ARIDIS PHARMACEUTICALS, INC.

Date Filed : Jul 18, 2018

View Exhibits

Table of Contents

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with theSecurities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is notpermitted.

SUBJECT TO COMPLETION DATED JULY 18, 2018

PRELIMINARY PROSPECTUS

            Shares

Common Stock

        This is the initial public offering of our common stock. We are offering all of the shares of common stockoffered by this prospectus. No public market currently exists for our stock. We expect the initial public offering price of our shares of common stock will be between $            and$            per share.

        We have applied to list our shares of common stock for trading on The Nasdaq Capital Market under thesymbol "ARDS."

        We are an "emerging growth company" as that term is used in theJumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, elect to comply with certain reduced public company reporting requirements for future filings.

        Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page13.

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

(1)

We refer you to "Underwriting" beginning on page 183 of this prospectus for additional information regarding underwritingcompensation.

        We have granted a 30-day option to the representative of the underwriters to purchase up to                        additional shares of common stock solely to cover over-allotments, if any.

        The underwriters are offering the common stock as set forth under "Underwriting." Delivery of the shareswill be made on or about                        , 2018.

Cantor

        The date of this prospectus is                        , 2018

Table of Contents

TABLE OF CONTENTS

        You should rely only on the information contained in this prospectus. We have not authorized anyone to provide any information or to make any representationsother than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide noassurance as to the reliability of, any other information that others may give to you. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless ofthe time of delivery of this prospectus or any sale of our common stock.

        You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give informationthat is not contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. Theinformation in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of these securities.

        Through and including                        ,2018 (the 25^th day after the commencement of thisoffering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligationto deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Table of Contents

1

Table of Contents

2

Table of Contents

3

Table of Contents

4

Table of Contents

5

Table of Contents

6

Table of Contents

7

Table of Contents

8

Table of Contents

9

Table of Contents

10

Table of Contents

11

Table of Contents

12

Table of Contents

RISK FACTORS

        An investment in our common stock involves a high degree of risk. You should give careful considerationto the following risk factors, in addition to the other information included in this prospectus, including our financial statements and related notes, before deciding whether to invest in shares ofour common stock. The occurrence of any of the adverse developments described in the following risk factors could materially and adversely harm our business, financial condition, results of operationsor prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Clinical Development and Commercialization of Our Product Candidates

If we fail to successfully complete clinical trials, fail to obtain regulatory approval or fail tosuccessfully commercialize our product candidates, our business would be harmed and the value of our securities would decline.

        We must be evaluated in light of the uncertainties and complexities affecting a pre-commercial biopharmaceutical company. We have not completedclinical development for any of our product candidates. Our three lead product candidates are AR-301, AR-105 and AR-101. We expect to initiate a Phase 3 pivotal trial of AR-301 in VAP patientsin the second half of 2018, while AR-105 is currently in Phase 2 clinical testing, and AR-101 is ready for phase 2/3 pivotal testing. We are clinically testing AR-105 as a wellcontrolled Phase 2 trial; however, we have not yet had discussions with the FDA and the EMA regarding the status, and they may not agree. We cannot assure you that our planned clinicaldevelopment for our product candidates will be completed in a timely manner, or at all, or that we, or any future partner, will be able to obtain approval for our product candidates from the FDA orany foreign regulatory authority.

        Regulatoryagencies, including the FDA must approve our product candidates before they can be marketed or sold. The approval process is lengthy, requires significant capitalexpenditures, and is uncertain as to outcome. Our ability to obtain regulatory approval of any product candidate depends on, among other things, completion of additional clinical trials, whether ourclinical trials demonstrate statistically significant efficacy with safety issues that do not potentially outweigh the therapeutic benefit of the product candidates, and whether the regulatoryagencies agree that the data from our future clinical trials are sufficient to support approval for any of our product candidates. The final results of our current and future clinical trials may notmeet FDA or other regulatory agencies' requirements to approve a product candidate for marketing, and the regulatory agencies may otherwise determine that our manufacturing processes or facilities areinsufficient to support approval. We, and our current and potential future collaborators, may need to conduct more clinical trials than we currently anticipate. Even if we do receive FDA or otherregulatory agency approval, we or our collaborators may not be successful in commercializing approved product candidates. If any of these events occur, our business could be materially harmed and thevalue of our securities would decline.

We, or our collaborators, may face delays in completing our clinical trials, and may not be able to completethem at all.

        Clinical trials necessary to support an application for approval to market any of our product candidates have not been completed. Our, or ourcollaborators', current and future clinical trials

13

Table of Contents

maybe delayed, unsuccessful, or terminated as a result of many factors, including, but not limited to:

•

delays in reaching agreement on trial design and clinical study protocol with investigators and regulatory authorities in various countrieswhere our clinical trials are being conducted;



•

governmental or regulatory delays, failure to obtain regulatory approval or changes in regulatory requirements, policy or guidelines;



•

adding new clinical trial sites;



•

reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of whichcan be subject to extensive negotiation and may vary significantly among different CROs and trial sites;



•

the actual performance of CROs and clinical trial sites in ensuring the proper and timely conduct of our clinical trials;



•

developing and validating companion diagnostics on a timely basis;



•

adverse effects experienced by subjects in clinical trials;



•

manufacturing sufficient quantities of product candidates for use in clinical trials;



•

delay or failure in achieving study efficacy endpoints and completing data analysis for a trial;



•

regulators or institutional review boards, or IRBs, may not authorize us to commence a clinical trial;



•

regulators or IRBs may suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements orconcerns about patient safety;



•

we may suspend or terminate our clinical trials if we believe that they expose the participating patients to unacceptable health risks;



•

patients may not complete clinical trials due to safety issues, side effects, such as injection site discomfort, a belief that they arereceiving placebo instead of our product candidates, or other reasons;



•

patients with serious diseases included in our clinical trials may die or suffer other adverse medical events for reasons that may not berelated to our product candidates;



•

in those trials where our product candidate is being tested in combination with one or more other therapies, deaths may occur that may beattributable to the other therapies;



•

we may have difficulty in maintaining contact with patients after treatment, preventing us from collecting the data required by our studyprotocol;



•

product candidates may demonstrate a lack of efficacy during clinical trials;



•

personnel conducting clinical trials may fail to properly administer our product candidates; and



•

our collaborators may decide not to pursue further clinical trials.

14

Table of Contents

        Ifwe fail to raise the full amount of the net proceeds in this offering, the planned AR-301 Phase 3 pivotal trial may remain an 80% power study rather than 90% power study, whichwould reduce the probability that we reach statistical significance, and may negatively affect the approval process for AR-301. If the Cystic Fibrosis Foundation does not continue to providesufficient level of funding support, we may not be able to complete the Phase 1/2a clinical trial relating to AR-501.

        Inaddition, we rely on academic institutions, medical institutions, physician practices and CROs to conduct, supervise or monitor some or all aspects of clinical trials involving ourproduct candidates. We have less control over the timing and other aspects of these clinical trials than if we conducted the monitoring and supervision entirely on our own. Third parties may notperform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical trial protocol or applicable regulations. We also may rely on CROs to perform our datamanagement and analysis. They may not provide these services as required or in a timely or compliant manner, and we may be held legally responsible for any or all of their performance failures orinadequacies.

        Ifwe or our collaborators experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidateswill be harmed, and our ability to generate product revenues from any of these product candidates will be delayed or eliminated. In addition, any delays in completing our clinical trials will increaseour costs, slow our product candidate development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business,financial condition and prospects. In addition, many of the factors that cause, or lead to, a delayin the commencement or completion of clinical trials may also lead to the denial of regulatory approval of our product candidates.

If we encounter difficulties enrolling patients in our clinical trials, our clinical trials could be delayedor otherwise adversely affected.

        Clinical trials for our product candidates require us to identify and enroll a large number of patients with the disease under investigation. Wemay not be able to enroll a sufficient number of patients with required or desired characteristics to conduct our clinical trials in a timely manner, if at all. Patient enrollment is affected byfactors including, but not limited to:

•

severity of the disease under investigation;



•

design of the trial protocol;



•

the size and nature of the patient population;



•

eligibility criteria for the study in question;



•

lack of a sufficient number of patients who meet the enrollment criteria for our clinical trials;



•

delays in characterizing a patient's infection to allow us to select a product candidate, which may lead patients to seek to enroll in otherclinical trials or seek alternative treatments;



•

perceived risks and benefits of the product candidate under study;



•

availability of competing therapies and clinical trials;

15

Table of Contents

•

efforts to facilitate timely enrollment in clinical trials;



•

scheduling conflicts with participating clinicians;



•

patient referral practices of physicians;



•

the ability to monitor patients adequately during and after treatment; and



•

proximity and availability of clinical trial sites for prospective patients.

        Wehave experienced slower enrollment of patients in our smaller clinical trials due to the pace in which clinical sites were being initiated for enrollment and may experience similardifficulties in the future. In addition, AR-301 and AR-101 have been granted orphan drug designation for the treatment of P. aeruginosa and S. aureus inthe EU respectively, and the low prevalence of such diseases relative to the total population may make it harder to identify patients toenroll. If we have difficulty enrolling a sufficient number or diversity of patients to conduct our clinical trials as planned, we may need to delay or terminate ongoing or planned clinical trials,either of which would have an adverse effect on our business.

Our product candidates are based on a novel technology, which may raise development issues we may not be ableto resolve, regulatory issues that could delay or prevent approval, or personnel issues that may keep us from being able to develop our product candidates.

        Our product candidates are based on our mAb technology and gallium-based anti-infective platforms. There can be no assurance that developmentproblems related to our novel technologies will not arise in the future that will cause significant delays or that we will not able to resolve.

        Regulatoryapproval of novel product candidates such as ours can be more expensive and take longer than for other, more well-known or extensively studied pharmaceutical orbiopharmaceutical product candidates due to our and regulatory agencies' lack of experience withthem. Only two mAbs have been approved by the FDA. Synagis which stimulates the immune system to target a viral infection and ZINPLAVA to reduce recurrence of Clostridiumdifficile infections. The novelty of our platform may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase ourdevelopment costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approvallimitations or restrictions. For example, the FDA could require additional studies that may be difficult or impossible to perform.

        Thenovel nature of our product candidates also means that fewer people are trained in or experienced with product candidates of this type, which may make it difficult to find, hire andretain capable personnel, particularly for research, development, commercialization and manufacturing positions. For example, study personnel may administer the wrong version of our product candidatesor assign study therapy to the wrong treatment group, resulting in potential disqualification of subjects from data analysis. These factors could potentially cause a trial to fail for a reasonunrelated to the efficacy of our product candidates. If we are unable to hire and retain the necessary personnel, the rate and success at which we can develop and commercialize product candidates willbe limited. Any such events would increase our costs and could delay or prevent our ability to commercialize our product candidates, which could adversely impact our business, financial condition andresults of operations.

16

Table of Contents

If we are unable to successfully develop companion diagnostics for our therapeutic product candidates, orexperience significant delays in doing so, we may not realize the full commercial potential of our product candidates.

        We intend to use rapid diagnostic tests of patients' respiratory samples to target our mAb product candidates to those patients we believe areinfected with the bacterial agents which our mAb will act against. However, currently there is no commercially available companion diagnostic for AR-101 and AR-401. Therefore, there is a risk that acompanion diagnostic for these products are not developed or available to support product launch. The FDA and similar regulatory authorities outside the United States regulate companion diagnostics.Companion diagnostics require separate or coordinated regulatory approval prior to commercialization of the therapeutic product. Changes to applicable regulations could delay our development programsor delay or prevent eventual marketing approval for our product candidates that may have otherwise been approved.

        TheFDA's evolving position on the topic of companion diagnostics could affect our clinical development programs that utilize companion diagnostics. In particular, the FDA may limit ourability to use retrospective data, otherwise disagree with our approaches to trial design, biomarker qualification, clinical and analytical validity, and clinical utility, or make us repeat aspects ofa trial or initiate new trials.

        Assaysthat can be used as companion diagnostics are commercially available, but in some cases such as for AR-101, they do not yet have regulatory approval for use as companiondiagnostic. We have limited experience in the development of diagnostics and may not be successful in developing necessary diagnostics to pair with those product candidates that require a companiondiagnostic.

        Givenour limited experience in developing diagnostics, we expect to rely in part on third parties for their design and manufacture. If we, or any third parties that we engage to assistus, are unable to successfully develop companion diagnostics for our product candidates that require such diagnostics, or experience delays in doing so, the development of our product candidates maybe adversely affected, our product candidates may not receive marketing approval and we may not realize the full commercial potential of any products that receive marketing approval. As a result, ourbusiness could be materially harmed.

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlierstudies and clinical trials may not be predictive of future trial results.

        Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time duringthe clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the design or results of later-stage clinical trials. Theresults regarding initial tolerability and clinical activity generated to date in clinical trials for our AR-301 and AR-101 product candidates in HAP and VAP patients do not ensure that later clinicaltrials will demonstrate similar results. While we have observed in exploratory analysis statistically significant improvements in the outcomes of some of our clinical trials, many of the improvementswe have seen have not reached statistical significance. Statistical significance is a statistical term that means that an effect is unlikely to have occurred by chance. In order to be approved by theFDA, European Medicines Agency, or EMA,

17

Table of Contents

orother drug approving authorities, product candidates must demonstrate that their effect on patients' diseases in the trial is statistically significant and clinically meaningful. Product candidatesin later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Early clinical trialsfrequently enroll patient populations that are different from the patient populations in later trials, resulting in different outcomes in later clinical trials from those in earlier stage clinicaltrials. In addition, adverse events may not occur in early clinical trials and only emerge in larger, late-stage clinical trials or after commercialization. Companies in the biopharmaceutical industryhave suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier clinical trials. If later stage clinicaltrials do not demonstrate efficacy and safety of our product candidates we will not be able to market them and our business will be materially harmed.

We may seek a breakthrough therapy designation for our existing and future product candidates, but we mightnot receive such designation, and even if we do, such designation may not lead to a faster development or regulatory review or approval process.

        We may seek a breakthrough therapy designation for our existing and future product candidates; however, we cannot assure you our productcandidates will meet the criteria for that designation. A breakthrough therapy is defined as a therapy that is intended, alone or in combination with one or more other therapies, to treat a seriouscondition, and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such assubstantial treatment effects observed early in clinical development. For therapies and biologics that have been designated as breakthrough therapies, interaction and communication between the FDA andthe sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Therapies designated asbreakthrough therapies by the FDA may also be eligible for priority review if supported by clinical data at the time the new drug application is submitted to the FDA.

