Tobira Therapeutics
Tobira Therapeutics, Inc. (Form: 10-Q, Received: 05/09/2016 16:45:45)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended March 31, 2016

OR

o

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

For the transition period from          to         

Commission File Number: 001-35953

 

TOBIRA THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

03-0422069

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

701 Gateway Blvd., Suite 300

South San Francisco, CA

94080

(Address of principal executive offices)

(Zip Code)

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

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨  

 

  

Accelerated filer

x

 

 

 

 

 

 

Non-accelerated filer

¨

  (Do not check if a small reporting company)

  

Small reporting company

¨

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

As of May 2, 2016, there were 18,815,689 shares of the Registrant’s common stock outstanding.

 

 

 



Table of Contents

 

Corporate Information

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

Forward-Looking Statements

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

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

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

 


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T able of Contents

 

 

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

4

 

 

Condensed Balance Sheets as of March 31, 2016 and December 31, 2015

 

4

 

 

Condensed Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2016 and 2015

 

5

 

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015

 

6

 

 

Notes to Condensed Financial Statements

 

7

Item 2.

 

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

 

16

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

22

Item 4.

 

Controls and Procedures

 

23

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

24

Item 1A.

 

Risk Factors

 

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

Item 3.

 

Defaults Upon Senior Securities

 

51

Item 4.

 

Mine Safety Disclosures

 

51

Item 5.

 

Other Information

 

51

Item 6.

 

Exhibits

 

51

 

 

Signatures

 

52

 

 

Exhibit Index

 

53

 

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PART I FINANCI AL INFORMATION

Item 1. Financial Statements (Unaudited)

TOBIRA THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

March 31,

2016

 

 

December 31,

2015

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,339

 

 

$

62,431

 

Prepaid expenses and other current assets

 

 

1,164

 

 

 

802

 

Total current assets

 

 

53,503

 

 

 

63,233

 

Property and equipment, net

 

 

371

 

 

 

400

 

Restricted cash

 

 

334

 

 

 

334

 

Other assets

 

 

1,618

 

 

 

1,441

 

Total assets

 

$

55,826

 

 

$

65,408

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,769

 

 

$

3,089

 

Accrued expenses and other liabilities

 

 

4,985

 

 

 

4,263

 

Capital lease obligations

 

 

24

 

 

 

23

 

Deferred rent

 

 

54

 

 

 

48

 

Term loan

 

 

1,109

 

 

 

 

Total current liabilities

 

 

9,941

 

 

 

7,423

 

Capital lease obligations

 

 

11

 

 

 

17

 

Deferred rent

 

 

166

 

 

 

184

 

Term loan

 

 

13,970

 

 

 

15,013

 

Total liabilities

 

 

24,088

 

 

 

22,637

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, par value of $0.001 per share; 1,000,000 shares authorized and no

   shares issued and outstanding as of March 31, 2016 and December 31, 2015

 

 

 

 

 

 

Common stock, par value of $0.001 per share; 500,000,000 shares authorized and

   18,815,689 shares issued and outstanding as of March 31, 2016 and December 31, 2015

 

 

19

 

 

 

19

 

Additional paid-in capital

 

 

207,317

 

 

 

206,129

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

Accumulated deficit

 

 

(175,598

)

 

 

(163,377

)

Total stockholders’ equity

 

 

31,738

 

 

 

42,771

 

Total liabilities and stockholders’ equity

 

$

55,826

 

 

$

65,408

 

See accompanying notes to unaudited condensed financial statements.

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TOBIRA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Collaboration revenue

 

$

107

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

8,679

 

 

 

5,671

 

General and administrative

 

 

3,341

 

 

 

2,152

 

Total operating expenses

 

 

12,020

 

 

 

7,823

 

Loss from operations

 

 

(11,913

)

 

 

(7,823

)

Other income (expense), net:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(308

)

 

 

(1,245

)

Change in fair value of preferred stock warrant liabilities

 

 

 

 

 

2,036

 

Net loss and comprehensive loss

 

$

(12,221

)

 

$

(7,032

)

Net loss per share, basic and diluted

 

$

(0.65

)

 

$

(17.43

)

Weighted-average common shares outstanding,

   basic and diluted

 

 

18,815,689

 

 

 

403,539

 

See accompanying notes to unaudited condensed financial statements.

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TOBIRA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(12,221

)

 

$

(7,032

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,188

 

 

 

230

 

Depreciation and amortization

 

 

30

 

 

 

30

 

Amortization of debt discount

 

 

66

 

 

 

237

 

Amortization of beneficial conversion feature

 

 

 

 

 

24

 

Noncash interest expense on convertible notes

 

 

 

 

 

721

 

Change in fair value of preferred stock warrant liabilities

 

 

 

 

 

(2,036

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(540

)

 

 

769

 

Accounts payable and accrued expenses

 

 

1,403

 

 

 

1,093

 

Deferred rent

 

 

(12

)

 

 

(10

)

Net cash used in operating activities

 

 

(10,086

)

 

 

(5,974

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

 

 

 

(22

)

Net cash used in investing activities

 

 

 

 

 

(22

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from convertible notes, related party

 

 

 

 

 

13,000

 

Payments on capital lease obligations

 

 

(6

)

 

 

(5

)

Net cash provided by (used in) financing activities

 

 

(6

)

 

 

12,995

 

Net increase (decrease) in cash and cash equivalents

 

 

(10,092

)

 

 

6,999

 

Cash and cash equivalents at beginning of period

 

 

62,431

 

 

 

6,178

 

Cash and cash equivalents at end of period

 

$

52,339

 

 

$

13,177

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

262

 

 

$

262

 

Noncash activities:

 

 

 

 

 

 

 

 

Financing costs in accrued expenses

 

$

 

 

$

38

 

See accompanying notes to unaudited condensed financial statements.

 

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TOBIRA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

 

1.

DESCRIPTION OF BUSINESS

Tobira Therapeutics, Inc., or Tobira or the Company, is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies to treat liver disease, inflammation, fibrosis and HIV. The Company’s lead product candidate, cenicriviroc, or CVC, is an immunomodulatory and dual inhibitor of CCR2 and CCR5 being evaluated for the treatment of non-alcoholic steatohepatitis, or NASH, primary sclerosing cholangitis, or PSC, and as an adjunctive therapy to standard of care in HIV. The Company’s products also include evogliptin, or EVO, a DPP-4 inhibitor, which the Company plans to develop for NASH in combination with CVC. The Company operates in one reportable segment in the United States of America.

The Company, or Tobira, as used in the accompanying notes to the unaudited condensed financial statements, refers to Private Tobira prior to the completion of the Merger and Public Tobira subsequent to the completion of the Merger. See the note “Reverse Merger” in the accompanying notes to the condensed financial statements.

