S-1 1 a2216962zs-1.htm S-1

Use these links to rapidly review the document
TABLE OF CONTENTS
TABLE OF CONTENTS 2

Table of Contents

As filed with the Securities and Exchange Commission on October 18, 2013

Registration No. 333-             

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



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



TetraLogic Pharmaceuticals Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  42-1604756
(I.R.S. Employer
Identification Number)

343 Phoenixville Pike
Malvern, PA 19355
(610) 889-9900

(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)



J. Kevin Buchi
President and Chief Executive Officer
TetraLogic Pharmaceuticals Corporation
343 Phoenixville Pike
Malvern, PA 19355
(610) 889-9900
(Name, address, including zip code and telephone number, including area code, of agent for service)



Copies to:

Jeffrey P. Libson, Esq.
Steven J. Abrams, Esq.
Brian Korn, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
(215) 981-4000



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

          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box.    o

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

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

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

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

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a smaller
reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price (1)

  Amount of
Registration Fee (1)

 

Common Stock, $0.0001 par value per share

  $103,500,000   $13,331

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act and includes the offering price of shares that the underwriters have the option to purchase to cover over-allotments.



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

   


Table of Contents

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

Subject to Completion, Dated October 18, 2013

PRELIMINARY PROSPECTUS

TetraLogic Pharmaceuticals Corporation

GRAPHIC

              Shares

Common Stock

This is the initial public offering of our common stock. We are selling              shares of common stock in this offering. We currently expect the initial public offering price to be between $             and $             per share of common stock. We have applied to list our common stock on the NASDAQ Global Market under the symbol "TLOG."

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

We are an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 and applicable Securities and Exchange Commission rules, and will therefore be eligible for reduced public company reporting requirements. See "Summary—Implications of Being an Emerging Growth Company."

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

 
  Per Share
  Total

Public Offering Price

  $            $                  

Underwriting Discount (1)

  $            $                  

Proceeds to TetraLogic Pharmaceuticals Corporation (before expenses)

  $            $                  

(1)
See "Underwriting" beginning on page 170 for additional information regarding underwriting compensation.

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

The underwriters expect to deliver the shares to purchasers on or about                         ,          through the book-entry facilities of The Depository Trust Company.




   

The date of this prospectus is                           , 2013


Table of Contents


PROSPECTUS SUMMARY

        This summary highlights certain information about us and this offering contained elsewhere in this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including "Risk Factors" beginning on page 14 and the financial statements and related notes included in this prospectus.

        Unless the context indicates otherwise, as used in this prospectus, the terms "TetraLogic," "we," "us," "our," "our company" and "our business" refer to TetraLogic Pharmaceuticals Corporation.

Overview

        We are a clinical-stage biopharmaceutical company focused on discovering and developing novel small molecule therapeutics that mimic Second Mitochondrial Activator of Caspases, or SMAC-mimetics, and are designed to cause or enable abnormal cells that are resistant to the body's immune system to self-destruct. Birinapant, our clinical-stage product candidate, is currently being tested in Phase 1 and Phase 2 oncology clinical trials for multiple solid tumors and hematological malignancies. Our clinical trials of birinapant have enrolled over 275 subjects.

        Our lead program is colorectal cancer, or CRC, where we have substantially completed a Phase 1/2 clinical trial, and we intend to start a randomized Phase 2/3 clinical trial in the second half of 2014. Birinapant is also being tested in an ongoing Phase 1/2 clinical trial in various blood cancers. We have started a Phase 1 clinical trial in myelodysplastic syndromes, or MDS, and, upon its completion, intend to start a randomized Phase 3 clinical trial in the second half of 2014. We also have an open Investigational New Drug Application, or IND, and intend to start a Phase 1/2 ovarian cancer clinical trial in 2013. Beyond our work in cancer, we are evaluating birinapant and other product candidates in pre-clinical studies as potential antiviral therapeutic agents, with the goal of starting an antiviral clinical program in the first quarter of 2015.

Background of SMAC-mimetics

        Fundamentally important to maintaining human health is the mechanism in both normal and abnormal cells for controlling programmed cell death. This process of self-destruction of cells is known as apoptosis. There are multiple checks and balances within a cell to ensure that healthy cells do not undergo apoptosis by mistake and that abnormal cells such as cancerous and virally infected cells undergo apoptosis and are cleared from the body. Key molecules that protect cells from apoptosis are called the Inhibitor of Apoptosis proteins, or IAPs. A key molecule that promotes apoptosis is Second Mitochondrial Activator of Caspases, or SMAC, a naturally occurring IAP inhibitor.

        In many diseases, such as certain cancers and infections, abnormal cells that should be naturally cleared from the body manage to escape apoptosis. As a result, cells that should self-destruct actually survive and even proliferate or propagate infection, leading to multiple disease complications. In both cancer and viral infections, the abnormal cells typically use the same escape pathway: the overexpression of IAPs resulting in the avoidance of the signals to undergo cell self-destruction.

 

1


Table of Contents

        Tumor Necrosis Factor, or TNF, is an extracellular signaling molecule that induces apoptosis. Cancer cells and certain virally infected cells can use IAPs to convert a TNF-induced self-destruction signal into a pro-survival signal through a protein complex called NF-kB. While a number of cancer therapies induce TNF, the TNF self-destruction signal may be blocked by the IAPs. Normally, IAPs can be disabled by their natural inhibitor SMAC, but this natural blocking mechanism is rendered ineffective in many cancers and certain viral infections due to the overexpression of IAPs. We believe SMAC-mimetics have the potential to inhibit the overexpressed IAPs and re-establish the TNF self-destruction signal. Our therapeutic focus is centered on the development of SMAC-mimetics that are designed to inhibit IAPs and re-establish the TNF self-destruction signal in order to overcome this "escape-from-apoptosis" in malignant or infected cells. A key element of our strategy is to administer a SMAC-mimetic with other therapies that induce TNF or related self-destruction signaling molecules. Examples of such other therapies are azacitidine, gemcitabine, granulocyte-macrophage colony-stimulating factor, or GM-CSF, interferon, or IFN, irinotecan and radiation therapy. There are no drugs currently on the market that specifically target the IAPs to re-establish apoptosis in abnormal cells.

Birinapant

        Birinapant was selected from our chemical library of over 3,000 SMAC-mimetic compounds, has a strong intellectual property profile, and we believe has the potential to be broadly active across multiple tumor types and against virally-infected cells. Over 275 study participants with cancer have been treated with birinapant alone or administered with standard chemotherapies. In clinical trials, birinapant was generally well tolerated, meaning that treatment-related side effects were mild or moderate in severity in the majority of treated subjects, and showed signs of activity in subjects with cancer. In pre-clinical cancer studies, birinapant was synergistic (or super-additive) with agents that induce TNF, including established anti-cancer chemotherapies (such as azacitidine, gemcitabine and irinotecan), other anti-cancer therapies (such as radiotherapy), biological agents (such as GM-CSF and IFN) and with TNF and other members of the TNF superfamily including TNF-related apoptosis-inducing ligand, or TRAIL, and TRAIL-Receptor 2 (also known as Death Receptor 5, or DR5) agonists. In addition, birinapant reduced hepatitis B virus, or HBV, levels in animal studies in a TNF-dependent manner. Our clinical strategy is to administer birinapant with therapies (for example, azacitidine or irinotecan) that induce the production of TNF or related molecules.

 

2


Table of Contents

        As shown in FIGURE 1, below, the principal target of birinapant is the IAP called cIAP1. A secondary target is the IAP called cIAP2 (not shown in FIGURE 1 below). Both are critical components of the TNF receptor 1 complex. It is this TNF receptor 1 complex that receives the TNF signal and then transmits it inside the cell, triggering a cascade of events that includes activation of NF-kB which delivers the pro-survival signal to a cancer cell.

FIGURE 1. Birinapant is designed to mimic SMAC and enable TNF-activated apoptosis.

GRAPHIC

Activity in Clinical Trials

        We believe that our pre-clinical and clinical data suggest that birinapant has potential for treating a wide spectrum of solid tumors, hematological malignancies and viral infections, and provide the rationale for further clinical development of birinapant. In clinical trials, birinapant has shown favorable pharmacokinetic, or PK, properties, meaning how the subject's body handles birinapant, including the length of time birinapant remains in a subject's blood or tumor, with similar and predictable behavior among treated subjects. In addition, our clinical trials show evidence that birinapant is interacting with its intended target and that the activation of NF-kB was inhibited in subject tumor cells.

        Birinapant has thus far shown clinical activity in both solid tumors and hematological malignancies, including CRC and acute myelogenous leukemia, or AML. Phase 1 and Phase 2 clinical trials have been completed or are ongoing with birinapant. Initial response and safety data from the Phase 1/2 solid tumor trial were reported at the 2013 Annual Meeting of the American Society of Clinical Oncology.

        Our Phase 1 clinical trials are designed to define the maximum tolerated dose, or MTD, of birinapant both as a single agent and when administered with other chemotherapies, to gather PK and safety data, and to determine the recommended Phase 2 dose. Phase 2 clinical trials are designed to determine the tolerability and magnitude of clinical benefit of birinapant both as a single agent and when administered with other chemotherapies, initially in a small

 

3


Table of Contents

number of subjects. Our Phase 1/2 clinical trials are designed to include both a dose escalation component and a fixed dose component to gather safety data and measure any early signal of clinical benefit. Phase 3 clinical trials will be designed to confirm the tolerability and magnitude of clinical benefit in a larger number of subjects. Our planned Phase 2/3 clinical trial in CRC subjects will be designed to confirm the tolerability and magnitude of clinical benefit of birinipant administered with irinotecan in a larger patient population, which will dictate whether to proceed with the Phase 3 component of the trial.

        The following table sets forth our highest priority clinical programs:

GRAPHIC

Overview of Lead Clinical Programs

        Based on birinapant's mechanism of action, clinical and pre-clinical data and other factors, we have selected CRC and MDS as our first two targeted indications.

     Colorectal Cancer (CRC)

        CRC is the most deadly cancer in the U.S. among non-smokers and the second most deadly cancer overall. The American Cancer Society estimates that in the U.S. there will be approximately 142,000 new cases and approximately 51,000 deaths from CRC in 2013, accounting for 9% of all cancer deaths. Almost 50% of the patients with a new diagnosis of CRC will die within five years. According to the National Cancer Institute, or NCI, the prevalence of CRC in the U.S. in 2010 was estimated to be 1.2 million cases. CRC is the third most common cancer in both men and women. The risk of CRC increases with age; 90% of cases are diagnosed in individuals 50 years of age or older. Despite effective screening, leading to a reduction in the mortality from CRC, the number of cases remains high and is expected to increase worldwide to 2.2 million by the year 2030. We believe that there is a medical need for a treatment option that improves outcomes of standard of care regimens for patients with CRC.

 

4


Table of Contents

        We have results of a Phase 2 clinical trial of birinapant administered with irinotecan in 71 CRC subjects who had previously failed standard chemotherapies. The trial has not been formally closed because one subject continues on treatment without disease progression for over 18 months. The clinical trial showed activity, with six subjects (8%) showing partial responses, or PRs, defined as at least a 30% decrease in the sum of all measurable tumor lesions by Response Evaluation Criteria in Solid Tumors, or RECIST. RECIST is a set of published rules that define when cancer patients improve (or respond), stay the same (or stabilize), or worsen (or progress) during treatment. The median progression-free survival, or PFS, was 2.2 months. Thirty-four percent of study subjects were alive without progression of their tumor at four months and 21% were alive without progression of their tumor at six months. The combination of birinapant administered with irinotecan was generally well tolerated. Compared to treatment with irinotecan alone, birinapant administered with irinotecan led to a modest increase in anemia (or a decrease in red blood cells) and a modest increase in thrombocytopenia (or a decrease in platelets). As noted above, irinotecan is one of the chemotherapies that induces TNF. As the majority of subjects had disease progression on prior irinotecan treatment (65 of 71, or 92%), we believe that this data supports the view that the activity seen in this study is being driven by the synergistic effect of birinapant and irinotecan. Based on the clinical data that has emerged from the study of birinapant administered with irinotecan, a Phase 2/3 clinical trial is planned in third-line CRC subjects, meaning those who have already failed two prior treatment regimens for advanced disease to commence enrollment in the second half of 2014.

     Myelodysplastic Syndromes (MDS)

        MDS is a form of cancer of bone-marrow stem cells resulting in fewer than normal mature blood cells in the circulation. In MDS, bone marrow becomes dysplastic, or defective. The blood cells produced do not develop normally, such that too few healthy blood cells are released into the blood stream, which leads to low blood cell counts, or cytopenias. Thus, many patients with MDS require frequent blood transfusions. In most cases, the disease worsens and the patient develops progressive bone marrow failure. In advanced stages of the disease, immature blood cells, or blasts, leave the bone marrow and enter the blood stream, leading to AML, which occurs in approximately one-third of patients with MDS. We believe that there is a medical need for a treatment option that improves outcomes of standard of care regimens for patients with MDS.

        A Phase 1/2 investigator-initiated clinical trial in AML, MDS and acute lymphoblastic leukemia, or ALL, is ongoing at the University of Pennsylvania and 18 study subjects have been treated with birinapant as the sole agent or administered with hydroxyurea (if deemed necessary by the treating physician). The majority of subjects enrolled are elderly (over 70 years) with AML secondary to MDS and have received multiple prior treatments. In preliminary data, the treatment-related adverse events included Grade 3 and Grade 4 increases in serum levels of the digestive enzymes amylase and lipase, as determined by laboratory testing, with no subject-reported symptoms of abdominal pain. The preliminary data also shows reductions in leukemic blasts (tumor bulk) in some subjects. There were increases in the normal white blood cells, or neutrophils, with the first birinapant dose in some subjects. One subject continued on treatment with birinapant as sole agent for approximately 10 months. Based on the synergy we observed in pre-clinical studies between birinapant and azacitidine, the current standard of care for MDS, and the action of birinapant in subjects with AML secondary to MDS, in August 2013, we initiated a Phase 1/2 clinical trial of birinapant administered with azacitidine in high-risk MDS subjects who have relapsed or do not respond to treatment with, or are refractory to, azacitidine. We intend to expand this

 

5


Table of Contents

clinical trial to include subjects who have not been previously treated with, or are naïve to, azacitidine. We plan to enroll 15 subjects in a dose escalation phase, which may be followed by an expansion arm of the trial at a selected dose. Subject enrollment is expected to be completed in the first half of 2014. If supported by results from these clinical trials, we intend to commence a Phase 3 clinical trial in high-risk MDS subjects in the second half of 2014.

     Additional Indications

        In addition to our lead programs in CRC and MDS, we are also planning to evaluate birinapant in several other indications and administered with other therapies.

    Birinapant administered with conatumumab in ovarian cancer:  In pre-clinical studies, we observed synergy between birinapant and TRAIL receptor agonist antibodies. In collaboration with Amgen Inc., or Amgen, we will explore the combination of birinapant administered with Amgen's TRAIL receptor agonist antibody, conatumumab. We have an open IND for a Phase 1/2 ovarian cancer trial and intend to begin enrolling subjects before the end of 2013.

    Birinapant administered with immunotherapy in melanoma:  We expect to commence a clinical trial in melanoma to follow-up on our pre-clinical studies in which birinapant showed activity in melanoma and synergy with both GM-CSF and IFN.

    Birinapant administered with gemcitabine and cisplatin in solid tumors:  An investigator-initiated Phase 1/2 clinical trial is ongoing to evaluate the safety and activity of birinapant administered with gemcitabine/cisplatin in tumor types where this regimen is commonly used, such as non-small cell lung cancer, or NSCLC, and bladder cancer.

    Birinapant in HBV:  In pre-clinical studies, birinapant significantly reduced HBV. The clearance was additive when given in combination with entecavir, the standard of care therapy for HBV. We intend to continue pre-clinical studies and regulatory activities and intend to file an IND for a Phase 1 clinical trial in early 2015.

        In connection with our clinical programs, we are conducting research to uncover biomarkers, or biological parameters that can be measured to characterize a disease state or the effect of therapy, that can be used to identify subjects most likely to respond to birinapant. These studies are focused on detecting IAP gene amplification in different tumor types, on examining the expression of genes important in the TNF/IAP/NF-kB pathway and on examining the activation status of NF-kB itself.

Our Strategy

        Our goal is to maximize the potential value of birinapant as a first-in-class and best-in-class SMAC-mimetic. The key elements of our strategy to achieve this goal include:

    pursuing regulatory approval for birinapant administered with irinotecan for treatment of third-line CRC. Pending input from the U.S. Food and Drug Administration, or FDA, at an "End of Phase 2," or EOP2, meeting, we plan to initiate a Phase 2/3 clinical trial in the second half of 2014;

    pursuing regulatory approval for birinapant administered with other therapies for the treatment of high-risk MDS. Pending the results of our ongoing Phase 1/2 clinical trial and input from the FDA at an EOP2 meeting, we intend to initiate a Phase 3 clinical trial in the second half of 2014;

 

6


Table of Contents

    commencing a Phase 1/2 clinical trial by the end of 2013 with birinapant administered with conatumumab in ovarian cancer;

    continuing our pre-clinical studies of birinapant as a potential antiviral therapeutic agent, with the goal of starting an antiviral clinical program in the first quarter of 2015; and

    considering collaborations to accelerate development of our clinical programs outside of the U.S.

        Other elements of our business strategy include exploiting our understanding of the role of SMAC-mimetics more broadly in infectious disease, leveraging our library of SMAC-mimetic compounds to develop novel molecules to expand the utility of this developing class and pursuing potential collaborations, in-licensing or acquisitions of assets and companies to expand our existing technologies and operations.

Risk Factors

        Our ability to implement our business strategy is subject to numerous risks and uncertainties. As a clinical-stage biopharmaceutical company, we face many risks inherent in our business and our industry generally. You should carefully consider all of the information set forth in this prospectus and, in particular, the information under the heading "Risk Factors" in this prospectus prior to making an investment in our common stock. These risks include, among others, the following:

    we have no source of commercial revenue, may never become profitable and may incur substantial and increasing net losses for the foreseeable future as we continue development of, seek regulatory approvals for, and potentially begin to commercialize birinapant;

    our success is dependent on the regulatory approval and commercialization of birinapant;

    we are subject to regulatory approval processes that are lengthy, time consuming and unpredictable. We may not obtain approval for birinapant from the FDA or foreign regulatory authorities;

    we will need to obtain additional funding to continue operations;

    our success is dependent on our ability to commercialize birinapant without infringing the patent rights of third parties;

    it is difficult and costly to protect our intellectual property rights;

    we may be unable to recruit or retain key employees, including our senior management team;

    we depend on the performance of third parties, including contract research organizations, or CROs, and third-party manufacturers; and

    we will need to successfully remediate a material weakness in our internal control over financial reporting.

 

7


Table of Contents

Our Corporate Information

        We were originally incorporated in July 2001 as Apop Corp., a New Jersey corporation. Pursuant to a merger effective as of October 2003 with and into our wholly owned subsidiary, we became a Delaware corporation and commenced operations in 2003. Our name was changed to Apop Corporation in March 2004, to Gentara Corporation in June 2004 and to TetraLogic Pharmaceuticals Corporation in January 2006.

        Our primary executive offices are located at 343 Phoenixville Pike, Malvern, PA 19355 and our telephone number is (610) 889-9900. Our website address is http://www.tetralogicpharma.com. The inclusion of our website address above and elsewhere in this prospectus is, in each case, intended to be an inactive textual reference only and not an active hyperlink to our website. The information contained in, or that can be accessed through, our website is not part of this prospectus.

        We have registered TetraLogic Pharmaceuticals as a U.S. trademark. All other trademarks, trade names or service marks referred to in this prospectus are the property of their respective owners.

Implications of Being an Emerging Growth Company

        We are an "emerging growth company," as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of exemptions from various disclosure and reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to:

    not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

    being permitted to present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations, in each case, instead of three years;

    being permitted to present the same number of years of selected financial data as the years of audited financial statements presented, instead of five years;

    reduced disclosure obligations regarding executive compensation, including no Compensation Disclosure and Analysis;

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements; and

    exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

        We may choose to take advantage of some or all of the available exemptions. We have taken advantage of some of the reduced reporting burdens in this prospectus. Accordingly, the scope of the information contained herein may be different than the scope of the information you receive from other public companies in which you hold stock. We do not know if some investors will find our shares less attractive as a result of our utilization of these

 

8


Table of Contents

or other exemptions. The result may be a less active trading market for our shares and our share price may be more volatile.

        In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

        We will remain an "emerging growth company" until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.0 billion; (b) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the preceding three-year period; and (d) the last day of our fiscal year containing the fifth anniversary of the date on which shares of our common stock become publicly traded in the United States.

 

9


Table of Contents


The Offering

Common stock offered by us

                              shares

Common stock to be outstanding after this offering

 

                            shares

Over-allotment option

 

                            shares

Use of proceeds

 

We estimate that the net proceeds from this offering will be approximately $              million, or approximately $              million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $              per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering costs payable by us. We intend to use the net proceeds of this offering to advance the clinical and pre-clinical development of birinapant. Specifically, we currently estimate that we will use approximately $45.0 million of the net proceeds from this offering to fund our CRC program and approximately $25.0 million to fund our MDS program. The balance will be used for other clinical programs, working capital and general corporate purposes.

 

Assuming this offering results in a full-size transaction pricing at the midpoint of the estimated offering price range set forth on the cover page of this prospectus, we expect that the net proceeds from this offering will enable us to commence (i) our randomized Phase 2/3 clinical trial in third-line CRC subjects, and (ii) our randomized Phase 3 clinical trial in first-line high-risk MDS subjects. See "Business." In the event the net proceeds from this offering are significantly less than currently anticipated, our management will determine the relative priority of our clinical programs based on the actual net proceeds. In addition, funds available for working capital and general corporate purposes will likely be reduced. See "Use of Proceeds" in this prospectus for a more complete description of the intended use of proceeds from this offering.

NASDAQ Global Market trading symbol

 

TLOG

Risk factors

 

You should carefully read the "Risk Factors" section of, and all of the other information set forth in, this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

 

10


Table of Contents

        Unless otherwise noted, the information in this prospectus assumes, as of June 30, 2013:

    no exercise by the underwriters of their over-allotment option to purchase up to             additional shares of common stock from us;

    the conversion of all outstanding shares of our preferred stock into 163,081,134 shares of our common stock, which will occur immediately prior to consummation of this offering;

    the issuance of                       shares of common stock upon exercise of warrants, or our 2012/2013 Warrants, equal to $3.0 million divided by the series C price and net settled into common stock at the initial public offering price (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus);

    the issuance of                       shares of common stock upon conversion of our convertible notes, equal to the sum of the $13.0 million face value of the notes plus accrued interest of $338,163, divided by the initial public offering price of our common stock in this offering (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus); and

    a             for             reverse split of our common stock prior to the effectiveness of the registration statement of which this prospectus forms a part.

        The number of shares of common stock to be outstanding after this offering is based on              shares of common stock outstanding as of June 30, 2013, after giving effect to the conversion of all of our outstanding shares of preferred stock as of June 30, 2013 into 163,081,134 shares of our common stock, the net exercise of our 2012/2013 Warrants into              shares of our common stock (as described in the third bullet point above) and the conversion of our convertible notes into             shares of our common stock (as described in the fourth bullet point above), and excludes as of that date:

    1,705,408 shares of common stock issuable upon exercise of warrants, with a weighted average exercise price of $0.16 per share. Of these shares, warrants to purchase 1,289,210 shares of our common stock contain a provision where the exercise price would be reduced in the event that we issue securities in the future at a price less than the current exercise price of $0.05 per share;

    11,793,150 shares of common stock issuable upon exercise of options, with a weighted average exercise price of $0.08 per share, under our 2004 Equity Incentive Plan; and

    2,746,595 shares of common stock reserved for future issuances under our 2004 Equity Incentive Plan and              additional shares that will be made available for issuance under our 2013 Equity Incentive Plan.

 

11


Table of Contents


SUMMARY FINANCIAL DATA

        The following table summarizes our historical financial data as of the dates indicated and for the periods then ended. We have derived the following statement of operations data for the years ended December 31, 2011 and 2012 from our audited financial statements included elsewhere in this prospectus. We have derived the following statement of operations data for the six-months ended June 30, 2012 and 2013 and balance sheet data as of June 30, 2013 from our unaudited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period. The summary of our financial data set forth below should be read together with our financial statements and the related notes to those statements, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus.

 
  Year Ended December 31,   Six-Months Ended June 30,  
 
  2011   2012   2012   2013  

Statement of Operations Data:

                         

Revenue

  $   $   $   $  

Expenses:

                         

General and administrative

    3,615,827     4,075,649     2,162,021     1,973,564  

Research and development

    15,253,522     12,096,278     6,577,949     4,290,517  
                   

Total expenses

    18,869,349     16,171,927     8,739,970     6,264,081  
                   

Loss from operations

    (18,869,349 )   (16,171,927 )   (8,739,970 )   (6,264,081 )

Change in fair value of derivative liabilities

    (48,454 )   43,136         56,489  

Interest and other income

    4,900     2,694     2,635     12  

Interest expense

    (6,753 )   (73,353 )   (909 )   (1,113,241 )
                   

Net loss and comprehensive loss

    (18,919,656 )   (16,199,450 )   (8,738,244 )   (7,320,821 )

Cumulative preferred stock dividends

    (3,269,160 )   (3,453,412 )   (1,717,270 )   (1,712,514 )
                   

Net loss attributable to common stockholders

  $ (22,188,816 ) $ (19,652,862 ) $ (10,455,514 ) $ (9,033,335 )
                   

Per share information:

                         

Net loss per share of common stock—basic and diluted (1)

  $ (1.59 ) $ (1.19 ) $ (0.67 ) $ (0.47 )
                   

Basic and diluted weighted average shares outstanding (1)

    13,921,615     16,490,327     15,683,773     19,170,071  
                   

Pro forma net loss per share of common stock—basic and diluted (unaudited) (1)

        $           $    
                       

Pro forma basic and diluted weighted average shares outstanding (unaudited) (1)

                         
                       

 

12


Table of Contents

 

 
  As of June 30, 2013  
 
  Actual   Pro
Forma (2)
  Pro Forma
As Adjusted (3)
 

Balance Sheet Data:

                   

Cash and cash equivalents

  $ 6,020,383   $ 6,020,383   $    

Total assets

    6,482,765     6,482,765        

Total liabilities

    16,552,967     2,742,609        

Deficit accumulated during the development stage

    (77,242,663 )   (77,242,663 )      

Total stockholders' equity (deficit)

    (75,482,405 )   3,740,156        

(1)
See Note 2 to our audited financial statements for an explanation of the method used to calculate net loss per share of common stock, basic and diluted, pro forma net loss per share of common stock, basic and diluted, and the basic and diluted pro forma weighted average shares outstanding used to calculate the pro forma per share amounts;

(2)
Gives pro forma effect to the conversion of all outstanding shares of our preferred stock, the conversion of our convertible notes plus accured interest, and the net exercise of our 2012/2013 Warrants into an aggregate of              shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), which will occur immediately prior to consummation of this offering; and

(3)
Gives further effect to the sale of shares of our common stock in this offering, assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering costs payable by us. A $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease cash and cash equivalents and total stockholders' equity on a pro forma as adjusted basis by approximately $          million, assuming that the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering costs payable by us.

 

13


Table of Contents


RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before making your decision to invest in shares of our common stock. We cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition and cash flows and if so our future prospects would likely be materially and adversely affected. If any of such events were to happen, the trading price of our common stock could decline, and you could lose all or part of your investment.


Risks Related to Our Financial Position and Capital Needs

We have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.

        We are a clinical-stage biopharmaceutical company. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk of failure to gain regulatory approval or become commercially viable. We have one product candidate, birinapant, at the early stages of clinical development and all of our other compounds are pre-clinical. We do not have any products approved by regulatory authorities for marketing and have not generated any revenue from product sales, and we continue to incur significant research, development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in every reporting period since our inception in 2003. For the year ended December 31, 2012 and the six-months ended June 30, 2013, we reported a net loss of $16.2 million and $7.3 million, respectively, and we had an accumulated deficit of $77.2 million at June 30, 2013.

        We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate these losses to increase as we continue the research and development of, and seek regulatory approvals for, birinapant, and potentially begin to commercialize birinapant, if it receives regulatory approval. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. If birinapant fails in clinical trials or does not gain regulatory approval, or if approved, fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

We currently have no source of product revenue and may never become profitable.

        We have not generated any revenues from commercial product sales (and we have no commercial products). Our ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully gain regulatory approval and commercialize birinapant or other product candidates that we may develop, in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for birinapant, we do not know when it will generate revenue from product sales for us, if at all. Our ability to generate revenue from product sales from birinapant or any other future product candidates also depends on a number of additional factors, including our ability to:

    successfully complete development activities, including enrollment of study participants and completion of the necessary clinical trials;

14


Table of Contents

    complete and submit NDAs to the FDA and obtain regulatory approval for indications for which there is a commercial market;

    complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities;

    successfully commercialize any products, if approved;

    make or have made commercial quantities of our products at acceptable cost levels;

    develop a commercial organization capable of manufacturing, sales, marketing and distribution for any products we intend to sell ourselves in the markets in which we choose to commercialize on our own;

    find suitable partners to help us market, sell and distribute our approved products in other markets; and

    obtain adequate pricing, coverage and reimbursement from third parties, including government and private payors.

        In addition, because of the numerous risks and uncertainties associated with product development, including that birinapant may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the development and regulatory process for birinapant, we anticipate incurring significant costs associated with commercializing these products.

        Even if we are able to generate revenues from the sale of birinapant or any future commercial products, we may not become profitable and will need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, and we are not successful in obtaining additional funding, then we may be unable to continue our operations at planned levels.

We intend to expend our limited resources to pursue our sole clinical stage product candidate, birinapant, and may fail to capitalize on other technologies, product candidates or other indications that may be more profitable or for which there is a greater likelihood of success.

        Because we have limited financial and managerial resources, we are focusing on research programs relating to birinapant, which concentrates the risk of product failure in the event birinapant proves to be unsafe or ineffective or the SMAC-mimetic class of product candidates is considered to be inadequate for clinical development or commercialization. As a result, we may forego or delay pursuit of opportunities with other technologies, product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on proprietary research and development programs relating to birinapant may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for birinapant, we may relinquish valuable rights to birinapant through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to birinapant.

15


Table of Contents

We will require additional capital to fund our operations and if we fail to obtain necessary financing, we may be unable to complete the development and potential commercialization of birinapant.

        Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to advance the clinical development of birinapant and launch and commercialize birinapant, if we receive regulatory approval. We will require additional capital for the further development and potential commercialization of birinapant and may also need to raise additional funds sooner to pursue a more accelerated development of birinapant. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

        We believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of June 30, 2013, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. We have based this estimate on assumptions that may prove to be wrong, and we could deploy our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to the:

    initiation, progress, timing, costs and results of pre-clinical studies and clinical trials for birinapant or any other future product candidates;

    clinical development plans we establish for birinapant and any other future product candidates;

    our obligation to make royalty and non-royalty sublicense receipt payments to third-party licensors, if any, under our licensing agreements;

    number and characteristics of product candidates that we discover or in-license and develop;

    outcome, timing and cost of regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect;

    costs of filing, prosecuting, defending and enforcing any patent claims and maintaining and enforcing other intellectual property rights;

    effect of competing technological and market developments;

    costs and timing of the implementation of commercial-scale manufacturing activities; and

    costs and timing of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval.

        If we are unable to expand our operations or otherwise capitalize on our business opportunities due to a lack of capital, our ability to become profitable will be compromised.

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

        Our consolidated financial statements were prepared under the assumption that we will continue as a going concern for the next 12 months. Our independent registered public

16


Table of Contents

accounting firm has issued a report that included an explanatory paragraph referring to our incurred losses from operations since our inception, our requirement for additional capital to fund planned operations and raising substantial doubt about our ability to continue as a going concern. We believe that our ongoing and planned financing endeavors, if successful, will provide adequate financial resources to continue as a going concern for at least the next 12 months, even without the proceeds from this offering; however, there can be no assurance in this regard.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or birinapant.

        Until we can generate substantial revenue from product sales, if ever, we expect to seek additional capital through a combination of private and public equity offerings, debt financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include liens or other restrictive covenants limiting our ability to take important actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic collaborations and alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies in particular countries, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market our technologies that we would otherwise prefer to develop and market ourselves.


Risks Related to Our Business and Industry

Our future success is dependent on the successful clinical development, regulatory approval and commercialization of birinapant, which is currently undergoing Phase 1 and 2 clinical trials and will require significant capital resources and years of additional clinical development effort.

        We do not have any products that have gained regulatory approval. Currently, our only clinical-stage product candidate is birinapant. As a result, our business is dependent on our ability to successfully complete clinical development of, obtain regulatory approval for, and, if approved, to successfully commercialize birinapant in a timely manner. We cannot commercialize birinapant in the U.S. without first obtaining regulatory approval from the FDA; similarly, we cannot commercialize birinapant outside of the U.S. without obtaining regulatory approval from comparable foreign regulatory authorities. Before obtaining regulatory approvals for the commercial sale of birinapant for a target indication, we must demonstrate with substantial evidence gathered in pre-clinical studies and well-controlled clinical trials, generally including two well-controlled Phase 3 trials, and, with respect to approval in the U.S., to the satisfaction of the FDA, that birinapant is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate. Even if birinapant were to successfully obtain approval from the FDA and comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval for birinapant in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or

17


Table of Contents

generate sufficient revenue to continue the development of any other product candidate that we may discover, in-license, develop or acquire in the future. Furthermore, even if we obtain regulatory approval for birinapant, we will still need to develop a commercial organization, establish commercially viable pricing and obtain approval for adequate reimbursement from third-party and government payors. If we are unable to successfully commercialize birinapant, we may not be able to earn sufficient revenues to continue our business.

Because the results of pre-clinical studies or earlier clinical trials are not necessarily predictive of future results, birinapant may not have favorable results in later clinical trials or receive regulatory approval.

        Success in pre-clinical studies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of birinapant. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials. Despite the results reported in earlier clinical trials for birinapant, we do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market birinapant in any particular jurisdiction. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval for birinapant may be adversely impacted.

The therapeutic efficacy of birinapant is unproven in humans, and we may not be able to successfully develop and commercialize birinapant pursuant to these programs.

        Birinapant is a novel compound and its potential benefit as a therapeutic cancer or antiviral drug is unproven. Our ability to generate revenues from birinapant, which we do not expect will occur in the short term, if ever, will depend heavily on its successful development and commercialization after approval, if achieved, which is subject to many potential risks. For example, birinapant may not prove to be an effective inhibitor of the cancer or viral targets it is being designed to act against and may not demonstrate in study subjects any or all of the pharmacological data points that may have been demonstrated in pre-clinical studies. Birinapant may interact with human biological systems in unforeseen, ineffective or harmful ways. If birinapant is associated with undesirable side effects or has characteristics that are unexpected, we may need to abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early stage testing for treating cancer have later been found to cause side effects that prevented further development of the compound. As a result of these and other risks described herein that are inherent in the development of novel therapeutic agents, we may never successfully develop, enter into or maintain third-party licensing or collaboration transactions with respect to, or successfully commercialize birinapant, in which case we will not achieve profitability and the value of our stock may decline.

Clinical development of product candidates involves a lengthy and expensive process with an uncertain outcome.

        Clinical testing is expensive, can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and early clinical trials.

18


Table of Contents

        We may experience delays in our ongoing or future clinical trials and we do not know whether planned clinical trials will begin or enroll subjects on time, need to be redesigned or be completed on schedule, if at all. There can be no assurance that the FDA or other foreign regulator authority will not put clinical trials of birinapant or any other product candidates on clinical hold now or in the future. Clinical trials may be delayed, suspended or prematurely terminated for a variety of reasons, such as:

    delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on a trial design that we are able to execute;

    delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;

    delay or failure in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

    delay or failure in obtaining institutional review board, or IRB, approval or the approval of other reviewing entities, including comparable foreign regulatory authorities, to conduct a clinical trial at each site;

    withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials;

    delay or failure in recruiting and enrolling suitable study subjects to participate in a trial;

    delay or failure in study subjects completing a trial or returning for post-treatment follow-up;

    clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;

    inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for competing product candidates with the same indication;

    failure of our third-party clinical trial managers to satisfy their contractual duties or meet expected deadlines;

    delay or failure in adding new clinical trial sites;

    ambiguous or negative interim results or results that are inconsistent with earlier results;

    feedback from the FDA, the IRB, data safety monitoring boards, or a comparable foreign regulatory authority, or results from earlier stage or concurrent pre-clinical studies and clinical trials, that might require modification to the protocol for the trial;

    decision by the FDA, the IRB, a comparable foreign regulatory authority, or us, or recommendation by a data safety monitoring board or comparable foreign regulatory authority, to suspend or terminate clinical trials at any time for safety issues or for any other reason;

    unacceptable risk-benefit profile, unforeseen safety issues or adverse side effects or adverse events;

    failure of a product candidate to demonstrate any benefit;

19


Table of Contents

    difficulties in manufacturing or obtaining from third parties sufficient quantities of a product candidate for use in clinical trials;

    lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional clinical studies or increased expenses associated with the services of our CROs and other third parties; or

    changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

        Study subject enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the subject population, the proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, ability to obtain and maintain subject consents, risk that enrolled subjects will drop out before completion, competing clinical trials and clinicians' and subjects' perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved or product candidates that may be studied in competing clinical trials for the indications we are investigating. We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and while we have agreements governing their committed activities, we have limited influence over their actual performance.

        If we experience delays in the completion of any clinical trial of birinapant, the commercial prospects of birinapant may be harmed, and our ability to generate product revenues from birinapant, if approved, will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our development and approval process for birinapant and jeopardize our ability to commence product sales and generate revenues. In addition, many of the factors that could cause a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of birinapant.

Our commercial success depends upon attaining significant market acceptance of birinapant, if approved, among physicians, patients, healthcare payors and the major operators of cancer clinics.

        Even if we obtain regulatory approval for birinapant, birinapant may not gain market acceptance among physicians, healthcare payors, patients or the medical community. Market acceptance of birinapant, if we receive approval, depends on a number of factors, including the:

    efficacy and safety of birinapant or birinapant administered with other drugs each as demonstrated in clinical trials and post-marketing experience;

    clinical indications for which birinapant is approved;

    acceptance by physicians, major operators of cancer clinics and patients of birinapant as a safe and effective treatment;

    potential and perceived advantages of birinapant over alternative treatments;

    safety of birinapant seen in a broader patient group, including its use outside the approved indications should physicians choose to prescribe for such uses;

    prevalence and severity of any side effects;

    product labeling or product insert requirements of the FDA or other regulatory authorities;

20


Table of Contents

    timing of market introduction of birinapant as well as competitive products;

    cost of treatment in relation to alternative treatments;

    availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;

    relative convenience and ease of administration; and

    effectiveness of our sales and marketing efforts.