        Designationas a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for designation as abreakthrough therapy, the FDA may disagree and instead determine not to make such designation. Even if we receive breakthrough therapy designation, the receipt of such designation for a productcandidate may not result in a faster development or regulatory review or approval process compared to drugs considered for approval under conventional FDA procedures and does not assure ultimateapproval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product candidate no longer meets the conditionsfor qualification or decide that the time period for FDA review or approval will not be shortened.

Designation of our product candidates as qualified infectious disease products is not assured and, in anyevent, even if granted, may not actually lead to a faster development or regulatory review, and would not assure FDA approval of our product candidates.

        We may seek designation of our existing and future product candidates as qualified infectious disease products, or QIDP. A QIDP is anantibacterial or antifungal drug intended to treat serious

18

Table of Contents

orlife- threatening infections, including those caused by an antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens or certain "qualifying pathogens." Aproduct designated as a QIDP for a particular indication will also be granted priority review by the FDA and can qualify for fast track status. Upon the approval of an NDA for a drug productdesignated by the FDA as a QIDP, the product is granted a period of five years of regulatory exclusivity that is in addition to any other period of regulatory exclusivity for which the product iseligible. The FDA has broad discretion whether or not to grant these designations, so even if we believe a particular product candidate is eligible for such designation or status, the FDA could decidenot to grant it. Moreover, even if we do receive such a designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures and there is noassurance that our product candidate, even if determined to be a QIDP, will be approved by the FDA.

Regulatory authorities may not approve our product candidates even if they meet safety and efficacy endpointsin clinical trials.

        The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following thecommencement of clinical trials and depends upon numerous factors, including the substantial discretion of regulatory authorities. In addition, approval policies, regulations, or the type and amountof clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary among jurisdictions. We have discussions with and obtain guidancefrom regulatory authorities regarding certain aspects of our clinical development activities. These discussions are not binding commitments on the part of regulatory authorities. Under certaincircumstances, regulatory authorities may revise or retract previous guidance during the course of our clinical activities or after the completion of our clinical trials. A regulatory authority mayalso disqualify a clinical trial in whole or in part from consideration in support of approval of a potential product for commercial sale or otherwise deny approval of that product. Prior toregulatory approval, a regulatory authority may elect to obtain advice from outside experts regarding scientific issues and/or marketing applications under a regulatory authority review. In the UnitedStates, these outside experts are convened through the FDA's Advisory Committee process, which would report to the FDA and make recommendations that may differ from the views of the FDA. Should anAdvisory Committee be convened, it would be expected to lengthen the time for obtaining regulatory approval, if such approval is obtained at all.

        TheFDA and foreign regulatory agencies may delay, limit or deny marketing approval for many reasons, including, but not limited to:

•

a product candidate may not be considered safe or effective;



•

our manufacturing processes or facilities may not meet the applicable requirements;



•

changes in the agencies' approval policies or adoption of new regulations may require additional work on our part, for example, the FDA mayrequire us to change or expand the endpoints in our clinical trials;



•

different divisions of the FDA are reviewing different product candidates and those divisions may have different requirements for approval; and

19

Table of Contents

•

changes in regulatory law, FDA or foreign regulatory agency organization, or personnel may result in different requirements for approval thananticipated.

        Ourproduct candidates may not be approved even if they achieve their endpoints in clinical trials. Regulatory agencies, including the FDA, or their advisors may disagree with our trialdesign and our interpretations of data from preclinical studies and clinical trials. Regulatory agencies also may approve a product candidate for fewer or more limited indications than requested ormay grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successfulcommercialization of our product candidates. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any productcandidates we may seek to develop in the future will ever obtain regulatory approval.

        Anydelay in or failure to receive or maintain approval for any of our product candidates could prevent us from ever generating revenues or achieving profitability.

We may be required to suspend, repeat or terminate our clinical trials if they are not conducted inaccordance with regulatory requirements, the results are negative or inconclusive, or the trials are not well designed.

        Clinical trials must be conducted in accordance with FDA regulations governing clinical studies, or other applicable foreign governmentguidelines, and are subject to oversight by the FDA, other foreign governmental agencies and IRBs/Ethic Committees at the medical institutions where the clinical trials are conducted. In addition,clinical trials must be conducted with product candidates produced under current Good Manufacturing Practices, or cGMP, and may require large numbers of test subjects. Clinical trials may be suspendedby the FDA, other foreign governmental agencies or us for various reasons, including, but not limited to:

•

deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirementsor clinical protocols;



•

deficiencies in the clinical trial operations or trial sites;



•

the product candidate may have unforeseen adverse side effects;



•

the time required to determine whether the product candidate is effective may be longer than expected;



•

deaths or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;



•

the product candidate may not appear to be more effective than current therapies;



•

the quality or stability of the product candidate may fall below acceptable standards; and



•

insufficient quantities of the product candidate might be available to complete the trials.

        Inaddition, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmitour clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. Due to these and other factors, our product candidates couldtake longer to gain regulatory approval than we expect or we may never gain approval for

20

Table of Contents

anyproduct candidates, which could reduce or eliminate our revenue by delaying or terminating the commercialization of our product candidates.

A Fast Track product designation or other designation to facilitate product candidate development may notlead to faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

        We have received a Fast Track product designation for AR-301 and AR-101 and we may seek Fast Track designation for other of our current orfuture product candidates. Receipt of a designation to facilitate product candidate development is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meetsthe criteria for a designation, the FDA may disagree. In any event, the receipt of such a designation for a product candidate may not result in a faster development process, review, or approvalcompared to drugs considered for approval under conventional FDA procedures and does not assure ultimate marketing approval by the FDA. In addition, the FDA may later decide that the products nolonger meet the designation conditions.

We may not be able to maintain orphan drug marketing exclusivity for our AR-101 and AR-301 product candidatesin the United States and/or the European Union, and orphan drug marketing exclusivity may not be available for any of our other product candidates.

        Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition (with apopulation of less than 200,000), which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the U.S. wherethere is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United States. In the EU, following the opinion of the EMA's Committee forOrphan Medicinal Products, the European Commission grants orphan drug designation to a product if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening orchronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (b) the product, withoutthe incentives derived from orphan medicinal product status, would not generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of diagnosis,prevention or treatment of such condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the condition.

        Generally,if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to aperiod of marketing exclusivity, which precludes the FDA or the European Commission and the competent authorities in the EU Member States from approving another marketing application for the samedrug (or similar medicinal product in the European Union) for that time period, except in limited circumstances. The applicable period is seven years in the U.S. and 10 years in the EU. The EUexclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable that market exclusivity is no longerjustified. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of thedrug to meet the needs of patients with the rare disease or condition.

21

Table of Contents

        Wehave been granted orphan drug designation for our AR-101 and AR-301 drug candidates in the European Union, as well as orphan drug designation for our AR-101 drug candidate in the U.S.Although we may apply for orphan drug designation for other product candidates we may develop in both the U.S. and EU, applicable regulatory authorities may not grant us this designation. In addition,even if such status is obtained for any other product candidate that we may develop, that exclusivity may not effectively protect the candidate from competition because other drugs, such as those withdifferent active ingredients or molecular structures, can be approved for the same condition. Furthermore, even after an orphan drug is approved, the FDA can subsequently approve another drug for thesame condition if the FDA concludes that the later drug is clinically superior, in that it is shown to be safer, more effective or makes a major contribution to patient care. In the EU, a marketingauthorization may be granted to a similar product during the 10-year period of market exclusivity for the same therapeutic indication at any time if:

•

The second applicant can establish in its application that its product, although similar to the orphan medicinal product already authorized, issafer, more effective or otherwise clinically superior;



•

The holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application;or



•

The holder of the marketing authorization for the original orphan medicinal product cannot supply enough orphan medicinal product.

        Anyinability to secure orphan drug designation or to maintain the exclusivity benefits of this designation could have an adverse impact on our ability to develop and commercialize ourproduct candidates, depending on the extent to which we would be protected by other patents and regulatory exclusivities, and may adversely affect our business, prospects, financial condition andresults of operations.

Any product candidate for which we, or our collaborators, obtain marketing approval could be subject torestrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when andif any of them are approved.

        Any product candidate that we, or our collaborators, obtain marketing approval for, along with the manufacturing processes, post-approvalclinical data, labeling, advertising and promotional activities for such product, will be subject to continuing requirements of the FDA and other regulatory authorities. These requirements includesubmissions of safety and other post-marketing information, reports, facility registration and product listing requirements, cGMP requirements relating to quality control, quality assurance andcorresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted,the approval may be subject to limitations on the indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for costly post-marketing testing andsurveillance to monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approvedindications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions

22

Table of Contents

onmanufacturers' communications regarding off-label use. If we market our products outside of their approved indications, we will be subject to enforcement action for off-label marketing.

        Inaddition, later discovery of previously unknown problems with these products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yieldvarious results, including, but not limited to:

•

restrictions on such products, manufacturers or manufacturing processes;



•

restrictions on the labeling or marketing of a product;



•

restrictions on product distribution or use;



•

requirements to conduct post-marketing clinical trials;



•

warning or untitled letters;



•

withdrawal of the products from the market;



•

refusal to approve pending applications or supplements to approved applications that we submit;



•

recall of products, fines, restitution or disgorgement of profits or revenue;



•

suspension or withdrawal of marketing approvals;



•

refusal to permit the import or export of our products;



•

product seizure; and



•

injunctions or the imposition of civil or criminal penalties.

        TheFDA's policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we, or ourcollaborators,are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we, or our collaborators, are not able to maintain regulatory compliance, anymarketing approval that was obtained could be lost, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

If we, or our collaborators, are unable to comply with foreign regulatory requirements or obtain foreignregulatory approvals, our ability to develop foreign markets for our products could be impaired.

        Sales of our products outside the U.S. will be subject to foreign regulatory requirements governing clinical trials, marketing approval,manufacturing, product licensing, pricing and reimbursement. These regulatory requirements vary greatly from country to country. As a result, the time required to obtain approvals outside the U.S. maydiffer from that required to obtain FDA approval and we may not be able to obtain foreign regulatory approvals on a timely basis or at all. Approval by the FDA does not ensure approval by regulatoryauthorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA and foreign regulatory authoritiescould require additional testing. Failure to comply with these regulatory requirements or obtain required approvals could impair our ability to develop foreign markets for our products.

23

Table of Contents

We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruptionlaws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liabilityand other serious consequences for violations, which can harm our business.

        We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customsregulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, asamended, or FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-moneylaundering laws in thecountries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing,promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties for clinical trialsoutside of the United States, to sell our products abroad once we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals.We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for thecorrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violationsof the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments,breach of contract and fraud litigation, reputational harm, and other consequences.

Developing product candidates in combination with other therapies may lead to unforeseen side effects orfailures in our clinical trials.

        We, and our collaborators, are studying our product candidates in clinical trials in combination with approved therapies, including antibiotics,and we anticipate that if any product candidates are approved for marketing, they will be approved to be used only in combination with other therapies. Our development programs and planned studiescarry all the risks inherent in drug development activities, including the risk that they will fail to demonstrate meaningful efficacy or acceptable safety. In addition, our development programs aresubject to additional regulatory, commercial, manufacturing and other risks because of the use of other therapies in combination with our product candidates. For example, the other therapies may leadto toxicities that are improperly attributed to our product candidates or the combination of our product candidates with other therapies may result in toxicities that the product candidate or othertherapy does not produce when used alone. The other therapies we are using in combination with our product candidates may be removed from the market or become prohibitively expensive and thus beunavailable for testing or commercial use with any of our approved products. Testing product candidates in combination with other therapies may increase the risk of significant adverse effects or testfailures. The timing, outcome and cost of developing products to be used in combination with other therapies is difficult to predict and dependent on a number of factors that are outside ourreasonable control. If any safety or toxicity issues arise in these clinical trials or with any approved products, or if the other therapies are removed from the market, the products may not beapproved, which could prevent us from ever generating revenues or achieving profitability.

24

Table of Contents

We will need to develop or acquire additional manufacturing and distribution capabilities, or outsource thesame to third parties, in order to commercialize any product candidates that obtain marketing approval, and we may encounter unexpected costs or difficulties in doing so.

        If we independently develop and commercialize one or more of our product candidates, we will need to invest in acquiring or building additionalcapabilities and effectively manage our operations and facilities to successfully pursue and complete future research, development and commercialization efforts. We will require additional investmentand validation process development in order to qualify our commercial-scale manufacturing process to manufacture clinical trial materials and commercial material if any of our products are approvedfor marketing. This investment and validation process development may be expensive and time-consuming. We will require additional personnel with experience in commercial-scale manufacturing, managingof large-scale information technology systems and managing a large-scale distribution system. We will need to add personnel and expand our capabilities, which may strain our existing managerial,operational, regulatory compliance, financial and other resources. To do this effectively, we must:

•

recruit, hire, train, manage and motivate a growing employee base;



•

accurately forecast demand for our products;



•

assemble and manage the supply chain to ensure our ability to meet demand; and



•

expand existing operational, manufacturing, financial and management information systems.

        Wemay seek FDA approval for our production process and facilities simultaneously with seeking approval for sale of our product candidates. Should we not complete the development ofadequate manufacturing and distribution capabilities, including manufacturing capacity, or fail to receive timely approval of our manufacturing process and facilities, our ability to supply clinicaltrial materials for planned clinical trials or supply products following regulatory approval for sale could be delayed, which would further delay our clinical trials or the period of time when wewould be able to generate revenues from the sale of such products, if we are even able to obtain approval or generate revenues at all.

        Additionally,we may decide to outsource some or all of our manufacturing activities to a third party commercial manufacturing organization, or CMO. Under any agreement with a CMO, wewould have less control over the timing and quality of manufacturing than if we were to perform such manufacturing ourselves. A CMO would be manufacturing other pharmaceutical products in the samefacilities as our product candidates, increasing the risk of cross product contamination. Further, there is no guarantee that any CMO will continue ongoing operations, causing potential delays inproduct supply, reduced revenues and other liabilities for us.

        Anysuch events would increase our costs and could delay or prevent our ability to commercialize our product candidates, which could adversely impact our business, financial conditionand results of operations.