 

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed financial statements were prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X set forth by the Securities and Exchange Commission, or the SEC, for interim reporting.  As permitted under these rules, certain footnotes or other financial information normally required by GAAP may be condensed or omitted. These financial statements were prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments including normal and recurring adjustments which the Company considers necessary for the fair presentation of financial information. These financial statements do not include all information required under GAAP for a complete set of financial statements. The condensed results of operations and comprehensive loss for the three months ended March 31, 2016 are not necessarily indicative of expected results for the full fiscal year or any other period. The condensed results of operations and comprehensive loss and the condensed statement of cash flows for the three months ended March 31, 2015 were derived from unaudited interim financial statements filed on Form 8-K/A on June 2, 2015. The condensed balance sheet as of December 31, 2015 was derived from the Company’s audited financial statements filed on Form 10-K on March 3, 2016.

The accompanying unaudited condensed financial statements and notes should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2015 included in the Company’s Form 10-K filed on March 3, 2016. There have been no significant and material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2016, except where described in the Company’s significant accounting policies below.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make informed estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes as of the date of the financial statements. The most significant estimates in the Company’s financial statements include stock-based compensation, completeness of clinical trial accruals and income taxes. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable. Actual results may be materially different from those estimates.

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Collaboration Revenue

Revenue consists of amounts earned from collaboration agreements, as discussed in the note “Collaboration Agreement” in the accompanying notes to the condensed financial statements. The Company may enter into license and collaborative research and development agreements with pharmaceutical and biotechnology partners that may involve multiple deliverables. The Company’s agreements may include one or more of the following elements: upfront license payments, cost reimbursement for the performance of research and development activities, milestone payments, other contingent payments, contract manufacturing service fees, royalties and license fees. Each deliverable in an agreement is evaluated to determine whether it meets the criteria to be accounted for as a separate unit of accounting or whether it should be combined with other deliverables. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within an agreement and evaluates which deliverables represent separate units of accounting. Analyzing an arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The Company recognizes revenue when there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Non-refundable upfront fees received for license and collaborative agreements entered into and other payments under collaboration agreements where the Company has continuing performance obligations related to the payments are deferred and recognized over the estimated performance period. Revenue is recognized on a ratable basis, unless the Company determines that another method is more appropriate, through the date at which the Company’s performance obligations are completed. Management makes its best estimate of the period over which the Company expects to fulfill its performance obligations, which may include clinical development activities. Given the uncertainties of research and development collaborations, significant judgment is required to determine the duration of the performance period. The Company recognizes cost reimbursement revenue under collaborative agreements as related research and development costs are incurred, as provided for under the terms of these agreements.

Research and Development Expenses

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

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

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

Stock-Based Compensation Expense

For stock options granted to employees, the Company recognizes compensation expense for all stock-based awards based on the grant date estimated fair value. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period. The fair value of stock options is determined using the Black-Scholes option pricing model net of estimated forfeitures. The determination of fair value for stock-based awards on the date of grant using an option pricing model requires management to make certain assumptions regarding subjective variables.

Stock-based compensation expense related to stock options granted to non-employees is recognized based on the fair value of the stock options, determined using the Black-Scholes option pricing model, as the options are vested. The awards generally vest over the time period the Company expects to receive services from non-employees. Stock options granted to non-employees are subject to periodic revaluation over their vesting terms.

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Net Loss Per Share

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. The calculation of diluted loss per share also requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of such securities are dilutive to earnings (loss) per share for the period, adjustments to net income or net loss used in the calculation are required to remove the change in fair value of the warrants for the period. Likewise, adjustments to the denominator are required to reflect the related dilutive shares. For purposes of the diluted net loss per share calculation, convertible preferred stock, convertible notes and accrued interest, stock options and preferred stock warrants are considered to be potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share was the same for the periods presented due to the Company’s net loss position.

The following table sets forth the outstanding potentially dilutive securities, as adjusted retroactively to reflect the exchange for Regado shares in connection with the Merger which have been excluded in the calculation of diluted net loss per share because including such would be anti-dilutive (in common stock equivalent shares):

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Common stock options

 

 

3,284,327

 

 

 

1,110,744

 

Warrants to purchase common stock

 

 

64,657

 

 

 

 

Warrants to purchase preferred stock

 

 

 

 

 

901,987

 

Convertible preferred stock

 

 

 

 

 

5,644,539

 

Convertible notes

 

 

 

 

 

4,722,064

 

Total

 

 

3,348,984

 

 

 

12,379,334

 

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2016-09, Compensation — Stock Compensation (Topic 718) , which simplifies several aspects of accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The requirements will be effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted in any interim or annual period. The Company expects to adopt the new standard in the first quarter of 2017.

In February 2016, the FASB issued ASU, No. 2016-02, Leases (Topic 842) , which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The requirements will be effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of the guidance on its financial statements.

In November 2015, the FASB issued ASU, No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes , which requires deferred tax assets and liabilities to be classified as noncurrent amounts on the Company’s balance sheet. The requirements will be effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The amendments may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company adopted this guidance retrospectively as of December 31, 2015. As of March 31, 2016 and December 31, 2015, the Company established a full valuation allowance on its net deferred tax assets and did not have any amounts outstanding.

In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs , which amends the presentation of debt issuance costs as a direct deduction from the face amount of a liability rather than an asset. Amortization of debt issuance costs is to be reported as interest expense. Additionally, amortization of a discount or premium is to be reported as interest expense in the case of liabilities or interest income in the case of assets. The requirements are effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted, and the new guidance shall be applied retrospectively to comparative balance sheets presented. The Company adopted this guidance for its 2016 fiscal year and retrospectively adjusted its December 31, 2015 balances in the accompanying Condensed Balance Sheet. The reclassification of debt issuance costs did not have a material impact on the accompanying financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , which requires management to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events,

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considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and provide related disclosures. Th e requirements are effective for the annual period ending after December  15, 2016 and for annual and interim periods thereafter . Early adoption is permitted. The Company does not expect this standard to have a material impact on its annual financial statements .

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Areas of revenue recognition impacted included, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. The requirements are effective for annual and interim periods beginning after December 15, 2016, and the Company may adopt the new standard under the full retrospective method or the modified retrospective method. Early adoption is not permitted. In August 2015, the FASB issued ASU, No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which defers the effective date of ASU 2014-09 by one year. As a result, the requirements are effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted only as of annual and interim periods beginning after December 15, 2016. The Company is evaluating the impact on its financial statements.

In March 2016, the FASB issued ASU, No. 2016-08, Revenue from Contracts with Customers (Topic 606) , which clarifies the implementation guidance on principal versus agent considerations provided in ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The effective date and transition requirements for the amendments of the update are the same as those in ASU 2014-09.

3.