        Moreover, if birinapant is approved but fails to achieve market acceptance among physicians, patients, or healthcare payors or the products or product candidates that are being administered with birinapant are restricted, withdrawn or recalled or fail to be approved, as the case may be, we may not be able to generate significant revenues, which would compromise our ability to become profitable.

Our commercial success could depend upon the continued marketing of a regulatory approved product, or the approval of a product candidate, that is administered with birinapant.

        Some of our clinical trials involve regulatory approved products marketed, or product candidates being developed, by other pharmaceutical companies and some of the indications for which we are developing birinapant involve its use in combination with these other products and product candidates. These products or product candidates may be administered in a clinical trial in combination with birinapant. In the event that any of these pharmaceutical companies have unforeseen issues that negatively impact their clinical development or marketing approval for these products and product candidates or otherwise negatively affect their ability to continue to clinically develop or market these products and product candidates, our ability to complete our applicable clinical trials and/or evaluate clinical results and, ultimately, our ability to receive regulatory approval for birinapant for the indications we are pursuing may also be negatively impacted. As a result, this could adversely affect our ability to file for, gain or maintain regulatory approvals on a timely basis, if at all.

Birinapant may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any marketing approval.

        Undesirable side effects caused by birinapant could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authority. For example, even though birinapant has generally been well tolerated by subjects in our earlier-stage clinical trials, in some cases there were side effects, some of which were severe. In clinical trials where birinapant was administered as monotherapy, treatment-related side effects that were Grade 3 or Grade 4, meaning they were more than mild or moderate in severity, include increase of serum levels of amylase or lipase protein concentrations, fatigue, headache, hypophosphatemia, lymphopenia, nausea, rash, thrombocytopenia and vomiting. Treatment-related Grade 3 or Grade 4 side effects observed in trials where birinapant was administered with other cancer therapies included abdominal pain, alanine aminotransferase increase, amylase increase, anemia, aspartate aminotransferase increase, caecitis, dehydration, diarrhea, dyspnea, fatigue, febrile neutropenia, granulocytopenia, headache, hyponatraemia, hypotension, leukopenia, lipase increase, lymphocytopenia, mucositis, nausea, neutropenia, pancytopenia, sepsis, stomatitis, stress cardiomyopathy, thrombocytopenia, vomiting, and weight decrease. In dose escalation studies of birinapant combined with

21


Table of Contents

chemotherapies that deliberately sought to define the dose-limiting toxicities, and thus the MTD, the most common dose-limiting side effect was Grade 2 Bell's Palsy, or weakness or inability to control facial muscles on one side of the face.

        As a result of these side effects or further safety or toxicity issues that we may experience in our clinical trials in the future, we may not receive approval to market birinapant, which could prevent us from ever generating revenues or achieving profitability. Results of our trials could reveal an unacceptably high severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of birinapant for any or all targeted indications. The study drug-related side effects could affect study subject recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims.

        Additionally, if birinapant receives marketing approval, and we or others later identify undesirable side effects caused by birinapant, a number of potentially significant negative consequences could result, including:

    we may be forced to suspend marketing of birinapant;

    regulatory authorities may withdraw their approvals of birinapant;

    regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of birinapant;

    we may be required to conduct post-market studies;

    we could be sued and held liable for harm caused to subjects or patients; and

    our reputation may suffer.

        Any of these events could prevent us from achieving or maintaining market acceptance of birinapant, if approved.

Even if birinapant receives regulatory approval, we may still face future development and regulatory difficulties.

        Even if we obtain regulatory approval for birinapant, it would be subject to ongoing requirements by the FDA and comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of birinapant will continue to be closely monitored by the FDA and comparable foreign regulatory authorities after approval. If new safety information becomes available after approval of birinapant, the FDA or comparable foreign regulatory authorities may require labeling changes or establishment of a Risk Evaluation and Mitigation Strategy, or REMS, or similar strategy, impose significant restrictions on birinapant's indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. For example, the label ultimately approved for birinapant, if it achieves marketing approval, may include restrictions on use.

        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 current good manufacturing practices, or cGMP, and other regulations. If we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product

22


Table of Contents

is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, birinapant or the manufacturing facilities for birinapant fails to comply with applicable regulatory requirements, a regulatory agency may:

    issue warning letters or untitled letters;

    mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;

    require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

    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 to applications filed by us;

    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 require us to initiate a product recall.

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

        Advertising and promotion of any product candidate that obtains approval in the U.S. will be heavily scrutinized by, among others, the FDA, the Department of Justice, or the DOJ, the Office of Inspector General of the Department of Health and Human Services, or HHS, state attorneys general, members of Congress and the public. Violations, including promotion of our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA or other government agencies. Additionally, advertising and promotion of any product candidate that obtains approval outside of the U.S. will be heavily scrutinized by comparable foreign regulatory authorities.

        In the U.S., engaging in impermissible promotion of birinapant for off-label uses can also subject us to false claims litigation under federal and state statutes, and other litigation and/or investigation, which can lead to civil and criminal penalties and fines and agreements that materially restrict the manner in which we promote or distribute our drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlement funds. Since 2004, these False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements based on certain sales practices promoting off-label drug uses. This increasing focus and scrutiny has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our approved products, we may become

23


Table of Contents

subject to such litigation and/or investigation and, if we are not successful in defending against such actions, those actions could compromise our ability to become profitable.

Failure to obtain regulatory approval in international jurisdictions would prevent birinapant from being marketed abroad.

        In order to market and sell our products in the European Union and many other jurisdictions, including Japan and South Korea, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the U.S. generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the U.S. on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of birinapant by regulatory authorities in the European Union, Japan, South Korea or another country or jurisdiction, the commercial prospects of birinapant may be significantly diminished and our business prospects could decline.

Recently enacted and future legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty and cost for us to obtain marketing approval of and commercialize birinapant and affect the prices we may obtain.

        The regulations that govern, among other things, marketing approvals, coverage, pricing and reimbursement for new drug products vary widely from country to country. In the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of birinapant, restrict or regulate post-approval activities and affect our ability to successfully sell birinapant, if we may obtain marketing approval.

        In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician administered drugs. In recent years, Congress has considered further reductions in Medicare reimbursement for drugs administered by physicians. The Centers for Medicare and Medicaid Services, the agency that runs the Medicare program, also has the authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. While the Medicare Modernization Act and Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.

24


Table of Contents

        In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010, or the Affordable Care Act, 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 pharmaceutical and medical device manufacturers and impose additional health policy reforms. The Affordable Care Act expanded manufacturers' rebate liability to include covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, increased the minimum rebate due for innovator drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and capped the total rebate amount for innovator drugs at 100.0% of AMP. The Affordable Care Act and subsequent legislation also changed the definition of AMP. Furthermore, the Affordable Care Act imposes a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners, and a significant number of provisions are not yet, or have only recently become, effective. Although it is too early to determine the effect of the Affordable Care Act, it appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

        In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. More recently, in August 2011, the President of the U.S. signed into law the Budget Control Act of 2011, which, among other things, creates the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillion for the years 2013 through 2021, triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. If we ever obtain regulatory approval and commercialization of birinapant, these new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of birinapant may be.

        In the U.S., the European Union and other potentially significant markets for birinapant, government authorities and third-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. Furthermore, the increased emphasis on managed healthcare in the U.S. and on country and regional pricing and reimbursement controls in the European Union will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general.

25


Table of Contents

        Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for birinapant in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues we are able to generate from the sale of the product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in birinapant even if birinapant obtains marketing approval.

Laws and regulations governing international operations may preclude us from developing, manufacturing and selling product candidates outside of the U.S. and require us to develop and implement costly compliance programs.

        As we seek to expand our operations outside of the U.S., we must comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

        The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S. to comply with certain accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the DOJ. The Securities and Exchange Commission, or the SEC, is involved with enforcement of the books and records provisions of the FCPA.

        Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

        Various laws, regulations and executive orders also restrict the use and dissemination outside of the U.S., or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expanding presence outside of the U.S. will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling birinapant outside of the U.S., which could limit our growth potential and increase our development costs.

        The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in

26


Table of Contents

long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions.

Even if we are able to commercialize birinapant, birinapant may not receive coverage and adequate reimbursement from third-party payors, which could harm our business.

        Our ability to commercialize birinapant successfully will depend, in part, on the extent to which coverage and adequate reimbursement for birinapant and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical drugs. Third-party payors may also seek additional clinical evidence, beyond the data required to obtain marketing approval, demonstrating clinical benefits and value in specific patient populations before covering birinapant for those patients. We cannot be sure that coverage and adequate reimbursement will be available for birinapant and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, birinapant, if we obtain marketing approval. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize birinapant, if we obtain marketing approval.

        There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the U.S. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to obtain coverage and profitable reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

27


Table of Contents

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell birinapant, we may be unable to generate any revenue.

        We do not currently have an organization for the sale, marketing and distribution of pharmaceutical products and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any products that may be approved by the FDA and comparable foreign regulatory authorities, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-funded sales and marketing operations. Without an internal commercial organization or the support of a third party to perform sales and marketing functions, we may be unable to compete successfully against these more established companies.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

        Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our operations (including our marketing, promotion, educational programs, pricing, and relationships with healthcare providers or other entities, among other things) and expose us to areas of risk include the following:

    the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;

    federal civil and criminal false claims laws and civil monetary penalty laws impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also created federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially

28


Table of Contents

      false statements in connection with the delivery of or payment for healthcare benefits, items or services;

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

    the federal physician sunshine requirements under the Affordable Care Act requires manufacturers of drugs, devices, biologics and medical supplies to report annually to HHS information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and

    analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

        Efforts to ensure that our business arrangements with third parties are compliant with applicable healthcare laws and regulations will involve the expenditure of appropriate, and possibly significant, resources. Nonetheless, it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.

        We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Employee

29


Table of Contents

misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We will adopt a code of conduct for our directors, officers and employees, or the Code of Conduct, which will be effective as of consummation of this offering, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to 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 face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

        The development and commercialization of new drug products is highly competitive. We face competition with respect to birinapant and will face competition with respect to any other product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing birinapant. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. For example, there are several companies developing product candidates that target the same cancer pathways that we are targeting or that are testing product candidates in the same cancer indications that we are testing. For example, Curis Inc., or Curis (Phase 1), Debiopharma SA, or Debiopharma (Phase 1), and Novartis AG, or Novartis (Phase 2), are all developing IAP inhibitors. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

        Birinapant is presently being developed primarily as a cancer therapeutic. There are a variety of available therapies and supportive care products marketed for cancer patients. Some of these other drugs are branded and subject to patent protection, some are in clinical development and not yet approved, and others are available on a generic basis. Many of the approved drugs are well established therapies or products and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. In addition, birinapant is delivered intravenously, which will require a visit to an oncologist office or a hospital. Some of our competitors are seeking to develop drugs that can be administered by oral delivery, and thus would not require a visit to a doctor for each administration. These factors may make it difficult for us to achieve market acceptance at desired levels and/or in a timely manner to ensure viability of our business.

        More established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our competitors may have significantly greater financial, technical and human resources.

        As a result of these factors, our competitors may obtain regulatory approval of their products before we are able to, which may limit our ability to develop or commercialize

30


Table of Contents

birinapant. Our competitors may also develop drugs that are safer, more effective, more widely used and cheaper than ours, and may also be more successful than us in manufacturing and marketing their products. These appreciable advantages could render birinapant obsolete or non-competitive before we can recover the expenses of birinapant's development and commercialization.

        Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of birinapant that we may develop.

        We face an inherent risk of product liability exposure related to the testing of birinapant by us or our investigators in human clinical trials and will face an even greater risk if we commercially sell birinapant after obtaining regulatory approval. Product liability claims may be brought against us by study subjects enrolled in our clinical trials, patients, healthcare providers or others using, administering or selling birinapant. If we cannot successfully defend ourselves against claims that birinapant caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in, for example:

    decreased demand for birinapant;

    termination of clinical trial sites or entire trial programs;

    injury to our reputation and significant negative media attention;

    withdrawal of clinical trial subjects;

    significant costs to defend the related litigation;

    substantial monetary awards to clinical trial subjects or patients;

    loss of revenue;

    diversion of management and scientific resources from our business operations;

    the inability to commercialize birinapant; and

    increased scrutiny and potential investigation by, among others, the FDA, DOJ, the Office of Inspector General of the HHS, state attorneys general, members of Congress and the public.

        We currently have $10.0 million in product liability insurance coverage in the aggregate, which may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. We intend to expand our product liability insurance coverage to include the sale of commercial products if we obtain marketing approval for birinapant, but we may be unable to obtain commercially reasonable product liability insurance for birinapant, if approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A

31


Table of Contents

successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

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

        As of October 1, 2013, we had 20 full-time employees and two part-time employees, of whom 11 hold Ph.D. degrees and four hold M.D. (or international M.D.-equivalent) degrees. As our development and commercialization plans and strategies develop, or as a result of any future acquisitions, we will need additional managerial, operational, sales, marketing, financial and other resources. Our management, personnel and systems currently in place may not be adequate to support this future growth. Future growth would impose significant added responsibilities on members of management, including:

    managing our clinical trials effectively;

    identifying, recruiting, maintaining, motivating and integrating additional employees;

    managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;

    improving our managerial, development, operational and finance systems; and

    expanding our facilities.

        As our operations expand, we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to commercialize birinapant, if approved, and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. Our failure to accomplish any of these tasks could prevent us from successfully growing our company.

Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified personnel.

        We are highly dependent upon J. Kevin Buchi, our Chief Executive Officer, Lesley Russell, M.B.Ch.B., M.R.C.P., our Chief Operating Officer, Pete A. Meyers, our Chief Financial Officer and Treasurer, and C. Glenn Begley, M.B.B.S., Ph.D., F.R.A.C.P., F.R.C.P.A., F.R.C.Path., our Chief Scientific Officer and Senior Vice President, Research & Development. In addition, some of our officers, including Mr. Buchi, Mr. Meyers and Dr. Russell, joined us recently. The employment agreements we have with the persons named above do not prevent such persons from terminating their employment with us at any time. We do not maintain "key person" insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives.

If we are unable to attract and retain highly qualified employees, we may not be able to grow effectively.

        Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. The loss of any member of our senior management team or the

32


Table of Contents

inability to hire or retain experienced management personnel could compromise our ability to execute our business plan and harm our operating results.

        Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. The competition for qualified personnel in the pharmaceutical field is intense and as a result, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business.

We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies, that could harm our operating results, dilute our stockholders' ownership, increase our debt or cause us to incur significant expense.

        As part of our business strategy, we may pursue acquisitions of assets, including pre-clinical, clinical or commercial stage products or product candidates, or businesses, or strategic alliances and collaborations, to expand our existing technologies and operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any such transaction, any of which could have a detrimental effect on our financial condition, results of operations and cash flows. We have no experience with acquiring other companies, products or product candidates, and limited experience with forming strategic alliances and collaborations. We may not be able to find suitable acquisition candidates, and if we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith. Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwise focus on developing our existing business. We may not be able to find suitable strategic alliance or collaboration partners or identify other investment opportunities, and we may experience losses related to any such investments.

        To finance any acquisitions or collaborations, we may choose to issue debt or shares of our common stock as consideration. Any such issuance of shares would dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.

Our business and operations would suffer in the event of computer system failures.

        Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures. In addition, our systems safeguard important confidential personal data regarding our subjects. If an disruption event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate

33


Table of Contents

disclosure of confidential or proprietary information, we could incur liability and the further development of birinapant could be delayed.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

        We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

        Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.

        In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.

        Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce birinapant. Our ability to obtain clinical supplies of birinapant could be disrupted if the operations of these suppliers is affected by a man-made or natural disaster or other business interruption. The ultimate impact on us, our significant suppliers and our general infrastructure of being in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.

34


Table of Contents


Risks Related to Our Dependence on Third Parties

We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize birinapant.

        We rely on third-party CROs to monitor and manage data for our ongoing pre-clinical and clinical programs. We rely on these parties for execution of our pre-clinical studies and clinical trials, and we control only some aspects of their activities. Nevertheless, we are responsible for ensuring that each of our pre-clinical studies and clinical trials are conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We also rely on third parties to assist in conducting our pre-clinical studies in accordance with Good Laboratory Practices, or GLP, and the Animal Welfare Act requirements. We and our CROs are required to comply with federal regulations and current Good Clinical Practices, or GCP, which are international standards meant to protect the rights and health of subjects that are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for birinapant and any future product candidates in clinical development. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements. Failure to comply with these regulations may require us to repeat pre-clinical studies and clinical trials, which would delay the regulatory approval process.

        Our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, nonclinical and pre-clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our pre-clinical studies and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize birinapant. As a result, our results of operations and the commercial prospects for birinapant would be harmed, our costs could increase and our ability to generate revenues could be delayed.

        Because we have relied on third parties, our internal capacity to perform these functions is limited. Outsourcing these functions involves risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers. To the extent we are unable to identify and successfully manage the performance of third-party service providers in the future, our business may be adversely affected. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

35


Table of Contents

If we lose our relationships with CROs, our drug development efforts could be delayed.

        We rely on third-party vendors and CROs for pre-clinical studies and clinical trials related to our drug development efforts. Switching or adding additional CROs would involve additional cost and requires management time and focus. Our CROs generally have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us and/or research projects pursuant to such agreements if the safety of the subjects participating in our clinical trials warrants such termination in accordance with the reasonable opinion of the relevant CRO, if we make a general assignment for the benefit of our creditors or if we are liquidated. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. In addition, there is a natural transition period when a new CRO commences work and the new CRO may not provide the same type or level of services as the original provider. If any of our relationships with our third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms.

Our experience manufacturing birinapant is limited to the needs of our pre-clinical studies and clinical trials. We have no experience manufacturing birinapant on a commercial scale and have no manufacturing facility. We are dependent on third-party manufacturers for the manufacture of birinapant as well as on third parties for our supply chain, and if we experience problems with any such third parties, the manufacturing of birinapant could be delayed.

        We do not own or operate facilities for the manufacture of birinapant. We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. We currently rely on contract manufacturing organizations, or CMOs, for the chemical manufacture of active pharmaceutical ingredient for birinapant and another CMO for the production of the birinapant intravenous formulation. To meet our projected needs for pre-clinical and clinical supplies to support our activities through regulatory approval and commercial manufacturing, the CMOs with whom we currently work will need to increase the scale of production. We may need to identify additional CMOs for continued production of supply for birinapant. Although alternative third-party suppliers with the necessary manufacturing and regulatory expertise and facilities exist, it could be expensive and take a significant amount of time to arrange for alternative suppliers. If we are unable to arrange for alternative third-party manufacturing sources, or to do so on commercially reasonable terms or in a timely manner, we may not be able to complete development of birinapant, or market or distribute birinapant.

        Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured birinapant ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control, including a failure to synthesize and manufacture birinapant or any products we may eventually commercialize in accordance with our specifications, and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities would require that birinapant and any products that we may eventually commercialize be manufactured according to cGMP and similar foreign standards. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of birinapant in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of birinapant. In addition, such failure could be the basis for the

36


Table of Contents

FDA to issue a warning letter, withdraw approvals for birinapant previously granted to us, or take other regulatory or legal action, including recall or seizure of outside supplies of birinapant, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, detention or product, refusal to permit the import or export of products, injunction, or imposing civil and criminal penalties.

        Any significant disruption in our supplier relationships could harm our business. Any significant delay in the supply of birinapant or its key materials for an ongoing pre-clinical study or clinical trial could considerably delay completion of our pre-clinical study or clinical trial, product testing and potential regulatory approval of birinapant. If our manufacturers or we are unable to purchase these key materials after regulatory approval has been obtained for birinapant, the commercial launch of birinapant would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of birinapant.

We may elect to enter into licensing or collaboration agreements to partner birinapant in territories currently retained by us. Our dependence on such relationships may adversely affect our business.

        Because we have limited resources, we may seek to enter into collaboration agreements with other pharmaceutical or biotechnology companies. Any failure by our partners to perform their obligations or any decision by our partners to terminate these agreements could negatively impact our ability to successfully develop, obtain regulatory approvals for and commercialize birinapant. In the event we grant exclusive rights to such partners, we would be precluded from potential commercialization of birinapant within the territories in which we have a partner. In addition, any termination of our collaboration agreements will terminate the funding we may receive under the relevant collaboration agreement and may impair our ability to fund further development efforts and our progress in our development programs.

        Our commercialization strategy for birinapant may depend on our ability to enter into agreements with collaborators to obtain assistance and funding for the development and potential commercialization of birinapant in the territories in which we seek to partner. Despite our efforts, we may be unable to secure additional collaborative licensing or other arrangements that are necessary for us to further develop and commercialize birinapant. Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty for us, as we have less control over certain aspects of our collaborative programs than we do over our proprietary development and commercialization programs. We may determine that continuing a collaboration under the terms provided is not in our best interest, and we may terminate the collaboration. Our potential future collaborators could delay or terminate their agreements, and as a result birinapant may never be successfully commercialized.

        Further, our potential future collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities or focus of our collaborators may shift such that birinapant receives less attention or resources than we would like, or they may be terminated altogether. We may also enter into agreements with collaborators to share in the burden of conducting clinical trials, manufacturing and marketing birinapant. Any such actions by our potential future collaborators may adversely affect our business prospects and ability to earn revenues. In addition, we could have disputes with our potential future collaborators, such as the

37


Table of Contents

interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of birinapant or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.


Risks Related to Our Intellectual Property

If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.

        Our commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the U.S. and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the U.S. and abroad related to our novel technologies and products that are important to our business.

        The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the U.S. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those licensed to us and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.

        With respect to patent rights, we do not know whether any of the pending patent applications for any of our compounds will result in the issuance of patents that protect our technology or products, or if any of our or our licensors' issued patents will effectively prevent others from commercializing competitive technologies and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.

        Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may

38


Table of Contents

be challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our or our licensors' patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.

        Our commercial success depends upon our ability to develop, manufacture, market and sell birinapant, and to use our related proprietary technologies. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to birinapant, including interference or derivation proceedings before the U.S. Patent and Trademark Office, or USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party's intellectual property rights, we could be required to obtain a license from such third party to continue commercializing birinapant. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, we could be forced, including by court order, to cease commercializing birinapant. In addition, in any such proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing birinapant or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business.

        While birinapant is in pre-clinical studies and clinical trials, we believe that the use of birinapant in these pre-clinical studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the U.S., which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. As birinapant progresses toward commercialization, the possibility of a patent infringement claim against us increases. We attempt to ensure that birinapant and the methods we employ to manufacture them, as well as the methods for their use we intend to promote, do not infringe other parties' patents and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.

        In addition, we are testing birinapant administered with other product candidates and regulatory approved products that are covered by patents held by other companies or institutions. In the event that a labeling instruction is required in product packaging recommending that combination, we could be accused of, or held liable for, infringement of the third-party patents covering the product candidate or regulatory approved products recommended for administration with birinapant. In such a case, we could be required to obtain a license from the other company or institution to use the required or desired package labeling, which may not be available on commercially reasonable terms, or at all.

        We are aware of certain U.S. and foreign patents owned by a certain third party with claims that are broadly directed to pro-apoptotic SMAC peptide mimetic monomer and dimer compounds, as well as to their use in treating cancer. These patents could be construed to

39


Table of Contents

cover birinapant. Generally, conducting clinical trials and other development activities in the U.S. is not considered an act of infringement. If and when birinapant is approved by the FDA, that certain third party may then seek to enforce its patents by filing a patent infringement lawsuit against us. In such lawsuit, we may incur substantial expenses defending our rights to commercialize birinapant, and in connection with such lawsuit and under certain circumstances, it is possible that we could be required to cease or delay the commercialization of birinapant and/or be required to pay monetary damages or other amounts, including royalties on the sales of birinapant. Moreover, such lawsuit may also consume substantial time and resources of our management team and board of directors. The threat or consequences of such a lawsuit may also result in royalty and other monetary obligations, which may adversely affect our results of operations and financial condition.

If we breach our license agreement with Princeton University, it could have a material adverse effect on our commercialization efforts for birinapant or such other compounds in the U.S.

        In November 2003, we entered into an exclusive license agreement with Princeton University, subsequently amended in June 2004, August 2006 and October 2006, which grants us the rights to certain U.S. patents controlled by the university relating to SMAC-mimetic compounds, including birinapant, and a non-exclusive right to certain know-how and technology relating thereto. The agreement contains a right by us to sublicense. If we materially breach or fail to perform any provision under this license agreement (including failure to make payments to Princeton University when due for royalties and other sub-license revenues, failure to use reasonable efforts to develop, test, obtain regulatory approval, manufacture, market and sell licensed products, failure to file annual progress reports, commencement of bankruptcy or insolvency proceedings against us or failure to prosecute and maintain the licensed patents), Princeton University has the right to terminate our license, and upon the effective date of such termination, our right to practice the licensed Princeton University patent rights and related technology would end. To the extent such licensed technology or patent rights relate to birinapant, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights and other technology licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the license agreement could result in our loss of rights to practice the patent rights and technology licensed to us under the license agreement, and to the extent such patent rights and other technology relate to birinapant or other of our compounds, it could have a material adverse effect on our commercialization efforts for birinapant or such other compounds. See "Business—License Agreement with Princeton University" below for a more detailed description of the license agreement with Princeton University.

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

        Filing, prosecuting and defending patents on birinapant and any future product candidates throughout the world would be prohibitively expensive, and our or our licensors' intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws and practices of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Consequently, we and our licensors may not be able to prevent third parties from practicing our and our licensors' inventions in all countries outside the U.S., or from selling or importing products made using our and our licensors' inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop

40


Table of Contents

their own products, and may export otherwise infringing products to territories where we or our licensors have patent protection, but where enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

        Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our or our licensor's patents or marketing of competing products in violation of our proprietary rights generally in those countries. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our and our licensors' patents at risk of being invalidated or interpreted narrowly and our and our licensors' patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors. We or our licensors may not prevail in any lawsuits that we or our licensors initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.

        The laws of certain foreign countries may not protect our rights to the same extent as the laws of the U.S., and these foreign laws may also be subject to change. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors' patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. Many countries, including European Union countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our and our licensors' efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.

Patent term may be inadequate to protect our competitive position on our products for an adequate amount of time.

        Given the amount of time required for the development, testing and regulatory review of new product candidates, such as birinapant, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the U.S. and, if available, in other countries where we are prosecuting patents. In the U.S., the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the U.S., and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical

41


Table of Contents

trials by referencing our clinical and pre-clinical data and launch their product earlier than might otherwise be the case.

Changes in patent law, including recent patent reform legislation, could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

        As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve technological and legal complexity, and obtaining and enforcing pharmaceutical patents is costly, time-consuming, and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries may diminish the value of our patents or narrow the scope of our patent protection. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our and our licensors' ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our and our licensors' ability to obtain new patents or to enforce existing patents and patents we and our licensors may obtain in the future. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors' patent applications and the enforcement or defense of our or our licensors' issued patents and those licensed to us.

        In September 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the U.S. transitioned in March 2013 to a "first to file" system in which the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO and may become involved in opposition, derivation, reexamination, inter-partes review or interference proceedings challenging our patent rights or the patent rights of our licensors. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our or our licensors' patent rights, which could adversely affect our competitive position.

        The USPTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not become effective until March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

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

        Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of

42


Table of Contents

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

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and have a material adverse effect on the success of our business.

        Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. Also, third parties may initiate legal proceedings against us or our licensors to challenge the validity or scope of intellectual property rights we own or control. These proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock.

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

        Many of our employees and our licensors' employees, including our senior management, were previously employed at universities or at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be

43


Table of Contents

necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

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

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

    others may be able to make compounds that are the same as or similar to birinapant but that are not covered by the claims of the patents that we own or have exclusively licensed;

    we or our licensors or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or have exclusively licensed;

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

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

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

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

    our competitors might conduct research and development activities in the U.S. and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

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

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


Risks Related to This Offering and Ownership of Our Common Stock

We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and as a result it may be difficult for you to sell your shares of our common stock.

        Prior to this offering there has been no market for shares of our common stock. An active trading market for our shares may never develop or be sustained following this offering. The initial public offering price for our common stock will be determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of our common stock after this offering. The market value of our common stock may decrease

44


Table of Contents

from the initial public offering price. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into collaborations or acquire companies or products by using our shares of common stock as consideration. The market price of our stock may be volatile, and you could lose all or part of your investment.

The market price of our stock may be volatile, and you could lose all or part of your investment.

        The trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this prospectus, these factors include:

    the success of competitive products or technologies;

    regulatory actions with respect to our products or our competitors' products;

    actual or anticipated changes in our growth rate relative to our competitors;

    announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

    results of clinical trials of birinapant or product candidates of our competitors;

    regulatory or legal developments in the U.S. and other countries;

    developments or disputes concerning patent applications, issued patents or other proprietary rights;

    the recruitment or departure of key personnel;

    the level of expenses related to our clinical development programs;

    the results of our efforts to in-license or acquire additional product candidates or products;

    actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

    variations in our financial results or those of companies that are perceived to be similar to us;

    fluctuations in the valuation of companies perceived by investors to be comparable to us;

    share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

    announcement or expectation of additional financing efforts;

    sales of our common stock by us, our insiders or our other stockholders;

45


Table of Contents

    changes in the structure of healthcare payment systems;

    market conditions in the pharmaceutical and biotechnology sectors; and

    general economic, industry and market conditions.

        In addition, the stock market in general, and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of these risks or any of a broad range of other risks, including those described in these "Risk Factors," could have a dramatic and material adverse impact on the market price of our common stock.

We may be subject to securities litigation, which is expensive and could divert our management's attention.

        The market price of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.

Insiders have substantial influence over us and could delay or prevent a change in corporate control.

        Prior to this offering, our executive officers, directors, and holders of 5.0% or more of our capital stock collectively beneficially owned approximately         % of our voting stock and, upon consummation of this offering, that same group will together hold approximately         % of our outstanding voting stock, assuming no exercise of the underwriters' over-allotment option, no exercise of outstanding options and after giving effect to the issuance of shares in this offering. This concentration of ownership could harm the market price of our common stock by:

    delaying, deferring or preventing a change in control of our company;

    impeding a merger, consolidation, takeover or other business combination involving our company; or

    discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

        The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might negatively affect the prevailing market price for our common stock.

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

        The initial public offering price is substantially higher than the net tangible book value per share of our common stock. Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $             per share, based on an assumed initial public offering

46


Table of Contents

price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. Further, investors purchasing common stock in this offering will contribute approximately         % of the total amount invested by stockholders since our inception, but will own, as a result of such investment, only         % of the shares of common stock outstanding immediately following this offering.

        The exercise of any of our outstanding options and warrants would result in additional dilution. Additionally, we have issued convertible promissory notes to certain of our existing stockholders, which will be converted into             additional shares of our common stock prior to the consummation of the offering (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus). These issuances of common stock will result in additional dilution to investors purchasing shares in this offering. As a result of this dilution, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. Further, because we will need to raise additional capital to fund our clinical development programs, we may in the future sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of equity or equity-linked securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in further dilution to investors.

We are an "emerging growth company" and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in our common stock being less attractive to investors.

        We are an "emerging growth company," as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which in certain circumstances could be for up to five years. See "Summary—Implications of Being an Emerging Growth Company" above.

Our status as an "emerging growth company" under the JOBS Act may make it more difficult to raise capital as and when we need it.

        Because of the exemptions from various reporting requirements provided to us as an "emerging growth company" we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

        We will remain an "emerging growth company" until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.0 billion, (b) the date that we

47


Table of Contents

become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the preceding three-year period and (d) the last day of our fiscal year containing the fifth anniversary of the date on which shares of our common stock become publicly traded in the U.S.

If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

        The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. Commencing with our annual report on Form 10-K for the year ending December 31, 2014, we will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the independent registered public accounting firm attestation requirement.

        Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the NASDAQ Stock Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

48


Table of Contents

If we are unable to successfully remediate the existing material weakness in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

        In preparing our consolidated financial statements as of and for the year ended December 31, 2012, we and our independent registered public accounting firm identified control deficiencies in the design and operation of our internal control over financial reporting that together constituted a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weakness identified was that we did not have sufficient financial reporting and accounting staff with appropriate training in generally accepted accounting principles in the U.S., or GAAP, and SEC rules and regulations. As such, our controls over financial reporting were not designed or operating effectively, and as a result there were adjustments required in connection with closing our books and records and preparing our December 31, 2012 and June 30, 2013 financial statements.

        The material weakness in our internal control over financial reporting was attributable to our lack of sufficient financial reporting and accounting personnel with appropriate training in GAAP and SEC rules and regulations. In response to this material weakness, we plan to hire additional personnel with public company financial reporting expertise to build our financial management and reporting infrastructure, and further develop and document our accounting policies and financial reporting procedures. However, we cannot assure you that we will be successful in pursuing these measures or that these measures will significantly improve or remediate the material weakness described above. We also cannot assure you that we have identified all of our existing material weaknesses, or that we will not in the future have additional material weaknesses. We have not yet remediated our material weakness, and the remediation measures that we intend to implement may be insufficient to address our existing material weakness or to identify or prevent additional material weaknesses.

        Neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. In light of the control deficiencies and the resulting material weakness that were identified as a result of the limited procedures performed, we believe that it is possible that, had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses and significant control deficiencies may have been identified. However, for as long as we remain an "emerging growth company" as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the requirement that our independent registered public accounting firm provide an attestation on the effectiveness of our internal control over financial reporting.

        If we fail to remediate the material weakness or to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations. Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. There is no assurance that we will be able to remediate the material weakness in a timely manner, or at all, or that in the future, additional material weaknesses will not exist or otherwise be discovered. If our efforts to remediate the material weakness identified are not successful, or if other material weaknesses or other deficiencies

49


Table of Contents

occur, our ability to accurately and timely report our financial position could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated financial statements, a decline in our stock price, suspension or delisting of our common stock from the NASDAQ Global Market, and could adversely affect our reputation, results of operations and financial condition.

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

        Upon consummation of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

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

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, and these expenses may increase even more after we are no longer an "emerging growth company." We will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and to be adopted, by the SEC and NASDAQ Stock Market. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We estimate that we will incur approximately $2.0 to $3.0 million in incremental costs per year associated with being a publicly traded company, although it is possible that our actual incremental costs will be higher than we currently estimate. The increased costs will increase our net loss. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the sufficient coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

        We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying

50


Table of Contents

dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

        Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have              outstanding shares of common stock based on the number of shares outstanding as of June 30, 2013 (assuming an initial public offering price of $    per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus). This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Of the remaining shares, shares of our common stock, will be restricted as a result of securities laws or lock-up agreements but will be able to be sold after the offering as described in the "Shares Eligible for Future Sale" section of this prospectus. Moreover, after this offering, holders of an aggregate of                   shares of our common stock will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders, assuming the conversion of all of our outstanding convertible notes and warrants. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the "Underwriting" section in this prospectus.

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

        We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related securities, together with the exercise of stock options, warrants outstanding or granted in the future and any additional shares issued in connection with acquisitions, if any, may result in material dilution to our investors. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock, including shares of common stock sold in this offering.

        Pursuant to our equity incentive plans, our compensation committee is authorized to grant equity-based incentive awards to our directors, executive officers and other employees and service providers. The number of shares of our common stock available for future grant under our 2004 Equity Incentive Plan was 2,746,595 as of June 30, 2013. Additionally, we intend to adopt a 2013 Equity Incentive Plan in connection with this offering and reserve an additional             shares of our common stock for issuance thereunder. Future equity incentive grants and issuances of common stock under our 2013 Equity Incentive Plans may have an adverse effect on the market price of our common stock.

51


Table of Contents

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

        Although we currently intend to use the net proceeds from this offering in the manner described in the "Use of Proceeds" section in this prospectus, our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our business, including our birinapant clinical development programs, or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the market price of our common stock to decline and delay the development of birinapant. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. If we do not invest the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected clinical development progression, which could cause the price of our common stock to decline.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

        Provisions in our certificate of incorporation and bylaws that will become effective in connection with consummation of this offering, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, or remove our current management. These include provisions that will:

    permit our board of directors to issue up to 50.0 million shares of preferred stock, with any rights, preferences and privileges as it may designate;

    provide that all vacancies on our board of directors, including as a result of newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

    establish a classified board of directors such that only one of three classes of directors is elected each year;

    provide that directors can only be removed for cause;

    require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

    provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder's notice;

    require that the amendment of certain provisions of our certificate of incorporation and bylaws relating to anti-takeover measures may only be approved by a vote of 75% of our outstanding capital stock;

52


Table of Contents

    not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election; and

    provide that special meetings of our stockholders may be called only by the board of directors or by such person or persons designated by a majority of the board of directors to call such meetings.

        These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation may not, in general, engage in a business combination with any holder of 15.0% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

        The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

53


Table of Contents


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

        This prospectus includes forward-looking statements. We may, in some cases, use terms such as "believes," "estimates," "anticipates," "expects," "plans," "projects," "intends," "potential," "may," "could," "might," "will," "should," "approximately" or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ability to develop and commercialize birinapant; status, timing and results of pre-clinical studies and clinical trials; the potential benefits of birinapant; the timing of seeking regulatory approval of birinapant; our ability to obtain and maintain regulatory approval; our estimates of expenses and future revenues and profitability; our estimates regarding our capital requirements and our needs for additional financing; our plans to develop and market birinapant and the timing of our development programs; our estimates of the size of the potential markets for birinapant; our selection and licensing of birinapant; our ability to attract collaborators with acceptable development, regulatory and commercial expertise; the benefits to be derived from corporate collaborations, license agreements, and other collaborative or acquisition efforts, including those relating to the development and commercialization of birinapant; sources of revenues and anticipated revenues, including contributions from corporate collaborations, license agreements, and other collaborative efforts for the development and commercialization of products; our ability to create an effective sales and marketing infrastructure if we elect to market and sell birinapant directly; the rate and degree of market acceptance of birinapant; the timing and amount or reimbursement for birinapant; the success of other competing therapies that may become available; the manufacturing capacity for birinapant; our intellectual property position; our ability to maintain and protect our intellectual property rights; our results of operations, spending of the proceeds from this offering; financial condition, liquidity, prospects, and growth and strategies; the industry in which we operate; and the trends that may affect the industry or us.

        By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, they may not be predictive of results or developments in future periods.