25

Table of Contents

Our product candidates may cause undesirable side effects or have other properties that could delay orprevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

        Undesirable side effects caused by our product candidates could cause us, our collaborators, or regulatory authorities to interrupt, delay orhalt clinical trials and could result in a more restrictive label, the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities, or litigation by injuredpatients, if any. To date, patients treated with AR-301 and AR-101 have experienced AEs related to the study drug, some of which have been serious. Regarding AR-301, few (2.8%) adverse events, or AEs,were deemed related, and no serious adverse events, or SAEs, were deemed to be related to AR-301 treatment. There were six deaths in the trial, none of which were deemed related to AR-301. RegardingAR-101, 12 SAEs were experienced by five subjects. An event of cardiorespiratory arrest was judged as probably related to AR-101 and events of hyperbilirubinemia and cholestasis, althoughpre-existent, were deemed possibly related. In both cases, the causality assessment by the investigators accounted for the fact that a contribution by AR-101 to the AE could not be excluded withcertainty although other probable causes were acknowledged. The other SAEs were deemed unrelated.

        Becauseour product candidates are intended to assist the immune system, our clinical trials could reveal an unacceptable severity and prevalence of side effects, including, but notlimited to, adverse immune responses that lead to previously unobserved complications. As a result of any side effects, our clinical trials could be suspended or terminated and the FDA or comparableforeign regulatory authorities could order us to cease further development, or deny approval, of our product candidates for any or all targeted indications. The drug-related side effects could affectpatient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition andprospects significantly.

        Additionally,if one or more of our product candidates receives marketing approval, and we, our collaborators, or others later identify undesirable side effects caused by such products,a number of potentially significant negative consequences could result, including, but not limited to:

•

regulatory authorities may withdraw approvals of such product;



•

regulatory authorities may require additional warnings on the label;



•

we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;



•

we may be sued and held liable for harm caused to patients; and



•

our reputation may suffer.

        Inaddition, we cannot assure you that the bacteria which our mAbs target will not in the future develop a resistance to our mAbs.

        Anyof these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, resultsof operations and prospects.

26

Table of Contents

If we cannot conduct the non-clinical testing required by regulatory authorities to demonstrate an acceptabletoxicity profile for our product candidates in non-clinical studies, we will not be able to initiate or continue clinical trials or obtain approval for our product candidates.

        In order to move a product candidate into human clinical trials, we must first demonstrate an acceptable toxicity profile in preclinicaltesting. Furthermore, in order to obtain approval, we must also demonstrate safety in various non-clinical tests. We may not have conducted or may not conduct the types of non-clinical testingrequired by regulatory authorities, or future non-clinical tests may indicate that our product candidates are not safe for use. Preclinical and non-clinical testing is expensive, time-consuming andhas an uncertain outcome. In addition, success in initial non-clinical testing does not ensure that later non-clinical testing will be successful. We may experience numerous unforeseen events during,or as a result of, the non-clinical testing process, which could delay or prevent our ability to develop or commercialize our product candidates, including, but not limitedto:

•

our preclinical and non-clinical testing may produce inconclusive or negative safety results, which may require us to conduct additionalnon-clinical testing or to abandon product candidates;



•

our product candidates may have unfavorable pharmacology or toxicity characteristics;



•

our product candidates may cause undesirable side effects such as negative immune responses that lead to complications;



•

our enrolled patients may have allergies that lead to complications after treatment; and



•

the FDA or other regulatory authorities may determine that additional safety testing is required.

        Anysuch events would increase our costs and could delay or prevent our ability to commercialize our product candidates, which could adversely impact our business, financial conditionand results of operations.

Because we have multiple product candidates in our clinical pipeline and are considering a variety of targetindications, we may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or forwhich there is a greater likelihood of success.

        Because we have limited financial and managerial resources, we must focus our research and development efforts on those product candidates andspecific indications that we believe are the most promising. As a result, we may forego or delay our pursuit of opportunities with other product candidates or other indications that later prove tohave greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. We may in the future spend ourresources on other research programs and product candidates for specific indications that ultimately do not yield any commercially viable products. Furthermore, if we do not accurately evaluate thecommercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements incases in which it would have been more advantageous for us to retain sole development and commercialization rights.

27

Table of Contents

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties tosell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.

        We do not have a sales and marketing infrastructure or any experience in the sales, marketing or distribution of pharmaceutical products. We mayseek additional third-party collaborators for the commercialization of our other product candidates. In the future, we may choose to build a focused sales and marketing infrastructure to market orco-promote some of our product candidates if and when they are approved, which would be expensive and time-consuming. Alternatively, we may elect to outsource these functions to third parties. Eitherapproach carries significant risks. For example, recruiting and training a sales force is expensive and time-consuming and, if done improperly, could delay a product launch and result in limitedsales. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely orunnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. Outsourcing sales andmarketing capabilities will depend on our ability to enter into and maintain agreements with other companies having sales, marketing and distribution capabilities, the ability of such companies tosuccessfully market and sell our product candidates, and our ability to enter into such agreements on terms favorable to us.

        Factorsthat may inhibit our efforts to commercialize our products on our own include, but are not limited to:

•

our inability to recruit, manage and retain adequate numbers of effective sales and marketing personnel;



•

the inability of marketing personnel to develop effective marketing materials;



•

the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;



•

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies withmore extensive product lines; and



•

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

        Entryinto agreements with third parties to sell and market our product candidates will subject us to a number of risks, including, but not limited to, thefollowing:

•

we may be required to relinquish important rights to our products or product candidates;



•

we may not be able to control the amount and timing of resources that our distributors or collaborators may devote to the commercialization ofour product candidates;



•

distributors or collaborators may experience financial difficulties;



•

our distributors or collaborators may not devote sufficient time to the marketing and sales of our products; and

28

Table of Contents

•

business combinations or significant changes in a collaborator's business strategy may adversely affect a collaborator's willingness or abilityto complete its obligations under any arrangement.

The availability and amount of reimbursement for our product candidates, if approved, and the manner in whichgovernment and private payors may reimburse for any potential products, are uncertain.

        Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly processthat could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. There may be significant delays in obtaining such coverage andreimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or similar regulatory authorities outside of the UnitedStates. Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development,intellectual property, manufacture, sale and distribution expenses. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based onreimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebatesrequired by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices thanin the United States.

        Thereis significant uncertainty related to the insurance coverage and reimbursement of newly approved products. Third-party payors often rely upon Medicare coverage policy and paymentlimitations in setting their own reimbursement policies, but also have their own methods and approval process apart from Medicare coverage and reimbursement determinations. It is difficult to predictat this time what third party payors will decide with respect to the coverage and reimbursement for our product candidates. Our inability to promptly obtain coverage and adequate reimbursement ratesfrom both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed tocommercialize products and our overall financial condition.

        Reimbursementmay impact the demand for, and/or the price of, any product for which we obtain marketing approval. Assuming we obtain coverage for a given product by a third-party payor,the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of theirconditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely to use our productsunless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new productacceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available orsubsequently become available.

        TheU.S. government, state legislatures and foreign governmental entities have shown significant interest in implementing cost containment programs to limit the growth of government-paidhealthcare costs, including price controls, restrictions on reimbursement and coverage and requirements for substitution of generic products for branded prescription drugs.

29

Table of Contents

Adoptionof government controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could exclude or limit our products from coverage and limitpayments for pharmaceuticals.

        Inaddition, we expect that the increased emphasis on managed care and cost containment measures in the U.S. by third-party payors and government authorities to continue and will placepressure on pharmaceutical pricing and coverage. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for oneor more drug products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Failure to attract and retain key personnel could impede our ability to develop our products and to obtainnew collaborations or other sources of funding.

        Because of the specialized scientific nature of our business and the unique properties of our antibody platform, our success is highly dependentupon our ability to attract and retain qualified scientific and technical personnel, consultants and advisors. We depend greatly on our founders Dr. Vu Truong, our Chief Executive Officer,Chief Scientific Officer and a Director, and Dr. Eric Patzer, our Executive Chairman. We will also need to recruit a significant number of additional personnel in order to achieve our operatinggoals and financial reporting obligations. In order to pursue our product development and marketing and sales plans, we will need to hire additional qualified scientific personnel to perform researchand development, as well as personnel with expertise in clinical testing, government regulation, manufacturing, marketing and sales, which may strain our existing managerial, operational, regulatorycompliance, financial and other resources. We also rely on consultants and advisors to assist in formulating our research and development strategy and adhering to complex regulatory requirements. Weface competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities and other research institutions. There can be no assurance that we will be able toattract and retain such individuals on acceptable terms, if at all. The failure to attract and retain qualified personnel, consultants and advisors could have a material adverse effect on ourbusiness, financial condition and results of operations.

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

        Because we have limited financial and managerial resources, we focus on research programs and product candidates for the indications that webelieve are the most scientifically and commercially promising. Our resource allocation decisions may cause us to fail to capitalize on viable scientific or commercial products or profitable marketopportunities. In addition, we may spend valuable time and managerial and financial resources on research programs and product candidates for specific indications that ultimately do not yield anyscientifically or commercially viable products. If we do not accurately evaluate the scientific and commercial potential or target market for a particular product candidate, we may relinquish valuablerights to that product candidate through collaboration, licensing or other royalty arrangements in situations where it would have been more advantageous for us to retain sole rights to development andcommercialization.

30

Table of Contents

Risks Relating to Our Financial Position and Need for Additional Capital

We expect to continue to incur increasing net losses for the foreseeable future, and we may never achieve ormaintain profitability.

        We are a clinical-stage biopharmaceutical company with a limited operating history. Investment in biopharmaceutical product development ishighly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptablesafety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continueto incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception. Forthe year ended December 31, 2017, we reported a net loss of approximately $27.5 million. For the three months ended March 31, 2018, we reported a net loss of approximately $8.2 million.As of March 31, 2018, we had an accumulated deficit of $55.8 million.

        Tobecome and remain profitable, we or our partners must succeed in developing our product candidates, obtaining regulatory approval for them, and manufacturing, marketing and sellingthose products for which we or our partners may obtain regulatory approval. We or they may not succeed in these activities, and we may never generate revenue from product sales that is significantenough to achieve profitability. Because of the numerous risks and uncertainties associated with biopharmaceutical product development and commercialization, we are unable to accurately predict thetiming or amount of future expenses or when, or if, we will be able to achieve or maintain profitability. Currently, we have no products approved for commercial sale, and to date we have not generatedany product revenue. We have financed our operations primarily through the sale of equity securities, upfront payments pursuant to collaborationagreements, government grants and capital lease and equipment financing. The size of our future net losses will depend, in part, on the rate of growth or contraction of our expenses and the level andrate of growth, if any, of our revenues. Our ability to achieve profitability is dependent on our ability, alone or with others, to complete the development of our products successfully, obtain therequired regulatory approvals, manufacture and market our proposed products successfully or have such products manufactured and marketed by others, and gain market acceptance for such products. Therecan be no assurance as to whether or when we will achieve profitability.

Available cash resources may be insufficient to provide for our working capital needs for the next twelvemonths. In the event such cash resources are insufficient to provide for our working capital requirements, we will need to raise additional capital to continue as a going concern.

        Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. The accompanying consolidatedinterim financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities in their normal course of business. We have sufferedrecurring losses from operations since inception and negative cash flows from operating activities during the three months ended March 31, 2018 and years ended December 31, 2017 and2016. We expect to incur additional operating losses in the foreseeable future as we continue our product development programs. Our ability to continue as a going concern will require us to obtainadditional funding. We believe that the net proceeds from this offering, together with our existing cash and cash equivalents and, will allow us to fund

31

Table of Contents

ouroperating plan through at least the next twelve months. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available financialresources much faster than we currently expect and need to raise additional funds sooner than we anticipate. If we are unable to raise capital when needed or on acceptable terms, we would be forced todelay, reduce or eliminate our research and development programs and commercialization efforts.

We will require substantial additional capital in the future. If additional capital is not available, we willhave to delay, reduce or cease operations.

        Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. Development of our productcandidates will require substantial additional funds to conduct research, development and clinical trials necessary to bring such product candidates to market and to establish manufacturing, marketingand distribution capabilities. We expect our development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our clinical programs. Our futurecapital requirements will depend on many factors, including, among others:

•

the scope, rate of progress, results and costs of our preclinical and non-clinical studies, clinical trials and other research and developmentactivities;



•

the scope, rate of progress and costs of our manufacturing development and commercial manufacturing activities;



•

the cost, timing and outcomes of regulatory proceedings, including FDA review of any Biologics License Application, or BLA, or New DrugApplication, or NDA, that we file;



•

payments required with respect to development milestones we achieve under our in-licensing agreements, including any such payments toUniversity of Chicago, University of Iowa, Brigham and Women's Hospital, Inc., Brigham Young University, Public Health Service and Kenta Biotech Ltd.;



•

the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;



•

the costs associated with commercializing our product candidates, if they receive regulatory approval;



•

the cost and timing of establishing sales and marketing capabilities;



•

competing technological efforts and market developments;



•

changes in our existing research relationships;



•

our ability to establish collaborative arrangements to the extent necessary;



•

revenues received from any future products;



•

the ability to achieve and receive milestone payments for products licensed to collaborators; and



•

payments received under any future strategic collaborations.

        Weanticipate that we will continue to generate significant losses for the next several years as we incur expenses to complete our clinical trial programs for our product candidates,build

32

Table of Contents

commercialcapabilities, develop our pipeline and expand our corporate infrastructure. We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, willallow us to fund our operating plan for at least the next twelve months from the date of this prospectus. However, our operating plan may change as a result of factors currently unknown to us.Changing circumstances may cause us to consume capital faster or slower than we currently anticipate or to alter our operations. We have based these estimates on assumptions that may prove to bewrong, and we could utilize our available financial resources sooner than we currently expect.

        Therecan be no assurance that our revenue and expense forecasts will prove to be accurate, and any change in the foregoing assumptions could require us to obtain additional financingearlier than anticipated. There is a risk of delay or failure at any stage of developing a product candidate, and the time required and costs involved in successfully accomplishing our objectivescannot be accurately predicted. Actual drug research and development costs could substantially exceed budgeted amounts, which could force us to delay, reduce the scope of or eliminate one or more ofour research or development programs. Additionally, if the Cystic Fibrosis Foundation does not continue to provide sufficient level of funding support, we may not be able to complete thePhase 1/2a clinical trial relating to AR-501.