REVERSE MERGER

Pro Forma Results in connection with Merger

The Company completed its Merger with Regado on May 4, 2015. Based on terms of the Merger Agreement dated January 14, 2015 and amended on January 23, 2015, Private Tobira was deemed the acquiring company for accounting purposes, and the transaction was accounted for as a reverse acquisition under the acquisition method of accounting for business combinations in accordance with GAAP. Accordingly, the assets and liabilities of Regado were recorded at estimated fair value as of the Merger closing date. Operating expenses attributable to the former Regado business activities after the Merger were $0.4 million for the three months ended March 31, 2016.

The unaudited financial information in the following table summarizes the combined results of operations of the Company and Regado, on a pro forma basis (in thousands, except per share data):

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Net loss attributable to stockholders

 

$

(12,221

)

 

$

(13,518

)

Net loss attributable to preferred stockholders

 

$

 

 

$

(200

)

Net loss attributable to common stockholders,

   basic and diluted

 

$

(12,221

)

 

$

(13,318

)

Net loss per share, basic and diluted

 

$

(0.65

)

 

$

(0.90

)

 

The above unaudited pro forma information was determined based on historical GAAP results of Tobira and Regado. The unaudited pro forma combined results are not necessarily indicative of what the Company’s combined results of operations would have been if the acquisition was completed on January 1, 2015, which represents the first day applicable to present financial information on a pro forma basis. The unaudited pro forma combined net loss includes pro forma adjustments primarily relating to the following non-recurring items directly attributable to the business combination:

 

 

·

Elimination of transaction costs of $0 and $2.6 million for the three months ended March 31, 2016 and 2015, respectively;

 

·

Elimination of interest expense of $0 and $0.9 million for the three months ended March 31, 2016 and 2015, respectively, related to the conversion of Private Tobira’s convertible notes in connection with the Merger; and

 

·

Elimination of the change in fair value of preferred stock warrant liabilities of $0 and $2.0 million of income for the three months ended March 31, 2016 and 2015, respectively, to reflect 1) the net exercise and cancellation of warrants issued in connection with the convertible notes payable and 2) the conversion of the Oxford Finance LLC, Square 1, and Comerica warrants from warrants on preferred stock to warrants on common stock eliminating the terms that caused the preferred stock warrants to be classified as a liability.

 

 

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4 .

FAIR VALUE MEASUREMENTS  

The following tables and disclosure present information about the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

 

 

 

March 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

50,443

 

 

$

 

 

$

 

 

$

50,443

 

Total

 

$

50,443

 

 

$

 

 

$

 

 

$

50,443

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

60,743

 

 

$

 

 

$

 

 

$

60,743

 

Total

 

$

60,743

 

 

$

 

 

$

 

 

$

60,743

 

 

The carrying amounts of the Company’s financial instruments, including cash, restricted cash, accounts receivable, deposits, accounts payable, and accrued expenses and other liabilities, approximate fair value due to their short maturities. The Company’s lease obligations and term loan have fair values that approximate their carrying value based on prevailing borrowing rates available to the Company for instruments with similar terms.

None of the Company’s non-financial assets or liabilities is recorded at fair value on a non-recurring basis for the periods presented. There were no transfers between levels within the fair value hierarchy during the periods presented.

The following table provides a reconciliation of liabilities measured at fair value using Level 3 significant unobservable inputs (in thousands) for the three months ended March 31, 2016 and the year ended December 31, 2015:

 

 

 

March 31,

2016

 

 

December 31,

2015

 

Balance, beginning of period

 

$

 

 

$

2,460

 

Reclassification of preferred stock warrant liability to

   additional paid-in capital upon conversion to common stock

 

 

 

 

 

(521

)

Change in fair value of preferred stock warrant liabilities (1)

 

 

 

 

 

(1,939

)

Balance, end of period

 

$

 

 

$

 

 

(1)

Changes in fair value of the preferred stock warrant liabilities were recorded in other income (expense), net on the accompanying Statement of Operations and Comprehensive Loss.

 

 

5.

RESTRICTED CASH

The Company held restricted cash of $0.3 million as of March 31, 2016 and December 31, 2015 consisting of a cash secured letter of credit required by the landlord associated with the May 2014 headquarters lease.

 

 

6.

ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (in thousands):

 

 

 

March 31,

2016

 

 

December 31,

2015

 

Clinical trial expenses

 

$

2,769

 

 

$

2,082

 

Research and development

 

 

962

 

 

 

538

 

Compensation expense

 

 

567

 

 

 

1,182

 

Professional services and other expenses

 

 

687

 

 

 

461

 

Total accrued expenses and other liabilities

 

$

4,985

 

 

$

4,263

 

 

 

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7.

DEBT AND WARRANTS  

Oxford Finance Term Loan

On June 30, 2014, and as amended on May 5, 2015 to address the Merger, and as amended on August 10, 2015, the Company entered into an aggregate $15.0 million, five year term loan with Oxford Finance LLC, or the Oxford Loan. The Oxford Loan bears interest at a fixed rate of 6.954% per annum with interest only payments through December 31, 2016 followed by 30 equal monthly payments of principal and interest until maturity at June 1, 2019. At the time of final payment, the Company is required to pay an exit fee of approximately 5.0% of the original principal balance of the Oxford Loan, which the Company recorded as a liability and debt discount at the origination of the term loan. In addition, the Company incurred loan origination fees and debt issuance costs of $0.2 million which are recorded as a debt discount.

In connection with the Oxford Loan, the Company granted a security interest in all of its assets, except intellectual property, provided that a judicial authority could require the Company’s intellectual property to be part of the collateral package to the extent necessary to satisfy repayment if the Company’s other secured assets are insufficient. The Oxford Loan restricts the Company from issuing dividends and contains customary affirmative and negative covenants. As of March 31, 2016, the Company was in compliance with all loan covenants.

The Company is permitted to make voluntary prepayments of the Oxford Loan with a prepayment fee, calculated as of the loan origination date, equal to (i) 3.0% of the loan prepaid during the first 12 months, (ii) 2.0% of the loan prepaid in months 13-24 and (iii) 1.0% of the loan thereafter. The Company is required to make mandatory prepayments of the outstanding loan upon the acceleration by the lenders following the occurrence of an event of default, along with a payment of the final payment, the prepayment fee and any other obligations that are due and payable at the time of prepayment.

The Company evaluated the Oxford Loan in accordance with accounting guidance for derivatives and determined there was de minimis value to the identified derivative features at issuance and at subsequent reporting periods through March 31, 2016.

The Company accounts for the debt discount utilizing the effective interest method. The Company recorded interest expense and amortization of the debt discount of $0.3 million and $0.3 million for the three months ended March 31, 2016 and 2015, respectively.