        Actual results could differ materially from our forward-looking statements due to a number of factors, including risks related to:

    our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

    the opinion of our independent registered public accounting firm as to our ability to continue as a going concern for the next 12 months, even without the proceeds from this offering;

    the success and timing of our pre-clinical studies and clinical trials;

    the potential that results of pre-clinical studies and clinical trials indicate birinapant is unsafe or ineffective;

    our exposure to business disruptions;

54


Table of Contents

    our dependence on third parties in the conduct of our pre-clinical studies and clinical trials;

    the difficulties and expenses associated with obtaining and maintaining regulatory approval of birinapant, and the labeling under any approval we may obtain;

    our plans and ability to develop and commercialize birinapant;

    our failure to recruit or retain key scientific or management personnel or to retain our executive officers;

    the size and growth of the potential markets for birinapant, market acceptance of birinapant and our ability to serve those markets;

    legal and regulatory developments in the U.S. and foreign countries;

    our ability to limit our exposure to product liability lawsuits;

    our exposure to additional scrutiny as a public company, including the material weakness in our internal control over financial reporting identified by our independent registered public accounting firm;

    the rate and degree of market acceptance of birinapant;

    our use of the proceeds from this offering;

    obtaining and maintaining intellectual property protection for birinapant and our proprietary technology;

    the successful development of our commercialization capabilities, including sales and marketing capabilities;

    recently enacted and future legislation regarding the healthcare system;

    the success of competing therapies and products that are or become available; and

    the performance of third parties, including CROs and third-party manufacturers.

        Birinapant is an investigational drug undergoing clinical development and has not been approved by the FDA, nor submitted to the FDA for approval. Birinapant has not been, nor may never be approved by any regulatory agency nor marketed anywhere in the world. Statements contained in this prospectus should not be deemed to be promotional.

        Any forward-looking statements that we make in this prospectus speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

        You should also read carefully the factors described in the "Risk Factors" section of this prospectus and elsewhere to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act do not protect any forward-looking statements that we make in connection with this offering.

        We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. We believe this data is accurate in all material respects as of the date of this prospectus.

55


Table of Contents


USE OF PROCEEDS

        We estimate that our net proceeds from the sale of the shares of common stock in this offering will be approximately $              million, assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering costs payable by us. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds from this offering will be approximately $              million.

        A $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease our net proceeds from this offering by approximately $              million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering costs payable by us.

        We currently intend to use the net proceeds of this offering to advance the clinical and pre-clinical development of birinapant. Specifically, we currently estimate that we will use approximately $45.0 million of the net proceeds from this offering to fund our CRC program and approximately $25.0 million to fund our MDS program. The balance will be used for other clinical programs, working capital and general corporate purposes. Pending application of the net proceeds, we may invest temporarily in mutual and money market funds, bank certificates of deposit and investment-grade commercial paper, corporate notes, and government securities.

        Assuming this offering results in a full-size transaction pricing at the midpoint of the estimated offering price range set forth on the cover page of this prospectus, we expect that the net proceeds from this offering will enable us to commence (i) our randomized Phase 2/3 clinical trial in third-line CRC subjects, and (ii) our randomized Phase 3 clinical trial in first-line high-risk MDS subjects. In the event the net proceeds from this offering are significantly less than currently anticipated, our management will determine the relative priority of our clinical programs based on the actual net proceeds. In addition, funds available for working capital and general corporate purposes will likely be reduced.

        Our management will have broad discretion to allocate the net proceeds to us from this offering and investors will be relying on the judgment of our management regarding the application of the proceeds from this offering. We reserve the right to change the use of these proceeds as a result of certain contingencies such as competitive developments, the results of our clinical development efforts and investment opportunities and other factors.


DIVIDEND POLICY

        We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future.

56


Table of Contents


CAPITALIZATION

        The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2013:

    on an actual basis;

    on a pro forma basis to give effect to the conversion of all outstanding shares of our preferred stock into 163,081,134 shares of our common stock, the conversion of our convertible notes plus accrued interest into             shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) and the net exercise of our 2012/2013 Warrants into              shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) and our         for         reverse stock split, each of which will occur prior to consummation of this offering; and

    on a pro forma as adjusted basis to additionally give effect to the sale of         shares of our common stock in this offering, assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering costs payable by us.

        You should read the information in this table together with our financial statements and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus.

 
  As of June 30, 2013  
 
  Actual   Pro
Forma
  Pro Forma
As Adjusted
 

Cash and cash equivalents

  $ 6,020,383   $ 6,020,383   $    
               

Capitalization:

                   

Convertible notes payable

  $ 13,000,000   $   $  

Preferred stock, $0.0001 par value per share:

                   

Series A convertible preferred stock: 8,000,000 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    7,847,860          

Series B convertible preferred stock: 33,703,699 shares authorized, 33,333,334 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    14,788,379          

Series C convertible preferred stock: 133,212,722 shares authorized, 98,693,337 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    36,856,348          

Series C-1 convertible preferred stock: 13,276,686 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    5,919,616          
               

Total preferred stock

    65,412,203          

Stockholders' (deficit) equity:

                   

Common stock, $0.0001 par value per share: 237,901,724 shares authorized, 24,025,312 shares issued and outstanding, actual; 237,901,724 shares authorized,                       shares issued and outstanding, pro forma; and              shares authorized, shares issued and outstanding, pro forma as adjusted

    2,403              

Additional paid-in capital

    1,757,855              

Accumulated deficit

    (77,242,663 )            
               

Total stockholders' equity (deficit)

    (75,482,405 )          
               

Total capitalization

  $ 2,929,798   $     $  
               

57


Table of Contents

        A $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization on a pro forma as adjusted basis by approximately $          million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering costs payable by us.

        The number of shares of common stock to be outstanding after this offering is based on                      shares of common stock outstanding as of June 30, 2013, after giving effect to the conversion of all of our outstanding shares of preferred stock into 163,081,134 shares of our common stock, the net exercise of our 2012/2013 Warrants into                      shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) and the conversion of our convertible notes plus accrued interest into                      shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and excludes as of that date:

    1,705,408 shares of common stock issuable upon exercise of other warrants, with a weighted average exercise price of $0.16 per share. Of these shares, warrants to purchase 1,289,210 shares of our common stock contain a provision where the exercise price would be reduced in the event that we issue securities in the future at a price less than the current exercise price of $0.05 per share;

    11,793,150 shares of common stock issuable upon exercise of options, with a weighted average exercise price of $0.08 per share, under our 2004 Equity Incentive Plan; and

    2,746,595 shares of common stock reserved for future issuances under our 2004 Equity Incentive Plan and                        additional shares that will be made available for issuance under our 2013 Equity Incentive Plan.

58


Table of Contents


DILUTION

        If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock upon consummation of this offering. The historical net tangible book value (deficit) of our common stock as of June 30, 2013 was ($75.5) million, or ($3.14) per share. Historical net tangible book value (deficit) per share is determined by dividing the number of our outstanding shares of common stock into our total tangible assets (total assets less intangible assets) less total liabilities.

        On a pro forma basis, after giving effect to the conversion of all outstanding shares of our preferred stock into 163,081,134 shares of our common stock, the conversion of our convertible notes plus accrued interest into             shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and exercise of our 2012/2013 Warrants into             shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and our         for         reverse stock split, each of which will occur prior to consummation of this offering, our net tangible book value at June 30, 2013 would have been $              million, or $             per share.

        Investors purchasing in this offering will incur immediate and substantial dilution. After giving effect to the sale of common stock offered in this offering assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering costs payable by us, our pro forma as adjusted net tangible book value as of December 31, 2012 would have been $              million, or $             per share. This represents an immediate increase in pro forma net tangible book value of $             share to existing stockholders, and an immediate dilution in the pro forma net tangible book value of $             per share to investors purchasing in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share

             

Historical net tangible book value (deficit) per share as of June 30, 2013

  $     ($ 2.85 )

Pro forma increase in net tangible book value per share attributable to the conversion of all outstanding shares of our preferred stock into 163,081,134 shares of our common stock, the net exercise of our 2012/2013 Warrants into             shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), the conversion of our convertible notes plus accrued interest into             shares of our common stock (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) and our         for         reverse stock split, each of which will occur prior to consummation of this offering

             
             

Pro forma net tangible book value per share June 30, 2013

             

Increase in pro forma net tangible book value per share attributable to investors purchasing in this offering

             

Pro forma as adjusted net tangible book value per share after this offering

             

Dilution per share to investors purchasing in this offering

        $    

59


Table of Contents

        A $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value per share by $             , assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering costs payable by us. Each increase or decrease of 1.0 million shares in the number of shares of common stock offered by us at the assumed initial public offering price (which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) would increase or decrease our pro forma as adjusted net tangible book value by $              million, our pro forma as adjusted net tangible book value per share after this offering by $             per share and the dilution per share to new investors in this offering by $             .

        The following table summarizes, on a pro forma as adjusted basis described above as of June 30, 2013, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by investors purchasing in this offering at an assumed initial public offering price of $             per share, before deducting the estimated underwriting discount and estimated offering costs payable by us.

 
  Shares Purchased   Total Consideration    
 
 
  Average Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders before this offering

            % $         % $    

Investors purchasing in this offering

                               
                         

Total

          100.0 % $       100.0 %      

        A $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $              million and increase or decrease the percentage of total consideration paid by new investors by approximately         %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

        Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters' over-allotment option and no exercise of any outstanding options or warrants. If the underwriters' over-allotment option is exercised in full, the number of shares of common stock held by existing stockholders will be reduced to         % of the total number of shares of common stock to be outstanding upon consummation of this offering, and the number of shares of common stock held by investors purchasing in this offering will be increased to             shares or          % of the total number of shares of common stock to be outstanding upon consummation of this offering.

        The number of shares of common stock to be outstanding after this offering is based on             shares of common stock outstanding as of June 30, 2013, after giving effect to the conversion of all of our outstanding shares of preferred stock into 163,081,134 shares of common stock;             shares of common stock are issuable upon conversion of our convertible notes, equal to the sum of the $13.0 million face value of the notes plus accrued interest of $338,163 as of June 30, 2013, divided by the initial public offering price of our common stock in this offering (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) and,             shares of common stock are issuable upon net exercise of warrants equal to $3.0 million divided by the series C price and net settled into common stock at the

60


Table of Contents

initial public offering price in this offering (assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and excludes as of that date:

    1,705,408 shares of common stock issuable upon exercise of warrants, with a weighted average exercise price of $0.16 per share. Of these shares, warrants to purchase 1,289,210 shares of our common stock contain a provision where the exercise price would be reduced in the event that we issue securities in the future at a price less than the current exercise price of $0.05 per share;

    11,793,150 shares of common stock issuable upon exercise of options, with a weighted average exercise price of $0.08 per share, under our 2004 Equity Incentive Plan; and

    2,746,595 shares of common stock reserved for future issuances under our 2004 Equity Incentive Plan and                            shares that will be made available for issuance under our 2013 Equity Incentive Plan.

        We may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that any of these options or warrants are exercised, new options are issued under our 2004 or 2013 Equity Incentive Plans or we issue additional shares of common stock or other equity securities in the future, there will be further dilution to investors purchasing in this offering.

61


Table of Contents


SELECTED FINANCIAL DATA

        The following selected financial data should be read together with our financial statements and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus.

        We have derived the following statement of operations data for the years ended December 31, 2011 and 2012 and balance sheet data as of December 31, 2011 and 2012 from our audited financial statements included elsewhere in this prospectus. We have derived the following statement of operations data for the six months ended June 30, 2012 and 2013 and balance sheet data as of June 30, 2013 from our unaudited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.

 
  Year Ended December 31,   Six-Months Ended June 30,  
 
  2011   2012   2012   2013  

Statement of Operations Data:

                         

Revenue

  $   $   $   $  

Expenses:

                         

General and administrative

    3,615,827     4,075,649     2,162,021     1,973,564  

Research and development

    15,253,522     12,096,278     6,577,949     4,290,517  
                   

Total expenses

    18,869,349     16,171,927     8,739,970     6,264,081  
                   

Loss from operations

    (18,869,349 )   (16,171,927 )   (8,739,970 )   (6,264,081 )

Change in fair value of derivative liabilities

    (48,454 )   43,136         56,489  

Interest and other income

    4,900     2,694     2,635     12  

Interest expense

    (6,753 )   (73,353 )   (909 )   (1,113,241 )
                   

Net loss and comprehensive loss

    (18,919,656 )   (16,199,450 )   (8,738,244 )   (7,320,821 )

Cumulative preferred stock dividends

    (3,269,160 )   (3,453,412 )   (1,717,270 )   (1,712,514 )
                   

Net loss attributable to common stockholders

  $ (22,188,816 ) $ (19,652,862 ) $ (10,455,514 ) $ (9,033,335 )
                   

Per share information:

                         

Net loss per share of common stock—basic and diluted (1)

  $ (1.59 ) $ (1.19 ) $ (0.67 ) $ (0.47 )
                   

Basic and diluted weighted average shares outstanding (1)

    13,921,615     16,490,327     15,683,773     19,170,071  
                   

Pro forma net loss per share of common stock—basic and diluted (unaudited) (1)

        $           $    
                       

Pro forma basic and diluted weighted average shares outstanding (unaudited) (1)

                         
                       

 

 
  As of December 31,    
 
 
  As of
June 30,
2013
 
 
  2011   2012  

Balance Sheet Data:

                   

Cash and cash equivalents

  $ 10,006,148   $ 4,511,889   $ 6,020,383  

Total assets

    16,348,855     4,886,868     6,482,765  

Total liabilities

    3,525,049     7,910,063     16,552,967  

Deficit accumulated during the development stage

    53,722,392     (69,921,842 )   (77,242,663 )

Total stockholders' (deficit) equity

    (52,588,397 )   (68,435,398 )   (75,482,405 )

(1)
See Note 2 to our financial statements for an explanation of the method used to calculate net loss per share of common stock, basic and diluted, pro forma net loss per share of common stock, basic and diluted, and the basic and diluted pro forma weighted average shares outstanding used to calculate the pro forma per share amounts.

62


Table of Contents


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 financial statements and related notes appearing in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

        We are a clinical-stage biopharmaceutical company focused on discovering and developing novel SMAC-mimetics that are designed to cause or enable abnormal cells that are resistant to the body's immune system to self-destruct. Birinapant, our clinical-stage product candidate, is currently being tested in Phase 1 and Phase 2 oncology clinical trials for multiple solid tumors and hematological malignancies. Our clinical trials of birinapant have enrolled over 275 subjects.

        Our lead program is CRC where we have substantially completed a Phase 1/2 clinical trial, and we intend to start a randomized Phase 2/3 clinical trial in the second half of 2014. Birinapant is also being tested in an ongoing Phase 1/2 clinical trial in various blood cancers. We have started a Phase 1 clinical trial in MDS and, upon its completion, intend to start a randomized Phase 3 clinical trial in MDS in the second half of 2014. We also have an open IND and intend to start a Phase 1/2 ovarian cancer clinical trial in 2013. Beyond our work in cancer, we are evaluating birinapant and other product candidates in pre-clinical studies as potential antiviral therapeutic agents, with the goal of starting an antiviral clinical program in the first quarter of 2015.

        We were originally incorporated in July 2001 as Apop Corp., a New Jersey corporation. Pursuant to a merger effective as of October 2003 with and into our wholly owned subsidiary, we became a Delaware corporation and commenced operations in 2003. Our name was changed to Apop Corporation in March 2004, to Gentara Corporation in June 2004 and to TetraLogic Pharmaceuticals Corporation in January 2006.

        We are a development stage enterprise, and accordingly, our operations to date have been directed primarily toward developing business strategies, raising capital, research and development activities, conducting pre-clinical testing and clinical trials of birinapant and recruiting personnel.

        We have incurred operating losses since inception, have not generated any product sales revenues and have not achieved profitable operations. Our deficit accumulated during the development stage through June 30, 2013 was approximately $77.2 million, and we expect to continue to incur substantial losses in future periods.

        We incurred research and development expenses of $15.3 million and $12.1 million during the years ended December 31, 2011 and 2012, respectively, and $6.6 million and $4.3 million during the six months ended June 30, 2012 and 2013, respectively. We anticipate that a significant portion of our operating expenses will continue to be related to research and development as we continue to advance our clinical-stage product candidate, birinapant. We have funded our operations primarily through the sale of preferred stock for gross proceeds

63


Table of Contents

totaling $66.2 million, including proceeds from convertible debt that was later converted into shares of our preferred stock, and amounts received under collaboration and grant arrangements totaling $13.7 million. In addition, we presently have outstanding convertible debt for which we received aggregate gross proceeds of $13.0 million. As of December 31, 2012 and June 30, 2013, we had $4.5 million and $6.0 million in cash and cash equivalents, respectively.

        Birinapant has not received regulatory approval for commercial sale and birinapant may never be approved or commercialized. In addition, birinapant is in the early stages of development and most of our clinical development activities are on hold pending additional funding. The progress and results of our current and any future clinical trials or pre-clinical studies are uncertain, and if birinapant does not receive regulatory approval, our business, operating results, financial condition and cash flows will be materially adversely affected. Our development programs require a significant amount of cash to support the development of birinapant.

        We are highly dependent on the success of our research, development and licensing efforts and, ultimately, upon regulatory approval and market acceptance of birinapant. Our short- and long-term capital requirements depend upon a variety of factors, including our clinical development plan and various other factors discussed below. Although our existing cash and cash equivalents as of June 30, 2013 will not be sufficient to fund our operations for the next 12 months, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of June 30, 2013, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. However, we will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of our planned research and development activities with respect to birinapant.

        Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to the:

    initiation, progress, timing, costs and results of pre-clinical studies and clinical trials for birinapant or any other future product candidates;

    clinical development plans we establish for birinapant and any other future product candidates;

    our obligation to make royalty and non-royalty sublicense receipt payments to third-party licensors, if any, under our licensing agreements;

    number and characteristics of product candidates that we discover or in-license and develop;

    outcome, timing and cost of regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect;

    costs of filing, prosecuting, defending and enforcing any patent claims and maintaining and enforcing or defending other intellectual property rights;

    effect of competing technological and market developments;

64


Table of Contents

    costs and timing of the implementation of commercial-scale manufacturing activities; and

    costs and timing of establishing sales, marketing and distribution capabilities for birinapant and any other future product candidates for which we may receive regulatory approval.

        The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations for the years ended December 31, 2011 and 2012, and the six months ended June 30, 2012 and 2013, and our financial condition as of December 31, 2011 and 2012 and June 30, 2013.

Critical Accounting Policies and Significant Judgments and Estimates

        This management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments, including those related to derivative liabilities, stock-based compensation and accrued expenses on an ongoing basis. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. You should consider your evaluation of our financial condition and results of operations with these policies, judgments and estimates in mind.

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

     Derivative Liabilities

        Certain of our warrants to purchase our common and preferred stock are classified as derivative liabilities and recorded at fair value. The warrant fair values are determined using option pricing models which include inputs which are estimated by us including the expected term of the warrants, expected volatility and the estimated fair value of the underlying preferred or common stock. These derivative liabilities are subject to re-measurement at each balance sheet date and we recognize any change in fair value in our statements of operations as a change in fair value of the derivative liability. As of the consummation of this offering, all of our preferred stock will have been converted into common stock and our preferred stock warrants will automatically become exercisable for shares of common stock based upon the conversion ratio of the underlying series of preferred stock. Upon such conversion, the warrants will be classified as a component of equity and no longer be subject to re-measurement.

        Also, as of the closing of this offering, our outstanding convertible notes will convert into shares of our common stock at the initial offering price set forth on the cover of this prospectus and the warrants issued in connection with the convertible notes will be automatically exercised and net settled into shares of our common stock at an exercise price equal to the initial offering price set forth on the cover of this prospectus for a number of shares determined by such initial offering price. Upon exercise of the warrants, the fair value

65


Table of Contents

of the warrants will be classified as a component of equity and no longer be subject to re-measurement at fair value. After the closing of this offering, we will continue to classify as a derivative liability and record at fair value our unexercised warrants to purchase shares of our common stock where the exercise price would be reduced in the event that we issue securities in the future at a price less than the exercise price of such warrants. Our statements of operations for the period in which this offering occurs will be affected by any change in the fair value of these derivative liabilities from the end of the prior period through the time of conversion.

     Stock-Based Compensation

        We account for stock-based compensation in accordance with the provisions of Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation, or ASC 718, which requires the recognition of expense related to the fair value of stock-based compensation awards in the statements of operations and comprehensive loss. For stock options issued to employees and members of our board of directors for their services on our board of directors, we estimate the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, the value of the common stock and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, we recognize stock-based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, we recognize stock-based compensation expense using the accelerated attribution method when it is probable that the performance condition will be achieved. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based payments issued to non-employees are recorded at their fair values, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period in accordance with the provisions of ASC 718 and ASC Topic 505, Equity.

        Stock-based compensation expense recognized by award type is as follows:

 
  Year Ended December 31   Six Months Ended June 30,  
 
  2011   2012   2012   2013  

Option awards

  $ 58,721   $ 67,075   $ 23,063   $ 61,433  

Restricted stock awards

    210,370     283,873     121,944     144,464  
                   

Total stock-based compensation expense

  $ 269,091   $ 350,948   $ 145,007   $ 205,897  
                   

        Total compensation cost recognized for all stock-based compensation awards in the statements of operations is as follows:

 
  Year Ended December 31   Six Months Ended June 30,  
 
  2011   2012   2012   2013  

Research and development

  $ 143,961   $ 230,893   $ 81,261   $ 130,901  

General and administrative

    125,130     120,055     63,746     74,996  
                   

Total stock-based compensation expense

  $ 269,091   $ 350,948   $ 145,007   $ 205,897  
                   

66


Table of Contents

     Fair Value Estimates

        We are required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations at each grant date. We engaged an independent third-party valuation firm to assist our board of directors in determining the fair value of the common stock underlying our stock-based awards. All options to purchase shares of our common stock have been granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant.

        In the absence of a public trading market for our common stock, on each grant date, we develop an estimate of the fair value of our common stock in order to determine an exercise price for the option grants based in part on input from the independent third-party valuation firm. We determined the fair value of our common stock using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants, or AICPA, Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation, or the AICPA Practice Guide. In addition, our board of directors considered various objective and subjective factors, along with input from management and the independent third-party valuation firm, to determine the fair value of our common stock, including external market conditions affecting the biopharmaceutical industry, trends within the biopharmaceutical industry, the prices at which we sold shares of our different series of preferred stock, the superior rights and preferences of each series of preferred stock relative to our common stock at the time of each grant, our results of operations and financial position, the status of our research and development efforts and progress of our clinical programs, our stage of development and business strategy, the lack of an active public market for our common and our preferred stock, and the likelihood of achieving a liquidity event such as an initial public offering or sale in light of prevailing market conditions.

        Our independent third-party valuation expert assisted us in determining both the value of our company and the fair value our of our common stock as of October 20, 2010, March 31, 2012, December 31, 2012, April 12, 2013 and September 30, 2013. The results of these valuations were used, in part, to determine the grant date fair value of the common stock underlying our equity compensation awards. During the period from January 1, 2011 to July 24, 2013, our common stock was estimated to be valued at $0.09 per share using methodologies, approaches and assumptions consistent with the AICPA Practice Guide. During this period, while we believe we made significant preclinical progress and were able to elucidate the properties necessary for a potent and selective small molecule SMAC-mimetic and advance birinapant to early-stage clinical testing, we made limited clinical progress in advancing birinapant and have not yet conducted the requisite pivotal trials necessary for submission to FDA for approval.

        In August 2013, our board of directors hired a new management team and approved exploring an initial public offering with the use of the proceeds directed towards pivotal studies for two indications, CRC and MDS, for birinapant. On September 16, 2013, we submitted our Form S-1 to the SEC on a confidential basis. The assumptions underlying this revised business plan were considered in the probability-weighted valuation conducted as of September 30, 2013, which resulted in an estimated fair value of our common stock of $0.36 per share.

        The per share estimated fair value of common stock in the table below represents the determination by our board of directors of the fair value of our common stock as of the date of grant, taking into consideration the various objective and subjective factors described

67


Table of Contents

above, including the conclusions, if applicable, of contemporaneous valuations of our common stock as discussed below. The following table presents the grant dates and related exercise prices of stock options granted to employees and non-employees from January 1, 2011 through October 2, 2013:

Date of Issuance
  Number of
Shares
Underlying
Option
Grants
  Exercise
Price Per
Option
  Per Share
Estimated
Fair Value
of
Common
Stock
  Per Share
Grant
Date
Intrinsic
Value of
Options
 

January 1, 2011 to March 31, 2012

    1,395,000   $ 0.09   $ 0.09   $  

April 1, 2012 to December 31, 2012

    3,610,000     0.09     0.09      

January 1, 2013 to April 12, 2013

    570,000     0.09     0.09      

April 13, 2013 to July 24, 2013

    1,835,000     0.09     0.09      

July 25, 2013 to October 2, 2013

    28,875,984   $ 0.36   $ 0.36      

        We also granted 2,400,000 and 3,200,000 shares of restricted common stock from January 1, 2011 to March 31, 2012 and from April 1, 2012 to December 31, 2012, respectively.

        In determining the value of our common stock for purposes of granting stock options and restricted common stock, our board of directors considered the most recent valuations of our common stock, which were prepared by an independent third-party as of October 20, 2010, March 31, 2012, December 31, 2012 and April 12, 2013 and based its determination in part on the analyses summarized below in determining the exercise price of options to be issued after those dates.

        The intrinsic value of all outstanding vested and unvested options of $              million is based on a per share price of $             , which is the midpoint of the estimated price range set forth on the cover page of this prospectus,              shares of common stock issuable upon the exercise of options outstanding as of June 30, 2013 and a weighted average exercise price of $             per share.

     Stock option grants from January 1, 2011 to March 31, 2012

        Our board of directors granted stock options from January 1, 2011 through March 31, 2012, with each having an exercise price of $0.09 per share. The exercise price per share was supported by an independent third-party valuation as of October 20, 2010. In conducting this valuation, we estimated the value of our common stock using an option-pricing method. The option-pricing method treats common stock as options on the enterprise's value based on the liquidation preferences set forth in the terms of the preferred stockholders agreements. The option-pricing method considers the various terms of the preferred securities, including the level of seniority among the securities, dividend policy, conversion ratios and liquidation allocations. Under this method, the common stock has value when the net assets of the enterprise exceed the liquidation value, which is measured as a call option using the Black-Scholes valuation model. Our current enterprise value was implied by the negotiated pricing and terms of the series C convertible preferred stock where the lead unrelated investors paid $0.3766 per share. We then allocated the equity value among our preferred stock and common stock using the option-pricing method. We estimated the time to liquidity as four years and assumed an annual volatility rate of 90.0%. Our estimate of volatility was based on a review of volatility data for 11 public oncology companies. We applied a discount for lack of marketability of 50.0% to our common stock. Based on these factors, we concluded that our common stock had a fair value of $0.09 per share as of October 20, 2010. We concluded it was

68


Table of Contents

appropriate to use the valuation of October 20, 2010 for subsequent grants through March 31, 2012. This was primarily attributable to the absence of a significant inflection point and our continued efforts to obtain financing to fund our operating expenses. The specific facts and circumstances considered by our board of directors included the following:

    We had principally financed our operations through private placements of preferred stock and convertible debt. We raised a small amount of capital in May 2011 at a slightly increased price per share as compared to the series C financing which was used as a basis for the October 20, 2010 valuation. However, as the amount raised was not significant, we did not consider this to result in a material change in our overall enterprise valuation.

    There were no other preferred stock issuances or capital infusions through March 31, 2012 despite our fundraising efforts. Our cash and cash equivalents and short-term investments were $15.5 million as of December 31, 2011, which represented approximately one year of operating cash flow.

    We needed to raise additional capital to fund clinical trials to advance birinapant.

    We made limited clinical progress in advancing birinapant. We had not conducted the requisite pivotal trials necessary for submission to FDA for approval and did not receive funding to conduct such developmental activities.

     Stock option grants from April 1, 2012 to December 31, 2012

        Our board of directors granted stock options from April 1, 2012 through December 31, 2012, with each having an exercise price of $0.09 per share. The exercise price per share was supported by an independent third-party valuation as of March 31, 2012. In conducting this valuation, we estimated the value of our common stock using an option-pricing method. The option-pricing method treats common stock as options on the enterprise's value based on the liquidation preferences set forth in the terms of the preferred stockholders agreements. The option-pricing method considers the various terms of the preferred securities, including the level of seniority among the securities, dividend policy, conversion ratios and liquidation allocations. Under this method, the common stock has value when the net assets of the enterprise exceed the liquidation value, which is measured as a call option using the Black-Scholes valuation model. Based on clinical progress since the last financing, general market conditions, limited proceeds raised since the series C round of financing, and discussions with present and new investors regarding a potential new round of financing, we concluded that our value implied by the series C convertible preferred stock of $0.3766 per share remained appropriate. We then allocated the equity value among our preferred stock and common stock using the option pricing method. We estimated the time to liquidity as three years and assumed an annual volatility rate of 90.0%. Our estimate of volatility was based on a review of volatility data for 11 public oncology companies. We applied a discount for lack of marketability of 50.0% to our common stock. Based on these factors, we concluded that our common stock had a fair value of $0.09 per share as of March 31, 2012. We concluded it was appropriate to use the valuation of March 31, 2012 for subsequent grants through December 31, 2012. This was primarily attributable to the absence of a significant inflection point and our continued efforts to obtain financing to fund our operating expenses. The specific facts and circumstances considered by our board of directors included the following:

    We did not complete an additional private placement of preferred stock and our fundraising efforts suggested that the value implied by our series C convertible preferred stock, $0.3766 per share, remained appropriate.

69


Table of Contents

    Our existing investors provided us with bridge financing in the amount of $5.0 million in November 2012.

    We continued to lack the necessary capital to complete clinical trials to advance our product and after the $5.0 million bridge financing we ended 2012 with $4.5 million of cash and cash equivalents.

    We made limited clinical progress in advancing birinapant. We had not conducted the requisite pivotal trials necessary for submission to FDA for approval and were not funded to conduct such developmental activities.

     Stock option grants from January 1, 2013 to April 12, 2013

        Our board of directors granted stock options from January 1, 2012 through April 12, 2013, with each having an exercise price of $0.09 per share. The exercise price per share was supported by an independent third-party valuation as of December 31, 2012. Due to our assessment of the increased likelihood of a liquidation event and material change to our capital structure, we determined that the simplifying assumptions of the option pricing model were no longer appropriate and that a probability-weighted expected return method, or PWERM, model was more appropriate because PWERM more precisely considers proceeds raised in additional financings, and the impact of dilution from additional financings that occur as the company progresses toward a future liquidity event. As such, we estimated the value of our common stock using PWERM as the methodology for determining our equity value. Under PWERM, the value of equity securities is estimated based upon an analysis of future values, assuming various outcomes. In this approach, the share value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to us as well as the rights of each share class. PWERM involves the determination of equity value under various exit scenarios and an estimation of the return to common stock under each of them.

        Our application of PWERM can be broadly described in the following steps: (i) identify exit scenarios and related probabilities; (ii) determine the equity value under each scenario; and (iii) determine the return to common stock in each scenario. We estimated that the probability of entering into a corporate partnership during 2013 was approximately 50.0% and further identified exit scenarios with and without such a corporate partnership. In the case where we enter into a corporate partnership, we estimated an 80.0% probability of a series D round of financing and a 20.0% probability of a strategic sale. In the case where we do not enter into a corporate partnership, we estimated a 70.0% probability of two equally weighted potential series D financing outcomes and a 30.0% probability of a strategic sale. In each of our financing scenarios, we used a Black-Scholes option pricing model at assumed values to determine equity value. We estimated the time to liquidity of 1.0 to 2.5 years and assumed an annual volatility rate of 90.0%. Our estimate of volatility was based on a review of volatility data for 17 public oncology companies. We applied a discount for lack of marketability of 25.0% to our common stock. The equity values for the sale scenarios were determined based on assumed values of invested capital. Based on these factors, we concluded that our common stock had a fair value of $0.09 per share as of December 31, 2012. We concluded it was appropriate to use the valuation of December 31, 2012 for subsequent grants through April 12, 2013. This was primarily attributable to the absence of a significant inflection point

70


Table of Contents

and our continued efforts to obtain financing to fund our operating expenses. The specific facts and circumstances considered by our board of directors included the following:

    We did not complete an additional private placement of preferred stock and our fundraising efforts suggested that the value implied by our series C convertible preferred stock, $0.3766 per share, remained appropriate.

    Our existing investors provided us with bridge financing in the amount of an additional $5.0 million in April 2013.

    We continued to lack the necessary capital to complete clinical trials to advance our product and after the $10.0 million bridge financing we ended the second quarter of 2013 with $6.0 million of cash and cash equivalents.

    We made limited clinical progress in advancing birinapant. We had not conducted the requisite pivotal trials necessary for submission to FDA for approval and were not funded to conduct such developmental activities.

     Stock option grants from April 13, 2013 to July 24, 2013

        Our board of directors granted stock options from April 13, 2013 through July 24, 2013, with each having an exercise price of $0.09 per share. The exercise price per share was supported by an independent third-party valuation as of April 12, 2013. In conducting this valuation, we estimated the value of our common stock using PWERM for determining our equity value.

        Our application of PWERM can be broadly described in the following steps: (i) identify exit scenarios and related probabilities; (ii) determine the equity value under each scenario; and (iii) determine the return to common stock in each scenario. We estimated that the probability of entering into a corporate partnership during 2013 was approximately 20.0% and further identified exit scenarios with and without such a corporate partnership. In the case where we enter into a corporate partnership, we estimated an 70.0% probability of a series D round of financing and a 30.0% probability of a strategic sale. In the case where we do not enter into a corporate partnership, we estimated a 70.0% probability of two equally weighted potential series D financing outcomes and a 30.0% probability of a sale. In each of our financing scenarios, we used a Black-Scholes option pricing model at assumed values to determine equity value. We estimated the time to liquidity of 1.0 to 2.5 years and assumed an annual volatility rate of 90.0%. Our estimate of volatility was based on a review of volatility data for 17 public oncology companies. We applied a discount for lack of marketability of 20.0% to our common stock. The equity values for the sale scenarios were determined based on assumed values of invested capital. Based on these factors, we concluded that our common stock had a fair value of $0.09 per share as of April 12, 2013. We concluded it was appropriate to use the valuation of April 12, 2013 for subsequent grants through July 25, 2013. This was primarily attributable to the absence of a significant inflection point and our continued efforts to obtain financing to fund our operating expenses. The specific facts and circumstances considered by our board of directors included the following:

    We did not complete an additional private placement of preferred stock and our fundraising efforts suggested that the value implied by our series C convertible preferred stock, $0.3766 per share, remained appropriate.

    Our existing investors provided us with bridge financing in an aggregate of $10.0 million to date.

71


Table of Contents

    We continued to lack the necessary capital to complete clinical trials to advance our product and after the $10.0 million bridge financing we ended the third quarter of 2013 with $2.5 million of cash and cash equivalents.

    We made limited clinical progress in advancing birinapant. We had not conducted the requisite pivotal trials necessary for submission to FDA for approval and were not funded to conduct such developmental activities.

     Stock option grants from July 25, 2013 to October 2, 2013

        Our board of directors granted stock options on October 2, 2013 to three new members of our executive management (J. Kevin Buchi, Pete A. Meyers and Lesley Russell) and our former President and Chief Executive Officer (John M. Gill), with each having an exercise price of $0.36 per share.

        In connection with employment agreements with the new members of our executive management, on October 2, 2013 our board of directors granted non-qualified stock options to purchase an aggregate of 24,747,308 shares of our common stock. Upon closing of each new issuance of capital stock, up to and including the closing of this offering and pursuant to convertible instruments, in-the-money options and in-the-money warrants, but not including certain excluded securities, these new members of our executive management will receive additional non-qualified stock options to purchase a number of shares of our common stock such that the total shares subject to stock option awards will be equal to an aggregate of 8.0% of the total issued and outstanding shares of our capital stock on a fully diluted basis as of such closing date.

        In connection with a Management Transition Agreement entered into with our former President and Chief Executive Officer, Mr. Gill, on October 2, 2013 we granted him non-qualified stock options to purchase 4,128,676 shares of common stock.

        The exercise price per share was supported by an independent third-party valuation as of September 30, 2013. In conducting this valuation, we estimated the value of our common stock using PWERM for determining our equity value.

        Our application of PWERM can be broadly described in the following steps: (i) identify exit scenarios and related probabilities; (ii) determine the equity value under each scenario; and (iii) determine the return to common stock in each scenario. We estimated that the probability of closing a series D financing in advance of pursuing an initial public offering was approximately 5% and further identified scenarios with and without such a series D financing. In the case where we close a series D financing, we estimated a 60.0% probability of one of three public offering scenarios and a 40.0% probability of a strategic sale. In the case where we do not close a series D financing, we assumed we would enter into a bridge financing with our current investors on similar terms as the existing bridge financing and estimated a 55.0% probability of one of three public offering scenarios and a 45.0% probability of a smaller series D financing at a value per share equal to the series C price. In each of our financing scenarios, we used an option pricing model at assumed values to determine equity value. We estimated the time to liquidity of 1.0 to 2.0 years and assumed an annual volatility rate of 90.0%. Our estimate of volatility was based on a review of volatility data for 17 public oncology companies. We applied a discount for lack of marketability of 10.0% to our common stock. The equity values for the sale scenarios were determined based on assumed values of invested capital. Based on these factors, we concluded that our common stock had a fair value of $0.36 per share as of September 30, 2013.

72


Table of Contents

     Determination of Estimated Offering Price

        The midpoint of the estimated offering price range set forth on the cover page of this prospectus as determined by us and the underwriters is $             per share. In comparison, our estimate of the fair value of our common stock was $0.36 per share as of the September 30, 2013 valuation, which will be used for stock option grants subsequent to our August 27, 2013 board meeting where our board of directors authorized our management to prepare for an initial public offering of our common stock. We note that, as is typical in initial public offerings, the price range was not derived using a formal determination of fair value, but was determined based upon discussions between us and the underwriters. Among the factors that were considered in setting this range were our prospects and the history of and prospects for our industry, the general condition of the securities markets and the recent market prices of, and the demand for, publicly traded common stock of comparable companies. We believe that the difference between the fair value of our common stock as of September 30, 2013 and the midpoint of the estimated offering price range set forth on the cover page of this prospectus was the result of these factors.

        There is inherent uncertainty in our forecasts and projections and, if we had made different assumptions and estimates than those described previously, the amount of our stock-based compensation expense, net loss, and net loss per share amounts could have been materially different.