        Wemay never be able to generate a sufficient amount of product revenue to cover our expenses. Until we do, we expect to seek additional funding through public or private equity or debtfinancings, collaborative relationships, capital lease transactions or other available financingtransactions. However, there can be no assurance that additional financing will be available on acceptable terms, if at all, and such financings could be dilutive to existing security holders.Moreover, in the event that additional funds are obtained through arrangements with collaborators, such arrangements may require us to relinquish rights to certain of our technologies, productcandidates or products that we would otherwise seek to develop or commercialize ourselves.

        Ifadequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs. Our failure to obtain adequatefinancing when needed and on acceptable terms would have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Manufacturing Activities

We have no experience manufacturing our product candidates at commercial scale, and there can be no assurancethat our product candidates can be manufactured in compliance with regulations at a cost or in quantities necessary to make them commercially viable. There can be no assurance that any contractmanufacturing facilities will be acceptable for licensure by regulatory authorities or that we can contract to build acceptable facilities.

        We have no experience in commercial-scale manufacturing of mAbs. We may develop our manufacturing capacity in part by building manufacturingfacilities. This activity would require substantial additional funds and we would need to hire and train significant numbers of qualified employees to staff these facilities. We may not be able todevelop commercial-scale manufacturing facilities that are adequate to produce materials for additional later-stage clinical trials or commercial use. We currently rely on CMOs for bulk productmanufacturing and sterile fill and finish of our products, and these contractors currently manufacture our product candidates at a scale

33

Table of Contents

thatis not adequate for commercial supply. Failure to find and maintain satisfactory commercial-scale manufacturing contractors could impair our ability to supply product for clinical and commercialneeds. Additionally, we may decide to outsource some or all of our bulk product manufacturing activities to a third party CMO. Failure of any of these contractors to maintain compliance with cGMPs andother regulatory and legal requirements could result in government actions that would limit or eliminate clinical trial and commercial product supply. Under any agreement with a CMO, we would haveless control over the timing and quality of manufacturing than if we were perform such manufacturing ourselves. A CMO would be manufacturing other pharmaceutical products in the same facilities as ourproduct candidates, increasing the risk of cross product contamination. Further, there is no guarantee that any CMO will continue ongoing operations, causing potential delays in product supply,reduced revenues and other liabilities for us.

        Theequipment and facilities employed in the manufacture of pharmaceuticals are subject to stringent qualification requirements by regulatory agencies, including validation of equipment,systems and processes. We may be subject to lengthy delays and expense in conducting validation studies, if we can meet the requirements at all.

        Ifwe are unable to manufacture or contract for a sufficient supply of our product candidates on acceptable terms, or if we encounter delays or difficulties in our manufacturingprocesses or our relationships with other manufacturers, our preclinical and clinical testing schedule would be delayed. This in turn would delay the submission of product candidates for regulatoryapproval and thereby delay the market introduction and subsequent sales of any products that receive regulatory approval, which would have a material adverse effect on our business, financialcondition and results of operations. Furthermore, we or our contract manufacturers must supply all necessary documentation in support of our regulatory approval applications on a timely basis and mustadhere to cGMP regulations enforced by the FDA and other regulatory bodies through their facilities inspection programs. If these facilities cannot pass a pre-approval plant inspection, the approvalby the FDA or other regulatory bodies of the products will not be granted. If the FDA or a comparable foreign regulatory authority does not approve our facilities and processes for the manufacture ofour product candidates or if they withdraw any such approval in the future, we may need to correct the issues or find alternative manufacturing facilities, which would significantly impact our abilityto develop, obtain regulatory approval for or market our product candidates, if approved.

Our contract manufacturers are subject to significant regulation with respect to manufacturing of ourproducts.

        All entities involved in the preparation of a product candidate for clinical trials or commercial sale, including our contract manufacturingorganizations used for bulk product manufacturing and filling and finishing of our bulk product, are subject to extensive regulation. Components of a finished product approved for commercial sale orused in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures, including record keeping, and the implementation andoperation of quality systems to control and assure the quality of investigational products and products approved for sale. The facilities and quality systems of some or all of our third-partycontractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of any regulatory approval of our product candidates. In addition, the regulatoryauthorities may, at any time, audit or inspect

34

Table of Contents

amanufacturing facility involved with the preparation of our product candidates or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Theregulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors or raw material suppliers. If any suchinspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection oraudit, the relevant regulatory authority may require remedial measures that may be costly and time-consuming to implement and that may include the temporary or permanent suspension of a clinical trialor commercial sales or the temporary or permanent closure of a facility. Our third-party contractors or raw material suppliers may refuse to implement remedial measures required by regulatoryauthorities. Any failure to comply with applicable manufacturing regulations or failure to implement required remedial measures imposed upon third parties with whom we contract could materially harmour business.

We rely on relationships with third-party contract manufacturers and raw material suppliers, which limits ourability to control the availability of, and manufacturing costs for, our product candidates.

        Problems with any of our contract manufacturers' or raw material suppliers' facilities or processes, could prevent or delay the production ofadequate supplies of finished products. This could delay clinical trials or delay and reduce commercial sales and materially harm our business. Any prolonged delay or interruption in the operations ofour collaborators' facilities or contract manufacturers' facilities could result in cancellation of shipments, loss of components in the process of being manufactured or a shortfall in availability ofa product candidate or products. A number of factors could cause interruptions, including, but not limited to:

•

the inability of a supplier to provide raw materials;



•

equipment malfunctions or failures at the facilities of our collaborators or suppliers;



•

high process failure rates;



•

damage to facilities due to natural or man-made disasters;



•

changes in regulatory requirements or standards that require modifications to our or our collaborators' and suppliers' manufacturing processes;



•

action by regulatory authorities or by us that results in the halting or slowdown of production of components or finished product at ourfacilities or the facilities of our collaborators or suppliers;



•

problems that delay or prevent manufacturing technology transfer to another facility, contract manufacturer or collaborator with subsequentdelay or inability to start up a commercial facility;



•

a contract manufacturer or supplier going out of business, undergoing a capacity shortfall or otherwise failing to produce product ascontractually required;



•

employee or contractor misconduct or negligence;



•

shipping delays, losses or interruptions; and other similar factors.

35

Table of Contents

        Becausemanufacturing processes are complex and are subject to a lengthy regulatory approval process, alternative qualified production capacity and sufficiently trained or qualifiedpersonnel may not be available on a timely or cost-effective basis or at all. Difficulties or delays in ourcontract manufacturers' production of drug substances could delay our clinical trials, increase our costs, damage our reputation and cause us to lose revenue and market share if we are unable totimely meet market demand for any products that are approved for sale.

        Themanufacturing process for our product candidates has several components that are sourced from a single manufacturer. If we utilize an alternative manufacturer or alternativecomponent, we may be required to demonstrate comparability of the drug product before releasing the product for clinical use and we may not be to find an alternative supplier. For example, thestoppers used to seal the vials of our products are made by a single supplier using a proprietary formula and process. Any change to the stopper would require us to carry out lengthy studies to verifythat our product remains stable with the replacement stopper. The loss of any of our current suppliers could result in manufacturing delays for the component substitution, and we may need to acceptchanges in terms or price from our existing supplier in order to avoid such delays.

        Further,if our contract manufacturers are not in compliance with regulatory requirements at any stage, including post-marketing approval, we may be fined, forced to remove a productfrom the market and/or experience other adverse consequences, including delays, which could materially harm our business.

We use and generate hazardous materials in our business and must comply with environmental laws andregulations, which can be expensive.

        Our research, development and manufacturing involves the controlled use of hazardous materials, chemicals, various active microorganisms andvolatile organic compounds, and we may incur significant costs as a result of the need to comply with numerous laws and regulations. For example, as a pharmacologically-active material, any residualimpurities in process-waste streams must be disposed of as hazardous waste. We are subject to laws and regulations enforced by the FDA, the Drug Enforcement Agency, foreign health authorities andother regulatory requirements, including the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other current and potential federal,state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of our products, materials used to develop and manufacture our product candidates, andresulting waste products. Although we believe that our safety procedures for handling and disposing of such materials, and for killing any unused microorganisms before disposing of them, comply withthe standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, wecould be held liable for any damages that result and any such liability could exceed our resources.

36

Table of Contents

During the course of the product life cycle we will make process changes to scale up manufacturing tocommercial manufacture or transfer the production to alternate sites or contract manufacturers. Our ability to successfully implement these changes will depend on our ability to demonstrate, to thesatisfaction of the FDA and other regulatory agencies that the product made by the new process or at the new site is comparable to the original product.

        In the event that manufacturing process changes are necessary for the further development of a product candidate, we may not be able to reachagreement with regulatory agencies on the criteria for demonstrating comparability to the original product, which would require us to repeat clinical studies performed with the original product. Thiscould result in lengthy delays in implementing the new process or site and consequent delays in regulatory approval and commercial sales of product derived from the new process. If we reach agreementwith regulatory agencies on the criteria for establishing comparability, we may not be able to meet these criteria or may suffer lengthy delays in meeting these criteria. This may result insignificant lost sales due to inability to meet commercial demand with the original product. Furthermore, studies to demonstrate comparability, or any other studies on the new process or site such asvalidation studies, may uncover findings that result in regulatory agencies delaying or refusing to approve the new process or site.

Risks Relating to Our Joint Venture Agreement

If our joint venture with Hepalink is not successful or if we fail to realize the benefits we anticipate fromsuch joint venture, we may not be able to capitalize on the full market potential of our products in China, Hong Kong, Macau and Taiwan.

        On February 11, 2018, we entered into a Joint Venture Contract, or the JV Agreement, with Shenzhen Hepalink PharmaceuticalGroup Co., Ltd., a People's Republic of China company, or Hepalink, pursuant to which we formed a Joint Venture company named Shenzen ArimabBioPharmaceuticals Co., Ltd., or SABC, a People's Republic of China Company, develop, manufacture, import and distribute AR-101 and AR-301 in China, Hong Kong, Macau and Taiwan,collectively, referred to as the Territory. The Joint Venture received regulatory approval in China and SABC was formed on July 2, 2018.

        Hepalinkcontributed the equivalent of $6.0 million in renminbi, the official currency of the People's Republic of China, and owns 51% of the capital of SABC and we contributed(i) $1.0 million in cash and (ii) a license to AR-101 and AR-301 pursuant to a Technology License and Collaboration Agreement between us and SABC and we own 49% of the capital ofSABC. In addition, Hepalink will provide SABC with clinical and regulatory personnel services for clinical and regulatory review, application and filing procedures in the Territory and we will provideclinical and regulatory personnel services to assist in coordination of the execution of the clinical study in China and also with CMC personnel services for drug supply and manufacturing planning.Upon the completion certain milestone events, which could occur as early as January 2019 and includes obtaining approval for a phase III clinical trial in mainland China, Hepalink will beobligated to contribute an equivalent of $9.0 million in renminbi in exchange for additional equity in SABC. If and to the extent these milestone events occur and Hepalink contributesadditional capital to SABC, our 49% ownership stake in SABC will be diminished in proportion to such investment.

37

Table of Contents

        WhileSABC is obligated to use its commercially best efforts to commercialize our products and product candidates in the Territory, we have limited contractual rights to direct itsactivities. Hepalink has the majority of the voting equity in SABC, and has the right to designate three of five board seats. Therefore, Hepalink may have a greater influence in the commercializationefforts and other operations of SABC. In general, our joint venture with Hepalink subjects us to a number of related risks including that:

•

SABC may not commit sufficient resources to the marketing and distribution of our products in the Territory;



•

SABC may infringe the intellectual property rights of third parties, which may expose us to litigation and other potential liability;



•

our contribution of $1.0 million in cash to SABC, as long as we remain a shareholder of SABC, may not be transferred back to us or convertedinto USD and thus, may only be used for goods and services in China;



•

disputes may arise among SABC, Hepalink and us that result in the delay or termination of the commercialization of our products or productcandidates or that result in costly litigation or arbitration that diverts management attention and resources; and



•

SABC may not provide us with timely and accurate information regarding commercialization status or results, which could adversely impact ourability to manage our own commercialization efforts, accurately forecast financial results or provide timely information to our shareholders regarding our commercialization efforts in the Territory.

        Whilewe believe that our board representation, voting rights and other contractual rights with respect to SABC serve to mitigate some of these risks, we may have disagreements with theother directors and Hepalink that could impair our ability to influence SABC to act in a manner that we believe is in the best interests of our company. Upon the completion of certain milestoneevents, Hepalink will become obligated to acquire additional shares of SABC, the proceeds of which would be received by SABC in exchange for newly issued shares. We may not be able to access the fundsfor our own operations.

        Thelaws of the People's Republic of China, which govern SABC's management and operations, may not offer the same protections afforded to minority stockholders under the Delaware GeneralCorporation Law. Consequently, SABC may make business decisions that are not in our best interests as minority equityholders.

Risks Relating to Competitive Factors

We compete in an industry characterized by extensive research and development efforts and rapid technologicalprogress. New discoveries or commercial developments by our competitors could render our potential products obsolete or non-competitive.

        New developments occur and are expected to continue to occur at a rapid pace in our industry, and there can be no assurance that discoveries orcommercial developments by our competitors will not render some or all of our potential products obsolete or non-competitive, which could have a material adverse effect on our business, financialcondition and results of operations. New data from commercial and clinical-stage products continue to emerge and it is

38

Table of Contents

possiblethat these data may alter current standards of care, completely precluding us from further developing our product candidates or preventing us from getting them approved by regulatoryagencies. Further, it is possible that we may initiate a clinical trial or trials for our product candidates, only to find that data from competing products make it impossible for us to completeenrollment in these trials, resulting in our inability to file for marketing approval with regulatory agencies. Even if these products are approved for marketing in a particular indication orindications, they may have limited sales due to particularly intense competition in these markets.

        Weexpect to compete with fully integrated and well-established pharmaceutical and biotechnology companies in the near- and long-term. Most of these companies have substantially greaterfinancial, research and development, manufacturing and marketing experience and resources than we do and represent substantial long-term competition for us. Such companies may succeed in discoveringand developing pharmaceutical products more rapidly than we do or pharmaceutical products that are safer, more effective or less costly than any that we may develop. Such companies also may be moresuccessful than we are in manufacturing, sales and marketing. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceuticaland established biotechnology companies. Academic institutions, governmental agencies and other public and private research organizations also conduct clinical trials, seek patent protection andestablish collaborative arrangements for the development of product candidates.

