment may offer a substantial improvement over currently available therapies on one or more clinically significant endpoints. Vonapanitase previously received Fast Track designation from the FDA which is also designed to facilitate the development and expedite the review of drugs and biologics to treat serious conditions and address an unmet medical need. We also received orphan drug designations for vonapanitase in the United States and European Union for hemodialysis vascular access indications.

        We believe that, if our ongoing Phase 3 clinical trial is successful and vonapanitase is approved, vonapanitase will potentially become the standard of care for patients with CKD undergoing surgical creation of a radiocephalic fistula. We retain worldwide commercial rights to vonapanitase. If approved by regulatory authorities, we intend to commercialize this product in the United States ourselves with a specialty sales force, focused primarily on vascular surgeons. We also intend to seek one or more collaborators to commercialize the product in additional markets, including Europe and China. Our patents include claims covering formulations, methods of manufacturing and use of elastases, providing protection in the United States into 2030 and European Union through 2028, with potential extension into 2033 in the United States and in the European Union.

Our Strengths

        We believe our company and vonapanitase possess the following attributes that increase the likelihood that we will be successful in developing and commercializing vonapanitase:

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Our Strategy

        Our strategy is to develop and commercialize vonapanitase for patients suffering from renal and vascular diseases, beginning with patients with CKD undergoing surgical creation of a radiocephalic fistula. Key elements of our strategy include our plans to:

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Background on Hemodialysis

        Healthy kidneys serve many functions, including eliminating metabolic waste products and excess water, helping to control blood pressure, and keeping electrolytes such as sodium and potassium in balance. Patients with CKD have lost kidney function, most commonly due to diabetes or hypertension. Kidney disease is progressive and once a patient has reached end-stage CKD, the kidneys are no longer able to perform their normal functions. At this point, some form of renal replacement therapy is required, such as hemodialysis, in which blood is processed by a hemodialysis machine; peritoneal dialysis, a process using a cavity in the abdomen called the peritoneum as a membrane across which fluids are exchanged from the blood; or kidney transplant.

        Hemodialysis is the most common form of treatment for end-stage CKD, a patient population that in the United States is expected to grow at an annual growth rate of approximately 3% between

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2015 and 2030 according to recent publications. According to the U.S. Renal Data System 2018 Annual Data Report, in 2016 there were approximately 458,000 hemodialysis patients in the United States with approximately 109,000 new incident patients having started hemodialysis during the year. We believe that there are approximately 330,000 hemodialysis patients in Europe, 450,000 hemodialysis patients in China, 320,000 hemodialysis patients in Japan and 2.6 million hemodialysis patients worldwide, with an annual worldwide growth rate of 6-7%.

        Hemodialysis is a chronic therapy performed by cannulating, or piercing, a vein with a large bore needle so that blood can be pumped through a hemodialysis machine, which removes metabolic waste and excess water normally excreted by the kidney. The cleansed blood is then returned to the same vein via a second needle. A hemodialysis session typically lasts three to four hours and is performed three times a week in an outpatient dialysis clinic.

        To enable sufficient blood to pass through the hemodialysis machine to complete treatment within four hours, a vein must have blood flow of at least 500 milliliters per minute. The arm is the most convenient location for accessing the blood stream on a recurring basis, but blood flow in the arm is approximately 50 milliliters per minute. Therefore, most hemodialysis patients undergo a surgical procedure in which a surgeon establishes a direct connection between an artery and a vein, referred to as a fistula, to create a high flow circuit of sufficient diameter, most often in an arm. The fistula bypasses the capillary circulation in the hand and leads to a process known as maturation, where the internal diameter, or lumen, of the vein and blood flow increase over a period of weeks, resulting in a lumen diameter greater than 4 millimeters and blood flow of 500-2,000 milliliters per minute in successful cases.

        Arteriovenous fistulas are the gold standard for vascular access. Arteriovenous fistulas are preferred because they are associated with fewer complications and reduced rates of hospitalization as compared to other forms of vascular access. As compared to grafts, fistulas require approximately 40% fewer interventional or surgical procedures and suffer from a rate of vascular access infection that is 54% lower. Patients dialyzing with a fistula have lower rates of thrombosis and hospitalization, longer survival, reduced mortality and lower cost of care. Beyond the substantial medical advantages of a fistula, available data from the U.S. Renal Data System show that patients who dialyze with a fistula cost Medicare approximately $15,000 less annually than patients who dialyze with a graft and approximately $25,000 less annually than patients who dialyze with a catheter. According to published data, approximately 68% of hemodialysis patients in the United States dialyze with a fistula compared to 67-83% of patients in the major European countries and approximately 90% of patients in China and Japan.

        Based on various third-party sources, we estimate there were approximately 130,000 fistulas created in the United States annually. There are a limited number of potential artery-vein combinations in the arm that can be used to create a fistula, principally the following:

        The medical community endorses radiocephalic fistulas as the optimal form of vascular access and the recommended first choice for new hemodialysis patients. Creating the vascular access site at the forearm preserves the potential future use of other accesses further up in the arm, is simpler

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to create, and is less likely to create heart failure due to very high blood flow or steal syndrome, where the diversion of flow through the fistulas reduces blood to the hand. Radiocephalic fistulas are also less likely to suffer from symptomatic central stenoses in the shoulder and chest, remote from the site of the fistula. The Kidney Disease Outcome Quality Initiative Guidelines, or KDOQI Guidelines, authored by the National Kidney Foundation, or NKF, specifically recommend starting with a radiocephalic fistulas if possible, stating that "starting [closer to the hand] and moving [further up the arm] provides for the possibility of preserving as many potential sites as possible for future access creation." If a radiocephalic fistula must be abandoned, a surgeon can create a new vascular access higher up the arm, most likely a brachiocephalic fistula. However, if a brachiocephalic fistula is created first, the surgeon cannot later move down that same arm to create a radiocephalic fistula because the cephalic vein has already been transected for use in the brachiocephalic fistula.

        While radiocephalic fistulas are considered the most desirable form of vascular access, radiocephalic fistulas suffer from high rates of patency loss and non-use for hemodialysis. Up to 40% of radiocephalic fistulas are abandoned within 12 months after their surgical creation. Additionally, up to 55% of radiocephalic fistulas fail to become usable for hemodialysis. Some patients never receive a radiocephalic fistula because the surgeon believes the risk of failure is too high for those patients. These patients who tend to be older and sicker will undergo creation of a fistula higher up on the arm and permanently lose at least one of their access sites. We believe that the number of radiocephalic fistulas created annually may rise if vonapanitase improves outcomes and allows vascular surgeons to create radiocephalic fistulas in patients that they previously considered to be at an unacceptably high risk of failure.

        The second choice for vascular access after a fistula is an arteriovenous graft in which a surgeon connects an artery and vein using a synthetic tube. Approximately 20% of hemodialysis patients in the United States dialyze with a graft, compared to approximately 5-12% of patients in the major European countries and approximately 2% and 7% of patients in China and Japan, respectively.

        The least desirable type of vascular access is a catheter, a plastic tube that is placed directly through the skin into a vein, typically via an incision in the neck enabling placement of the catheter into a large vein that leads directly to the heart. The catheter connects the patient's vasculature to the hemodialysis machine. Because the catheter penetrates the skin continuously, it is subject to a high risk of infection and increased mortality. One of the primary goals of hemodialysis care is to keep patients off catheters. However, in the United States approximately 80% of patients initiate hemodialysis through a catheter until a fistula or graft is ready to be used, and are dialyzed through a catheter when the fistula or graft does not become usable for hemodialysis or must be abandoned and a new one has to be created. Approximately 12% of hemodialysis patients in the United States dialyze with a permanent catheter, compared to 10-28% of patients in the major European countries and approximately 10% and 2% of patients in China and Japan, based on published data.

Established Medical Need

        The need to improve vascular access outcomes is well established in the hemodialysis community. The health-related and economic costs of creating vascular accesses and addressing access dysfunction and associated complications have led to a global effort to address the problem. Over the last twenty years, the NKF has established guidelines in an effort to increase the use of fistulas while reducing the rate of complications, mostly through the identification and promulgation of best practices. The National Institutes of Health, or NIH, joined the effort in 2000 with the creation of a multi-center consortium of medical centers, the Dialysis Access Clinical Trials Consortium, to coordinate the testing of new treatments designed to improve fistula and graft outcomes. The intensity of these efforts increased markedly in 2004, when the Centers for Medicare and Medicaid

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Services, or CMS, reacting to health and economic data, announced the "Fistula First" initiative to increase the use of fistulas while reducing complications. According to Fistula First, fistulas should be considered for every patient needing hemodialysis because, compared to other forms of vascular access, fistulas last longer, require fewer surgical and endovascular interventions, are associated with lower rates of infection, hospitalization and death, and are less costly. As a result of these efforts, fistula use has approximately doubled since 2004 to 67% of United States hemodialysis patients in 2018.

        Although arteriovenous fistulas are the preferred form of vascular access, they suffer from a high rate of failure, typically due to insufficient blood flow, precluding hemodialysis. The increased use of fistulas has also led to a concurrent increase in the number of fistulas created in patients with higher risks of dysfunction. Manifestations of fistula failure can include the following:

        We are not aware of products approved in the United States or Europe that would compete with vonapanitase for the improvement of fistula use for hemodialysis and secondary patency.