     Clinical Trial Expense Accruals

        As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. Our clinical trial accrual process seeks to account for expenses resulting from our obligations under contracts with vendors, consultants and CROs and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching the appropriate expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial. We determine accrual estimates through financial models that take into account discussion with applicable personnel and outside service providers as to the progress or state of completion of trials. During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. Our clinical trial accrual and prepaid assets are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period.

73


Table of Contents

Financial Overview

     Revenue

        We have not generated any revenue from commercial product sales since we commenced operations. In the future, if birinapant is approved for commercial sale, we may generate revenue from product sales, or alternatively, we may choose to select a collaborator or licensee to commercialize birinapant.

     General and Administrative Expenses

        General and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel, including stock-based compensation and travel expenses. Other general and administrative expenses include professional fees for legal, patent review, consulting and accounting services. General and Administrative Expenses are expensed when incurred.

        For the years ended December 31, 2011 and 2012 and for the six months ended June 30, 2012 and 2013, our general and administrative expenses totaled approximately $3.6 million, $4.1 million, $2.2 million and $2.0 million, respectively. We anticipate that our general and administrative expenses will increase in the future as a result of new management hiring and other scaling operations commensurate with supporting more advanced clinical trials and public company infrastructure. These increases will likely include increased costs for insurance, hiring of additional personnel, board committees, outside consultants, investor relations, lawyers and accountants, among other expenses.

     Research and Development Expenses

        Our research and development expenses consist primarily of costs incurred for the development of birinapant, which include:

    employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;

    expenses incurred under agreements with CROs and investigative sites that conduct our clinical trials and pre-clinical studies;

    the cost of acquiring, developing and manufacturing clinical trial materials;

    facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and

    costs associated with pre-clinical activities and regulatory operations.

        Research and development costs are expensed when incurred. We record costs for some development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to us by our vendors.

        During the years ended December 31, 2011 and 2012 and for the six month periods ended June 30, 2012 and 2013, we incurred approximately $15.3 million, $12.1 million, $6.6 million and $4.3 million, respectively, in research and development expenses. Research and development expenses decreased during the year ended December 31, 2012 and for the six months ended June 30, 2013, compared to the comparable prior period, due to decreased clinical development activities resulting from our decreased working capital.

        Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs

74


Table of Contents

than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis as the majority of our past and planned expenses have been and will be in support of birinapant. However, we do allocate some portion of our research and development expenses by functional area, as shown below.

        The following table summarizes our research and development expenses for the years ended December 31, 2011 and 2012:

 
  Year Ended December 31,  
 
  2011   2012  

Clinical development

  $ 8,536,438   $ 5,414,687  

Manufacturing and formulation

    175,307     1,232,288  

Pre-clinical research and laboratory costs

    2,564,241     1,194,216  

Personnel related

    3,309,270     2,969,511  

Stock-based compensation

    143,961     230,893  

Consulting

    524,305     1,054,683  
           

  $ 15,253,522   $ 12,096,278  
           

        The following table summarizes our research and development expenses by functional area for the six months ended June 30, 2012 and 2013:

 
  Six Months Ended June 30,  
 
  2012   2013  

Clinical development

  $ 3,054,869   $ 1,141,986  

Manufacturing and formulation

    531,693     338,132  

Pre-clinical research and laboratory costs

    696,286     556,402  

Personnel related

    1,742,843     1,728,204  

Stock-based compensation

    81,261     130,901  

Consulting

    470,997     394,892  
           

  $ 6,577,949   $ 4,290,517  
           

        The following table summarizes our research and development expenses by targeted indication for the years ended December 31, 2011 and 2012, for the six months ended June 30, 2012 and 2013 and for the period from September 22, 2003 (Inception) to June 30, 2013:

 
  Year Ended    
   
   
 
 
  Six Months Ended   Period From
September 22,
2003 (Inception)
to June 30, 2013
 
 
  December 31, 2011   December 31, 2012  
 
  June 30, 2012   June 30, 2013  

Solid tumors, including CRC

  $ 13,388,178   $ 9,909,634   $ 5,934,874   $ 2,362,053   $ 42,356,248  

Blood cancers, including MDS

    80,601     408,414     173,764     1,422,928     2,017,916  

Other preclinical and non-indication specific

    1,784,743     1,778,230     469,311     505,536     23,668,657  
                       

  $ 15,253,522   $ 12,096,278   $ 6,577,949   $ 4,290,517   $ 68,042,821  
                       

        Assuming that we are able to obtain adequate additional funding, we plan to increase our research and development expenses for the foreseeable future. We estimate that the direct

75


Table of Contents

development costs to progress birinapant through the next planned Phase 2/3 clinical trial for the CRC indication will be approximately $30.0 million to $40.0 million over the next 24 to 30 months, and to progress birinapant through the next planned Phase 3 clinical trial for the MDS indication will be approximately $16.0 million to $20.0 million over the next 18 to 24 months. We plan to pursue these indications and our other clinical programs concurrently.

        We also plan to incur approximately $5.0 million to $10.0 million per year in direct research and development costs for other clinical and preclinical research and development activities. We will incur substantial costs beyond our present and planned clinical trials in order to file an NDA for birinapant in CRC, MDS and other target indications, and in each case, the nature, design, size and cost of further studies and trials will depend in large part on the outcome of preceding studies and trials and discussions with regulators.

        It is difficult to determine with certainty the costs and duration of our current or future clinical trials and pre-clinical studies, or if, when or to what extent we will generate revenues from the commercialization and sale of birinapant if we obtain regulatory approval. We may never succeed in achieving regulatory approval for birinapant. The duration, costs and timing of clinical trials and development of birinapant will depend on a variety of factors, including the uncertainties of future clinical trials and pre-clinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation.

        In addition, the probability of success for birinapant will depend on numerous factors, including competition, manufacturing capability and commercial viability. See "Risk Factors—Risks Related to Our Business and Industry—Our commercial success depends upon attaining significant market acceptance of birinapant, if approved, among physicians, patients, healthcare payors and the major operators of cancer clinics."

        Market acceptance of birinapant, if we receive approval, depends on a number of factors, including the:

    efficacy and safety of birinapant alone or birinapant administered with other drugs each as demonstrated in clinical trials and post-marketing experience;

    clinical indications for which birinapant is approved;

    acceptance by physicians, major operators of cancer clinics and patients of birinapant as a safe and effective treatment;

    potential and perceived advantages of birinapant over alternative treatments;

    safety of birinapant seen in a broader patient group, including its use outside the approved indications should physicians choose to prescribe for such uses;

    prevalence and severity of any side effects;

    product labeling or product insert requirements of the FDA or other regulatory authorities;

    timing of market introduction of birinapant as well as competitive products;

    cost of treatment in relation to alternative treatments;

    availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;

    relative convenience and ease of administration; and

    effectiveness of our sales and marketing efforts.

76


Table of Contents

        We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of birinapant, as well as an assessment of birinapant's commercial potential.

     Change in fair value of derivative liability

        Certain of our warrants to purchase our common and preferred stock are classified as derivative liabilities and recorded at fair value. These derivative liabilities are subject to re-measurement at each balance sheet date and we recognize any change in fair value in our statements of operations and comprehensive loss as a change in fair value of the derivative liability.

     Interest and Other Income

        Interest and other income consists principally of interest income earned on cash and cash equivalent balances.

     Interest Expense

        Interest expense is mostly attributable to non-cash interest expense resulting from the accretion of the debt discount and beneficial conversion feature associated with our outstanding convertible notes.

     Cash Flows

        Operating Activities.    Cash used in operating activities during the year ended December 31, 2012 decreased to $15.9 million as compared to $17.3 million used in the year ended December 31, 2011. Cash used in operating activities during the six months ended June 30, 2013 decreased to $6.5 million as compared to $8.8 million used in the six months ended June 30, 2012. The decreases were driven primarily by decreased research and development costs incurred for birinapant, partially offset by non-cash charges incurred in connection with our convertible notes.

        Investing Activities.    Cash provided by (used in) investing activities was ($5.5) million, $5.5 million, $5.5 million and $0.0 for the years ended December 31, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively. Cash provided by (used in) investing activities is mostly attributable to the purchase of $6.0 million of investments in U.S. Treasury and U.S. agency notes during the year ended December 31, 2011 and the maturity of $0.5 million and $5.5 million of short-term investments in U.S. Treasury and U.S. agency notes during 2011 and the first half of 2012, respectively.

        Financing Activities.    Cash provided by financing activities was $7.1 million, $4.9 million, $0.0 and $8.1 million for the years ended December 31, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively. Cash provided by (used in) financing activities is mostly attributable to $7.2 million of net proceeds from the sale of series C and C-1 preferred stock in 2011, $5.0 million from the sale of convertible notes in 2012 and $8.0 million from the sale of convertible notes during the six months ended June 30, 2013.

JOBS Act

        Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to

77


Table of Contents

avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Internal Control Over Financial Reporting

        In preparing our consolidated financial statements as of and for the year ended December 31, 2012, we and our independent registered public accounting firm identified control deficiencies in the design and operation of our internal control over financial reporting that together constituted a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weakness identified was that we did not have sufficient financial reporting and accounting staff with appropriate training in GAAP and SEC rules and regulations. As such, our controls over financial reporting were not designed or operating effectively, and as a result there were adjustments required in connection with closing our books and records and preparing our December 31, 2012 and June 30, 2013 financial statements.

        As noted above, the material weakness in our internal control over financial reporting was attributable to our lack of sufficient financial reporting and accounting personnel with appropriate training in GAAP and SEC rules and regulations. In response to this material weakness, we plan to hire additional personnel with public company financial reporting expertise to build our financial management and reporting infrastructure, and further develop and document our accounting policies and financial reporting procedures. However, we cannot assure you that we will be successful in pursuing these measures or that these measures will significantly improve or remediate the material weakness described above. We also cannot assure you that we have identified all of our existing material weaknesses, or that we will not in the future have additional material weaknesses. We have not yet remediated our material weakness, and the remediation measures that we intend to implement may be insufficient to address our existing material weakness or to identify or prevent additional material weaknesses.

        Neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. In light of the control deficiencies and the resulting material weakness that were identified as a result of the limited procedures performed, we believe that it is possible that, had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses and significant control deficiencies may have been identified. However, for as long as we remain an "emerging growth company" as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the requirement that our independent registered public accounting firm provide an attestation on the effectiveness of our internal control over financial reporting. See "Summary—Implications of Being an Emerging Growth Company."

Liquidity and Capital Resources

        Since our inception, we have incurred net losses and negative cash flows from our operations. We incurred net losses of $18.9 million and $16.2 million for the years ended December 31, 2011 and 2012, respectively, and $8.7 million and $7.3 million for the six months ended June 30, 2012 and 2013, respectively. Our operating activities used

78


Table of Contents

$17.3 million and $15.9 million of cash flows during the years ended December 2011 and 2012, respectively, and $8.8 million and $6.5 million of cash flows during the six months ended June 30, 2012 and 2013, respectively. At June 30, 2013, we had an accumulated deficit of $77.2 million, negative working capital of $7.2 million and cash and cash equivalents of $6.0 million. Historically, we have financed our operations principally through private placements of preferred stock and convertible debt. Through June 30, 2013, we have received gross proceeds of $79.2 million from the issuance of preferred stock and convertible debt.

        Similar to other clinical-stage biopharmaceutical companies, our access to traditional bank credit is limited. Although we have had a revolving line of credit in the past, we do not currently have an open revolving line of credit or access to bank finance. We have limited assets which can be used as collateral to secure potential indebtedness. Moreover, as noted above, we have not received any material revenues since inception. Therefore, our ability to fund our operations and sustain our clinical development programs is dependent on equity and equity-linked investments. None of our current investors is required to invest any additional capital in us. Thus, there can be no assurances that we will be able to raise sufficient capital in the future from these or other similar sources or the public markets to fund our operations, and failure to do so could have a material adverse effect on our operations. In addition, the need to raise capital is expected to consume management resources, time and attention and, to a lesser extent, the time and attention of our scientific staff.

        In connection with our financing strategy, on August 27, 2013 our board of directors approved the issuance of up to approximately $35.0 million of convertible preferred stock in a private placement to fund our clinical programs and for general corporate purposes. In light of the anticipated timing of our proposed initial public offering, however, we decided on September 24, 2013 not to further pursue the private placement. No offers to buy or indications of interest given in the private placement were accepted. The private placement was discussed with institutional investors that we believe are "accredited investors" under Rule 501(a) of the Securities Act. This prospectus supersedes any materials distributed in connection with the private placement.

Operating and Capital Expenditure Requirements

        We have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. We expect our cash expenditures to increase in the near term as we fund our planned clinical trials for birinapant. Following this offering, we will be a publicly traded company and will incur significant legal, accounting and other expenses that we were not required to incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules adopted by the SEC and the NASDAQ Stock Market, require public companies to implement specified corporate governance practices that are currently inapplicable to us as a private company. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We estimate that we will incur approximately $2.0 to $3.0 million in incremental costs per year associated with being a publicly traded company, although it is possible that our actual incremental costs will be higher than we currently estimate.

        We believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of June 30, 2013, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. However, we anticipate that we will need to raise substantial additional financing in the future to fund our operations. In order to meet these additional cash requirements, we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders. If we raise

79


Table of Contents

additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business, results of operations, and financial condition. Our future capital requirements will depend on many factors, including:

    the results of our pre-clinical studies and clinical trials;

    the development and commercialization of birinapant;

    the scope, progress, results and costs of researching and developing birinapant or any other future product candidates, and conducting pre-clinical studies and clinical trials;

    the timing of, and the costs involved in, obtaining regulatory approvals for birinapant or any other future product candidates;

    the cost of commercialization activities if birinapant or any other future product candidates are approved for sale, including marketing, sales and distribution costs;

    the cost of manufacturing birinapant or any other future product candidates in pre-clinical studies, clinical trials and, if approved, in commercial sale;

    our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

    any product liability infringement or other lawsuits related to our products;

    the expenses needed to attract and retain skilled personnel;

    the costs associated with being a public company;

    the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and

    the timing, receipt and amount of sales of, or royalties on, future approved products, if any.

        Please see "Risk Factors" above for additional risks associated with our substantial capital requirements.

Contractual Obligations and Commitments

        The following is a summary of our long-term contractual cash obligations as of June 30, 2013:

 
  Total   Less Than
One Year
  1-3 Years   3-5 Years   More Than
5 Years
 

Convertible notes payable

  $ 13,338,163   $ 10,321,067   $ 3,017,096   $   $  

Operating lease obligations

    184,352     184,352              
                       

Total contractual obligations

  $ 13,522,515   $ 10,505,419   $ 3,017,096   $   $  
                       

     Convertible Notes Payable

        In each of November 2012 and April 2013, we issued unsecured convertible promissory notes to certain of our existing stockholders. In each such issuance, we issued notes in the original aggregate principal amount of $5.0 million, for a combined total of $10.0 million. The

80


Table of Contents

promissory notes issued in each of November 2012 and April 2013 matured on July 1, 2013, at which time the aggregate principal amount and all accrued and unpaid interest thereon became due and payable. However, the notes were amended by consent of the holders and us to extend their maturity date until April 1, 2014. The promissory notes convert automatically upon the consummation of a "qualified financing," which includes this offering, and are convertible at the option of the holder upon the consummation of a "non-qualified financing," as such terms are defined therein. They also are convertible into series C convertible preferred stock, at the option of the holder, after 12 months from the issue date of the promissory notes.

        In May 2013, we issued an unsecured convertible promissory note in the aggregate principal amount of $3.0 million to Amgen, one of our existing stockholders. This promissory note matures on May 16, 2015, unless previously converted, at which time the aggregate amount of principal and all accrued and unpaid interest thereon becomes due and payable. The promissory note converts automatically upon the consummation of a "qualified financing," which includes this offering, and converts at the option of the holder upon the consummation of a "non-qualified financing," as such terms are defined therein. The promissory note is also convertible into series C-1 convertible preferred stock at the option of the holder after 24 months from the issue date of the promissory note.

        Based on the expected net proceeds of this offering, which we derive from the number of shares and the midpoint of the price range of our common stock on the cover of this prospectus, we anticipate that this offering will constitute a qualified financing under the terms of each series of convertible notes, and that all of our convertible notes payable and related accrued interest will convert to common stock.

     Cumulative Dividend on Preferred Stock

        As of June 30, 2013, there were $8,961,857 of dividends payable on our series C and C-1 convertible preferred stock, which are payable upon the occurrence of a Liquidation (as more fully described in our certificate of incorporation). However, dividends are forfeited upon conversion from series C and C-1 convertible preferred stock to shares of our common stock.

     Royalty-Based and Other Commitments

        In November 2003, we entered into an exclusive license agreement with Princeton University, subsequently amended in June 2004, August 2006 and October 2006, which grants us the rights to certain U.S. patents controlled by the university relating to SMAC-mimetic compounds, including birinapant, and a non-exclusive right to certain know-how and technology relating thereto. The agreement contains a right by us to sublicense. To date, we have paid an aggregate of $100,000 in license fees under the license agreement. As part of the consideration paid, we issued to Princeton University 165,501 shares of our common stock and agreed to pay Princeton University certain royalties. In particular, we are obligated to pay royalties as a percentage of net product sales of 2.0% for direct licensed products, such as birinapant, and 0.5% of derived licensed products, if such products are covered by the applicable Princeton University patent rights. We have the right to reduce the amount of royalties owed to Princeton University by the amount of any royalties paid to a third-party in a pro rata manner, provided that the royalty rate may not be less than 1.0% of net sales for direct licensed products and 0.25% for derived licensed products. The obligation to pay royalties in the U.S. expires upon the expiration, lapse or abandonment of the last of the licensed patent rights that covers the manufacture, use or sale of the direct licensed products. The obligation to pay royalties outside the U.S. expires, on a country by country basis, 10 years from the first commercial sale of a licensed product in each country. The licensed

81


Table of Contents

patent rights were developed using federal funds from the National Institutes of Health and are subject to certain overriding rights of and obligations to the federal government as provided in the Bayh–Dole Act. This agreement expires upon expiration of the last of the licensed patent rights in 2023 (absent extensions).

        The agreement also requires that we pay to Princeton University 5.0% of the non-royalty consideration that we receive from a sublicensee until October 5, 2014 and 2.5% thereafter. Under the license agreement, we are obligated to use reasonable efforts to develop, test, obtain regulatory approval, manufacture, market and sell licensed products in all countries worldwide.

        Because the achievement and timing of these net sales is dependent on successful completion of our clinical programs and is therefore not fixed and determinable, our commitment under this agreement has not been included on our balance sheets or in the Contractual Obligations and Commitments table above.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements, as defined by applicable SEC regulations.

Quantitative and Qualitative Disclosure About Market Risk

        We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations.

        We had cash and cash equivalents of $4.5 million and $6.0 million at December 31, 2012 and June 30, 2013, respectively, consisting primarily of funds in cash and money market accounts. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10.0% increase in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

Recent Accounting Pronouncements

        In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," or ASU 2013-02. ASU 2013-02 requires companies to present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. This guidance is effective for annual reporting periods beginning after December 15, 2012. We believe the adoption of this standard will not have a significant impact on its consolidated financial position, results of operations or cash flows.

82


Table of Contents


BUSINESS

Overview

        We are a clinical-stage biopharmaceutical company focused on discovering and developing novel SMAC-mimetics that are designed to cause or enable abnormal cells that are resistant to the body's immune system to self-destruct. Birinapant, our clinical-stage product candidate, is currently being tested in Phase 1 and Phase 2 oncology clinical trials for multiple solid tumors and hematological malignancies. Our clinical trials of birinapant have enrolled over 275 subjects.

        Our lead program is CRC where we have substantially completed a Phase 1/2 clinical trial, and we intend to start a randomized Phase 2/3 clinical trial in the second half of 2014. Birinapant is also being tested in an ongoing Phase 1/2 clinical trial in various blood cancers. We have started a Phase 1 clinical trial in MDS and, upon its completion, intend to start a randomized Phase 3 clinical trial in the second half of 2014. We also have an open IND and intend to start a Phase 1/2 ovarian cancer clinical trial in 2013. Beyond our work in cancer, we are evaluating birinapant and other product candidates in pre-clinical studies as potential antiviral therapeutic agents, with the goal of starting an antiviral clinical program in the first quarter of 2015.

Background of SMAC-Mimetics

        Fundamentally important to maintaining human health is the mechanism in both normal and abnormal cells for controlling programmed cell death. This process of self-destruction of cells is known as apoptosis. There are multiple checks and balances within a cell to ensure that healthy cells do not undergo apoptosis by mistake and that abnormal cells, such as cancerous and virally infected cells, undergo apoptosis and are cleared from the body. Key molecules that protect cells from apoptosis are called IAPs. A key molecule that promotes apoptosis is SMAC, a naturally occurring IAP inhibitor.

        In many diseases, such as certain cancers and infections, abnormal cells that should be naturally cleared from the body manage to escape apoptosis. As a result, cells that should self-destruct actually survive and even proliferate or propagate infection, leading to multiple disease complications. In both cancer and viral infections, the abnormal cells typically use the same escape pathway: the overexpression of IAPs resulting in the avoidance of the signals to undergo cell self-destruction.

        TNF is an extracellular signaling molecule that induces apoptosis. Cancer cells and certain virally infected cells can use IAPs to convert a TNF-induced self-destruction signal into a pro-survival signal through a protein complex called NF-kB. While a number of cancer therapies induce TNF, the TNF self-destruction signal may be blocked by the IAPs. Normally, IAPs can be disabled by their natural inhibitor SMAC, but this natural blocking mechanism is rendered ineffective in many cancers and certain viral infections due to the overexpression of IAPs. We believe SMAC-mimetics have the potential to inhibit the overexpressed IAPs and re-establish the TNF self-destruction signal. Our therapeutic focus is centered on the development of SMAC-mimetics that are designed to inhibit IAPs and re-establish the TNF self-destruction signal in order to overcome this "escape-from-apoptosis" in malignant or infected cells. A key element of our strategy is to administer a SMAC-mimetic with other therapies that induce TNF or related self-destruction signaling molecules. Examples of such other therapies are azacitidine, gemcitabine, GM-CSF, IFN, irinotecan and radiation therapy. There are no drugs currently on the market that specifically target the IAPs to re-establish apoptosis in abnormal cells.

83


Table of Contents

Birinapant

        Birinapant was selected from our chemical library of over 3,000 SMAC-mimetic compounds, has a strong intellectual property profile, and we believe has the potential to be broadly active across multiple tumor types and against virally-infected cells. Over 275 study participants with cancer have been treated with birinapant alone or administered with standard chemotherapies. In clinical trials, birinapant was generally well tolerated, meaning that treatment-related side effects were mild or moderate in severity in the majority of treated subjects, and showed signs of activity in subjects with cancer. In pre-clinical cancer studies, birinapant was synergistic (or super-additive) with agents that induce TNF, including established anti-cancer chemotherapies (such as azacitidine, gemcitabine and irinotecan), other anti-cancer therapies (such as radiotherapy), biological agents (such as GM-CSF and IFN), and with TNF and other members of the TNF superfamily including TRAIL and TRAIL-Receptor 2 (also known as DR5) agonists. In addition, birinapant reduced HBV levels in animal studies in a TNF-dependent manner. Our clinical strategy is to administer birinapant with therapies (for example, azacitidine or irinotecan) that induce the production of TNF or related molecules.

        As shown in FIGURE 1, below, the principal target of birinapant is cIAP1. A secondary target is cIAP2 (not shown in FIGURE 1 below). Both are critical components of the TNF receptor 1 complex. It is this TNF receptor 1 complex that receives the TNF signal and then transmits it inside the cell, triggering a cascade of events that includes activation of NF-kB which delivers the pro-survival signal to a cancer cell.

FIGURE 1. Birinapant is designed to mimic SMAC and enable TNF-activated apoptosis.

GRAPHIC

84


Table of Contents

Activity in Clinical Trials

        We believe that our pre-clinical and clinical data suggest that birinapant has potential for treating a wide spectrum of solid tumors, hematological malignancies and viral infections, and provide the rationale for further clinical development of birinapant. In clinical trials, birinapant has shown favorable PK properties, meaning how the subject's body handles birinapant, including the length of time birinapant remains in a subject's blood or tumor, with similar and predictable behavior among treated subjects. In addition, our clinical trials show evidence that birinapant is interacting with its intended target and that the activation of NF-kB was inhibited in subject tumor cells.

        Birinapant has thus far shown clinical activity in both solid tumors and hematological malignancies, including CRC and AML. Phase 1 and Phase 2 clinical trials have been completed or are ongoing with birinapant. Initial response and safety data from the Phase 1/2 solid tumor trial were reported at the 2013 Annual Meeting of the American Society of Clinical Oncology.

        The following table sets forth our highest priority clinical programs:

        Our Phase 1 clinical trials are designed to define the MTD of birinapant both as a single agent and when administered with other chemotherapies, to gather PK and safety data, and to determine the recommended Phase 2 dose. Phase 2 clinical trials are designed to determine the tolerability and magnitude of clinical benefit of birinapant both as a single agent and when administered with other chemotherapies, initially in a small number of subjects. Our Phase 1/2 clinical trials are designed to include both a dose escalation component and a fixed dose component to gather safety data and measure any early signal of clinical benefit. Phase 3 clinical trials will be designed to confirm the tolerability and magnitude of clinical benefit in a larger number of subjects. Our planned Phase 2/3 clinical trial in CRC subjects will be designed to confirm the tolerability and magnitude of clinical benefit of birinapant administered with irinotecan in a larger patient population which will dictate whether to proceed with the Phase 3 component of the trial.

GRAPHIC

85


Table of Contents

Safety Studies

        Birinapant was generally well tolerated both alone as a single agent, or administered with standard chemotherapies, in Phase 1 and Phase 2 clinical trials, which have collectively enrolled over 275 subjects. In these trials, side effects were predominantly dose-related, transient and mild or moderate in severity. Birinapant did not appear to substantially exacerbate any of the common toxicities associated with the administered chemotherapies.

        Safety data from CRO databases are available in 226 subjects for studies of birinapant as a single agent or administered with standard chemotherapies. In single agent studies of birinapant, the most frequent treatment-related adverse events occurring in at least 10% of subjects were cytokine release syndrome, decreased appetite, diarrhea, fatigue, headache, hypotension, lymphocytopenia, nausea and vomiting. In clinical trials of birinapant administered with standard chemotherapies, the most frequent treatment-related adverse events, occurring in at least 10% of subjects, were decreased appetite, fatigue, nausea and vomiting. The majority of these treatment-related events were Grade 1 (mild) or 2 (moderate) severity, and reversible without clinical complications.

        In the single agent dose-escalation clinical trial that deliberately sought to define the dose-limiting toxicities and thus the MTD, the birinapant-related adverse events that were Grade 3 (severe to life-threatening) or greater in severity occurred in 9 of 50 (18%) subjects and included fatigue, headache, hypophosphatemia, increased serum amylase, increased serum lipase, lymphocytopenia, nausea, thrombocytopenia and vomiting. In the clinical trials of birinapant administered with standard chemotherapies, the treatment-related adverse events that were Grade 3 or greater in severity occurred in 32 of 176 (18%) subjects and included but were not limited to fatigue, neutropenia, thrombocytopenia and vomiting.

        In clinical trials, birinapant was associated with the onset of cranial nerve palsies, meaning a complete or partial weakness or paralysis of the areas served by the affected nerve, of mild to moderate severity. A palsy of the seventh cranial nerve resulted in a Grade 2 Bell's Palsy, or weakness or inability to control facial muscles on one side of the face, in 11 subjects among all treated subjects. These events were considered dose-limiting toxicities and improved to Grade 1 or full recovery within two to four weeks. Most subjects elected to continue birinapant treatment and none had a recurrent event of Bell's Palsy.

Overview of Lead Clinical Programs

        Based on birinapant's mechanism of action, clinical and pre-clinical data and other factors, we have selected CRC and MDS as our first two targeted indications.

     Colorectal Cancer (CRC)

        We have results of a Phase 2 clinical trial of birinapant administered with irinotecan in 71 CRC subjects who had previously failed standard chemotherapies. The trial has not been formally closed because one subject continues on treatment without disease progression for over 18 months. The clinical trial showed activity, with six subjects (8%) showing partial responses, or PRs, defined as at least a 30% decrease in the sum of all measurable tumor lesions by RECIST. RECIST is a set of published rules that define when cancer patients improve (or respond), stay the same (or stabilize), or worsen (or progress) during treatment. The median PFS was 2.2 months. Thirty-four percent of study subjects were alive without progression of their tumor at four months and 21% were alive without progression of their tumor at six months. The combination of birinapant administered with irinotecan was generally well tolerated. Compared to treatment with irinotecan alone, birinapant administered with irinotecan led to a modest increase in anemia (or a decrease in red blood cells) and a modest increase in thrombocytopenia (or a decrease in platelets). As noted above, irinotecan

86


Table of Contents

is one of the chemotherapies that induces TNF. As the majority of subjects had disease progression on prior irinotecan treatment (65 of 71, or 92%), we believe that this data supports the view that the activity seen in this study is being driven by the synergistic effect of birinapant and irinotecan. Based on the clinical data that has emerged from the study of birinapant administered with irinotecan, a Phase 2/3 clinical trial is planned in third-line CRC subjects, meaning those who have already failed two prior treatment regimens for advanced disease to commence enrollment in the second half of 2014.

     Myelodysplastic Syndromes (MDS)

        A Phase 1/2 investigator-initiated clinical trial in AML, MDS and ALL is ongoing at the University of Pennsylvania and 18 study subjects have been treated with birinapant as the sole agent or administered with hydroxyurea (if deemed necessary by the treating physician). The majority of subjects enrolled are elderly (over 70 years) with AML secondary to MDS and have received multiple prior treatments. In preliminary data, the treatment-related adverse events included Grade 3 and Grade 4 increases in serum levels of the digestive enzymes amylase and lipase, as determined by laboratory testing, with no subject-reported symptoms of abdominal pain. The preliminary data also shows reductions in leukemic blasts (tumor bulk) in some subjects. There were increases in neutrophils with the first birinapant dose in some subjects. One subject continued on treatment with birinapant as sole agent for approximately 10 months. Based on the synergy we observed in pre-clinical studies between birinapant and azacitidine, the current standard of care for MDS, and the action of birinapant in subjects with AML secondary to MDS, in August 2013, we initiated a Phase 1/2 clinical trial of birinapant administered with azacitidine in high-risk MDS subjects who have relapsed or are refractory to azacitidine. We intend to expand this clinical trial to include subjects who have not been previously treated with, or are naïve to, azacitidine. We plan to enroll 15 subjects in a dose escalation phase, which may be followed by an expansion arm of the trial at a selected dose. Subject enrollment is expected to be completed in the first half of 2014. If supported by results from these clinical trials, we intend to commence a Phase 3 clinical trial in high-risk MDS subjects in the second half of 2014.

     Additional Indications

        In addition to our lead programs in CRC and MDS, we are also planning to evaluate birinapant in several other indications and administered with other therapies.

    Birinapant administered with conatumumab in ovarian cancer:  In pre-clinical studies, we observed synergy between birinapant and TRAIL receptor agonist antibodies. In collaboration with Amgen, we will explore the combination of birinapant administered with Amgen's TRAIL receptor agonist antibody, conatumumab. We have an open IND for a Phase 1/2 ovarian cancer trial and intend to begin enrolling subjects before the end of 2013.

    Birinapant administered with immunotherapy in melanoma:  We expect to commence a clinical trial in melanoma to follow-up on our pre-clinical studies in which birinapant showed activity in melanoma and synergy with both GM-CSF and IFN.

    Birinapant administered with gemcitabine and cisplatin in solid tumors:  An investigator-initiated Phase 1/2 clinical trial is ongoing to evaluate the safety and activity of birinapant administered with gemcitabine/cisplatin in tumor types where this regimen is commonly used, such as NSCLC and bladder cancer.

    Birinapant in HBV:  In pre-clinical studies, birinapant significantly reduced HBV. The clearance was additive when given in combination with entecavir, the standard of care

87


Table of Contents

      therapy for HBV. We intend to continue pre-clinical studies and regulatory activities and intend to file an IND for a Phase 1 clinical trial in early 2015.

        In connection with our clinical programs, we are conducting research to uncover biomarkers, or biological parameters that can be measured to characterize a disease state or the effect of therapy, that can be used to identify subjects most likely to respond to birinapant. These studies are focused on detecting IAP gene amplification in different tumor types, on examining the expression of genes important in the TNF/IAP/NF-kB pathway and on examining the activation status of NF-kB itself.

Our Strategy

        Our goal is to maximize the potential value of birinapant as a first-in-class and best-in-class SMAC-mimetic. The key elements of our strategy to achieve this goal include:

    pursuing regulatory approval for birinapant administered with irinotecan for treatment of third-line CRC. Pending input from the FDA at an EOP2 meeting, we plan to initiate a Phase 2/3 clinical trial in the second half of 2014;

    pursuing regulatory approval for birinapant administered with other therapies for the treatment of high-risk MDS. Pending the results of our ongoing Phase 1/2 clinical trial and input from the FDA at an EOP2 meeting, we intend to initiate a Phase 3 clinical trial in the second half of 2014;

    commencing a Phase 1/2 clinical trial by the end of 2013 with birinapant administered with conatumumab in ovarian cancer;

    continuing our pre-clinical studies of birinapant as a potential antiviral therapeutic agent, with the goal of starting an antiviral clinical program in the first quarter of 2015; and

    considering collaborations to accelerate development of our clinical programs outside of the U.S.

        Other elements of our business strategy include exploiting our understanding of the role of SMAC-mimetics more broadly in infectious disease, leveraging our library of SMAC-mimetic compounds to develop novel molecules to expand the utility of this developing class and pursuing potential collaborations, in-licensing or acquisitions of assets and companies to expand our existing technologies and operations.

Birinapant—Inhibitor of IAPs

     Birinapant Inhibits IAPs to Overcome a Cancer Cell's "Escape from Apoptosis"

        Birinapant is a bivalent investigational SMAC-mimetic designed to bind to a greater or lesser extent with multiple IAPs. IAPs, including cIAP1, cIAP2, XIAP, and ML-IAP, are a group of structurally-related proteins that can suppress apoptosis. Based on our preclinical studies and clinical trials, we believe that birinapant's potential ability to inhibit the IAPs will block this suppression across multiple cancers and virally infected cells.

        The dysregulation of apoptosis is recognized as a fundamental defect in the pathogenesis of cancer. Apoptosis is a highly regulated process that enables cells to respond to either extracellular or intracellular signals in order to rapidly eliminate damaged cells. In many tumors, the ability to undergo apoptosis is impaired and the transformed cell is able to remain in a viable, pro-survival state, even in the presence of strong pro-apoptotic signals. Therefore, dysregulation of apoptosis in tumors contributes to the malignant phenotype and is associated with resistance to certain chemotherapeutics and biological therapies. The IAP genes are frequently amplified (for example, the cancer cells contain extra copies of such genes beyond the normal two copies per cell) in cancer, which can contribute to resistance to apoptosis in response to certain biological and conventional cytotoxic drug therapies.

88


Table of Contents

        The IAPs have multiple and distinct domains that are responsible for different functions of the protein. A critical functional domain of both cIAP1 and cIAP2 is called the E3 ubiquitin ligase domain, or E3 domain, which acts to "tag" proteins for degradation. Two IAP E3 domains must interact with each other to be functional. Thus when two IAPs come together to form a "homodimer," allowing the two E3 domains to interact, it can result in their self-degradation. This self-degradation of two IAP molecules as a result of coming together and interacting with each other through their E3 domains is critically important to the action of all SMAC-mimetics.

        The endogenous SMAC protein interacts with the IAP homodimer, that is, it interacts with two IAP molecules. SMAC-mimetic product candidates under development fall into two classes: a "monovalent" compound that interacts with a single IAP molecule or a "bivalent" compound that interacts with two IAP molecules. Birinapant is a bivalent SMAC-mimetic. Based upon pre-clinical studies, we believe that, bivalent SMAC-mimetics are more potent inhibitors of TNF induced NF-kB activation than monovalent SMAC-mimetics.

        In pre-clinical studies, birinapant was synergistic with agents that induce TNF, including anti-cancer chemotherapies (such as azacitidine, gemcitabine and irinotecan), other anti-cancer therapies (such as radiotherapy), biological agents (such as GM-CSF and IFN) and with members of TNF superfamily that include TNF itself, TRAIL, and TRAIL-Receptor 2 (also known as DR5) agonists.

        In pre-clinical studies, a significant number of tumor types resistant to single agent treatment with either TNF or TRAIL became sensitive in the presence of low concentrations of birinapant. The requirement for TNF underpins our clinical program: while birinapant is anticipated to have some activity when administered as the sole therapy, we believe its maximum anti-cancer activity will occur when administered with chemotherapies that further induce TNF.

        We believe that birinapant has the potential to be superior to other SMAC-mimetics for two reasons. First, birinapant is a bivalent molecule similar to endogenous SMAC and allows for direct engagement of two IAP molecules. Our pre-clinical studies suggest that bivalent SMAC-mimetics are more potent inhibitors of TNF induced NF-kB activation than monovalent SMAC-mimetics. To our knowledge, birinapant is the only bivalent SMAC-mimetic in clinical development in the United States. Second, based on our pre-clinical studies, birinapant inhibits cIAP1 more than cIAP2. Complete degradation of cIAP2 is associated with increased toxicities. We believe that this is the basis for the pre-clinical data suggesting that birinapant will be better tolerated than SMAC-mimetics that are less selective. Consistent with these pre-clinical studies, birinapant was generally well tolerated in our clinical trials.

Clinical Programs

     Colorectal Cancer (CRC)

     Background

        CRC is the most deadly cancer in the U.S. among non-smokers and the second most deadly cancer overall. The American Cancer Society estimates that in the U.S. there will be approximately 142,000 new cases and approximately 51,000 deaths from CRC in 2013, accounting for 9% of all cancer deaths. Almost 50% of the patients with a new diagnosis of CRC will die within five years. According to the NCI, the prevalence of CRC in the U.S. in 2010 was estimated to be 1.2 million cases. CRC is the third most common cancer in both men and women. The risk of CRC increases with age; 90% of cases are diagnosed in individuals 50 years of age or older. Despite effective screening, leading to a reduction in the mortality from CRC, the number of cases remains high and is expected to increase worldwide to

89


Table of Contents

2.2 million by the year 2030. We believe that there is a medical need for a treatment option that improves outcomes of standard of care regimens for patients with CRC.