        Weexpect competition among products will be based on product efficacy and safety, the timing and scope of regulatory approvals, availability of supply, marketing and sales capabilities,reimbursement coverage, price and patent position. There can be no assurance that our competitors will not develop safer and more effective products, commercialize products earlier than we do, orobtain patent protection or intellectual property rights that limit our ability to commercialize our products.

        Therecan be no assurance that our issued patents or pending patent applications, if issued, will not be challenged, invalidated or circumvented or that the rights granted thereunderwill provide us with proprietary protection or a competitive advantage.

Our competitors may develop and market products that are less expensive, more effective, safer or reach themarket sooner than our product candidates, which may diminish or eliminate the commercial success of any products we may commercialize.

        The biopharmaceutical industry is highly competitive. There are many public and private biopharmaceutical companies, public and privateuniversities and research organizations actively engaged in the discovery and research and development of products for infectious disease. Several companies are developing mAbs to treat infections,including Merck & Co., Medimmune, LLC (AstraZeneca), Arsanis, Inc., and Alopexx Enterprises, LLC.

        Thereis no assurance, however, that another company will not discover how to successfully develop these antibodies for competing indications.

        Amongcurrent antimicrobial therapies, antibiotics, particularly those administered by inhalation, can be competitors to our products especially Panaecin for lung infections. TOBI, aninhaled antibiotic (tobramycin) has the longest treatment history, although Cayston (inhaled aztreonam) was recently approved for lung infections in cystic fibrosis patients. There are

39

Table of Contents

antibioticsbeing developed for gram-positive or gram-negative bacterial infections that could impact the use of standard of care antibiotics in hospitals. These therapies could impact both theclinical results and use of our products being developed for hospital acquired pneumonia.

        Manyof our competitors, either alone or with their strategic collaborators, have substantially greater financial, technical and human resources than we do and significantly greaterexperience in the discovery and development of drugs, obtaining FDA and other regulatory approvals, and the commercialization of those products. Accordingly, our competitors may be more successful inobtaining approval for drugs and achieving widespread market acceptance. Our competitors' drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and mayrender our product candidates obsolete or non-competitive before we can recover the significant expenses of developing and commercializing any of our product candidates. We anticipate that we willface intense and increasing competition as new drugs enter the market and advanced technologies become available.

        Wealso compete with other clinical-stage companies and institutions for clinical trial participants, which could reduce our ability to recruit participants for our clinical trials.Delay in recruiting clinical trial participants could adversely affect our ability to bring a product to market prior to our competitors. Further, research and discoveries by others may result inbreakthroughs that render our product candidates obsolete even before they begin to generate any revenue.

        Inaddition, our competitors may obtain patent protection or FDA approval and commercialize products more rapidly than we do, which may impact future sales of any of our productcandidates that receive marketing approval. If the FDA approves the commercial sale of any of our product candidates, we will also be competing with respect to marketing capabilities and manufacturingefficiency, areas in which we have limited or no experience. We expect competition among products will be based on product efficacy and safety, the timing and scope of regulatory approvals,availability of supply, marketing and sales capabilities, product price, reimbursementcoverage by government and private third-party payors, and patent position. Our profitability and financial position will suffer if our products receive regulatory approval, but cannot competeeffectively in the marketplace.

        Ifany of our product candidates are approved and commercialized, we may face competition from biosimilars. The route to market for biosimilars was established with the passage of thePatient Protection and Affordable Care Act, or PPACA, in March 2010, providing 12 years of marketing exclusivity for reference products and an additional six months of exclusivity if pediatricstudies are conducted. In the EU, the EMA has issued guidelines for approving products through an abbreviated pathway, and biosimilars have been approved. If a biosimilar version of one of ourpotential products were approved in the U.S. or EU, it could have a negative effect on sales and gross profits of the potential product and our financial condition.

Even if we achieve market acceptance for our products, we may experience downward pricing pressure on theprice of our drugs because of generic and biosimilar competition and social pressure to lower the cost of drugs.

        Several of the FDA approved products for infectious diseases face patent expiration in the next several years. As a result, generic versions andbiosimilars of these drugs and biologicals may become available. We expect to face competition from these products, including price-based

40

Table of Contents

competition.Pressure from government and private reimbursement groups, plus patient awareness and other social activist groups to reduce drug prices may also put downward pressure on the prices ofdrugs, including our product candidates, if they are commercialized. Also, if a biosimilar to any of our product candidates is approved by regulatory agencies, there will be significant pricingpressure on our products, causing us or our collaborators to reduce the sales price of our products.

Our product candidates may not be accepted in the marketplace; therefore, we may not be able to generatesignificant revenue, if any.

        Even if our product candidates are approved for sale, physicians and the medical community may not ultimately use them or may use them only inapplications more restricted than we expect. Our product candidates, if successfully developed, will compete with a number of traditional products, including antibiotics, and immunotherapiesmanufactured and marketed by major pharmaceutical and other biotechnology companies. Our product candidates will also compete with new products currently under development by such companies andothers. Physicians will prescribe a product only if they determine, based on experience, clinical data, side effect profiles, reimbursement for their patients and other factors, that it is beneficialas compared to other products currently in use. Furthermore, physicians have been prescribing traditional antibiotics for decades and may be resistant to switching to new, less established therapies.Many other factors influence the adoption of new products, including marketing and distribution restrictions, course of treatment, adverse publicity, product pricing, the views of thought leaders inthe medical community and reimbursement by government and private third-party payors.

Risks Relating to our Reliance on Third Parties

We rely on third parties to conduct our preclinical studies and our clinical trials and to store anddistribute our products for the clinical trials we conduct. If these third parties do not perform as contractually required or expected, we may not be able to obtain regulatory approval for ourproduct candidates, or we may be delayed in doing so.

        We often rely on third parties, such as CROs, medical institutions, academic institutions, clinical investigators and contract laboratories, toconduct our preclinical studies and clinical trials. We are responsible for confirming that our preclinical studies are conducted in accordance with applicable regulations and that each of ourclinical trials is conducted in accordance with its general investigational plan and protocol. The FDA requires us to comply with Good Laboratory Practice for conducting and recording the results ofour preclinical studies and Good Clinical Practices, or GCP, for conducting, monitoring, recording and reporting the results ofclinical trials, to ensure that data and reported results are accurate and that the clinical trial participants are adequately protected. Our reliance on third parties does not relieve us of theseresponsibilities. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with GCP, do not adhere toour clinical trial protocols or otherwise fail to generate reliable clinical data, we may need to enter into new arrangements with alternative third parties and our clinical trials may be more costlythan expected or budgeted, extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the product candidate being tested insuch trials.

41

Table of Contents

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

        Ifany of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms.Further, switching or adding additional CROs involves additional costs and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As aresult, delays occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be noassurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

        Inaddition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of our therapeutic candidates. Accordingly, if our CROsfail to complywith these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.

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

We may explore new strategic collaborations that may never materialize or may fail.

        We may, in the future, periodically explore a variety of new strategic collaborations in an effort to gain access to additional productcandidates or resources. At the current time, we cannot predict what form such a strategic collaboration might take. We are likely to face significant competition in seeking appropriate strategiccollaborators, and these strategic collaborations can be complicated and time-consuming to negotiate and document. We may not be able to negotiate strategic collaborations on acceptable terms, or atall. We are unable to predict when, if ever, we will enter into any additional strategic collaborations because of the numerous risks and uncertainties associated with establishing strategiccollaborations.

42

Table of Contents

Risks Relating to our Exposure to Litigation

We are exposed to potential product liability or similar claims, and insurance against these claims may notbe available to us at a reasonable rate in the future.

        Our business exposes us to potential liability risks that are inherent in the testing, manufacturing and marketing of human therapeuticproducts. Clinical trials involve the testing of product candidates on human subjects or volunteers under a research plan, and carry a risk of liability for personal injury or death to patients due tounforeseen adverse side effects, improper administration of the product candidate, or other factors. Many of these patients are already seriously ill and are therefore particularly vulnerable tofurther illness or death.

        OurU.S. clinical trial liability insurance provides for $3 million in coverage with no per occurrence limit below that amount, our Belgium clinical trial liability insuranceprovides for €3.5 million ($4.2 million) in coverage with a limit of €1 million ($1.2 million) per occurrence, our France clinical trialliability insurance provides for €6 million ($7.2 million) in coverage with a limit of €1 million ($1.2 million) per occurrence, our Spainclinical trial liability insurance provides for €2.5 million ($3.0 million) in coverage with a limit of €0.25 million ($0.3 million) peroccurrence and our U.K. clinical trial insurance provides for £5 million ($6.75 million) in coverage with a limit of £5 million ($6.75 million) peroccurrence. However, there can be no assurance that we will be able to maintain such insurance or that the amount of such insurance will be adequate to cover claims. We could be materially andadversely affected if we were required to pay damages or incur defense costs in connection with a claim outside the scope of indemnity or insurance coverage, if the indemnity is not performed orenforced in accordance with its terms, or if our liability exceeds the amount of applicable insurance. In addition, there can be no assurance that insurance will continue to be available on termsacceptable to us, if at all, or that if obtained, the insurance coverage will be sufficient to cover any potential claims or liabilities. Similar risks would exist upon the commercialization ormarketing of any products by us or our collaborators.

        Regardlessof their merit or eventual outcome, product liability claims may result in:

•

decreased demand for our product;



•

injury to our reputation and significant negative media attention;



•

withdrawal of clinical trial volunteers;



•

costs of litigation;



•

distraction of management; and



•

substantial monetary awards to plaintiffs.

        Shouldany of these events occur, it could have a material adverse effect on our business and financial condition.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successfulthird-party claims against us and may reduce the amount of money available to the Company.

        Our certificate of incorporation provides that we will indemnify our directors to the fullest extent permitted by Delaware law.

43

Table of Contents

        In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws provide that:

•

we may, in our discretion, indemnify other officers, employees and agents in those circumstances where indemnification is permitted byapplicable law;



•

we are required to advance expenses, as incurred, to our directors and executive officers in connection with defending a proceeding, exceptthat such directors or executive officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;



•

we will not be obligated pursuant to our bylaws to indemnify any director or executive officer in connection with any proceeding (or partthereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by our Board of Directors, (iii) suchindemnification is provided by us, in our sole discretion, pursuant to the powers vested in the corporation under applicable law or (iv) such indemnification is required to be made pursuant toour amended and restated bylaws;



•

the rights conferred in our 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; and



•

we may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

        Asa result, if we are required to indemnify one or more of our directors or executive officers, it may reduce our available funds to satisfy successful third-party claims against us,may reduce the amount of money available to us and may have a material adverse effect on our business and financial condition.

Risks Relating to Regulation of Our Industry

The biopharmaceutical industry is subject to significant regulation and oversight in theUnited States, in addition to approval of products for sale and marketing. We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, transparency, healthinformation privacy and security laws and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

        Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any future productcandidates we may develop and any product candidates for which we obtain marketing approval. In addition to FDA restrictions on marketing of biopharmaceutical products, we are exposed, directly, orindirectly, through our customers, to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements and relationships throughwhich we would market, sell and distribute our products. The laws that may affect our ability to operate include, but are not limited to:

        Thefederal Anti-Kickback Statute which prohibits any person or entity from, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration,directly or

44

Table of Contents

indirectly,overtly or covertly, in cash or in-kind, to induce or reward either the referring of an individual for, or the purchasing, leasing, ordering or arranging for the purchase, lease or orderof any health care item or service reimbursable, in whole or in part, under Medicare, Medicaid or any other federally financed healthcare program. The term "remuneration" has been broadly interpretedto include anything of value. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on theother hand. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly,and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Our practicesmay not in all cases meet all of the criteria for safe harbor protection from federal Anti-Kickback Statute liability.

        Thefederal false claims and civil monetary penalty laws, including the Federal False Claims Act, which imposes significant penalties and can be enforced by private citizens throughcivil qui tam actions, prohibits any person or entity from, among other things, knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to the federalgovernment, or knowingly making, using or causing to be made, a false statement or record material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to thefederal government. In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FederalFalse Claims Act. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes "any request or demand" for money or property presented to the U.S. government.Further, manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to "cause" the submission of false orfraudulent claims. Criminal prosecution is also possible for making or presenting a false, fictitious or fraudulent claim to the federal government. Several pharmaceutical and other health carecompanies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companieshave been prosecuted for causing false claims to be submitted because of marketing of the product for unapproved, and thus non-reimbursable, uses.

        Thefederal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which, among other things, imposes criminal liability for executing or attempting to execute a schemeto defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminalinvestigation of a healthcare offense, and creates federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false,fictitious or fraudulent statements or representations, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entryin connection with the delivery of or payment for healthcare benefits, items or services.

        HIPAA,as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which impose certain requirementsrelating to the privacy, security, transmission and breach reporting of individually identifiable health information upon entities subject to the law, such as health plans, healthcare clearinghousesand certain healthcare providers and their respective business associates that perform services for

45

Table of Contents

themthat involve individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicableto business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys'fees and costs associated with pursuing federal civil actions.

        Thefederal physician payment transparency requirements, sometimes referred to as the "Physician Payments Sunshine Act," and its implementing regulations, which require certainmanufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children's Health Insurance Program (with certain exceptions) to reportannually to the United States Department of Health and Human Services, or HHS, information related to payments or other transfers of value made to physicians (defined to include doctors,dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

        Stateand foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, that may impose similar or more prohibitive restrictions, and may applyto items or services reimbursed by non-governmental third-party payors, including private insurers.

        Statelaws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant complianceguidance promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other healthcare providers, state and local laws thatrequire the registration of pharmaceutical sales representatives, and other federal, state and foreign laws that govern the privacy and security of health information or personally identifiableinformation in certain circumstances, including state health information privacy and data breach notification laws which govern the collection, use, disclosure, and protection of health-related andother personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus requiring additional compliance efforts.

        Becauseof the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of theselaws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedentand regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number ofinvestigations, prosecutions, convictions and settlements in the healthcare industry.