        For patients on hemodialysis, fistula non-use or abandonment is associated with a number of poor outcomes, many of which are associated with prolonged catheter exposure. Patients whose fistula fails to become usable or is abandoned are often subjected to the following:

        One of the primary goals of the Fistula First campaign is to reduce the use of catheters, which is considered the worst form of vascular access. As a foreign body, a catheter may incite chronic inflammation resulting in malnutrition, anemia and cardiovascular disease. Catheters are also subject to low blood flow, predisposing patients to underdialysis. In addition, patients dialyzing with a

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catheter are at heightened risk of hospitalization compared to patients dialyzing with a fistula. Patients dialyzing with a catheter average 18 hospital days per patient-year, which is approximately twice the rate of patients dialyzing with a fistula. Catheter exposure results in a substantially higher rate of infections, especially catheter-related bacteremia, due to the challenges of inserting and maintaining a foreign body through the skin. Infection is the second leading cause of death in hemodialysis patients, and catheter use is independently associated with increased risk of infectious, cardiovascular, and all-cause mortality compared to fistula use.

        Among pre-dialysis patients, fistula failure can result in the patient initiating hemodialysis using a catheter instead of a fistula, which has been shown to be associated with increased risk of subsequent fistula failure and hospitalization. Patients who initiate hemodialysis on a catheter have two times the rate of admissions for infection in the first month of hemodialysis and a higher risk of all-cause hospitalization compared to patients initiating with a fistula. A recent study indicated an incremental cost increase of $30,000 in the first year of hemodialysis for patients initiating hemodialysis on a catheter.

        Because the clinical implications of fistula non-use and abandonment are severe, health care providers are aggressive in monitoring and intervening upon fistulas in an attempt to increase fistula use and reduce the rate of fistula abandonment. In less than a decade, the rate of procedures has approximately doubled. Such procedures include balloon angioplasty and surgical revision, which are invasive, painful and associated with a number of complications. The procedures also often fail to provide a durable benefit, resulting in a cycle of interventions for the patient. Recent data indicate that 50% of fistulas that undergo angioplasty to treat patency loss experience another episode of patency loss within 12 months, resulting in the need for additional procedures to restore patency. Additionally, the procedures are not always successful in restoring patency, with up to 27% of the procedures failing to restore function, resulting in fistula abandonment. Patients in the United States using a fistula on average require more than 1.5 procedures per year, each of which typically costs Medicare between $5,000 and $15,000. It was also reported that fistulas that fail to become usable resulted in incremental costs to Medicare of up to more than $21,000 in the first year and more than $10,000 in each of the second and third years following fistula creation. In addition, a recent study indicated that the total cost to Medicare for managing hemodialysis vascular access was more than $2.8 billion in 2013. This amount excludes costs of managing vascular access in predialysis patients and dialysis patients covered by Medicare Advantage HMOs or other non-Medicare payers, as well as patient co-pays and deductibles.

Vonapanitase

        Vonapanitase is a recombinant human elastase under development as a treatment to improve vascular access outcomes in patients with CKD undergoing or planning for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We have completed four multicenter, randomized, double-blind, placebo-controlled studies evaluating vonapanitase compared to placebo in patients with CKD, including the first of two Phase 3 clinical trials, PATENCY-1. We also completed patient enrollment in our second Phase 3 clinical trial, PATENCY-2, in March 2018 and expect to release top-line data in late-March 2019. Vonapanitase received Breakthrough Therapy designation from the FDA in May 2017 for hemodialysis vascular access. The FDA awards Breakthrough Therapy designations to expedite the development and review of investigational drugs that are intended to treat serious or life-threatening conditions when preliminary clinical evidence indicates that the treatment may offer a substantial improvement over currently available therapies on one or more clinically significant endpoints. Vonapanitase previously received Fast Track designation from the FDA which is also designed to facilitate the development and expedite the review of drugs and biologics to treat serious conditions and address an unmet medical need. We also received orphan drug designations for vonapanitase in the United States and European Union for hemodialysis vascular access indications.

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Mechanism of Action

        Based on clinical and nonclinical studies, we believe that a one-time, local application of investigational vonapanitase to the external surface of the blood vessels during fistula surgical creation may enhance outward vascular remodeling and inhibit neointimal hyperplasia, thereby reducing the risk of fistula failure.

        For a fistula to become usable for hemodialysis, it must experience substantial increases in lumen diameter and blood flow through a process known as outward vascular remodeling. The acute increase in blood flow following fistula creation stimulates a cell signaling process that leads to an upregulation of endogenous elastases in the fistula. Elastases bind to and fragment elastin fibers that in turn stimulate cellular proliferation and differentiation. These stimulated cells, known as myofibroblasts, remodel the fistula leading to increased lumen diameter and blood flow.

        In newly created fistulas, there are two primary causes of fistula failure:

        While vonapanitase's exact mechanism is not known, we demonstrated through nonclinical studies that vonapanitase, at the concentrations being studied in arteriovenous fistulas, causes partial fragmentation of elastin fibers, primarily in the adventitial layer of the vessel wall, and thus may augment endogenous elastase activity in the fistula. Nonclinical research has also demonstrated that elastin fragments stimulate myofibroblast proliferation and differentiation necessary for outward vascular remodeling and that elastin fragments may inhibit the migration of myofibroblasts to the vessel lumen that can cause intimal hyperplasia. In animal models of vascular injury, the porcine homologue of vonapanitase applied to the adventitial surface of veins and arteries fragmented elastin and directed the migration of proliferating cells away from the vessel lumen, significantly reducing neointimal hyperplasia.

Clinical Development of Vonapanitase

Our First Phase 3 Clinical Trial, PATENCY-1

        In December 2016, we announced that the PATENCY-1 trial did not meet its primary endpoint of improved primary unassisted patency compared to placebo (p=0.254). Primary unassisted patency was defined as the length of time from fistula surgical creation to the first occurrence of a fistula thrombosis or corrective procedure to restore or maintain patency (blood flow). While not statistically significant, vonapanitase treated patients demonstrated a 17% reduction in the risk of primary unassisted patency loss over one year. At the end of one year, 42% of vonapanitase-treated patients maintained primary unassisted patency, compared to 31% of placebo-treated patients. Median patency, the time at which 50% of patients in a group lost primary unassisted patency, was 171 days in the placebo group and 214 days in the vonapanitase treatment group based on the Kaplan-Meier estimates.

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        Kaplan-Meyer curves for primary unassisted patency in PATENCY-1:

GRAPHIC

        Secondary patency, the secondary endpoint in the PATENCY-1 trial, was defined as the length of time from surgical creation until fistula abandonment. Results suggested that vonapanitase may have improved secondary patency compared to placebo, as vonapanitase-treated patients demonstrated a 34% reduction in the risk of secondary patency loss (p=0.048). At the end of one year, 74% of vonapanitase-treated patients maintained secondary patency, compared to 61% of placebo-treated patients.

        Kaplan-Meyer curves for secondary patency in PATENCY-1:

GRAPHIC

        Results also suggested that vonapanitase may have improved fistula use for hemodialysis, one of the PATENCY-1 trial's tertiary endpoints. 39% of vonapanitase-treated patients achieved unassisted use of their fistula for hemodialysis, compared to 25% of placebo-treated patients (p=0.035). 64% of vonapanitase-treated patients used their fistula for dialysis (unassisted or assisted), compared to 44% of placebo-treated patients (p=0.006). Use for hemodialysis was defined as use of the fistula for hemodialysis for at least 90 days or, if hemodialysis was not initiated at least 90 days prior to the patient's last visit, for at least 30 days prior to the patient's last visit and in use at the patient's last visit. Unassisted use was defined as use without prior loss of primary unassisted patency.

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GRAPHIC

        Results from the PATENCY-1 trial's other tertiary endpoints include the following:

        We continued to follow patients who completed 12 months of follow-up in the initial trial with a patent fistula and consented to be enrolled in a patient registry to obtain long-term follow-up efficacy information. Data from the patient registry are expected to be presented later in 2019 at a scientific conference.

Safety Data

        Vonapanitase is administered topically at the vascular access and only acts locally. We have not observed systemic activity or systemic toxicity in our preclinical animal studies, even following single-dose intravenous administration at very high multiples of the Phase 3 clinical trial doses. Safety evaluations in Phase 2 and Phase 3 clinical trials included ascertainment of adverse events, physical examinations, ultrasounds of the fistulas and nearby vessels, vital signs and laboratory studies. In the PATENCY-1 trial, no significant safety signals were identified, and no patients were considered positive for anti-drug antibodies. Most patients reported adverse events, the most common of which are summarized in the table set forth below, as compared to placebo. These events were generally consistent with the medical events experienced by CKD patients undergoing fistula creation surgery.

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Proportions of Patients in PATENCY-1 Experiencing Most Common Adverse Events

Adverse Events
  Vonapanitase
N=209
  Placebo
N=102
 

Vascular stenosis

    38.3 %   40.2 %

Fistula thrombosis

    19.6 %   26.5 %

Hypoaesthesia (numbness)

    5.3 %   4.9 %

Procedural pain

    4.8 %   5.9 %

Note: Includes any adverse event that occurred in at least 5% of patients in either treatment group.

        The percentages of serious adverse events, or SAEs, was also similar between the treatment groups in the PATENCY-1 trial (placebo 14.7%, vonapanitase 13.9%). Individual SAEs were never reported by more than one (1%) placebo patient or two (1%) vonapanitase patients with the exception of pneumonia reported by three (2.9%) placebo patients and myocardial infarction reported by two (2.0%) placebo patients. No SAEs were related to study drug with the exception of one (0.5%) arteriovenous fistula thrombosis in a vonapanitase patient. The percentages of severe SAEs were similar between treatment groups (placebo 4.9%, vonapanitase 4.8%) as were the percentages with life-threatening SAEs (placebo 4.9%, vonapanitase 3.3%). Life-threatening SAEs included acute myocardial infarctions, one cardiac arrest, and two pneumonias in the placebo group and single occurrences of coronary artery disease, cardiac arrest, pulseless electrical activity, death, injury, hypoxic-ischemic encephalopathy, and shock in the vonapanitase group. Four (3.9%) placebo patients and seven (3.3%) vonapanitase patients died during the study. All 11 deaths were considered unrelated to study drug.

Our Ongoing Phase 3 Clinical Trial, PATENCY-2

        Our ongoing Phase 3 clinical trial, PATENCY-2, is the second of two randomized, double-blind Phase 3 trials, comparing a 30 microgram dose of investigational vonapanitase to placebo. As in PATENCY-1, PATENCY-2 enrolled patients with CKD undergoing surgical creation of a radiocephalic fistula for hemodialysis. Patients were randomized 2:1, vonapanitase to placebo, and are being followed for a period of 12 months. In March 2018, we completed enrollment of a total of 603 treated patients at 39 centers in the U.S. and Canada. We expect to report top-line data in late March 2019.

        Following our review of the complete data sets from the PATENCY-1 trial and discussions with the FDA, we amended the protocol for the PATENCY-2 trial. The protocol amendment reordered the existing endpoints for the study, establishing fistula use for hemodialysis and secondary patency (time to fistula abandonment) as co-primary endpoints, each of which demonstrated improvements in the PATENCY-1 trial. Other efficacy endpoints in the amended protocol include unassisted fistula use for hemodialysis, primary unassisted patency, unassisted fistula maturation by ultrasound criteria, fistula maturation by ultrasound criteria, the rate of procedures performed to the fistula, and the rate of procedures to restore or maintain fistula patency. We also increased the planned enrollment for this study from 300 to 600 patients. The increased sample size for the PATENCY-2 trial provides power to detect the differences observed in the PATENCY-1 trial for fistula use for hemodialysis and secondary patency of 98% and 88%, respectively, with a p-value £0.05 for each of the co-primary endpoints. We received written confirmation from the FDA that, if PATENCY-2 is successful in showing statistical significance (p-value£0.05) on each of the co-primary endpoints, the PATENCY-2 trial together with data from previously completed studies would provide the basis for a BLA submission as a single pivotal study, in which case no additional studies would need to be conducted prior to submitting the BLA.

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Our Phase 2 Fistula Clinical Trial

        In 2012, we completed a multicenter, randomized double-blind, placebo-controlled Phase 2 trial of vonapanitase in 151 patients undergoing surgical creation of a radiocephalic fistula (n=67) or brachiocephalic fistula (n=84). Patients were treated with vonapanitase at doses of 10 or 30 micrograms or placebo at the time of fistula creation and were followed for up to 12 months. The primary efficacy endpoint was primary unassisted patency, defined as the time from surgical creation of the fistula to occurrence of a thrombosis or a procedure, such as angioplasty, to restore or maintain patency. In the primary analysis for all fistulas, the risk of primary patency loss was not significantly reduced versus placebo for vonapanitase at doses of 10 micrograms (HR, 0.69; 95% CI, 0.39-1.22) or 30 micrograms (HR, 0.67; 95% CI, 0.38-1.19). Median patency, based on the Kaplan-Meier estimates, was 224 days in the placebo group and greater than 365 days in each of the vonapanitase treatment groups, indicating that vonapanitase prolonged primary unassisted patency. Ninety-two patients with a patent fistula who completed 12 months of follow-up in the initial trial were followed in a registry to obtain additional data related to the efficacy endpoints. In this follow-up, the vonapanitase 30 microgram benefit on primary unassisted patency persisted out over a median of three years.

        An analysis of the primary endpoint data revealed an uneven distribution in patency loss events in patients with a brachiocephalic fistula due to central stenosis in the shoulder and chest, remote from the site of a fistula. Central stenoses commonly exist prior to fistula creation and are unmasked following creation of brachiocephalic fistulas, which have higher blood flow than radiocephalic fistulas. These stenoses are unrelated to treatment with vonapanitase. To correct for this uneven distribution, we conducted a non-prespecified analysis of the primary endpoint that excluded patency loss events due to central stenoses. This analysis demonstrated a significant reduction in the risk of primary unassisted patency loss in the 30 microgram vonapanitase dose group (HR 0.52; 95% CI, 0.28-0.97; P=0.04) compared to placebo.

        The benefit of vonapanitase in the Phase 2 trial on primary unassisted patency was most pronounced in the subset of patients undergoing creation of a radiocephalic fistula. The risk of primary patency loss was significantly reduced by vonapanitase at doses of 30 micrograms versus placebo (HR, 0.37; 95% CI, 0.15-.91; p=0.02). The subset analysis of this endpoint for radiocephalic fistula patients receiving the 30 microgram dose, which was not pre-specified, showed a significant increase in median primary unassisted patency of more than 365 days as compared to 125 days in the placebo group. The apparent benefit of the vonapanitase 30 microgram dose on primary unassisted patency persisted for these patients in the two-year registry period.

        As with the primary efficacy analyses, we performed a number of prespecified and exploratory analyses of the data on additional efficacy endpoints, including secondary patency loss and unassisted use for hemodialysis. We observed no significant differences in the risk of secondary patency loss, which was defined as abandonment of the fistula, in the overall fistula population in the Phase 2 trial. However, a trend toward prolonged secondary patency was seen in patients receiving radiocephalic fistulas. In this non-prespecified subset analysis, treatment with vonapanitase at doses of 30 micrograms was associated with a reduction of 73% in the risk of secondary patency loss. However, this reduction in the risk of secondary patency loss was not statistically significant (HR, 0.27; 95% CI, 0.006-1.29; p=0.08). Additionally, in a recent publication of three-year follow-up data from the Phase 2 trial, a trend toward increased fistula use for hemodialysis was seen in the patients receiving radiocephalic fistulas when applying the definition of use for hemodialysis from the Phase 3 clinical trials of vonapanitase. While the differences observed in this prospective analysis were not statistically significant, 80% of patients receiving radiocephalic fistulas in the vonapanitase 30 microgram group used their fistula for hemodialysis compared with 56% in the placebo group (p=0.14).

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        In the Phase 2 trial, patients treated with vonapanitase reported adverse events comparable to placebo. These events were consistent with the medical events experienced by patients with CKD undergoing fistula creation surgery. Based on the results of this Phase 2 trial and our end of Phase 2 meeting with the FDA in April 2013, we selected the 30 microgram dose for further study in the Phase 3 trials.

Our Phase 1/2 Fistula Clinical Trial

        We submitted an investigational new drug application, or IND, for vonapanitase as a treatment for patients undergoing fistula creation on April 30, 2008. Our initial clinical trial of vonapanitase was a Phase 1/2, randomized, double-blind, placebo-controlled, dose-escalation safety and exploratory efficacy trial in 66 patients undergoing creation of a radiocephalic or brachiocephalic fistula. Patients were treated with vonapanitase at nine dose levels ranging from 3.3 micrograms to 9 milligrams or placebo at the time of fistula creation and were followed for up to one year. This trial did not meet its primary endpoint, an endpoint we did not pursue in our Phase 2 and Phase 3 trials. However, doses of vonapanitase at 3.3, 10 and 33 micrograms were associated with a trend toward prolonged primary unassisted patency (secondary endpoint p=0.66 in the All Treated population and p=0.15 in the All Treated Minus 3 population), fewer procedures to restore or maintain patency (collected as supportive data) and less hemodynamically significant lumen stenosis (collected as supportive data) compared with placebo treated patients or patients treated with higher vonapanitase doses. Higher doses showed results similar to placebo and no dose met the primary efficacy endpoint with statistical significance. No dose-related increases in adverse events were observed in the trial. Based on the results of this trial, we selected 10 microgram and 30 microgram doses for further study in the Phase 2 trial.

Preclinical Development

        We have conducted an extensive preclinical program to evaluate the safety and tolerability of single doses of vonapanitase administered locally in animal models of fistula and arteriovenous graft creation, by percutaneous and endovascular injection in animal models of PAD as well as intravenously. We have conducted preclinical studies in multiple species at doses up to 50 milligrams of vonapanitase, which is over 1,500 times higher than the dose we used in our Phase 3 clinical trials. We observed no systemic activity or systemic toxicity for vonapanitase in any of our preclinical studies. We observed no toxicity in any of the doses that we subsequently studied or plan to study in our Phase 3 clinical trial in humans. Only local toxicity was observed at surgical sites at high doses (10 and 50 milligrams, which is over 300-1500 times higher than the dose we are studying in our Phase 3 clinical trial). These changes were reversible, with normal wound healing observed at 14 days except at the highest (50 milligrams) dose, in which there were some mild persistent changes in the jugular vein and subcutaneous tissue. Normal wound healing was observed in all the fistula studies in rabbits at doses up to 10 milligrams and in all the arteriovenous graft studies in dogs and pigs at doses up to 20 milligrams (the highest doses tested).

Other Programs, Indications and Trials

Other Fistula Trials

European clinical program

        We are currently evaluating our clinical program to support filing in Europe. We may, based on additional data including the data from our Phase 3 clinical trials in the United States and if sufficient funds become available, choose to conduct a clinical trial of vonapanitase in Europe.

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Brachiocephalic Fistula

        We believe that our clinical data support further development of vonapanitase in brachiocephalic fistula creation. We may, based on additional data, including the data from our ongoing Phase 3 clinical trial, and if sufficient funds become available, study the effects of a 30 microgram dose of vonapanitase versus placebo on brachiocephalic fistulas. Prior to initiation of this trial, we expect to seek guidance from the FDA regarding trial design.

Arteriovenous Grafts

        An arteriovenous graft is a synthetic tube to connect a vein and an artery placed in a surgical procedure. In 2012, we completed a Phase 1/2 randomized, double-blind, placebo-controlled, dose-escalation trial in 89 patients undergoing placement of an arteriovenous graft. Patients were treated with placebo or eight different doses of vonapanitase ranging from 10 micrograms to 9 milligrams at the time of graft placement and were followed for up to one year. Those patients who had not lost secondary patency were subsequently enrolled in a registry to obtain additional follow-up information on the arteriovenous graft.

        The primary outcome measure was safety. Adverse events were consistent with the medical conditions experienced by patients with CKD undergoing graft surgery and showed no significant differences between groups. Some of the data showed indications of efficacy, especially in secondary patency, which is an approvable endpoint for hemodialysis access, for the groups treated with vonapanitase at doses of 10 micrograms and 30 micrograms.

        After reviewing the results from our second Phase 3 clinical trial, and if sufficient funds become available, we may commence a clinical trial of vonapanitase in patients undergoing placement of an arteriovenous graft.

Peripheral Artery Disease

        In addition to vascular access indications, we are investigating vonapanitase as a treatment for patients with symptomatic peripheral artery disease, or PAD. Patients with lower extremity PAD suffer from stenosis formation in the arteries providing blood to the legs. These patients typically present with exercise-induced leg pain, a condition known as intermittent claudication. Patients with claudication are unable to adequately maintain their activities of daily living because they quickly experience pain that can be resolved only through rest. Severe cases result in critical limb ischemia, or lack of oxygen, and the possibility of amputation. PAD is a global problem affecting a large number of people throughout the industrialized world. Approximately 8 million Americans suffer from PAD.

        Patients with early stage PAD typically undergo lifestyle management such as smoking cessation, weight reduction and/or diabetes management, and treatment with oral medications. Approximately 800,000 patients in the United States who do not respond to lifestyle management and have worsening symptoms undergo an endovascular procedure, typically balloon angioplasty with or without stenting or vein bypass surgery. While these procedures work acutely to restore blood flow, they suffer from poor long-term durability, resulting in the need for repeat procedures.

        We believe that vonapanitase may improve the outcomes associated with angioplasty procedures, resulting in prolonged intervention-free patency while reducing the need for implantation of a permanent stent. We submitted an IND for vonapanitase as a treatment for PAD patients on April 9, 2012. Our initial PAD clinical trial was a Phase 1, open-label, dose-escalation safety/technical feasibility trial in 14 patients undergoing balloon angioplasty of the superficial femoral or popliteal arteries in the leg above the knee. Following successful angioplasty, patients were treated

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with vonapanitase via an FDA-cleared, drug-delivery catheter that allows vonapanitase to be administered locally in the outer layer of the vessel wall. Patients were followed for up to 12 months. The study met its stated objectives, as data indicated that catheter-based treatment with vonapanitase was generally well-tolerated and technically feasible. In the fourth quarter of 2016, we initiated another Phase 1 study of vonapanitase delivered via a drug-delivery catheter in symptomatic PAD patients undergoing angioplasty of an artery below the knee. We completed the enrollment and treatment of 24 patients before the end of 2018 in this Phase 1 study. We expect to follow each of these patients for period of up to seven months. We expect to enroll up to an additional 16 patients in this study before the end of 2019 and to follow each of these patients for a period of up to seven months.

        We also believe that vonapanitase may be an alternative to traditional angioplasty. Vonapanitase may be delivered via a percutaneous approach, in which a physician inserts a needle through the skin to inject vonapanitase to the artery around the area of blockage. We believe that vonapanitase may dilate the artery, resulting in increased lumen artery diameter, higher blood flow, and an improvement in clinical symptoms. In the fourth quarter of 2016 we initiated a Phase 1 study of vonapanitase delivered as a monotherapy in patients with a clinical diagnosis of PAD due to an atherosclerotic lesion in an artery above the knee. Based on our current operating plan, we have decided not to begin patient enrollment at this time.

        We believe that vonapanitase may improve the outcomes associated with vein bypass surgery, resulting in prolonged intervention-free patency. During vein bypass surgery, a surgeon places a vein, typically obtained from the patient's leg, as an alternative conduit for blood to flow around the area of blockage restoring direct flow to the lower leg and foot. We believe that vonapanitase, administered to the outside of the vein concurrently with the surgery, may improve the outcomes associated with vein bypass surgery, resulting in prolonged intervention-free patency.

Manufacturing and Supply

        We depend on third-party contract manufacturers for the production of vonapanitase. Our API is produced at our contract manufacturer, Lonza LTD, or Lonza, which is required to comply with the FDA's Current Good Manufacturing Practice, or cGMP, regulations. Vonapanitase finished product is produced at our contract fill/finisher providers, Jubilant HollisterStier and Patheon Manufacturing Services, LLC (formerly DSM Pharmaceuticals, Inc.), which is required to comply with cGMP regulations.

        We used API manufactured at Lonza to create finished drug product that was used in our Phase 3 fistula clinical trials. We also plan to manufacture API at Lonza for our commercial launch and future fistula trials. We also have a separate 5 milligram formulation that was used in our completed Phase 1 fistula study, Phase 2 fistula study, Phase 1 arteriovenous graft study, and Phase 1 PAD study. We plan to use this 5 milligram formulation in our Phase 1 PAD studies.

        We modified our finished product at Jubilant HollisterStier for our Phase 3 trials and potential commercial launch in order to facilitate ease of administration and fill and finish at the 30 microgram doses. The modified finished product is reconstituted with sterile water to create a dosing solution containing 30 micrograms of vonapanitase. We demonstrated that the modified finished product had the same elastase activity using synthetic and natural elastin substrates and the same elastin removal from blood vessels following ex vivo treatments as the previous finished product. The modified finished product formulation was similar to the previous finished product formulation in maintaining the health and viability of live cells in culture. These data suggest the modified finished product will have the same efficacy and safety in clinical trials as the previous finished product.

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        Release and stability testing for API and drug product are performed at PPD, Inc. The tests indicate stability of at least five years for our API and at least two years for our drug product.

        In anticipation of a potential BLA submission, we manufactured three batches of API and plan to manufacture three batches of drug product as part of process validation. We plan to test these batches for stability with a goal of establishing a commercial shelf-life of at least two years for finished product and a longer expiry for API.

Sales and Marketing

        Our commercialization strategy is to develop vonapanitase into a leading therapy worldwide for the treatment of fistulas in patients with CKD undergoing or planning for hemodialysis and to improve vascular access outcomes in patients with other vascular diseases. If the PATENCY-2 trial is successful, we expect to be able to submit a BLA in the fourth quarter of 2019.

        We have not yet established a commercial infrastructure, however, our Chief Executive Officer and other members of our executive management team have significant commercial experience in the industry, including commercial launch experience in the renal market. We intend to recruit an in-house specialty sales force in the United States focused on promoting vonapanitase. We plan to target our marketing and sales efforts at vascular surgeons who create fistulas. There are approximately 2,800 vascular surgeons in the United States. We believe a sales force of approximately 75-100 representatives, supported by reimbursement specialists and a medical affairs team, will enable us to call on the approximately 1,000 providers that account for more than 50% of the fistula creations covered by Medicare in the United States annually.

        We believe that vonapanitase will be reimbursed appropriately by Medicare, Medicaid and private payers. Costs related to fistula surgical creation, which is typically performed in the hospital outpatient setting, are not included in the ESRD bundle.

        If vonapanitase is approved by the EMA, we expect to commercialize vonapanitase in Europe with one or more commercial partners. We also may enter into collaborations for the development and commercialization of vonapanitase in China, Japan and other countries outside of the United States.

Intellectual Property

        We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to our business, including seeking, maintaining and defending patent rights. We also rely on know-how that may be important to the development of our business. We additionally expect to rely on regulatory protection afforded through data exclusivity, market exclusivity and patent term extensions where available.

        Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, as well as our ability to defend and enforce our patents and to operate without infringing the valid enforceable patents and proprietary rights of third parties.

        Our ability to prevent third parties from making, using, selling, offering to sell or importing competing products to ours, including a competitor to vonapanitase, depends on the scope of our patents. We have several patents and patent applications relating to the vonapanitase formulation and its therapeutic uses, and we possess substantial know-how relating to the development and commercialization of vonapanitase. We cannot be sure that any of our pending patent applications or

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future patent filings will lead to the issuance of new patents, 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 adequate to protect our market.

        We plan on pursuing in-licensing opportunities to develop, strengthen and maintain our proprietary position for our products. We expect to use trademark protection for our products as they are marketed.

Patents

        As of December 31, 2018, we own 41 issued patents and 15 pending patent applications. The patents and applications primarily fall into two families, a first relating to the vonapanitase formulation and its manufacture and use, as well as other formulations of elastases (the "formulation family"), and the second relating to certain therapeutic uses of vonapanitase, and associated systems and kits that include a catheter and are suitable for a subset of those therapeutic uses (the "therapy family"). The formulation family includes two issued United States patents, two issued European patents, additional patents issued in Australia, China, Hong Kong, India, Israel, Japan, Mexico, New Zealand, Russia, South Korea and Taiwan, and patent applications pending in several major jurisdictions worldwide, including Japan, China, South Korea, Brazil, Mexico, Europe and the United States. The expected expiration date for any patents that have issued or may issue from the formulation family is December 4, 2028, exclusive of possible patent term extension available for one patent covering vonapanitase under the Hatch-Waxman Amendments or comparable provisions in other jurisdictions, except in the United States where our two formulation family patents were awarded patent term adjustments of 199 and 668 days, respectively, due to United States Patent and Trademark Office, or USPTO delays taking their expiration dates to June 20, 2029 and October 3, 2030, respectively. The therapy family includes eight issued United States patents, three issued European patents, one issued Canadian patent, one issued Hong Kong patent, and an application pending in the United States. The expected expiration date for any patents that have issued or may issue from the therapy family patents is September 24, 2020, except in the United States where several patents were awarded a patent term adjustment and the expected expiration date of two therapy family patents related to systems and kits including elastase and a catheter is June 30, 2021, exclusive of possible patent term extension.

Patent Term

        The base term of a U.S. patent is 20 years from the filing date of the earliest-filed non-provisional patent application from which the patent claims priority. The term of a U.S. patent can be lengthened by patent term adjustment, which compensates the owner of the patent for administrative delays at the USPTO. In some cases, the term of a U.S. patent is shortened by terminal disclaimer that reduces its term to that of an earlier-expiring patent.

        The term of a U.S. patent may be eligible for patent term extension under the Hatch-Waxman Amendment, to account for at least some of the time a product is under development and regulatory review after the patent is granted. With regard to a product for which FDA approval is the first permitted marketing of the active ingredient, the Hatch-Waxman Act allows for extension of protection of one U.S. patent that includes at least one claim covering the composition of matter of an FDA-approved product, an FDA-approved method of treatment using the product, and/or a method of manufacturing the FDA-approved product. The extended protection cannot exceed the shorter of five years beyond the non-extended expiration of the patent or 14 years from the date of the FDA approval of the product. Some foreign jurisdictions, including Europe, have analogous patent extension provisions, which allow for extension of the protection of a patent that covers a drug approved by the applicable foreign regulatory agency. In the future, if and when vonapanitase

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receives FDA approval, we expect to apply for patent extension to extend the protection of one of our patents covering vonapanitase or its use.

Assignment of Rights and License Agreement

        As successor to Proteon Therapeutics, LLC by merger, we acquired all of the assets of the LLC, including all of the intellectual property rights in a patent family entitled "Local, Transcatheter Delivery of Proteases to Reopen Obstructed Biological Conduits" (the "JHU patent family"). This patent family was originally developed by our founder, Dr. F. Nicholas Franano, at The Johns Hopkins University, or Johns Hopkins, and includes United States patent Nos. 7,063,838; 7,153,505; 7,361,335; 7,632,494; 7,883,699; 8,524,226; 8,562,983; and 8,568,716. Johns Hopkins assigned all of the intellectual property rights to Dr. Franano who in turn assigned the rights to the LLC. Under the terms of the assignment of rights and license agreement with Johns Hopkins, Dr. Franano reimbursed certain costs of Johns Hopkins and agreed to pay the future costs and expenses of patent prosecution and maintenance, as well as any costs related to infringement. In addition, under the agreement, Dr. Franano granted to Johns Hopkins rights to practice under the intellectual property rights for non-profit purposes. Our rights are further subject to any rights the United States Government may have in inventions that are the subject matter of the acquired patents under the Bayh Dole Act due to its sponsorship of research that led to certain of such inventions. The agreement does not specify a term and does not include any termination provisions. Dr. Franano agreed that upon commercialization of the assigned invention, he would remit to Johns Hopkins 2.5% of any revenues or fees received from certain net sales of any product covered by the JHU patent family. We assumed, and are the successor to, all of Dr. Franano's payment and other obligations to Johns Hopkins. Seven U.S. patents in the JHU patent family, and their foreign counterparts, described above as the therapy family, relate to certain therapeutic uses of vonapanitase, and the associated systems and kits that include a catheter and are suitable for a subset of those therapeutic uses.

Competition

        The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions.

        Some of our potential competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

        The key competitive factors that will differentiate vonapanitase, if approved, are likely to be its efficacy, safety, convenience, price, and the availability of reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, more convenient or less expensive than products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.

        We are not aware of products approved in the United States or Europe that would compete with vonapanitase for the improvement of fistula use for hemodialysis and secondary patency. We are aware of other therapies in development by companies including Vascular Therapies, Enceladus

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Pharmaceuticals, Symic Biomedical, Aplagon and Athera Biotechnologies. In addition, we are aware of companies that have received FDA marketing authorization for catheter-based devices for percutaneous fistula creation, including Becton, Dickinson and Company (as successor to TVA Medical) and Avenu Medical. We are also aware of companies developing vascular access technologies, including BioConnect Systems, Phraxis, Brookhaven Medical, Fist Assist, Laminate Medical Technologies and Stent Tek. Other technologies in development include new synthetic grafts, including those that may be developed by companies that currently compete in the graft market, such as W.L. Gore, C.R. Bard and Maquet; tissue engineered grafts, including those in development by Cytograft and Humacyte; and stem cells. Finally, vonapanitase's commercial success could be adversely affected by the development of technologies to improve the outcomes of interventions to restore patency, including stents, stent grafts and drug-coated balloons.

Government Regulation and Approval

United States—FDA process

        In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or FDCA, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Biological products used for the prevention, treatment, or cure of a disease or condition of a human being are subject to regulation under the FDCA, except the section of the FDCA which governs the approval of new drug applications, or NDAs. Biological products, such as vonapanitase, are approved for marketing under provisions of the Public Health Service Act, or PHSA, via a BLA. The application process and requirements for approval of BLAs are very similar to those for NDAs, and biologics are associated with similar approval risks as drugs. Failure to comply with applicable United States requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs or BLAs, warning or untitled letters, clinical holds, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

Approval process

        FDA approval is required before any new unapproved product or a product with certain changes to a previously approved product may be marketed in the United States. FDA approval is required before any new unapproved drug, which includes biologics, or dosage form, including a new use of previously approved products, can be marketed in the United States. The steps required to be completed before a drug or biologic may be marketed in the United States include:

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        Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.

        Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLP. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

        A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. However, the FDA may within the 30-day time period raise concerns or questions relating to one or more proposed clinical trials and place the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development.

        Clinical trials involve the administration of the investigational new drug or biologic to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on United States patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

        The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials, including any changes to the protocols and informed consent forms, must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements or if the trial poses an unexpected serious harm to subjects, or may impose other conditions.

        Clinical trials to support NDAs or BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug or biologic into a limited population of healthy human subjects or patients, the product is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to evaluate preliminarily the effectiveness of the drug or biologic for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken in a larger number of patients, typically at geographically dispersed clinical trial sites, to provide substantial evidence of clinical efficacy, to further test for safety in an expanded and diverse patient population, to permit the FDA to evaluate

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the overall benefit-risk relationship of the drug or biologic and to provide adequate information for the labeling of the product. In reviewing an NDA or a BLA, the FDA will consider all information submitted in the NDA or BLA, including the results of all clinical trials conducted. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug or biologic. A single Phase 3 trial with other confirmatory evidence such as supportive results from Phase 1 and Phase 2 trials, including non-prespecified analyses, may be sufficient in rare instances where the trial is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

        In addition, the manufacturer of an investigational drug in a Phase 2 or Phase 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access to such investigational drug.

        Progress reports detailing the status of the clinical trials must be submitted at least annually to the FDA, and safety reports must be submitted to the FDA and the investigators for serious, related and unexpected side effects. Progress and safety reporting must also be submitted to the applicable IRBs. NDA or BLA applicants must also report certain investigator financial interests to FDA.

        The manufacture of investigational drugs and biologics for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs, biologics, and active pharmaceutical ingredients imported into the United States are also subject to regulation by the FDA relating to their labeling and distribution. Further, the export of investigational drug products and biologics outside of the United States is subject to regulatory requirements of the receiving country as well as U.S. export requirements under the FDCA.

        Sponsors must also develop additional information about the chemistry and physical characteristics of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, purity, and potency of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

        After completion of the required clinical testing, an NDA or BLA is prepared and submitted to the FDA. FDA approval of the NDA or BLA is required before marketing of the product may begin in the United States. The NDA or BLA must include, among other things, the results of all trials and preclinical testing, and other testing and a compilation of data relating to the product's pharmacology, chemistry, manufacture, and controls, including negative or ambiguous results as well as positive findings. The cost of preparing and submitting an NDA or BLA is substantial. The submission of most NDAs and BLAs is additionally subject to a substantial application user fee, currently $2,588,478 for Fiscal Year 2019, and the applicant under an approved new drug or biologic application is also subject to an annual program fee, currently exceeding $300,000 per product for Fiscal Year 2019. Beginning in Fiscal Year 2018, this annual program fee replaces the annual product and establishment fees. These fees are typically increased annually. A waiver or reduction of the application, establishment and/or program fees may be obtained under certain limited circumstances. For instance, one basis for a waiver of the application user fee is if the applicant employs fewer than 500 employees, including employees of affiliates, the applicant does not have an

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approved marketing application for a product that has been introduced or delivered for introduction into interstate commerce, and the applicant, including its affiliates, is submitting its first marketing application. In addition, an application for a drug that has obtained orphan designation is not subject to an application fee unless the application includes an indication for a non-rare disease or condition.

        The FDA has 60 days from its receipt of an NDA or BLA to determine whether the application will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA or BLA for filing. In this event, the NDA or BLA must be re-submitted with the additional information. The re-submitted 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. The FDA has agreed to certain performance goals in the review of NDAs and BLAs. Under the Prescription Drug User Fee Act, the FDA has a goal of responding to 90% of standard review original BLAs within ten months after the 60-day filing review period, but this timeframe is only a goal and, thus, the review time may be longer or extended. Priority review can be applied to drugs and biologics that the FDA determines are for a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. FDA has the review goal of completing review of 90% of original BLA priority review applications within six months of the 60-day filing review period. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

        The FDA may also refer applications for novel drug or biologic products, or drug or biologic products that present difficult questions of safety or efficacy, to an advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving a drug or biologic for which no active ingredient (including any ester or salt of active ingredients) has previously been approved by the FDA, the FDA must either refer that drug or biologic to an external advisory committee or provide in an action letter, a summary of the reasons why the FDA did not refer the product candidate to an advisory committee.

        The FDA reviews an NDA or BLA to determine, among other things, whether a product is safe, pure, and potent for its intended use and whether the facility in which it is manufactured, processed, packaged or held, as well as the manufacturing processes and controls, meet standards designed to ensure the product's continued identity, strength, safety, quality, purity, and potency Before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug or biologic is manufactured. FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA or BLA contains data that provide evidence that the drug or biologic is safe and effective in the indication studied.

        After the FDA evaluates the NDA or BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter indicates that the review cycle of the application is complete and the application is not ready for approval. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional clinical data and/or other significant, expensive, and time-consuming requirements related to clinical trials, preclinical studies and/or manufacturing. The FDA has committed to reviewing resubmissions of the NDA or BLA addressing such deficiencies in two or six months depending on the type of information included. Even if such data are submitted, however, the FDA may ultimately decide that the NDA or BLA does not satisfy the criteria for approval.

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        An approval letter authorizes commercial marketing of the drug or biologic with specific prescribing information for specific indications. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages, or the indications for use may otherwise be limited, for example to specific patient populations or age groups. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling, including boxed warnings. As a condition of NDA or BLA approval or following approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug or biologic outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for REMS can materially affect the potential market and profitability of the product. Moreover, product approval may also be conditioned on substantial post-approval testing and surveillance to monitor the product's safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

        Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or BLA or NDA or BLA supplement before the change can be implemented. An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA or BLA supplements as it does in reviewing NDAs or BLAs, including user fee requirements for certain submissions. As with new NDAs, the review process is often significantly extended by the FDA requests for additional information or clarification.

U.S. Patent Term Restoration

        Depending upon the timing, duration and specifics of the FDA approval of vonapanitase and any future product candidates, some of our U.S. patents may be eligible for limited patent term extension. The Hatch-Waxman Amendments permit a patent restoration term, often referred to as patent term extension, of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product's approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA or BLA plus the time between the submission date of an NDA or BLA and the approval of that application. The period of the patent term restoration may also be reduced to account for time that an applicant did not act with due diligence. Only one patent applicable to an approved drug or biologic is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves or denies the application for any patent term extension or restoration. In the future, we intend to apply for extension of patent term for one of our patents covering vonapanitase to add patent life beyond its current expected expiration date.

Post-approval requirements

        Once an NDA or BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs and biologics, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs and biologics may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Failure to comply with these requirements

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can result in adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties.

        In addition, the distribution of prescription pharmaceutical products, including samples, is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs, biologics and drug and biologic samples at the federal level. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

        Adverse event reports, deviation reports, and other annual reports are required following FDA approval of an NDA or BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug and biologic manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval. Drug and biologic manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

        Moreover, the Drug Quality and Security Act, or DSCSA, imposes obligations on manufacturers of pharmaceutical products related to product tracking and tracing. Among the requirements of the DSCSA, manufacturers are required to provide certain information regarding the product to individuals and entities to which product ownership is transferred, will be required to label products with a product identifier and are required to keep certain records regarding the product for a period of six years. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done electronically. Manufacturers are also required to verify that purchasers of the manufacturers' products are appropriately licensed. Further, under the DSCSA, manufacturers must establish procedures for the investigation, quarantine, disposition, and FDA and trading partner notification requirements. These procedures relate to suspicious, counterfeit, diverted, stolen and intentionally adulterated products that would result in serious adverse health consequences or death to humans, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

Orphan Drug designation

        Under the Orphan Drug Act, the FDA may grant Orphan Drug designation to drugs or biologics intended to treat a rare disease or condition—generally a disease or condition that affects fewer than 200,000 individuals annually in the United States for a preventive drug. Additionally, sponsors must present a plausible hypothesis for clinical superiority to obtain Orphan Drug designation if there is a product already approved by the FDA that is intended for the same indication and that is considered by the FDA to be the same drug or biologic as the already approved drug or biologic. This hypothesis must be demonstrated to obtain orphan drug exclusivity. Orphan Drug designation must be requested before submitting an NDA or BLA. After the FDA grants Orphan Drug designation, the generic identity of the drug or biologic and its potential orphan use are disclosed publicly by the FDA. Orphan Drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical study costs, tax advantages, and user-fee waivers. The first NDA or BLA

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applicant to receive FDA approval for a particular drug or biologic to treat a particular disease with FDA Orphan Drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug or biologic for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity, that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of Orphan Drug designation are tax credits for certain research, waiver of the NDA or BLA application user fee, and exclusion from price limitations imposed by the 340B drug discount program on sales of covered outpatient drugs to certain categories of hospitals added to the program by the Affordable Care Act.

Expedited development and review programs

        The FDA maintains several programs intended to facilitate and expedite development and review of new drugs and biologics to address unmet medical needs in the treatment of serious or life- threatening diseases or conditions. These programs include Fast Track designation, Breakthrough Therapy designation, Priority Review designation and Accelerated Approval, and the purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.

        Under the Fast Track program, the sponsor of a new drug or biologic candidate may request that the FDA designate the candidate for a specific indication as a fast track drug or biologic concurrent with, or after, the filing of the IND for the candidate. The FDA determines if the drug or biologic candidate qualifies for Fast Track designation within 60 days of receipt of the sponsor's request. Under the Fast Track program, sponsors have more opportunities to interact with FDA, and fast track product candidates may be eligible for Priority Review, if they meet the Priority Review criteria. If FDA determines, after preliminary evaluation of clinical data submitted by a sponsor, that a fast track product may be effective, FDA may also permit the sponsor to submit a marketing application on a rolling basis before the full application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA's time period goal for reviewing an application does not begin until the last section of the NDA or BLA is submitted. Additionally, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

        In addition, a new drug or biologic may be eligible for Breakthrough Therapy designation if it is intended to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Breakthrough Therapy designation provides all the features of Fast Track designation in addition to intensive guidance on an efficient drug development program and FDA organizational commitment to expedited development, including involvement of senior managers and experienced review staff in a cross-disciplinary review, where appropriate. The FDA must determine if the biological product qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor's request.

        Any product submitted to the FDA for marketing, including a product with Fast Track or Breakthrough Therapy designation, may be eligible for other types of FDA programs intended to expedite development and review, such as Priority Review and Accelerated Approval. Any application for a product that treats a serious or life-threatening condition is eligible for Priority

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Review if the product would provide safe and effective therapy where no available therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products, among other things. The FDA aims to review applications for new products designated for Priority Review within six months, compared to ten months under standard review. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate such review. Additionally, a drug or biological product that treats a serious or life-threatening illness and that generally provides meaningful therapeutic benefit over existing treatments may receive Accelerated Approval, which means the FDA may approve the product based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug or biologic candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug or biologic from the market on an expedited basis. All promotional materials for drug or biologic candidates approved under accelerated regulations are subject to prior review by the FDA.

        Fast Track designation, Breakthrough Therapy designation, Priority Review designation and Accelerated Approval do not change the standards for approval but may expedite the development or review process. We have received Breakthrough Therapy and Fast Track designations for vonapanitase.

Pediatric information

        Under the Pediatric Research Equity Act, or PREA, NDAs or BLAs or supplements to NDAs or BLAs for a new active ingredient, indication, dosage form, dosage regimen or route of administration must contain data to assess the safety and effectiveness of the drug or biologic for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug or biologic is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any drug or biologic for an indication for which orphan designation has been granted except a product with a new active ingredient that is molecularly targeted cancer product intended for the treatment of an adult cancer and directed at a molecular target determined by FDA to be substantially relevant to the growth or progression of a pediatric cancer that is subject to an NDA or BLA submitted on or after August 18, 2020.

        Pediatric exclusivity is another type of exclusivity in the United States. For biological products, pediatric exclusivity, if granted, provides an additional six months of exclusivity to be attached to any existing non-patent exclusivity. This six month exclusivity, which runs from the end of other exclusivity protection, may be granted based on the voluntary completion of a pediatric trial that fairly responds to an FDA-issued "Written Request" for such a trial.

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Additional controls for biologics

        To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in the United States and between states.

        After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing the results of all of the manufacturer's tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer.

        In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.

Biosimilars

        The Biologics Price Competition and Innovation Act of 2009, or BPCIA, creates an abbreviated approval pathway for biological products shown to be highly similar to or interchangeable with an FDA-licensed reference biological product. Biosimilarity sufficient to reference a prior FDA-approved product requires a high similarity to the reference product notwithstanding minor differences in clinically inactive components, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency. Biosimilarity must be shown through analytical studies, animal studies, and at least one clinical trial, absent a waiver by the Secretary of Health and Human Services. There must be no difference between the reference product and a biosimilar in conditions of use, route of administration, dosage form, and strength. A biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. The first biosimilar was approved by the FDA in 2015,and no interchangeable products have been approved by the FDA under the BPCIA. Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation which are still being evaluated by the FDA.

        A reference biologic is granted 12 years of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar can be submitted for four years from the date of licensure of the reference product. However, certain changes and supplements to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the twelve year exclusivity period. The PHSA also includes provisions to protect reference products that have patent protection. The biosimilar product sponsor and reference product sponsor may exchange certain patent and product information for the purpose of determining whether there should be a legal patent challenge. Based on the outcome of

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negotiations surrounding the exchanged information, the reference product sponsor may bring a patent infringement suit and injunction proceedings against the biosimilar product sponsor. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other biologics for the same condition of use for the lesser of (i) one year after first commercial marketing of the first interchangeable biosimilar, (ii) eighteen months after the first interchangeable biosimilar is approved if there is no patent challenge, (iii) eighteen months after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or (iv) 42 months after the first interchangeable biosimilar's application has been approved if a patent lawsuit is ongoing within the 42-month period.

Disclosure of clinical trial information

        Sponsors of clinical trials of FDA-regulated products, including drugs and biologics, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

European Union—EMA process

        In the European Union, medicinal products are authorized following a similar demanding process as that required in the United States and applications are based on the ICH Common Technical Document, an agreed upon format to assemble all quality, safety and efficacy data for preparation of an application of a new drug. Prior to submitting a European Marketing Authorization Application, or MAA, it is necessary to gain approval of a detailed Pediatric Investigation Plan, or PIP, with the European Medicines Agency's Pediatric Committee, or PDCO. After gaining PIP approval, medicines can be authorized in the European Union by using either the centralized authorization procedure or national authorization procedures.

Centralized procedure

        Under the centralized procedure, after the EMA issues an opinion, the European Commission issues a single marketing authorization valid across the European Union, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for human medicines that are: derived from biotechnology processes, such as genetic engineering; contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions; and officially designated orphan medicines. For medicines that do not fall within these categories, an applicant has the option of submitting an application for a centralized marketing authorization to the EMA, as long as the medicine concerned is a significant therapeutic, scientific or technical innovation, or if its authorization would be in the interest of public health.

National authorization procedures

        There are also two other possible routes to authorize medicinal products in several countries, which are available for products that fall outside the scope of the centralized procedure:

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        While we believe that our development program, our Phase 3 trial design, and overall nonclinical and clinical data package could support future regulatory approval of vonapanitase in the European Union, we have not submitted such information to the European Union for their review.

Good manufacturing practices

        Like the FDA, the EMA, the competent authorities of the European Union Member States and other regulatory agencies regulate and inspect equipment, facilities and processes used in the manufacturing of pharmaceutical and biologic products prior to approving a product. If, after receiving clearance from regulatory agencies, a company makes a material change in manufacturing equipment, location, or process, additional regulatory review and approval may be required. Once we or our partners commercialize products, we will be required to comply with cGMP, and product-specific regulations enforced by, the European Commission, the EMA and the competent authorities of European Union Member States following product approval. Also like the FDA, the EMA, the competent authorities of the European Union Member States and other regulatory agencies also conduct regular, periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our or our partners' equipment, facilities, or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal or administrative sanctions and/or remedies against us, including the suspension of our manufacturing operations or the withdrawal of our product from the market.

Data and market exclusivity

        Similar to the United States, there is a process for authorization of generic versions of innovator drug products in the European Union. Abridged applications for the authorization of generic versions of drugs authorized by EMA can be submitted to the EMA through a centralized procedure referencing the innovator's data and demonstrating bioequivalence to the reference product, among other things.

        New medicinal products in the European Union can receive eight years of data exclusivity coupled with two years of market exclusivity, and a potential one year extension, if the marketing authorizations holder obtains an authorization for one or more new therapeutic indications that demonstrates "significant clinical benefit" in comparison with existing therapies; this system is usually referred to as "8+2+1". We expect to be eligible for at least 10 years of market exclusivity following any approval of vonapanitase.

        Abridged applications cannot rely on an innovator's data until after expiry of the eight year data exclusivity term; applications for a generic product can be filed but the product cannot be marketed until the end of the market exclusivity term.

Other international markets—drug approval process

        In some international markets (e.g., China or Japan), although data generated in United States or European Union trials may be submitted in support of a marketing authorization application, additional clinical trials conducted in the host territory, or studying people of the ethnicity of the host territory, may be required prior to the filing or approval of marketing applications within the country.

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Pricing and reimbursement

        In the United States and internationally, sales of products that we market in the future, and our ability to generate revenues on such sales, are dependent, in significant part, on the availability and level of reimbursement from third-party payors such as state and federal governments, managed care providers and private insurance plans. Substantial uncertainty exists as to the reimbursement status of newly approved healthcare products by third-party payors. In the United States no uniform policy of coverage and reimbursement for drug and biologic products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor by payor basis. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

        Private insurers, such as health maintenance organizations and managed care providers, have implemented cost-cutting and reimbursement initiatives and likely will continue to do so in the future. These include establishing formularies that govern the drugs and biologics that will be offered and also the out-of-pocket obligations of member patients for such products. Several third-party payors are requiring that drug and biologic companies provide them with predetermined discounts from list prices, are using preferred drug lists (which include biologics) to leverage greater discounts in competitive classes, are disregarding therapeutic differentiators within classes, and are challenging the prices charged for drugs and biologics. It is possible that some third party payors may not consider our technology to be a significant benefit in a clinical and cost effectiveness comparison with other technologies or techniques intended to address the same conditions as our product candidates and reimbursement may not be available to our customers, or may not be sufficient to allow our products to be marketed on a competitive basis. Cost-control initiatives could cause us to discount or rebate a portion of the price we might establish for products, which could result in lower than anticipated product revenues. If the realized prices for our products, if any, decrease or if governmental and other third party payors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer.

        In addition, particularly in the United States and increasingly in other countries, we may be required to provide mandatory discounts and pay fixed rebates to state and federal governments and agencies in connection with purchases of our products that are used or reimbursed by such entities. Rebates also must be paid to the governments of U.S. territories on drugs that are reimbursed by Medicaid in the territories. It is possible that future legislation in the United States and other jurisdictions could be enacted which could potentially impact the reimbursement rates for the products we are developing and may develop in the future and also could further impact the levels of discounts and rebates paid to federal and state government entities. Any legislation that impacts these areas could impact, in a significant way, our ability to generate revenues from sales of products that, if successfully developed, we bring to market. The Medicaid program also imposes penalties on manufacturers of drugs marketed under an NDA or abbreviated new drug application, or ANDA, and biological products marketed under a BLA in the form of mandatory additional rebates if commercial prices increase at a rate greater than the Consumer Price Index-Urban. In addition, biological products approved under BLAs and drugs approved under NDAs are generally subject to greater discounts and reporting obligations under federal programs, such as the Federal Supply Schedule, or FSS, than generic drugs approved under ANDA, although biosimilars are generally treated the same as the reference biologic. These rebates and/or discounts, which can be substantial and may equal the selling price in some cases, may impact our ability to raise commercial prices. Government authorities and third party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidates profitably. It is also not uncommon for market conditions to

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warrant multiple discounts to different customers on the same unit, such as purchase discounts to institutional care providers and rebates to the health plans that pay them, which reduces the net realization on the original sale.

        There is no legislation at the European Union level governing the pricing and reimbursement of medicinal products in the European Union other than in relation to the transparency and timing of national decision making and the availability of appeal. As a result, the competent authorities of each of the 28 European Union Member States have adopted individual strategies regulating the pricing and reimbursement of medicinal products in their territory. These strategies often vary widely in nature, scope and application. However, a major element that they have in common is an increased move towards reduction in the reimbursement price of medicinal products, a reduction in the number and type of products selected for reimbursement and an increased preference for generic products over innovative products. These efforts have mostly been executed through these countries' existing price control methodologies. It is increasingly common in many European Union Member States for Marketing Authorization Holders to be required to demonstrate through health technology assessment the pharmaco-economic superiority of their products as compared to products already subject to pricing and reimbursement in specific countries. In order for drugs to be evaluated positively under such criteria, pharmaceutical companies may need to re-examine, and consider altering, a number of traditional functions relating to the selection, study, and management of drugs, whether currently marketed, under development, or being evaluated as candidates for research and/or development.

Sales and marketing, and other healthcare related activities

        Sales, promotion and other activities following product approval are subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the United States, the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the U.S. Department of Justice, and similar foreign, state, and local government authorities.

        As described above, the FDA regulates all advertising and promotion activities for products under its jurisdiction both prior to and after approval. A company can make only those claims relating to safety and efficacy that are approved by the FDA in labeling. Physicians may prescribe legally available drugs and biologics for uses that are not described in the product's labeling and that differ from those tested by us and approved by the FDA. These off-label uses are common across medical specialties, and often reflect a physician's belief that the off-label use is the best treatment for the patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent restrictions on manufacturers' communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminal penalties available to the FDA.

        In the United States sales, marketing and scientific/educational programs must also comply with various federal and state laws pertaining to healthcare "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug or biologic. The term "remuneration" has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary managers, and beneficiaries on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are narrowly drawn. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or

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recommendations may be subject to scrutiny if they do not meet the requirements of a statutory or regulatory exception or safe harbor. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations and very few court decisions addressing industry practices, it is possible that our practices might be challenged under anti-kickback or similar laws. Moreover, healthcare reform legislation has strengthened these laws. For example, the Patient Protection and Affordable Care Act, or ACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent to violate it. In addition, ACA clarifies that the government may assert that a claim that includes items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.

        The civil False Claims Act prohibits anyone from knowingly presenting, or causing to be presented for payment, to third-party payors (including Medicare and Medicaid) claims for reimbursed drugs (including biologics) or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. A claim includes "any request or demand" for money or property presented to the United States government, and may be predicated on false certification of compliance with a statute or regulation that is a condition of payment. The False Claims Act also applies to false submissions that cause the government to be paid less than the amount to which it is entitled, such as a rebate. Intent to deceive is not required to establish liability under the civil False Claims Act. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies' marketing of products for unapproved, and thus non-covered, uses, and for underpaying rebates by concealing their best price. In addition, federal health care programs require drug and biologic manufacturers to report pricing information, which is used to quantify discounts and establish reimbursement rates. Civil False Claims Act actions may be brought by the government or may be brought by private individuals on behalf of the government, called "qui tam" actions. The False Claims Act provides for trebling of actual damages and a penalty for each false claim the manufacturer submitted or caused to be submitted, which, when aggregated, can yield substantial liability,

        In addition to the Anti-Kickback Statute and the civil False Claims Act, there are a number of other laws that we may be subject to due to the nature of our business. The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious, or fraudulent and, unlike the civil False Claims Act, requires proof of intent to submit a false claim. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. As discussed above, ACA amended the intent standard for HIPAA's healthcare fraud provision such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

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        The civil monetary penalties statute further imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

        Section 1927 of the Social Security Act requires that manufacturers of drugs and biological products covered by Medicaid report pricing information to the Centers for Medicare & Medicaid Services, or CMS, on a monthly and quarterly basis, including the best price available to any customer of the manufacturer, with certain exceptions for government programs, and pay prescription rebates to state Medicaid programs based on a statutory formula and derived from reported pricing information. In addition, many states authorize their Medicaid programs to establish Preferred Drug Lists (which include biologics) to leverage supplemental Medicaid rebates. Reporting false pricing information may cause underpayment of rebates or overpayment of pharmacies that are reimbursed by Medicaid on the basis of reported prices and has been the basis of numerous civil, as well as criminal False Claims Act cases against manufacturers.

        The Veterans Health Care Act, or VHCA, requires manufacturers of covered drugs and biologics participating in the Medicaid program to report certain non-federal pricing information from which a mandatory purchase discount is derived and to enter into FSS contracts with the Department of Veterans Affairs through which their covered drugs and biologics must be sold to certain federal agencies at the statutory price. This necessitates compliance with applicable federal procurement laws and regulations and subjects us to contractual remedies as well as administrative, civil, and criminal sanctions. In addition, the VHCA requires manufacturers participating in Medicaid to agree to provide different mandatory discounts to certain Public Health Service grantees and other safety net hospitals and clinics.

        The federal and state governments further regulate the payments made to physicians and other health care providers. The ACA created new federal requirements for reporting, by applicable manufacturers of covered drugs and biologics, payments and other transfers of value to physicians and teaching hospitals, and report annually certain ownership and investment interests held by physicians and other healthcare providers and their immediate family members. The reported data are posted in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties. Effective January 1, 2022, we will also be required to report on transfers of value to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives.

        We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Penalties for violating HIPAA include civil penalties, criminal penalties, and imprisonment. Among other things, HITECH, through its implementing regulations, makes HIPAA's privacy and security standards directly applicable to "business associates," defined as a person or organization, other than a member of a covered entity's workforce, that creates, receives, maintains or transmits protected health information on behalf of a covered entity for a function or activity regulated by HIPAA. HITECH also strengthened the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts.

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        There further may be 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 many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts. There are also an increasing number of state laws with requirements for manufacturers and/or marketers of pharmaceutical products. Some states require the reporting of expenses relating to the marketing and promotion of drug products and the reporting of gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals. Still other states require the reporting of certain pricing information, including information pertaining to and justification of price increases, or prohibit prescription drug price gouging. In addition, states such as California, Connecticut, Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs and/or marketing codes. Many of these laws contain ambiguities as to what is required to comply with the laws.

        Our activities relating to our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid) and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties also can be imposed upon executive officers and employees, including criminal sanctions against executive officers under the so-called "responsible corporate officer" doctrine, even in situations where the executive officer did not intend to violate the law and was unaware of any wrongdoing.

        Given the significant penalties and fines that can be imposed on companies and individuals if convicted, allegations of such violations often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If the government were to allege or convict us or our executive officers of violating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities. Further, there are an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state authorities.

        Depending on the circumstances, failure to comply with these laws can also result in penalties, including criminal, civil and/or administrative criminal penalties, damages, fines, disgorgement, debarment from government contracts and future orders under existing contracts, refusal to allow us to enter into supply contracts, including government contracts, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our business.

        Similar rigid restrictions are imposed on the promotion and marketing of medicinal products in the European Union and other countries. Laws (including those governing promotion, marketing, anti-kickback and personal data provisions), industry regulations and professional codes of conduct often are strictly enforced. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution partners can have adverse implications for us.

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Other laws and regulatory processes

        We are subject to a variety of financial disclosure and securities trading regulations as a public company in the United States, including laws relating to the oversight activities of the Securities and Exchange Commission, or SEC and, following the listing of our capital stock on the NASDAQ Global Market, the regulations of the NASDAQ Global Market. In addition, the Financial Accounting Standards Board, or FASB, the SEC and other bodies that have jurisdiction over the form and content of our accounts, our financial statements and other public disclosure are constantly discussing and interpreting proposals and existing pronouncements designed to ensure that companies best display relevant and transparent information relating to their respective businesses.

        Our international operations are subject to compliance with the Foreign Corrupt Practices Act, or the FCPA, which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. We also may be implicated under the FCPA for activities by our partners, collaborators, CROs, vendors or other agents. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts.

        Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import and export and use and disposal of hazardous or potentially hazardous substances used in connection with our research work are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rights or acquisitions may be subject to national or supranational antitrust regulatory control, the effect of which cannot be predicted. The extent of government regulation, which might result from future legislation or administrative action, cannot accurately be predicted.

Legal Proceedings

        From time to time we may become subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this prospectus, we do not believe we are party to any claim or litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Facilities

        Our primary facility is located in Waltham, Massachusetts, where we lease approximately 7,495 square feet of office space. Our lease expires in September 2019. We also have a facility located in Kansas City, Kansas, where we lease approximately 80 square feet of office space. We believe that our existing facilities are sufficient for our current needs and our needs for the foreseeable future.

Employees

        As of March 8, 2019, we had 17 full-time employees, of whom nine are in research and development and eight are in general and administrative functions. None of our employees is subject to a collective bargaining agreement or represented by a labor or trade union. We believe that our relations with our employees are good.

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