        Surgery is the first-line treatment for early stage CRC. When CRC is advanced or metastasizes (spreads to other parts of the body, such as the liver), chemotherapy alone or in combination with radiation is commonly used. FDA approved drugs for patients with advanced or metastatic CRC (mCRC) are: 5-fluorouracil, aflibercept (Zaltrap), bevacizumab (Avastin), capecitabine (Xeloda), cetuximab (Erbitux), irinotecan (Camptosar), leucovorin, oxaliplatin (Eloxatin), panitumumab (Vectibix) and regorafenib (Stivarga). Depending on the stage of the cancer, three or more of these drugs may be administered at the same time or used after one another. Chemotherapy regimens (such as FOLFOX (5-fluorouracil, leucovorin, and oxaliplatin) or FOLFIRI (5-fluorouracil, irinotecan, and leucovorin)), either with or without aflibercept or bevacizumab, have been shown to increase survival rates in patients with advanced/metastatic CRC and are among the leading first- and second-line treatments in the U.S. and Europe. Typically, patients who fail 5-fluorouracil, irinotecan, oxaliplatin, and bevacizumab- or aflibercept-containing therapies, and who have a wild-type, or normal KRAS gene in the tumor, receive treatment with an epidermal growth factor receptor, or EGFR, monoclonal antibody. This EGFR antibody therapy can be either cetuximab or panitumumab, alone or combined with chemotherapy. The protein product of the normal KRAS gene performs an essential function in normal tissue signaling, and the mutation of a KRAS gene is an essential step in the development of many cancers. Approximately 50% of CRC patients have a KRAS mutant gene in the tumor and do not respond to EGFR monoclonal antibody therapy; in third party, randomized studies of CRC, there was no benefit of irinotecan re-treatment with cetuximab in tumors with the KRAS mutant gene. The classification of CRC tumors based on the presence of a normal or mutant KRAS gene has important implications therefore for therapy.

        Patients who fail second-line treatment have limited treatment options. Retreatment with prior therapy is unlikely to produce benefits. Regorafenib is currently the third-line standard of care. In the clinical trial that led to its approval, regorafenib was evaluated versus a placebo. Published Phase 3 clinical trial results of regorafenib from this clinical trial are presented in FIGURE 2. The median PFS and objective response rate for the placebo and regorafenib arms were 1.7 and 1.9 months, and 0% and 1%, respectively. Objective response is defined as the sum of PRs and complete responses, or CRs, as defined by RECIST criteria. In addition, significant adverse events have been associated with regorafenib, including diarrhea, fatigue, hand-foot reaction, hyperbilirubinemia, hypertension, mucositis, rash or skin desquamation, and thrombocytopenia. Accordingly, we believe that an unmet medical need remains for patients who fail second-line treatment. There is also a clear unmet need in subjects with KRAS mutant CRC who fail first-line therapy and, because of their KRAS mutant status, are not eligible for EGFR antibody therapy.

90


Table of Contents

FIGURE 2. Published Phase 3 Clinical Trial Regorafenib vs. Placebo Results.

Study Population
  Placebo
N= 255
  Regorafenib
N= 505

4 months PFS

  7%   25%

6 months PFS

  2%   14%

Median PFS (mo)

  1.7   1.9

Median Overall Survival (mo)

  5.0   6.4

Response Rate

  0%   1%

Disease Control Rate Stable Disease>6weeks

  15%   41%

Source: Grothey A, Van Cutsem E, Sobrero A, et al. Regorafenib monotherapy for previously treated metastatic (CORRECT); an international, multicenter, randomized, placebo-controlled, phase 3 trial. Lancet 2013; 381:303-12.

     Rationale

        In CRC, dysregulation of both cell growth and cell destruction (apoptosis) pathways are well established as fundamental causes of disease. Existing CRC therapies and newer, "targeted" agents like the EGFR antibodies (such as cetuximab and panitumumab) are anti-growth agents. As described above, birinapant is a targeted therapy that we believe has the potential to inhibit the IAPs and drive cell destruction or apoptosis.

        Third party studies in gastrointestinal cancers, CRC in particular, support the hypothesis that alteration of IAPs and SMAC may be important for cancer development and therapeutic efficacy. Genetic abnormalities of IAPs are among the most common genomic alterations in CRC. Comprehensive genetic analyses of human CRC samples demonstrated chromosome regions containing cIAP1 and cIAP2 genes as among the most frequently amplified regions in CRC. Additionally, in studies of over 6,000 publicly-available human tumor samples in The Cancer Genome Atlas, the IAP genes were amplified across multiple tumor types. This included over 60% of the 500 CRC tumors in the database. Furthermore, in studies of rectal cancer, low levels of SMAC were correlated with poor outcomes for neoadjuvant therapy, or therapy given as a first step to shrink a tumor before the main treatment is administered, for locally advanced disease. In studies of 1,162 cases of gastric cancer, high expression of IAPs, or XIAP, and low expression of SMAC were correlated with poor prognosis.

        In third-party clinical trials, NF-kB activation (dependent on cIAP1 and cIAP2) has been correlated with poor prognosis and resistance to cytotoxic therapies in multiple solid tumors, including CRC and esophageal cancer. NF-kB is an intracellular protein complex that is downstream of TNF and transmits the TNF-pro-survival signal. In our pre-clinical studies and clinical trials, signaling was inhibited by birinapant. Third-party pre-clinical studies demonstrated the potential that NF-kB activation leads to resistance to 5-FU, irinotecan, and other cytotoxic therapies while suppression of NF-kB has demonstrated the potential to lead to reversal of chemotherapy resistance. In a third-party clinical trial of irinotecan-refractory metastatic CRC, subjects with CRC tumors with activated NF-kB had significantly less clinical benefit than subjects with CRC tumors that did not have activated NF-kB. This was true in terms of decreased response rate, decreased PFS and decreased overall survival.

        Third-party clinical trials suggest that NF-kB activation is more prevalent in KRAS mutant CRC, and that increased NF-kB activity was correlated with worse prognosis and greater resistance to therapies. Birinapant's ability to inactivate the NF-kB pro-survival signal suggests a mechanism by which KRAS mutant CRC may be responsive to combination therapies that include birinapant.

91


Table of Contents

     Pre-clinical Studies

        Pre-clinical studies have shown that administering birinapant with therapies that induce TNF and TRAIL results in synergistic anti-tumor activity. In our in vitro analyses of 12 CRC cancer cell lines, 75% demonstrated apoptosis-induction when birinapant was administered with TNF or TRAIL. Importantly, non-cancerous cell lines demonstrated no induction of cell death with administration of high doses of birinapant, TNF or TRAIL, or any combination thereof.

        In vivo pre-clinical studies with xenografts of primary tumors from CRC subjects demonstrated that birinapant had single-agent activity in seven of 20 xenografts studied. This activity was observed for both KRAS mutant tumors and tumors with normal KRAS. Because the action of birinapant is dependent on TNF, we believe that the single agent activity in these studies reflects the production of TNF by the tumor cells themselves, or otherwise known as autocrine production of TNF.

     Clinical Trials

        Prior to evaluating birinapant in any particular indication, we conducted a single agent Phase 1 clinical trial with birinapant in 50 subjects with multiple solid tumor cancer types to determine the MTD and gather PK and safety data. The IND was submitted in September 2009. The study began in December 2009 and was conducted at Fox Chase Cancer Center and the University of Pennsylvania in Philadelphia, PA and Roswell Park Cancer Institute in Buffalo, NY and included subjects who had received a median of four prior therapies for their cancers. Birinapant was generally well tolerated. There was evidence of anti-tumor activity or prolonged disease stabilization in two subjects with CRC, one subject with NSCLC and one subject with liposarcoma. Methods for showing activity were a blood test measuring declines in carcinoembryonic antigen, or CEA, and computed tomography, or CT, scanning. The liposarcoma subject had disease stabilization for nine months despite progression on three prior therapies. This study was completed in March 2012.

        Our second clinical trial was a Phase 1 clinical trial of birinapant administered with one of five different standard chemotherapy regimens, carboplatin, docetaxel, gemcitabine, irinotecan, or liposomal doxorubicin and paclitaxel. This trial included 124 subjects with multiple solid tumor cancer types to determine MTD, and gather PK and safety data. Secondary objectives were to assess anti-tumor activity, pharmacodynamics and potential translational biomarkers. This study began in October 2010 and was conducted at the three sites listed above as well as Barbara Ann Karmanos Cancer Institute in Detroit, MI, the Holy Cross Hospital Cancer Center in Fort Lauderdale, FL, the Mary Crowley Cancer Research Centers in Dallas, TX and START (South Texas Accelerated Research Therapeutics) in San Antonio, TX. Subjects treated had a variety of tumor types, the most common being CRC, ovarian cancer, lung cancer and melanoma. The subjects had failed a median of three prior chemotherapies. Birinapant did not appear to substantially exacerbate the toxicities commonly associated with any of these regimens. Fourteen subjects showed anti-tumor activity (as defined by RECIST). One NSCLC subject had a CR (defined as the disappearance of all lesions) and 13 subjects had PRs (defined as at least a 30% decrease in the sum of all lesions), including responses in anal cancer, CRC, gallbladder cancer, melanoma, NSCLC, ovarian cancer, and small-cell lung cancer.

     Focus on CRC

        In our single agent Phase 1 clinical trial, birinapant demonstrated anti-tumor activity in two study subjects with CRC who had failed all prior standard therapies. One subject with a KRAS mutant tumor had a CEA response and radiographic improvement of tumor lesions

92


Table of Contents

with stable disease for 5.1 months. A second subject with CRC and normal KRAS demonstrated anti-tumor response with development of a large area of tumor necrosis in the center of a prominent abdominal mass. Based upon the results of the prior Phase 1 clinical trials and pre-clinical studies in which we observed the synergy of birinapant administered with irinotecan, we decided to expand into a Phase 2 clinical trial in CRC with birinapant administered with irinotecan by adding 51 subjects to the 20 CRC subjects who were previously enrolled.

     Results in Phase 1/2 clinical trial of CRC subjects treated with birinapant administered with irinotecan

        In the Phase 1/2 clinical trial, 71 relapsed and/or refractory CRC subjects who had received a median of four prior therapies were treated with birinapant and irinotecan. A summary of the results are presented in FIGURE 3. In addition to presenting the results for all 71 subjects, we have provided summary data on two subject subsets. The first subset is the 22 subjects who failed a therapy that contained irinotecan immediately prior to entering the clinical trial. The second subset is the 37 subjects with a KRAS mutant tumor who failed irinotecan in a prior therapy.

FIGURE 3. Summary results of Phase 1/2 clinical trial of CRC subjects treated with birinapant administered with irinotecan.

Study Population
  All Subjects
N=71
  Subjects Who Failed
Immediately
Prior Irinotecan Therapy
N=22
  KRAS Mutant Subjects
Who Failed
Prior Irinotecan
N=37

4 months PFS

  34%   32%   38%

6 months PFS

  21%   18%   24%

Median PFS (mo)

  2.2   3.0   3.0

Response Rate

  8%   14%   8%

Disease Control Rate [PR + Stable Disease]

  63%   59%   68%

        In the Phase 1/2 clinical trial, 71 relapsed and/or refractory CRC subjects who had received a median of four prior therapies were treated with birinapant and irinotecan. There were signs of activity in subjects treated with birinapant and irinotecan as determined by objective responses and PFS. Six subjects showed PRs. Five of these six had previously failed prior irinotecan-based therapies, including three with KRAS mutant tumors. The median PFS for birinapant and irinotecan was 2.2 months, and 34% of subjects treated with birinapant and irinotecan were alive without disease progression at four months, or 4 mo PFS, and 21% were alive without disease progression at six months, or 6 mo PFS. (FIGURE 4).

93


Table of Contents

FIGURE 4. Clinical Activity (PRs and PFS) of birinapant administered with irinotecan in CRC subjects who failed multiple standard therapies (Phase 1/2 studies, n=71 CRC subjects).

GRAPHIC

        Of the 71 subjects in this Phase 1/2 clinical trial of birinapant administered with irinotecan, 22 CRC subjects had failed irinotecan therapy immediately prior to starting treatment with birinapant and re-treatment with irinotecan. It is generally not expected that subjects who fail a chemotherapy will respond to immediate re-treatment with the same therapy. Of these 22 subjects who previously failed irinotecan as their immediate prior therapy, there were three (13%) partial responders to treatment, seven subjects (32%) were alive without disease progression at four months and four (18%) were alive without disease progression at six months. One subject remains on therapy without disease progression after more than 18 months. (See FIGURE 5).

94


Table of Contents

FIGURE 5. In study subjects (n=22) who have failed immediately-prior irinotecan treatment, some tumors show unexpected response when treated with birinapant administered with irinotecan.

GRAPHIC

        Of the 71 subjects in this Phase 1/2 clinical trial, 37 CRC subjects with KRAS mutant tumors who had previously failed an irinotecan-based therapy were treated with birinapant and irinotecan. Of these 37 subjects, three subjects (8%) demonstrated PRs, 38% of subjects were alive without progression of their disease at four months, and 24% of subjects were alive without progression of disease at six months (FIGURE 6). We believe that this data may suggest activity of the combination of birinapant administered with irinotecan in a group of subjects where there is still a significant unmet need for treatment.

FIGURE 6. Clinical activity (PRs & prolonged PFS) with birinapant and irinotecan in KRAS mutant CRC subjects (n=37) who had failed prior irinotecan-based regimens.

GRAPHIC

95


Table of Contents

        Safety data from CRO databases are available for subjects in the Phase 1 and Phase 2 clinical trials who received birinapant administered with irinotecan. The most frequent adverse events occurring during treatment in greater than 10% of subjects, related to birinapant or not, were abdominal pain, alopecia, anemia, arthralgia, asthenia, chills, constipation, cough, decreased appetite, decreased weight, decreased white blood cell count, dehydration, diarrhea, dizziness, dyspnea, elevated blood creatinine, fatigue, headache, hypoalbuminaemia, hypokalaemia, hyponatraemia, hypotension, nausea, insomnia, neutropenia, peripheral edema, peripheral motor neuropathy, pyrexia, rash, stomatitis, thrombocytopenia, urinary tract infection, and vomiting. Compared to treatment with irinotecan alone, birinapant administered with irinotecan led to a modest increase in Grade 3 or greater anemia (4% versus 11%) and thrombocytopenia (1% versus 11%). This safety data suggests that birinapant administered with irinotecan has comparable tolerability to irinotecan administered as a single agent.

        We believe that the data from this Phase 1/2 clinical trial supports the view that the activity seen is being driven by the synergistic effect of birinapant administered with irinotecan. Based on this analysis, we intend to undertake a randomized clinical trial of birinapant administered with irinotecan in third-line CRC. In addition, we believe the activity we observed in the KRAS mutant population provides a rationale for targeting this underserved group of patients and we intend to undertake a Phase 2/3 clinical trial in patients with third-line KRAS mutant CRC, pending FDA approval of the trial design. The alternative is to enroll all third-line CRC patients, regardless of their KRAS gene status. The details of the plan for this clinical trial will be discussed with regulatory authorities, but it is anticipated that a randomized, adequate and well-controlled clinical trial with approximately 600 subjects will commence in the second half of 2014.

     Myelodysplastic Syndromes (MDS)

     Background

        MDS is a form of cancer of bone-marrow stem cells resulting in fewer than normal mature blood cells in the circulation. In MDS, bone marrow becomes dysplastic, or defective. The blood cells produced do not develop normally, such that too few healthy blood cells are released into the blood stream, which leads to cytopenias. Thus, many patients with MDS require frequent blood transfusions. In most cases, the disease worsens and the patient develops progressive bone marrow failure. In advanced stages of the disease, blasts leave the bone marrow and enter the blood stream, leading to AML, which occurs in approximately one-third of patients with MDS. We believe that there is a medical need for a treatment option that improves outcomes of standard of care regimens for patients with MDS.

        According to the American Cancer Society, MDS is diagnosed in approximately 12,000 people in the U.S. yearly, for an annual age-adjusted incidence rate of approximately 4.4 to 4.6 cases per 100,000 people. MDS occurs predominantly in older patients (usually those older than 60 years). The median age at diagnosis is approximately 70 years. MDS may arise de novo or secondarily after treatment with chemotherapy and/or radiation therapy for other cancers or, rarely, after environmental exposures.

        Two standard classification systems, the French-American-British, or FAB, morphological classification system, and the International Prognostic Scoring System, or IPSS, are used for defining MDS subtypes and risk categories, respectively. Standard treatment approaches for MDS depend on the patient's FAB subtype and IPSS risk category: Low/Intermediate, or low-risk, and Intermediate-2/High, or high-risk. Approximately 25%-30% of MDS patients are diagnosed as having high-risk MDS, although many low-risk MDS patients eventually progress to high-risk MDS.

        The vast majority of low-risk MDS patients are clinically managed with supportive care: broad-spectrum antibiotics and red blood cell, or RBC, platelet transfusions. MDS patients

96


Table of Contents

who require repeated RBC transfusions may be treated with an iron chelating agent to prevent or reduce iron overload. Recombinant human erythropoietin, or EPO, is used to treat the defective development of RBCs in MDS patients with symptomatic anemia, specifically those with serum EPO <500 U/L and limited transfusion requirement. This may be combined with granulocyte colony-stimulating factor, or G-CSF, to improve the neutrophil count. Lenalidomide (Revlimid) is approved for transfusion-dependent low-risk MDS patients with deletion of part of chromosome 5.

        Azacitidine was initially approved in the U.S. in 2004 for the treatment of patients with MDS. Azacitidine is a pyrimidine nucleoside analog of cytidine and is believed to exert antineoplastic effect by causing hypomethylation of DNA (deoxyribonucleic acid) and direct cytotoxicity on abnormal hematopoietic cells in the bone marrow. Clinical trials that supported approval of azacitidine demonstrated that treatment could yield response in approximately 50% of subjects, that these responses can be prolonged, and that there is a survival benefit in patients with MDS.

        There continues to be a significant unmet need among MDS patients for more effective initial therapy and therapies for refractory and relapsed disease. While azacitidine has become a standard of care for first-line therapy for high-risk MDS, 40%-50% of patients are refractory to treatment and responders typically demonstrate progressive disease within 2 years, often progressing to AML. Other than palliative care, patients with relapsed or refractory MDS have no currently effective anti-tumor therapies after initial treatment with azacitidine. For patients who progress after azacitidine, the median overall survival is 5.6 months and two-year survival probability is 15%. Many patients progress to AML, emphasizing the commonality of the underlying biological mechanism between MDS and AML.

     Rationale

        Dysregulation of IAPs may be critical for the development and progression of hematological malignancies, including AML and MDS. Although classified as distinct disease entities, MDS and AML are closely related diseases. In a number of third-party studies, the over-expression of IAPs has been associated with "escape-from-apoptosis" and poor prognosis in AML. Consistent with these third-party findings suggesting that IAPs exert adverse effects on the outcome of AML, in other third-party studies, SMAC over-expression has been associated with improved prognosis in AML. The natural evolution of MDS involves molecular changes that make those cells increasingly dependent on anti-apoptotic pathways, the same pathways that birinapant interdicts.

        In other third-party studies of MDS, dysregulated expression of IAPs was observed, with overexpression of IAPs in MDS bone marrow cells, which we believe has a potential role in transformation to overt leukemia. We believe that these studies demonstrate that the IAPs represent targets for therapy and thus the potential therapeutic opportunity for SMAC-mimetics in MDS and AML.

     Pre-clinical Studies

        In vitro studies of both established AML cell lines and freshly-derived AML blast cells, single agent birinapant demonstrated activity at clinically achievable study drug exposures. This was evident in assays of unfractionated AML cells, and in studies of AML "stem/progenitor" cells (CD34+, CD38 negative cells). In these studies, we observed increased apoptosis after 48 hours of in vitro culture. An independent study by a separate investigator observed clonal suppression of AML-derived colonies in 14 day cultures by birinapant, with sparing of normal progenitor cells. Studies of human ALL cells in tumor models have demonstrated cytotoxic activity in in vitro and in vivo studies.

97


Table of Contents

        We believe our pre-clinical studies of birinapant administered with azacitidine support a distinct mechanism of anti-tumor synergy that may provide clinical benefit compared to individual agents alone. Birinapant administered with azacitidine demonstrated anti-tumor activity compared to single agent azacitidine in primary AML blast cells. In our in vivo studies of AML cells, we also observed activity for birinapant as either a single agent or administered with azacitidine. We have observed similar pre-clinical activity when birinapant is administered with two other AML/MDS therapies, cytosine arabinoside and decitabine.

        In our in vitro studies, we observed that azacitidine leads to TNF induction, which we believe supports the rationale that the administration of birinapant with azacitidine may have additive activity over azacitidine treatment alone for MDS subjects. Additionally, we believe these studies support the rationale that administration of birinapant with azacitidine offers possible therapeutic benefit to subjects who relapse following, or are refractory to, azacitidine therapy. We believe that clinical evidence to support this potential for retreatment efficacy has been demonstrated for CRC subjects who obtained clinical benefit for the administration of birinapant with TNF-inducing chemotherapies after previously progressing on these same chemotherapy agents.

     Clinical Trials

        An investigator-initiated Phase 1/2 clinical trial is ongoing at the University of Pennsylvania to assess the safety and efficacy of single agent birinapant in AML, MDS and ALL. An investigator-initiated clinical trial is one in which the sponsor is not a commercial entity. The sponsor is responsible for conducting the study and reporting safety data to the FDA. The majority of subjects enrolled are elderly (over 70 years) with AML secondary to MDS and have received multiple prior treatments. To date, 18 AML subjects have been treated with birinapant as the sole agent or administered with hydroxyurea (if deemed necessary by the treating physician). Currently, 10 subjects have received concurrent hydroxyurea during treatment with birinapant. Subjects receive birinapant administered as a 30-minute IV infusion weekly or biweekly for three weeks, per repeated cycle of four weeks. As the study is ongoing, the data and analyses are preliminary and incomplete. However, we have the following preliminary data:

    some subjects experienced a decrease in the leukemic blast cells;

    some subjects showed an increase in neutrophils with the first birinapant dose;

    PK measurements indicated that birinapant had comparable plasma and tumor drug exposure in subjects with AML compared to subjects with solid tumors;

    pharmacodynamic, or PD, measurements of several subjects showed cIAP1 and NF-kB target suppression in peripheral blood AML blast cells;

    one subject with AML who had progressed from MDS and had progressive disease after prior cytotoxic regimens, had stable disease and no cumulative toxicities with 10 months of therapy; and

    one other subject experienced a decrease from 60% to 10% in bone marrow blast count.

        Safety data is available from 16 AML subjects who received birinapant as a single agent in the Phase 1/2 study. In this study, treatment-related adverse events were neutropenia, leukopenia, oral pain (mouth sores), fatigue, fever, increased serum amylase, increased serum lipase, increased aspartate aminotransferase (AST), increased alkaline phosphatase, dysesthesia (cold sensation), dysgeusia, headaches and sweating. Eight serious adverse events, or SAEs (adverse events that may result in a hospitalization, are life-threatening or cause death), that were considered related to birinapant treatment, as determined by the clinical investigator, included febrile neutropenia, fever, increased serum amylase and increased serum lipase.

98


Table of Contents

        While the preliminary data showed hematologic activity of single agent birinapant in AML in this trial, we anticipate greater activity may be seen when used in administration with agents that induce TNF (such as azacitidine) as enhanced activity has been seen both in pre-clinical studies and in clinical trials of solid tumors when there has been administration of a chemotherapeutic agent that increases TNF. We are currently investigating this activity in a clinical trial of birinapant administered with hypomethylating agents in high-risk MDS.

        In April 2013, we filed an IND with the FDA for birinapant administered with azacitidine in MDS subjects and have begun enrolling subjects at five sites, including Mayo Clinic-Jacksonville (MS), Mayo Clinic-Scottsdale (AZ), MD Anderson Cancer Center in Houston, TX, Roswell Park Cancer Institute, and the University of Pennsylvania. We plan to add two more sites by the end of 2013. This is a Phase 1/2, open-label, non-randomized clinical trial in subjects with high-risk MDS who are refractory to or have relapsed following azacitidine therapy. We intend to expand this clinical trial to include subjects who have not been previously treated with, or are naïve to, azacitidine.

        The primary objective of this clinical trial is to determine the MTD, recommended Phase 2 dose, and PDs of birinapant when administered with azacitidine in the subject population. The secondary objectives of this trial are the following: to determine the clinical activity of birinapant administered with azacitidine; to determine the PKs of birinapant when administered with azacitidine, and to explore biomarkers of anti-tumor activity of birinapant.

        It is planned that approximately 15 subjects with high-risk MDS will be enrolled in the Phase 1 portion of the trial and receive birinapant administered with azacitidine in dose-escalation cohorts to determine the MTD. Following completion of the dose escalation, it is planned that an additional 30 subjects will be enrolled in the Phase 2 portion of the trial.

     Biomarker Studies

        A secondary objective of the Phase 1/2 clinical trial of birinapant administered with azacitidine in MDS is to assess biomarkers of anti-tumor activity. In studies of subjects with AML, we believe there is preliminary evidence to suggest that the assessment of NF-kB activity at baseline using a flow-cytometry based assay may have the potential to select for subjects more likely to respond to treatment.

        Some of the available baseline AML samples had activation of NF-kB and some did not. While sample numbers are small, a reduction in blast count after birinapant treatment was observed only in subjects with activation of NF-kB in the leukemic samples at baseline. We believe this has the potential to provide an assay that could identify subjects most likely to respond to birinapant. Experiments are being performed to validate these findings and to develop a diagnostic assay for NF-kB. Using NF-kB as a biomarker could be particularly relevant in MDS as there are third-party studies in which NF-kB activation has been shown in subjects with high-risk MDS and, furthermore, NF-kB activation appeared to correlate with disease progression.

     Ovarian Cancer

     Background

        Ovarian cancer is among the five most common cancers in women and ranks fifth as the cause of cancer death in the U.S. It is the leading cause of gynecologic mortality in the U.S. According to the SEER Cancer Statistics Review, it is estimated that 22,240 women will be diagnosed with and 14,030 women will die of ovarian cancer in 2013. Ovarian cancer accounts for 5% of cancer deaths among women and causes more deaths than any other cancer of the female reproductive system.

99


Table of Contents

        Although over 70% of women with advanced disease respond to optimal debulking surgery followed by platinum-taxane based chemotherapy, duration of response is short and relapse is common. Subsequent responses to salvage therapy regimens tend to be brief (less than six months) due to the tumors' progressive resistance to chemotherapy. Relapsed ovarian cancers represent a significant challenge. Objective response rates to second-line therapies (such as doxorubicin, gemcitabine, and topotecan) are in the range of 20% and median overall survival is less than 1 year. In a third-party Phase 2 clinical trial of docetaxel, clinical trial of docetaxel given every 21 days in paclitaxel-resistant ovarian and peritoneal carcinoma, the response rate (combined CR and PR) was 22.4%. A similar third-party study showed a response rate of 23%.

     Rationale

        As previously described, cancer cells use the IAPs to convert the TNF self-destruction signal into a pro-survival signal through a protein complex called NF-kB. Published third-party studies have shown that the NF-kB pathway may be over-activated in aggressive ovarian cancers as evidenced by intrinsic NF-kB activation in serous ovarian cancer, which is a form of aggressive ovarian cancer. Aberrant activation of NF-kB may influence outcomes in women who receive standard therapy for advanced ovarian cancer. Modification of the NF-kB pathway may present an opportunity to improve outcomes in the subset of women who have this pathway activity. The addition of a SMAC-mimetic such as birinapant has shown potential in pre-clinical studies to inhibit NF-kB activity, down-regulate cell survival pathways, and overcome blocks to the apoptotic pathway resulting in increased tumor cell destruction.

        TRAIL is a member of the TNF super-family, and can induce apoptosis by binding to two cell surface receptors called death receptor 4, or DR4 (also known as TRAIL Receptor-1) and DR5 (also known as TRAIL Receptor-2), respectively. TRAIL binding to DR4 and DR5 initiates an intracellular cascade inducing apoptosis in many transformed cell lines but not non-cancerous cells.

        Conatumumab (AMG 655), an investigational product candidate, owned by Amgen, is a fully-human monoclonal agonist antibody designed to partially mimic endogenous TRAIL by binding DR5, thereby inducing apoptosis in sensitive cells. Such a property of conatumumab, being a TRAIL agonist, may induce apoptosis selectively in cancer cells and enhance the activity of standard cancer therapy, molecularly targeted agents, or both. Approximately 985 subjects have been enrolled in 10 ongoing or completed clinical trials of conatumumab; 55 have received monotherapy and 930 have received conatumumab or placebo in combination with chemotherapy and/or other biologic agents.

        We believe that birinapant may have the potential to remove blockades imposed by IAPs in the TRAIL-induced apoptotic pathway. Pre-clinical studies have evaluated birinapant's ability to convert TRAIL-resistant cells into TRAIL-responsive cells and demonstrated that administering birinapant with conatumumab may allow enhanced activation of DR5-induced apoptosis by removing IAP protein-mediated inhibition. There continues to be an unmet medical need for subjects with many kinds of solid tumors, including ovarian cancer. Ovarian cancer provides an opportunity for testing this novel combination. We believe that pre-clinical studies suggest that the clinical administration of birinapant with conatumumab in solid tumor malignancies may potentially result in greater clinical activity than either agent alone.

     Pre-clinical studies

        In pre-clinical studies, cancer cell lines that were resistant to either single agent birinapant or single agent TRAIL or DR5 agonists (such as conatumumab) can undergo cell destruction when these agents are administered together. Ovarian-derived tumor cell lines were one of

100


Table of Contents

the most responsive tumor cell types to treatment by either single agent birinapant or birinapant administered with TRAIL.

     Clinical trials

        Under a Cooperative Research and Development Agreement, or CRADA, with the NCI, the NCI initiated a Phase 2 clinical trial of birinapant in subjects with fallopian tube cancer, primary peritoneal cancer, or relapsed platinum resistant or refractory epithelial ovarian cancer. The first subject was enrolled in January 2013 and this trial is ongoing. The primary objectives of this trial are to determine the efficacy and tolerability of single-agent birinapant and correlative predictive biomarkers for clinical activity. Birinapant is being administered alone at the single-agent MTD dose weekly for three of four weeks. Eight subjects have been enrolled without any SAEs, and there have been no objective responses.

        As discussed previously, we believe that birinapant may have the most activity when given in combination with another therapeutic agent that induces the apoptosis signal. Accordingly, we have an open IND and intend to initiate a Phase 1/2 open-label, non-randomized clinical trial of birinapant administered with conatumumab in subjects with relapsed epithelial ovarian cancer, fallopian tube cancer, or primary peritoneal cancer. Approximately 30 subjects (18 in the dose escalation and a further 12 in a dose expansion cohort) will be administered birinapant with conatumumab at approximately seven investigational sites in the U.S. The primary objectives of the proposed Phase 1 clinical trial are to determine the recommended Phase 2 dose of birinapant when administered with conatumumab in subjects who have relapsed after two prior standard therapies. The secondary objectives are to determine the clinical activity of birinapant administered with conatumumab, to determine the PK characteristics of birinapant and conatumumab in plasma and tumor, and to assess PD and predictive biomarkers. Depending on initial results of safety, PK, PD and clinical activity, further clinical trials may be planned to define clinical benefit.

     Virology Pre-clinical Development Program

        As with cancer cells, cells that are infected with certain viruses may escape apoptosis. We are conducting pre-clinical studies to evaluate the potential development of birinapant as an infectious disease therapeutic to overcome this "escape-from-apoptosis" in infected cells. We believe this is a novel approach. There are no drugs currently on the market that specifically target the IAPs and thereby induce apoptosis in virally infected cells as a strategy for therapy. Using a mouse model of HBV, birinapant was well tolerated and showed activity in the clearance of cells infected with HBV. In pre-clinical studies, birinapant administered with entecavir, the standard of care for HBV, cleared more HBV from infected cells than either agent alone. These pre-clinical studies are ongoing to understand the action of birinapant in greater detail in HBV, and to determine the spectrum of potential therapeutic activity of birinapant in other infectious diseases.

     Other Development Programs with Birinapant

        Roswell Park Cancer Center initiated an investigator-initiated Phase 1/2 clinical trial of birinapant administered with gemcitabine in subjects with advanced solid tumors. The primary objectives of this study are to determine the MTD and the recommended Phase 2 dose. This study has enrolled 23 subjects. There were three SAEs, acute renal failure, dehydration and pneumonia, that were considered related to birinapant treatment as determined by the clinical investigator, and no objective responses. This clinical trial will be amended to include cisplatin to the birinapant with gemcitabine regimen as a potential prelude to future clinical trials in diseases like non-small cell lung cancer, bladder cancer or other tumors where these chemotherapies are commonly used. We expect that 30 subjects

101


Table of Contents

will be enrolled in the dose escalation phase of this trial, with a possible additional 18 subjects enrolled in the dose expansion phase.

        Given the potential breadth of birinapant's action across a broad range of human cancers, we expect to perform studies to explore potential synergistic interactions with additional anti-cancer agents, including targeted therapies and emerging immunotherapies, in additional tumor types. For example, data from a third-party pre-clinical study suggests synergy with radiotherapy and birinapant in at least one tumor type (glioblastoma multiforme). A number of therapies are known to induce TNF, including GM-CSF and IFN. Third-party pre-clinical studies have shown synergistic interactions between birinapant and both GM-CSF and IFN. We expect to commence a clinical program in melanoma to follow-up on this and other pre-clinical study data suggesting birinapant's activity in melanoma.

        We have ongoing research activities focused on identifying biomarkers to identify subjects most likely to respond to birinapant. These studies are focused on detecting IAP gene amplification in different tumor types, on examining the expression of genes important in the TNF/IAP/NF-kB pathway, and on examining the activation status of NF-kB itself.

License Agreement with Princeton University

        In November 2003, we entered into an exclusive license agreement with Princeton University, subsequently amended in June 2004, August 2006, and October 2006, which grants us the rights to certain U.S. patents controlled by the university relating to SMAC-mimetic compounds, including birinapant, and a non-exclusive right to certain know-how and technology relating thereto. The agreement contains a right by us to sublicense. We have paid an aggregate of $100,000 in license fees to Princeton University. As part of the consideration paid, we issued to Princeton University 165,501 shares of our common stock and agreed to pay Princeton University certain royalties. In particular, we are obligated to pay royalties as a percentage of net product sales of 2.0% for direct licensed products, such as birinapant, and 0.5% of derived licensed products, if such products are covered by the applicable Princeton University patent rights. We have the right to reduce the amount of royalties owed to Princeton University by the amount of any royalties paid to a third-party in a pro rata manner, provided that the royalty rate may not be less than 1.0% of net sales for direct licensed products and 0.25% for derived licensed products. The obligation to pay royalties outside the U.S. expires, on a country by country basis, on the later of 10 years from the first commercial sale of a licensed product in each country and expiration, lapse or abandonment of the last of the licensed patent rights that covers the manufacture, use or sale of the licensed product, if it had been made, used or sold in the U.S. The licensed patent rights were developed using federal funds from the National Institutes of Health and are subject to certain overriding rights of and obligations to the federal government as provided in the Bayh-Dole Act. This agreement expires upon expiration of the last of the licensed patent rights in 2023 (absent extensions).

        The agreement also requires that we pay to Princeton University 5% of the non-royalty consideration that we receive from a sublicensee until October 5, 2014 and 2.5% thereafter.

        Unless otherwise assigned, we are responsible for the patent prosecution and maintenance activities pertaining to the licensed patents, while Princeton University is afforded reasonable opportunities to review and comment on such activities. In the event that we do not wish to continue to maintain any patent within the licensed patents, Princeton University may assume responsibility and control over the necessary maintenance for such patent or patent application subject to our review and comment. We have the sole right to enforce (or defend against any declaratory judgment action) the licensed patents against third parties for suspected infringement, provided however that Princeton University must consent to any proposed settlement, which shall not be unreasonably withheld. We also have the sole

102


Table of Contents

right to defend against any third-party challenge to Princeton University's exclusive right, title and interest in the licensed technology, including the licensed patents, provided however that Princeton University must consent to any proposed settlement, which shall not be unreasonably withheld.

        Under the license agreement, we are obligated to use reasonable efforts to develop, test, obtain regulatory approval, manufacture, market and sell licensed products in all countries worldwide.

        If we materially breach or fail to perform our obligations under this agreement (including failure to make payments to Princeton University when due for royalties and other sub-license revenues, failure to use reasonable efforts to develop, test, obtain regulatory approval, manufacture, market and sell licensed products, failure to file annual progress reports, commencement of bankruptcy or insolvency proceedings against us or failure to prosecute and maintain the licensed patents), Princeton University has the right to terminate our license, and upon the effective date of such termination, our right to practice the licensed Princeton University patent rights and related technology.

Ovarian Cancer Trial with Amgen TRAIL Antibody

        We are currently collaborating with Amgen on the design of our Phase 1/2 clinical trial in relapsed epithelial ovarian cancer, fallopian tube cancer or primary peritoneal cancer for birinapant administered with conatumumab (AMG 655), an investigational fully-human monoclonal agonist antibody designed to partially mimic endogenous TRAIL, which is owned by Amgen. In support of that trial, we have entered into an agreement with Amgen for the purchase at the cost of clinical supplies of AMG 655 sufficient to conduct the study. Neither party has acquired any developmental or commercial rights to the other party's product candidate.

Preclinical Studies with Daiichi Sankyo

        We are currently conducting preclinical studies with Daiichi Sankyo. Under this arrangement, which began in 2011 and was extended in 2013, the parties are conducting preclinical studies of the efficacy of birinapant administered with an undisclosed Daiichi Sankyo molecule. Neither party has acquired any developmental or commercial rights to the other party's product candidate.

Intellectual Property

        In addition to our license of the Princeton University patents, we own more than 120 patents and patent applications worldwide, all relating to SMAC-mimetics and uses thereof. Of these, four U.S. patents that we own have been granted with claims that cover birinapant as a new chemical entity. In particular, we have issued patents in the U.S. that specifically cover birinapant as a composition of matter, as well as patents that cover a class of compounds that encompass birinapant as a composition of matter and methods of using the class of compounds for inhibiting tumor growth or inducing apoptosis in a cell. These patents expire in the range of March 2026 to June 2030, without accounting for possible patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, or for possible pediatric exclusivity. We have not licensed any rights to practice any of these patents or patent applications to any third party.