Long-term debt and unamortized discount balances are as follows (in thousands):

 

 

 

March 31,

2016

 

 

December 31,

2015

 

Face value of term loan

 

$

15,000

 

 

$

15,000

 

Exit fee

 

 

755

 

 

 

755

 

Unamortized debt discount associated with exit fee, debt

   issuance costs, warrants and loan origination fees

 

 

(676

)

 

 

(742

)

Term loan, net

 

$

15,079

 

 

$

15,013

 

 

As of March 31, 2016, future minimum payments under the Oxford Loan were as follows (in thousands):

 

 

Year ending December 31,

 

 

 

 

2016 (remaining nine months)

 

$

782

 

2017

 

 

6,554

 

2018

 

 

6,554

 

2019

 

 

4,031

 

Total future minimum payments

 

 

17,921

 

Less: unamortized interest

 

 

(2,166

)

Less: exit fee

 

 

(755

)

Present value of loan payments

 

$

15,000

 

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Warrants

The Company had the following shares of common stock warrants outstanding as of March 31, 2016:

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

 

 

 

 

Outstanding as of

 

 

 

 

 

Per Share Exercise

 

 

March 31,

 

Issuance Date

 

Expiration Date

 

Price

 

 

2016

 

November 2011

 

November 2018

 

$

10.14

 

 

 

11,835

 

May 2013

 

May 2023

 

$

108.18

 

 

 

1,039

 

June 2014

 

June 2021

 

$

10.14

 

 

 

51,783

 

 

 

 

 

 

 

 

 

 

64,657

 

 

8 .

STOCK-BASED COMPENSATION EXPENSE

The following table summarizes stock option activity during the three months ended March 31, 2016:

 

 

 

Number of

Options

 

 

Weighted-

Average

Exercise

Price Per Share

 

 

Weighted-

Average

Remaining

Contractual

Life

(in Years)

 

 

Weighted-

Average

Grant

Date Fair

Value

 

Outstanding as of December 31, 2015

 

 

2,369,847

 

 

$

13.99

 

 

 

8.28

 

 

 

 

 

Granted

 

 

945,480

 

 

$

7.91

 

 

 

 

 

 

$

5.88

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Canceled

 

 

(31,000

)

 

$

13.46

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2016

 

 

3,284,327

 

 

$

12.23

 

 

 

8.52

 

 

 

 

 

Vested and expected to vest as of March 31, 2016

 

 

3,183,159

 

 

$

12.31

 

 

 

8.24

 

 

 

 

 

Vested and exercisable as of March 31, 2016

 

 

1,260,974

 

 

$

16.35

 

 

 

7.39

 

 

 

 

 

 

As of March 31, 2016 and December 31, 2015, the total intrinsic value of vested and exercisable options was $2.5 million and $3.8 million, respectively.

Stock-based compensation expense related to options granted was recorded as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Research and development

 

$

312

 

 

$

33

 

General and administrative

 

 

876

 

 

 

197

 

Total

 

$

1,188

 

 

$

230

 

 

 

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9 .

COMMITMENTS AND CONTINGENCIES  

Legal Proceedings

On February 2, 2015, a purported stockholder of Regado filed a putative class-action lawsuit (captioned Maiman v. Regado Biosciences, Inc. , C.A. No. 10606-CB) in the Court of Chancery for the State of Delaware, or the Court, challenging the proposed stock-for-stock merger of Regado with Tobira, or the Proposed Merger. On February 25, 2015, a second, related putative class action (captioned Gilboa v. Regado Biosciences, Inc. , C.A. No. 10720-CB) was filed in the Court challenging the Proposed Merger. On May 4, 2015, the Proposed Merger was consummated and Tobira became a wholly-owned subsidiary of Regado and changed its name to Tobira Development, Inc. The complaints named as defendants: (i) each member of Regado’s Board of Directors, (ii) Regado, (iii) Private Tobira, and (iv) Landmark Merger Sub Inc. Plaintiffs alleged that Regado’s directors breached their fiduciary duties to Regado’s stockholders by, among other things, (a) agreeing to merge Regado with Private Tobira for inadequate consideration, (b) implementing a process that was distorted by conflicts of interest, and (c) agreeing to certain provisions of the Merger Agreement that are alleged to favor Private Tobira and deter alternative bids. Plaintiffs also generally alleged that the entity defendants aided and abetted the purported breaches of fiduciary duty by the directors. On March 25, 2015, the Court consolidated the two actions and assigned lead counsel for plaintiffs (captioned In re Regado Biosciences, Inc. Stockholder Litigation , Consolidated C.A. No. 10606-CB). On March 27, 2015, plaintiffs filed a consolidated amended complaint, a motion for expedited proceedings and a motion for preliminary injunction. On April 20, 2015, the parties agreed in principle to resolve the litigation (subject to approval by the Court) and signed a memorandum of understanding setting forth the terms of a proposed settlement to provide additional disclosures related to the Merger Agreement and to cover Court-awarded fees. On April 23, 2015, as part of the proposed settlement, Regado provided additional disclosures to its stockholders. On May 4, 2015, Regado and Private Tobira completed the Merger. In connection with the proposed settlement, the parties engaged in confirmatory discovery. On April 22, 2016, the parties filed with the Court a Stipulation and Agreement of Compromise, Settlement and Release, or the Stipulation, which provides for a release of all claims against defendants related to any disclosures concerning the Merger and any fiduciary duty claims concerning the decision to enter into the Merger. In addition, the Stipulation of Settlement provides that the Company or its insurer(s) or successor(s) in interest will be responsible for payment of, and will not oppose, any award of attorneys’ fees and expenses to plaintiffs up to $0.3 million which the Company recognized as an accrued expense in its accompanying Condensed Balance Sheet as of March 31, 2016. The settlement as set forth in the Stipulation and any award of attorneys’ fees and expenses are subject to approval by the Court, which has set a settlement hearing for July 27, 2016 at 2:00 p.m.

 

1 0 .

COLLABORATION AGREEMENT

Novartis AG

On February 17, 2016, the Company entered into an Agreement for Supply of Materials and Terms of Materials Transfer with Novartis AG, or the Novartis Collaboration. Under the terms of this agreement, Novartis AG, or Novartis, will provide investigational materials to the Company to be studied in combination with the Company’s CVC in preclinical studies. The Company is responsible for the conduct of the study with associated expenses to be reimbursed by Novartis, as incurred. The Company recognized collaboration revenue of $0.1 million during the three months ended March 31, 2016 and recorded a receivable included in prepaid expenses and other current assets of $0.1 million as of March 31, 2016 in the accompanying condensed financial statements.

 

11. SUBSEQUENT EVENT

On April 11, 2016, the Company entered into two separate license agreements with Dong-A ST Co., Ltd, or Dong-A, pursuant to which (a) the Company obtained an exclusive license in the United States, Canada, European Union states, Switzerland and Australia, or the Territory, for the development and commercialization of EVO for all therapeutic indications, or the Evogliptin License Agreement and (b) Dong-A received an exclusive license to develop and market the Company’s CVC for all therapeutic indications in the Republic of Korea, or the CVC License Agreement, and, together with the Evogliptin License Agreement, the License Agreements.