        Ensuringthat our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly and time consuming. If our operations are found tobe in violation of any of the laws described above or any other governmental regulations that apply tous, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from governmental funded healthcareprograms, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to acorporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affectour ability to operate our business and our results of operations.

46

Table of Contents

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

        We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDAregulations, provide accurate information to the FDA, comply with manufacturing standards we have established, comply with federal and state health-care fraud and abuse laws and regulations, reportfinancial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive lawsand regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing andpromotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinicaltrials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect andprevent misconduct 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 tobe in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business and results of operations, including the imposition of significant civil, criminal, and administrative penalties, damages, fines, disgorgement, individualimprisonment, exclusion from governmental funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additionalreporting obligations and oversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws.

Health care reform measures could adversely affect our business.

        In the United States and foreign jurisdictions, there have been, and continue to be, a number of legislative and regulatory changes andproposed changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S. federal and statelevels that seek to reduce healthcare costs. In 2010, the PPACA was enacted, which includes measures to significantly change the way health care is financed by both governmental and private insurers.Among the provisions of the PPACA of greatest importance to the pharmaceutical and biotechnology industry are the following:

•

an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportionedamong these entities according to their market share in certain government healthcare programs;



•

implementation of the federal physician payment transparency requirements, sometimes referred to as the "Physician Payments Sunshine Act";



•

a licensure framework for follow-on biologic products;



•

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,along with funding for such research;

47

Table of Contents

•

establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services to test innovative payment and servicedelivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending;



•

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, to 23.1% and 13% of the averagemanufacturer price for most branded and generic drugs, respectively and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP;



•

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics,including our product candidates, that are inhaled, infused, instilled, implanted or injected;



•

extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed careorganizations;



•

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additionalindividuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers' Medicaid rebateliability;



•

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (and 70% commencing January 1, 2019)point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's outpatient drugs to be coveredunder Medicare Part D; and



•

expansion of the entities eligible for discounts under the Public Health program.

        Someof the provisions of the PPACA have yet to be implemented, and there have been legal and political challenges to certain aspects of the PPACA. Since January 2017, President Trumphas signed two executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the PPACA. Concurrently, Congress has considered legislation that wouldrepeal or repeal and replace all or part of the PPACA. While Congress has not passed repeal legislation two bills affecting the implementation of certain taxes under the PPACA have been signed intolaw. The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals whofail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the "individual mandate." Additionally, on January 22, 2018, President Trump signed a continuingresolution on appropriations for fiscal year 2018 that delayed the implementation of certain PPACA-mandated fees, including the so-called "Cadillac" tax on certain high cost employer-sponsoredinsurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Actof 2018, or the BBA, among other things, amends the PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the "donut hole." Congress mayconsider other legislation to repeal or replace elements of the PPACA.

        Manyof the details regarding the implementation of the PPACA are yet to be determined, and at this time, the full effect that the PPACA would have on our business remains unclear. In

48

Table of Contents

particular,there is uncertainty surrounding the applicability of the biosimilars provisions under the PPACA to our product candidates. The FDA has issued several guidance documents, and withdrawnothers, but no implementing regulations on biosimilars have been adopted. A number of biosimilar applications have been approved over the past few years. It is not certain that we will receive12 years of biologics marketing exclusivity for any of our products. The regulations that are ultimately promulgated and their implementation are likely to have considerable impact on the waywe conduct our business and may require us to change current strategies. A biosimilar is a biological product that is highly similar to an approved drug notwithstanding minor differences in clinicallyinactive components, and for which there are no clinically meaningful differences between the biological product and the approved drug in terms of the safety, purity, and potency of the product.

        Additionally,there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics.Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing,review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the Trump administration'sbudget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measuresto permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for genericdrugs for low-income patients. Further, the Trump administration released a "Blueprint" to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drugmanufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costsof drug products paid by consumers. HHS has already started the process of soliciting feedback on some of these measures and, at the same, is immediately implementing others under its existingauthority. Although a number of these, and other potential, proposals will require authorization through additional legislation to become effective, Congress and the Trump administration have eachindicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have become increasingly aggressive in passinglegislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certainproduct access, and marketing cost disclosure and transparency measures, and to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts bythird-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition,regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescriptiondrug and other healthcare programs. This could reduce ultimate demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations,financial condition and prospects.

        Morerecently, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 ("Right to Try Act") was signed into law. Thelaw,

49

Table of Contents

amongother things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoinginvestigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expandedaccess program.

        Inaddition, given recent federal and state government initiatives directed at lowering the total cost of healthcare, Congress and state legislatures will likely continue to focus onhealthcare reform, the cost of prescription drugs and biologics and the reform of the Medicare and Medicaid programs. While we cannot predict the full outcome of any such legislation, it may result indecreased reimbursement for drugs and biologics, which may further exacerbate industry-wide pressure to reduce prescription drug prices. This could harm our ability to generate revenues. Increases inimportation or re-importation of pharmaceutical products from foreign countries into the United States could put competitive pressure on our ability to profitably price our products, which, inturn, could adversely affect our business, results of operations, financial condition and prospects. We might elect not to seek approval for or market our products in foreign jurisdictions in order tominimize the risk of re-importation, which could also reduce the revenue we generate from our product sales. It is also possible that other legislative proposals having similar effects will beadopted.

        Furthermore,regulatory authorities' assessment of the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as theemergence of new information, including on other products, changing policies and agency funding, staffing and leadership. We cannot be sure whether future changes to the regulatory environment will befavorable or unfavorable to our business prospects. For example, average review times atthe FDA for marketing approval applications can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes.

Risks Relating to Protecting our Intellectual Property

If we are unable to protect our proprietary rights or to defend against infringement claims, we may not beable to compete effectively or operate profitably.

        Our success will depend, in part, on our ability to obtain patents, operate without infringing the proprietary rights of others and maintaintrade secrets or other proprietary know-how, both in the United States and other countries. Patent matters in the biotechnology and pharmaceutical industries can be highly uncertain, caninvolve changes in laws or regulations, and involve complex legal and factual questions. Accordingly, the issuance, validity, breadth and enforceability of our patents and the existence of potentiallyblocking patent rights of others cannot be predicted with any degree of certainty, either in the United States or in other countries.

        Obtaining,maintaining, and enforcing patents is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain,enforce and/or license patents that may issue based on our patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of ourresearch and development results before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution ofpatent applications, or to maintain the patents, covering technology that we license from or

50

Table of Contents

licenseto third parties and are reliant on our licensors or licensees. Further, although we enter into non-disclosure and confidentiality agreements with parties who have access to patentableaspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants,advisors and other third parties, any of these parties may breach these agreements and disclose such results before a patent application is filed, thereby jeopardizing our ability to seek patentprotection.

        Therecan be no assurance that we will discover or develop patentable products or processes or that patents will issue from any of the currently pending patent applications or thatclaims granted on issued patents will be sufficient to protect our technologies, processes, or adequately cover the actual products we may actually sell. Potential competitors or other researchers inthe field may have filed patent applications, been issued patents, published articles or otherwise created prior art that could restrict or block our efforts to obtain additional patents or act asobstacles to our pending patent applications. There also can be no assurance that our issued patents or pending patent applications, if issued, will not be challenged, invalidated, renderedunenforceable or not infringed, or that the rights granted thereunder will provide us with proprietary protection or competitive advantages. We may not be aware of all third-party intellectualproperty rights potentially relating to our product candidates or their intended uses, and as a result the impact of such third-party intellectual property rights upon the patentability of our ownpatents and patent applications, as well as the impact of such third-party intellectual property upon our freedom to operate, is highly uncertain. Patent applications in the U.S. and otherjurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventionsclaimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability andcommercial value of our patent rights are highly uncertain. Our patents or pending patent applications may be challenged in the courts or patent offices in the U.S. and abroad. For example, we may besubject to a third party pre-issuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in post-grant review procedures, oppositions, derivations, reexaminations,inter partes review or interference proceedings, in the U.S. or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such challenges may result inloss of exclusivity or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar oridentical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing andregulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. The patent position of biopharmaceuticalcompanies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation, resulting in court decisions, including Supreme Courtdecisions, that have increased uncertainties as to the ability to enforce patent rights in the future. In addition, the laws of foreign countries may not protect our rights to the same extent as thelaws of the U.S., or vice versa. Our patent rights also depend on our compliance with technology and patent licenses upon which our patent rights are based and upon the validity of assignments ofpatent rights from consultants and other inventors that were, or are, not employed by us.

51

Table of Contents

        Inaddition, competitors may manufacture and sell our potential products in those foreign countries where we have not filed for patent protection or where patent protection may beunavailable, not obtainable or ultimately not enforceable or meaningful. In addition, even where patent protection is obtained, third-party competitors may challenge our patent claims in the variouspatent offices, for example via opposition in the European Patent Office or reexamination or interference proceedings in the United States Patent and Trademark Office, or USPTO, or find ways todesign around our patents by producing competitive non-infringing alternative products. The ability of such competitors to sell such products in the United States or in foreign countries wherewe have obtained patents is usually governed by the patent laws of the countries in which the product is sold.

        Wewill incur significant ongoing expenses in maintaining our patent portfolio in addition to maintaining other registered intellectual property such as trademarks and copyrights.Maintaining registered intellectual property such as patents and trademarks requires timely filing certain maintenance documents and paying certain maintenance fees, the failure of which could resultin abandonment or cancellation of such registered intellectual property. Should we lack the funds to maintain our patent portfolio or other registered intellectual property, or to enforce our rightsagainst infringers, we could be adversely impacted. Even if we succeed in enforcing one of our patents against a third party in a claim of infringement, any such action could divert the time andattention of management and impair our ability to access additional capital and/or cost us significant funds.

If we cannot meet requirements under our license and sublicense agreements, we could lose the rights to ourproducts, which could have a material adverse effect on our business.

        We depend on licensing and sublicensing agreements with third parties such as the University of Chicago, University of Iowa, Brigham and Women'sHospital, Inc., Brigham Young University, Public Health Service and Kenta Biotech Ltd to maintain the intellectual property rights to certain of our product candidates. These agreements require us tomake payments and satisfy performance obligations in order to maintain our rights under these agreements. All of these agreements last either throughout the life of the patents that are the subject ofthe agreements, or with respect to other licensed technology, for a number of years after the first commercial sale of the relevant product. If we fail to comply with the obligationsunder our license agreements or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and our licensors may have the right to terminate the license.If our license agreements are terminated, we may not be able to develop, manufacture, market or sell the products covered by our agreements and those being tested or approved in combination with suchproducts. Such an occurrence could materially adversely affect the value of the product candidate being developed under any such agreement and any other product candidates being developed or tested incombination.

        Inaddition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us. If we do not meet ourobligations under our license agreements in a timely manner, or use the intellectual property licensed to us in an unauthorized manner, we could be required to pay damages and we could lose the rightsto our proprietary technology if our licensor terminated the license. If our license agreements are terminated, we may not be able to develop, manufacture, market or sell the

52

Table of Contents

productscovered by our agreements and any being tested or approved in combination with such products. Such an occurrence could have a material adverse effect on our business, results of operationsand financial condition.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

        The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations,and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

•

others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that weown or have exclusively licensed;



•

we or our licensors or strategic collaborators might not have been the first to make the inventions covered by the issued patent or pendingpatent application that we own or have exclusively licensed;



•

we or our licensors or strategic collaborators might not have been the first to file patent applications covering certain of our inventions;



•

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectualproperty rights;



•

it is possible that our pending patent applications will not lead to issued patents;



•

issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid orunenforceable, as a result of legal challenges by our competitors;



•

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the informationlearned from such activities to develop competitive products for sale in our major commercial markets;



•

we may not develop additional proprietary technologies that are patentable; and



•

the patents of others may have an adverse effect on our business.

        Shouldany of these events occur, they could significantly harm our business, results of operations and prospects.

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

        Changes in either the patent laws or interpretation of the patent laws in the United States and Ex-US could increase the uncertaintiesand costs. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law in theUnited States on September 16, 2011, could increase those uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issuedpatents. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art andprovide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party

53

Table of Contents

submissionof prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review,inter partes review, and derivation proceedings. After March 2013, under the Leahy-Smith Act, the United States transitioned to a first inventor to file system in which, assuming that the otherstatutory requirements are met, the first inventor to file a patent application will be entitledto the patent on an invention regardless of whether a third party was the first to invent the claimed invention. However, the Leahy-Smith Act and its implementation could increase the uncertaintiesand costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financialcondition, results of operations and prospects.

        TheU.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights ofpatent owners in certain situations. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulationsgoverning patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

We may be subject to litigation with respect to the ownership and use of intellectual property that will becostly to defend or pursue and uncertain in its outcome.

        Our success also will depend, in part, on our refraining from infringing patents or otherwise violating intellectual property owned orcontrolled by others. There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigationor other adversarial proceedings regarding intellectual property rights with respect to our products candidates, including interference proceedings before the U.S. Patent and Trademark Office.Pharmaceutical companies, biotechnology companies, universities, research institutions and others may have filed patent applications or have received, or may obtain, issued patents in theUnited States or elsewhere relating to aspects of our technology, and it may not always be clear to industry participants, including us, which patents cover various types of products or methodsof use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. Third parties may allege that we have infringed or misappropriated theirintellectual property. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevantpatent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requiresa 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 thetime and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficientresources to bring these actions to a successful conclusion.

54

Table of Contents

        Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consumingand, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities.In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to benegative, it could have a substantial adverse effect on the market price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resourcesavailable for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation orproceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature anddeveloped intellectual property portfolios.

        Ifwe are found to infringe a third party's intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing theinfringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing ormarketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could benon-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys' feesif we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, whichcould materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

        Itis uncertain whether the issuance of any third-party patents will require us to alter our products or processes, obtain licenses, if such licenses are available on commerciallyreasonable terms, or cease certain activities completely. Some third-party applications or patents may conflict with our issued patents or pending applications. Any such conflict could result in asignificant reduction of the scope or value of our issued or licensed patents.

        Inaddition, if patents issued to other companies contain blocking, dominating or conflicting claims and such claims are ultimately determined to be valid, we may be required to obtainlicenses to these patents or to develop or obtain alternative non-infringing technology and cease practicing those activities, including potentially manufacturing or selling any products deemed toinfringe those patents. If any licenses are required, there can be no assurance that we will be able to obtain any such licenses on commercially favorable terms, if at all, and if these licenses arenot obtained, we might be prevented from pursuing the development and commercialization of certain of our potential products. Our failure to obtain a license to any technology that we may require tocommercialize our products on favorable terms may have a material adverse impact on our business, financial condition and results of operations.

