S-1/A 1 a2216880zs-1a.htm S-1/A

Use these links to rapidly review the document
Table of Contents
KYTHERA BIOPHARMACEUTICALS, INC. Index to Financial Statements

Table of Contents

As filed with the Securities and Exchange Commission on October 7, 2013

Registration No. 333-191450

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



Amendment No. 1
to

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



KYTHERA Biopharmaceuticals, Inc.
(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)
  03-0552903
(I.R.S. Employer
Identification Number)

27200 West Agoura Road, Suite 200
Calabasas, CA 91301
(818) 587-4500
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



Keith R. Leonard, Jr.
President and Chief Executive Officer
KYTHERA Biopharmaceuticals, Inc.
27200 West Agoura Road, Suite 200
Calabasas, CA 91301
(818) 587-4500
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Alan C. Mendelson, Esq.
Mark V. Roeder, Esq.
Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Telephone: (650) 328-4600
Facsimile: (650) 463-2600

 

Keith L. Klein, Esq.
General Counsel
KYTHERA Biopharmaceuticals, Inc.
27200 West Agoura Road, Suite 200
Calabasas, CA 91301
Telephone: (818) 587-4500
Facsimile: (818) 587-4591

 

Alan F. Denenberg, Esq.
Davis Polk & Wardwell LLP
1600 El Camino Real
Menlo Park, CA 94025
Telephone: (650) 752-2000
Facsimile: (650) 752-2111



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, 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, please 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.

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)(2)

  Amount of
Registration Fee(3)

 

Common Stock, par value $0.00001 per share

  $115,000,000   $14,812

 

(1)
Includes $15,000,000 of shares of common stock which may be purchased by the underwriters pursuant to an option granted to the underwriters.

(2)
Estimated solely for purposes of determining the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended, on the basis of the maximum aggregate offering price.

(3)
The Registrant previously paid $13,334 of such fees.

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 this Registration Statement shall become effective on such date as the Securities and Exchange 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. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to completion, dated October 7, 2013.

$100,000,000



LOGO

Common Stock



KYTHERA Biopharmaceuticals, Inc. is offering shares of its common stock with an aggregate public offering price of approximately $100,000,000 in this offering. Our common stock is listed on The NASDAQ Global Select Market under the symbol "KYTH." On October 4, 2013, the last reported sale price of our common stock was $45.89 per share.

We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements.

Investing in our common stock involves a high degree of risk. Before buying any shares, you should read carefully the discussion of the material risks of investing in our common stock under the heading "Risk Factors" starting on page 11 of this prospectus.

   
 
  Per share
  Total
 
   

Public offering price

  $               $                     

Underwriting discounts

 
$

           
 
$

                  
 

Proceeds, before expenses, to KYTHERA Biopharmaceuticals, Inc.(1)

 
$

           
 
$

                  
 
   
(1)
See "Underwriting" for additional disclosure regarding underwriting discounts, commissions and expenses.

We intend to grant the underwriters the right to purchase up to approximately $15,000,000 of additional shares of our common stock from us, at the public offering price less the underwriting discount, to cover any over-allotments. The underwriters can exercise this right at any time within 30 days after the date of this prospectus.

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.

The underwriters expect to deliver the shares of common stock to investors on or about              , 2013.

J.P. Morgan   BofA Merrill Lynch   Leerink Swann

Cowen and Company

   

The date of this prospectus is                        , 2013


Table of Contents


Table of Contents

 
  Page  

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    11  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    46  

MARKET, INDUSTRY AND OTHER DATA

    48  

USE OF PROCEEDS

    49  

PRICE RANGE OF OUR COMMON STOCK AND DIVIDEND POLICY

    49  

CAPITALIZATION

    50  

DILUTION

    51  

SELECTED FINANCIAL DATA

    52  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    54  

BUSINESS

    74  

MANAGEMENT

    138  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    145  

DESCRIPTION OF CAPITAL STOCK

    149  

SHARES ELIGIBLE FOR FUTURE SALE

    155  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

    158  

UNDERWRITING

    162  

LEGAL MATTERS

    168  

EXPERTS

    168  

WHERE YOU CAN FIND MORE INFORMATION

    168  

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

    169  

INDEX TO FINANCIAL STATEMENTS

    F-1  

Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained or incorporated by reference in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. You are required to inform yourselves and observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States. The information contained or incorporated by reference in this prospectus is accurate only as of its date, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

KYTHERA® and our logo are some of our trademarks used in this prospectus. This prospectus also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.

In this prospectus we refer to Bayer Consumer Care AG and Bayer's affiliate, Intendis GmbH, jointly as Bayer. We also refer to our License Agreement, dated August 26, 2010 with Bayer and our Services, Research, Development and Collaboration Agreement, dated August 26, 2010 with Intendis GmbH, jointly as our collaboration arrangement with Bayer.

i


Table of Contents


Prospectus Summary

The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all of the information you should consider before buying our common stock. Therefore, you should read the entire prospectus carefully, especially the "Risk Factors" section beginning on page 11 and our financial statements and the related notes appearing at the end of this prospectus and the documents incorporated by reference herein, before deciding to invest in our common stock. In this prospectus, unless the context otherwise requires, references to "we," "us," "our," "the Company," "KYTHERA," or "KYTHERA Biopharmaceuticals" refer to KYTHERA Biopharmaceuticals, Inc.


Overview

We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. Our objective is to develop first-in-class, prescription products using an approach that relies on the scientific rigor of biotechnology to address unmet needs in the rapidly-growing market for aesthetic medicine. Our initial focus is on the facial aesthetics market, which comprises the majority of the aesthetic medicine market. Our product candidate, ATX-101, is a potential first-in-class, injectable drug in late-stage clinical development for the reduction of submental fat, which commonly presents as an undesirable "double chin." Based on clinical trials conducted to date, ATX-101 has exhibited significant, meaningful and durable results in the reduction of submental fat. These results correspond with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. If approved by applicable regulatory authorities, we believe ATX-101 will be an attractive solution for the reduction of submental fat, representing a new product category within the rapidly growing facial aesthetics market.

ATX-101 is a proprietary formulation of a purified synthetic version of deoxycholic acid, a naturally occurring molecule in the body that aids in the breakdown of dietary fat. ATX-101 treatment contours the area under the chin by destroying fat cells while leaving surrounding tissue largely unaffected. Our Phase II and Phase III studies have demonstrated that ATX-101, when injected subcutaneously into the target fat deposit, reduces the localized fat deposit while leaving the surrounding tissue largely unaffected. Bayer, our collaborator outside the United States and Canada, completed two pivotal Phase III trials of ATX-101 in Europe for the reduction of submental fat, which were initiated in late 2010. Positive topline results from these trials were reported in the second quarter of 2012 and are expected to provide the basis for Bayer's regulatory submissions for approval of ATX-101 in countries in Europe, which Bayer expects to occur in 2014. We initiated our pivotal Phase III clinical program for ATX-101 in the United States and Canada in March 2012 and completed enrollment of more than 1,000 patients in August 2012. We reported positive topline results in September 2013. These trials are expected to form the basis for our New Drug Application, or NDA, and for our New Drug Submission, or NDS, for approval of ATX-101 in the United States and Canada, respectively.


The Facial Aesthetics Market

The aesthetics market has grown dramatically in the United States, driven by a large population of consumers looking to minimize and delay signs of aging and improve their general appearance. In 2012, consumers spent nearly $11.0 billion on over 10.1 million physician-administered surgical and non-surgical aesthetic procedures in the United States, according to the American Society of Aesthetic Plastic Surgery, or ASAPS. Additionally, ASAPS estimates that from 1997 to 2012, surgical aesthetic procedures increased by more than 80%, and non-surgical procedures increased by 461%, reflecting increasing demand for aesthetic procedures over more than a decade. A strong consumer preference for non-surgical options and the increasing availability of effective alternatives has prompted broader

 

1


Table of Contents

adoption of non-surgical aesthetic procedures. These trends have made non-surgical procedures the primary driver of growth in the aesthetic medicine market, accounting for 83% of the total number of procedures performed in 2012.

Leading the growth in the non-surgical aesthetics market are facial injectables products, principally botulinum toxins and dermal fillers, which have solidified their place as the foundation of the aesthetic medicine market with approximately 5.9 million procedures performed in North America in 2012 as reported by ASAPS. According to GlobalData, an estimated $2.1 billion was spent by clinicians globally on facial injectable drugs in 2011, and such spending is expected to grow at a compounded annual growth rate of over 12% through 2018. We believe the long-term potential outside the United States and Canada will approximate the North American market.

Demand for facial injectable procedures is driven by the considerable importance of the face to overall appearance. We believe the growing variety and accessibility of non-surgical aesthetic procedures combined with increased social acceptance of aesthetic medicine in general have contributed to the adoption of these procedures by a broader patient demographic. ASAPS reports that younger patients are increasingly opting for facial injectable treatments to delay the appearance of lines and wrinkles. Patients seek these facial procedures to help achieve a more youthful and rejuvenated appearance and preserve anatomical landmarks, while avoiding long recovery periods and the unnatural appearance that may result from surgery. We believe consumers' desire to minimize and delay the signs of aging will continue to fuel the growth in facial injectable procedures.


Unmet Need for Injectable Therapy for Double Chin

Botulinum toxins and dermal fillers have created a market for non-surgical rejuvenation of the upper and mid-face; however, undesirable submental fat, or double chin, remains an important yet unaddressed aesthetic target for injectable facial treatment. Despite the patient and physician shift in favor of non-surgical and injectable procedures, there are no FDA-approved drugs for the reduction of submental fat, and liposuction and other surgical procedures, which are predominately performed by plastic surgeons, remain the only proven treatment options. Although effective at fat reduction, these procedures may involve significant pain, downtime and expense, and involve the risks associated with invasive surgery.


Our Injectable Solution to Reshape the Chin

ATX-101 is an injectable, facial treatment that we are initially developing to reduce unwanted fat under the chin. If approved by applicable regulatory authorities, we believe ATX-101 will be a first-in-class submental contouring injectable drug and an attractive non-surgical solution for the reduction of submental fat, representing a new product category within the rapidly growing facial aesthetics market for the following reasons:

Significant, meaningful and durable results.  Our clinical studies demonstrated a marked reduction in submental fat, which corresponded with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. Consistent across our U.S. Phase IIb study, our pivotal U.S. and Canadian Phase III trials, and the pivotal European Phase III trials, ATX-101 demonstrated statistically significant reduction of submental fat in all three efficacy measures: patient assessment, physician assessment and objective measures (magnetic resonance imaging, or MRI, in the U.S. and Canadian Phase III trials and U.S. Phase IIb study and calipers in the European Phase III trials). In addition, the results from our U.S. and Canadian Phase III trials and the European Phase III trials demonstrated that treatment with ATX-101 resulted in a statistically significant improvement in patient happiness with the appearance of their "chin fat" and associated self-perceptions of

 

2


Table of Contents

    youthfulness, as well as a reduction in feeling embarrassed, bothered and self-conscious about the appearance of their "chin fat." Further, an interim analysis of our long-term follow-up study monitoring Phase II patients who received and responded to ATX-101 treatment with improvement indicates that more than 90% of these patients sustained or improved their response (defined as ³ 1 grade change from baseline on the Clinician-Reported Submental Fat Rating Scale, or CR-SMFRS) at two years (n=75) after their last treatment, and more than 80% sustained or improved their response at three and four years (n=50 and n=10, respectively) after their last treatment. Consistent with previous findings at the two-year mark, no long-term safety concerns were noted in this interim analysis.

Ready group of target patients.  Our market research indicated that 78% of existing botulinum toxin or dermal filler patients had excess treatable submental fat and that 89% of dermal filler patients were also botulinum toxin patients. Taken together, we believe these results indicate that patients who have undergone, or are currently receiving facial injectable treatments, are highly likely to adopt new, similar procedures. Our market research in 385 patients currently receiving botulinum toxin or dermal fillers indicated that 61% of such patients were likely to try ATX-101. Accordingly, we believe that there is a large, readily addressable market of experienced patients, already in our target physicians' practices, who are likely to adopt an injectable facial treatment for the reduction of submental fat to enhance their facial appearance.

Low barrier to physician adoption.  If approved, we expect ATX-101 to be an easily adopted solution for the reduction of submental fat. We believe the short treatment sessions and ease of administration should facilitate physician adoption of ATX-101 as a natural complementary therapy for physicians already administering botulinum toxins and dermal fillers. Unlike some aesthetic procedures that require a physician practice to acquire and make space for often expensive and bulky capital equipment, ATX-101 will not require capital equipment. In addition, given the patient self-pay model in aesthetic medicine, physicians generally receive procedure fees from patients at the time of service and are not exposed to reimbursement risks.

Facilitates physician practice expansion.  We believe ATX-101 will provide dermatologists and plastic surgeons an opportunity to expand the scope and reach of their current aesthetic medicine practices. If approved, ATX-101 for submental fat reduction will be positioned as a naturally complementary procedure for experienced toxin and dermal filler patients, while potentially being an attractive point of entry for new patients that have never received an aesthetic procedure. For example, our market research indicates that men have a significantly higher interest in an injectable solution for submental fat reduction versus other facial injectable treatment options, but according to ASAPS, only comprised 9.1% of the facial injectable market in 2011. We believe ATX-101 provides an opportunity for dermatologists and plastic surgeons to address a broader patient demographic within the facial aesthetics market while also expanding the scope of treatments they can offer to their patient base.

A favorable safety profile with no or limited downtime.  ATX-101 has been well tolerated across all clinical studies completed to date, with the most notable side effects being local to the treatment area and typically mild to moderate in severity, but without systemic adverse effects. Treatment with ATX-101 also avoids the inherent risks and recovery time associated with general anesthesia and invasive surgical methods. Together, these attributes could make ATX-101 an aesthetic option with limited or no downtime, with most patients able to resume normal daily activity immediately after treatment.

We believe ATX-101, if approved, has the potential to reach peak year annual sales of $500 million in the United States.

 

3


Table of Contents


ATX-101 Clinical Development Program

To support approval of ATX-101, we are pursuing a rigorous, science-based clinical development program. ATX-101 is the subject of four pivotal Phase III clinical trials for the reduction of submental fat, consisting of two recently completed trials in the United States and Canada and two completed trials in Europe. These clinical trials were designed based on promising results observed in three multi-center, double-blind, placebo-controlled Phase II studies that evaluated various dosing regimens for ATX-101 and also served to validate potential efficacy endpoints, including submental fat rating scales.

Bayer's Pivotal European Phase III Clinical Trials

In Europe, Bayer completed two pivotal multi-center, randomized, double-blind, placebo-controlled, Phase III clinical trials that were designed to assess the efficacy, safety and tolerability of ATX-101, dosed at 1 or 2 mg/cm2, vs. placebo for the reduction of moderate to severe submental fat. Patients received up to four treatments at 28-day intervals and agreed to maintain consistent diet and exercise practices throughout the study in order to minimize potential changes in body weight. The trials enrolled 723 patients in 57 centers in the United Kingdom, France, Germany, Belgium, Spain and Italy. In these Phase III trials, ATX-101 was found to be well tolerated and met the pre-specified primary endpoints by demonstrating statistically significant reduction in submental fat, as assessed by a validated clinician scale and a patient satisfaction scale. ATX-101 also demonstrated statistically significant reduction in submental fat thickness measured objectively using calipers. In addition, treatment with ATX-101 resulted in improvements in patients' self-perception related to the appearance of their "chin fat" as measured by a patient-reported impact scale. Adverse events were characterized by transient side effects that were local to the treatment area and predominately mild to moderate in severity. Pain was the most common injection site reaction, followed by swelling, bruising, numbness, redness and induration. Less frequently, itching and tingling were reported. These results are anticipated to provide the basis for Bayer's regulatory submissions for approval of ATX-101 in countries in Europe, which Bayer expects to occur in 2014.

Pivotal U.S. and Canadian Phase III Clinical Trials

Our pivotal U.S. and Canadian Phase III trials were initiated in March 2012 and were designed to assess the efficacy, safety and tolerability of ATX-101 for reduction of moderate to severe submental fat. These trials were identical multi-center, randomized, double-blind, placebo-controlled trials that compared subcutaneous injections of ATX-101 dosed at 2 mg/cm2 to similar injections of placebo, with the primary efficacy assessments at 12 weeks after final treatment. Patients received up to six treatments at 28-day intervals and agreed to maintain consistent diet and exercise practices throughout the study in order to minimize potential changes in body weight. The trials were conducted in approximately 70 centers across the United States and Canada. We enrolled 1,022 patients across the two trials, randomized (1:1) to ATX-101 or placebo. These trials used both clinician- and patient-reported efficacy endpoints as principal efficacy measures. In these Phase III trials, ATX-101 was found to be well tolerated and met the pre-specified co-primary endpoints by demonstrating statistically significant reduction of moderate to severe submental fat based on by the percentage of patients who demonstrated an improvement from baseline as assessed by a validated clinician and patient scale. ATX-101 also demonstrated statistically significant improvements in secondary outcomes, including a reduction in the volume of patients' submental region as assessed by MRI, and in their self-perception related to the appearance of their submental fat. Treated patients reported statistically significant increases in happiness with the appearance of their "chin fat" and associated self-perceptions of youthfulness and looking less overweight. Patients also reported feeling less embarrassed, bothered and self-conscious about the appearance of their "chin fat." There were no treatment-related serious adverse events. The most common adverse events, which were predominantly mild to moderate, were

 

4


Table of Contents

swelling, pain, bruising, numbness and redness. Consistent with previous studies, these adverse events were predominately transient and local to the treatment area. Less than four percent of subjects discontinued the study due to adverse events. These trials are expected to form the basis for our New Drug Application, or NDA, and for our New Drug Submission, or NDS, for approval of ATX-101 in the United States and Canada, respectively.

Phase II Clinical Studies

ATX-101 has been the subject of three multi-center, randomized, double-blind, placebo-controlled Phase II studies, in a total of 284 patients, which evaluated various dosing regimens and served to validate both physician and patient efficacy endpoints. The Phase II program included two early Phase IIa studies, which formed the basis for Bayer's European Phase III clinical trials, and one Phase IIb study that provided the basis for the U.S. and Canadian Phase III clinical trials. In the Phase IIb study, ATX-101 was found to be well tolerated and resulted in a statistically significant reduction in submental fat, as assessed by three efficacy measures: a validated clinician scale, a validated patient scale and MRI to objectively measure submental fat volume. In addition, treatment with ATX-101 resulted in improvements in patients' self-perception related to the appearance of their "chin fat," as measured by a patient reported scale. In all three Phase II studies, treatment with ATX-101 was observed to be well tolerated and adverse events were characterized by transient side effects that were local to the treatment area and predominately mild to moderate in severity. Pain was the most common injection site reaction, followed by swelling, bruising, numbness, redness and induration.


Our Collaboration with Bayer

In August 2010, we entered into a collaboration arrangement with Bayer to develop and commercialize ATX-101 outside the United States and Canada. Bayer operates in over 80 countries and is well-positioned to commercialize ATX-101 outside the United States and Canada through its dermatology unit, which reaches more than 50,000 dermatologists in markets worldwide. In connection with establishing the collaboration arrangement, we received an upfront payment of $43.6 million. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further global development activities of ATX-101 under the terms of the collaboration arrangement. We remain eligible to receive up to approximately $297.0 million in additional payments contingent upon Bayer's achievement of specified regulatory and commercialization milestones pursuant to the collaboration arrangement. In addition, if ATX-101 is approved for commercial use in territories licensed to Bayer, we will be eligible to receive escalating royalties in the mid- to high-teens based on Bayer's net product sales of ATX-101. The next contingent event based payment is expected to be $39.6 million and is subject to Bayer achieving regulatory approval of ATX-101 in the first of any major European country, which is defined as Germany, the United Kingdom, France, Spain or Italy. In addition, we are eligible to receive further payments upon the first commercial sales in two defined territories outside of the European Union, if approved in those territories. The remaining contingent event payments are based on achieving certain net sales targets in Bayer's territory in a calendar year.


License Agreement with Los Angeles Biomedical Research Institute

In August 2005, we entered into an exclusive license agreement with Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center, or LA Biomed, pursuant to which we obtained a worldwide exclusive license to practice, enforce and otherwise exploit certain patent rights related to ATX-101. Our exclusive license requires us to pay LA Biomed a milestone payment of $0.5 million upon receipt

 

5


Table of Contents

of marketing approval of ATX-101, as well as non-royalty sublicense fees equal to 10% of any sublicense income, up to an aggregate of $5.0 million. Additionally, upon commercialization of a licensed product or service, we are obligated to pay low- to mid-single digit royalties on net product sales of ATX-101 by us and Bayer. We may terminate this license without penalty upon 90 days' notice to LA Biomed, and LA Biomed may terminate the license in certain circumstances if we fail to perform, or violate any term of the agreement, subject to applicable cure provisions. Subject to default by us or earlier termination, the license remains in effect until the last patent or patent application in the licensed patent rights has expired or been revoked, invalidated or abandoned.


Our Strategy

In order to achieve our objective of developing first-in-class, non-surgical, prescription products in aesthetic medicine, our near-term and long-term strategies include the following:

Develop and commercialize ATX-101 in the United States and Canada;

Maximize the value of ATX-101 through our collaboration arrangement with Bayer;

Assess and prioritize future indications for ATX-101;

Build KYTHERA into a leading aesthetics company;

Leverage our biotechnology and aesthetics experience;

Apply rigorous clinical, regulatory and scientific practices to the development of novel, FDA-regulated, aesthetic medicine product candidates such as ATX-101;

Be capital efficient and opportunistically expand our product portfolio; and

Continue to build a robust and defensible patent portfolio.


Risks Related to Our Business

Our ability to implement our business strategy is subject to numerous risks, as more fully described in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, among others:

We have a limited operating history and have incurred significant losses to date.

We will require substantial additional financing.

We are substantially dependent on the success of our only product candidate, ATX-101.

Neither we nor Bayer may obtain regulatory approval for the commercialization of ATX-101.

We are entirely dependent on Bayer for the commercialization of ATX-101 outside of the United States and Canada.

If ATX-101 is approved for commercial use, it will face significant competition.

 

6


Table of Contents

If ATX-101 is approved for commercial use, we will be substantially dependent on broad physician adoption of ATX-101 as a treatment for the reduction of submental fat.

Our intellectual property rights may not provide us with a meaningful commercial advantage and we may be subject to claims that ATX-101 or future product candidates infringe, misappropriate or otherwise violate the intellectual property rights of others.


Corporate Information

We were incorporated in Delaware in June 2004 under the name Dermion, Inc. We commenced operations in August 2005, and we changed our name to AESTHERx, Inc. In July 2006, we changed our name to KYTHERA Biopharmaceuticals, Inc. Our principal executive offices are located at 27200 West Agoura Road, Suite 200, Calabasas, California 91301, and our telephone number is (818) 587-4500. Our website address is http://www.kytherabiopharma.com. The information contained in, or that can be accessed through, our website is not part of this prospectus.

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (1) December 31, 2017 (the last day of the fiscal year following the fifth anniversary of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the fiscal year in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We refer to the Jumpstart Our Business Startup Act of 2012 herein as the "JOBS Act," and references herein to "emerging growth company" shall have the meaning associated with it in the JOBS Act.

 

7


Table of Contents


The Offering

Issuer   KYTHERA Biopharmaceuticals, Inc.

Common stock we are offering

 

Approximately $100,000,000 of shares of our common stock

Common stock to be outstanding after the offering

 

20,804,085 shares of our common stock

Over-allotment option

 

Up to approximately $15,000,000 of additional shares of our common stock

Use of proceeds

 

We estimate that the net proceeds from this offering will be approximately $93.4 million, or approximately $107.5 million if the underwriters exercise their over-allotment option in full, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use substantially all of the net proceeds from this offering to fund the ongoing development and preparation for potential commercialization of ATX-101, including the preparation and submission of our NDA for ATX-101, and the balance for working capital and general corporate purposes, including research and development. See "Use of Proceeds" on page 49 for a more complete description of the intended use of proceeds from this offering.

Risk factors

 

See "Risk Factors" beginning on page 11 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock.

The NASDAQ Global Select Market symbol

 

"KYTH"

The number of shares of common stock to be outstanding after this offering is based on 18,624,962 shares of common stock outstanding as of June 30, 2013 and assumes the issuance and sale of approximately $100.0 million of shares of our common stock at an assumed public offering price of $45.89, which is the last reported sale price of our common stock on October 4, 2013, and excludes the following:

2,307,671 shares of common stock issuable upon the exercise of outstanding stock awards as of June 30, 2013 having a weighted-average exercise price of $11.60 per share; and

524,082 shares of common stock reserved for issuance pursuant to future awards under our 2012 Equity Incentive Plan as of June 30, 2013.

Unless otherwise indicated, the number of shares of our common stock described above assumes no exercise of the underwriters' over-allotment option.

 

8


Table of Contents

 


Summary Financial Data

The following tables set forth a summary of our historical financial data as of, and for the period ended on, the dates indicated. The statement of operations data for the years ended December 31, 2010, 2011 and 2012 are derived from our audited financial statements included elsewhere in this prospectus. The statement of operations data for the six months ended June 30, 2012 and 2013 and balance sheet data as of June 30, 2013 have been derived from our unaudited financial statements appearing elsewhere in this prospectus. You should read this data together with our financial statements and related notes appearing elsewhere in this prospectus and the information under the captions "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our historical results are not necessarily indicative of our future results, and results for the six months ended June 30, 2013 are not necessarily indicative of results to be expected for the full year ending December 31, 2013.

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 
 
  (in thousands, except share and per share data)
 

Statement of Operations Data:

                               

License income

  $ 4,488   $ 12,985   $ 19,687   $ 19,687   $  

Sublicense expense

    411     1,188     1,936     1,936      
                       

Gross margin

    4,077     11,797     17,751   $ 17,751      

Operating expenses:

                               

Research and development

    14,842     15,766     43,184     14,884     17,801  

General and administrative

    6,785     6,879     10,505     4,661     7,698  
                       

Total operating expenses

    21,627     22,645     53,689     19,545     25,499  
                       

Loss from operations

    (17,550 )   (10,848 )   (35,938 )   (1,794 )   (25,499 )

Interest income

    19                 63  

Interest expense

        (75 )   (441 )   (104 )   (948 )

Warrant and other income (expense), net

    570     (229 )   (420 )   (476 )    

Other income

    930                  
                       

Net loss

  $ (16,031 ) $ (11,152 ) $ (36,799 ) $ (2,374 ) $ (26,384 )
                       

Per share information:

                               

Net loss per share of common stock, basic and diluted—restated(2)

  $ (11.64 ) $ (7.98 ) $ (7.47 ) $ (1.68 ) $ (1.44 )
                       

Weighted-average number of shares used in computing net loss per share of common stock, basic and diluted—restated(1)(2)

    1,377,000     1,398,000     4,924,000     1,412,000     18,379,000  
                       

(1)
The net loss per share of common stock, basic and diluted, does not give effect to the issuance of shares from the proposed offering nor do they give effect to potential dilutive securities where the impact would be anti-dilutive. See Note 2 to our audited financial statements included elsewhere in this prospectus.

(2)
See Note 2, "Summary of Significant Accounting Policies—Restatement," to our audited financial statements included elsewhere in this prospectus for a reconciliation of restated net loss per share of common stock, basic and diluted, and restated weighted average shares, basic and diluted.

 

9


Table of Contents

The table below presents our balance sheet data as of June 30, 2013:

on an actual basis;

on an as adjusted basis to give further effect to the sale of approximately $100,000,000 of shares of our common stock in this offering at an assumed public offering price of $45.89 per share, which is the last reported sale price of our common stock on October 4, 2013 after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 
  As of June 30, 2013  
 
  Actual   As Adjusted  
 
  (unaudited)
(in thousands)

 

Balance Sheet Data:

             

Cash, cash equivalents and marketable securities

  $ 64,542   $ 157,942  

Working capital

    54,492     147,892  

Total assets

    76,383     169,783  

Accumulated deficit

    (146,690 )   (146,690 )

Total stockholders' equity

    45,864     139,264  

 

10


Table of Contents


Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information contained or incorporated by reference in this prospectus, including our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.


Risks Related to Our Limited Operating History, Business and Capital Requirements

We have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future. We have only one product candidate and no commercial sales, which, together with our limited operating history, makes it difficult to assess our future viability.

We are a clinical-stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. To date, we have focused principally on developing our only product candidate, ATX-101, for which we recently completed our U.S. and Canadian Phase III clinical trials. We are not profitable and have incurred losses in each year since our inception in June 2004. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. We have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the year ended December 31, 2012 and the six months ended June 30, 2013 was approximately $36.8 million and $26.4 million, respectively. As of June 30, 2013, we had an accumulated deficit of $146.7 million. We expect to continue to incur losses for the foreseeable future, as we continue our development of, and seek regulatory approvals for, ATX-101, and begin to commercialize ATX-101. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital.

We are substantially dependent on the success of our only product candidate, ATX-101.

To date, we have invested nearly all of our efforts and financial resources in the research and development of ATX-101, which is currently our only product candidate. In particular, we have completed seven Phase I and three Phase II clinical studies and two European Phase III clinical trials, and we have recently completed two U.S. and Canadian Phase III clinical trials.

Our near-term prospects, including our ability to finance our company and to enter into strategic collaborations and generate revenue, will depend heavily on the successful development, regulatory approval and commercialization of ATX-101 and any future product candidates. The clinical and commercial success of ATX-101 will depend on a number of factors, including the following:

any unexpected results from further analysis beyond the topline data of our recently completed U.S. and Canadian Phase III clinical trials;

11


Table of Contents

timely completion of our ongoing or upcoming clinical trials, which may be slower than we currently anticipate and will depend substantially upon the satisfactory performance of third-party contractors;

our ability to demonstrate the safety and efficacy of ATX-101 to the satisfaction of the FDA;

Bayer's ability to obtain, and the timing of, regulatory approval of ATX-101 outside the United States and Canada;

whether we or Bayer are required by the FDA or other similar foreign regulatory agencies to conduct additional clinical trials;

the ability of Bayer to successfully commercialize ATX-101 outside the United States and Canada, if approved for marketing and sale by applicable regulatory agencies;

our success in educating physicians and patients about the benefits, administration and use of ATX-101;

the incidence, duration and severity of adverse side effects;

the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;

achieving and maintaining compliance with all regulatory requirements applicable to ATX-101;

the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;

the effectiveness of our own or our potential strategic collaborators' marketing, sales and distribution strategy and operations in the United States and Canada;

the ability of our third-party manufacturers to manufacture clinical trial and commercial supplies of ATX-101 or any future product candidates, to remain in good standing with regulatory agencies, and to develop, validate and maintain commercially viable manufacturing processes that are compliant with Current Good Manufacturing Practice, or CGMP regulations;

our ability to successfully commercialize ATX-101 in the United States and Canada, if approved for marketing and sale in such countries, whether alone or in collaboration with others;

our ability to enforce our intellectual property rights in and to ATX-101;

our ability to avoid third-party patent interference or patent infringement claims;

acceptance of ATX-101 as safe and effective by patients and the medical community; and

a continued acceptable safety profile of ATX-101 following approval.

Many of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of ATX-101. If we are not successful in obtaining approval of and commercializing ATX-101, or are significantly delayed in doing so, our business will be materially harmed.

12


Table of Contents

We or Bayer may be unable to obtain regulatory approval for ATX-101 under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of ATX-101 and adversely impact our potential to generate revenue, our business and our results of operations.

To gain approval to market a drug product, we, or Bayer in the case of ATX-101 outside of the United States and Canada, must provide the FDA and foreign regulatory authorities with clinical data that adequately demonstrate the safety, efficacy and compliant manufacturing of the product for the intended indication applied for in the NDA or other respective regulatory filing. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials and manufacturing, even after promising results in earlier preclinical or clinical studies. These setbacks have been caused by, among other things, preclinical findings made while clinical studies were underway and safety or efficacy observations made in clinical studies, including previously unreported adverse events. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties, including Bayer, may not be indicative of the results in trials we may conduct.

We recently announced positive topline results from our pivotal U.S. and Canadian Phase III clinical trials for our only product candidate, ATX-101, and our business currently depends entirely on its successful development, regulatory approval and commercialization. We currently have no drug products approved for sale, and neither we nor Bayer may ever obtain regulatory approval to commercialize ATX-101. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and such regulations differ from country to country. We are not permitted to market ATX-101 in the United States unless and until we receive approval of an NDA from the FDA, and Bayer is not permitted to market ATX-101 in any foreign countries unless and until it receives the requisite approval from the regulatory authorities of such countries.

The FDA or any foreign regulatory bodies can delay, limit or deny approval of ATX-101 for many reasons, including:

inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that ATX-101 is safe and effective for the requested indication;

the FDA's or the applicable foreign regulatory agency's disagreement with the trial protocol or the interpretation of data from preclinical studies or clinical trials;

inability to demonstrate that the clinical and other benefits of ATX-101 outweigh any safety or other perceived risks;

the FDA's or the applicable foreign regulatory agency's requirement for additional preclinical or clinical studies;

the FDA's or the applicable foreign regulatory agency's non-approval of ATX-101's chemistry, manufacturing or controls or labeling;

the FDA's or the applicable foreign regulatory agency's failure to approve the manufacturing processes or facilities of third-party manufacturers and testing labs with whom we or Bayer contract; or

13


Table of Contents

the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data or regulatory filings or those of Bayer insufficient for approval.

In addition, on October 1, 2013, the U.S. federal government entered a shutdown suspending services deemed non-essential as a result of the failure by Congress to enact regular appropriations for the 2014 fiscal year. If the shutdown continues for a prolonged period of time, it could result in significant delays in the FDA's ability to timely review and process any submissions we have filed or may file or cause other regulatory delays, which could have a material adverse effect on our business.

Of the large number of drugs in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized. Further, we are not conducting our U.S. and Canadian Phase III clinical trials under a Special Protocol Assessment, or SPA. In the absence of an agreed SPA there can be no assurance that the FDA will agree with our Phase III clinical trial protocol.

Even if we or Bayer eventually complete clinical testing and receive approval of an NDA or foreign regulatory filing for ATX-101, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials which may be required after approval. The FDA or the applicable foreign regulatory agency also may approve ATX-101 for a more limited indication or a narrower patient population than we originally requested, and the FDA, or applicable foreign regulatory agency, may not approve the labeling that we and Bayer believe is necessary or desirable for the successful commercialization of ATX-101. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of ATX-101 and would materially adversely impact our business and prospects.

Even if ATX-101 or any future product candidates obtain regulatory approval, they may never achieve market acceptance or commercial success.

Even if we obtain FDA or other regulatory approvals, ATX-101 or any future product candidates may not achieve market acceptance among physicians and patients, and may not be commercially successful. Market acceptance of ATX-101 or any future product candidates for which we receive approval depends on a number of factors, including:

the safety and efficacy of the product as demonstrated in clinical trials;

the clinical indications for which the product is approved and whether our desired labeling is approved;

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

proper training and administration of our products by physicians;

the potential and perceived advantages of our product candidates over alternative treatments;

the cost of treatment in relation to alternative treatments and willingness to pay for our products, if approved, on the part of physicians and patients;

the willingness of patients to pay for ATX-101 and other aesthetic treatments in general, relative to other discretionary items, especially during economically challenging times;

14


Table of Contents

relative convenience and ease of administration;

the incidence, duration and severity of adverse side effects;

the effectiveness of our and Bayer's sales and marketing efforts; and

the degree to which the approved labeling supports promotional initiatives for commercial success.

Any failure by our product candidates that obtain regulatory approval to achieve market acceptance or commercial success would adversely affect our results of operations.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.

Since our inception, most of our resources have been dedicated to the preclinical and clinical development of our sole product candidate, ATX-101. As of June 30, 2013, we had working capital of $54.5 million and capital resources consisting of cash and cash equivalents, marketable securities and restricted cash of $75.7 million, of which $11.1 million was restricted. We have drawn down the full $15.0 million available under our credit facility and no longer have any established future borrowing capacity. We believe that we will continue to expend substantial resources for the foreseeable future on the completion of clinical development and regulatory preparedness of ATX-101, preparing and filing the NDA filing, preparations for a commercial launch of ATX-101, if approved, and development of any other product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any drug development process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of ATX-101 or any future product candidates.

We believe our existing cash and cash equivalents, will allow us to fund our operating plan through at least the next 12 months. However, our operating plan may change as a result of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future capital requirements depend on many factors, including:

any unexpected results from further analysis beyond topline data of our recently completed U.S. and Canadian Phase III clinical trials for ATX-101;

whether Bayer continues to pursue or terminates our collaboration arrangement for the development and commercialization of ATX-101;

the amount and timing of any milestone payments or royalties we may receive from Bayer pursuant to our collaboration arrangement, including the timing of the occurrence of the events that will trigger any such milestone or royalty payments;

15


Table of Contents

the timing of, and the costs involved in, obtaining regulatory approvals for ATX-101 or any future product candidates;

the number and characteristics of any additional product candidates we may develop or acquire;

the scope, progress, results and costs of researching and developing ATX-101 or any future product candidates, and conducting preclinical and clinical trials;

the cost of commercialization activities if ATX-101 or any future product candidates are approved for sale, including marketing, sales and distribution costs and preparedness of our corporate infrastructure;

the cost of manufacturing ATX-101 or any future product candidates and any products we successfully commercialize;

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

any product liability or other lawsuits related to our products or commenced against us;

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, any future approved products, if any.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:

delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for ATX-101 or any future product candidates;

delay, limit, reduce or terminate our research and development activities; or

delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize ATX-101 or any future product candidates.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive, and can take many years to complete, and its outcome is inherently uncertain. Furthermore, we rely on contract research organizations, or 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. Failure can occur at any time during the clinical trial process. For example, we have in the past terminated early-stage development and clinical programs for other potential drug candidates due to a lack of sufficient efficacy or the potential for unacceptable adverse reactions to a particular drug candidate, as well as our desire to concentrate our efforts on the development of ATX-101. The results of preclinical and

16


Table of Contents

clinical studies of our product candidates may not be predictive of the results of later-stage clinical trials. For example, the positive results generated to date in clinical studies for ATX-101 do not ensure that later clinical trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if our ongoing or future clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

We may experience delays in our ongoing clinical trials, and we do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:

obtain regulatory approval to commence a trial;

reach 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;

obtain institutional review board, or IRB, approval at each site;

recruit suitable patients to participate in a trial;

have patients complete a trial or return for post-treatment follow-up;

have clinical sites observe trial protocol or continue to participate in a trial;

address any patient safety concerns that arise during the course of a trial;

address any conflicts with new or existing laws or regulations;

add a sufficient number of clinical trial sites; or

manufacture sufficient quantities of product candidate or placebo for use in clinical trials.

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of eligible patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with the requirements of the relevant regulatory filing (including clinical protocol and manufacturing), inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to

17


Table of Contents

demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

If we experience delays in the completion of, or terminate, any clinical trial of our future product candidates, if any, the commercial prospects of these product candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of a clinical trial may also ultimately lead to the denial of regulatory approval of a product candidate.

The commercial success of ATX-101 outside of the United States and Canada depends significantly on the development and marketing efforts of Bayer, and if Bayer fails to perform as expected, or is unable to obtain the required regulatory approvals for ATX-101, the potential for us to generate future revenue from royalties and milestone payments from ATX-101 outside the United States and Canada would be significantly reduced and our business would be materially and adversely harmed.

In August 2010, we entered into a license agreement and a related collaboration agreement with Bayer. Under our collaboration arrangement, Bayer assumed responsibility for obtaining and maintaining regulatory approval for ATX-101 from regulatory agencies outside of the United States and Canada. Bayer is solely responsible for the commercialization of ATX-101 outside the United States and Canada, if regulatory approval is achieved in those territories. The potential for us to generate revenue from royalties and milestone payments from ATX-101 outside of the United States and Canada depends entirely on the successful development, regulatory approval, marketing and commercialization of ATX-101 by Bayer, which is outside of our control. Any of the following events or factors could have a material adverse effect on the potential and timing for us to receive regulatory and commercial milestone payments and generate royalties from Bayer from the sale of ATX-101 outside of the United States and Canada:

Bayer's receipt of, or failure to comply with, additional requests and recommendations from relevant foreign regulatory agencies, including any request for additional clinical trials;

Bayer's inability to obtain all necessary approvals from regulatory agencies outside the United States and Canada;

Bayer's failure to commit adequate resources to the development, regulatory approval, marketing, distribution and intellectual property protection of ATX-101;

any unexpected results from further analysis beyond topline data of Bayer's completed European Phase III clinical trials of ATX-101;

any failure to manufacture ATX-101 in compliance with requirements of relevant regulatory agencies and in quantities sufficient to meet clinical or commercial demand;

any failure of ATX-101 to achieve market acceptance by physicians and patients; and

any failure of ATX-101 to compete successfully against regulated or unregulated alternative products and therapies.

18


Table of Contents

In order to obtain approval from applicable foreign regulatory agencies, for ATX-101, Bayer will need to demonstrate, through adequate and well-controlled clinical trials, that ATX-101 is safe and effective for each proposed indication. However, ATX-101 may not be approved by foreign regulatory agencies even though it has met its specified endpoints in the pivotal European Phase III clinical trials conducted to date, which were overseen by Bayer. The applicable foreign regulatory agencies may disagree with the trial design and/or the interpretation of data from clinical trials, may ask Bayer to conduct additional costly and time consuming clinical trials in order to obtain marketing approval or approval to enter into an advanced phase of development, or may change the requirements for approval even after it has reviewed and commented on the design for the clinical trials. The applicable foreign regulatory agencies may also approve ATX-101 for more limited indications than Bayer may request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the applicable foreign regulatory agencies may not approve the labeling claims that Bayer believes are necessary or desirable for the successful commercialization of ATX-101.

If Bayer does not perform in the manner we expect or fulfill its responsibilities in a timely manner, or at all, the clinical development, regulatory approval and commercialization efforts related to ATX-101 in the territories Bayer has licensed from us could be delayed or terminated and it could become necessary for us to assume the responsibility at our own expense for the clinical development of ATX-101 outside the United States and Canada. In that event, we would likely be required to substantially limit the size and scope of the development and commercialization of ATX-101 or seek additional financing to fund further development, and our potential to generate future revenue from royalties and milestone payments from ATX-101 outside the United States and Canada would be significantly reduced and our business would be materially and adversely harmed.

ATX-101, if approved, will face significant competition and the failure by us or Bayer to effectively compete may prevent us from achieving significant market penetration.

The aesthetic product market, and the facial aesthetics market in particular, is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. We and Bayer are seeking regulatory approval of ATX-101 for the reduction in submental fat. A substantial portion of our target physician market is comprised of plastic surgeons and some dermatologists who utilize liposuction and other procedures for fat reduction. Such physicians may find it more advantageous to utilize these surgical and non-surgical procedures to remove localized fat deposits rather than an injectable biopharmaceutical therapy such as ATX-101. We anticipate that ATX-101, if approved, may, for some patients, compete for a share of their discretionary budget with other facial aesthetic products, including injectable botulinum toxins and dermal fillers, as well as for share of mind within the physician's office for improving facial aesthetics. In addition, we expect that ATX-101, if approved, will compete with new and existing therapies for the treatment of localized fat, including, liposuction and other procedures, as well as other technologies aimed at fat reduction, including laser energy-based and ultrasound energy-based products. We believe that some of these products have been or may be marketed and used for the reduction of submental fat even though they have not been approved for that purpose.

If approved, ATX-101 may also compete with unregulated, unapproved and off-label fat reduction treatments. For example, we are aware that there are entities such as compounding pharmacies and device manufacturers that have manufactured quantities of deoxycholic acid-based formulations, which have been sold as fat reduction treatments without drug approval from the FDA or other foreign governmental regulatory body equivalents. In order to compete successfully in the aesthetics market, we will have to demonstrate that the reduction of submental fat with ATX-101 is a worthwhile aesthetic treatment and is a superior alternative to existing therapies for the reduction of submental fat. There may be other drug or device products currently under development or being considered for

19


Table of Contents

development for the treatment of submental fat of which we are not currently aware, but which upon approval would compete directly with ATX-101.

ATX-101, if approved, will compete for patient and physician resources and mindshare with products and technologies that are not primarily related to fat reduction, such as injectable botulinum toxins, dermal fillers, and laser-, ultrasound- and radio frequency-based procedures and other aesthetic medicine technologies. The medical technology and aesthetic companies that offer these products also have a broad range of other product offerings, large direct sales forces, and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts.

In addition, a substantial portion of our target physician market is comprised of plastic surgeons who utilize surgical methods for fat reduction. Such physicians may find it more advantageous to utilize surgical techniques to remove localized fat deposits rather than an injectable biopharmaceutical therapy such as ATX-101. Additionally, multiple non-invasive technologies for the reduction of fat or "body-contouring" have received marketing clearance from the FDA. For example, in September 2010, Zeltiq Aesthetics, Inc. received clearance for their body-contouring system, CoolSculpting, which utilizes controlled cooling to reduce the temperature of fat cells in the treated area for the selective reduction of fat around the flanks. Zerona, a laser energy-based product marketed by Erchonia Corporation, and Liposonix, an ultrasound energy-based product marketed by Solta Medical, Inc., have also received FDA marketing clearance. While we do not believe these products are directly competitive with ATX-101, they may be considered as alternative treatments or therapies.

Due to less stringent regulatory requirements for devices outside of the United States, there are many more aesthetic products and procedures available for use in international markets than are approved for use in the United States. There are also fewer limitations on the claims that competitors in international markets can make about the effectiveness of their products and the manner in which they can market them. For example, Aqualyx has been issued a CE mark in Italy as a medical device that appears to be comprised of an injectable pharmacologic agent combined with ultrasound activity for the non-surgical treatment of localized adiposity. As a result, ATX-101 will face more competition in these markets than in the United States.

Many of these potential competitors are large, experienced companies that have substantially greater resources and brand recognition than we do. Competing in the aesthetic market could result in price-cutting, reduced profit margins, and limited market share, any of which would harm our business, financial condition, and results of operations.

The commercial success of ATX-101, if approved, will depend significantly on broad physician adoption and use of ATX-101.

The commercial success of ATX-101, if approved, will depend significantly on the broad adoption and use of ATX-101 by physicians for the treatment of submental fat. Physician adoption of ATX-101 for the treatment of submental fat, if approved, will depend on a number of factors, including:

the safety and effectiveness of ATX-101 for the removal of submental fat as compared to alternative treatments or procedures;

physician willingness to adopt a new therapy to remove submental fat;

patient compliance with the treatment regimen;

20


Table of Contents

overcoming any biases plastic surgeons may have toward surgical procedures for submental fat reduction;

patient satisfaction with the results and administration of ATX-101;

patient demand for submental fat reduction;

the revenue and profitability that ATX-101 will offer a physician as compared to alternative treatments or procedures; and

the difficulty of administering ATX-101 and any potential side effects of the administration and/or use of ATX-101.

If ATX-101 is approved for use and physicians do not broadly adopt it for the removal of submental fat, our financial performance will be adversely affected.

We rely completely on third-party suppliers to manufacture and distribute our clinical drug supplies for ATX-101, we intend to rely on third parties for commercial manufacturing and distribution of ATX-101 and we expect to rely on third parties for manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.

We do not currently have, nor do we plan to acquire, the infrastructure or capability to manufacture or distribute preclinical, clinical or commercial quantities of drug substance or drug product, including ATX-101. Facilities used by our contract manufacturers to manufacture drug substance and drug product for commercial sale must be approved by the FDA or other relevant foreign regulatory agencies pursuant to inspections that will be conducted after we submit our NDA or relevant foreign regulatory submission to the applicable regulatory agency.

We do not have direct control over the ability of our contract manufacturers to maintain adequate manufacturing capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. We are dependent on our contract manufacturers for compliance with the regulatory requirements, known as Current Good Manufacturing Practices, or CGMPs, for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and/or the strict regulatory requirements of the FDA or foreign regulatory agencies, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. Furthermore, these contract manufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies, which also exposes our manufacturers to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract manufacturers' facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the manufacture of our product candidates, or if it withdraws its approval in the future, we may need to find alternative manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

We, our contract manufacturers and Bayer continue to characterize and improve manufacturing processes, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes. For example, as we transitioned to our commercial scale fill/finish supplier, we encountered an issue with respect to the compatibility of ATX-101 with certain types of glass vials, which required identification of compatible vials, manufacturing processes, and storage conditions for

21


Table of Contents

ATX-101. Depending on the extent of any difficulties encountered, a similar problem in the future could lead to an interruption in clinical or commercial supply.

We are an exclusive supplier of synthetic deoxycholate drug substance to Bayer. Our failure to provide drug substance supply could have an adverse effect on supply of clinical and/or finished drug in both our and Bayer's commercial territories, and, as a result, on our operating results. Similarly, failure of drug product supply by either us or Bayer could have an adverse effect on our operating results.

We expect to continue to depend on third-party contract manufacturers for the foreseeable future. We have entered into an exclusive agreement with Pfizer, Inc., or Pfizer, for the supply of a key raw material to manufacture synthetic deoxycholate. We currently obtain our supply of synthetic deoxycholate from Albany Molecular Research, Inc., or AMRI, and Cambridge Major Laboratories, Inc., or CML. We currently have a long-term agreement with Hospira, Inc., or Hospira, our fill/finish supplier, and a program is underway to qualify a back-up fill/finish supplier; if we are unable to qualify and enable a back-up fill/finish supplier, failure by Hospira to supply drug product will have an adverse effect on market supply and operating results. Our supply agreements, if any, cannot however guarantee that a contract manufacturer or supplier will provide services adequate for our needs. If a contract manufacturer/supplier becomes financially distressed or insolvent, or discontinues manufacturing supply for us beyond the term of the existing agreement, if any, or for any other reason, this could result in substantial management time and expense to identify and qualify alternative manufacturers or suppliers, and could lead to an interruption in clinical or commercial supply.

Our reliance on contract manufacturers further exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may misappropriate our trade secrets or other proprietary information.

We currently rely on a few contract manufacturing and testing labs. Failure of these vendors to supply or otherwise perform adequately can materially and adversely affect our business.

There are a limited number of providers for manufacture, testing and distribution of ATX-101, and we do not have direct control over our contract manufacturers and testing labs. Nor do we have direct control over the processes or timing for the acquisition of the raw materials necessary to manufacture, test or distribute our product candidates. If these raw materials are not available at the volumes and quantity levels required, it could have a material and adverse impact on the supply of drug substance, drug product, and finished drug product. We work closely with our contract manufacturers and testing labs to enable timely delivery of required drug substance and drug product, but these efforts may be insufficient and we may experience delays or our contract manufacturers and testing labs may be unable to provide adequate drug substance or drug product. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the study, a delay in providing the drug supply required could delay completion of a clinical trial and could result in delays to the clinical program, regulatory approval, and the generation of revenue.

We rely on third parties such as Pfizer, the supplier of a key raw material for manufacture of the regulatory starting material, Sai Life Science, Inc. the supplier of our regulatory starting material, AMRI and CML, the suppliers of the drug substance, synthetic deoxycholate, and Hospira, the supplier of drug product, at key stages in our ATX-101 supply chain. To manufacture, test and distribute ATX-101 in the quantities that we believe will be required to meet anticipated market demand, our third-party manufacturers may need to increase capacity, which could involve significant challenges and will require additional regulatory approvals. In addition, the development of commercial-scale manufacturing capabilities may require us and our third-party manufacturers to invest substantial

22


Table of Contents

additional funds and hire and retain the technical personnel who have the necessary manufacturing experience. Neither we nor our third-party manufacturers may successfully complete any required increase to existing manufacturing capacity in a timely manner, or at all.

If there is a disruption to our or our third-party manufacturers' or suppliers' relevant operations, we will have no other means of producing ATX-101 until the affected facilities are restored or we or they procure and qualify alternative facilities. Additionally, any damage to or destruction of our or our third-party manufacturers' or suppliers' facilities or equipment may significantly impair our ability to manufacture ATX-101 on a timely basis.

Manufacturing and supply of drug substance, drug product and finished drug product is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, testing, quality assurance and distribution supply chain, as well as the potential for latent defects after product has been manufactured and distributed.

Manufacturing and supply of drug substance, drug product and finished drug product is technically challenging. Changes that may be made outside the purview of our direct control can have an impact on the success of our processes, on quality, and successful delivery of product to physicians. Mistakes and mishandling are not uncommon and can affect successful production and supply. Some of these risks include:

failure of our manufacturers to follow CGMP requirements or mishandling of our product while in production or in preparation for transit

transportation and import/export risk, particularly given the global nature of our supply chain;

delays in analytical results or failure of analytical techniques that we depend on for quality control and release of product;

natural disasters, labor disputes, financial distress, lack of raw material supply, issues with facilities and equipment or other forms of disruption to business operations at our contract manufacturers/suppliers; and

latent defects that may become apparent after product has been released and which may result in recall and destruction of drug.

We rely on third parties to conduct all our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize ATX-101 or any future product candidates.

We do not have the ability to independently conduct preclinical studies or clinical trials. We rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as CROs, to conduct clinical trials on our drug candidates. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount, quality or timing of resources that they devote to our programs. For example, following the completion of a Phase I pharmacokinetic study of ATX-101, we discovered that the CRO utilized an incorrect isomer in a testing assay, which resulted in erroneous initial trial results. As a result, we were required to complete a new Phase I pharmacokinetic study of ATX-101. Although we rely on these third parties to conduct our preclinical studies and clinical trials, we remain responsible for ensuring that each of our

23


Table of Contents

preclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and standards, referred to as Good Clinical Practice, or GCP, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating in clinical trials.

In addition, the execution of preclinical studies and clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. These third parties may terminate their agreements with us upon as little as 30 days prior written notice of a material breach by us that is not cured within 30 days. Many of these agreements may also be terminated by such third parties under certain other circumstances, including our insolvency or our failure to comply with applicable laws. In general, these agreements require such third parties to reasonably cooperate with us at our expense for an orderly winding down of services of such third parties under the agreements. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, become insolvent or undergo restructuring, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.

Our ability to market ATX-101 in the United States and Canada, if approved, will be limited to use for reduction of submental fat, and if we want to expand the indications for which we may market ATX-101, we will need to obtain additional regulatory approvals, which may not be granted.

We are currently seeking regulatory approval for ATX-101 in the United States and Canada for the reduction of submental fat. If ATX-101 is approved, the applicable regulatory agency will restrict our ability to market or advertise ATX-101 for other specific body areas, which could limit physician and patient adoption. We may attempt to develop, seek regulatory approval for, promote and commercialize new treatment indications and protocols for ATX-101 in the future, but we cannot predict when or if we will receive the clearances required to do so. In addition, we would be required to conduct additional clinical trials or studies to support our applications, which would be time-consuming and expensive, and may produce results that do not result in regulatory approvals. If we do not obtain additional regulatory approvals, our ability to expand our business in the United States and Canada will be limited.

Even if ATX-101 is approved for commercialization, if there is not sufficient patient demand for ATX-101 procedures, our financial results and future prospects will be harmed.

Submental fat reduction with ATX-101 is an elective procedure, the cost of which must be borne by the patient, and we do not expect it to be reimbursable through government or private health insurance. The decision by a patient to elect to undergo treatment with ATX-101 may be influenced by a number of factors, such as:

the success of any sales and marketing programs that we, or any third parties we engage, undertake, and as to which we have limited experience;

24


Table of Contents

the extent to which physicians recommend ATX-101 to their patients;

the extent to which ATX-101 satisfies patient expectations;

our ability to properly train physicians in the use of ATX-101 such that their patients do not experience excessive discomfort during treatment or adverse side effects;

the cost, safety, and effectiveness of ATX-101 versus other aesthetic treatments;

consumer sentiment about the benefits and risks of aesthetic procedures generally and ATX-101 in particular;

the success of any direct-to-consumer marketing efforts we may initiate; and

general consumer confidence, which may be impacted by economic and political conditions.

Our financial performance will be materially harmed if we cannot generate significant patient demand for ATX-101.

If competing products to ATX-101 are approved and commercialized, our results of operations would suffer due to a change in the royalty structure under our license agreement with Bayer.

Our license agreement with Bayer provides that if certain competing products are approved for the reduction of localized fat reduction and sold outside the United States and Canada by a third-party, our royalty rate for sales of ATX-101 by Bayer will be significantly reduced. If ATX-101 is approved and such competitive products are approved and commercialized, our royalty revenue from Bayer's net product sales of ATX-101 may be reduced and, as a result, our business, including our near-term financial results would suffer.

We currently have no sales organization. If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell ATX-101 effectively in the United States and Canada or any future product candidates, if approved, or generate product revenue.

We currently do not have a sales organization. In order to commercialize ATX-101 in the United States and Canada, we must build our marketing, sales, distribution, management and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If ATX-101 receives regulatory approval, we expect to establish a sales organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive, require substantial additional capital and be time consuming. We have no prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize ATX-101. If we are not successful in commercializing ATX-101 or any future product candidates, either on our own or through

25


Table of Contents

collaborations with one or more third parties, our future product revenue will suffer and we would incur significant additional losses.

