RISK
FACTORS
Investing
in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other
information contained in or incorporated by reference in this prospectus, including our financial statements and related notes
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2015, as updated in our Quarterly Reports on Form 10-Q, before deciding whether
to invest in our common stock. The occurrence of any of the adverse developments described below could materially and adversely
harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock
could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may harm our business, financial condition, results of operations and prospects.
Risks
Relating to Our Financial Position and Need for Additional Capital
We
have incurred net losses in each year since our inception. Currently, we have no products approved for commercial sale. As a result,
our ability to reduce our losses and reach profitability is unknown, and we may never achieve or sustain profitability.
We
have incurred net losses in each year since our inception. Our financial statements for the year ended December 31, 2015 have
been prepared assuming that we will continue as a going concern, which contemplates, among other things, the realization of assets
and satisfaction of liabilities in the normal course of business. For the years ended December 31, 2015 and 2014, we had net losses
of approximately $8.8 million and $2.5 million, respectively, and had net cash used in operating activities of approximately $5.7
million and $1.2 million, respectively. For the nine months ended September 30, 2016 and 2015, we had net losses of approximately
$10.8 million and $6.6 million, respectively, and had net cash used in operating activities of approximately $7.4 million and
$4.3 million, respectively.
To
date, we have devoted most of our financial resources to our corporate overhead and research and development, including our drug
discovery research, preclinical development activities and clinical trials. We currently have no products that are approved for
commercial sale. We expect to continue to incur net losses and negative operating cash flow for the foreseeable future, and we
expect these losses to increase as we continue our development of, and seek regulatory approvals for, RP-G28, and other product
candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support
our product development efforts and operations as a public company. We anticipate that any such losses could be significant for
the next several years as we advance RP-G28 through clinical development and seek regulatory approval of RP-G28. If RP-G28 or
any of our other product candidates fails in clinical trials or does not gain regulatory approval, or if our product candidates
do not achieve market acceptance, we may never become profitable. These net losses and negative cash flows have had, and will
continue to have, an adverse effect on our stockholders’ equity and working capital.
Because
of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict
the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses
could increase if we are required by the FDA or the EMA, to perform studies or trials in addition to those currently expected,
or if there are any delays in completing our clinical trials or the development of our product candidates. The amount of future
net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues.
We
will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available,
may require us to delay, limit, reduce or cease our operations.
We
are currently advancing RP-G28 through clinical development. Developing pharmaceutical products, including conducting preclinical
studies and clinical trials, is expensive. As of September 30, 2016 and December 31, 2015, we had a total of approximately $8.5
million and $15.8 million in cash, respectively.
On
June 29, 2015, we closed our initial public offering of 4,000,000 shares of common stock at a public offering price of $5.00 per
share. Total gross proceeds from our initial public offering were $20.0 million before deducting underwriting discounts and commissions
and other offering expenses payable by us, resulting in net proceeds of $17.4 million.
On
October 31, 2016, we closed a public offering of 2,127,660 shares of our common stock at a price to the public of $2.35 per share,
for net proceeds of approximately $4.4 million, after deducting underwriting discounts and commissions and offering expenses payable
by us in the offering.
As
of February 9, 2017 , we have issued an aggregate of 1,577,699 shares of our common stock to Aspire Capital under the Purchase
Agreement for aggregate gross proceeds of $3.0 million. After the SEC has declared the registration statement of which this prospectus
is a part effective, we may sell an additional 3,000,000 shares of common stock to Aspire Capital in the future pursuant to the
terms of the Purchase Agreement for up to an additional $7.0 million.
We
expect our existing cash and cash equivalents, together with interest, and any proceeds received from our sale of shares of common
stock to Aspire Capital in the future pursuant to the Aspire Purchase Agreement, will be sufficient to fund our current operations
through the second quarter of 2017. We have based this estimate on assumptions that may prove to be wrong, and we could use our
available capital resources sooner than we currently expect. For example, our clinical trials may encounter technical, enrollment
or other difficulties that could increase our development costs more than we expect.
We
do not expect our existing capital resources will be sufficient to enable us to complete the commercialization of RP-G28, if approved,
or to initiate any clinical trials or additional development work for other product candidates, other than as described above.
We will need to secure additional financing in order to complete clinical development and commercialize RP-G28 and to generally
fund our operations. To complete the work necessary to file a New Drug Application, or NDA, and a Marketing Authorization Application,
or MAA, for RP-G28 as a treatment for patients with lactose intolerance, which is currently anticipated to occur in 2019, we estimate
that our RP-G28 clinical trials, and our planned clinical and nonclinical studies, as well as other work needed to submit RP-G28
for regulatory approval in the United States, Europe and other countries, will cost approximately $85 million, including the internal
resources needed to manage the program. If the FDA or EMA requires that we perform additional nonclinical studies or clinical
trials, our expenses would further increase beyond what we currently expect and the anticipated timing of any potential NDA or
MAA would likely be delayed.
If
we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or
development programs. We also could be required to seek funds through arrangements with collaborative partners or otherwise that
may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable
to us.
The
extent to which we utilize the Aspire Purchase Agreement with Aspire Capital as a source of funding will depend on a number of
factors, including the prevailing market price of our common stock, the volume of trading in our common stock and the extent to
which we are able to secure funds from other sources. The number of shares that we may sell to Aspire Capital under the Aspire
Purchase Agreement on any given day and during the term of the agreement is limited. Additionally, we and Aspire Capital may not
effect any sales of shares of our common stock under the Aspire Purchase Agreement during the continuance of an event of default
or on any trading day that the closing sale price of our common stock is less than $0.50 per share. Even if we are able to access
the full $10.0 million under the Aspire Purchase Agreement, we will still need additional capital to fully implement our business,
operating and development plans.
We
may sell additional equity or debt securities to fund our operations, which would result in dilution to our stockholders and imposed
restrictions on our business.
We
may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding,
commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
Additional funding may not be available to us on acceptable terms or at all. To the extent that we raise additional funds by issuing
equity securities (including any common stock issued to Aspire Capital pursuant to the Aspire Purchase Agreement), our stockholders
may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability
to conduct business. If we are not able to raise additional capital when required or on acceptable terms, we may have to (i) significantly
delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators
for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise
be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would
otherwise seek to develop or commercialize. In addition, the terms of any financing may adversely affect the holdings or the rights
of our stockholders and the issuance of additional shares by us, or the possibility of such issuance, may cause the market price
of our shares to decline.
Our
financial condition and operating results have varied significantly since our formation and are expected to continue to fluctuate
significantly from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control.
Our
operations since 2010 have been limited to developing our technology and undertaking preclinical studies and clinical trials of
our lead product candidate, RP-G28. We have not yet obtained regulatory approvals for RP-G28, or any other product candidate.
Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had approved
products on the market. Our financial condition and operating results have varied significantly since our formation and are expected
to continue to significantly fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are
beyond our control. Factors relating to our business that may contribute to these fluctuations include:
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any
delays in regulatory review and approval of our product candidates in clinical development, including our ability to receive
approval from the FDA and the EMA for RP-G28 for the reduction of symptoms associated with lactose intolerance in patients
based on our Phase 2b/3 and any Phase 3 trials of RP-G28, and our other completed and planned clinical and nonclinical studies
and other work, as the basis for review and approval of RP-G28 for the reduction of symptoms associated with lactose intolerance
in patients;
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delays
in the commencement, enrollment and timing of clinical trials;
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difficulties
in identifying and treating patients suffering from our target indications;
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the
success of our clinical trials through all phases of clinical development, including our Phase 2b/3 and any Phase 3 trials
of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients;
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potential
side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken off the
market;
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our
ability to obtain additional funding to develop our product candidates;
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our
ability to identify and develop additional product candidates;
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market
acceptance of our product candidates;
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our
ability to establish an effective sales and marketing infrastructure directly or through collaborations with third parties;
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competition
from existing products or new products that may emerge;
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the
ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;
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our
ability to adhere to clinical study requirements directly or with third parties such as CROs;
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our
dependency on third-party manufacturers to manufacture our products and key ingredients;
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our
ability to establish or maintain collaborations, licensing or other arrangements;
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the
costs to us, and our ability and our third-party collaborators’ ability to obtain, maintain and protect our intellectual
property rights;
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costs
related to and outcomes of potential intellectual property litigation;
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our
ability to adequately support future growth;
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our
ability to attract and retain key personnel to manage our business effectively; and
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potential
product liability claims.
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Accordingly,
the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.
Risks
Relating to Regulatory Review and Approval of Our Product Candidates
We
are substantially dependent on the success of our current product candidate, RP-G28.
We
currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. We currently
invest nearly all of our efforts and financial resources in the research and development of RP-G28, which is currently our only
product candidate. Our business currently depends entirely on the successful development and commercialization of RP-G28.
We
cannot be certain that RP-G28 will receive regulatory approval, and without regulatory approval we will not be able to market
RP-G28 as a prescription drug.
The
development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the
FDA in the United States, the EMA in Europe, and regulatory authorities in other countries, with regulations differing from country
to country. We are not permitted to market our product candidates in the United States or Europe until we receive approval of
a NDA from the FDA or a MAA from the EMA, respectively. We have not submitted any marketing applications for RP-G28.
NDAs
and MAAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s
safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry,
manufacturing and controls for the product. Obtaining approval of a NDA or a MAA is a lengthy, expensive and uncertain process,
and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years to complete and approval
is never guaranteed. If we submit a NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing.
We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators of other jurisdictions,
such as the EMA, have their own procedures for approval of product candidates. Even if a product is approved, the FDA or the EMA,
as the case may be, 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 drug candidates with which we must
comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country
does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections
of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory
requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different
interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of
new information regarding our product candidates or other products. Also, regulatory approval for any of our product candidates
may be withdrawn.
We
have completed one Phase 2a trial for RP-G28. Before we submit a NDA to the FDA or a MAA to the EMA for RP-G28 for the treatment
of pain and the reduction in the frequency of symptomatic episodes of lactose intolerance, we must successfully complete a Phase
2b/3 trial and Phase 3 trials. Following analysis of the Phase 2a clinical trial, discussions with the FDA during the Type C meeting
in 2013 about our clinical development plan, and further discussions with our regulatory consultants, we initiated an adaptive
design Phase 2b/3 clinical trial of RP-G28 in March 2016. A trial that is designed as an adaptive seamless clinical trial refers
to a trial that combines the objectives of what are typically separate trials into a single uninterrupted trial with multiple
objectives.
We
did not discuss the Phase 2b/3 study design and development plan for RP-G28 with the FDA, though we did submit a supplement to
the IND detailing the protocols for the adaptive study. Regulatory authorities in the United States and Europe have both published
guidance documents on the use and implementation of adaptive design trials. These documents include description of adaptive trials
and include a requirement for prospectively written standard operating procedures and working processes for executing adaptive
trials and a recommendation that sponsor companies engage with CROs that have the necessary experience in running such trials.
In addition, the regulations governing INDs are extensive and involve numerous notification requirements including that, generally,
an IND supplement must be submitted to and cleared by the FDA before a sponsor or an investigator may make any change to the investigational
plan that may affect its scientific soundness or the rights, safety or welfare of human subjects. We intend to comply with these
requirements and believe we will need to submit an IND supplement containing amended protocols for the Phase 2b/3 adaptive trial.
There can be no assurance that the FDA will provide clearance for an amended IND for a Phase 2b/3 trial in a timely manner, if
at all, and that this trial and other trials will not be delayed or disrupted as a result.
In
addition, guidelines adopted by the FDA and established by the International Conference on Harmonization of Technical Requirements
for Registration of Pharmaceuticals for Human Use (ICH) require nonclinical studies that specifically address female fertility
to be completed before the inclusion of women of child bearing potential in large-scale or long-duration clinical trials (e.g.,
Phase 3 trials). In the United States, such assessments of embryo-fetal development can be deferred until before Phase 3 using
precautions to prevent pregnancy in clinical trials. As the FDA recommended in their June 28, 2010 advice letter, we will continue
to evaluate females of child-bearing potential who are willing to use appropriate contraception throughout the duration of any
study. We cannot predict whether our future trials and studies will be successful or whether regulators will agree with our conclusions
regarding the preclinical studies and clinical trials we have conducted to date.
If
we are unable to obtain approval from the FDA, the EMA or other regulatory agencies for RP-G28, or if, subsequent to approval,
we are unable to successfully commercialize RP-G28, we will not be able to generate sufficient revenue to become profitable or
to continue our operations.
Any
statements in this document indicating that RP-G28 has demonstrated preliminary evidence of efficacy are our own and are not based
on the FDA’s or any other comparable governmental agency’s assessment of RP-G28 and do not indicate that RP-G28 will
achieve favorable efficacy results in any later stage trials or that the FDA or any comparable agency will ultimately determine
that RP-G28 is effective for purposes of granting marketing approval.
The
FDA and other regulatory agencies outside the United States, such as the EMA, may not agree to our proposed endpoint for approval
of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients, in which case we would need to complete
an additional clinical trial in order to seek approval outside the United States.
During
our Type C Meeting with the FDA in February 2013, we had proposed that future studies with RP-G28 in subjects with lactose intolerance
would utilize a total lactose intolerance symptom score, measured by a patient reporting instrument that we were going to develop,
as the primary, stand-alone endpoint. However, based on RP-G28’s mechanism of action, data from the Phase 2a clinical study,
further research conducted after the Type C Meeting with the FDA along with FDA guidance and products under the review of the
Division of Gastroenterology and Inborn Errors Products, we used abdominal pain, measured by the Patient Assessment of Adequate
Relief Item instrument administered monthly, as the primary endpoint for the Phase 2b/3 study that assesses RP-G28 for the management
of lactose intolerant patients with moderate to severe abdominal pain associated with lactose intake. We believe that evaluation
of abdominal pain is a reliable clinical assessment of treatment response and treatment benefit in a lactose intolerant patient.
Although no FDA-approved product exists for lactose intolerance, the use of a pain scale as a primary endpoint has been used as
a validated primary measurement in many approved products, including other gastrointestinal products used to treat diseases such
as Irritable Bowel Syndrome (IBS). We have not consulted with the FDA about our intent to use abdominal pain as a primary endpoint
or our plan to convert our Phase 2b clinical trial into an adaptive design Phase 2b/3 pivotal clinical trial.
We
do not know if the FDA, the EMA or regulatory authorities in other countries will agree with our final primary endpoint for approval
of RP-G28. The FDA, the EMA and regulatory authorities in other countries in which we may seek approval for and market RP-G28,
may require additional nonclinical studies and/or clinical trials prior to granting approval. It may be expensive and time consuming
to conduct and complete additional nonclinical studies and clinical trials that the EMA and other regulatory authorities may require
us to perform. As such, any requirement by the EMA or other regulatory authorities that we conduct additional nonclinical studies
or clinical trials could materially and adversely affect our business, financial condition and results of operations. Furthermore,
even if we receive regulatory approval of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients,
the labeling for RP-G28 in the United States, Europe or other countries in which we seek approval may include limitations that
could impact the commercial success of RP-G28.
The
results from our Phase 2b/3 trial with adaptive design may not be sufficiently robust to support the submission of marketing approval
for RP-G28.
We
conducted our planned Phase 2b clinical trial as an adaptive design seamless Phase 2b/3 clinical trial. We did not meet with the
FDA to discuss the Phase 2b/3 study design or current development plan for RP-G28. The FDA standard for traditional approval of
a drug generally requires two well-controlled Phase 3 studies. If the FDA disagrees with our choice of primary endpoint for our
Phase 2b/3 trial or the results for the primary endpoint are not robust or significant relative to control, are subject to confounding
factors, or are not adequately supported by other study endpoints, the FDA may not recognize the Phase 2b/3 trial as one of the
required pivotal trials required for FDA approval. If the FDA or other regulatory authorities do not recognize this trial as a
pivotal trial, we would incur increased costs and delays in the marketing approval process, which would require us to expend more
resources than we have available.
Delays
in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our
ability to obtain regulatory approval for RP-G28 or our other product candidates.
Delays
in the commencement, enrollment and completion of clinical trials could increase our product development costs or limit the regulatory
approval of RP-G28 or other product candidates we may develop in the future. Although we believe that our existing cash and cash
equivalents, together with interest, and any proceeds received from our sale of shares of common stock to Aspire Capital in the
future pursuant to the pursuant to the Aspire Purchase Agreement should be sufficient to fund our projected operating requirements
through the completion of our Phase 2b/3 and any Phase 3 trials of RP-G28, we may not be able to complete these trials on time
or we may be required to conduct additional clinical trials or nonclinical studies not currently planned to receive approval for
RP-G28 as a treatment for lactose intolerance. The commencement, enrollment and completion of clinical trials may be delayed or
suspended for a variety of reasons, including:
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inability
to obtain sufficient funds required for a clinical trial;
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inability
to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and trial sites;
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clinical
holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval
to commence a clinical trial in countries that require such approvals;
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discussions
with the FDA or non-U.S. regulators regarding the scope or design of our clinical trials;
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inability
to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial
programs, including some that may be for the same indications targeted by our product candidates;
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inability
to obtain approval from institutional review boards, or IRBs, to conduct a clinical trial at their respective sites;
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severe
or unexpected drug-related adverse effects experienced by patients;
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inability
to timely manufacture sufficient quantities of the product candidate required for a clinical trial;
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difficulty
recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment
criteria for our study and competition from other clinical trial programs for the same indications as our product candidates;
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inability
to get FDA approval of our end points; and
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inability
to retain enrolled patients after a clinical trial is underway.
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Changes
in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols to reflect these changes
with appropriate regulatory authorities. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination,
which may impact the costs, timing or successful completion of a clinical trial. In addition, a clinical trial may be suspended
or terminated at any time by us, our future collaborators, the FDA or other regulatory authorities due to a number of factors,
including:
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our
failure or the failure of our potential future collaborators to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols;
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unforeseen
safety issues or any determination that a clinical trial presents unacceptable health risks;
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lack
of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and
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a
breach of the terms of any agreement with, or for any other reason by, future collaborators who have responsibility for the
clinical development of our product candidates.
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In
addition, if we or any of our potential future collaborators are required to conduct additional clinical trials or other nonclinical
studies of our product candidates beyond those contemplated, our ability to obtain regulatory approval of these product candidates
and to generate revenue from their sales would be similarly harmed.
Clinical
failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarily predictive
of future results and any product candidate we or our potential future collaborators advance through clinical trials may not have
favorable results in later clinical trials or receive regulatory approval.
Clinical
failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and
we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies.
In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret
our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early
clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide
adequate data to demonstrate the efficacy and safety of a product candidate. A number of companies in the pharmaceutical industry,
including those with greater resources and experience than us, have suffered significant setbacks in Phase 2b and/or Phase 3 clinical
trials, including adaptive seamless clinical trials even after seeing promising results in earlier clinical trials.
In
addition, 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. We may be unable to design and execute
a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical
or feasible to continue development efforts.
If
RP-G28, or any of our other product candidates, is found to be unsafe or lack efficacy, we will not be able to obtain regulatory
approval for it and our business would be harmed. For example, if the results of our Phase 2b/3 and any Phase 3 trials of RP-G28
do not achieve the primary efficacy endpoints or demonstrate expected safety, the prospects for approval of RP-G28 would be materially
and adversely affected.
In
some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product
candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations,
adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not
know whether any Phase 2, Phase 3 or other clinical trials we or any of our potential future collaborators may conduct will demonstrate
the consistent or adequate efficacy and safety that would be required to obtain regulatory approval and market RP-G28. Our adaptive
Phase 2b/3 clinical trial for RP-G28 may not be deemed to be a pivotal trial by the FDA or may not provide sufficient support
for NDA approval. The FDA may require us to make changes to the proposed study design for this adaptive trial or may require us
to conduct one or more additional clinical trials, possibly involving a larger sample size or a different clinical trial design,
or may require longer follow-up periods, particularly if the FDA does not find the results from our adaptive Phase 2b/3 clinical
trial to be sufficiently persuasive as one of the required pivotal trials required for FDA approval. If we are unable to bring
RP-G28 to market, our ability to create long-term stockholder value will be limited.
Our
product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received,
require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
Unforeseen
side effects from RP-G28, or other product candidates we may develop in the future, could arise either during clinical development
or, if approved, after the approved product has been marketed. The most common side effects observed in clinical trials of RP-G28
were headache (nine out of 57), nausea (three out of 57), upper respiratory tract infection (two of 57), nasal congestion (two
of 57), and pain (two out of 57). No patients were withdrawn from the study for these side effects.
The
results of future clinical trials may show that RP-G28 causes undesirable or unacceptable side effects, which could interrupt,
delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory
authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings.
If
RP-G28, or any other product candidate we develop in the future, receives marketing approval and we or others later identify undesirable
or unacceptable side effects caused by such product:
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regulatory
authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians
and pharmacies;
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we
may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or
change the labeling of the product;
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we
may be subject to limitations on how we may promote the product;
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sales
of the product may decrease significantly;
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regulatory
authorities may require us to take our approved product off the market;
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we
may be subject to litigation or product liability claims; and
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our
reputation may suffer.
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Any
of these events could prevent us or our potential future collaborators from achieving or maintaining market acceptance of the
affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us
from generating significant revenues from the sale of our products.
Reimbursement
decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement
for our products, it is less likely that they will be widely used.
Market
acceptance and sales of RP-G28, or any other product candidates we develop in the future, if approved, will depend on reimbursement
policies and may be affected by, among other things, future healthcare reform measures. Government authorities and third-party
payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish
payment levels. We cannot be certain that reimbursement will be available for RP-G28 or any other product candidates that we may
develop. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products.
If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize RP-G28,
or other product candidates that we develop.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), changed
the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare
coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that
will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices
for physician-administered drugs. Any negotiated prices for our products covered by a Part D prescription drug plan will likely
be lower than the prices we might otherwise obtain in the United States. Moreover, while the MMA applies only to drug benefits
for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own
payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental
payors.
The
United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy
makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems
with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States,
the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives. We expect to experience pricing pressures in connection with the sale of RP-G28, and any other product candidates
that we develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and
additional legislative proposals.
In
March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act (collectively, the “ACA”) became law in the United States. The goal of the ACA is to reduce the cost of health
care and substantially change the way health care is financed by both governmental and private insurers. While we cannot predict
what impact on federal reimbursement policies this legislation will have in general or on our business specifically, the ACA may
result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of RP-G28 or any
other product candidates that we may develop. In addition, some members of the U.S. Congress have been seeking to overturn at
least portions of the legislation and we expect they will continue to review and assess this legislation and alternative health
care reform proposals. We cannot predict whether new proposals will be made or adopted, when they may be adopted or what impact
they may have on us if they are adopted.
If
we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the United States by extending the patent
terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.
Depending
upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for a limited
Patent Term Extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (which is sometimes referred to
as the “Hatch-Waxman Act”), provided our U.S. patent claims a method of treating lactose intolerance that is approved
by the FDA. The Hatch-Waxman Act, 35 U.S.C. §156, permits a patent extension of up to five years as compensation for patent
term lost during the FDA regulatory review process. The scope of protection afforded by the patent during the extended term is
not commensurate with the scope of the unextended portion of the patent; for example, the “rights derived” from a
method of use patent during the extended period are “limited to any use claimed by the patent and approved for the product.”
35 U.S.C. §156(b)(2). We may not be granted an extension because of, for example, failing to apply for the extension within
applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable statutory
and/or regulatory requirements including, for example, the requirement that the patent to be extended “claim” the
approved product or a method of using the approved product. Moreover, the applicable period of extension could be less than we
request. If we are unable to obtain patent term extension or if the term of any such extension is shorter than we request, the
period during which we will be able to exclude others from marketing their versions of our product will be shortened and our competitors
may obtain approval of generic products following our patent expiration, and our revenue could be reduced, possibly materially.
Similar concerns are associated with obtaining Supplemental Protection Certificates (SPCs) of certain patents issued in Europe
and owned by Inalco, to which we have an exclusive options of assignment, based upon patent terms lost during European regulatory
review processes. In the event that we are unable to obtain any patent term extension, the issued patents for RP-G28 are expected
to expire in 2030, assuming they withstand any challenge toothier validity and/or patentability.
If
we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws,
we may be subject to civil or criminal penalties.
In
addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws,
commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices
in the pharmaceutical industry. Other jurisdictions such as Europe have similar laws. These laws include false claims and anti-kickback
statutes. If we market our products and our products are paid for by governmental programs, it is possible that some of our business
activities could be subject to challenge under one or more of these laws.
Federal
false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the
federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare
program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare
item or service covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers
on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce
prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most
states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which apply to
items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative,
civil and criminal sanctions may be imposed under these federal and state laws.
Over
the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety
of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other
monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement
rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce
liability for Medicaid rebates.
Any
delay or disruption in the manufacture and supply of RP-G28 may negatively impact our operations.
We
do not intend to manufacture the pharmaceutical products that we plan to sell. We have an agreement with RSM, our contract manufacturer,
for the production of Improved GOS, the active pharmaceutical ingredient in RP-G28, and the formulation of sufficient quantities
of Improved GOS for the clinical and nonclinical studies that we believe we will need to conduct prior to seeking regulatory approval
for RP-G28. However, we do not have agreements for commercial supplies of RP-G28 and we may not be able to reach agreements with
these or other contract manufacturers for sufficient supplies to commercialize RP-G28 if it is approved.
Reliance
on third-party manufacturers entails risks, to which we would not be subject if we manufactured the product candidates ourselves,
including:
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the
possibility that we are unable to enter into a manufacturing agreement with a third party to manufacture our product candidates;
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the
possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and
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the
possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified
replacement third-party manufacturer.
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Any
of these factors could cause the delay of approval or commercialization of our product candidates, cause us to incur higher costs
or prevent us from commercializing our product candidates successfully. Furthermore, if RP-G28 or other product candidates are
approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and
at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially
equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand
for our products and could lose potential revenue. It may take several years to establish an alternative source of supply for
our product candidates and to have any such new source approved by the government agencies that regulate our products. In the
event we do need to identify alternative manufacturing partners, we may have to secure licenses to manufacturing and/or purification
technologies, including third-party patent licenses, to allow us to manufacture RP-G28 that is suitable for the late-stage regulatory
review process and/or adequate to manufacture commercial quantities of RP-G28.
If
the FDA and EMA and other regulatory agencies do not approve the manufacturing facilities of our future contract manufacturers
for commercial production, we may not be able to commercialize any of our product candidates.
The
facilities used by any contract manufacturer to manufacture RP-G28, or other product candidates we may develop in the future,
must be the subject of a satisfactory inspection before the FDA or the regulators in other jurisdictions approve the product candidate
manufactured at that facility. We are completely dependent on these third-party manufacturers for compliance with the requirements
of U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers cannot successfully manufacture
material that conform to our specifications and current good manufacturing practice requirements of any governmental agency whose
jurisdiction to which we are subject, our product candidates will not be approved or, if already approved, may be subject to recalls.
Even
if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties.
RP-G28
and any other product candidates we develop in the future, if approved, will be subject to ongoing regulatory requirements for
labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information.
In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA and
EMA requirements and requirements of other similar agencies, including ensuring that quality control and manufacturing procedures
conform to current cGMPs. As such, we and our contract manufacturers are subject to continual review and periodic inspections
to assess compliance with cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in
all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report
certain adverse reactions and production problems, if any, to the FDA and EMA and other similar agencies and to comply with certain
requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs
are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s
approved label. Accordingly, we may not promote our approved products, if any, for indications or uses for which they are not
approved.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
of a product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market.
If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
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issue
warning letters;
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mandate
modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require
us or our potential future collaborators to enter into a consent decree or permanent injunction, which can include imposition
of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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impose
other administrative or judicial civil or criminal penalties;
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withdraw
regulatory approval;
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refuse
to approve pending applications or supplements to approved applications filed by us or our potential future collaborators;
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impose
restrictions on operations, including costly new manufacturing requirements; or
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detain,
seize and/or condemn and destroy products.
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Risks
Relating to the Commercialization of Our Products
Even
if approved, our product candidates may not achieve broad market acceptance among physicians, patients and healthcare payors,
and as a result our revenues generated from their sales may be limited.
The
commercial success of RP-G28, if approved, will depend upon its acceptance among the medical community, including physicians,
health care payors and patients. The degree of market acceptance of RP-G28, or other product candidates we may develop in the
future, will depend on a number of factors, including:
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limitations
or warnings contained in our product candidates’ FDA-approved labeling;
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changes
in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for
such product candidates;
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limitations
in the approved clinical indications for such product candidates;
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demonstrated
clinical safety and efficacy compared to other products;
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lack
of significant adverse side effects;
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sales,
marketing and distribution support;
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availability
of reimbursement from managed care plans and other third-party payors;
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timing
of market introduction and perceived effectiveness of competitive products;
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the
degree of cost-effectiveness;
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availability
of alternative therapies at similar or lower cost, including generics and over-the-counter products;
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enforcement
by the FDA and EMA of laws and rulings that prohibit the illegal sale of RP-G28 (or any other product candidate) as a dietary
supplement;
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the
extent to which our product candidates are approved for inclusion on formularies of hospitals and managed care organizations;
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whether
our product candidates are designated under physician treatment guidelines for the treatment of or reduction of symptoms associated
with the indications for which we have received regulatory approval;
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adverse
publicity about our product candidates or favorable publicity about competitive products;
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convenience
and ease of administration of our product candidates; and
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potential
product liability claims.
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If
our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients, the medical community
and healthcare payors, sufficient revenue may not be generated from these products and we may not become or remain profitable.
In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require
significant resources and may never be successful.
We
have no internal sales, distribution and/or marketing capabilities at this time and we will have to invest significant resources
to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.
We
have no internal sales, distribution and/or marketing capabilities at this time. To develop these capabilities, we will have to
invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that
RP-G28 will be approved. For product candidates for which we decide to perform sales, marketing and distribution functions ourselves
or through third parties, we could face a number of additional risks, including:
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we
or our third-party sales collaborators may not be able to attract and build an effective marketing or sales force;
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the
cost of securing or establishing a marketing or sales force may exceed the revenues generated by any products; and
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our
direct sales and marketing efforts may not be successful.
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We
may have limited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues
may depend heavily on the success of the efforts of these third parties.
We
may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely
affect our ability to develop RP-G28 or other product candidates and our financial condition and operating results.
Because
developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities
and marketing approved products are expensive, we may seek to enter into collaborations with companies that have more experience.
Additionally, if RP-G28, or any other product candidate we develop in the future, receives marketing approval, we may enter into
sales and marketing arrangements with third parties with respect to our unlicensed territories. If we are unable to enter into
arrangements on acceptable terms, we may be unable to effectively market and sell our products in our target markets. We expect
to face competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming
to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful in our efforts
to establish and implement collaborations or other alternative arrangements for the development of our product candidates.
When
we collaborate with a third party for the development and commercialization of a product candidate, we can expect to relinquish
some or all of the control over the future success of that product candidate to the third party. For example, we may relinquish
the rights to RP-G28 in jurisdictions outside of the United States. Our collaboration partner may not devote sufficient resources
to the commercialization of our product candidates or may otherwise fail in their commercialization. The terms of any collaboration
or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful
in the development and commercialization of our product candidates. In some cases, we may be responsible for continuing preclinical
and initial clinical development of a product candidate or research program under a collaboration arrangement, and the payment
we receive from our collaboration partner may be insufficient to cover the cost of this development. If we are unable to reach
agreements with suitable collaborators for our product candidates, we would face increased costs, we may be forced to limit the
number of our product candidates we can commercially develop or the territories in which we commercialize them and we might fail
to commercialize products or programs for which a suitable collaborator cannot be found. If we fail to achieve successful collaborations,
our operating results and financial condition will be materially and adversely affected.
Our
pipeline of product candidates beyond RP-G28 is limited.
We
intend to develop and commercialize drug candidates in addition to RP-G28 through our research program. Even if we are successful
in completing preclinical and clinical development and receiving regulatory approval for one commercially viable drug for the
treatment of one disease, we cannot be certain that we will be able to develop and receive regulatory approval for other drug
candidates for the treatment of other forms of that disease or other diseases. If we fail to develop and commercialize RP-G28
for the reduction of symptoms associated with lactose intolerance, we will not be successful in developing a pipeline of potential
drug candidates to follow RP-G28, and our business prospects could be significantly limited.
Risks
Relating to Our Business and Strategy
We
may face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to
compete effectively.
Although
we know of no other drug candidates in advanced clinical trials for treating lactose intolerance, the biotechnology and pharmaceutical
industries are intensely competitive and subject to rapid and significant technological change. We have potential competitors
in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology
companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of these
potential competitors have greater financial and other resources, such as larger research and development staff and more experienced
marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensive experience in clinical
testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have
significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading
companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and
development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete.
As a result of all of these factors, these potential competitors may succeed in obtaining patent protection and/or FDA approval
or discovering, developing and commercializing drugs for the diseases that we are targeting before we do. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established
companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include microbiome based development
companies: Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix Inc. In addition, many
universities and private and public research institutes may become active in our target disease areas. These potential competitors
may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective
or less costly than RP-G28 or any other product candidates that we are currently developing or that we may develop, which could
render our products obsolete and noncompetitive.
We
believe that our ability to successfully compete will depend on, among other things:
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the
results of our and our potential strategic collaborators’ clinical trials and preclinical studies;
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our
ability to recruit and enroll patients for our clinical trials;
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the
efficacy, safety and reliability of our product candidates;
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the
speed at which we develop our product candidates;
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our
ability to design and successfully execute appropriate clinical trials;
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our
ability to maintain a good relationship with regulatory authorities;
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the
ability to get FDA approval of our end points;
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the
timing and scope of regulatory approvals, if any;
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our
ability to commercialize and market any of our product candidates that receive regulatory approval;
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the
price of our products;
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adequate
levels of reimbursement under private and governmental health insurance plans, including Medicare;
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our
ability to protect intellectual property rights related to our products;
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our
ability to manufacture and sell commercial quantities of any approved products to the market; and
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acceptance
of our product candidates by physicians and other health care providers.
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If
our competitors market products that are more effective, safer or less expensive than ours, or that reach the market sooner than
ours, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological
change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes
in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological
advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive
or not economical.
We
depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively
as if we performed these functions ourselves.
We
outsource substantial portions of our operations to third-party service providers, including the conduct of preclinical studies
and clinical trials, collection and analysis of data, and manufacturing. Our agreements with third-party service providers and
CROs are on a study-by-study and project-by-project basis. Typically, we may terminate the agreements with notice and are responsible
for the supplier’s previously incurred costs. In addition, any CRO that we retain will be subject to the FDA’s and
EMA’s regulatory requirements and similar standards outside of the United States and Europe and we do not have control over
compliance with these regulations by these providers. Consequently, if these providers do not adhere to applicable governing practices
and standards, the development and commercialization of our product candidates could be delayed or stopped, which could severely
harm our business and financial condition.
Because
we have relied on third parties, our internal capacity to perform these functions is limited to management oversight. Outsourcing
these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner
or may fail to perform at all. Although we have not experienced any significant difficulties with our third-party contractors,
it is possible that we could experience difficulties in the future. In addition, the use of third-party service providers requires
us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.
There are a limited number of third-party service providers that specialize or have the expertise required to achieve our business
objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming
and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources
we have available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully
manage the performance of third-party service providers in the future, our business may be adversely affected, and we may be subject
to the imposition of civil or criminal penalties if their conduct of clinical trials violates applicable law.
A
variety of risks associated with our possible international business relationships could materially adversely affect our business.
We
may enter into agreements with other third parties for the development and commercialization of RP-G28, or other product candidates
we develop in the future, in international markets. International business relationships subject us to additional risks that may
materially adversely affect our ability to attain or sustain profitable operations, including:
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differing
regulatory requirements for drug approvals internationally;
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potentially
reduced protection for intellectual property rights;
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potential
third-party patent rights in the United States and/or in countries outside of the United States;
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the
potential for so-called “parallel importing,” which is what occurs when a local seller, faced with relatively
high local prices, opts to import goods from another jurisdiction with relatively low prices, rather than buying them locally;
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unexpected
changes in tariffs, trade barriers and regulatory requirements;
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economic
weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including several
countries in Europe;
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compliance
with tax, employment, immigration and labor laws for employees traveling abroad;
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taxes
in other countries;
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foreign
currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident
to doing business in another country;
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workforce
uncertainty in countries where labor unrest is more common than in the United States;
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production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business
interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes,
volcanoes, typhoons, floods, hurricanes and fires.
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We
will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As
we increase the number of ongoing product development programs and advance our product candidates through preclinical studies
and clinical trials, we will need to increase our product development, scientific and administrative headcount to manage these
programs. 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 need to effectively
manage our operations, growth and various projects requires that we:
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successfully
attract and recruit new employees or consultants with the expertise and experience we will require;
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manage
our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;
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develop
a marketing and sales infrastructure; and
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continue
to improve our operational, financial and management controls, reporting systems and procedures.
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If
we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.
We
may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
We
may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the
intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are
not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints
that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our
ability to implement our business strategy.
We
are highly dependent on the development, regulatory, commercialization and business development expertise of Michael D. Step,
our Chief Executive Officer, Andrew J. Ritter, our Founder and President, and Ira E. Ritter, our Executive Chairman and Chief
Strategic Officer. If we were to lose one or more of these key employees, our ability to implement our business strategy successfully
could be seriously harmed. Any of our executive officers may terminate their employment at any time. Replacing any of these persons
would be difficult and could take an extended period of time because of the limited number of individuals in our industry with
the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.
There
is also a risk that other obligations could distract our officers and employees from our business, which could have negative impact
on our ability to effectuate our business plans.
In
addition, we have scientific and clinical advisors and consultants who assist us in formulating our research, development and
clinical strategies. Competition to hire and retain consultants from a limited pool is intense. Further, because these advisors
are not our employees, they may have commitments to, or consulting or advisory contracts with, other entities that may limit their
availability to us, and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between
their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements
with other companies to assist those companies in developing products or technologies that may compete with ours.
Failure
to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the
financial reporting and internal controls requirements for publicly traded companies.
As
a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley
Act of 2002, as amended, or the Sarbanes-Oxley Act, and the related rules and regulations of the SEC, expanded disclosure requirements,
accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley
Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and
procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent
financial fraud.
We
have begun implementing our system of internal controls over financial reporting and preparing the documentation necessary to
perform the evaluation needed to comply with Section 404(a) of the Sarbanes-Oxley Act. As we continue to operate as a public company,
we will continue improving our financial infrastructure with the retention of additional financial and accounting capabilities,
the enhancement of internal controls and additional training for our financial and accounting staff.
Section
404(a) of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial
reporting, starting with the second annual report that we would expect to file with the SEC. However, for as long as we remain
an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we intend
to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act. We may take advantage of these reporting exemptions until we are no
longer an “emerging growth company.” We will remain an emerging growth company until the earlier of (i) the
last day of the fiscal year (a) following the fifth anniversary of the date we completed our initial public offering, which was
June 29, 2015, (b) in which we have total annual gross revenue of at least $1.0 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 exceeded $700.0 million
as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the
prior three-year period.
Until
we are able to expand our finance and administrative capabilities and establish necessary financial reporting infrastructure,
we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures or comply
with the Sarbanes-Oxley Act or existing or new reporting requirements. If we cannot provide reliable financial reports or prevent
fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.
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 non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply
with health care fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately
or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care 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 adopted an employee handbook, 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 such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines
or other sanctions.
We
face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability
for a product candidate and may have to limit its commercialization.
The
use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval expose
us to the risk of product liability claims. Product liability claims may be brought against us or our potential future collaborators
by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling our
products. If we cannot successfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless
of merit or eventual outcome, product liability claims may result in:
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withdrawal
of clinical trial participants;
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termination
of clinical trial sites or entire trial programs;
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costs
of related litigation;
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substantial
monetary awards to patients or other claimants;
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decreased
demand for our product candidates and loss of revenues;
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impairment
of our business reputation;
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diversion
of management and scientific resources from our business operations; and
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the
inability to commercialize our product candidates.
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We
have product liability insurance coverage for our clinical trials in the United States and in selected other jurisdictions where
we intend to conduct clinical trials at levels we believe are sufficient and consistent with industry standards for companies
at our stage of development. However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for
any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we
may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due
to product liability. We intend to expand our insurance coverage for products to include the sale of commercial products if we
obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product
liability insurance for any products approved for marketing. Large judgments have been awarded in class action lawsuits based
on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly
if judgments exceed our insurance coverage, could decrease our cash resources and adversely affect our business.
Our
insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured
liabilities.
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 ($2.0 million coverage), employment practices liability, workers’ compensation, and directors’
and officers’ insurance at levels we believe are typical for a company in our industry and at our stage of development.
We currently carry clinical trial liability insurance for our clinical trials at levels we believe are sufficient and consistent
with industry standards for companies at our stage of development. 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 adversely
affect our financial position and results of operations.
If
we engage in an acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affect
our business operations or our stockholders.
From
time to time we have considered, and we will continue to consider in the future, strategic business initiatives intended to further
the expansion and development of our business. These initiatives may include acquiring businesses, technologies or products or
entering into a business combination with another company. If we pursue such a strategy, we could, among other things:
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issue
equity securities that would dilute our current stockholders’ percentage ownership;
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incur
substantial debt that may place strains on our operations;
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spend
substantial operational, financial and management resources to integrate new businesses, technologies and products;
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assume
substantial actual or contingent liabilities;
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reprioritize
our development programs and even cease development and commercialization of our product candidates; or
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merge
with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash and/or
shares of the other company on terms that certain of our stockholders may not deem desirable.
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Although
we intend to evaluate and consider acquisitions, reorganizations and business combinations in the future, we have no agreements
or understandings with respect to any acquisition, reorganization or business combination at this time.
Risks
Relating to Our Intellectual Property
It
is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position
does not adequately protect our product candidates, others could compete against us more directly, which would harm our business,
possibly materially.
Our
commercial success will depend in part on obtaining, maintaining and enforcing patent protection and on developing, preserving
and enforcing current trade secret protection. In particular, it will depend in part on our ability to obtain, maintain and enforce
patents, especially those related to methods of using our current product, RP-G28, and other future drug candidates, and those
related to the methods used to develop and manufacture our products, as well as successfully defending these patents against third-party
challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends
on the extent to which we have rights under valid and enforceable patents (and/or trade secrets) that cover these activities.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent
applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted
to us in the future will withstand subsequent challenges to their validity and or patentability, or if they will be commercially
useful in protecting our product candidates, discovery programs and processes. Furthermore, we cannot be sure that our existing
patents and patent applications will embrace (or “claim”) the particular uses for RP-G28 that will be approved by
FDA.
The
patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions
for which important legal principles remain unresolved.
No
consistent policy regarding the patentability and/or validity of patent claims related to pharmaceutical patents has emerged,
to date, in the United States or in most jurisdictions outside of the United States. Changes in either the patent laws (be they
substantive or procedural) or in the interpretations of patent laws in the United States and other countries may diminish the
value of our intellectual property. Accordingly, we cannot predict the breadth of claims that will issue or will be enforceable
in the patents that have or may be issued from the patents and applications we currently own or may in the future own or license
from third parties. Further, if any patents we obtain, or to which we obtain licenses, are deemed invalid, unpatentable and unenforceable,
our ability to commercialize or license our technology could be adversely affected.
In
the future others may file patent applications covering products, uses for products, and manufacturing techniques and related
technologies that are similar, identical or competitive to ours or important to our business. We cannot be certain that any patent
application owned by a third party will not have priority over patent applications filed or in-licensed by us in the future, or
that we or our licensors will not be involved in interference, opposition, inter partes review or invalidity proceedings before
U.S. or non-U.S. patent offices or courts.
The
degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may
not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others
may be able to develop a platform similar to, or better than, ours in a way that is not covered by the claims of our patents;
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others
may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;
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others
may be able to manufacture compounds that are similar or identical to our product candidates using processes that are not
covered by the claims of our method of making patents;
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others
may obtain regulatory approval for uses of compounds, similar or identical to our product, that are not covered by the claims
of our method of use patents;
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we
may not be able to obtain licenses for patents that are essential to the process of making the product;
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we
might not have been the first to make the inventions covered by our pending patent applications;
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we
might not have been the first to file patent applications for these inventions;
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others
may independently develop similar or alternative technologies or duplicate any of our technologies;
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any
patents that we obtain may not provide us with any competitive advantages;
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we
may not develop additional proprietary technologies that are patentable; or
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the
patents of others may have an adverse effect on our business.
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Patents
covering methods of using RP-G28 expire in 2030 if the appropriate maintenance fee renewal, annuity, or other government fees
are paid, unless a patent term extension based on regulatory delay is obtained. We expect that expiration in 2030 of some of our
method-of-use patents covering use of RP-G28 for treating lactose intolerance will have a limited impact on our ability to protect
our intellectual property in the United States, where we have additional issued patents covering this use that extend until 2030.
In other countries, our pending patent applications covering use of RP-G28 for treating other indications, if issued, would expire
in 2030. We will attempt to mitigate the effect of patent expiration by seeking data exclusivity, or the foreign equivalent thereof,
in conjunction with product approval, as well as by filing additional patent applications covering improvements in our intellectual
property.
We
expect that the other patent applications for the RP-G28 portfolio, if issued, and if the appropriate maintenance, renewal, annuity
or other governmental fees are paid, would expire in 2030. We own pending applications in the United States and Europe covering
RP-G28 analogs, and uses of such analogs as therapeutics to treat a variety of disorders, including lactose intolerance. Patent
protection, to the extent it issues, would be expected to extend to 2030, unless a patent term extension based on regulatory delay
is obtained.
Due
to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may not
obtain patent coverage for all of our product candidates or methods involving these candidates in the parent patent application.
We plan to pursue divisional patent applications or continuation patent applications in the United States and other countries
to obtain claim coverage for inventions which were disclosed but not claimed in the parent patent application.
We
may also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate
or feasible. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets,
our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully
disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade
secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes
less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
RP-G28
does not have composition of matter patent protection.
Although
we own certain patents and patent applications with claims directed to specific methods of using RP-G28 to treat lactose intolerance,
RP-G28 has no composition of matter patent protection in the United States or elsewhere. As a result, we may be limited in our
ability to list our patents in the FDA’s Orange Book if the use of our product, consistent with its FDA-approved label,
would not fall within the scope of our patent claims. Also, our competitors may be able to offer and sell products so long as
these competitors do not infringe any other patents that we (or third parties) hold, including patents with claims directed to
the manufacture of RP-G28 and/or method of use patents. In general, method of use patents are more difficult to enforce than composition
of matter patents because, for example, of the risks that FDA may approve alternative uses of the subject compounds not covered
by the method of use patents, and others may engage in off-label sale or use of the subject compounds. Physicians are permitted
to prescribe an approved product for uses that are not described in the product’s labeling. Although off-label prescriptions
may infringe our method of use patents, the practice is common across medical specialties and such infringement is difficult to
prevent or prosecute. FDA approval of uses that are not covered by our patents would limit our ability to generate revenue from
the sale of RP-G28, if approved for commercial sale. Off-label sales would limit our ability to generate revenue from the sale
of RP-G28, if approved for commercial sale.
We
may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property
rights.
If
we choose to go to court to stop another party from using the inventions claimed in any patents we obtain, that individual or
company may seek a post grant review (including inter parte review) of our patents, and has the right to ask the court to rule
that such patents are invalid or should not be enforced against that third party. These lawsuits and administrative proceedings
are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if we
were successful in stopping the infringement of such patents. In addition, there is a risk that the court or administrative body
will decide that such patents are not valid or unpatentable and that we do not have the right to stop the other party from using
the inventions. There is also the risk that, even if the validity/patentability of such patents is upheld, the court will refuse
to stop the other party on the ground that such other party’s activities do not infringe our rights to such patents. In
addition, the U.S. Supreme Court and the Court of Appeals for the Federal Circuit have recently articulated and/or modified certain
tests used by the U.S. Patent and Trademark Office, or the USPTO, in assessing patentability and by the courts in assessing validity
and claim scope, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood that others
may succeed in challenging any patents we obtain or license.
We
may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing our product candidates.
Our
success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannot guarantee
that our products, our methods of manufacture, or our uses of RP-G28 (or our other product candidates), will not infringe third-party
patents. Furthermore, a third party may claim that we or our manufacturing or commercialization collaborators are using inventions
covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities,
including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert
the attention of managerial and scientific personnel. There is a risk that a court would decide that we or our commercialization
collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered
by the patents. In that event, we or our commercialization collaborators may not have a viable way around the patent and may need
to halt commercialization of the relevant product. In addition, there is a risk that a court will order us or our collaborators
to pay the other party damages for having violated the other party’s patents. In the future, we may agree to indemnify our
commercial collaborators against certain intellectual property infringement claims brought by third parties. The pharmaceutical
and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including
us, which patents cover various types of products or methods of use. The scope of coverage of a patent is subject to interpretation
by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, the patentee would need to
demonstrate, by a preponderance of the evidence that our products or methods infringe the patent claims of the relevant patent,
and we would need to demonstrate either that we do not infringe or, by clear and convincing evidence, that the patent claims are
invalid; we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity
requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if
we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing
these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of
others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity
of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions
to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend
an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter
significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.
We
cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we
were the first to invent the technology, because:
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some
patent applications in the United States may be maintained in secrecy until the patents are issued;
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patent
applications in the United States are typically not published until at least 18 months after the earliest asserted priority
date; and
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publications
in the scientific literature often lag behind actual discoveries.
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Our
competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent
application may have priority over our patent applications, which could further require us to obtain rights to issued patents
covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to
participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The costs
of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the
other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our
U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications,
and may be entitled to priority over our applications in such jurisdictions.
Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
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.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to
be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime
of the patents and/or applications. We employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S.
patent agencies and this outside firm has systems in place to ensure compliance on payment of fees. The USPTO and various non-U.S.
governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions
during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases,
an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However,
there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting
in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to
enter the market and this circumstance would have a material adverse effect on our business.
We
may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology
and products could be significantly diminished.
As
is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees,
or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.
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.
We
rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees,
consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other
proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide
an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently
discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently
considering whether to make additional information publicly available on a routine basis, including information that we may consider
to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies
may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business
position.
Failure
to secure trademark registrations could adversely affect our business.
We
have not developed a trademark for our RP-G28 product. Hence, we do not currently own any actual or potential trademark rights
associated with our RP-G28 product. If we seek to register additional trademarks, including trademarks associated with our RP-G28
product, our trademark applications may not be allowed for registration or our registered trademarks may not be maintained or
enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond
to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many
other jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered
trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such
proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against
third parties than we otherwise would.
Risks
Relating to Our Common Stock
An
active trading market for our common stock may not develop or be sustained.
Prior
to our initial public offering, there was no public market for our common stock. Since our initial public offering in June 2015,
there has been, and we expect that there will continue to be, only a limited volume of trading in our common stock. An active
trading market in our common stock may not develop or, if developed, may not be sustained. The lack of an active market may impair
your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an
active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital
to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using
our shares as consideration.
Our
share price may be volatile, which could subject us to securities class action litigation and prevent you from being able to sell
your shares at or above your purchase price.
The
market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this
section, and others beyond our control, including:
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results
of our clinical trials;
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results
of clinical trials of our competitors’ products;
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regulatory
actions with respect to our products or our competitors’ products;
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actual
or anticipated fluctuations in our financial condition and operating results;
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actual
or anticipated changes in our growth rate relative to our competitors;
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actual
or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;
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competition
from existing products or new products that may emerge;
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announcements
by us, our potential future collaborators or our competitors of significant acquisitions, strategic collaborations, joint
ventures, or capital commitments;
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issuance
of new or updated research or reports by securities analysts;
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fluctuations
in the valuation of companies perceived by investors to be comparable to us;
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share
price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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additions
or departures of key management or scientific personnel;
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disputes
or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our technologies;
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announcement
or expectation of additional financing efforts;
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sales
of our common stock by us, our insiders or our other stockholders;
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market
conditions for biopharmaceutical stocks in general; and
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general
economic and market conditions.
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Furthermore,
the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market
prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market
conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market
price of shares of our common stock. In addition, such fluctuations could subject us to securities class action litigation, which
could result in substantial costs and divert our management’s attention from other business concerns, which could seriously
harm our business.
Our
executive officers, directors and principal stockholders maintain the ability to exert substantial influence over all matters
submitted to stockholders for approval.
Our
executive officers, directors and principal stockholders beneficially own shares representing approximately 28.6% of our
outstanding capital stock. As a result, if these stockholders were to choose to act together, they would be able to exert substantial
influence over all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these
persons, if they choose to act together, would exert substantial influence over the election of directors and approval of any
merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent
an acquisition of our Company on terms that other stockholders may desire.
Being
a public company has increased our expenses and administrative burden.
As
a public company, we have incurred and will continue to incur significant legal, insurance, accounting and other expenses that
we did not incur as a private company. In addition, our administrative staff is required to perform tasks they did not perform
when we were a private company. For example, as a public company, we must bear all of the internal and external costs of preparing
and distributing periodic public reports in compliance with our obligations under the securities laws. In addition, laws, regulations
and standards applicable to public companies relating to corporate governance and public disclosure, including the Sarbanes-Oxley
Act and related regulations implemented by the SEC and NASDAQ, create uncertainty for public companies, increasing legal and financial
compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying
interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over
time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We have invested and will continue
to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general
and administrative expenses and may divert management’s time and attention from product development activities. If our efforts
to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to
ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
In the future, it may become more expensive for us to maintain director and officer liability insurance, and we may be required
to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult
for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation
committee, and qualified executive officers.
We
are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable
to emerging growth companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act and we intend to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including not being required to comply with the auditor attestation requirements of Section 404(b) 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 shareholder approval of any golden parachute
payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may 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.
We
may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain
an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary
of the date we completed our initial public offering, which was June 29, 2015, (b) in which we have total annual gross revenue
of at least $1.0 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 exceeded $700.0 million as of the prior June 30th, and (ii) the date on which we have issued
more than $1.0 billion in non-convertible debt during the prior three-year period.
The
sale of our common stock to Aspire Capital may cause substantial dilution to our existing stockholders and the sale of the shares
of common stock acquired by Aspire Capital could cause the price of our common stock to decline.
We
are registering for sale 3,000,000 shares that we may sell to Aspire Capital under the Purchase Agreement. It is anticipated that
shares registered in this offering will be sold over a period of up to approximately 30 months from December 18, 2015, the date
the Purchase Agreement was signed. The number of shares ultimately offered for sale by Aspire Capital under this prospectus is
dependent upon the number of shares we elect to sell to Aspire Capital under the Purchase Agreement. Depending on a variety of
factors, including market liquidity of our common stock, the sale of shares under the Purchase Agreement may cause the trading
price of our common stock to decline.
Aspire
Capital may ultimately purchase all, some or none of the remaining $7.0 million shares of common stock that, together with the
Commitment Shares, is the subject of this prospectus. Aspire Capital may sell all, some or none of our shares that it holds or
comes to hold under the Purchase Agreement. Sales by Aspire Capital of shares acquired pursuant to the Purchase Agreement under
the registration statement, of which this prospectus is a part, may result in dilution to the interests of other holders of our
common stock. The sale of a substantial number of shares of our common stock by Aspire Capital in this offering, or anticipation
of such sales, could cause the trading price of our common stock to decline or make it more difficult for us to sell equity or
equity-related securities in the future at a time and at a price that we might otherwise desire. However, we have the right under
the Purchase Agreement to control the timing and amount of sales of our shares to Aspire Capital, and the Purchase Agreement may
be terminated by us at any time at our discretion without any penalty or cost to us.
Future
sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline,
even if our business is doing well.
Sales
by our stockholders of a substantial number of shares of our common stock in the public market could occur in the future. These
sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could
reduce the market price of our common stock. We had 11,619,197 outstanding shares of common stock as of February 9, 2017,
which does not include the 3,000,000 shares we may issue to Aspire Capital in the future pursuant to the terms of the Aspire Purchase
Agreement, after this registration statement is declared effective under the Securities Act. Of the shares outstanding, a total
of 8,144,018 shares may be resold in the public market at any time and the remaining 3,475,179 shares are currently
restricted under securities laws.
We
have also registered 2,111,682 shares of common stock that we may issue under our equity compensation plans. These shares can
be sold in the public market upon issuance and once vested.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
share price and trading volume could decline.
The
trading market for our common stock will depend on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide
favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our
share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Our
failure to meet the continued listing requirements of NASDAQ could result in a de-listing of our common stock.
If
we fail to satisfy the continued listing requirements of NASDAQ, such as the corporate governance requirements or the minimum
closing bid price requirement, NASDAQ may take steps to de-list our common stock. Such a de-listing would likely have a negative
effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do
so. In the event of a de-listing, we would take actions to restore our compliance with NASDAQ’s listing requirements, but
we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the
market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ minimum bid
price requirement or prevent future non-compliance with NASDAQ’s listing requirements.
Provisions
in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to
our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent
a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions
in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might
be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition,
because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate
or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders
to replace members of our board of directors. Among other things, these provisions provide that:
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the
authorized number of directors can be changed only by resolution of our board of directors;
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our
bylaws may be amended or repealed by our board of directors or our stockholders;
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stockholders
may not call special meetings of the stockholders or fill vacancies on the board of directors;
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our
board of directors is authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined
at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the
stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;
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our
stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common
stock outstanding will be able to elect all of our directors; and
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our
stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder
meeting.
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Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law, or the DGCL, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining
with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner.
Claims
for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against
us and may reduce the amount of money available to us.
As
permitted by Section 102(b)(7) of the DGCL, our amended and restated certificate of incorporation limits the liability of our
directors to the fullest extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our amended and restated
certificate of incorporation and our amended and restated bylaws provide that we shall indemnify, to the fullest extent authorized
by the DGCL, each person who is involved in any litigation or other proceeding because such person is or was a director or officer
of our company or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. Our amended and restated certificate of incorporation provides that the
right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition,
provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director
or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification.
If we do not pay a proper claim for indemnification in full within 60 days after we receive a written claim for such indemnification,
except in the case of a claim for an advancement of expenses, in which case such period is 20 days, our restated certificate of
incorporation and our restated bylaws authorize the claimant to bring an action against us and prescribe what constitutes a defense
to such action.
Section
145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted
in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful.
In a derivative action, (i.e., one brought by or on behalf of the corporation), indemnification may be provided only for expenses
actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or
suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable
to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that
the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
The
rights conferred in the restated certificate of incorporation and the restated bylaws are not exclusive, and we are authorized
to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify
such persons. We have entered into indemnification agreements with each of our officers and directors.
The
above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers
for monetary damages for breach of their fiduciary duty as directors by shifting the burden of such losses and expenses to us.
Although we plan to increase the coverage under our directors’ and officers’ liability insurance, certain liabilities
or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts
may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations,
which could severely harm our business and financial condition and limit the funds available to stockholders who may choose to
bring a claim against our company.
We
have never paid dividends on our common stock and do not anticipate paying dividends for the foreseeable future, and accordingly,
stockholders must rely on stock appreciation for any return on their investment.
We
have never paid dividends on our common stock and we do not anticipate paying dividends on our common stock for the foreseeable
future. Accordingly, any return on an investment in our common stock will be realized, if at all, only when stockholders sell
their shares. In addition, our failure to pay dividends may make our stock less attractive to investors, adversely impacting trading
volume and price.
Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As
of December 31, 2015, we had federal net operating loss carryforwards, or NOLs, of approximately $15.0 million which begin to
expire in 2028. Our ability to utilize our NOLs may be limited under Section 382 and 383 of the Internal Revenue Code. The limitations
apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders
increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period
(typically three years). Although we have not undergone a Section 382 analysis, it is possible that the utilization of the NOLs,
could be substantially limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be utilized against
future taxes. As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes.
Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.
EXECUTIVE
AND DIRECTOR COMPENSATION
Summary
Compensation Table (2016 and 2015)
The
following table sets forth the compensation paid or earned for the fiscal years ended December 31, 2016 and 2015 to our named
executive officers for each of those years, who are comprised of (1) our principal executive officer for such year, and
(2) our next two highest compensated executive officers other than the principal executive officer (whose compensation exceeded
$100,000).
Name
and Principal Position
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Year
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Salary
($)
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Bonus
($)
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Option
Awards
(1)
($)
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Nonequity
Incentive
Compensation
($)
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All
Other
Compensation
($)
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Total
($)
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Michael D. Step
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2016
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$
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376,269
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$
|
—
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$
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126,280
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|
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—
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$
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—
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$
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502,549
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Chief
Executive Officer
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2015
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$
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348,692
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$
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—
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$
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—
|
|
|
|
—
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|
|
$
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—
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$
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348,692
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Andrew J. Ritter
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2016
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$
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324,010
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$
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117,180
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(2)
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$
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490,394
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—
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$
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—
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$
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931,584
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President
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2015
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$
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259,260
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$
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124,000
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(2)
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$
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—
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$
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225,000
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(3)
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$
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109,952
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(4)
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$
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718,212
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Ira E. Ritter
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2016
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$
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308,332
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$
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97,571
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(2)
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$
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490,394
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—
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$
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—
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$
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896,297
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Executive
Chairman and
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2015
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$
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249,980
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$
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103,250
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(2)
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$
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—
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225,000
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(3)
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$
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7,157
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(4)
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$
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585,387
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Chief
Strategic Officer
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(1)
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Represent
the grant date fair value of the option awards granted during the years presented, determined in accordance with FASB ASC
Topic 718. We utilize the Black-Scholes option-pricing model to value awards. Key valuation assumptions include:
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Expected
dividend yield
. The expected dividend is assumed to be zero as we have never paid dividends and have no current plans
to pay any dividends on our common stock.
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Expected
stock-price volatility
. As our common stock only recently became publicly traded, the expected volatility is derived from
the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to
our business over a period approximately equal to the expected term.
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Risk-free
interest rate
. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero
coupon U.S. Treasury notes with maturities approximately equal to the expected term.
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Expected
term
. The expected term represents the period that the stock-based awards are expected to be outstanding. Our historical
share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a
lack of sufficient data. Therefore, we estimate the expected term by using the simplified method provided by the SEC. The
simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.
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In
addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the
stock-based compensation for our equity awards. We will continue to use judgment in evaluating the expected volatility, expected
terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis.
(2)
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Represents
annual bonuses earned for 2016 and 2015 based upon the achievement of specific performance goals, pursuant to the terms of
their respective offer letters. For 2016, the annual bonuses earned were equal to 90% of the target bonus opportunities for
each of Andrew Ritter ( target bonus equal to 40% of his base salary) and Ira Ritter ( target bonus equal to 35%
of his base salary). For 2015, the annual bonuses earned were equal to 100% of the target bonus opportunities for each of
Andrew Ritter ( target bonus equal to 40% of his base salary) and Ira Ritter ( target bonus equal to 35% of his
base salary).
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(3)
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For
2015, represents cash bonuses of $75,000 and $150,000 attributable to the Clinical Trial Funding Commitment Bonus Opportunities
and the Fundraising Bonus Opportunities, respectively (as described below under “Compensation Arrangements with Andrew
Ritter and Ira Ritter”), paid to each of Andrew Ritter and Ira Ritter.
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(4)
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For
2015, represents auto allowances of $4,952 and $7,157 paid on behalf of Andrew Ritter and Ira Ritter, respectively. Also represents
$105,000 paid as tuition reimbursement pursuant to Andrew Ritter’s offer letter.
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Narrative
to Summary Compensation Table
Letter
Agreement with Michael D. Step
On
December 2, 2014, we entered into a letter agreement (the “Step Letter Agreement”), with Mr. Step, our current Chief
Executive Officer, setting forth the terms of his employment. The Step Letter Agreement provides that Mr. Step will be entitled
to an annual base salary of $360,000. Pursuant to the Step Letter Agreement, Mr. Step was also entitled to receive three
stock options.
The
first two options entitle Mr. Step to purchase 646,537 and 73,377 shares of Common Stock of the Company, respectively, for an
exercise price of $5.86 per share. Each of these options was immediately exercisable in full as of the date of the
grant, with 44/48
ths
of the total number of shares covered by each option subject to a right of repurchase by the Company
upon termination of Mr. Step’s employment with us for any reason. This right of repurchase will lapse over a period of 44
months, with 1/44
th
of the total number of shares subject to the right of repurchase lapsing on January 1, 2015 and
on the first day of each month thereafter. In addition, the right of repurchase will lapse in its entirety upon a termination
of the employment of Mr. Step by us without Cause or by Mr. Step with Good Reason and upon a Termination upon a Change in Control.
The
third option became exercisable upon the closing of our initial public offering on June 29, 2015. Pursuant to the terms of the
agreement, the option is exercisable for a total of 163,799 shares of our Common Stock, which, together with the shares subject
to the first option, represent 7.5% of the shares of Common Stock deemed to be outstanding at June 29, 2015 on a fully-diluted
basis, after giving effect to the number of shares subject to the third option. Seventy-five percent of the shares subject to
the third option are subject to a right of repurchase by us upon termination of Mr. Step’s employment for any reason. This
right of repurchase will lapse with respect to 1/36
th
of the total number of shares subject to the right of repurchase
on the first day of each month following the date on which the third option first becomes exercisable. In addition, the right
of repurchase will lapse in its entirety upon Mr. Step’s termination of employment under certain circumstances.
For
purposes of the Step Letter Agreement, the terms “Cause,” “Good Reason,” and “Termination upon a
Change in Control” each have the meanings ascribed to such terms in the Executive Severance & Change in Control Agreement
described below.
Compensation
Arrangements with Andrew Ritter and Ira Ritter
On
September 25, 2013, our board of directors approved the Executive Compensation Plan setting forth certain compensation to be paid
to Andrew Ritter and Ira Ritter for their contributions to the Company. Effective June 29, 2015, in connection with our initial
public offering, Andrew Ritter and Ira Ritter accepted offer letters from us setting for the terms of their employment as President
and Chief Strategic Officer, respectively. The offer letter superseded the Executive Compensation Plan.
Executive
Compensation Plan
Pursuant
to the terms of the Executive Compensation Plan Andrew Ritter’s salary was $225,000 per year and Ira Ritter’s salary
was $210,000 per year. Andrew Ritter was entitled to an annual car allowance of up to $8,400 and Ira Ritter was entitled to an
annual car allowance of up to $12,000. Any car allowance claimed by Andrew or Ira Ritter would result in an automatic reduction
in such person’s base salary then in effect.
Under
the Executive Compensation Plan, each of Andrew and Ira Ritter had bonus opportunities to receive cash payments and options to
purchase up to 48,951 shares of the Common Stock (each referred to in this section as an “Executive Option Grant”)
as described below. On December 2, 2014, they also each received an option to purchase up to 432,434 shares of the Common Stock.
See “Outstanding Equity Awards at 2015 Fiscal Year-End” for additional information regarding these options.
Pursuant
to the terms of the Executive Compensation Plan, Andrew and Ira Ritter were entitled to the following cash and equity payments
upon the satisfaction of the events described below:
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FDA
Meeting Bonus Opportunities.
In April 2013, Andrew and Ira Ritter each received a one-time cash bonus of $10,000
for meeting with the FDA regarding RP-G28’s pathway to FDA approval. Upon satisfaction of this milestone, 2,360 shares
under the Executive Option Grant vested and became exercisable as of September 25, 2013. An additional 1,136 shares were to
vest ratably on a monthly basis beginning on September 30, 2013.
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Clinical
Trial Funding Commitment Bonus Opportunities
. Pursuant to the terms of the Executive Compensation Plan, Andrew and Ira
Ritter were each entitled to receive a one-time cash bonus of $75,000 upon the Company’s receipt of a commitment by
a third party to fund a Phase 2 or later clinical trial whether or not any such committed funds were paid directly to the
Company; provided, however, that no such bonus would be paid at any time the Company has less than $2,000,000 in available
cash. In addition, the Executive Compensation Plan provided that upon the satisfaction of this milestone, 35% of 10,489 shares
of each of their Executive Option Grants would vest, with the balance of such 10,489 shares vesting in 36 equal monthly installments
beginning on the last day of the following month. The board of directors determined that this milestone was satisfied; accordingly,
each executive received the cash bonus and 3,671 shares of the Executive Options vested and became exercisable as of June
29, 2015, with the balance of 6,818 shares vesting ratably on a monthly basis beginning July 31, 2015.
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Fundraising
Bonus Opportunities
. Pursuant to the terms of the Executive Compensation Plan, Andrew and Ira Ritter were each entitled
to receive (i) a one-time cash bonus of $50,000 upon the sale of additional equity capital for cash, in one or more
closings after July 17, 2012, and/or the actual deployment of funds by a third party for a clinical trial in an aggregate
amount in excess of $2,000,000 and (ii) a one-time cash bonus of $150,000 upon the sale of additional equity capital
for cash, in one or more closings after July 17, 2012 and/or the actual deployment of funds by a third party for a clinical
trial in an aggregate amount in excess of $10,000,000 (which such bonus would be reduced by any cash bonus paid under
subsection (i)); provided, however, that no bonus under subsection (i) or (ii) would be paid at any time the Company has less
than $2,000,000 in available cash. In addition, upon the satisfaction of the milestone described in subsection (i), 35% of
6,993 shares of each of their Executive Option Grants would vest, with the balance of the 6,993 shares vesting in 36 equal
monthly installments beginning on the last day of the following month, and, upon satisfaction of the milestone described in
subsection (ii), 35% of 13,986 shares of each of their Executive Option Grants would vest, with the balance of the 13,986
shares vesting in 36 monthly installments beginning on the last day of the following month. The board of directors determined
that the milestone as described in subsection (ii) above was satisfied upon the closing of the Company’s initial public
offering on June 29, 2015 raising approximately $17.4 million, net of offering costs; accordingly, each executive received
a bonus of $150,000 and 4,895 shares of the Executive Options vested and became exercisable as of June 29, 2015, with the
balance of 9,091 shares vesting ratably on a monthly basis beginning July 31, 2015.
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Further,
pursuant to the terms of the Executive Compensation Plan, Andrew and Ira Ritter were each entitled to receive the following cash
and equity bonus payments in connection with the closing of an exclusive license of RP-G28 and/or any future product candidate
developed by the Company from time to time during the term of the Executive Compensation Plan by and/or any option to exclusively
license such product candidate to a third party (referred to under the Executive Compensation Plan as a “License Event”)
with a minimum upfront payment to the Company of $2,000,000:
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●
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A
graduated cash bonus equal to (i) 5% of the Initial Period License Payment (as defined below) up to $5,000,000; (ii) 4% of
the Initial Period License Payment in excess of $5,000,000 up to $10,000,000; and (iii) 3% of the Initial Period License
Payment in excess of $10,000,000. In addition, upon the Company’s receipt of an Initial Period License Payment
of more than $2,000,000, 35% of 45,454 shares of their Executive Option Grants would vest, with the balance of the 45,454
shares vesting in 36 monthly installments beginning on the last day of the following month.
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|
●
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A
cash bonus equal to 3% of any Annual Excess Milestone Payments (as defined below); provided, however that no such bonus would
be paid at any time the Company has less than $1,000,000 in available cash. In addition, upon the Company’s receipt
of an Annual Excess Milestone Payment, 35% of 6,993 shares of their Executive Option Grants would vest and become exercisable,
with the balance of the 6,993 shares vesting in 36 monthly installments beginning on the last day of the following month.
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Notwithstanding
any of the vesting provisions described above, the total potential number of shares under the Executive Option Grant that could
vest would not exceed 48,951 and the Executive Option Grant automatically terminated for any shares for which a vesting date or
performance condition had not been met by September 25, 2015. Accordingly, as of September 30, 2015, 27,972 of the maximum 48,951
Executive Option Grants potentially issuable to Andrew and Ira Ritter had been issued to each executive subject to the vesting
conditions described above.
For
purposes of the Executive Compensation Plan, the term “
Initial Period License Payment
” meant the aggregate
amount in cash received by the Company (not including any amount placed in escrow or subject to earn-outs, contingencies or other
deferrals or earmarked to pay or reimburse the Company for research and development activities) in respect of the License Event
over a 24 month period beginning on the closing date of such License Event (which period is referred to therein as the “
Initial
Period
”). The term “
Annual Excess Milestone Payments
” meant the amount in cash in excess of $2,000,000
(not including any amounts placed in escrow or subject to earn-outs, contingencies or other deferrals) that was received by the
Company in respect of any Post-Closing Milestones (as defined below) in each 12-month period beginning on the expiration of the
Initial Period. The term “
Post-Closing Milestones
” meant any post-closing payouts set forth in the definitive
transaction documentation executed in connection with a License Event; provided, however, that such amounts would not include
any amounts that were determined by the board of directors to comprise all or any portion of any upfront payment made in connection
with a License Event and any royalty payment based on product sales.
Under
the terms of the Executive Compensation Plan, receipt by the Company of more than one
bona fide
term sheet for a proposed
License Event with respect to RP-G28 would result in the payment of an additional 10% of any cash bonus earned as Clinical Trial
and Fundraising Bonus or a License Event Bonus.
Offer
Letters with Andrew Ritter and Ira Ritter
The
compensation terms outlined in the offer letters, which became effective June 29, 2015, superseded and replaced those provided
in the Executive Compensation Plan, which is described above, other than certain provisions related to the bonus opportunities.
The offer letters provide that Andrew Ritter is entitled to an annual base salary of $310,000 and Ira Ritter is entitled to an
annual base salary of $295,000. In accordance with his offer letter, Andrew Ritter also became entitled to receive up to $180,000
payable over a three-year period for tuition reimbursement.
Pursuant
to their respective offer letters, Andrew Ritter and Ira Ritter each have the opportunity to earn an annual bonus based upon a
percentage of their base salary and the achievement of specific performance as determined by the Company. The initial target bonus
opportunities are 40% and 35% of the base salary for Andrew Ritter and Ira Ritter, respectively.
2008
Stock Plan
Our
2008 Stock Plan permitted us to grant non-statutory stock options, incentive stock options and restricted stock to our employees,
directors and consultants; however, incentive stock options may only be granted to our employees. The maximum aggregate number
of shares of Common Stock that were issuable under the 2008 Stock Plan was 2,046,158 shares, after giving effect to the 1-for-7.15
reverse stock split. Beginning June 29, 2015, no further awards may be issued under the 2008 Stock Plan.
The
2008 Stock Plan is administered by either our board of directors or a committee of our board of directors, which in either case,
we refer to as the Administrator. The Administrator has full authority and discretion to, among other things, determine the terms
and conditions of any awards granted under the 2008 Stock Plan, and construe and interpret the terms of the 2008 Stock Plan and
any awards granted thereunder.
Stock
Options
. Each option will be designated in the option agreement as either an incentive stock option or a nonstatutory stock
option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value (as defined in the 2008
Stock Plan) of the shares with respect to which an incentive stock option is exercisable for the first time by the optionee during
any calendar year (under all plans of the Company and any parent or subsidiary) exceeds $100,000, such options will be treated
as nonstatutory stock options. The term of any stock option awarded under the 2008 Stock Plan will not exceed 10 years from the
date of grant. In the case of an incentive stock option granted to a person who, at the time the stock option is granted, owns
stock representing more than 10% of the voting power of all classes of our stock or any parent or subsidiary, who we refer to
as a 10% Holder, the term of the option will be five years from the date of grant or such shorter period as may be provided in
the option agreement. The per share exercise price for shares to be issued upon exercise of an option will be such price as is
determined by the Administrator, but will be (i) in the case of an incentive stock option, (A) granted to an employee who, at
the time of grant of such option, is a 10% Holder, no less than 110% of the Fair Market Value per share on the date of grant;
or (B) granted to any other employee, no less than 100% of the Fair Market Value per share on the date of grant; and (ii) in the
case of a nonstatutory stock option, no less than 100% of the Fair Market Value per share on the date of grant. The consideration
to be paid for the shares to be issued upon exercise of a stock option, including the method of payment, will be determined by
the Administrator (and, in the case of an incentive stock option, will be determined at the time of grant). Such consideration
may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4) other shares (provided that such shares have
a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares as to which such option may be
exercised and provided that accepting such shares, in the sole discretion of the Administrator, will not result in any adverse
accounting consequences to the Company), (5) consideration received by us under a cashless exercise program we have implemented
in connection with the 2008 Stock Plan, or (6) such other consideration and method of payment for the issuance of shares to the
extent permitted by applicable laws, or (7) any combination of the foregoing methods of payment.
Restricted
Stock
. Restricted stock may be issued either alone, in addition to, or in tandem with other awards granted under the 2008
Stock Plan and/or cash awards made outside of the 2008 Stock Plan, at a purchase price determined by the Administrator. Any restricted
stock granted under the 2008 Stock Plan will be subject to the terms and conditions of a restricted stock purchase agreement,
which, unless the Administrator determines otherwise, will grant us a repurchase option according to terms the Administrator determines.
The term of each restricted stock award will be no more than 10 years from the date of grant.
Under
the 2008 Stock Plan, if an optionee ceases to be an employee, director, consultant, such optionee may exercise his or her option
within 30 days of termination, or such longer period of time as specified in the option agreement, to the extent that the option
is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the
option agreement). Unless the Administrator provides otherwise, if, on the date of termination, the optionee is not vested as
to his or her entire option, the shares covered by the unvested portion of the option will revert to the 2008 Stock Plan. If,
after termination, the optionee does not exercise his or her option within the time specified by the Administrator, the option
will terminate, and the shares covered by such option will revert to the 2008 Stock Plan. Unless the Administrator provides otherwise,
or except as otherwise required by applicable laws, vesting of options granted to employees, officers and directors will be suspended
during any unpaid leave of absence. For purposes of incentive stock options, no such leave may exceed 90 days, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved
by us is not so guaranteed, then six months following the first day of such leave, any incentive stock option held by the optionee
will be treated for tax purposes as a nonstatutory stock option.
If
an optionee ceases to be an employee, director, consultant as a result of the optionee’s Disability (as defined in the 2008
Stock Plan), the optionee may exercise his or her option within six months of termination, or such longer period of time as specified
in the option agreement, to the extent the option is vested on the date of termination (but in no event later than the expiration
of the term of the option as set forth in the option agreement). Unless the Administrator provides otherwise, if, on the date
of termination, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option
will revert to the 2008 Stock Plan. If, after termination, the optionee does not exercise his or her option within the time specified,
the option will terminate, and the shares covered by such option will revert to the 2008 Stock Plan.
If
an optionee dies while an employee, director, consultant, the option may be exercised within six months following the optionee’s
death, or such longer period of time as specified in the option agreement, to the extent the option is vested on the date of termination
(but in no event later than the expiration of the term of the option as set forth in the option agreement) by the optionee’s
designated beneficiary; provided such beneficiary has been designated prior to optionee’s death in a form acceptable to
the Administrator. If no such beneficiary has been designated by the optionee, then such option may be exercised by the personal
representative of the optionee’s estate or by the person(s) to whom the option is transferred pursuant to the optionee’s
will or in accordance with the laws of descent and distribution. If, at the time of death, the optionee is not vested as to his
or her entire option, the shares covered by the unvested portion of the option will revert to the 2008 Stock Plan. If the option
is not so exercised within the time specified, the option will terminate, and the shares covered by such option will revert to
the 2008 Stock Plan.
If
an option or restricted stock purchase right expires or becomes unexercisable without having been exercised in full, or is surrendered
pursuant to an exchange program, the unpurchased shares that were subject to such award will become available for future grant
or sale under the 2008 Stock Plan (unless the 2008 Stock Plan has terminated). However, shares that have actually been issued
under the 2008 Stock Plan, upon exercise of either an option or restricted stock purchase right, will not be returned to the 2008
Stock Plan and will not become available for future distribution under the 2008 Stock Plan, except that if unvested shares of
restricted stock are repurchased by us at their original purchase price, such shares will become available for future grant under
the 2008 Stock Plan.
Unless
determined otherwise by the Administrator, options and restricted stock purchase rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner, and may be exercised only by the optionee during such person’s lifetime.
In
the event that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase
or exchange of our shares or other securities, or other change in our corporate structure affecting the shares occurs, the Administrator,
in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2008
Stock Plan, will adjust the number of and class of shares that may be delivered under the 2008 Stock Plan and/or the number, class
and price of shares covered by each outstanding option or stock purchase right; provided, however, that the Administrator will
make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.
The
board of directors may at any time amend, alter, suspend or terminate the 2008 Stock Plan, but must obtain stockholder approval
of any amendment to the extent necessary and desirable to comply with applicable laws. No amendment, alteration, suspension or
termination of the 2008 Stock Plan may impair the rights of any optionee, unless otherwise mutually agreed in writing by the optionee
and the Administrator. The 2008 Stock Plan will continue in effect for a term of ten years from the later of (a) the effective
date of the Plan or (b) the earlier of the most recent board or stockholder approval of an increase in the number of shares reserved
for issuance under the 2008 Stock Plan.
2009
Stock Plan
Our
2009 Stock Plan permitted us to grant non-statutory stock options, incentive stock options and stock purchase rights to our employees,
outside directors and consultants; however, incentive stock options could only be granted to our employees. The maximum aggregate
number of shares of Common Stock that were issuable under the 2009 Stock Plan was 69,930 shares, after giving effect to the 1-for-7.15
reverse stock split. Beginning June 29, 2015, no further awards may be issued under the 2009 Stock Plan.
The
2009 Stock Plan is administered by either our board of directors or a committee of our board of directors, which in either case,
we refer to as the Administrator. The Administrator has full authority and discretion to, among other things, determine the terms
and conditions of any awards granted under the 2009 Stock Plan, and construe and interpret the terms of the 2009 Stock Plan and
any awards granted thereunder.
Stock
Options
. Each option will be designated in the option agreement as either an incentive stock option or a nonstatutory stock
option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value (as defined in the 2009
Stock Plan) of the shares with respect to which an incentive stock option is exercisable for the first time by the optionee during
any calendar year (under all plans of the Company and any parent or subsidiary) exceeds $100,000, such options will be treated
as nonstatutory stock options. The term of any stock option awarded under the 2009 Stock Plan shall not exceed 10 years from the
date of grant. In the case of an incentive stock option granted to a person who, at the time the stock option is granted, owns
stock representing more than 10% of the voting power of all classes of our stock or any parent or subsidiary of, who we refer
to as a 10% Holder, the term of the option will be five years from the date of grant or such shorter period as may be provided
in the option agreement. The per share exercise price for shares to be issued upon exercise of an option will be such price as
is determined by the Administrator, but will be (i) in the case of an incentive stock option, (A) granted to an employee who,
at the time of grant of such option, is a 10% Holder, no less than 110% of the Fair Market Value per share on the date of grant;
or (B) granted to any other employee, no less than 100% of the Fair Market Value per share on the date of grant; and (ii) in the
case of a nonstatutory stock option, no less than 100% of the Fair Market Value per share on the date of grant. The consideration
to be paid for the shares to be issued upon exercise of a stock option, including the method of payment, will be determined by
the Administrator (and, in the case of an incentive stock option, will be determined at the time of grant). Such consideration
may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4) other shares (provided shares acquired directly
from us (x) have been owned by the optionee for more than six months of the date of surrender and (y) have a Fair Market Value
of the date of surrender equal to the aggregate exercise price of the shares as to which such option may be exercised), (5) consideration
received by us under a cashless exercise program we have implemented in connection with the 2009 Stock Plan, or (6) any combination
of the foregoing methods of payment.
Stock
Purchase Rights
. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted
under the 2009 Stock Plan and/or cash awards made outside of the 2009 Stock Plan, and will entitle the recipient to purchase shares
of our Common Stock at a purchase price determined by the Administrator. Any stock purchase rights granted under the 2009 Stock
Plan will be subject to the terms and conditions of a restricted stock purchase agreement, which, unless the Administrator determines
otherwise, will grant us a repurchase option exercisable within 90 days of the voluntary or involuntary termination of the purchaser’s
service with us for any reason (including death or disability) at the original price paid by the purchase, which may be paid by
us by cancellation of any indebtedness of the purchaser to us, and which right will lapse at such rate as the Administrator may
determine.
Under
the 2009 Stock Plan, if an optionee ceases to be an employee, director, consultant (or other permitted recipient under Rule 701
under the Securities Act), such optionee may exercise his or her option within 30 days of termination, or such longer period of
time as specified in the option agreement, to the extent that the option is vested on the date of termination (but in no event
later than the expiration of the term of the option as set forth in the option agreement, and in the case of an incentive stock
option, in no event later than the earlier of three months after the date of termination and the expiration of the term of the
option as set forth in the option agreement). If, on the date of termination, the optionee is not vested as to his or her entire
option, the shares covered by the unvested portion of the option will revert to the 2009 Stock Plan. If, after termination, the
optionee does not exercise his or her option within the time specified by the Administrator, the option will terminate, and the
shares covered by such option will revert to the 2009 Stock Plan. Unless the Administrator provides otherwise, vesting of options
granted to employees, officers and directors will be suspended during any unpaid leave of absence. For purposes of incentive stock
options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by us is not so guaranteed, then following the 91
st
day of such leave, any incentive stock option held by the optionee will cease to be treated as an incentive stock option and will
instead be treated for tax purposes as a nonstatutory stock option.
If
an optionee ceases to be an employee, director, consultant (or other permitted recipient under Rule 701 under the Securities Act),
as a result of the optionee’s Disability (as defined in the 2009 Stock Plan), the optionee may exercise his or her option
within six months of termination, or such longer period of time as specified in the option agreement, to the extent the option
is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the
option agreement, and in the case of an incentive stock option, in no event later than the earlier of three months after the date
of termination and the expiration of the term of the option as set forth in the option agreement). If, on the date of termination,
the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option will revert
to the 2009 Stock Plan. If, after termination, the optionee does not exercise his or her option within the time specified by the
Administrator, the option will terminate, and the shares covered by such option will revert to the 2009 Stock Plan.
If
an optionee dies while an employee, director, consultant (or other permitted recipient under Rule 701 under the Securities Act),
the option may be exercised within six months following the optionee’s death, or such longer period of time as specified
in the option agreement, to the extent the option is vested on the date of termination (but in no event later than the expiration
of the term of the option as set forth in the option agreement) by the optionee’s designated beneficiary; provided such
beneficiary has been designated prior to optionee’s death in a form acceptable to the Administrator. If no such beneficiary
has been designated by the optionee, then such option may be exercised by the personal representative of the optionee’s
estate or by the person(s) to whom the option is transferred pursuant to the optionee’s will or in accordance with the laws
of descent and distribution. If, at the time of death, the optionee is not vested as to his or her entire option, the shares covered
by the unvested portion of the option will revert to the 2009 Stock Plan. If the option is not so exercised within the time specified
above, the option will terminate, and the shares covered by such option will revert to the 2009 Stock Plan.
If
an option or stock purchase right expires or becomes unexercisable without having been exercised in full, the unpurchased shares
that were subject to such award will become available for future grant or sale under the 2009 Stock Plan (unless the 2009 Stock
Plan has terminated). However, shares that have actually been issued under the 2009 Stock Plan, upon exercise of either an option
or stock purchase right, will not be returned to the 2009 Stock Plan and will not become available for future distribution under
the 2009 Stock Plan, except that if unvested shares of restricted stock are repurchased by us at their original purchase price,
such shares will become available for future grant under the 2009 Stock Plan.
Unless
determined otherwise by the Administrator, options and stock purchase rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner, and may be exercised only by the optionee during such person’s lifetime.
In
the event that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase
or exchange of our shares or other securities, or other change in our corporate structure affecting the shares occurs, the Administrator,
in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2009
Stock Plan, may (in its sole discretion) adjust the number of and class of shares that may be delivered under the 2009 Stock Plan
and/or the number, class and price of shares covered by each outstanding option or stock purchase right; provided, however, that
the Administrator will make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.
The
board of directors may at any time amend, alter, suspend or terminate the 2009 Stock Plan, but must obtain stockholder approval
of any amendment to the extent necessary and desirable to comply with applicable laws. The 2009 Stock Plan will also be subject
to approval by our stockholders prior to the later of (i) 12 months after the 2009 Stock Plan is adopted or (ii) the date
of first grant of an option or stock purchase right to an employee, director or consultant (or other permitted recipient under
Rule 701 under the Securities Act) in California. No amendment, alteration, suspension or termination of the 2009 Stock Plan may
impair the rights of any optionee, unless otherwise mutually agreed in writing by the optionee and the Administrator.
2015
Equity Incentive Plan
On
June 15, 2015, our board of directors approved the 2015 Equity Incentive Plan, and on June 17, 2015, the 2015 Equity Incentive
Plan was approved by our stockholders. On June 3, 2016, the stockholders of the Company approved an amendment to the 2015 Equity
Incentive Plan at the 2016 Annual Meeting of Stockholders, which, among other things, increased the number of shares that may
be issued pursuant to awards under the plan by 475,000 shares of Common Stock.
The
purposes of the 2015 Equity Incentive Plan are to optimize the profitability and growth of the Company through long-term incentives
that are consistent with the Company’s objectives and that link the interests of award recipients (“Grantees”),
to those of the Company’s stockholders; to give award recipients an incentive for excellence in individual performance;
to promote teamwork among Grantees; and to give the Company flexibility in attracting and retaining key employees, directors and
consultants.
Selected
employees, officers and directors of the Company or any subsidiary, and consultants, advisors and independent service providers
to the Company and any subsidiary who qualify as a “consultant” under the applicable rules of the SEC for registration
of shares on a Form S-8 registration statement, are eligible to receive awards under the 2015 Equity Incentive Plan. The plan
administrator may also grant awards to individuals in connection with hiring, retention or otherwise before the date the individual
first performs services for the Company or any subsidiary; provided, however, that those awards will not become vested or exercisable
before the date the individual first performs services for the Company or any subsidiary.
The
number of shares of Common Stock that we may issue pursuant to awards under the 2015 Equity Incentive Plan is (i) 803,289 plus
(ii) any shares which were available for grant under the 2008 Stock Plan or the 2009 Stock Plan (collectively, the “Prior
Plans”) on the effective date of the 2015 Equity Incentive Plan or were subject to awards under the Prior Plans which, after
the effective date of the 2015 Equity Incentive Plan, were or are forfeited or lapse unexercised or are settled in cash and are
not issued under the Prior Plans. No more than 803,289 shares of Common Stock may be issued pursuant to incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code (the “Code”). No awards may be granted under any
Prior Plan; however, any awards granted under any Prior Plan that were outstanding as of the effective date of the 2015 Equity
Incentive Plan continue to be subject to the terms and conditions of such Prior Plan. The maximum number of shares of Common Stock
subject to awards of any combination that may be granted under the 2015 Equity Incentive Plan during any calendar year to any
one individual is limited to 300,000 shares; provided, however, that the foregoing limitation will not apply until the earliest
of (a) the first material modification of the 2015 Equity Incentive Plan (including any increase in the number of shares
reserved for issuance under the 2015 Equity Incentive Plan); (b) the issuance of all of the shares reserved for issuance under
the 2015 Equity Incentive Plan; (c) the first meeting of stockholders at which members of the board of directors are elected that
occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity
security of the Company under Section 12 of the Exchange Act; or (d) such other date required by Section 162(m) of the Code.
These
limits will be appropriately adjusted to reflect any stock dividend, stock split, combination or exchange of shares, merger, consolidation
or other distribution and/or similar transactions. To the extent that (i) an award terminates, expires, lapses or is forfeited
for any reason, (ii) any award is settled in cash (in whole or in part) without the delivery of shares to the Grantee, or (iii)
any shares subject to an award under any Prior Plan terminate, expire, lapse or are forfeited for any reason or an award under
any Prior Plan is settled for cash (in whole or in part), then any shares subject to the award, to the extent of such termination,
expiration, lapse, forfeiture or cash settlement, will again be available for the grant of an award pursuant to the 2015 Equity
Incentive Plan. Any shares tendered or withheld to satisfy the grant or exercise prior or tax withholding obligation pursuant
to any award will again be available for the grant of an award pursuant to the 2015 Equity Incentive Plan.
The
2015 Equity Incentive Plan may be administered by a committee or subcommittee of the board of directors as the board of directors
may appoint from time to time, or by our full board of directors if no committee is designated or for other specific purposes.
At present, the 2015 Equity Incentive Plan is administered by our compensation committee. The plan administrator has the full
authority and discretion to administer the 2015 Equity Incentive Plan and to take any action that is necessary or advisable in
connection with the administration of the 2015 Equity Incentive Plan, including without limitation the authority and discretion
to interpret and administer the 2015 Equity Incentive Plan and any award agreement relating to the 2015 Equity Incentive Plan
or any award made thereunder, the authority to designate Grantees to receive awards under the 2015 Equity Incentive Plan and to
determine the type or types of awards to be granted to such Grantees, the authority to determine the terms and conditions of awards
granted under the 2015 Equity Incentive Plan, and the authority to determine whether, to what extent, and pursuant to what circumstances
and award may be settled in, or the exercise price of an award may be paid in, cash, shares, other awards, or other property,
or an award may be canceled, forfeited or surrendered. The plan administrator’s determinations will be final and conclusive.
The plan administrator may delegate certain of its authority to others as specified in the 2015 Equity Incentive Plan.
The
2015 Equity Incentive Plan provides for grants of stock options (including incentive stock options qualifying under Section 422
of the Code and nonstatutory stock options), restricted stock awards, stock appreciation rights, restricted stock units, performance
awards, other stock-based awards or any combination of the foregoing.
Stock
options
. The 2015 Equity Incentive Plan allows the plan administrator to grant incentive stock options, as that term is defined
in Section 422 of the Code, or nonqualified stock options. No incentive stock option award may be granted to any person who is
not an employee of the Company or any subsidiary. Options must have an exercise price at least equal to the fair market value
of the underlying shares on the date of grant. In addition, in the case of incentive stock options granted to a greater than 10%
stockholder of the Company, such exercise price may not be less than 110% of the fair market value of the underlying shares on
the date of grant. The option holder may pay the exercise price in cash or by check, by tendering shares of Common Stock (including
shares issuable in settlement of the award), payment through a broker or by any other means that the plan administrator approves.
Options granted under the 2015 Equity Incentive Plan will have a term of no more than 10 years, or five years in the case of incentive
stock options granted to a greater than 10% stockholder of the Company; however, the options will expire earlier if the option
holder’s service relationship with us terminates or as otherwise provided in an award agreement.
Restricted
stock awards
. The 2015 Equity Incentive Plan allows the plan administrator to grant restricted stock awards, which issue to
the holder a certain number of shares of Common Stock that are subject to restrictions or conditions as the plan administrator
deems appropriate, such as time-based or performance-based criteria, and which become vested upon the lapse or satisfaction of
such conditions. The plan administrator may apply limitations to any restricted stock award and establish the purchase price (or
provide for no purchase price), provided that if a purchase price is established, it may not be less than par value of the shares
to be purchased.
Stock
appreciation rights
. The 2015 Equity Incentive Plan allows the plan administrator to grant awards of stock appreciation rights,
which entitle the holder to receive a payment in cash, in shares of Common Stock, or in a combination of both, having an aggregate
value equal to the spread on the date of exercise between the fair market value of the underlying shares on that date and the
base price of the shares specified in the grant agreement, multiplied by the number of shares specified in the award being exercised
and as otherwise provided in an award agreement. Stock appreciation rights may not have a base price of less than 100% of the
fair market value of the underlying shares on the date of grant.
Restricted
stock units
. The 2015 Equity Incentive Plan allows the plan administrator to grant awards of restricted stock units (“RSUs”),
which entitle the holder to a number of shares of Common Stock, a cash payment or some combination thereof, upon satisfaction
of vesting and other criteria for issuance or upon such later date as specified in the award agreement, as established by the
plan administrator in the award agreement.
Other
stock-based awards
. The 2015 Equity Incentive Plan allows the plan administrator to grant other stock-based stock awards to
eligible participants, including dividend equivalent rights, stock payments and/or deferred stock. A dividend equivalent may be
granted alone or in conjunction with another type of award, and generally provides for payment, in cash, Common Stock or some
combination thereof, of an amount equal to the dividends that would have been payable with respect to a specified number of underlying
shares. A stock payment is an award to a Grantee, only upon satisfaction of performance-based criteria or other criteria specified
by the plan administrator, of a specified number of shares of Common Stock, or an option to purchase Common Stock, which may be
(but is not required to be) in lieu of base salary, bonus, fees or other cash consideration to the Grantee. A deferred stock award
is a grant to a Grantee, only upon satisfaction of performance-based criteria or other criteria specified by the plan administrator,
of a specified number of shares of Common Stock.
Performance
awards
. The 2015 Equity Incentive Plan allows the plan administrator to grant performance awards which become payable in Common
Stock, in cash or in a combination of Common Stock and cash, on account of attainment of one or more performance goals established
by the plan administrator on one or more specified dates or over a specified period or periods. The plan administrator may establish
performance goals relating to any of the following: (i) gross or net earnings (either before or after one or more of the following:
interest, taxes, depreciation and amortization); (ii) gross or net sales or revenue; (iii) gross or net income or adjusted income
(either before or after taxes); (iv) operating earnings or profit; (v) cash flow (including, but not limited to, operating cash
flow and free cash flow); (vi) return on assets; (vii) return on capital; (viii) return on stockholders’ equity; (ix) return
on sales; (x) gross or net profit or operating margin; (xi) costs; (xii) funds from operations; (xiii) expenses; (xiv) working
capital; (xv) earnings per share or adjusted earnings per share; (xvi) price per share of Common Stock; (xvii) regulatory body
approval for commercialization of a product; (xviii) implementation or completion of critical projects; (xix) market share; or
(xx) total stockholder return; any of which may be measured either in absolute terms or as compared to any incremental increase
or decrease or as compared to results of a peer group or to market performance indicators or indices.
The
plan administrator may, in its sole discretion, provide that one or more objectively determinable adjustments will be made to
one or more of the performance goals described above, such as adjustments to account for changes in the Company’s or segment’s
business (e.g., restructuring, acquisition or disposal or discontinuance of a business segment), accounting or financial reporting
(e.g., change in accounting principles, significant income or expense or amortization of assets) or for other unusual or non-recurring
events, all as further detailed in the 2015 Equity Incentive Plan. For all awards intended to qualify as performance-based compensation,
such determinations shall be made within the time periods prescribed by, and otherwise in compliance with, Section 162(m) of the
Code.
Amendment
and termination.
No award will be granted under the 2015 Equity Incentive Plan after the tenth anniversary of the effective
date of the 2015 Equity Incentive Plan. Subject to applicable laws and exchange limitations, our board of directors or the plan
administrator may terminate, amend or modify the 2015 Equity Incentive Plan, or any portion thereof, at any time. Stockholder
approval will be required to (i) increase the limits imposed on the maximum number of shares which may be issued under the 2015
Equity Incentive Plan or as incentive stock options (other than an appropriate adjustment due to stock dividend, stock split,
combination or exchange of shares, merger, consolidation or similar circumstance), (ii) reduce the price per share of any outstanding
option or stock appreciation right or cancel any such award in exchange for cash when the exercise price per share exceeds the
fair market value of the underlying shares, or (iii) materially change the class of persons who are eligible to participate in
the 2015 Equity Incentive Plan; provided, however, that no amendment, suspension or termination of the 2015 Equity Incentive Plan
may, without the consent of the Grantee, materially impair any rights or obligations under any award granted or awarded thereunder,
unless the award itself otherwise expressly so provides.
Outstanding
Equity Awards at 2016 Fiscal Year-End
The
following table presents the outstanding equity awards held by each of the named executive officers as of December 31, 2016.
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
Michael
D. Step
|
|
|
26,163
|
|
|
|
—
|
|
|
$
|
1.14
|
|
|
8/16/2022
|
|
|
|
646,537
|
(1)
|
|
|
—
|
|
|
$
|
5.86
|
|
|
12/2/2024
|
|
|
|
73,377
|
(2)
|
|
|
—
|
|
|
$
|
5.86
|
|
|
12/2/2024
|
|
|
|
163,799
|
(3)
|
|
|
—
|
|
|
$
|
5.86
|
|
|
12/2/2024
|
|
|
|
8,542
|
(4)
|
|
|
73,458
|
(4)
|
|
$
|
1.54
|
|
|
7/5/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew J. Ritter
|
|
|
19,575
|
(5)
|
|
|
8,397
|
(5)
|
|
$
|
1.27
|
|
|
9/25/2023
|
|
|
|
20,979
|
|
|
|
—
|
|
|
$
|
5.86
|
|
|
12/2/2024
|
|
|
|
243,245
|
(6)
|
|
|
189,190
|
(6)
|
|
|
|
(6)
|
|
12/2/2024
|
|
|
|
8,542
|
(7)
|
|
|
73,458
|
(7)
|
|
$
|
1.54
|
|
|
7/5/2026
|
|
|
|
—
|
|
|
|
140,044
|
(8)
|
|
$
|
2.60
|
|
|
10/25/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ira E. Ritter
|
|
|
19,575
|
(9)
|
|
|
8,397
|
(9)
|
|
$
|
1.27
|
|
|
9/25/2023
|
|
|
|
20,979
|
|
|
|
—
|
|
|
$
|
5.86
|
|
|
12/2/2024
|
|
|
|
243,245
|
(10)
|
|
|
189,190
|
(10)
|
|
|
|
(10)
|
|
12/2/2024
|
|
|
|
8,542
|
(11)
|
|
|
73,458
|
(11)
|
|
$
|
1.54
|
|
|
7/5/2026
|
|
|
|
—
|
|
|
|
140,044
|
(12)
|
|
$
|
2.60
|
|
|
10/25/2026
|
(1)
|
This option was
granted to Mr. Step on December 2, 2014 and was immediately exercisable in full as of the date of grant. Of the shares subject
to this option, 592,659 shares are subject to a right of repurchase in favor of us at a price of $5.86 per share, which
right expires ratably over 44 months commencing January 1, 2015 and in full upon a change of control or upon Mr. Step’s
employment termination by us without Cause, subject to his continued employment with us (as described in the stock option
award agreement).
|
|
|
(2)
|
This option was
granted to Mr. Step on December 2, 2014 and was immediately exercisable in full as of the date of grant. Of the shares subject
to this option, 67,262 shares are subject to a right of repurchase in favor of us at a price of $5.86 per share, which
rights expires ratably over 44 months commencing January 1, 2015 and in full upon a change of control or upon Mr. Step’s
employment termination by us without Cause, subject to his continued employment with us (as described in the stock option
award agreement).
|
|
|
(3)
|
This option was
granted to Mr. Step on December 2, 2014. The total number of shares issued under this option equaled the number of shares
of Common Stock, together with the 646,537 shares subject to the option granted to Mr. Step on December 2, 2014, representing
in the aggregate 7.5% of the shares of Common Stock deemed to be outstanding on a fully-diluted basis as of the date that
we raised in the aggregate a minimum of $15,000,000 in one or more private and/or public offerings (a “Qualified
Financing”), after giving effect to (i) the issuance of the shares issued in the Qualified Financing, (ii) the issuance
of this option and (iii) any adjustments. 75% of the shares subject to the third option are subject to a right of repurchase
upon termination of Mr. Step’s employment for any reason, which right expires ratably over 36 months commencing with
July 1, 2015 and in full upon a change of control or upon Mr. Step’s employment termination by us without Cause, subject
to his continued employment with us (as described in the stock option award agreement).
|
(4)
|
This option was
granted to Mr. Step on July 5, 2016 for an aggregate of 82,000 shares. The option vests in 48 equal monthly installments,
the first of which vested on July 20, 2016 with the balance vesting on the 20
th
day of each calendar month thereafter
until vested in full.
|
|
|
(5)
|
This option was
granted to Andrew Ritter on September 25, 2013 for an aggregate of up to 48,951 shares, subject to the achievement of certain
milestones. The option included 2,360 shares that vested and became exercisable as of the date of grant (with a balance of
1,137 shares vesting ratably on a monthly basis from September 30, 2013 over 36 months) attributable to the FDA Meeting Bonus
milestone. An additional 3,671 shares vested and became exercisable as of June 29, 2015 (with a balance of 6,818 shares vesting
ratably on a monthly basis from July 31, 2015 over 36 months) attributable to the Clinical Trial Funding Commitment Bonus
Opportunity milestone. An additional 4,895 shares vested and became exercisable as of June 29, 2015 (with a balance of 9,091
shares vesting ratably on a monthly basis beginning July 31, 2015 over 36 months) attributable to the Fundraising Bonus Opportunities
milestone. The option for the remaining balance of the 20,979 shares expired unvested as of September 30, 2015.
|
|
|
(6)
|
This option was
granted to Andrew Ritter on December 2, 2014 and vests as follows: 25% of the shares vest on September 1, 2015 and the remaining
75% of the shares will vest in 36 equal monthly installments beginning on the last day of the first full month thereafter,
subject to his continued employment with us. The exercise price for this option is as follows: (i) $5.86 for the first 152,347
shares; (ii) $9.30 for the next 140,044 shares; and (iii) $13.23 for the remaining 140,043 shares.
|
|
|
(7)
|
This option was
granted to Andrew Ritter on July 5, 2016 for an aggregate of 82,000 shares. The option vests in 48 equal monthly installments,
the first of which vested on July 20, 2016 with the balance vesting on the 20
th
day of each calendar month thereafter
until vested in full.
|
|
|
(8)
|
This option was
granted to Andrew Ritter on October 25, 2016 for an aggregate of 140,044 shares. The option vests ratably in 48 equal monthly
installments following the public disclosure of top-line data results from the Company’s Phase 2b/3 clinical trial.
|
|
|
(9)
|
This option was
granted to Ira Ritter on September 25, 2013 and is subject to the same vesting schedule as the option granted to Andrew Ritter
on this date as reflected in footnote (5) above.
|
|
|
(10)
|
This option was
granted to Ira Ritter on December 2, 2014 and is subject to the same vesting schedule as the option granted to Andrew Ritter
on this date as reflected in footnote (8) above.
|
|
|
(11)
|
This option was
granted to Ira Ritter on July 5, 2016 for an aggregate of 82,000 shares. The option vests in 48 equal monthly installments,
the first of which vested on July 20, 2016 with the balance vesting on the 20
th
day of each calendar month thereafter
until vested in full.
|
|
|
(12)
|
This option was
granted to Ira Ritter on October 25, 2016 for an aggregate of 140,044 shares. The option vests ratably in 48 equal monthly
installments following the public disclosure of top-line data results from the Company’s Phase 2b/3 clinical trial.
|
Payments
Due Upon Termination of Employment or a Change in Control
Executive
Severance & Change in Control Agreements
We
have entered into Executive Severance & Change in Control Agreements (the “Severance Agreements”), with each of
our named executive officers. The Severance Agreements provide that if we terminate the executive’s employment without Cause,
or the executive terminates his employment for Good Reason, the executive will be entitled to: (i) the Accrued Obligations; (ii)
an amount equal to twelve (12) months of base salary, as in effect immediately prior to the termination date; (iii) medical, dental
benefits provided by the Company to the executive and his spouse and dependents at least equal to the levels of benefits provided
to other similarly situated active employees of the Company and its subsidiaries until the earlier of (a) the twelve (12) month
anniversary of the date of termination or (b) the date that the executive becomes covered under a subsequent employer’s
medical and dental plans; and (iv) acceleration of vesting of all equity and equity-based awards.
Pursuant
to the terms of the Severance Agreements, in the event that within one (1) month prior to or the twelve (12) months following
a Change in Control, the Company terminates the executive’s employment without Cause, or the executive terminates his employment
for Good Reason, then, in lieu of the payments and benefits otherwise due to the executive in the preceding paragraph, the executive
will be entitled to: (i) the Accrued Obligations; (ii) an amount equal to the sum of twelve (12) months of base salary, as in
effect on the date of termination or the date of the Change in Control, whichever is greater; (iii) medical, dental benefits provided
by the Company to the executive and his spouse and dependents at least equal to the level of benefits provided to other similarly
situated active employees of the Company and its subsidiaries until the earlier of (a) the twelve (12) month anniversary of the
date of termination or (b) the date that the executive becomes covered under a subsequent employer’s medical and dental
plans; and (iv) acceleration of vesting of all equity and equity-based awards.
In
the event the executive’s employment is terminated by him without Good Reason, by the Company for Cause or due to the executive’s
death or disability, the executive and/or his estate or beneficiaries will be solely entitled to the Accrued Obligations.
The
executive’s entitlement to the payments (other than the Accrued Obligations) and benefits described above is expressly contingent
upon him providing the Company with a signed release satisfactory to the Company.
For
purposes of the Severance Agreements:
“
Accrued
Obligations
” means (i) earned but unpaid base salary through the date of termination; (ii) payment of any annual, long-term,
or other incentive award which relates to a completed fiscal year or performance period, as applicable, and is payable (but not
yet paid) on or before the date of termination; (iii) a lump-sum payment in respect of accrued but unused vacation days at the
executive’s per-business-day base salary rate in effect as of the date of termination; and (iv) any unpaid expense or reimbursements
due pursuant to Company expense reimbursement policy.
“
Cause
”
means a finding by the Company that the executive has (i) been convicted of a felony or crime involving moral turpitude; (ii)
disclosed trade secrets or confidential information of the Company (or any parent or subsidiary) to persons not entitled to receive
such information; (iii) engaged in conduct in connection with the executive’s employment or service to the Company (or any
parent or subsidiary), that has, or could reasonably be expected to result in, material injury to the business or reputation of
the Company (or any parent or subsidiary), including, without limitation, act(s) of fraud, embezzlement, misappropriation and
breach of fiduciary duty; (iv) violated the operating and ethics policies of the Company (or any parent or subsidiary) in any
material way, including, but not limited to those relating to sexual harassment and the disclosure or misuse of confidential information;
(v) engaged in willful and continued negligence in the performance of the duties assigned to the executive by the Company, after
the executive has received notice of and failed to cure such negligence; or (vi) breached any material provision of any agreement
between the executive and the Company (or any parent or subsidiary), including, without limitation, any confidentiality agreement.
“
Change
in Control
” means the occurrence of any of the following events:
|
(i)
|
Any “person”
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes a “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of
the voting power of the then outstanding securities of the Company; provided that a Change of Control will not be deemed to
occur as a result of a change of ownership resulting from the death of a shareholder, and a Change of Control will not be
deemed to occur as a result of a transaction in which the Company becomes a subsidiary of another corporation and in which
the shareholders of the Company, immediately prior to the transaction, will beneficially own, immediately after the transaction,
shares entitling such shareholders to more than 50% of all votes to which all shareholders of the parent corporation would
be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by
a separate class vote);
|
|
(ii)
|
A change in the
effective control of the Company which occurs on the date that a majority of members of the board of directors is replaced
during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members
of the board of directors prior to the date of the appointment or election; or
|
|
|
|
|
(iii)
|
The consummation
of (A) a merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately
prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling
such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would be entitled in
the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class
vote); (B) a sale or other disposition of all or substantially all of the assets of the Company; or (C) a liquidation or dissolution
of the Company.
|
“
Good
Reason
” means, without the executive’s express written consent, the occurrence of any one or more of the following:
(i) a substantial and material diminution in the executive’s duties or responsibilities; (ii) a material reduction in the
executive’s Base Salary; or (iii) the relocation of the executive’s principal place of employment to a location more
than 50 miles from the executive’ principal work location to a location that is more than 50 miles from the prior location.
Notwithstanding the foregoing, a relocation of Mr. Step’s principal place of employment to a location closer to Mr. Step’s
principal residence in San Diego, California shall not constitute “Good Reason.” A termination of employment by the
executive for Good Reason will be effectuated by giving the Company written notice, or Notice of Termination for Good Reason,
not later than 90 days following the occurrence of the circumstance that constitutes Good Reason, setting forth in reasonable
detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which
the executive relied. The Company will be entitled, during the 30-day period following receipt of a Notice of Termination for
Good Reason, to cure the circumstances that gave rise to Good Reason, provided that the Company shall be entitled to waive its
right to cure or reduce the cure period by delivery of written notice to that effect to the executive (such 30-day or shorter
period, the “Cure Period”). If, during the Cure Period, such circumstance is remedied, the executive will not be permitted
to terminate his employment for Good Reason as a result of such circumstance. If, at the end of the Cure Period, the circumstance
that constitutes Good Reason has not been remedied, the executive will terminate employment for Good Reason on the date of expiration
of the Cure Period.
2008
Stock Plan
The
2008 Stock Plan provides that in the event of a merger or a Change in Control (as defined below) occurs, each outstanding award
will be treated as the administrator determines, including, without limitation, that each award be assumed or an equivalent award
be substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event of a Change in
Control in which the successor corporation does not assume or substitute for the award, awards outstanding under the 2008 Plan
will become fully vested and exercisable, including shares as to which such award would not otherwise be vested or exercisable,
and all restrictions on outstanding restricted stock awards will lapse.
For
purposes of the 2008 Stock Plan, “
Change in Control
” means the occurrence of any of the following events:
|
(i)
|
A change in the
ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”),
acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than 50%
of the total voting power of the stock of the Company, except that any change in the ownership of the stock of the Company
as a result of a private financing of the Company that is approved by the board of directors will not be considered a Change
in Control;
|
|
|
|
|
(ii)
|
If the Company has
a class of securities registered pursuant to Section 12 of the Exchange Act, a change in the effective control of the Company
which occurs on the date that a majority of members of the board of directors is replaced during any twelve (12) month period
by directors whose appointment or election is not endorsed by a majority of the members of the board of directors prior to
the date of the appointment or election.
|
|
(iii)
|
A change in the
ownership of a substantial portion of the Company’s assets which occurs on the date that any person acquires (or has
acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) assets
from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value
of all of the assets of the Company immediately prior to such acquisition or acquisitions.
|
2009
Stock Plan
The
2009 Stock Plan provides that in the event we merge with or into another corporation, or a Change in Control (as defined below)
occurs, each outstanding option and stock purchase right will be assumed or an equivalent option substituted by the successor
corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation in a merger or
Change in Control refuses to assume or substitute for the option or stock purchase right, then the optionee will fully vest in
and have the right to exercise the option or stock purchase right as to all of the optioned stock, including shares as to which
it would not otherwise be vested or exercisable; provided, however, that such exercise will only be permitted as and to the extent
it complies with Code Section 409A or does not cause the option or stock purchase right to cease to be exempt from that statute.
For
purposes of the 2009 Stock Plan, “
Change in Control
” means the occurrence of any of the following events:
|
(i)
|
Any “person”
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities representing fifty percent (50%) or more of the
total voting power represented by our then outstanding voting securities; or
|
|
|
|
|
(ii)
|
The consummation
of the sale or disposition by us of all or substantially all of our assets; or
|
|
|
|
|
(iii)
|
The consummation
of a merger or our consolidation with any other corporation, other than a merger or consolidation which would result in our
voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or its parent) at least 50% of the total voting power represented
by the our voting securities or such surviving entity or its parent outstanding immediately after such merger or consolidation.
Notwithstanding the foregoing, only a Change in Control event that also qualifies as a “change in the ownership”
or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion”
of our assets within the meaning of Treasury Regulation Section 1.409A-3(i)(5) shall be recognized as a Change of Control
for purposes of triggering exercise, distribution or settlement rights under any option or stock purchase right granted under
the Stock Plan that is subject to Code Section 409A.
|
2015
Equity Incentive Plan
The
2015 Equity Incentive Plan provides that notwithstanding any other provision of the 2015 Equity Incentive Plan, in the event of
a Change in Control (as defined below), unless otherwise determined by the plan administrator, each outstanding award under the
plan will be assumed or an equivalent award substituted by the successor corporation or a parent or subsidiary of the successor
corporation. In the event that, or to the extent that, the successor corporation in a Change in Control refuses to assume or substitute
for the award, or if the plan administrator determines that such assumption or substitution is not desirable or is only desirable
for a portion of any outstanding award, then the plan administrator may take any or all of the following actions: (i) determine
that an outstanding award will accelerate and become exercisable, or determine that the restrictions and conditions on an outstanding
award will lapse, in whole or in part, as applicable, upon the Change of Control or upon such other event as the plan administrator
determines; (ii) require that a Grantee surrender his or her outstanding award, or any portion of such outstanding award, in exchange
for a payment by the Company, in cash or stock, as determined by the plan administrator, in an amount equal to the fair market
value of the vested portion of the award (with respect to options or stock appreciation rights, or other similar appreciation
value awards, such value shall be determined by the amount by which the then fair market value of the shares subject to the Grantee’s
unexercised award exceeds the any applicable exercise price or other grant price or base value or the award); or (iii) after giving
the Grantee an opportunity to exercise the vested portion of his or her outstanding award, terminate any or all unexercised portion
of the award at such time as the plan administrator deems appropriate. Such surrender or termination will take place as of the
date of the Change of Control or such other date as the plan administrator may specify.
For
purposes of the 2015 Equity Incentive Plan, “Change in Control” means the occurrence of any of the following events:
|
(i)
|
A change in our
ownership which occurs on the date that any one person, or more than one person acting as a group, or Person, acquires ownership
of our stock that, together with the stock held by such Person, constitutes more than 50% of the total voting power of our
stock, except that any change in the ownership of our stock as a result of a private financing that is approved by our board
of directors will not be considered a Change in Control; or
|
|
|
|
|
(ii)
|
If we have a class
of securities registered pursuant to Section 12 of the Exchange Act, a change in our effective control which occurs on the
date that a majority of members of our board of directors is replaced during any twelve (12) month period by directors whose
appointment or election is not endorsed by a majority of the members of our board of directors prior to the date of the appointment
or election. For purposes of this paragraph (ii), if any Person is considered to be in effective control of our company, the
acquisition of additional control of our company by the same Person will not be considered a Change in Control; or
|
|
|
|
|
(iii)
|
A change in the
ownership of a substantial portion of our assets which occurs on the date that any Person acquires (or has acquired during
the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from us that
have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of our assets immediately
prior to such acquisition or acquisitions. For purposes of this paragraph (iii), gross fair market value means the value of
our assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with such
assets.
|
Persons
will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase
or acquisition of stock, or similar business transaction with us.