        Litigation,which could result in substantial costs to us (even if determined in our favor), may also be necessary to enforce any patents issued or licensed to us or to determine thescope and validity of the proprietary rights of others, or to defend against any accusations from third parties

55

Table of Contents

thatour products or activities are infringing their intellectual property rights. The FDA has only recently published draft guidance documents for implementation of the Biologics Price Competitionand Innovation Act, or BPCIA under the PPACA, related to the development of follow-on biologics (biosimilars), and detailed guidance for patent litigation procedures under this act has not yet beenprovided. If another company files for approval to market a competing follow-on biologic, and/or if such approval is given to such a company, we may be required to promptly initiate patent litigationto prevent the marketing of such biosimilar version of our product prior to the normal expiration of the patent. There can be no assurance that our issued or licensed patents would be held valid by acourt of competent jurisdiction or that any follow-on biologic would be found to infringe our patents.

        Inaddition, if our competitors file or have filed patent applications in the United States that claim technology also claimed by us, we may have to participate in interferenceproceedings to determine priority of invention. These proceedings, if initiated by the USPTO, could result in substantial costs to us, even if the eventual outcome is favorable to us. Such proceedingscan be lengthy, are costly to defend and involve complex questions of law and fact, the outcomes of which are difficult to predict. Moreover, we may have to participate in post-grant proceedings orthird-party ex parte or inter partes reexamination proceedings under the USPTO. An adverse outcome withrespect to a third-party claim or in an interference proceeding could subject us to significant liabilities, require us to license disputed rights from third parties, or require us to cease using suchtechnology, any of which could have a material adverse effect on our business, financial condition and results of operations.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, whichcould be expensive, time consuming and unsuccessful.

        Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we maybe required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceivedinfringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable,or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right tostop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent's claims narrowly or decide thatwe donot have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceedinginvolving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and sellingsimilar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademarkinfringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights tothe marks in question. In this case, we could ultimately be forced to cease use of such trademarks.

56

Table of Contents

        Evenif we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be anadequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential informationcould be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analystsor investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficientfinancial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost ofsuch litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

We may rely on trade secret and proprietary know-how which can be difficult to trace and enforce and, if weare unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

        We also rely on trade secrets to protect technology, especially where patent protection is not believed to be appropriate or obtainable or wherepatents have not issued. For example, our manufacturing process involves a number of trade secret steps, processes, and conditions. Trade secrets and know-how can be difficult to protect. We attemptto protect our proprietary technology and processes, in part, with confidentiality agreements and assignment ofinvention agreements with our employees and confidentiality agreements with our consultants and certain contractors. Despite these efforts, any of these parties may breach the agreements and discloseour proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Any disclosure, either intentional or unintentional, by our employees,the employees of third parties with whom we share our facilities or third party consultants and vendors that we engage to perform research, clinical studies or manufacturing activities, ormisappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technologicalachievements, thus eroding our competitive position in our market.

        Enforcinga claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, somecourts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by acompetitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to orindependently developed by a competitor or other third party, our competitive position would be harmed.

        Therecan be no assurance that these agreements are valid and enforceable, will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will nototherwise become known or be independently discovered by competitors. We may fail in certain circumstances to obtain the necessary confidentiality agreements or assignment of invention agreements, ortheir scope or term may not be sufficiently broad to protect our interests or transfer adequate rights to us.

57

Table of Contents

        Ifour trade secrets or other intellectual property become known to our competitors, it could result in a material adverse effect on our business, financial condition and results ofoperations. To the extent that we or our consultants or research collaborators use intellectual property owned by others in work for us, disputes may also arise as to the rights to related orresulting know-how and inventions.

The patent protection and patent prosecution for some of our product candidates is dependent or may bedependent in the future on third parties.

        While we normally seek and gain the right to fully prosecute the patents relating to our product candidates, there may be times when platformtechnology patents or product-specific patents that relate to our product candidates are controlled by our licensors. In addition, our licensors and/or licensees may have back-up rights to prosecutepatent applications in the event that we do not do so or choose not to do so, and our licensees may have the right to assume patent prosecution rights after certain milestones are reached. If any ofour licensing collaborators fails to appropriately prosecute and maintain patent protection for patents covering any of our product candidates, our ability to develop and commercialize those productcandidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.

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

        Patents are of national or regional effect, and filing, prosecuting and defending patents on all of our product candidates throughout the worldwould be prohibitively expensive. As such, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importingproducts made using our inventions in and into the United States or other jurisdictions. Further, the legal systems of certain countries, particularly certain developing countries, do not favorthe enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals or biologics, which could make it difficult for us to stop the infringement of ourpatents or marketing of competing products in violation of our proprietary rights generally. In addition, certain developing countries, including China and India, have compulsory licensing laws underwhich a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors arecompelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce ourintellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequateamount of time.

        Patent rights are of limited duration. Given the amount of time required for the development, testing and regulatory review of new productcandidates, patents protecting such candidates might expire before or shortly after such product candidates are commercialized. Even if patents covering our product candidates are obtained, once thepatent life has expired for a product, we may be open to competition from biosimilar or generic products. A patent term extension based

58

Table of Contents

onregulatory delay may be available in the U.S. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single product. Moreover,the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but instead only to the scope of the product as approved. Laws governinganalogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive anextension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. If we are unable to obtain patentterm extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and ourcompetitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.

We may be subject to claims by third parties asserting that our employees or we have misappropriated theirintellectual property, or claiming ownership of what we regard as our own intellectual property.

        Some of our employees and our licensors' employees, including our senior management, were previously employed at universities or at otherbiotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees may have executed proprietary rights, non-disclosure and non-competitionagreements, or similar agreements, in connection with such previous employment. Although we try to ensure that ouremployees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property,including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition topaying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could berequired to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we aresuccessful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

        Inaddition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning suchintellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, which may result in claims byor against us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectualproperty rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientificpersonnel.

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentsubmissions, 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 on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetimeof the patent. The USPTO and various foreign

59

Table of Contents

governmentalpatent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse canin many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment orlapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submitformal documents. If we fail to maintain the patents and patent applications covering our product candidates, our competitive position would be adversely affected.

Risks Related to Owning our Common Stock

Upon completion of the offering we will be subject to the reporting requirements of federal securities laws,which can be expensive and may divert resources from other projects, thus impairing our ability grow.

        Upon completion of the offering we will be subject to reporting and other obligations under the Securities Exchange Act, of 1934, as amended, orthe Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 requires us to conduct an annual management assessment of the effectiveness of ourinternal controls over financial reporting. These reporting and other obligations place significant demands on our financial resources.

        Itmay be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We will need to hireadditional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply withthe internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping ourfilings with the SEC current and interfere with the ability of investors to trade our securities and for our shares to be listed on any national securities exchange or quoted on the OTCQB.

An active trading market for our common stock may not develop, and you may not be able to sell your commonstock at or above the initial public offering price.

        Prior to the completion of this offering, there has been no public market for our common stock. An active trading market for shares of ourcommon stock may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractiveprice, or at all. The price for our common stock in this offering will be determined by negotiations between us and the underwriters, and it may not be indicative of prices that will prevail in theopen market following this offering. Consequently, you may not be able to sell your common stock at or above the initial public offering price or at any other price or at the time that you would liketo sell. An inactive market may also impair our ability to raise capital by selling our common stock, and it may impair our ability to attract and motivate our employees through equity incentiveawards and our ability to acquire other companies, products or technologies by using our common stock as consideration.

60

Table of Contents

The price of our common stock may fluctuate substantially.

        You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand asignificant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentionedin this "Risk Factors" section and elsewhere in this prospectus, are:

•

sale of our common stock by our stockholders, executives, and directors;



•

volatility and limitations in trading volumes of our shares of common stock;



•

our ability to obtain financings to conduct and complete research and development activities including, but not limited to, our human clinicaltrials, and other business activities;



•

our announcements or our competitors' announcements regarding new products or services, enhancements, significant contracts, acquisitions orstrategic investments;



•

failures to meet external expectations or management guidance;



•

clinical trial progress and outcomes;



•

changes in our capital structure or dividend policy;



•

our cash position;



•

announcements and events surrounding financing efforts, including debt and equity securities;



•

our inability to enter into new markets or develop new products;



•

reputational issues;



•

announcements of acquisitions, partnerships, collaborations, joint ventures, new products, capital commitments, or other events by us or ourcompetitors;



•

changes in general economic, political and market conditions in any of the regions in which we conduct our business;



•

changes in industry conditions or perceptions;



•

changes in valuations of similar companies or groups of companies;



•

analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage;



•

departures and additions of key personnel;



•

disputes and litigations related to contractual obligations;



•

changes in applicable laws, rules, regulations, or accounting practices and other dynamics; or



•

other events or factors, many of which may be out of our control.

        Inaddition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading priceof our

61

Table of Contents

commonstock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may exposeus to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Our management has broad discretion in using the net proceeds from this offering.

        We have stated, in only a general manner, how we intend to use the net proceeds from this offering. See "Use of Proceeds." We cannot, with anyassurance, be more specific at this time. We will have broad discretion in the timing of the expenditures and application of proceeds received in this offering. If we fail to apply the net proceedseffectively, we may not be successful in bringing our proposed products to market. You will not have the opportunity to evaluate all of the economic, financial or other information upon which we maybase our decisions to use the net proceeds from this offering.

Our principal stockholders and management own a significant percentage of our stock and will be able toexercise significant influence over matters subject to stockholder approval.

        As of June 30, 2018, our executive officers, directors and principal security holders, together with their respective affiliates, ownedapproximately 25% of our outstanding securities. Upon completion of the offering (if the underwriters exercise their over-allotment option in full) our executive officers, directors and principalsecurity holders, together with their respective affiliates, will own approximately            % of our outstanding securities. Accordingly, this group of security holders will be able toexert asignificant degree of influence over our management and affairs and over matters requiring security holder approval, including the election of our Board of Directors, future issuances of oursecurities, declaration of dividends and approval of other significant corporate transactions. This concentration of ownership could have the effect of delaying or preventing a change-of-control ofthe Company or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our securities.In addition, this significant concentration of share ownership may adversely affect the trading price for our common stock if investors perceive disadvantages in owning stock in a company with suchconcentrated ownership.

Our ability to use our net operating loss carry-forwards and certain other tax attributes is limited bySections 382 and 383 of the Internal Revenue Code.

        Net operating loss carryforwards allow companies to use past year net operating losses to offset against future years' profits, if any, toreduce future tax liabilities. Sections 382 and 383 of the Internal Revenue Code of 1986 limit a corporation's ability to utilize its net operating loss carryforwards and certain other taxattributes (including research credits) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50% over any rolling three year period.State net operating loss carryforwards (and certain other tax attributes) may be similarly limited. An ownership change can therefore result in significantly greater tax liabilities than a corporationwould incur in the absence of such a change and any increased liabilities could adversely affect the corporation's business, results of operations, financial condition and cash flow.

62

Table of Contents

        Evenif an ownership change has not occurred and does not occur as a result of this offering, ownership changes may occur in the future as a result of additional equity offerings orevents over which we will have little or no control, including purchases and sales of our equity by our five percent security holders, the emergence of new five percent security holders, redemptionsof our securities or certain changes in the ownership of any of our five percent security holders.

U.S. federal income tax reform could adversely affect us.

        On December 22, 2017, President Trump signed into law the "Tax Cuts and Jobs Act," or TCJA, that significantly reforms the InternalRevenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for theexpensing of capital expenditures, a reduction to the maximum deduction allowed for net operating losses generated in tax years after December 31, 2017, and puts into effect the migration froma "worldwide" system of taxation to a partially territorial system. We do not expect tax reform to have a material impact to our projection of minimal cash taxes or to our net operating losses. Ournet deferred tax assetsand liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact will be recognized in our tax expense in the year of enactment. Further, any eligibility we may have or maysomeday have for tax credits associated with the qualified clinical testing expenses arising out of the development of orphan drugs will be reduced to 25% as a result of the TCJA; thus, our nettaxable income may be affected. We continue to examine the impact this tax reform legislation may have on our business. The impact of this tax reform on holders of our common stock is uncertain andcould be adverse. This prospectus does not discuss any such tax legislation or the manner in which it might affect purchasers of our common stock. We urge our stockholders, including purchasers ofcommon stock in this offering, to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.

You will incur immediate dilution as a result of this offering.

        If you purchase common stock in this offering, you will pay more for your shares than the net tangible book value of your shares. As a result,you will incur immediate dilution of $            per share, representing the difference between the assumed initial public offering price of$            per share (the midpoint of the rangeon the cover of this prospectus) and our estimated net tangible book value per share as of December 31, 2017 of $            . Accordingly, should we be liquidated at our book value,youwould not receive the full amount of your investment.

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

        We expect that significant additional capital will be needed in the future to continue our planned operations, including expanding research anddevelopment, funding clinical trials, purchasing of capital equipment, hiring new personnel, commercializing our products, and continuing activities as an operating public company. To the extent weraise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or moretransactions at

63

Table of Contents

pricesand in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted bysubsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to thevalue of our shares.

        We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipatedeclaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price.

We are an "emerging growth company" and will be able to avail ourselves of reduced disclosure requirementsapplicable to emerging growth companies, which could make our common stock less attractive to investors.

        We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to takeadvantage 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 withthe 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 stockholder approval of any golden parachute payments not previously approved. In addition,Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, forcomplying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply toprivate companies. We are electing to delay such adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates onwhich adoption of such standards is required fornon-emerging growth companies. As a result of such election, our financial statements may not be comparable to the financial statements of other public companies. We cannot predict if investors willfind 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 ourcommon 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 growthcompany" until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal yearfollowing the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previousthree years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.

64

Table of Contents

Because we have elected to defer compliance with new or revised accounting standards, our financial statementdisclosure may not be comparable to similar companies.

        We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) ofthe JOBS Act. This allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to privatecompanies. As a result of our election, our financial statements may not be comparable to companies that comply with public company effective dates.

        Becauseof this extended transition period, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may beunable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raiseadditional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

We may be at risk of securities class action litigation.