Pursuant to the Evogliptin License Agreement, the Company agreed to pay to Dong-A an upfront cash payment of $1.5 million, and may be required to pay up to $25 million to Dong-A linked to the achievement of certain development and regulatory milestones for the first therapeutic indication and up to $10 million for each additional therapeutic indications in the United States and Europe.  Dong-A is also eligible to receive up to an additional $35 million based upon the Company’s achievement of certain commercial milestones.  Further, once a licensed product is approved, the Company will be required to make tiered royalty payments in the high single to low double-digits to Dong-A based on net sales of such licensed product in the Territory. Dong-A will be the exclusive supplier of EVO for the Company’s clinical studies and commercial distribution.

Pursuant to the CVC License Agreement, Tobira will receive an upfront cash payment of $0.5 million from Dong-A and is eligible to receive up to an additional $2.5 million in payments linked to the achievement of milestones similar to those in the Evogliptin License Agreement for the first therapeutic indication and $0.5 million for each additional therapeutic indication in the Republic of Korea.

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Further, once a licensed product is approved, Dong-A will be required to make tiered double digit royalty payments to the Company based on net sales of such licensed product in the Republic of Korea.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and accompanying notes included elsewhere in this report and our audited financial statements and accompanying notes for the year ended December 31, 2015 filed on Form 10-K on March 3, 2016. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” included elsewhere in this report.

ABOUT TOBIRA THERAPEUTICS

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of therapies to treat liver disease, inflammation, fibrosis and HIV. Our lead product candidate, cenicriviroc, or CVC, is a first-in-class immunomodulator and dual inhibitor of CCR2 and CCR5 being evaluated for the treatment of non-alcoholic steatohepatitis, or NASH, primary sclerosing cholangitis, or PSC, and as an adjunctive therapy to standard of care in HIV . Our products also include evogliptin, or EVO, a DPP-4 inhibitor, which we plan to develop for NASH in combination with CVC. We operate in one reportable segment in the United States of America.

Collaboration Agreement

Novartis AG

On February 17, 2016, we entered into an Agreement for Supply of Materials and Terms of Materials Transfer with Novartis AG, or the Novartis Collaboration. Under the terms of this agreement, Novartis AG, or Novartis, will provide investigational materials to us to be studied in combination with CVC in preclinical studies. We are responsible for the conduct of the study with associated expenses to be reimbursed by Novartis, as incurred. We recognized collaboration revenue of $0.1 million during the three months ended March 31, 2016 and recorded a receivable included in prepaid expenses and other current assets of $0.1 million as of March 31, 2016 in the accompanying condensed financial statements.

BASIS OF PRESENTATION

Collaboration Revenue

Revenue consists of amounts earned from the Novartis Collaboration.

Research and Development Expenses

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

Our research and development expenses consist primarily of:

 

·

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

 

·

licensing costs;

 

·

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

 

·

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

 

·

expenses related to preclinical studies;

 

·

expenses related to compliance with drug development regulatory requirements; and

 

·

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

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We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we conduct our clinical program s . Product candidates in later sta ges of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Our research and development expenses increased in th e three month period ended March 31, 2016 as compared to the same period in 2015 , and we expect that our research and development expenses will continue to increase in the future. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate is affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. Ac cordingly, we may never succeed in achieving marketing approval for any of our product candidates.

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

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Phase 2b CENTAUR study

 

$

2,236

 

 

$

3,617

 

Other clinical studies (1)

 

 

2,813

 

 

 

738

 

Preclinical studies

 

 

694

 

 

 

99

 

Contract manufacturing

 

 

1,164

 

 

 

270

 

Internal and unallocated research and development expenses

 

 

1,772

 

 

 

947

 

Total research and development expense

 

$

8,679

 

 

$

5,671

 

(1)

Other clinical studies primarily reflect expenditures for Phase 3 enabling studies, the Phase 2a ORION study, the Phase 2 PERSEUS study and a Phase 1 pioglitazone safety combination study.

General and Administrative Expenses

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

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

Other Income (Expense), Net

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

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

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

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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

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There have been no significant and material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2016 since we filed our Form 10-K for the year ended December 31, 2015 except related to collaboration rev enue as described below . We expect to continue to evaluate our revenue recognition policy as we may enter into additional collaboration and/or license agreements in future periods.

Collaboration Revenue

Revenue consists of amounts earned from collaboration agreements. We may enter into license and collaborative research and development agreements with pharmaceutical and biotechnology partners that may involve multiple deliverables. Our agreements may include one or more of the following elements: upfront license payments, cost reimbursement for the performance of research and development activities, milestone payments, other contingent payments, contract manufacturing service fees, royalties and license fees. Each deliverable in an agreement is evaluated to determine whether it meets the criteria to be accounted for as a separate unit of accounting or whether it should be combined with other deliverables. In order to account for the multiple-element arrangements, we identify the deliverables included within an agreement and evaluate which deliverables represent separate units of accounting. Analyzing an arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. We recognize revenue when there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Non-refundable upfront fees received for license and collaborative agreements entered into and other payments under collaboration agreements where we have continuing performance obligations related to the payments are deferred and recognized over the estimated performance period. Revenue is recognized on a ratable basis, unless we determine that another method is more appropriate, through the date at which our performance obligations are completed. We make our best estimate of the period over which we expect to fulfill our performance obligations, which may include clinical development activities. Given the uncertainties of research and development collaborations, significant judgment is required to determine the duration of the performance period. We recognize cost reimbursement revenue under collaborative agreements as related research and development costs are incurred, as provided for under the terms of these agreements.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2016 and 2015

The following table provides comparative unaudited results of operations for the three months ended March 31, 2016 and 2015 (in thousands):

 

 

 

Three Months Ended

 

 

 

 

 

 

 

March 31,

 

 

Increase/

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

Collaboration revenue

 

$

107

 

 

$

 

 

$

107

 

Research and development

 

 

8,679

 

 

 

5,671

 

 

 

3,008

 

General and administrative

 

 

3,341

 

 

 

2,152

 

 

 

1,189

 

Other income (expense), net

 

 

(308

)

 

 

791

 

 

 

(1,099

)

Collaboration Revenue

Our collaboration revenue was $0.1 million for the three months ended March 31, 2016 related to the Novartis Collaboration executed with Novartis in February 2016.

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Research and Development Expenses

Our research and development expenses were $8.7 million for the three months ended March 31, 2016 compared to $5.7 million for the three months ended March 31, 2015. Research and development expenses increased in the 2016 period primarily due to $1.8 million of increased clinical expenses for our Phase 3 enabling studies, $0.9 million of manufacturing expenses associated with clinical production, $0.7 million in compensation related expenses for increased headcount, benefits and consulting, $0.5 million in preclinical combination and reproductive studies, $0.5 million for our Phase 2a ORION study which commenced during 2015, $0.4 million for our Phase 2 PERSEUS study for study initiation and screening activities and $0.1 million for expenses associated with our collaboration with Novartis. These increases were offset by decreases of $1.4 million for our Phase 2b CENTAUR study as the three months ended March 31, 2015 represented significant study initiation and patient screening expenses and $0.7 million due to the completion of our Phase 1 pioglitazone safety combination study during 2015. We expect our research and development expenses to increase over time as we advance our programs for CVC.

General and Administrative Expenses

Our general and administrative expenses were $3.3 million for the three months ended March 31, 2016 compared to $2.2 million for the three months ended March 31, 2015. General and administrative expenses increased in the 2016 period primarily due to $1.1 million of increased expenses consisting of salaries, benefits and overhead as a result of increased headcount, $0.3 million of litigation settlement expenses related to the Merger, $0.3 million of directors and officers insurance and investor relations expenses which are reflective of our growth as a public company and $0.2 million of legal services for general corporate and business development purposes. These increases were offset by a decrease of $0.8 million for transaction expenses incurred during the three months ended March 31, 2015 in preparation for our Merger with Regado consisting primarily of legal and accounting services. We believe general and administrative expenses may increase over time as we advance our programs and expand our operating activities.

Other Income (Expense), Net

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

Interest Expense, Net

Net interest expense was $0.3 million for the three months ended March 31, 2016 compared with $1.2 million for the same period in 2015.  The decrease was primarily driven by $0.9 million in interest expense on our convertible notes recorded in the three months ended March 31, 2015 as a result of their conversion to equity in connection with the Merger on May 4, 2015.

Change in Fair Value of Preferred Stock Warrant Liabilities

There were no preferred stock warrant liabilities outstanding during the three months ended March 31, 2016. The change in fair value of preferred stock warrant liabilities for the three months ended March 31, 2015 resulted in an increase in other income (expense), net of $2.0 million.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have incurred net losses and negative cash flows from our operations. We incurred net losses of $12.2 million and $7.0 million for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, we had an accumulated deficit of $175.6 million.

As of March 31, 2016, we had cash and cash equivalents including restricted cash of $52.7 million. To date, our operations have been financed primarily by net proceeds from the sale of preferred and common stock, the Merger with Regado, issuance of convertible promissory notes, and the issuance of senior term loans. We believe our cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months.

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

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

Cash Flows

The following table provides a summary of our net cash flow activity (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Net cash used in operating activities

 

$

(10,086

)

 

$

(5,974

)

Net cash used in investing activities

 

 

 

 

 

(22

)

Net cash provided by (used in) financing activities

 

 

(6

)

 

 

12,995

 

Net increase (decrease) in cash and cash equivalents

 

 

(10,092

)

 

 

6,999

 

Cash Used in Operating Activities

Cash used in operating activities was $10.1 million for the three months ended March 31, 2016 reflecting a net loss of $12.2 million offset by non-cash items consisting primarily of stock-based compensation expense of $1.2 million and amortization of debt discount of $0.1 million. Additionally, cash used in operating activities reflected an increase from net operating assets of $0.9 million primarily due to an increase in our accounts payable and accrued expenses and an increase in our prepaid expenses that are both primarily associated with initiation of our PSC and DDI studies.

Cash used in operating activities was $6.0 million for the three months ended March 31, 2015 reflecting a net loss of $7.0 million offset by non-cash items consisting of interest expense on convertible notes of $0.7 million, amortization of debt discount associated with the fair value of preferred stock warrants of $0.2 million, stock-based compensation of $0.2 million and a decrease in the fair value of warrant liabilities of $2.0 million. Additionally, cash used in operating activities reflected an increase from net operating assets of $1.9 million primarily due to an increase in accounts payable and accrued expenses related to costs incurred for the Phase 2b CENTAUR study offset by payment of our 2014 annual performance bonuses and an increase in prepayment of expenses supporting the Phase 2b CENTAUR study.

Cash Used in Investing Activities

There were no significant investing activities for the three months ended March 31, 2016 and 2015.

Cash Provided by (Used in) Financing Activities

There were no significant financing activities for the three months ended March 31, 2016.

Cash provided by financing activities for the three months ended March 31, 2015 was $13.0 million primarily reflecting net proceeds from the issuance of convertible notes which subsequently were converted to common stock in connection with the Merger.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Contractual Arrangements

No significant changes to our contractual obligations and commitments occurred during the three months ended March 31, 2016.

On April 11, 2016, we entered into two separate license agreements with Dong-A ST Co., Ltd., or Dong-A, pursuant to which (a) we obtained an exclusive license in the United States, Canada, European Union states, Switzerland and Australia, or the Territory, for the development and commercialization of evogliptin for all therapeutic indications, or the Evogliptin License Agreement and (b) Dong-A received an exclusive license to develop and market CVC for all therapeutic indications in the Republic of Korea, or the CVC License Agreement, and, together with the Evogliptin License Agreement, the License Agreements.

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Pursuant to the Evogliptin License Agreement, we agreed to pay to Dong-A an upfront cash payment of $ 1.5 million .   Pursuant to the CVC License Agreement, we will receive an upfront cash payment of $ 0.5 million from Dong-A .  See the note “Subsequent Event” in our accompanying notes to the unaudited condensed financial statements located elsewhere in this report.

Oxford Finance Term Loan

On June 30, 2014, and as amended on May 5, 2015 to address the Merger and August 10, 2015, we entered into the Oxford Loan for $15.0 million. The Oxford Loan bears interest at a fixed rate of 6.954% per annum with interest only payments through December 31, 2016 followed by 30 equal monthly payments of principal and interest until maturity at June 1, 2019. At the time of final payment, we are required to pay an exit fee of approximately 5.0% of the original principal balance of the Oxford Loan. In addition, we issued Oxford warrants to purchase an aggregate of 51,783 shares of common stock at an exercise price of $10.14 per share, subject to adjustment for stock splits, recapitalizations and certain other events. The warrants are exercisable for seven years from the date of issuance. We granted a security interest in all of its assets, except intellectual property.

The Oxford Loan restricts us from issuing dividends and contains customary affirmative and negative covenants. As of March 31, 2016, we were in compliance with all loan covenants.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

 

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Item 3. Quantitative and Qualitati ve Disclosures About Market Risk

Interest Rate Risk

Our cash and cash equivalents as of March 31, 2016 consisted of readily available checking and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on Tobira’s financial condition and/or results of operations. We do not believe that our cash or cash equivalents has significant risk of default or illiquidity. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future its investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.

Effects of Inflation

Inflation generally affects us with increased cost of labor and clinical trial costs. We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.

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Item 4. Controls and Procedures

Definition and limitations of disclosure controls

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluates these controls and procedures on an ongoing basis.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints. In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.