        Patents that we own with claims that cover birinapant as a new chemical entity have also been granted or allowed in several foreign jurisdictions, including the European Patent Office, Japan, India and China, among others. These patents are generally set to expire in 2026, without accounting for possible extensions, such as by issuance of supplementary protection certificates or grant of pediatric exclusivity. In addition to the U.S., we have also filed patent applications with claims that specifically cover birinapant as a new chemical entity in the

103


Table of Contents

following countries or regions, which, if granted, would expire in 2030, without considering any possible extensions: Argentina, African Regional Intellectual Property Organization (ARIPO), Australia, Brazil, Canada, Chile, China, Colombia, Ecuador, Egypt, Eurasian Patent Organization (EAPO), Europe, Patent Office of the Cooperation Council for the Arab States of the Gulf (GCC), Hong Kong, Israel, India, Japan, Malaysia, Mexico, New Zealand, African Intellectual Property Organization (OAPI), Peru, Philippines, Singapore, South Africa, South Korea, Taiwan, Thailand, Ukraine and Venezuela.

        In addition to the new chemical entity patents covering birinapant, we hold an exclusive license from Princeton University under a U.S. patent that broadly claims SMAC-mimetics as a class of compounds and that expires in 2023 unless extended. Other patents and patent applications owned by us are directed to SMAC-mimetics other than birinapant and various methods of treatment and biomarkers relevant to birinapant and other SMAC-mimetics. We do not believe that birinapant would infringe any valid third-party patent to which we do not have a license. We continue to monitor patent filings in major commercial jurisdictions.

        We expect to continue to file additional patent applications with claims that cover uses of birinapant and other SMAC-mimetics, methods of treatment, and biomarkers and other diagnostic tools. In addition, pursuant to material transfer agreements and other agreements in place with third-party researchers, including our CRADA with NCI, we have the opportunity to license additional technologies that may complement our current programs.

     General considerations

        As with other biotechnology and pharmaceutical companies, our ability to maintain and solidify a proprietary position for birinapant will depend upon our success in obtaining effective patent claims and enforcing those claims once granted.

        Our commercial success will depend in part upon not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, obtain licenses, or cease certain activities. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights.

        The term of a patent that covers an FDA-approved drug may be eligible for patent term extension, which provides patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extensions on patents covering those products.

        Many pharmaceutical companies, biotechnology companies and academic institutions are competing with us in the field of oncology and filing patent applications potentially relevant to our business. Even when a third-party patent is identified, we may conclude upon a thorough analysis, that we do not infringe upon the patent or that the patent is invalid. If the third-party patent owner disagrees with our conclusion and we continue with the business activity in question, we may be subject to patent litigation. Alternatively, we might decide to initiate litigation in an attempt to have a court declare the third-party patent invalid or non-infringed by our activity. In either scenario, patent litigation typically is costly and time-consuming, and the outcome can be favorable or unfavorable.

104


Table of Contents

        In addition to patents, we rely upon unpatented trade secrets, know-how and continuing technological innovation to develop and maintain a competitive position. We seek to protect our proprietary information, in part, through confidentiality agreements with our employees, collaborators, contractors and consultants, and invention assignment agreements with our employees and some of our collaborators. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to grant us ownership of technologies that are developed through a relationship with a third party.

Competition

        The pharmaceutical industry is highly competitive and subject to rapid and significant technological change. While we believe that our development experience and scientific knowledge provide us with competitive advantages, we face competition from both large and small pharmaceutical and biotechnology companies; specifically with companies that are actively researching and developing products that target apoptosis as a mechanism to treat various cancers.

        Birinapant is presently being developed primarily as a cancer therapeutic. There are a variety of available therapies and supportive care products marketed for cancer patients. In many cases, these products are administered in combination to enhance efficacy or to reduce side effects. Some of these drugs are branded and subject to patent protection, some are in clinical development and not yet approved, and others are available on a generic basis. Many of these approved drugs are well established therapies or products and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. In addition, birinapant is delivered intravenously, which will require a visit to an oncologist office or a hospital. Some of our competitors are seeking to develop drugs that can be administered by oral delivery, and thus would not require a visit to a doctor for each administration. These factors may make it difficult for us to achieve market acceptance at desired levels in a timely manner to ensure viability of our business.

        More established companies have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our competitors have significantly greater financial, technical and human resources.

        As a result of these factors, our competitors may obtain regulatory approval of their products before we are able to obtain patent protection or other intellectual property rights, which will limit our ability to develop or commercialize birinapant. Our competitors may also develop drugs that are safer, more effective, more widely used and less costly than ours, and may also be more successful than us in manufacturing and marketing their products. These appreciable advantages could render birinapant obsolete or non-competitive before we can recover the expenses of birinapant's development and commercialization.

        Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

SMAC-Mimetic Competitive Landscape

        It is not possible to know with certainty what competitors are or may be doing in the field of SMAC-mimetics. It appears, however, that, in the field of SMAC-mimetics, our principal competitors in clinical development include Curis (Phase 1), Debiopharma (Phase 1) and Novartis (Phase 2). Companies with earlier stage (discovery or pre-clinical studies) SMAC-mimetic programs include Astex Pharmaceuticals, or Astex, Bristol-Myers Squibb Company, or BMS, and Ensemble Therapeutics.

105


Table of Contents

     Colorectal Cancer

        In addition to companies developing SMAC-mimetics, we compete with pharmaceutical and biotechnology companies that are developing therapies or marketing drugs to treat indications that we are targeting. FDA approved drugs for patients with advanced or metastatic CRC are: 5-fluorouracil, aflibercept, bevacizumab, capecitabine, cetuximab, irinotecan, leucovorin, oxaliplatin, panitumumab and regorafenib. The companies marketing these drugs include Amgen, Bayer, BMS, Eli Lilly and Company, or Eli Lilly, Novartis, Pfizer Inc., Roche and Sanofi S.A., or Sanofi. Depending on the stage of the cancer, three or more of these drugs may be administered at the same time or used after one another. Chemotherapy regimens (such as FOLFOX (5-fluorouracil, leucovorin, and oxaliplatin) or FOLFIRI (5-fluorouracil, irinotecan, and leucovorin)), either with or without aflibercept or bevacizumab have been shown to increase survival rates in patients with advanced/metastatic CRC and are among the leading first- and second-line treatments in the U.S. and Europe.

        The majority of competitive therapies in development for CRC consist of angiogenesis inhibitors that will compete directly against bevacizumab, and the new class of small molecule mitogen-activated protein kinase, or MEK, inhibitors that target tumor oncogenic and proliferation pathways. Companies with investigational product candidates in Phase 2 or 3 clinical trials for CRC include AstraZeneca plc, or AstraZeneca, Boehringer Ingelheim GmbH, Eli Lilly and others.

     Myelodysplastic Syndromes

        The hypomethylating agents/DNA methyltransferase inhibitors, azacitidine and decitabine are the standard of care treatment for high-risk MDS patients. The companies marketing these drugs include Celgene Corporation and Eisai Co., Ltd. Allogeneic stem cell transplant is the only treatment that is potentially curative for those patients who are candidates for the procedure which is generally considered only for the small proportion of younger MDS patients. Currently there are no FDA approved drugs for MDS patients who fail hypomethylating agents.

        Due to the unmet medical need, there are several companies developing new agents for high-risk MDS. The majority of the competitive therapies in development for high-risk MDS consists of histone deacetylase inhibitors, multi-kinase inhibitors, new hypomethylating agents and nucleoside analogues; many of which are also in development for AML. Companies with investigational product candidates in Phase 2 or 3 clinical trials for MDS include Astex, Cyclacel Pharmaceuticals Inc., Merck & Co., Inc., or Merck, Onconova Therapeutics, Inc. and others.

     Ovarian Cancer

        Platinum-taxane based chemotherapy is the first-line standard of care therapy for advanced ovarian cancer, however, most patients will eventually experience recurrence or progression of their cancer. Bevacizumab is approved in Europe as a first-line treatment for women with advanced ovarian cancer, and in combination with standard chemotherapy (carboplatin and gemcitabine) as a treatment for women with first recurrence of platinum-sensitive ovarian cancer. Patients with platinum-resistant ovarian cancer are much more resistant to standard chemotherapy and will typically receive a non-platinum chemotherapy (such as gemcitabine, liposomal doxorubicin, or topotecan) or participate in a clinical trial. The companies marketing these drugs include Eli Lilly, GlaxoSmithKline plc, or GlaxoSmithKline, Janssen Pharmaceuticals, Inc. and others.

106


Table of Contents

        There are several competitive therapies in clinical development for ovarian cancer including antiangiogenic inhibitors, cytotoxic agents, immunotherapies, kinase inhibitors, and PARP inhibitors. Companies with investigational drugs in Phase 2 or 3 clinical trials for advanced ovarian cancer include AstraZeneca, Clovis Oncology, Endocyte, Inc., or Endocyte, Sanofi and others.

Manufacturing

        Manufacturing of drugs and product candidates, including birinapant, must comply with FDA cGMP regulations. Birinapant is a synthetic small molecule made through a series of organic chemistry steps starting with commercially available organic chemical raw materials. We conduct manufacturing activities under individual purchase orders with independent CMOs to supply our clinical trials. We have an internal quality program; and accordingly, we have qualified and signed quality agreements with our CMOs, and we conduct periodic quality audits of their facilities. We believe that our existing suppliers of birinapant's active pharmaceutical ingredient and finished product will be capable of providing sufficient quantities of each to meet our clinical trial supply needs. Other CMOs may be used in the future for clinical supplies and, subject to approval, commercial manufacturing.

Commercial Operations

        We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. We may rely on licensing and co-promotion agreements with strategic collaborators for the commercialization of our products in the U.S. and other territories. If we choose to build a commercial infrastructure to support marketing in the U.S., such commercial infrastructure could be expected to include a sales force supported by sales management, internal sales support, an internal marketing group and distribution support. To develop the appropriate commercial infrastructure internally, we would have to invest financial and management resources, some of which would have to be deployed prior to any confirmation that birinapant will be approved.

Government Regulation

        As a clinical-stage biopharmaceutical company that operates in the U.S., we are subject to extensive regulation by the FDA, and other federal, state, and local regulatory agencies. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and its implementing regulations set forth, among other things, requirements for the research, testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and promotion of our products. Although the discussion below focuses on regulation in the U.S., we anticipate seeking approval for, and marketing of, our products in other countries. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the U.S., although there can be important differences. Additionally, some significant aspects of regulation in Europe are addressed in a centralized way through the EMA, but country-specific regulation remains essential in many respects. The process of obtaining regulatory marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and may not be successful.

     U.S. Government Regulation

        The FDA is the main regulatory body that controls pharmaceuticals in the U.S., and its regulatory authority is based in the FDC Act. Pharmaceutical products are also subject to other

107


Table of Contents

federal, state and local statutes. A failure to comply explicitly with any requirements during the product development, approval, or post-approval periods, may lead to administrative or judicial sanctions. These sanctions could include the imposition by the FDA or an IRB of a hold on clinical trials, refusal to approve pending marketing applications or supplements, withdrawal of approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution.

        The steps required before a new drug may be marketed in the U.S. generally include:

    completion of pre-clinical studies, animal studies and formulation studies in compliance with the FDA's GLP regulations;

    submission to the FDA of an IND to support human clinical testing;

    approval by an IRB at each clinical site before each trial may be initiated;

    performance of adequate and well-controlled clinical trials in accordance with federal regulations and with current GCPs to establish the safety and efficacy of the investigational product candidate for each targeted indication;

    submission of an NDA to the FDA;

    satisfactory completion of an FDA Advisory Committee review, if applicable;

    satisfactory completion of an FDA inspection of the manufacturing facilities at which the investigational product candidate is produced to assess compliance with cGMP, and to assure that the facilities, methods and controls are adequate; and

    FDA review and approval of the NDA.

     Clinical Trials

        An IND is a request for authorization from the FDA to administer an investigational product candidate to humans. This authorization is required before interstate shipping and administration of any new drug product to humans that is not the subject of an approved NDA. A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational product candidate to subjects under the supervision of qualified investigators following GCPs, an international standard meant to protect the rights and health of subjects and to define the roles of clinical trial sponsors, administrators and monitors. Clinical trials are conducted under protocols that detail the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. Each protocol involving testing on U.S. subjects and subsequent protocol amendments must be submitted to the FDA as part of the IND. The informed written consent of each participating subject is required. The clinical investigation of an investigational product candidate is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap or be combined. The three phases of an investigation are as follows:

    Phase 1.  Phase 1 includes the initial introduction of an investigation product candidate into humans. Phase 1 clinical trials may be conducted in subjects with the target disease or condition or healthy volunteers. These studies are designed to evaluate the safety, metabolism, PKs and pharmacologic actions of the investigational product candidate in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness. During Phase 1 clinical trials, sufficient

108


Table of Contents

      information about the investigational product candidate's PKs and pharmacological effects may be obtained to permit the design of Phase 2 clinical trials. The total number of participants included in Phase 1 clinical trials varies, but is generally in the range of 20 to 80.

    Phase 2.  Phase 2 includes the controlled clinical trials conducted to evaluate the effectiveness of the investigational product candidate for a particular indication(s) in subjects with the disease or condition under study, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the product candidate. Phase 2 clinical trials are typically well-controlled, closely monitored, and conducted in a limited subject population, usually involving no more than several hundred participants.

    Phase 3.  Phase 3 clinical trials are controlled clinical trials conducted in an expanded subject population at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the investigational product candidate has been obtained, and are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the product candidate, and to provide an adequate basis for drug approval. Phase 3 clinical trials usually involve several hundred to several thousand participants. In most cases, the FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial with other confirmatory evidence may be sufficient in rare instances where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

        The decision to terminate development of an investigational product candidate may be made by either a health authority body, such as the FDA or IRB/ethics committees, or by a company for various reasons. The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial subjects. In some cases, clinical trials are overseen by an independent group of qualified experts organized by the trial sponsor, or the clinical monitoring board. This group provides authorization for whether or not a trial may move forward at designated check points. These decisions are based on the limited access to data from the ongoing trial. The suspension or termination of development can occur during any phase of clinical trials if it is determined that the participants or subjects are being exposed to an unacceptable health risk. In addition, there are requirements for the registration of ongoing clinical trials of product candidates on public registries and the disclosure of certain information pertaining to the trials as well as clinical trial results after completion.

        A sponsor may be able to request a special protocol assessment, or SPA, the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim. A sponsor meeting the regulatory criteria may make a specific request for an SPA and provide information regarding the design and size of the proposed clinical trial. An SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreement will be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of

109


Table of Contents

the product candidate was identified after the testing began. An SPA is not binding if new circumstances arise, and there is no guarantee that a study will ultimately be adequate to support an approval even if the study is subject to an SPA. We expect to test birinapant in several advanced stage clinical trials, including a Phase 3 clinical trial for which we intend to request an SPA. Having an SPA does not guarantee that a product will receive FDA approval.

        Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational product candidate information is submitted to the FDA in the form of an NDA to request market approval for the product in specified indications.

     New Drug Applications

        In order to obtain approval to market a drug in the U.S., a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the product candidate for the proposed indication. The application includes all relevant data available from pertinent pre-clinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product's chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational product candidate to the satisfaction of the FDA.

        In most cases, the NDA must be accompanied by a substantial user fee; there may be some instances in which the user fee is waived. The FDA will initially review the NDA for completeness before it accepts the NDA for filing. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. After the NDA submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review product candidates are reviewed within ten to twelve months. The FDA can extend this review by three months to consider certain late-submitted information or information intended to clarify information already provided in the submission. The FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP. The FDA may refer applications for novel product candidates which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

        Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If, or

110


Table of Contents

when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

        An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a REMS to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

        Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

     Advertising and Promotion

        The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving the Internet. A product cannot be commercially promoted before it is approved. After approval, product promotion can include only those claims relating to safety and effectiveness that are consistent with the labeling approved by the FDA. Healthcare providers are permitted to prescribe drugs for "off-label" uses—that is, uses not approved by the FDA and therefore not described in the drug's labeling—because the FDA does not regulate the practice of medicine. However, FDA regulations impose stringent restrictions on manufacturers' communications regarding off-label uses. Broadly speaking, a manufacturer may not promote a drug for off-label use, but may engage in non-promotional, balanced communication regarding off-label use under specified conditions. Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse publicity and enforcement action by the FDA, the DOJ, or the Office of the Inspector General of HHS, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products.

     Post-Approval Regulations

        After regulatory approval of a drug is obtained, a company is required to comply with a number of post-approval requirements. For example, as a condition of approval of an NDA, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product's safety and effectiveness after commercialization. Regulatory approval of oncology products often requires that subjects in clinical trials be

111


Table of Contents

followed for long periods to determine the overall survival benefit of the drug. In addition, as a holder of an approved NDA, a company would be required to report adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of its products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval to assure and preserve the long term stability of the drug or biological product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural and substantive record keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon a company and any third-party manufacturers that a company may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

        We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of birinapant. Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing.

        Newly discovered or developed safety or effectiveness data may require changes to a product's approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA's policies may change, which could delay or prevent regulatory approval of our products under development.

     The Hatch-Waxman Amendments to the FDC Act

     Orange Book Listing

        In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant's product or a method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA or 505(b)(2) application. An ANDA provides for marketing of a drug product that has the same active ingredients, generally in the same strengths and dosage form, as the listed drug and has been shown through PK testing to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are generally not required to conduct, or submit results of, pre-clinical studies or clinical tests to prove the safety or effectiveness of their drug product. 505(b)(2) applications provide for marketing of a drug product that may have the same active ingredients as the listed drug and contains full safety and effectiveness data as an NDA, but at least some of this information comes from studies not conducted by or for the applicant. Drugs approved in this way are commonly referred to as "generic equivalents" to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

112


Table of Contents

        The ANDA or 505(b)(2) applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA's Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA or 505(b)(2) applicant may also elect to submit a statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding a patented method of use rather than certify to such listed method of use patent. If the applicant does not challenge the listed patents by filing a certification that the listed patent is invalid or will not be infringed by the new product, the ANDA or 505(b)(2) application will not be approved until all the listed patents claiming the referenced product have expired.

        A certification that the new product will not infringe the already approved product's listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA or 505(b)(2) applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA or 505(b)(2) application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) application until the earliest of 30 months, expiration of the patent, settlement of the lawsuit, and a decision in the infringement case that is favorable to the ANDA or 505(b)(2) applicant.

        The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

     Marketing Exclusivity

        Upon NDA approval of an NCE, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot approve any ANDA seeking approval of a generic version of that drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA for a generic drug that includes the change.

        An ANDA may be submitted one year before marketing exclusivity expires if a Paragraph IV certification is filed. In this case, the 30 months stay, if applicable, runs from the end of the five years marketing exclusivity period. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period.

     Patent Term Extension

        After NDA approval, owners of relevant drug patents may apply for up to a five year patent extension. The allowable patent term extension is calculated as half of the drug's testing phase—the time between IND application and NDA submission—and all of the review phase—the time between NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.

        Many other countries also provide for patent term extensions or similar extensions of patent protection for pharmaceutical products. For example, in Japan, it may be possible to extend the patent term for up to five years and in Europe, it may be possible to obtain a supplementary patent certificate that would effectively extend patent protection for up to five years.

113


Table of Contents

     The Foreign Corrupt Practices Act

        The FCPA prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S. to comply with accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

     European and Other International Government Regulation

        In addition to regulations in the U.S., we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Some countries outside of the U.S. have a similar process that requires the submission of a clinical trial application, or CTA, much like the IND prior to the commencement of human clinical trials. In Europe, for example, a CTA must be submitted to each country's national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country's requirements, clinical trial development may proceed.

        To obtain regulatory approval to commercialize a new drug under European Union regulatory systems, we must submit a marketing authorization application, or MAA. The MAA is similar to the NDA, with the exception of, among other things, country-specific document requirements.

        For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. Internationally, clinical trials are generally required to be conducted in accordance with GCP, applicable regulatory requirements of each jurisdiction and the medical ethics principles that have their origin in the Declaration of Helsinki.

     Compliance

        During all phases of development (pre- and post-marketing), failure to comply with applicable regulatory requirements may result in administrative or judicial sanctions. These sanctions could include the FDA's imposition of a clinical hold on trials, refusal to approve pending applications, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, product detention or refusal to permit the import or export of products, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us.

     Other Special Regulatory Procedures

     Orphan Drug Designation

        The FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the U.S., or, if the disease or condition

114


Table of Contents

affects more than 200,000 individuals in the U.S., there is no reasonable expectation that the cost of developing and making the drug would be recovered from sales in the U.S. In the European Union, the EMA's Committee for Orphan Medicinal Products grants Orphan Drug Designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union community. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug.

        In the U.S., Orphan Drug Designation entitles a party to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to seven years of market exclusivity, which means the FDA may not approve any other application for the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.

        In the European Union, Orphan Drug Designation also entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following drug approval. This period may be reduced to six years if the Orphan Drug Designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

        Orphan drug designation must be requested before submission of an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of the regulatory review and approval process.

     Priority Review (U.S.) and Accelerated Review (European Union)

        Based on results of the Phase 3 clinical trial(s) submitted in an NDA, upon the request of an applicant, a priority review designation may be granted to a product by the FDA, which sets the target date for FDA action on the application at six months from FDA filing, or eight months from the sponsor's submission. Priority review is given where preliminary estimates indicate that a product, if approved, has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists, or a significant improvement compared to marketed products is possible. If criteria are not met for priority review, the standard FDA review period is ten months from FDA filing, or 12 months from sponsor submission. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

        Under the Centralized Procedure in the European Union, the maximum timeframe for the evaluation of a MAA is 210 days (excluding "clock stops," when additional written or oral information is to be provided by the applicant in response to questions asked by the Committee for Medicinal Products for Human Use, or CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, defined by three cumulative criteria: the seriousness of the disease (e.g., heavy disabling or life-threatening diseases) to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high

115


Table of Contents

therapeutic benefit. In this circumstance, EMA ensures that the opinion of the CHMP is given within 150 days.

     Healthcare Reform

        In March 2010, President Obama signed one of the most significant healthcare reform measures in decades. The Affordable Care Act, substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The Affordable Care Act will impact existing government healthcare programs and will result in the development of new programs. For example, the Affordable Care Act provides for Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program.

        Among the Affordable Care Act's provisions of importance to the pharmaceutical industry are the following:

    an annual, nondeductible fee on any covered entity engaged in manufacturing or importing certain branded prescription drugs and biological products, apportioned among such entities in accordance with their respective market share in certain government healthcare programs;

    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23.0% and 13.0% of the AMP for most branded and generic drugs, respectively;

    expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

    a new partial prescription drug benefit for Medicare recipients, or Medicare Part D, coverage gap discount program, in which manufacturers must agree to offer 50.0% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers' outpatient drugs to be covered under Medicare Part D;

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

    expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning in 2014 and by adding new mandatory eligibility categories for individuals with income at or below 133.0% of the Federal Poverty Level, thereby potentially increasing manufacturers' Medicaid rebate liability;

    expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

    new requirements to report annually specified financial arrangements with physicians and teaching hospitals, as defined in the Affordable Care Act and its implementing regulations, including reporting any "payments or transfers of value" made or distributed to prescribers, teaching hospitals, and other healthcare providers and reporting any ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations during the preceding calendar year, with data collection to be required beginning August 1, 2013 and reporting to the Centers for Medicare and

116


Table of Contents

      Medicaid Services to be required by March 31, 2014 and by the 90th day of each subsequent calendar year;

    a new requirement to annually report drug samples that manufacturers and distributors provide to physicians;

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

    a mandatory nondeductible payment for employers with 50 or more full-time employees (or equivalents) who fail to provide certain minimum health insurance coverage for such employees and their dependents, beginning in 2015 (pursuant to relief enacted by the Treasury Department).

        The Affordable Care Act also establishes an Independent Payment Advisory Board, or IPAB, to reduce the per capita rate of growth in Medicare spending. Beginning in 2014, IPAB is mandated to propose changes in Medicare payments if it determines that the rate of growth of Medicare expenditures exceeds target growth rates. The IPAB has broad discretion to propose policies to reduce expenditures, which may have a negative impact on payment rates for pharmaceutical products. A proposal made by the IPAB is required to be implemented by the U.S. federal government's Centers for Medicare & Medicaid Services unless Congress adopts a proposal with savings greater than those proposed by the IPAB. IPAB proposals may impact payments for physician and free-standing services beginning in 2015 and for hospital services beginning in 2020.

        In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. In August 2011, President Obama 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 an amount greater than $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 healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations.

        We anticipate that the Affordable Care Act will result in additional downward pressure on coverage and the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. In addition, it is possible that there will be further legislation or regulation that could harm our business, financial condition and results of operations.

     Coverage and Reimbursement

        Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the U.S. and markets in other countries,

117


Table of Contents

sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Birinapant may not be considered medically necessary or cost-effective. A payor's decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

        In 2003, the U.S. Congress enacted legislation providing Medicare Part D, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. Federal, state and local governments in the U.S. continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the drug candidates that we are developing.

        Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed upon. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become more intense. As a result, increasingly high barriers are being erected to the entry of new products. The European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. We may face competition for birinapant from lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

        The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the

118


Table of Contents

U.S. has increased and will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time.

        Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

     Other Healthcare Laws and Compliance Requirements

        The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting some business arrangements from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from federal Anti-Kickback Statute liability. The reach of the Anti-Kickback Statute was broadened by the Affordable Care Act, which, among other things, amends the intent requirement of the federal Anti-Kickback Statute. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. 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 civil False Claims Act (discussed below) or the civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

        The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes "any request or demand" for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies' marketing of the product for unapproved, and thus non-reimbursable, uses. HIPAA created new federal criminal statutes that prohibit knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

        In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by HITECH, and its implementing regulations, imposes requirements relating to the privacy, security and

119


Table of Contents

transmission of individually identifiable health information. Among other things, HITECH makes HIPAA's privacy and security standards directly applicable to "business associates"—independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

        In the U.S., our activities are potentially subject to additional regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of HHS (for example, the Office of Inspector General), the DOJ and individual U.S. Attorney offices within the DOJ, and state and local governments. If a drug product is reimbursed by Medicare or Medicaid, pricing and rebate programs must comply with, as applicable, the Medicare Modernization Act as well as the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, or the OBRA, and the Veterans Health Care Act of 1992, or the VHCA, each as amended. Among other things, the OBRA requires drug manufacturers to pay rebates on prescription drugs to state Medicaid programs and empowers states to negotiate rebates on pharmaceutical prices, which may result in prices for our future products that will likely be lower than the prices we might otherwise obtain. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Under the VHCA, drug companies are required to offer some drugs at a reduced price to a number of federal agencies including the U.S. Department of Veterans Affairs and the U.S. Department of Defense, or DoD, the Public Health Service and some private Public Health Service designated entities in order to participate in other federal funding programs including Medicaid. Recent legislative changes require that discounted prices be offered for specified DoD purchases for its TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulation.

        Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private "qui tam" actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

120


Table of Contents

        In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in some states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing specified physician prescribing data to pharmaceutical companies for use in sales and marketing, and to prohibit other specified sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

Employees

        As of October 1, 2013, we had 20 full-time employees and two part-time employees, of whom 11 hold Ph.D. degrees and four hold M.D. (or international M.D.-equivalent) degrees. We anticipate increasing our head count by five to 10 employees within the 12 months following this offering. We have no collective bargaining agreements with our employees and none are represented by labor unions. We have not experienced any work stoppages. We believe our relationship with our employees is satisfactory.

Facilities

        Our corporate headquarters and research facilities are located in Malvern, PA, where we lease approximately 11,640 square feet of office and laboratory space, pursuant to a lease agreement which expires in July 2014. When our lease expires, we may exercise renewal options or look for additional or alternate space for our operations. We believe that suitable additional or alternative space will be available if required in 2014 and thereafter on commercially reasonable terms.

Legal Proceedings

        We are not party to any legal proceedings.

121


Table of Contents


MANAGEMENT

Executive Officers, Directors and Other Significant Employees

        The following table sets forth information regarding our executive officers, the directors to be serving following the listing of our common stock on the NASDAQ Global Market and other significant employees, including their respective ages as of October 1, 2013:

Name
  Age   Position(s)

Executive Officers, Directors and Other Significant Employees

         

Andrew Pecora, M.D. 

    57   Chairman and Director

J. Kevin Buchi

    58   President, Chief Executive Officer and Director

Pete A. Meyers

    43   Chief Financial Officer and Treasurer

Lesley Russell, M.B.Ch.B., M.R.C.P.

    53   Chief Operating Officer

C. Glenn Begley, M.B.B.S., Ph.D., F.R.A.C.P., F.R.C.P.A., F.R.C.Path. 

    57   Chief Scientific Officer and Senior Vice President, Research & Development

Richard L. Sherman, J.D. 

    66   Senior Vice President, Strategic Transactions, General Counsel and Secretary

David E. Weng, M.D., Ph.D. 

    51   Chief Medical Officer and Senior Vice President of Clinical Development

Tony Meehan, Ph.D., MBA (1)

    48   Vice President, Alliance Management and Operations

Stephen M. Condon, Ph.D. (1)

    53   Vice President, Chemistry

Brenda Gavin, D.V.M. 

    65   Director

John M. Gill

    61   Director

Douglas E. Onsi

    45   Director

Douglas Reed, M.D. 

    59   Director

Paul J. Schmitt

    62   Director

Michael Steinmetz, Ph.D. 

    66   Director

James N. Woody, M.D., Ph.D. 

    70   Director

(1)
Significant Employee.

        Andrew Pecora, M.D. has served as Chairman of our board of directors since March 2013 and as a member of our board of directors since 2007. Dr. Pecora has been Vice President of Cancer Services and Chief Innovations Officer of the John Theurer Cancer Center at Hackensack University Medical Center, or HUMC, and co-Managing Partner of the Northern New Jersey Cancer Center, which is a private physicians' practice group affiliated with HUMC, since 1992. Dr. Pecora currently serves on the board of directors of Neostem, Inc., or Neostem (NASDAQ: NBS) (2011 to present) and Cancer Genetics, Inc. (NASDAQ: CGIX) (2004 to present). From 1999 through January 2011, Dr. Pecora was the Chairman and Chief Executive Officer of Progenitor Cell Therapy, LLC, a client-based cell therapy services company supporting the development and commercialization of cellular therapies. He was also the co-Founder and Chief Scientific Officer of Amorcyte, Inc., or Amorcyte, a privately funded biotechnology company developing cell therapy products to treat cardiovascular disease, which was founded in 2004 and was merged with Neostem in 2010. He served as Chairman of the Board of Directors of Amorcyte from 2005 until 2010. Dr. Pecora is a Professor of Medicine at New Jersey Medical School (formerly, the University of Medicine and Dentistry of New Jersey). He has authored or co-authored numerous articles, abstracts, books, chapters and monographs and is a frequent lecturer in the field of cancer treatment. He received his B.S. in

122


Table of Contents

biology from Seton Hall University in 1979 and his M.D. from the University of Medicine and Dentistry of New Jersey in 1983. He completed both his postdoctoral internship in internal medicine as well as his residency in the Department of Internal Medicine at The New York Hospital, and completed a fellowship in hematology-oncology at Memorial Sloan-Kettering Cancer Center.

        We have entered into an advisory services agreement with Dr. Pecora in order to obtain his services as the Chairman of our board of directors. Under the advisory services agreement, Dr. Pecora agreed to serve as the Chairman of our board of directors beginning on March 8, 2013 and continue until terminated by Dr. Pecora or us for any reason or no reason upon thirty days prior written notice. Dr. Pecora received an option to purchase 400,000 shares of our common stock at an exercise price of $0.09 per share. One-quarter of this option vested on the grant date and the remainder vests in equal monthly installments over 36 months commencing March 1, 2013, subject to Mr. Pecora's continuing to perform advisory services for us.

        Our board of directors believes Dr. Pecora's perspective and experience as a physician, Professor of Medicine and senior executive in the life sciences industry, as well as his educational background, provides him with the qualifications and skills to serve as a director.

        J. Kevin Buchi joined us in August 2013 as President, Chief Executive Officer and Director. Prior to joining us, from May 2012 through August 2013, Mr. Buchi served as a member of the board of directors on the companies referenced below. Mr. Buchi was Corporate Vice President, Global Branded Products at Teva Pharmaceutical Industries, or Teva, from October 2011 to May 2012 and Chief Executive Officer of Cephalon, Inc., or Cephalon, from December 2010 through October 2011 prior to Teva's acquisition of Cephalon in October 2011. Mr. Buchi joined Cephalon in 1991 and also held the positions of Chief Financial Officer from 1996 through December 2009 and Chief Operating Officer from January 2010 through December 2010. His previous experience includes supervising the accounting organization in the Medical Products Department at E.I. Du Pont de Nemours and Company as Accounting Manager.

        Mr. Buchi currently serves on the board of directors of Alexza Pharmaceuticals, Inc. (NASDAQ: ALXA) (January 2013 to present), Benitec Biopharma Ltd. (ASX: BLT) (April 2013 to present), EPIRUS Biopharmaceuticals, Inc. (June 2013 to present), Forward Pharma A/S (Denmark) (December 2012 to present) and Stemline Therapeutics, Inc., or Stemline (NASDAQ: STML) (2012 to present). Previously, Mr. Buchi served on the board of directors of Celator Pharmaceuticals, Inc. (2006 to 2010), Encysive Pharmaceuticals, Inc. (2004 to 2008), Lorus Therapeutics, Inc. (Canada) (2003 to 2009) and Mesoblast Limited (Australia) (ASX: MSB) (2010 to 2012). Mr. Buchi graduated from Cornell University with a B.A. in chemistry in 1976 and received a Masters of Management from the J.L. Kellogg Graduate School of Management at Northwestern University in 1980.

        Our board of directors believes Mr. Buchi's perspective and experience as a senior executive in our industry, as well as his depth of operating and board experience in our industry, provide him with the qualifications and skills to serve as a director.

        Pete A. Meyers joined us in August 2013 as Chief Financial Officer and was appointed as Treasurer in September 2013. Prior to joining us, Mr. Meyers worked in health care investment banking for 18 years, most recently as Managing Director/Co-Head of Global Health Care Investment Banking at Deutsche Bank Securities Inc., or Deutsche Bank Securities, where he worked in various roles from March 2005 to January 2013. From February 2013 to July 2013, Mr. Meyers took time off to pursue opportunities outside of the investment banking industry. Prior to joining Deutsche Bank Securities in 2005, Mr. Meyers held the position of Managing Director, Health Care Investment Banking, at Credit Suisse LLC. Among other experience, he

123


Table of Contents

also served as Vice President, HealthCare Mergers and Acquisitions at Dillon, Read & Co. (and successor firms). Mr. Meyers graduated from Boston College with a B.S. in finance in 1991 and received an MBA from Columbia Business School in 1995.

        Lesley Russell, M.B.Ch.B., M.R.C.P. joined us in August 2013 as Chief Operating Officer. Prior to joining us, from June 2012 through August 2013, Dr. Russell was a consultant to a number of pharmaceutical companies. She served as Senior Vice President and Head of Research and Development for Global Branded Products at Teva from October 2011 to June 2012. Prior to this position, she was Executive Vice President and Chief Medical Officer at Cephalon from September 2006 to October 2011. Dr. Russell joined Cephalon in 2000 and held various positions of increasing responsibility, including Head of Clinical Research and Medical Affairs, prior to becoming Cephalon's Chief Medical Officer in September 2006. Before joining Cephalon in 2000, Dr. Russell held positions of increasing responsibility at Amgen Limited (U.K.), Lilly Industries Limited (U.K.) and U.S. Bioscience (acquired by MedImmune, LLC, or MedImmune, now a part of AstraZeneca). Dr. Russell currently serves on the board of directors of Amag Pharmaceuticals, Inc. (NASDAQ: AMAG) (December 2010 to present) and Endocyte (NASDAQ: ECYT) (January 2013 to present). Dr. Russell received a M.B.Ch.B. from the University of Edinburgh, Scotland, U.K. in 1984 and obtained her post-graduate qualification, M.R.C.P., as a Member of the Royal College of Physicians in 1987.

        C. Glenn Begley, M.B.B.S., Ph.D., F.R.A.C.P., F.R.C.P.A., F.R.C.Path. joined us as Senior Vice President, Research and Development in August 2012 and was named Chief Scientific Officer in July 2013. Prior to joining us, from January 2012 through July 2012, Dr. Begley served as an advisor to several emerging biotechnology companies. From January 2002 to January 2012, he was Vice-President and Global Head of Hematology and Oncology Research at Amgen. He joined Amgen in 2002, and was responsible for building the Hematology and Oncology research program. He also had scientific responsibility for marketed Amgen products which involved preparation and presentations at multiple FDA face-to-face meetings and FDA Drug Advisory Committee meetings. Before joining Amgen, he had over 20 years of clinical experience in medical oncology and hematology. Dr. Begley held leadership and research positions at The Walter and Eliza Hall Institute of Medical Research in Melbourne, Australia, including Head, Human Leukemia Laboratory and Senior Principal Research Fellow, among other experiences in medical research. His prior clinical practice includes positions as Medical Oncologist and Director, Bone Marrow Research Laboratories at the Royal Melbourne Hospital, Melbourne, Australia. Dr. Begley currently serves as a member of the board of directors of Oxford Bio Therapeutics Ltd. (2012 to present). He previously served on the board of directors, and as Chair of the scientific advisory board, of Cyterix Pharmaceuticals Inc. (February 2013 to August 2013). Dr. Begley is board certified in Australia as a Medical Oncologist (F.R.A.C.P.), and Laboratory Hematologist (F.R.C.P.A., Australia; F.R.C.Path, United Kingdom). He received his medical degree, M.B.B.S., in 1978 and a Ph.D. in cellular and molecular biology in 1986, each from the University of Melbourne. He has published over 200 scientific papers and was elected to the prestigious Association of American Physicians in 2008.

        Richard L. Sherman, J.D. joined us in November 2012 and previously provided consulting services to us as Vice President, Strategic Partnering and Transactions at Malvern Consulting Group from February 2012 through October 2012. He was appointed as Secretary in September 2013. Prior to joining us, Mr. Sherman served as General Counsel at Actinium Pharmaceuticals, Inc. from June 2004 through September 2012 and General Counsel at Hawaii Biotech, Inc., or Hawaii Biotech, from January 2002 through July 2010. From 1992 through 2001, he was the founder and managing officer of QED Technologies, L.P., a life science business consulting firm purchased in 1999 by The Omnicom Group. Mr. Sherman was a

124


Table of Contents

partner in the law firm of Pepper, Hamilton & Scheetz (now Pepper Hamilton LLP) from 1990 through 1992. He also spent more than a decade as Deputy General Counsel of SmithKline Beckman Corporation (now GlaxoSmithKline), from 1976 through 1989.

        Mr. Sherman is also a principal in a private Small Business Investment Company investment fund, CIP Capital L.P., and a venture partner in the SCP/Vitalife family of funds in suburban Philadelphia. Mr. Sherman currently serves as a member of the board of directors of Hawaii Biotech (2005 to present) and Immunomedics, Inc. (NASDAQ: IMMU) (August 2013 to present) and formerly served as a member of the board of directors of Functional Technologies, Inc. (May 2011 to June 2013) and Leversense LLC (March 2011 to February 2013). He graduated magna cum laude with a B.A. in political science and economics from the University of Nebraska in 1968, where he was elected to Phi Beta Kappa. As a Root-Tilden Scholar at the New York University School of Law, he received his Juris Doctor degree in 1971.

        David E. Weng, M.D., Ph.D. joined us in July 2009 as Vice President, Clinical Oncology, and subsequently became our Chief Medical Officer and Senior Vice President of Clinical Development in January 2010. He began his biotechnology industry career at MedImmune where he worked as a medical director in clinical oncology from October 2006 to June 2007. Dr. Weng was a medical director at AstraZeneca, following its acquisition of MedImmune, from June 2007 through June 2009. Prior to his industry activities, Dr. Weng was engaged in the practice of medical oncology and cancer research at the Taussig Cancer Center of the Cleveland Clinic Foundation from October 1998 through October 2006. He is board-certified by the American Board of Internal Medicine in medical oncology, with active state and federal licensing for clinical practice. Dr. Weng graduated from Harvard University with an A.B. in Biochemical Sciences in 1984, with subsequent M.D., Ph.D., and clinical training at Johns Hopkins University, Johns Hopkins Hospital and the NCI, completing training in June 1998.

        Tony Meehan, Ph.D., MBA joined us in October 2012 and has been working with both large and small start-up firms in the pharmaceutical industry for over 20 years. He was with Johnson & Johnson from 2005 through September 2012, most recently as Senior Director of New Venture Development in RedScript Ventures, LLC, the internal venturing group of Johnson & Johnson. Prior to this, Dr. Meehan was Director of Pharmaceutical Development at TransForm Pharmaceuticals, or TransForm, from 2003 and until TransForm was acquired by Johnson & Johnson in 2005. From 1992 through 2003, he worked for Merck in various positions in both manufacturing and R&D, where he supported the development, registration and launch of eight new products. Dr. Meehan has a BSE in chemical engineering from the University of Pennsylvania, a Ph.D. in chemical engineering from Carnegie Mellon University and an MBA from the Wharton School of the University of Pennsylvania.

        Stephen M. Condon, Ph.D. joined us in May 2004 as Vice President, Chemistry. Prior to joining us in 2004, Dr. Condon was a Group Leader in medicinal chemistry at ViroPharma Incorporated from 2000 through 2004, where he was involved in the discovery and development of inhibitors of hepatitis C NS5B RNA-dependent RNA polymerase. From 1995 through 2000, Dr. Condon was a member of the medicinal chemistry group at Rhône-Poulenc Rorer (now Sanofi) where his work led to the discovery of number of highly active anabolic agents for the treatment of post-menopausal osteoporosis and the elucidation of the bioactive conformation of human parathyroid hormone. Dr. Condon earned his B.S. in chemistry from the University of Massachusetts (Amherst) in 1985 and a M.S. in chemistry from the University of Georgia in 1987. In 1995, Dr. Condon received his Ph.D. under Professor Amos B. Smith III at the University of Pennsylvania after completing the total syntheses of rapamycin and demethoxyrapamycin.

125


Table of Contents

        Brenda Gavin, D.V.M. has served as a member of our board of directors since 2006 and has been a Founding Partner of Quaker Partners for the past 10 years. Previously, she was President of S.R. One, Limited, or SR One, GlaxoSmithKline's bioscience venture capital investment fund, and a general partner of EuclidSR Partners, an independent venture capital limited partnership focused on health care and information technology. Dr. Gavin has been responsible for dozens of venture and strategic investments, and has previously served as a member of the board of directors for many portfolio companies including Celator Pharmaceuticals Inc. (2005 to 2012), Tengion, Inc. (OTCMKTS: TNGN) (2006 to 2011) and Tranzyme Pharma, Inc. (2005 to 2011), as well as the Ben Franklin Technology Partners of Southeastern Pennsylvania (1991 to 2011), the Ben Franklin Technology Development Authority (2001 to 2011), BioAdvance, the Biotechnology Greenhouse of Southeastern Pennsylvania, or BioAdvance (2001 to present), and the Penn State Research Foundation (2003 to present). Dr. Gavin currently serves on the board of directors of BioLeap (2010 to present). Dr. Gavin received her B.S. in biology from Baylor University in 1970, a Doctor of Veterinary Medicine, or D.V.M., degree from the University of Missouri's College of Veterinary Medicine in 1977 and a MBA from the University of Texas—Austin and San Antonio in 1981.

        Our board of directors believes Brenda Gavin's perspective and experience as a veterinary physician, investor and board member, as well as her educational background, provides her with the qualifications and skills to serve as a director.

        John M. Gill is one of our co-founders, has been a member of our board of directors since inception, served as our President and Chief Executive Officer from October 2003 through August 2013 and is currently one of our consultants. Prior to joining us, Mr. Gill was a member of the board of directors and Chief Operating Officer of 3-Dimensional Pharmaceuticals, Inc., a public biopharmaceutical company, from 2001 to 2003. From 1979 to 2001, he served in several positions at SmithKline Beecham Corporation (GlaxoSmithKline) including Vice President and Director, R&D Operations and Finance, Chairman of the R&D Operating Committee and as a member of the R&D Executive Committee from 1995 to 2001 and from 1985 to 1995 as a founding member and partner of SR One and as Chief Operating Officer of SK&F/Nova Pharmaceuticals. Mr. Gill is a board member of public and private companies including BioAdvance and PharmAthene, Inc. (NYSE: PIP). He graduated with high honors from Rutgers University in 1975 with a B.A. in accounting and economics after having served in the U.S. Marine Corps.

        Our board of directors believes Mr. Gill's perspective and experience as a senior executive in our industry, including as our former President and Chief Executive Officer, provides him with the qualifications and skills to serve as a director.

        Douglas E. Onsi, J.D. has served as a member of our board of directors since July 2012, and has served as Managing Director of HealthCare Ventures since August 2007. Prior to this, Mr. Onsi was at Genzyme Corporation, or Genzyme, where he served in roles as Vice President, Campath Product Operations and Portfolio Management, Oncology from 2005 to 2007 and as Vice President, Business Development from 2004 to 2005. Prior to joining Genzyme, Doug was Chief Financial Officer of Tolerx, Inc., a venture capital funded biotechnology company, from 2001 to 2004. Before joining Tolerx, Inc., he was involved in business development at LeukoSite, a publicly traded biopharmaceutical company that was acquired by Millennium Pharmaceuticals, Inc., from 1999 to 2000. He began his career as an attorney at Bingham Dana LLP (now Bingham McCutchen LLP).

        Mr. Onsi currently serves as a member of the board of directors of Anexon, Inc. (2009 to present), Apofore Corporation (2011 to present), Dekkun Corporation (2010 to present), Potentia Pharmaceuticals, Inc. (2008 to present), Shape Pharmaceuticals, Inc. (2008 to present),

126


Table of Contents

Synovex Corporation (2008 to present), Tensha Therapeutics, Inc. (2011 to present) and Vaxxas Pty Ltd. (2011 to present), and previously served as a member of the board of directors of Apellis, Inc. (2009 to 2013) and Oriel Therapeutics, Inc. (January 2010 to September 2010) (acquired by Sandoz, a division of the Novartis Group, in 2010). Mr. Onsi is a member of the business and scientific advisory board for FastForward, LLC, a subsidiary of the National Multiple Sclerosis Society, and was a member of the Cornell University Council. He received a Juris Doctor degree from the University of Michigan Law School and a B.S. in biological sciences from Cornell University.

        Our board of directors believes Mr. Onsi's perspective and experience as an investor, senior executive in the life sciences industry, and board member, as well as his educational background, provides him with the qualifications and skills to serve as a director.

        Douglas Reed, M.D. has served as a member of our board of directors since July 2010, and has been a General Partner at Hatteras Venture Partners, or Hatteras, since 2007. Prior to Hatteras, Dr. Reed had 14 years of venture investing experience with two healthcare-focused funds, Vector Fund Management, L.P. and SR One. He has been involved in venture investment transactions for over 30 healthcare and life science companies and currently serves as the Chairman of the board of directors of Viamet Pharmaceuticals Holdings, LLC (director, 2007 to present and Chairman, 2010 to present), SpineAlign Medical, Inc. (2008 to present), Coferon, Inc. (2012 to present), NeuroTronik Holdings Limited (2013 to present), and during the previous five years has served as a member of the board of directors of PhaseBio Pharmaceuticals, Inc. (2007 to 2009), Embrella Cardiovascular Inc. (2009 to 2011) (acquired by Edwards Lifesciences Corporation in 2011) and CGI Pharmaceuticals, Inc. (2001 to 2010) (acquired by Gilead Sciences, Inc. in 2010). In addition to his venture investing experience, Dr. Reed also has prior operational experience, having served as Vice President of Business Development for two publicly traded biotechnology companies, GelTex Pharmaceuticals, Inc. (acquired by Genzyme General, the biotechnology division of Genzyme Corporation) and NPS Pharmaceuticals, Inc. Dr. Reed earned both a B.A. in biology and an M.D. from the University of Missouri-Kansas City and an MBA from the Wharton School of the University of Pennsylvania. He is a board certified neuro-radiologist and has held faculty positions in the Department of Radiology at the University of Washington and Yale University.

        Our board of directors believes Mr. Reed's perspective and experience as a physician, investor, senior executive in the life sciences industry, and board member, as well as his educational background, provides him with the qualifications and skills to serve as a director.

        Paul J. Schmitt has served as a member of our board of directors since 2003, and has been a Managing Director of Novitas Capital, or Novitas, in Wayne, Pennsylvania since 1999. As Managing Director, he oversees Novitas's interests in early stage life sciences companies. Most recently, Mr. Schmitt assumed an additional role of Acting Chief Executive Officer of Amorcyte, a former Novitas portfolio company, developing cell therapies for acute myocardial infarction. Amorcyte was merged into Neostem in November 2010. Prior to Novitas, Mr. Schmitt was most recently Chairman, President and Chief Executive Officer of Chrysalis International Corporation (formerly known as DNX Corporation), or Chrysalis (1995 to 1999). Prior to his work at Chrysalis, Mr. Schmitt was President of Biolectron, Inc. from 1986 through 1988, which developed therapeutic devices for treating a variety of debilitating orthopedic disorders. He also has eight years of experience with the BOC Health Care Group where he served as Vice President, General Manager of Ohmeda and as Corporate Manager of Strategic Planning and Corporate Group Finance Manager from 1979 through 1988. Mr. Schmitt currently serves on the board of trustees of the Wistar Institute.

127


Table of Contents

        Mr. Schmitt currently serves on the boards of directors of three Novitas Capital portfolio companies: Cernostics (June 2013 to present), GelMed (2000 to present) and Logical Therapeutics (2009 to present). Mr. Schmitt also serves on the board of managers of JBS United Animal Health II LLC (August 2013 to present) and previously served on the board of directors of Amorcyte (2005 to 2010). Mr. Schmitt received his B.S. in Finance from Lehigh University in 1974, and his MBA from Rutgers University in 1979.

        Our board of directors believes Mr. Schmitt's perspective and experience as an investor, senior executive in the life sciences industry, and board member, as well as his educational background, provides him with the qualifications and skills to serve as a director.

        Michael Steinmetz, Ph.D. has served as a member of our board of directors since July 2010, and has been a Managing Director of Clarus Ventures since the firm's inception in 2005. He has over 27 years of direct industry and investment experience within the healthcare sector, including as a general partner at MPM Capital since 1997. From 1986 to 1997, Dr. Steinmetz was an executive at Hoffmann-LaRoche Inc. where he held various positions including Vice President of Pre-clinical Research and Development and Global Head of Biotechnology. Dr. Steinmetz currently serves as a member of the board of directors of Allozyne Inc. (2007 to present), Heptares Therapeutics (2009 to present), Lycera Corp. (2012 to present), MacroGenics, Inc. (2000 to present), NovImmune SA (2008 to present), Oxford Immunotec, Inc. (2007 to present), TaiGen Biotechnology Co., Ltd. (2001 to present) and VBI Vaccines (2012 to present) and previously served as a member of the board of directors of Swedish Orphan Biovitrum AB (STO: SOBI), and several privately held companies. Dr. Steinmetz obtained his Ph.D. summa cum laude from the University of Munich, Munich, Germany and held positions at the California Institute of Technology and the Basel Institute for Immunology (Switzerland).

        Our board of directors believes Dr. Steinmetz's perspective and experience as a research scientist, investor and senior executive in the life sciences industry, as well as his educational background, provides him with the qualifications and skills to serve as a director.

        James N. Woody, M.D., Ph.D. has been a member of our board of directors since 2006 and a General Partner of Latterell Venture Partners, a venture capital firm which invests in early and late stage biopharmaceutical, instrumentation and medical device companies, since November 2005. Dr. Woody brings more than 25 years of biomedical research and management experience to the board. Dr. Woody was formerly President of Roche Bioscience in Palo Alto, CA (1996 to 2004), where he had responsibility for all bioscience research and development, ranging from genetics and genomics to clinical development of numerous new pharmaceuticals. Previously, Dr. Woody served as Chief Scientific Officer and Senior Vice President of R&D for Centocor Biotech, Inc. (now Janssen Biotech), or Centocor Ortho Biotech, Inc. (1991 to 1996), where he was responsible for the discovery and early clinical development of antibody and peptide-based therapeutic products. While at Centocor, Dr. Woody developed Remicade, the first of the TNF inhibitor biologics, the first effective therapy for the Rheumatoid Arthritis, Crohn's Disease, and Psoriasis, as well as ReoPro, a novel platelet blocking drug used in conjunction with angioplasty. Prior to Centocor, Dr. Woody served as a U.S. Navy Medical Officer and was the co-founder with Navy colleagues of the National Marrow Donor program with over 50,000 successful transplants performed to date. He retired as a Commanding Officer and Director, U.S. Naval Medical Research and Development Command in Bethesda, MD. Dr. Woody currently serves as a member of the board of directors of HemaQuest Pharmaceuticals, Inc. (2009 to present), IntegenX Inc. (2012 to present), Neuraltus Pharmaceuticals, Inc. (2009 to present) and Protein Simple formerly Cell Biosciences (2005 to present). He was founding Chief Executive Officer and Chairman of the Board of OncoMed Pharmaceuticals, Inc. (NASDAQ: OMED) (2004 to present) and continues as a member of its board of directors. He previously served as a member of the board of directors

128


Table of Contents

of Bayhill Therapeutics, Inc. (2004 to 2012), Femta Pharmaceuticals (2008 to 2012), ForteBio Corp. (acquired by Pall Life Sciences) (2005 to 2012), Proteolix, Inc. (acquired by Onyx Pharmaceuticals, Inc. (NASDAQ: ONXX) in 2009) (2005 to 2009) and Talima Therapeutics, Inc. (2007 to 2011). Dr. Woody is a member of the board of directors of the Lucille Packard (Stanford) Children's Hospital, or LPCH, in Palo Alto, CA, and has served in this capacity, with a brief sabbatical, since 2002. He also serves as Chairman of the LPCH Quality Service and Safety Committee. Dr. Woody received a B.S. in Chemistry from Andrews University and a M.D. from Loma Linda University, trained in Pediatric Immunology at Duke University and Boston Children's Hospital (Harvard University) and earned a Ph.D. in Immunology from the University of London, England. Dr. Woody has authored or co-authored over 140 publications.

        Our board of directors believes Dr. Woody's perspective and experience as a physician, investor and senior executive in the life sciences industry, as well as his educational background, provides him with the qualifications and skills to serve as a director.

Clinical Advisory Board Members

        We have established a clinical advisory board and we regularly seek advice and input from these experienced clinical leaders on matters related to our research and development programs. The members of our clinical advisory board consist of experts across a range of key disciplines relevant to our programs. We intend to continue to leverage the broad expertise of our advisors by seeking their counsel on important topics relating to our product candidate discovery and development programs. Some members of our clinical advisory board have entered into consulting agreements with us covering their respective confidentiality, non-disclosure and proprietary rights matters and own or have owned shares of our common stock or options to purchase shares of our common stock.

        All of the clinical advisors are employed by or have consulting arrangements with other entities and devote only a small portion of their time to us. Our current clinical advisors are:

Name
  Title

Michael Andreeff, M.D., Ph.D. 

  Professor of Medicine and Haas Chair in Genetics and Chief, Section of Molecular Hematology and Therapy at the University of Texas M.D. Anderson Cancer Center
Houston, TX

Daniel G. Haller, M.D. 

  Professor of Medicine Emeritus, Abramson Cancer Center at the University of Pennsylvania Perelman School of Medicine
Philadelphia, PA

Herbert I. Hurwitz, M.D. 

  Associate Professor of Medicine of Duke University Medical Center, Co-Director of the Duke GI Oncology Program at the Duke Comprehensive Cancer Center
Durham, NC

Alan F. List, M.D. 

  President and Chief Executive Officer of the Moffitt Cancer Center and is senior member in the Department of Malignant Hematology and the Experimental Therapeutics Program
Tampa, FL

129


Table of Contents

Name
  Title

Peter O'Dwyer, M.D. 

  Professor of Medicine at the University of Pennsylvania Perelman School of Medicine, and Director of the Developmental Therapeutics Program at the Abramson Cancer Center of the University of Pennsylvania. He is also Vice Chairman of the Eastern Cooperative Oncology Group and Co-Chair of the Gastrointestinal Committee.
Philadelphia, PA

Atsushi Ohtsu, M.D., Ph.D. 

  Director of the Research Center for Innovative Oncology and Head of the Department of GI Oncology/Gastroenterology at the National Cancer Center Hospital East in Japan
Tokyo, Japan

Philip A. Philip, M.D., Ph.D., F.R.C.P. 

  Leader of the Multidisciplinary Team for Gastrointestinal Oncology at the Barbara Ann Karmanos Cancer Institute, and Professor at Wayne State University School of Medicine
Detroit, MI

Eric Rowinsky, M.D. 

  Head of Research and Development, Chief Medical Officer, and Executive Vice President of Stemline and an Adjunct Professor of Medicine at New York University School of Medicine. Cancer Drug Development Consultant at Oncodrugs.
New York, NY

Branimar I. Sikic, M.D. 

  Professor of Medicine (Oncology and Clinical Pharmacology) at Stanford University School of Medicine, Associate Director, Stanford Cancer Center, and Director, Clinical and Translational Research Unit, Stanford University
Stanford, CA

Alan P. Venook, M.D. 

  Professor of Clinical Medicine, Division of Medical Oncology, at the University of California, San Francisco, or UCSF, and leads the Gastrointestinal Oncology clinical program at UCSF Medical Center
San Francisco, CA

Daniel Hoth, M.D. 

  President, Hoth Consulting, Inc.
San Francisco, CA

Scientific Advisory Board

        We have also established a scientific advisory board. We regularly seek advice and input from these experienced scientific leaders on matters related to our research and development programs. The members of our scientific advisory board consist of experts across a range of key disciplines relevant to our programs and science. We intend to continue to leverage the broad expertise of our advisors by seeking their counsel on important topics relating to our product candidate discovery and development programs. Some members of our scientific advisory board have entered into consulting agreements with us covering their respective confidentiality, non-disclosure and proprietary rights matters and own or have owned shares of our common stock or options to purchase shares of our common stock.

130


Table of Contents

        All of the scientific advisors are employed by or have consulting arrangements with other entities and devote only a small portion of their time to us. Our current scientific advisors are:

Name
  Title

Randall K Johnson, Ph.D. 

  Consultant in Oncology R&D to the pharmaceutical and biotechnology industries, focused on anticancer drug discovery and development
Santa Fe, NM

Anthony G. Letai, M.D., Ph.D. 

  Associate Professor in Medicine, Harvard Medical School, and Member, Dana-Farber Cancer Institute
Boston, MA

Neal Rosen, M.D., Ph.D. 

  Enid A. Haupt Chair in Medical Oncology, Director, Center for Mechanism-Based Cancer Therapies and Head, Developmental Therapeutics at Memorial Sloan-Kettering Cancer Center
New York, NY

Charles L. Sawyers, M.D. 

  Howard Hughes Medical Institute investigator and Chair of Memorial Sloan-Kettering Cancer Center's Human Oncology and Pathogenesis Program
New York, NY

Yigong Shi, Ph.D. 

  Our scientific co-founder and University Professor, Cheung Kong Scholar and Dean of the School of Life Sciences at Tsinghua University
Beijing, China

David L. Vaux, MBBS, Ph.D., FAA

  Professor, Division of Cell Signaling and Cell Death and Deputy Director of The Walter and Eliza Hall Institute of Medical Research
Melbourne, Australia

Myla Lai-Goldmann, M.D. 

  Chief Executive Officer, GeneCentric Diagnostics, Inc.
Durham, NC

John Silke, Ph.D. 

  Associate Professor, The Walter & Eliza Hall Institute of Medical Research
Melbourne, Australia

Board Composition

        Our board of directors currently consists of nine members. Our certificate of incorporation and our bylaws that will be effective following this offering divide our board of directors into three classes with staggered three-year terms. In addition, such certificate of incorporation and bylaws provide that a director may be removed only for cause and only by the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors. Under such certificate of incorporation and bylaws, any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office. Furthermore, such certificate of incorporation provides that the authorized number of directors may be changed only by a resolution of our board of directors.

Board Committees

        Upon the listing of our common stock on the NASDAQ Global Market, our board of directors will have a standing audit committee, compensation committee and nominating and

131


Table of Contents

corporate governance committee. The members of our audit committee will consist of James N. Woody, Douglas Reed and Paul J. Schmitt, with Paul J. Schmitt serving as chairman. The members of our compensation committee will consist of Douglas E. Onsi, Brenda Gavin and Michael Steinmetz, with Michael Steinmetz serving as chairman. The members of our nominating and corporate governance committee will consist of Michael Steinmetz and Douglas E. Onsi, with Douglas E. Onsi serving as chairman.

        Our board of directors has undertaken a review of the independence of our directors and has determined that all directors except J. Kevin Buchi and John M. Gill are independent within the meaning of Section 5605(a)(2) of the NASDAQ Stock Market Rules and Rule 10A-3 under the Securities Act, that Douglas Reed, Paul J. Schmitt and James N. Woody meet the additional test for independence for audit committee members imposed by SEC regulations and Section 5605(c)(2)(A) of the NASDAQ Stock Market Rules and that Douglas E. Onsi, Brenda Gavin and Michael Steinmetz meet the additional test for independence for compensation committee members imposed by Section 5605(d)(2) of the NASDAQ Stock Market Rules. The NASDAQ Stock Market Rules require that each committee of our board of directors has at least one independent director on the listing date of our common stock, has a majority of independent directors no later than 90 days after such date and be fully independent within one year after such date. The composition of our audit, compensation and nominating and corporate governance committees will satisfy these independence requirements in accordance with the phase-in schedule allowed by NASDAQ Stock Market Rules.

     Audit Committee

        The primary purpose of our audit committee will be to assist the board of directors in the oversight of the integrity of our accounting and financial reporting process, the audits of our financial statements, and our compliance with legal and regulatory requirements. The functions of our audit committee will include, among other things:

    hiring the independent registered public accounting firm to conduct the annual audit of our financial statements and monitoring its independence and performance;

    reviewing and approving the planned scope of the annual audit and the results of the annual audit;

    pre-approving all audit services and permissible non-audit services provided by our independent registered public accounting firm;

    reviewing the significant accounting and reporting principles to understand their impact on our financial statements;

    reviewing our internal financial, operating and accounting controls with management, our independent registered public accounting firm and our internal audit provider;

    reviewing with management and our independent registered public accounting firm, as appropriate, our financial reports, earnings announcements and our compliance with legal and regulatory requirements;

    reviewing potential conflicts of interest under and violations of our Code of Conduct;

    establishing procedures for the treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and confidential submissions by our employees of concerns regarding questionable accounting or auditing matters;

    reviewing and approving related-party transactions; and

    reviewing and evaluating, at least annually, our audit committee's charter.

132


Table of Contents

        With respect to reviewing and approving related-party transactions, our audit committee will review related-party transactions for potential conflicts of interests or other improprieties. Under SEC rules, related-party transactions are those transactions to which we are or may be a party in which the amount involved exceeds $120,000, and in which any of our directors or executive officers or any other related person had or will have a direct or indirect material interest, excluding, among other things, compensation arrangements with respect to employment and board membership. Our audit committee could approve a related-party transaction if it determines that the transaction is in our best interests. Our directors will be required to disclose to this committee or the full board of directors any potential conflict of interest, or personal interest in a transaction that our board is considering. Our executive officers will be required to disclose any related-party transaction to the audit committee. We also plan to poll our directors on an annual basis with respect to related-party transactions and their service as an officer or director of other entities. Any director involved in a related-party transaction that is being reviewed or approved must recuse himself or herself from participation in any related deliberation or decision. Whenever possible, the transaction should be approved in advance and if not approved in advance, must be submitted for ratification as promptly as practical.

        The financial literacy requirements of the SEC require that each member of our audit committee be able to read and understand fundamental financial statements. In addition, at least one member of our audit committee is qualified as an audit committee financial expert, as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act, and have financial sophistication in accordance with the NASDAQ Stock Market Rules. Our board of directors has determined that Paul J. Schmitt qualifies as an audit committee financial expert.

        Both our independent registered public accounting firm and management periodically will meet privately with our audit committee.

        Prior to the consummation of this offering, our board of directors will adopt a charter for the audit committee that complies with NASDAQ Stock Market Rules. The charter will be available on our website at http://www.tetralogicpharma.com. The information contained in, or that can be accessed through, our website is not part of this prospectus.

     Compensation Committee

        The primary purpose of our compensation committee will be to assist our board of directors in exercising its responsibilities relating to compensation of our executive officers and employees and to administer our equity compensation and other benefit plans. In carrying out these responsibilities, this committee will review all components of executive officer and employee compensation for consistency with its compensation philosophy, as in effect from time to time. The functions of our compensation committee will include, among other things:

    designing and implementing competitive compensation policies to attract and retain key personnel;

    reviewing and formulating policy and determining the compensation of our executive officers and employees;

    reviewing and recommending to our board of directors the compensation of our directors;

    administering our equity incentive plans and granting equity awards to our employees and directors under these plans;

    if required from time to time, reviewing with management our disclosures under the caption "Compensation Discussion and Analysis" and recommending to the full board its inclusion in our periodic reports to be filed with the SEC;

133


Table of Contents

    if required from time to time, preparing the report of the compensation committee to be included in our annual proxy statement;

    engaging compensation consultants or other advisors it deems appropriate to assist with its duties; and

    reviewing and evaluating, at least annually, our compensation committee's charter.

        Prior to the consummation of this offering, our board of directors will adopt a charter for the compensation committee that complies with NASDAQ Stock Market Rules. The charter will be available on our website at http://www.tetralogicpharma.com. The information contained in, or that can be accessed through, our website is not part of this prospectus.

     Nominating and Corporate Governance Committee

        The primary purpose of our nominating and corporate governance committee will be to assist our board of directors in promoting the best interests of our company and our stockholders through the implementation of sound corporate governance principles and practices. The functions of our nominating and corporate governance committee will include, among other things:

    identifying, reviewing and evaluating candidates to serve on our board;

    determining the minimum qualifications for service on our board;

    developing and recommending to our board an annual self-evaluation process for our board and overseeing the annual self-evaluation process;

    developing, as appropriate, a set of corporate governance principles, and reviewing and recommending to our board any changes to such principles; and

    periodically reviewing and evaluating our nominating and corporate governance committee's charter.

        Prior to the consummation of this offering, our board of directors will adopt a charter for the nominating and corporate governance committee that complies with NASDAQ Stock Market Rules. The charter will be available on our website at http://www.tetralogicpharma.com. The information contained in, or that can be accessed through, our website is not part of this prospectus.

Code of Conduct for Employees, Executive Officers and Directors

        Prior to the consummation of this offering, we will adopt a Code of Conduct applicable to all of our employees, executive officers and directors. Following the consummation of this offering, the Code of Conduct will be available on our website at http://www.tetralogicpharma.com. The audit committee of our board of directors will be responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for employees, executive officers or directors. We expect that any amendments to the Code of Conduct, or any waivers of its requirements, will be disclosed on our website. The information contained in, or that can be accessed through, our website is not part of this prospectus.

Compensation Committee Interlocks and Insider Participation

        No member of our compensation committee has ever been an executive officer or employee of ours. None of our officers currently serves, or has served during the last completed year, on the board of directors, compensation committee or other committee serving an equivalent function, of any other entity that has one or more officers serving as a member of our board of directors or compensation committee.

134


Table of Contents


EXECUTIVE AND DIRECTOR COMPENSATION

Summary Compensation Table

        The following table sets forth information for the fiscal year ended December 31, 2012 concerning compensation of our former chief executive officer and two other executive officers who were serving as executive officers as of December 31, 2012. We refer to these three executives as our named executive officers.

Name and Principal Position
  Year   Salary
($)
  Bonus
($) (1)
  Stock
Awards
($) (2)
  All Other
Compensation
($) (3)
  Total
($)
 

John M. Gill (4)

                                     

Former President and Chief Executive Officer

    2012     412,638     115,539         2,031     530,208  

David E. Weng, M.D., Ph.D.

                                     

Chief Medical Officer and Senior Vice President of Clinical Development

    2012     341,250     68,250         2,031     411,531  

C. Glenn Begley, M.B.B.S., Ph.D., F.R.A.C.P., F.R.C.P.A., F.R.C.Path.

                                     

Chief Scientific Officer and Senior Vice President, Research & Development

    2012     216,833         144,000     688     361,521  

(1)
Represents annual bonus amounts paid pursuant to the named executive officers' employment agreements.

(2)
This amount reflects the aggregate grant date fair value of stock awards computed in accordance with FASB ASC Topic 718.

(3)
This amount reflects the amounts we pay towards the named executive officers' life insurance coverage.

(4)
Effective August 12, 2013, Mr. Gill resigned his employment with us and entered into both a Management Transition Agreement and a Consulting Agreement as described under the section "Employment Agreements" below.

Employment Agreements

        We have entered into employment and other service agreements with all of our named executive officers. The following is a summary of the material terms of each employment (or service) agreement. For complete terms, please see the respective employment and service agreements attached as exhibits to the registration statement of which this prospectus forms a part.

     John M. Gill

        We entered into a Management Transition Agreement with Mr. Gill, our former President and Chief Executive Officer, dated as of August 12, 2013, or the Transition Agreement, that sets forth the terms and conditions of the termination of Mr. Gill's employment with us and his employment agreement, including his eligibility to receive severance pay and certain other payments. Additionally, we entered into a Consulting Agreement with Mr. Gill dated August 12, 2013, or the Consulting Agreement, pursuant to which Mr. Gill will provide certain consulting services to us.

135


Table of Contents

        Pursuant to the Transition Agreement, and in exchange for Mr. Gill's release of any and all claims against us, Mr. Gill received:

    continuation of his base salary (at the rate of $34,386.50 per month) for fifteen months from August 12, 2013, or the Resignation Date;

    a $50,000 payment plus 1% of the amounts committed to be paid to us over three years pursuant to (i) partnership or collaboration agreements executed on or before December 31, 2013 with any entity with which Mr. Gill had substantive discussions over the 18 months immediately prior to the Resignation Date, that contractually commit payment to us over the first three years of such agreement(s) of no less than $15,000,000 of non-dilutive funding, and/or (ii) the first closing(s) of financings (including this offering) that contractually commit, on or prior to December 31, 2013, payment to us of no less than $20,000,000 from new investors over three years after such first closing(s) (not including the conversion of any notes held by investors as of August 12, 2013), including as commitments future closings of a tranched financing that are subject to the satisfaction of a funding milestones, in each case provided that the total amount committed to us pursuant to clauses (i) and (ii) during such three-year periods shall not total less than $35,000,000;

    accelerated vesting of all of his unvested restricted stock;

    an option to purchase 1,876,671 shares of our common stock (which was equal to 0.75% of our shares on a fully-diluted basis as of October 2, 2013 excluding options or restricted stock grants to Messrs. Buchi and Meyers and Dr. Russell), 1/3 of which vested upon our Chief Executive Officer's commencement of employment, 1/3 of which vests upon the achievement of the partnership and collaboration milestones described above, and the remaining 1/3 of which vests upon the achievement of the financing milestones described above, subject to accelerated vesting upon the occurrence of a Change in Control (as defined in our 2004 Equity Incentive Plan) on or before December 31, 2013; vested options will be exercisable for a period of five years from the date of grant; and

    an option to purchase 2,252,005 shares of our common stock (which was equal to 0.9% of our shares on a fully-diluted basis as of October 2, 2013, that vests at the rate of 0.03% upon commitment to us of each $1.0 million of either equity from new investors, which includes this offering, or non-equity funding that we raise in excess of the aggregate total of $35.0 million committed to us prior to December 31, 2013 to be paid during the three-year period described above relating to the partnership and collaboration agreement and financing commitment milestones, and subject to accelerated vesting upon the occurrence of a Change in Control (as defined in our 2004 Equity Incentive Plan) on or before December 31, 2013; vested options will be exercisable for a period of five years from the date of grant.

        Pursuant to the Consulting Agreement, Mr. Gill has agreed to be available to advise and assist us in a transition consulting capacity for a period of six months and for up to 64 hours per month for which he will be paid a monthly consulting fee of $13,754.60. Mr. Gill will provide consulting to us in the area of strategic collaborations between us and third parties for the China and East Asia markets, and general advice and counsel related to our institutional history and culture. Mr. Gill is subject to certain restrictive covenants, including non-competition, non-solicitation, intellectual property assignment and confidentiality under the terms of the Consulting Agreement.

136


Table of Contents

     David E. Weng

        On December 17, 2010, we entered into an employment agreement with David E. Weng, our Chief Medical Officer and Senior Vice President of Clinical Development. The principal terms of Dr. Weng's employment agreement are as follows:

    base salary of $300,000 per year (currently $341,250 per year);

    annual performance bonus in an amount up to 30.0% of base salary based upon the achievement of certain performance goals established by our President and Chief Executive Officer and/or our board of directors, plus any discretionary bonus that may be awarded to him by our board of directors or compensation committee of the board of directors; and

    restricted shares as described below under the heading "Outstanding Equity Awards at Fiscal Year-End".

        Upon a termination of Dr. Weng's employment by us without cause or a resignation by Dr. Weng for good reason, Dr. Weng is eligible to receive continuation of his base salary for six months, subject to his execution and delivery of a general release of claims.

        Dr. Weng is entitled to participate in all of our group welfare plans, subject to the terms and conditions applicable to such plans. Further, Dr. Weng has executed a Confidentiality, Assignment of Inventions and Non-Competition Agreement which contains customary non-solicitation and non-competition covenants, which covenants remain in effect for two years following any cessation of employment with respect to Dr. Weng.

        On July 24, 2013, our board of directors approved adjustments to Dr. Weng's terms of employment that will become effective on our first qualified financing, which includes this offering, provided that Dr. Weng remains employed by us through the date of such financing. Such adjustments include: (i) an increase to Dr. Weng's base salary to $360,000; (ii) a bonus of $40,000 payable upon the applicable financing; and (iii) an option to purchase 500,000 shares of our common stock.

     C. Glenn Begley

        On August 14, 2012, we entered into an employment agreement with C. Glenn Begley, our Chief Scientific Officer and Senior Vice President of Research and Development. Prior to Mr. Begley's employment by us, Mr. Begley consulted us on our research and development efforts. The principal terms of Mr. Begley's employment agreement are as follows:

    base salary of $335,000 per year;

    annual performance bonus in an amount up to 30.0% of base salary based upon the achievement of certain performance goals established by our President and Chief Executive Officer and/or our board of directors, plus any discretionary bonus that may be awarded to him by our board of directors or compensation committee of the board of directors; and

    restricted shares as described below under the heading "Outstanding Equity Awards at Fiscal Year-End."

        Upon a termination of Mr. Begley's employment by us without cause or a resignation by Mr. Begley for good reason, Mr. Begley is eligible to receive continuation of base salary for six months, subject to his execution and delivery of a general release of claims.

        Mr. Begley is entitled to participate in all of our group welfare plans, subject to the terms and conditions applicable to such plans. Further, Mr. Begley has executed a Confidentiality, Assignment of Inventions and Non-Competition Agreement which contains customary

137


Table of Contents

non-solicitation and non-competition covenants, which covenants remain in effect for two years following any cessation of employment with respect to Mr. Begley.

        On July 24, 2013, our board of directors approved adjustments to Mr. Begley's terms of employment that will become effective on our first qualified financing, which includes this offering, provided that Mr. Begley remains employed by us through the date of such financing. Such adjustments include: (i) an increase to Mr. Begley's base salary to $365,000; (ii) a bonus of $75,000, payable upon the applicable financing; (iii) an increase to Mr. Begley's annual performance bonus target from 30.0% to 35.0% ; and (iv) an option to purchase 1,253,000 shares of our common stock.

     J. Kevin Buchi

        On August 12, 2013, we entered into an employment agreement with J. Kevin Buchi, our President and Chief Executive Officer, or the Buchi Employment Agreement. The principal terms of Mr. Buchi's employment agreement are as follows:

    base salary of $450,000 per year;

    annual performance bonus in an amount up to 50.0% of base salary based upon the achievement of certain performance goals established by our board of directors, plus any discretionary bonus that may be awarded to him by our board of directors or the compensation committee of our board of directors;

    the grant to Mr. Buchi of a non-qualified stock option to purchase 13,748,504 shares of our common stock (which was equal to 5.0% of the fully diluted shares of all classes of our capital stock on October 2, 2013), or the Initial Buchi Option; and

    upon closing of each new issuance of capital stock, including the closing of this offering and pursuant to convertible instruments, in-the-money options (other than option shares already included in the calculation of the Initial Buchi Option) and in-the-money warrants, but not including Excluded Securities, as defined below, we will grant to Mr. Buchi additional options such that, together with the Initial Buchi Option, Mr. Buchi's total shares subject to stock option awards will be equal to 4.0% of the total issued and outstanding shares of our capital stock (including convertible instruments and in-the-money options (other than option shares already included in the calculation of the Initial Buchi Option) and in-the-money warrants) on a fully diluted basis; such additional option awards will be granted only with respect to each such financing up to and including the closing of this offering and will vest on the same basis as the Initial Buchi Option. Excluded Securities means: (1) the issuance of shares of, or options to purchase shares of, common stock to employees, consultants, officers or directors pursuant to any arrangement approved by our board of directors; (2) shares of capital stock issued upon the conversion of any convertible instruments or the exercise of any options or warrants; (3) the issuance of shares pursuant to the acquisition of another entity by us whereby we or our stockholders own not less than a majority of the voting power of the surviving or successor entity; and (4) shares of common stock issued upon conversion of shares of our preferred stock.

        Subject to Mr. Buchi's continued employment with us on each applicable vesting date, the Initial Buchi Option (and any subsequent option awards, as described above, and together with the Initial Buchi Option, the Buchi Options) will vest as follows: (i) 25.0% of the Buchi Options will vest on the earlier of: (A) the closing of this offering or (B) September 1, 2014 and (ii) the remaining Buchi Options will vest in equal monthly installments over a period of three years following the initial vesting date. The Buchi Options will become immediately vested and exercisable upon the occurrence of any of the following: (i) a Change in Control

138


Table of Contents

(as defined in our 2004 Equity Incentive Plan, except that the Original Issuance Exception of such definition shall be deemed to apply to original issuances of our voting capital stock which are approved by at least a majority of our board of directors), (ii) Mr. Buchi's death or permanent disability (as defined in the Buchi Employment Agreement), (iii) a termination by us without "cause" (as defined in the Buchi Employment Agreement) or (iv) a resignation by Mr. Buchi for "good reason" (as defined in the Buchi Employment Agreement).

        Upon a termination of Mr. Buchi's employment by us without cause or a resignation by Mr. Buchi for good reason, Mr. Buchi is eligible to receive continuation of 1.5 times his monthly base salary for 18 months, subject to his execution and delivery of a general release of claims.

        Mr. Buchi is entitled to participate in all of our group welfare plans, subject to the terms and conditions applicable to such plans. Further, Mr. Buchi has executed a Confidentiality, Assignment of Inventions and Non-Competition Agreement which contains confidentiality, invention assignment covenants, and certain non-solicitation and non-competition covenants effective during his term of employment by us.

     Pete A. Meyers

        On August 12, 2013, we entered into an employment agreement with Pete A. Meyers, our Chief Financial Officer and Treasurer, or the Meyers Employment Agreement. The principal terms of Mr. Meyers' employment agreement are as follows:

    base salary of $350,000 per year which shall be increased to $365,000 upon the closing of a Qualified Financing, which shall mean (i) investments from an investor or a group of investors aggregating at least $25.0 million, excluding any principal and interest on our convertible bridge notes outstanding as of August 12, 2013, or the Meyers Notes, converted into equity securities in such financing or (ii) a combination of (a) equity investments from an investor or a group of investors aggregating at least $10.0 million, excluding any principal and interest on the Meyers Notes converted into equity securities in such financing and (b) on or before the date of such financing, commitments pursuant to one or more definitive collaboration agreements with third parties pursuant to which such third parties will provide us with no less than $15.0 million in guaranteed and non-contingent non-dilutive funding;

    annual performance bonus in an amount up to 40.0% of base salary based upon the achievement of certain performance goals established by our board of directors, plus any discretionary bonus that may be awarded to him by our board of directors or the compensation committee of our board of directors;

    the grant to Mr. Meyers of a non-qualified stock option to purchase 5,499,402 shares of our common stock (which was equal to 2.0% of the fully diluted shares of all classes of our capital stock on October 2, 2013), or the Initial Meyers Option; and

    upon closing of each new issuance of capital stock, including the closing of this offering and pursuant to convertible instruments, in-the-money options (other than option shares already included in the calculation of the Initial Meyers Option) and in-the-money warrants, but not including Excluded Securities, as defined above, we will grant to Mr. Meyers additional options such that, together with the Initial Meyers Option, Mr. Meyers' total shares subject to stock option awards will be equal to 2.0% of the total issued and outstanding shares of our capital stock (including convertible instruments and in-the-money options (other than option shares already included in the calculation of the Initial Meyers Option) and in-the-money warrants) on a fully diluted basis; such additional option awards will be granted only with respect to each such

139


Table of Contents

      financing up to and including the closing of this offering and will vest on the same basis as the Initial Meyers Option.

        Subject to Mr. Meyers' continued employment with us on each applicable vesting date, the Initial Meyers Option (and any subsequent option awards, as described above, and together with the Initial Meyers Option, the Meyers Options) will vest as follows: (i) 25.0% of the Meyers Options will vest on the earlier of: (A) the closing of this offering or (B) September 1, 2014 and (ii) the remaining Meyers Options will vest in equal monthly installments over a period of three years following the initial vesting date. The Meyers Options will become immediately vested and exercisable upon the occurrence of any of the following: (i) a Change in Control (as defined in our 2004 Equity Incentive Plan, except that the Original Issuance Exception of such definition shall be deemed to apply to original issuances of our voting capital stock which are approved by at least a majority of our board of directors), (ii) Mr. Meyers' death or permanent disability (as defined in the Meyers Employment Agreement), (iii) a termination by us without "cause" (as defined in the Meyers Employment Agreement) or (iv) a resignation by Mr. Meyers for "good reason" (as defined in the Meyers Employment Agreement).

        Upon a termination of Mr. Meyers' employment by us without cause or a resignation by Mr. Meyers for good reason, Mr. Meyers is eligible to receive continuation of 1.4 times his monthly base salary for 12 months (to be increased to 18 months upon the closing of this offering), subject to his execution and delivery of a general release of claims.

        Mr. Meyers is entitled to participate in all of our group welfare plans, subject to the terms and conditions applicable to such plans. Further, Mr. Meyers has executed a Confidentiality, Assignment of Inventions and Non-Competition Agreement which contains confidentiality, invention assignment covenants, and certain non-solicitation and non-competition covenants, which covenants are effective during his term of employment by us.

     Lesley Russell

        On August 12, 2013, we entered into an employment agreement with Lesley Russell, our Chief Operating Officer, or the Russell Employment Agreement. The principal terms of Dr. Russell's employment agreement are as follows:

    base salary of $350,000 per year which shall be increased to $365,000 upon the closing of a Qualified Financing, as defined above;

    annual performance bonus in an amount up to 40.0% of base salary based upon the achievement of certain performance goals established by our board of directors, plus any discretionary bonus that may be awarded to her by our board of directors or the compensation committee of our board of directors;

    the grant to Dr. Russell of a non-qualified stock option to purchase 5,499,402 shares of our common stock (which was equal to 2.0% of the fully diluted shares of all classes of our capital stock on October 2, 2013), or the Initial Russell Option; and

    upon closing of each new issuance of capital stock, including the closing of this offering and pursuant to convertible instruments, in-the-money options (other than option shares already included in the calculation of the Initial Russell Option) and in-the-money warrants, but not including Excluded Securities, as defined above, we will grant to Dr. Russell additional options such that, together with the Initial Russell Option, Dr. Russell's total shares subject to stock option awards will be equal to 2.0% of the total issued and outstanding shares of our capital stock (including convertible instruments and in-the-money options (other than option shares already included in the calculation of the Initial Russell Option) and in-the-money warrants) on a fully diluted

140


Table of Contents

      basis; such additional option awards will be granted only with respect to each such financing up to and including the closing of this offering and will vest on the same basis as the Initial Russell Option.

        Subject to Dr. Russell's continued employment with us on each applicable vesting date, the Initial Russell Option (and any subsequent option awards, as described above, and together with the Initial Russell Option, the Russell Options) will vest as follows: (i) 25.0% of the Russell Options will vest on the earlier of: (A) the closing of this offering or (B) September 1, 2014 and (ii) the remaining Russell Options will vest in equal monthly installments over a period of three years following the initial vesting date. The Russell Options will become immediately vested and exercisable upon the occurrence of any of the following: (i) a Change in Control (as defined in our 2004 Equity Incentive Plan, except that the Original Issuance Exception of such definition shall be deemed to apply to original issuances of our voting capital stock which are approved by at least a majority of our board of directors), (ii) Dr. Russell's death or permanent disability (as defined in the Russell Employment Agreement), (iii) a termination by us without "cause" (as defined in the Russell Employment Agreement) or (iv) a resignation by Dr. Russell for "good reason" (as defined in the Russell Employment Agreement).

        Upon a termination of Dr. Russell's employment by us without cause or a resignation by Dr. Russell for good reason, Dr. Russell is eligible to receive continuation of 1.4 times her monthly base salary for 12 months (to be increased to 18 months upon the closing of this offering), subject to her execution and delivery of a general release of claims.

        Dr. Russell is entitled to participate in all of our group welfare plans, subject to the terms and conditions applicable to such plans. Further, Dr. Russell has executed a Confidentiality, Assignment of Inventions and Non-Competition Agreement which contains confidentiality, invention assignment covenants, and certain non-solicitation and non-competition covenants effective during her term of employment by us.

     Potential Payments Upon a Termination or Change in Control

        As discussed under the caption "Employment Agreements" above, we have agreements with our named executive officers, as well as Messrs. Buchi and Meyers and Dr. Russell, pursuant to which they will receive severance payments upon certain termination events. The information below describes and quantifies certain compensation that would be available under our existing plans and arrangements if (i) the named executive officer was terminated as of December 31, 2012 or (ii) if a Change in Control, as defined herein, occurred on December 31, 2012 and the named executive officer had been subsequently terminated on the same date.

     Acceleration of Equity Awards

        Pursuant to the terms of each named executive officer's restricted stock agreements and employment agreements, in the event of a Change in Control (as such term is defined in our 2004 Equity Incentive Plan, except that the Original Issuance Exception of such definition shall be deemed to apply to original issuances of our voting capital stock which are approved by at least a majority of our board of directors) that occurs during any time prior to such named executive officer's termination of employment with us, all or a portion of the executive's then unvested restricted stock shall fully vest. See "Equity Benefit Plans—2004 and 2013 Equity Incentive Plan—Change in Control" below for a summary of the definition of a Change in Control under the 2004 Equity Incentive Plan.

141


Table of Contents

        In connection with Mr. Gill's Transition Agreement, all of his unvested restricted shares became fully vested.

        With respect to Dr. Weng's restricted stock grant of 1,500,000 shares made on November 23, 2010, upon a Change in Control all unvested shares will fully vest. With respect to Dr. Weng's restricted stock grant of 1.0 million shares made on April 8, 2010, upon a Change in Control 50.0% of the then unvested shares will become vested, with the remaining shares becoming vested on the first anniversary of the Change in Control, or upon Dr. Weng's termination of employment, if earlier.

        With respect to Mr. Begley's restricted stock grant of 2,400,000 shares made on August 14, 2012, upon a Change in Control all unvested shares will fully vest. With respect to Mr. Begley's restricted stock grant of 800,000 shares made on April 25, 2012, all unvested shares will become fully vested on the first anniversary of the Change in Control, or upon Mr. Begley's termination of employment by us without cause, if earlier.

     Potential Payments

        The table below summarizes the payments and benefits that each of our named executive officers would have been entitled to receive if his last day of employment with us had been December 31, 2012.

Name
  Cash
Severance
Payment ($)
  Accelerated
Stock
Vesting ($)
  Total ($)  

John Gill (1)

                   

Voluntary termination for good reason or involuntary termination without cause

    412,638  (2)       412,638  

No termination following a change in control

        106,661  (3)   106,661  

Voluntary termination for good reason or involuntary termination without cause following a change in control

    412,638  (2)   111,273  (4)   523,911  

Death

        111,273  (4)   111,273  

Permanent disability

             

David Weng

                   

Voluntary termination for good reason or involuntary termination without cause

    170,625  (2)       170,625  

No termination following a change in control

        60,938  (3)   60,938  

Voluntary termination for good reason or involuntary termination without cause following a change in control

    170,625  (2)   68,438  (4)   239,063  

Death

        68,438  (4)   68,438  

Permanent disability

             

C. Glenn Begley

                   

Involuntary termination without cause

    108,417  (2)       108,417  

No termination following a change in control

        162,000  (3)   162,000  

Involuntary termination without cause following a change in control

    108,417  (2)   198,000  (4)   270,417  

Death

        162,000  (3)   162,000  

Permanent disability

             

(1)
Mr. Gill's employment with us ceased August 12, 2013. The amounts reflected in the table above and described in the following footnotes reflect amounts payable to Mr. Gill had his employment ceased on December 31, 2012. For a description of the amounts payable to Mr. Gill in connection with his termination of employment, refer to the section "Employment Agreements" above.

142


Table of Contents

(2)
This amount represents, in the case of Mr. Gill, 12 months of base salary, and in the case of Messrs. Weng and Begley, six months of base salary, each at the rate in effect immediately prior to the executive's termination of employment.

(3)
This represents the value of the previously unvested restricted shares using the independent valuation of $0.09 per share as of December 31, 2012. For Mr. Gill, this represents the vesting of 1,133,877 previously unvested shares subject to his November 23, 2010 restricted stock grant, and one-half of the 102,488 shares previously unvested shares subject to his March 31, 2007 restricted stock grant. For Dr. Weng, this represents the vesting of 593,750 previously unvested shares subject to his November 23, 2010 restricted stock grant, and one-half of the 166,676 shares previously unvested shares subject to his April 8, 2010 restricted stock grant. For Mr. Begley, this represents the vesting of 1,799,997 previously unvested shares subject to his August 14, 2012 restricted stock grant.

(4)
This represents the value of the previously unvested restricted shares using the independent valuation of $0.09 per share as of December 31, 2012. For Mr. Gill, this represents the full vesting of 1,236,365 previously unvested shares subject to his March 31, 2007 and November 23, 2010 restricted stock grants. For Dr. Weng, this represents the full vesting of 760,426 previously unvested shares subject to his April 8, 2010 and November 23, 2010 restricted stock grants. For Mr. Begley, this represents the full vesting of 2,199,997 previously unvested shares subject to his April 25, 2012 and August 14, 2012 restricted stock grants.

        With respect to Messrs. Buchi and Meyers and Dr. Russell, see "Employment Agreements" above for a discussion of the benefits to which each would be entitled in the event that their employment is terminated for any reason other than for cause, death, or disability, or if they resign for good reason.

     Risk Considerations in Our Compensation Program

        Our board of directors is evaluating the philosophy and standards on which our compensation plans will be implemented. It is our belief that our compensation programs do not, and in the future will not, encourage inappropriate actions or risk taking by our executive officers. We do not believe that any risks arising from our employee compensation policies and practices are reasonably likely to have a material adverse effect on us. In addition, we do not believe that the mix and design of the components of our executive compensation program will encourage management to assume excessive risks. We believe that our current business process and planning cycle fosters the behaviors and controls that would mitigate the potential for adverse risk caused by the action of our executives.

Outstanding Equity Awards at Fiscal Year-End

        The following table provides information regarding equity awards held by each of our named executive officers that were outstanding as of December 31, 2012. Dollar values are based on the independent valuation of our common stock of $0.09 per share as of December 31, 2012.

Name
  Number of
Shares or
Units of Stock
That Have Not
Vested
(#)
  Market Value
of Shares or
Units of Stock
That Have
Not Vested
($)
 

John Gill

    102,488  (1)   9,224  

    1,113,877  (2)   102,049  

David Weng

    166,676  (3)   15,001  

    593,750  (4)   53,438  

C. Glenn Begley

    1,799,997  (5)   162,000  

    400,000  (6)   36,000  

(1)
These restricted shares vest monthly in substantially equal installments over four years commencing January 1, 2010.

143


Table of Contents

(2)
Approximately 2.22% of these restricted shares vest monthly in substantially equal installments over 45 months commencing November 26, 2010; 1,133,855 shares subject to this award were vested upon grant.

(3)
Approximately 2.78% of these restricted shares vest monthly in substantially equal installments over 36 months commencing September 1, 2010; 250,000 shares subject to this award vested on August 1, 2010.

(4)
Approximately 2.22% of these restricted shares vest monthly in substantially equal installments over 45 months commencing November 26, 2010; 93,750 shares subject to this award were vested upon grant.

(5)
Approximately 3.23% of these restricted shares vest monthly in substantially equal installments over 31 months commencing September 1, 2012; 333,335 of the shares subject to this award vested on August 31, 2012.

(6)
These restricted shares vested on February 1, 2013.

Equity Benefit Plans

     2004 and 2013 Equity Incentive Plan

        Our board of directors adopted our 2004 Equity Incentive Plan in 2004 for the purpose of attracting key employees, directors and consultants, inducing them to remain with us and encouraging them to increase their efforts to make our business more successful. Our 2004 Equity Incentive Plan provides for the grant of stock options and restricted stock to our employees, directors and consultants. As of June 30, 2013, 35,315,057 shares of common stock were reserved for issuance pursuant to our 2004 Equity Incentive Plan, subject to adjustment as set forth in the plan, of which 2,746,595 shares were available for future grant. On October 2, 2013, our board of directors approved the reservation of an additional 28,875,984 shares of common stock for issuance under our 2004 Equity Incentive Plan, in connection with the grant of non-qualified stock options to new members of our executive management and our former President and Chief Executive Officer. Following the adoption of the 2013 Equity Incentive Plan, we may not make any further grants under the 2004 Equity Incentive Plan, but all outstanding awards under the 2004 Equity Incentive Plan will continue to vest and be exercisable in accordance with their original terms.

        In connection with this offering, we expect to adopt, and our stockholders to approve, our 2013 Equity Incentive Plan. The 2013 Equity Incentive Plan is expected to provide for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, or RSUs, and performance awards. Our directors, officers and consultants will be eligible for grants under the 2013 Equity Incentive Plan. The purpose of the 2013 Equity Incentive Plan will be to provide incentives that attract, retain and motivate high-performing officers, directors, employees and consultants by providing them a proprietary interest in our long-term success or compensation based on their performance in fulfilling their responsibilities to our company. This summary may not include all of the provisions of the 2013 Equity Incentive Plan. For further information about the 2013 Equity Incentive Plan, we refer you to the complete copy of the form of the 2013 Equity Incentive Plan, which we intend to file as an exhibit to the registration statement of which this prospectus forms a part.

        Administration.    The 2013 Equity Incentive Plan will be administered by a committee designated by our board of directors. The committee's powers will include: (i) determining the form, amount and other terms and conditions of awards; (ii) construing or interpreting any provision of the 2013 Equity Incentive Plan or any award agreement; (iii) amending the terms of outstanding awards; and (iv) adopting such rules, guidelines and practices for administering the 2013 Equity Incentive Plan as it deems advisable. The committee will have full authority to administer and interpret the 2013 Equity Incentive Plan, to grant discretionary awards under the 2013 Equity Incentive Plan, to determine the persons to whom awards will be granted, to determine the types of awards to be granted, to determine the terms and conditions of each award, to determine the number of shares of common stock to be covered by each award, to make all other determinations in connection with the 2013 Equity Incentive Plan and the awards thereunder as the committee deems necessary or desirable and to delegate authority under the 2013 Equity Incentive Plan to our executive officers.

144


Table of Contents

        Available shares.    Initially, the aggregate number of shares of our common stock that may be issued pursuant to awards under the 2013 Equity Incentive Plan is the sum of (1)              shares, plus (2) the number of shares reserved for issuance under our 2004 Equity Incentive Plan at the time our 2013 Equity Incentive Plan becomes effective, plus (3) any shares subject to stock options or restricted stock awards granted under our 2004 Equity Incentive Plan that would have otherwise returned to our 2004 plan (such as upon the expiration or termination of a stock option award prior to vesting).

        All shares subject to the 2013 Equity Incentive Plan may be issued upon the exercise of incentive stock options. No person may be granted in a calendar year a performance stock award covering more than             shares. Such limitations are designed to help assure that any deductions to which we would otherwise be entitled with respect to such awards will not be subject to the $1.0 million limitation on the income tax deductibility by us of compensation paid to any covered executive officer imposed by Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, or the Code.

        The number of shares available for issuance under the 2013 Equity Incentive Plan may be subject to adjustment in the event of a reorganization, stock split, merger or similar change in our corporate structure or the number of outstanding shares of our common stock. In the event of any of these occurrences, we will make equitable adjustments to, among other things, the number and kind of shares, options or other property available for issuance under the plan or covered by grants previously made under the plan. The shares available for issuance under the plan may be, in whole or in part, either authorized and unissued shares of our common stock or shares of common stock held in or acquired for our treasury. In general, if awards under the 2013 Equity Incentive Plan are for any reason cancelled, or expire or terminate unexercised, the shares covered by such awards may again be available for the grant of awards under the 2013 Equity Incentive Plan.

        Eligibility for participation.    Members of our board of directors, as well as employees of, and consultants to, us or any of our subsidiaries and affiliates will be eligible to receive awards under the 2013 Equity Incentive Plan.

        Award agreements.    Awards granted under the 2013 Equity Incentive Plan will be evidenced by award agreements, which need not be identical, and that provide additional terms, conditions, restrictions or limitations covering the grant of the award, including, without limitation, additional terms providing for the acceleration of exercisability or vesting of awards in the event of a change in control or conditions regarding the participant's employment, as determined by the committee.

        Stock options.    The committee may grant nonqualified stock options to any individuals eligible to participate in the 2013 Equity Incentive Plan and incentive stock options to purchase shares of our common stock only to eligible employees. The committee will determine: (i) the number of shares of our common stock subject to each option; (ii) the term of each option, which may not exceed ten years, or five years in the case of an incentive stock option granted to a 10.0% or greater stockholder; (iii) the exercise price; (iv) the vesting schedule, if any and (v) the other material terms of each option. No incentive stock option or nonqualified stock option may have an exercise price less than the fair market value of a share of our common stock at the time of grant or, in the case of an incentive stock option granted to a 10.0% or greater stockholder, 110.0% of such share's fair market value. Options will be exercisable at such time or times and subject to such terms and conditions as determined by the committee at the time of grant and the exercisability of such options may be accelerated by the committee.

145


Table of Contents

        Stock appreciation rights.    The committee may grant stock appreciation rights, or SARs, representing the right to receive a payment in shares of our common stock or cash, as determined by the committee, equal in value to the excess of the fair market value of one share of our common stock on the date of exercise over the exercise price per share established in connection with the grant of the SAR. The term of each SAR may not exceed ten years. The exercise price per share covered by a SAR will be the fair market value of our common stock on the date of grant.

        Restricted stock.    The committee may award shares of restricted stock. Except as otherwise provided by the committee upon the award of restricted stock, the recipient generally will have the rights of a stockholder with respect to the shares, including the right to receive dividends, the right to vote the shares of restricted stock and, conditioned upon full vesting of shares of restricted stock, the right to tender such shares, subject to the conditions and restrictions generally applicable to restricted stock or specifically set forth in the recipient's restricted stock agreement. The committee may determine at the time of award that the payment of dividends, if any, will be deferred until the expiration of the applicable restriction period. Recipients of restricted stock will be required to enter into a restricted stock agreement with us that states the restrictions to which the shares are subject, which may include satisfaction of pre-established performance goals, and the criteria or date or dates on which such restrictions will lapse. If the grant of restricted stock or the lapse of the relevant restrictions is based on the attainment of performance goals, the committee will establish for each recipient the applicable performance goals, formulae or standards and the applicable vesting percentages with reference to the attainment of such goals or satisfaction of such formulae or standards while the outcome of the performance goals are substantially uncertain. Such performance goals may incorporate provisions for disregarding, or adjusting for, changes in accounting methods, corporate transactions, including, without limitation, dispositions and acquisitions, and other similar events or circumstances. Section 162(m) of the Code requires that performance awards be based upon objective performance measures. The performance goals for performance-based restricted stock will be based on one or more of the objective criteria discussed in general below.

        RSUs.    RSUs are granted in reference to a specified number of shares of common stock and entitle the holder to receive, on achievement of specific performance goals, after a period of continued service or any combination of the above as set forth in the applicable award agreement, one share of common stock for each such share of common stock covered by the RSU. The board may, in its discretion, accelerate the vesting of RSUs. If the grant of RSUs or the lapse of the relevant restrictions is based on the attainment of performance goals, the committee will establish for each recipient the applicable performance goals, formulae or standards and the applicable vesting percentages with reference to the attainment of such goals or satisfaction of such formulae or standards while the outcome of the performance goals are substantially uncertain. Such performance goals may incorporate provisions for disregarding, or adjusting for, changes in accounting methods, corporate transactions, including, without limitation, dispositions and acquisitions, and other similar events or circumstances. Section 162(m) of the Code requires that performance awards be based upon objective performance measures. The performance goals for performance-based restricted stock will be based on one or more of the objective criteria discussed in general below.

        Performance awards.    The committee may grant a performance award to a participant payable upon the attainment of specific performance goals. The committee may grant performance awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code as well as performance awards that are not intended to qualify as performance-based compensation under Section 162(m) of the Code. Based on service,

146


Table of Contents

performance or other factors or criteria, the committee may, at or after grant, accelerate the vesting of all or any part of any performance award.

        Performance goals.    The committee may grant awards of restricted stock, performance awards, and RSUs that are intended to qualify as performance-based compensation for purposes of Section 162(m) of the Code. These awards may be granted, vest and be paid based on attainment of specified performance goals established by the committee. These performance goals may be based upon one or more of the following measures selected by the committee: (1) the attainment of certain target levels of, or a specified increase in, operational cash flow; (2) the achievement of a certain level of, reduction of, or other specified objectives with regard to limiting the level of increase in, all or a portion of, our bank debt or other long-term or short-term public or private debt or other similar financial obligations, which may be calculated net of such cash balances and/or other specified offsets; (3) appreciation in and/or maintenance of certain target levels in the fair market value of our common stock; (4) the attainment of a certain level of, reduction of, or other specified objectives with regard to limiting the level of or rate of increase in all or a portion of specified expenses; and (5) individual objectives; and any combination of the foregoing.

        To the extent permitted by law, the committee may also exclude the impact of an event or occurrence which the committee determines should be appropriately excluded, such as (i) restructurings, discontinued operations, extraordinary items and other unusual or non-recurring charges; (ii) an event either not directly related to our operations or not within the reasonable control of management or (iii) a change in tax law or accounting standards required by GAAP. In addition, all performance goals may be based upon the attainment of specified levels of our performance, or the performance of a subsidiary, division or other operational unit, under one or more of the measures described above relative to the performance of other corporations. The committee may designate additional business criteria on which the performance goals may be based or adjust, modify or amend those criteria.

        Change in control.    In connection with a change in control, as will be defined in the 2013 Equity Incentive Plan, the committee may, on a participant-by-participant basis (i) cause any outstanding awards to become vested and immediately exercisable, in whole or in part; (ii) cause any outstanding option to become fully vested and immediately exercisable for a reasonable period in advance of the change in control and, to the extent not exercised prior to that change in control, cancel that option upon closing of the change in control; (iii) cancel any unvested award or unvested portion thereof, with or without consideration; (iv) cancel any award in exchange for a substitute award; (v) redeem any RSU for cash and/or other substitute consideration with value equal to the fair market value of an unrestricted share on the date of the change in control; (vi) cancel any option in exchange for cash and/or other substitute consideration with a value equal to: (A) the number of shares subject to that option, multiplied by (B) the difference, if any, between the fair market value per share on the date of the change in control and the exercise price of that option; provided that if the fair market value per share on the date of the change in control does not exceed the exercise price of any such option, the committee may cancel that option without any payment of consideration; and/or (vii) take such other action as the committee determines to be reasonable under the circumstances; provided that the committee may only use discretion to the extent permitted under Section 409A of the Code.

        Under our 2004 Equity Incentive Plan, a Change in Control means the happening of an event, which shall be deemed to have occurred upon the earliest to occur of the following events: (i) the date our stockholders (or the board of directors, if stockholder action is not required) approve a plan or other arrangement pursuant to which we will be dissolved or liquidated; (ii) the date our stockholders (or the board of directors, if stockholder action is not

147


Table of Contents

required) approve a definitive agreement to sell or otherwise dispose of all or substantially all of our assets; (iii) the date our stockholders (or the board of directors, if stockholder action is not required) and the stockholders of the other constituent corporations (or their respective boards of directors, if and to the extent that stockholder action is not required) have approved a definitive agreement to merge or consolidate us with or into another corporation, other than, in either case, a merger or consolidation in which our stockholders immediately prior to the merger or consolidation will have at least 50.0% of the ownership of voting capital stock of the surviving corporation immediately after the merger or consolidation (on a fully diluted basis), which voting capital stock is to be held in the same proportion (on a fully diluted basis) as such holders' ownership of our voting capital stock immediately before the merger or consolidation; (iv) the date any entity, Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than (A) us, or (B) any of our subsidiaries, or (C) any of the holders of our capital stock, as determined on the date that the 2004 plan was adopted by the board of directors, or (D) any employee benefit plan (or related trust) sponsored or maintained by us or any of our subsidiaries or (E) any affiliate (as such term is defined in Rule 405 promulgated under the Securities Act) of any of the foregoing, shall have acquired beneficial ownership of, or shall have acquired voting control over more than 50.0% of our outstanding shares of voting capital stock (on a fully diluted basis), unless the transaction pursuant to which such person, entity or group acquired such beneficial ownership or control resulted from the original issuance by us of shares of our voting capital stock and was approved by at least a majority of our board of directors who shall have been either members of the board of directors on the date that the 2004 plan was adopted by the board of directors or members of the board of directors for at least 12 months prior to the date of such approval (the "Original Issuance Exception"); provided, however, that on and after the date our shares become publicly traded, the Original Issuance Exception shall not apply to any entity, person or group identified in subsections (C) or (E) above; (v) a change in the composition of the board of directors such that a majority of the board of directors shall have been members of the board of directors for less than 12 months, unless the nomination for election of each new director who was not a director at the beginning of such 12-month period was approved by a vote of at least 60.0% of the directors then still in office who were directors at the beginning of such period; or (vi) the date upon which the board of directors determines (in its sole discretion) that based on then current available information, the events described in clause (iv) are reasonably likely to occur.

        Under the 2013 Equity Incentive Plan, a Change in Control means the happening of an event, which shall be deemed to have occurred upon the earliest to occur of the following events: (i) any person or group acquires (in one or more transactions) beneficial ownership of our stock possessing 50.0% or more of the total power to vote for the election of our board of directors; (ii) a majority of the members of our board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of our board of directors prior to the date of the appointment or election; (iii) a merger or consolidation with another corporation where our shareholders immediately prior to such transaction will not beneficially own stock possessing 50.0% or more of the total power to vote for the election of the surviving corporation's board of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote) immediately after such transaction; (iv) any person or group acquires all or substantially all of our assets; (v) we complete a full liquidation or dissolution; or (vi) our stockholders accept a share exchange, whereby stockholders immediately before such exchange do not (or will not) directly or indirectly own more than 50.0% of the combined voting power of the surviving entity immediately following such exchange in substantially the same proportion as their ownership immediately before such exchange.

148


Table of Contents

        Stockholder rights.    Except as otherwise provided in the applicable award agreement, and with respect to an award of restricted stock, a participant will have no rights as a stockholder with respect to shares of our common stock covered by any award until the participant becomes the record holder of such shares.

        Amendment and termination.    Notwithstanding any other provision of the 2013 Equity Incentive Plan, our board of directors may at any time amend any or all of the provisions of the 2013 Equity Incentive Plan, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided in the 2013 Equity Incentive Plan, the rights of a participant with respect to awards granted prior to such amendment, suspension or termination may not be adversely affected without the consent of such participant.

        Transferability.    Awards granted under the 2013 Equity Incentive Plan generally will be nontransferable, other than by will or the laws of descent and distribution, except that the committee may provide for the transferability of nonqualified stock options at the time of grant or thereafter to certain family members.

        Repricing.    The committee may not, without obtaining prior approval of our stockholders: (i) implement any cancellation/re-grant program pursuant to which outstanding options under the 2013 Equity Incentive Plan are cancelled and new options are granted in replacement with a lower exercise per share, (ii) cancel outstanding options under the 2013 Equity Incentive Plan with exercise per share in excess of the then current fair market value per share for consideration payable in our equity securities or (iii) otherwise directly reduce the exercise price in effect for outstanding options under the 2013 Equity Incentive Plan.

        Effective date.    We expect that the 2013 Equity Incentive Plan will be adopted and become effective in connection with the completion of this offering.

Non-Equity Incentive Compensation

     TetraLogic Pharmaceuticals Corporation Performance Bonus Plan

        In connection with this offering we intend to adopt the TetraLogic Pharmaceuticals Corporation Performance Bonus Plan, or the Performance Bonus Plan, effective prior to the closing of the offering. The Performance Bonus Plan will be administered by the compensation committee. The purpose of the Performance Bonus Plan is to benefit and advance our interests, by rewarding selected employees of ours and our affiliates for their contributions to our financial success and thereby motivate them to continue to make such contributions in the future by granting performance-based awards that are fully tax deductible to us. A summary of the material terms of such plan is described below.

        Background.    Section 162(m) of the Code disallows a deduction to us for any compensation paid to certain named executive officers in excess of $1.0 million per year, subject to certain exceptions. Among other exceptions, the deduction limit does not apply to compensation that meets the specified requirements for "performance-based compensation." In general, those requirements include the establishment of objective performance goals for the payment of such compensation by a committee of the board composed solely of two or more outside directors, stockholder approval of the material terms of such compensation prior to payment, and certification by the compensation committee that the performance goals for the payment of such compensation have been achieved.

        The board believes that it is in our best interests and those of our stockholders to enhance our ability to attract and retain qualified personnel through performance based

149


Table of Contents

incentive, while at the same time obtaining the highest level of deductibility of compensation paid to employees.

        Administration.    Subject to the other provisions of the Performance Bonus Plan, the compensation committee has the authority to administer, interpret and apply the Performance Bonus Plan, including the authority to select the employees (including employees who are directors) to participate in the Performance Bonus Plan, to establish the performance goals, to determine the amount of incentive compensation bonus payable to any participant, to determine the terms and conditions of any such incentive opportunity; to make all determinations and take all other actions necessary or appropriate for proper administration and operation of the Performance Bonus Plan and to establish and amend rules and regulations relating to the Performance Bonus Plan.

        The compensation committee may also delegate to one or more of our executive officers the authority to administer the Performance Bonus Plan with respect to any participants who are not subject to Section 162(m) of the Code.

        Eligibility.    The named executive officers and such other of our employees as selected by the compensation committee are eligible to participate in the Performance Bonus Plan. The maximum amount of the incentive compensation bonuses payable to any participant under the Performance Bonus Plan in, or in respect of, any single fiscal year shall not exceed $              million. All incentive compensation bonuses paid pursuant to the Performance Bonus Plan will be paid in cash.

        Bonus Opportunity and Performance Goals.    Bonuses may be payable to a participant as a result of the satisfaction of performance goals in respect of any performance period determined by the compensation committee; provided that, to the extent a participant would be subject to Section 162(m) of the Code, the performance goals will be set in accordance with the regulations under Section 162(m) of the Code. Performance goals, which may vary among and between participants, may include objectives stated with respect to us, an affiliated company or a business unit and such objectives are limited to one or more of the following: (1) the attainment of certain target levels of, or a specified increase in, operational cash flow; (2) the achievement of a certain level of, reduction of, or other specified objectives with regard to limiting the level of increase in, all or a portion of, our bank debt or other long-term or short-term public or private debt or other similar financial obligations, which may be calculated net of such cash balances and/or other specified offsets; (3) appreciation in and/or maintenance of certain target levels in the fair market value of our common stock; (4) the attainment of a certain level of, reduction of, or other specified objectives with regard to limiting the level of or rate of increase in all or a portion of specified expenses; (5) individual objectives; and (6) any combination of the foregoing.

        The compensation committee shall provide a threshold level of performance below which no incentive compensation bonus will be paid, as well as a maximum level of performance above which no additional incentive compensation bonus will be paid. It also may provide for the payment of differing amounts for different levels of performance, determined with regard either to a fixed monetary amount or a percentage of the participant's base salary. The compensation committee shall make such adjustments, to the extent it deems appropriate, to established performance goals and performance thresholds to compensate for, or to reflect, any material changes which may have occurred due to an Extraordinary Event (as defined below); provided, however, that no such adjustment may be made unless such adjustment would be permissible under Section 162(m) of the Code. Accordingly, an Extraordinary Event under the Performance Bonus Plan is defined as follows:

    material changes in accounting practices, tax laws, other laws or regulations;

150


Table of Contents

    material changes in our financial structure;

    an acquisition or disposition of one of our subsidiaries or divisions; or

    unusual circumstances outside of our management's control which, in the sole judgment of the compensation committee, alters or affects (i) the computation of such established performance goals and performance thresholds, (ii) our performance or (iii) the performance of a relevant subsidiary or division.

        As soon as practicable after the end of each performance period, but before any incentive compensation bonuses are paid to the participants under the Performance Bonus Plan, the compensation committee will certify in writing (i) whether the performance goal(s) were attained and (ii) the amount of the incentive compensation bonus payable to each participant based upon the attainment of such specified performance goals. The compensation committee also may reduce, eliminate, or, with respect only to participants who are not subject to Section 162(m) of the Code, increase the amount of any incentive compensation bonus of any participant at any time prior to payment thereof, based on such criteria as the compensation committee shall determine, including but not limited to individual merit and attainment of, or the failure to attain, specified personal goals established by the compensation committee. Under no circumstances, however, may the compensation committee, with respect solely to a participant who is subject to Section 162(m) of the Code, (a) increase the amount of the incentive compensation otherwise payable to such participant beyond the amount originally established by the compensation committee, (b) waive the attainment of the performance goals established and applicable to such participant's incentive compensation or (c) otherwise exercise its discretion so as to cause any incentive compensation bonus payable to such participant to not qualify as "performance-based compensation" under Section 162(m) of the Code.

        All amounts due under the Performance Bonus Plan shall be paid within 21/2 months of the end of the year in which such incentive compensation is no longer subject to a risk of forfeiture. The board, without the consent of any participant, may amend or terminate the Performance Bonus Plan at any time. However, no amendment that would require the consent of the stockholders pursuant to Section 162(m) of the Code shall be effective without such consent.

Retirement Benefits

        We maintain a Section 401(k) retirement plan for all employees who are 21 years of age or older. Employees can contribute up to 90.0% of their eligible pay, subject to maximum amounts allowed under law. We may make discretionary profit sharing contributions, which vest over a period of four years from each employee's commencement of employment with us. We did not make any discretionary contributions in our 2012 fiscal year.

Compensation of Directors

        During 2012, we did not pay any cash compensation to our directors. Our board of directors has not adopted a formal non-employee director compensation policy. All of our directors are eligible to receive awards under the 2004 Equity Incentive Plan, provided that non-employee directors may not receive incentive stock options. Only Dr. Pecora has received a stock option award, pursuant to which he has an option to purchase 400,000 shares of our common stock at an exercise price of $0.09 per share. One quarter of this option vested on the grant date and the remainder vests in equal monthly installments over 36 months commencing March 1, 2013, subject to Dr. Pecora's c