        We may be at risk of securities class action litigation. This risk is especially relevant for us due to our dependence on positive clinicaltrial outcomes and regulatory approvals of each of our product candidates. In the past, biotechnology and pharmaceutical companies have experienced significant stock price volatility, particularlywhen associated with binary events such as clinical trials and product approvals. If we face such litigation, it could result in substantial costs and a diversion of management's attention andresources, which could harm our business and results in a decline in the market price of our common stock.

Our management will be required to devote substantial time to compliance initiatives.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a newly formed entity. TheSarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and The Nasdaq Capital Market, have imposed various new requirements on public companies, including requiring establishment andmaintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to thesenew compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. We expect theserules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same orsimilar coverage.

There is no guarantee that our common stock will be listed on The Nasdaq Capital Market.

        We have applied to have our shares of common stock listed on The Nasdaq Capital Market. Upon completion of this offering, we believe that wewill satisfy the listing requirements and expect that our common stock will be listed on The Nasdaq Capital Market. Such listing, however, is not guaranteed. If the application is not approved, wewill seek to have our common stock quoted on the OTCQB. Even if such listing is approved, there can be no assurance any broker will

65

Table of Contents

beinterested in trading our common stock. Therefore, it may be difficult to sell any shares you purchase in this offering if you desire or need to sell them. Neither we nor the underwriters canprovide any assurance that an active and liquid trading market in our common stock will develop or, if developed, that the market will continue.

Even if we are successful in listing our common stock on The Nasdaq Capital Market, our common stock may bedelisted if we fail to comply with continued listing standards.

        If we fail to meet any of the continued listing standards of The Nasdaq Capital Market, our common stock could be delisted from The NasdaqCapital Market. These continued listing standards include specifically enumerated criteria, such as:

•

a $1.00 minimum closing bid price;



•

stockholders' equity of $2.5 million;



•

500,000 shares of publicly-held common stock with a market value of at least $1 million;



•

300 round-lot stockholders; and



•

compliance with Nasdaq's corporate governance requirements, as well as additional or more stringent criteria that may be applied in theexercise of Nasdaq's discretionary authority.

        Ifwe fail to comply with Nasdaq's continued listing standards, we may be delisted and our common stock will trade, if at all, only on the over-the-counter market, such as the OTCBulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our common stock could depress ourstock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Finally, delisting of our common stockcould result in our common stock becoming a "penny stock" under the Exchange Act.

Upon our dissolution, you may not recoup all or any portion of your investment.

        In the event of a liquidation, dissolution or winding-up of us, whether voluntary or involuntary, the proceeds and/or our assets may not besufficient to repay the aggregate initial public offering price you paid for shares purchased in this offering. In this event, you could lose some or all of your investment.

We have identified certain material weaknesses in our internal control over financial reporting. Failure tomaintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock. If our internal controls are not effective, we maynot be able to accurately report our financial results or prevent fraud.

        Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. In connectionwith the preparation of our financial statements for the year ended December 31, 2017 and 2016, we concluded that there were material weaknesses in our internal control over financialreporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that amaterial misstatement of the annual or interim

66

Table of Contents

financialstatements will not be prevented or detected on a timely basis. We have identified certain material weaknesses in our internal controls resultingfrom:

•

one individual having almost complete responsibility for the processing of financial information; and



•

our finance department not having adequate staff to process in a timely manner complex, non-routine transactions.

        Whilewe have designed and implemented, or expect to implement, measures that we believe address or will address these control weaknesses, we continue to develop our internal controls,processes and reporting systems by, among other things, hiring qualified personnel with expertise to perform specific functions, implementing software systems to manage our revenue and expenses and toallow us to budget, undertaking multi-year financial planning and analyses and designing and implementing improved processes and internal controls, including ongoing senior management review and auditcommittee oversight. Upon completion of this offering we plan to begin measures to remediate the identified material weakness by hiring financial consultants and expect to hire additional senioraccounting staff to complete the remediation by the end of 2018. We expect to incur additional costs to remediate these weaknesses, primarily personnel costs and external consulting fees. We may notbe successful in implementing these systems or in developing other internal controls, which may undermine our ability to provide accurate, timely and reliable reports on our financial and operatingresults. Further, we will not be able to fully assess whether the steps we are taking will remediate the material weaknesses in our internal control over financial reporting until we have completedour implementation efforts and sufficient time passes in order to evaluate their effectiveness. In addition, if we identify additional material weaknesses in our internal control over financialreporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Moreover, in the future we may engage in business transactions, such as acquisitions,reorganizations or implementation of new information systems that could negatively affect our internal control over financial reporting and result in material weaknesses.

        Ourmanagement and independent registered public accounting firm did not perform an evaluation of our internal control over financial reporting during any period in accordance with theprovisions of the Sarbanes-Oxley Act. Had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with theprovisions of the Sarbanes-Oxley Act, additional control deficiencies amounting to material weaknesses may have been identified. If we identify new material weaknesses in our internal control overfinancial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to assert that our internal control overfinancial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, wemay be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could benegatively affected. As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities,and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business.

67

Table of Contents

Financial reporting obligations of being a public company in the United States are expensive andtime-consuming, and our management will be required to devote substantial time to compliance matters.

        As a publicly traded company we will incur significant additional legal, accounting and other expenses that we did not incur as a privatelyheld, company. The obligations of being a public company in the United States require significant expenditures and will place significant demands on our management and other personnel,including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations regarding corporategovernance practices, including those under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and thelisting requirements of the stock exchange on which our securities are listed. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures,internal control over financial reporting and changes in corporate governance practices, among many other complex rules that are often difficult to implement, monitor and maintain compliance with.Moreover, despite recent reforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some activities more time-consuming and costly, particularly after we arenolonger an "emerging growth company." In addition, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. Ourmanagement and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, otherwise we may fall outof compliance and risk becoming subject to litigation or being delisted, among other potential problems.

68

Table of Contents

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance onthese forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in our"Prospectus Summary," "Use of Proceeds," "Risk Factors," "Management Discussion and Analysis of Financial Condition and Result of Operations," and "Business" sections. In some cases, you can identifythese forward-looking statements by terms such as "anticipate," "believe," "continue," "could," "depends," "estimate," "expects," "intend," "may," "ongoing," "plan," "potential," "predict," "project,""should," "will,""would" or the negative of those terms or other similar expressions, although not all forward-looking statements contain those words.

        Ouroperations and business prospects are always subject to risks and uncertainties including, among others:

•

the timing of regulatory submissions;



•

our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, andthe labeling under any approval we may obtain;



•

approvals for clinical trials may be delayed or withheld by regulatory agencies;



•

preclinical and clinical studies will not be successful or confirm earlier results or meet expectations or meet regulatory requirements or meetperformance thresholds for commercial success;



•

risks relating to the timing and costs of clinical trials, the timing and costs of other expenses;



•

risks associated with obtaining funding from third parties;



•

management and employee operations and execution risks;



•

loss of key personnel;



•

competition;



•

risks related to market acceptance of products;



•

intellectual property risks;



•

assumptions regarding the size of the available market, benefits of our products, product pricing, timing of product launches;



•

risks associated with the uncertainty of future financial results;



•

risks associated with this offering;



•

our ability to attract collaborators and partners; and



•

risks associated with our reliance on third party organizations.

        Theforward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views tochange. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law.You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

69

Table of Contents

INDUSTRY AND MARKET DATA

        This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size andgrowth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studiesconducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that aresubject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions andestimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee theaccuracy or completeness of such information. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified byany independent source.

70

Table of Contents

USE OF PROCEEDS

        We estimate that the net proceeds from our issuance and sale of            shares of our common stock in this offering willbe approximately $             million, assuming an initial public offering price of $            per share, which is themidpoint of the range listed on the cover page of thisprospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, weestimate that the net proceeds from this offering will be approximately $             million.

        Weintend to use the net proceeds to fund our planned clinical trials, manufacturing and process development, analytical testing, regulatory expenses and for general corporate purposes,including working capital. We intend to use the net proceeds from this offering as follows:

•

Approximately $            for the planned Phase 3 pivotal trial evaluating AR-301 for the treatment of HAP and VAP associated with S. aureus infection.



•

Approximately $            for the ongoing Phase 2 trial evaluating AR-105 for the treatment of HAP and VAPassociated with P. aeruginosa infection.



•

Approximately $            for the manufacturing of clinical supplies of AR-101 for use in the planned Phase 2/3pivotal trial evaluatingAR-101 for the treatment of HAP and VAP associated with P. aeruginosa infection.



•

Approximately $            for the manufacturing of clinical supplies of AR-105 for use in the planned Phase 3clinical trial.



•

The remainder for general corporate purposes, including working capital and regulatory expenses.

        Weexpect that the application of the proceeds to each of the activities as described above will be sufficient to complete such activities, but there can be no guarantee that we will notrequire additional funds to complete the activities or that, even if we do receive additional funds, that we will be able to complete the trials at all. Please see "Risk Factors —Risks Relating to Clinical Development and Commercialization of Our Product Candidates."

        Inthe ordinary course of our business, we expect to from time to time evaluate the acquisition of, investment in or in-license of complementary products, technologies or businesses, andwe could use a portion of the net proceeds from this offering for such activities. We currently do not have any agreements, arrangements or commitments with respect to any potential acquisition,investment or license.

        Thisexpected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures mayvary significantly depending on numerous factors, including the status of and results from clinical trials of our product candidates. As a result, our management will retain broad discretion over theallocation of the net proceeds from this offering. We may find it necessary or advisable to use thenet proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. Furthermore, we anticipate that we will need to secureadditional funding for the further development of our product candidates or commercially launch our product candidates in the United States.

        Pendingour use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade,interest-bearing instruments and U.S. government securities.

71

Table of Contents

DIVIDEND POLICY

        We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on ourcommon stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividendswill be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions,restrictions imposed by applicable law and other factors our board of directors deems relevant.

72

Table of Contents

CAPITALIZATION

        The following table sets forth our cash and cash equivalents and capitalization as of March 31,2018:

•

on an actual basis;



•

on a pro forma basis to give effect to (i) the automatic conversion of all outstanding shares of our Series A convertiblepreferred stock into an aggregate of 36,196,193 shares of our common stock and (ii) the automatic conversion of all outstanding preferred stock warrants into warrants to purchase8,725,289 shares of our common stock, including the resultant reclassification of our preferred stock warrant liability to additional paid-in capital, a component of total stockholders' equityin connection with such conversion, upon the closing of this offering; and



•

on a pro forma, as adjusted basis to give effect to (i) the pro forma adjustments set forth above and (ii) the issuance and saleof            shares of common stock in this offering assuming an initial offering public offering price of $            per share(the midpoint of the range set forth on the cover page ofthis prospectus), after deducting the estimated underwriting discounts and commissions and our estimated offering expenses.

73

Table of Contents

        Thenumber of shares of our common stock that will be outstanding after this offering is based on 37,263,883 shares of our common stock outstanding as of June 30, 2018, andexcludes:

•

4,942,873 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as ofJune 30, 2018, with a weighted-average exercise price of $1.82 per share;



•

3,897,482 shares of our common stock issuable upon the exercise of warrants to purchase common stock outstanding as of June 30, 2018,with a weighted-average exercise price of $2.73 per share;



•

8,725,289 shares of our common stock issuable upon the exercise of warrants to purchase Series A convertible preferred stock outstandingas of June 30, 2018 with a weighted average exercise price of $2.26 per share; and



•

359,445 shares of our common stock reserved for future issuance under our 2014 Equity Incentive Plan, or the 2014 Plan.

74

Table of Contents

DILUTION

        If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initialpublic offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Dilution results from the factthat the initial public offering price per share is substantially in excess of the book value per share attributable to the existing stockholders for the presently outstanding stock. As ofMarch 31, 2018, our pro forma net tangiblebook value was $15,694,000, or $0.42 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by37,263,883, the number of shares of common stock outstanding at March 31, 2018, after giving effect to (i) the automatic conversion of all outstanding shares of our Series Aconvertible preferred stock into an aggregate 36,196,193 shares of common stock and (ii) the automatic conversion of all outstanding preferred stock warrants into warrants to purchase8,725,289 shares of our common stock, including the resultant reclassification of our preferred stock warrant liability to additional paid-in capital, a component of total stockholders' equityin connection with such conversion, upon the closing of this offering

        Aftergiving effect to the pro forma adjustments set forth above and the sale of shares of our common stock in this offering, assuming an initial public offering price of$            per share, the mid-point of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimatedofferingexpenses payable by us, our pro forma, as adjusted net tangible book value as of December 31, 2017 would have been $             million, or$            per share. This amountrepresents an immediate increase in pro forma, as adjusted net tangible book value of $            per share to our existing stockholders and an immediate dilution in pro forma, as adjustednettangible book value of approximately $            per share to new investors purchasing shares of our common stock in this offering. We determine dilution by subtracting the pro forma, asadjustednet tangible book value per share after the offering from the amount of cash that a new investor paid for a share of common stock.

        Thefollowing table illustrates this dilution on a per share basis:

        Ifthe underwriters exercise their option to purchase additional shares in full, the pro forma, as adjusted net tangible book value per share after giving effect to the offering would be$            per share. This represents an increase in pro forma, as adjusted net tangible book value of $            per share toexisting stockholders and dilution in pro forma, as adjustednet tangible book value of $            per share to new investors.

75

Table of Contents

        A$1.00 increase (decrease) in the assumed initial public offering price of $            , the midpoint of the range set forth on the cover page of this prospectus, would increase(decrease) our pro forma, as adjusted net tangible book value after this offering by $             million and the pro forma, as adjusted net tangible book value per share after thisoffering by $            per share and would increase (decrease) the dilution per share to new investors in this offering by$            per share, assuming the number of shares offered byus, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1.0 millionshares in the number of shares of common stock offered by us would increase (decrease) the dilution per share to new investors in this offering by $            per share, assuming no changein theassumed initial public offering price, as set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions. The information discussed above isillustrative only and may change based on the actual initial public offering price and other terms of the offering determined at pricing.

        Thefollowing table summarizes, on the pro forma as adjusted basis described above, the total number of shares of common stock purchased from us, the total consideration paid or to bepaid, and the average price per share paid or to be paid by existing shareholders and by new investors in this offering at an assumed initial public offering price of $            per share,whichis the midpoint of the range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us: