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 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.
On June 22, 2017, we entered into a securities
purchase agreement (the “Purchase Agreement”) with a syndicate of current and new institutional investors (each
individually, an “Investor” and, collectively, the “Investors”), led by a fund affiliated with Deerfield
Management Company, L.P. (“Deerfield”), pursuant to which we agreed to issue and sell to the Investors an aggregate
of 22,000 shares (the “Preferred Shares”) of the Company’s Series A Convertible Preferred Stock, par value $0.001
per share (the “Series A Preferred Stock” and such sale of the Series A Preferred Stock, the “Transaction”),
for a purchase price of $1,000 per share, or an aggregate purchase price of $22.0 million, all upon the terms and conditions set
forth in the Purchase Agreement. In the Purchase Agreement, we made customary representations and warranties to the Investors relating
to the Company, our business and the issuance of the securities at the closing. The representations and warranties of the respective
parties to the Purchase Agreement will survive the closing of the Transaction. Consummation of the Transaction was subject to customary
closing conditions, including (i) approval by the Company’s stockholders and (ii) minimum gross proceeds received by the
Company from the sale of the Preferred Shares to all Investors at the closing of the Transaction equal to no less than $18,000,000.
We also agreed to indemnify the Investors for certain breaches of our representations and warranties in certain circumstances.
We received stockholder approval for the Transaction on July 31, 2017 at a special meeting of our stockholders and the Transaction
closed on August 2, 2017.
The following holders, or affiliates of holders, of more than 5%
of our Common Stock have executed the Purchase Agreement as investors: Abingworth Bioventures VI, LP, a fund affiliated with
Deerfield Management Company, L.P., Intersouth Partners VI, L.P., Pharmstandard International S.A., Skyline Venture Partners Qualified
Purchaser Fund IV, LP, RA Capital and related funds, and TVM Capital and related funds. Additional information regarding ownership
is described below in “Selling Stockholders.”
In connection with the Transaction, concurrently with the execution
and delivery of the Purchase Agreement, and as an inducement to the Investors to enter into the Purchase Agreement, the Company
and certain stockholders of the Company entered into a Fifth Amended and Restated Investors’ Rights Agreement, dated as of
June 22, 2017 (the “Fifth IRA”), pursuant to which such stockholders agreed to certain limitations on the registration
rights provided for under that certain Fourth Amended and Restated Investors’ Rights Agreement, dated as of May 13, 2014.
The Fifth IRA became effective upon the closing of the Transaction.
The rights, preferences and privileges of the Series A Preferred
Stock are set forth in the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred
Stock (“Certificate of Designation”), which we filed with the Secretary of State of the State of Delaware on August
1, 2017. Each share of Series A Preferred Stock is convertible into approximately 1,005 shares of our common stock, at a conversion
price of $0.9949 per share, in each case subject to adjustment for any stock splits, stock dividends and similar events, at any
time at the option of the holder, provided that any conversion of Series A Preferred Stock by a holder into shares of Common Stock
would be 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
Securities Exchange Act of 1934, as amended (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”).
For purposes of clarity, the shares of common stock underlying any holder’s shares of Series A Preferred Stock in excess
of the Blocker shall not be deemed to be beneficially owned by such holder for any purpose, including for purposes of Section 13(d)
or Rule 16a-1(a)(1) of the Exchange Act. The Blocker may not be waived and shall apply to any successor holder of shares of Series
A Preferred Stock.
For purposes of the Blocker, the aggregate number of shares of common
stock beneficially owned by a holder and its Attribution Parties (as defined below) shall include the number of shares of common
stock held by such holder and its Attribution Parties plus the number of shares of common stock issuable upon conversion of such
shares of Series A Preferred Stock with respect to which the determination is being made, but shall exclude shares of common stock
which would be issuable upon (i) conversion of the remaining, unconverted portion of the shares of Series A Preferred Stock beneficially
owned by such holder or any of its Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion
of any other securities of the Company beneficially owned by such holder or any of its Attribution Parties, subject to certain
limitations on conversion or exercise. For purposes of the Blocker, in determining the number of outstanding shares of common stock,
a holder may rely on the number of outstanding shares as reflected in (1) the Company’s most recent quarterly report on Form
10-Q or annual report on Form 10-K, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice
by the Company or the transfer agent for the common stock setting forth the number of shares of common stock outstanding.