Evaluation of disclosure controls and procedures

Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures, believe that as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing the requisite reasonable assurance that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding the required disclosure.

Changes in internal control over financial reporting

There has been no change in our internal control over financial reporting identified in connection with our evaluation that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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PART II — OTHE R INFORMAT ION

Item 1. Legal Proceedings

On February 2, 2015, a purported stockholder of Regado filed a putative class-action lawsuit (captioned Maiman v. Regado Biosciences, Inc. , C.A. No. 10606-CB) in the Court of Chancery for the State of Delaware, or the Court, challenging the proposed stock-for-stock merger of Regado with Tobira, or the Proposed Merger. On February 25, 2015, a second, related putative class action (captioned Gilboa v. Regado Biosciences, Inc. , C.A. No. 10720-CB) was filed in the Court challenging the Proposed Merger. On May 4, 2015, the Proposed Merger was consummated and Tobira became a wholly-owned subsidiary of Regado and changed its name to Tobira Development, Inc. The complaints named as defendants: (i) each member of Regado’s Board of Directors, (ii) Regado, (iii) Private Tobira, and (iv) Landmark Merger Sub Inc. Plaintiffs alleged that Regado’s directors breached their fiduciary duties to Regado’s stockholders by, among other things, (a) agreeing to merge Regado with Private Tobira for inadequate consideration, (b) implementing a process that was distorted by conflicts of interest, and (c) agreeing to certain provisions of the Merger Agreement that are alleged to favor Private Tobira and deter alternative bids. Plaintiffs also generally alleged that the entity defendants aided and abetted the purported breaches of fiduciary duty by the directors. On March 25, 2015, the Court consolidated the two actions and assigned lead counsel for plaintiffs (captioned In re Regado Biosciences, Inc. Stockholder Litigation , Consolidated C.A. No. 10606-CB). On March 27, 2015, plaintiffs filed a consolidated amended complaint, a motion for expedited proceedings and a motion for preliminary injunction. On April 20, 2015, the parties agreed in principle to resolve the litigation (subject to approval by the Court) and signed a memorandum of understanding setting forth the terms of a proposed settlement to provide additional disclosures related to the Merger Agreement and to cover Court-awarded fees. On April 23, 2015, as part of the proposed settlement, Regado provided additional disclosures to its stockholders. On May 4, 2015, Regado and Private Tobira completed the Merger. In connection with the proposed settlement, the parties engaged in confirmatory discovery. On April 22, 2016, the parties filed with the Court a Stipulation and Agreement of Compromise, Settlement and Release, or the Stipulation, which provides for a release of all claims against defendants related to any disclosures concerning the Merger and any fiduciary duty claims concerning the decision to enter into the Merger. In addition, the Stipulation of Settlement provides that the Company or its insurer(s) or successor(s) in interest will be responsible for payment of, and will not oppose, any award of attorneys’ fees and expenses to plaintiffs up to $0.3 million which the Company recognized as an accrued expense in its accompanying Condensed Balance Sheet as of March 31, 2016. The settlement as set forth in the Stipulation and any award of attorneys’ fees and expenses are subject to approval by the Court, which has set a settlement hearing for July 27, 2016 at 2:00 p.m.

From time to time, we may be involved in other legal proceedings and subject to claims incident to the ordinary course of business. Although the results of such legal proceedings and claims cannot be predicted with certainty, we believe we are not currently a party to any legal proceedings, other than as set forth above, the outcome of which, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial position. Regardless of the outcome, such proceedings can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.

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Item 1A. Ri sk Factors

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

Risks Related to our Business

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

We have incurred significant operating losses since inception and expect to incur significant losses for the foreseeable future as we continue our clinical trial and development programs for cenicriviroc, or CVC, evogliptin, or EVO, and other future product candidates. As of March 31, 2016, we had an accumulated deficit of $175.6 million. Losses have resulted principally from costs incurred in our clinical trials, research and development programs and from our general and administrative expenses. As of March 31, 2016, we had cash and cash equivalents including restricted cash of $52.7 million. In the future, we intend to continue to conduct research and development, clinical testing, regulatory compliance activities and, if any of our product candidates is approved, sales and marketing activities that, together with anticipated general and administrative expenses, will likely result in our incurring further significant losses for the foreseeable future.

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

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

CVC is a dual inhibitor of chemokine receptor type 2, or CCR2, and type 5, or CCR5, with anti-fibrotic and anti-inflammatory effects in liver disease models and antiviral effects on HIV. EVO is a dipeptidyl peptidase-4, or DPP-4, inhibitor which has demonstrated improvement in glucose control in clinic and improvement in liver lipid parameters in non-clinical studies.  CVC and EVO are the primary focus of our product development. Successful continued development and ultimate regulatory approval of CVC and EVO or future products is critical to the future success of our business. We have invested, and will continue to invest, a significant portion of our time and financial resources in the development of CVC and EVO. We will need to raise sufficient funds for, and successfully enroll and complete, our clinical development programs for CVC and EVO. The future regulatory and commercial success of this product candidate is subject to a number of risks, including the following:

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

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·

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

 

·

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

 

·

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

 

·

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

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

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

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

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

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

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

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

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

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While EVO is approved in Korea for the treatment of type 2 diabetes, it is not approved in the territories for which we have licensed rights and we only plan to develop EVO for the treatme nt of NASH. As a result, we are unlikely to realize any value from the commercialization or partnering of EVO for diabetes. We do not plan to seek marketing approval for EVO in diabetes and are unlikely to realize any sales or value from the use of EVO for diabetes.

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

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

 

·

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

 

·

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

 

·

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

 

·

lack of adequate funding to continue the clinical trial;

 

·

subjects experiencing severe or unexpected drug-related adverse effects;

 

·

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

 

·

any changes to our manufacturing process that may be necessary or desired, including the ability to create fixed-dose combination products or dosage forms;

 

·

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

 

·

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

 

·

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

 

·

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

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

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

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

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

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

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

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

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

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

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

 

·

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

 

·

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

 

·

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

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·

we or any of our potential future development partners may be unable to demonstrate tha t a product candidate’s clinical and other benefits outweigh its safety risks;  

 

·

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

 

·

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

 

·

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

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

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

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

 

·

a covered benefit under its health plan;

 

·

safe, effective and medically necessary;

 

·

appropriate for the specific patient;

 

·

cost-effective; and

 

·

neither experimental nor investigational.

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

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

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

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

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

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

 

·

issue warning letters or untitled letters;

 

·

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

 

·

suspend or withdraw regulatory approval;

 

·

suspend any ongoing clinical trials;

 

·

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

 

·

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

 

·

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

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

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

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

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

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

 

·

demonstration of clinical efficacy and safety compared to other products;

 

·

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

 

·

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

 

·

the prevalence and severity of any adverse effects;

 

·

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

 

·

pricing and cost-effectiveness;

 

·

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

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·

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

 

·

unfavorable publicity relating to the product candidate; and

 

·

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

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

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

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

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

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

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

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

There is no guarantee that any CROs, investigators, or other third parties on which we rely for administration and conduct of our clinical trials will devote adequate time and resources to such trials or perform as contractually required or within the estimated budget. If any of these third parties fails to meet expected deadlines, fails to adhere to our clinical protocols or otherwise performs in a substandard manner, our clinical trials may be extended, delayed or terminated. If any of these third parties do not complete their contracted activities or have delays or unexpected costs, we may incur significant additional costs to complete our clinical studies. If

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any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in our ongoing clinical trials unless we are able to transfer those subjects to another qualified clinical trial si te. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related co mpensation result in perceived or actual conflicts of interest, or if we fail to adequately disclose such compensation pursuant to FDA regulations, the integrity of the data generated at the applicable clinical trial site may be jeopardized.

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

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

We are dependent on third parties, including Dong-A, to supply the components of and manufacture our product candidates. If these third party suppliers do not supply sufficient quantities of materials to us on a timely basis and in accordance with applicable specifications, GMP regulations and other regulatory requirements, there could be a significant interruption of our supplies, which would adversely affect clinical development of the product candidate. Furthermore, if any of our contract manufacturers cannot successfully manufacture material that conforms to our specifications and within regulatory requirements, we will not be able to secure and/or maintain regulatory approval, if any, for our product candidates. We will also rely on our contract manufacturers to purchase from third party suppliers the materials necessary to produce our product candidates for our anticipated clinical trials. We have limited control over the process or timing of the acquisition of raw materials by our contract manufacturers. Moreover, we currently do not have agreements in place for the commercial production of these raw materials. Any significant delay in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial could considerably delay completion of that clinical trial, product candidate testing and potential regulatory approval of that product candidate.

We have an exclusive supply arrangement with Dong-A for the supply of EVO and are thus highly reliant upon Dong-A’s ability to supply EVO.  While our arrangement includes the ability to procure EVO supply from other third parties in certain cases of performance issues at Dong-A, any such change would be costly and lengthy and could disrupt our ability to develop or commercialize EVO.

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

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

 

·

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

 

·

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

 

·

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

 

·

we and our contract manufacturers must comply with GMP regulations and guidelines. Although we are ultimately responsible for ensuring that our product candidates are manufactured in accordance with GMP regulations and guidance, we are not involved in the day-to-day operations of our contract manufacturers. We and our contract manufacturers may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. We and our contract manufacturers are subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. Any failure to follow GMP or other regulatory requirements or any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging or storage of our products as a result of a failure of our facilities or the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercialize our product candidates, including leading to significant delays in the availability of product candidates for our clinical studies or the termination or hold on a clinical study or the delay or prevention of filing or approval of

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marketing applications for our product candidates. Significant noncompliance could also result in the imposition of sanctions, including warning or untitled letters, fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could be costly and dam age our reputation. If we are not able to maintain regulatory compliance, we may not be permitted to market our product candidates and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution.   

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

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

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

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

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

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

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

 

·

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

 

·

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

 

·

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

 

·

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

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

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

We have licensed CVC to Dong-A in South Korea.  We may never realize any benefit from the potential milestone and royalty payments in the license agreement if Dong-A is unable to successfully develop and commercialize CVC in South Korea.

We have a license agreement with Dong-A, and the actions of Dong-A and their other licensors or sublicensors could adversely impact our programs to develop and commercialize CVC and EVO.

Under our agreements with Dong-A, Dong-A has the ability to sublicense, develop, manufacture and commercialize CVC in South Korea and has the ability to license, develop, manufacture and commercialize EVO outside of Tobira’s licensed territory for EVO.  The actions of Dong-A and its licensors and sublicensors could adversely impact our business.  For example, these parties could generate data that conflicts with data generated by Tobira or otherwise impacts the perception of investigators, physicians, patients or regulators of our product candidates.

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

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

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

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

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

There are currently no therapeutic products approved for the treatment of NASH. There are several commercially available products that are currently used off label for NASH, such as vitamin E (an antioxidant), diabetes medications (such as pioglitazone), antihyperlipidemic agents (such as gemfibrozil), pentoxifylline, ursodeoxycholic acid and others. In addition, there are numerous drugs in development for the treatment of NASH. We are aware of several companies with development programs targeting NASH in clinical trials including Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, Cempra, Inc., Conatus Pharmaceuticals Inc., Galectin Therapeutics Inc., Galmed Medical Research Ltd., Genfit Corp., Gilead Sciences, Inc., Immuron Ltd., Intercept Pharmaceuticals, Inc., MediciNova, Inc., NGM Biopharmaceuticals, Inc., Nimbus Therapeutics, LLC, Novartis AG, Novo Nordisk A/S, NuSirt Biopharma, Inc., Shire plc, Takeda Pharmaceutical Company Limited, or Takeda, Viking Therapeutics, Inc. and Zydus

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Cadilla. Many of the agents in development target metabolic mechanisms in NASH, s uch as peroxisome proliferator-activated receptors, or PPAR, agonists and farnesoid X, or FXR, receptor agonists. Other agents in development target fibrosis, such as targeting the collagen cross-linking enzyme lysyl oxidase-like 2, or LOXL2. We are not aw are of a competitor with an active development program for NASH targeting CCR2/CCR5 inhibition . There are currently no therapeutic products approved for the treatment of PSC. Ursodeoxycholic acid is the most studied therapy for PSC. Although several studie s have shown that there is improvement in liver biochemistries, there is a long history of inconclusive trials failing to demonstrate positive clinical outcomes or increased transplant-free survival compared to placebo. In addition, there are drugs in deve lopment for the treatment of PSC. We are aware of several companies with development programs targeting PSC in clinical trials, including Acorda Therapeutics, Inc./Biotie Therapies Corp., Gilead Sciences, Inc., Intercept Pharmaceuticals, Inc. and Shire plc .

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

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

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

 

·

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

 

·

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

 

·

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

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

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

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

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

As of May 2, 2016, we had 22 full-time employees. We will need to grow our organization substantially to continue development and pursue the potential commercialization of our product candidates, as well as function as a public company. As we seek to advance our product candidates, we will need to expand our financial, development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Future growth will impose significant added

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responsibilities on members of management and require us to retain additional internal capabilities. Our future financial performance and our ability to commercialize our product candidates and to co mpete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, clinical and regulatory, financial, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to so accomplish could prevent us from successfully growing our company.

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

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

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

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

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

 

·

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

 

·

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

 

·

expanded the 340B drug discount program;

 

·

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

 

·

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

 

·

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

 

·

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

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

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

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

 

·

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

 

·

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

 

·

our ability to generate revenue and achieve or maintain profitability;

 

·

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

 

·

the availability of capital.

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

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

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

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

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

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

If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion fr