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

As of September 27, 2013, we had 60 full-time employees. We will need to continue to expand our managerial, operational, finance and other resources in order to manage our operations and clinical trials, continue our development activities and commercialize ATX-101 or any future product candidates. Our management and personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

manage our clinical trials effectively;

identify, recruit, retain, incentivize and integrate additional employees;

manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and

continue to improve our operational, financial and management controls, reporting systems and procedures.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of ATX-101 or any future product candidates.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties, among others. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

decreased demand for ATX-101 or any future product candidates;

injury to our reputation;

withdrawal of clinical trial participants;

costs to defend the related litigation;

a diversion of management's time and our resources;

substantial monetary awards to trial participants or patients;

regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;

26


Table of Contents

loss of revenue; and

the inability to commercialize ATX-101 or any future product candidates.

Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of ATX-101 or any future products we develop. We currently carry product liability insurance covering our clinical trials in the amount of $10.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing ATX-101, we intend to expand our insurance coverage to include the sale of ATX-101; however, we may be unable to obtain this liability insurance on commercially reasonable terms.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop ATX-101 or any future product candidates, conduct our clinical trials and commercialize ATX-101 or any future product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We are highly dependent upon our senior management, particularly our President and Chief Executive Officer, as well as our senior scientists and other members of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of ATX-101 or any future product candidates. Although we have entered into employment agreements with our senior management team, these agreements do not provide for a fixed term of service.

Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

If we are not successful in discovering, developing, acquiring and commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

Although a substantial amount of our effort will focus on the continued clinical testing and potential approval of ATX-101, a key element of our strategy is to discover, develop and commercialize a portfolio of products to serve the aesthetic market. We are seeking to do so through our internal research programs and may explore strategic collaborations for the development or acquisition of new products. All of our other potential product candidates remain in the discovery stage. Research

27


Table of Contents

programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

the research methodology used may not be successful in identifying potential product candidates;

competitors may develop alternatives that render our product candidates obsolete or less attractive;

product candidates we develop may nevertheless be covered by third parties' patents or other exclusive rights;

a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors, if applicable.

FDA or other regulatory authorities may not approve or agree with the intended use of a new product candidate

If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing ATX-101.

We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would harm our business.

We have incurred and will continue to incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, and regulations regarding corporate governance practices. The listing requirements of The NASDAQ Global Select Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. Any changes made to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors' and officers' insurance, on acceptable terms.

28


Table of Contents

Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the Securities and Exchange Commission, or SEC, require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. In particular, beginning with our annual report for the year ending December 31, 2013, Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to continue to take advantage of certain exemptions from various reporting requirements that are applicable to 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, as well as reduced reporting disclosure on executive compensation and no requirement for non-binding advisory votes on executive compensation. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting. We will remain an emerging growth company until the earlier of (1) December 31, 2017 (the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the fiscal year in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

To date, we have not conducted a review of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, as we did for certain periods through December 31, 2012, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, we are required to file accurate and timely quarterly and annual reports with the SEC under the Securities Exchange Act of 1934, as amended. In order to report our results of operations and financial statements on an accurate and timely basis, we depend on CROs to provide timely and accurate notice of their costs to us and, if ATX-101 is approved by relevant regulatory authorities and sold by Bayer, we would depend on Bayer to provide timely and accurate reports on royalties payable to us. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Select Market or other adverse consequences that would materially harm our business.

We identified a material weakness in our internal control over financial reporting as of December 31, 2012, which has been remediated. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors' views of us and have a material adverse effect on our common stock price.

On September 27, 2013, we restated our previously reported basic and diluted net income (loss) per share (net income (loss) per share) amounts for the years ended December 31, 2010, 2011 and 2012 as well as the quarterly periods within the years ended December 31, 2011 and 2012. Although the net income (loss) was correct as reported for each period, net income (loss) per share was incorrectly computed. Net income (loss) per share is computed by dividing net income (loss) for the period by the basic and diluted weighted average number of shares outstanding (weighted average shares) during that

29


Table of Contents

period. In the periods discussed above, preferred shares were incorrectly included in the weighted average shares prior to the initial public offering in October 2012. More specifically, preferred shares issued prior to our initial public offering were inappropriately included in weighted average shares from their date of issuance, rather than from the date of conversion to common shares as a result of the initial public offering. Common shares resulting from the conversion of the preferred shares should have only been included in the weighted average shares for net income (loss) per share reported subsequent to the actual conversion of preferred shares as a result of the closing of our initial public offering.

As a result of this restatement, we have determined that we had a material weakness relating to our internal control over financial reporting as of December 31, 2012. A material weakness in internal control over financial reporting 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 the company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. In response, we have established an appropriate calculation model to properly capture current share activity and properly determine the number of weighted average shares outstanding each reporting period. This process includes the preparation and review of the calculation by individuals who have appropriate knowledge of the accounting literature and knowledge of transactions that may impact share activity to be considered for earnings per share purposes. As such, we believe we have fully remediated the material weakness.

However, we cannot provide assurance that a similar material weakness will not recur, or that we will be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 and the related rules and regulations of the SEC when required. If we cannot in the future favorably assess, or our independent registered public accounting firm, when required, is unable to provide an unqualified attestation report on, the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price. In addition, any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Select Market or other adverse consequences that would materially harm our business.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Furthermore, the market for aesthetic medical procedures may be particularly vulnerable to unfavorable economic conditions. In particular, we do not expect ATX-101 to be reimbursed by any government or third-party payor and, as a result, demand for this product will be tied to discretionary spending levels of our targeted patient population. A severe or prolonged economic downturn, such as the most recent global financial crisis, could result in a variety of risks to our business, including, weakened demand for ATX-101, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. This is particularly true in Europe, which is undergoing a continued severe economic crisis. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

30


Table of Contents

We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters and other facilities are located in the Northern Los Angeles Area, which in the past has experienced both severe earthquakes and wildfires. We do not carry earthquake insurance. Earthquakes, wildfires or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Furthermore, integral parties in our supply chain are geographically concentrated and operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.

Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third-party manufacturers' and suppliers' activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product and product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers' facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

31


Table of Contents


Risks Related to Intellectual Property

We may become subject to third parties' claims alleging infringement of patents and proprietary rights or seeking to invalidate our patents or proprietary rights, which would be costly, time consuming and, if successfully asserted against us, delay or prevent the development and commercialization of ATX-101 or any future product candidates.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. We cannot assure you that ATX-101 or any future product candidates will not infringe existing or future patents. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing ATX-101 or any future product candidates. Moreover, we may face claims from non-practicing entities, which have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect.

We may be subject to third-party claims in the future against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages, including treble damages and attorney's fees if we are found to be willfully infringing a third party's patents. We have agreed to indemnify Bayer against such claims brought against it, and may undertake similar obligations on behalf of other collaborators in the future. If a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose to seek, or be required to seek, a license from the third-party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. Even if we are successful in defending such claims, infringement and other intellectual property litigation can be expensive and time-consuming to litigate and would divert management's attention from our core business. Any of these events could harm our business significantly.

In addition to infringement claims against us, if third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the United States Patent and Trademark Office, or the U.S. PTO, to determine the priority of invention. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology.

If our efforts to protect the proprietary nature of the intellectual property related to ATX-101 or any future product candidates are not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to ATX-101 and our research and development programs. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

32


Table of Contents

The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be opposed by any person within nine months from the publication of the grant. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. For example, although ATX-101 contains synthetic deoxycholate, the most common form of deoxycholate is a naturally occurring substance (as are certain other aesthetic pharmaceuticals, including botulinum toxin), and is therefore not eligible for composition-of-matter patent protection in certain jurisdictions, including the United States. To the extent that naturally-occurring deoxycholate products do not infringe claims in our method-of-use, formulation or other patents and patent applications, competitors may be able to offer and sell such products and compete with ATX-101. If the breadth or strength of protection provided by the patents and patent applications we hold or pursue with respect to ATX-101 or any future product candidates is challenged, then it could threaten our ability to commercialize ATX-101 or any future product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market ATX-101 or any future product candidates under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Furthermore, an interference proceeding can be provoked by a third-party, or instituted by the U.S. PTO, to determine who was first to invent any of the subject matter covered by the patent claims of our applications.

Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios than we have.

We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain and/or enforce and any other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

33


Table of Contents

Our issued patents could be found invalid or unenforceable if challenged in court.

If we, Bayer or one of our future collaborators were to initiate legal proceedings against a third party to enforce a patent covering ATX-101, or one of our future products, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before the U.S. PTO, even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on ATX-101. Such a loss of patent protection would have a material adverse impact on our business.

If we fail to comply with our obligations under our intellectual property license with the Los Angeles Biomedical Research Institute, we could lose license rights that are important to our business.

We are a party to a license agreement with Los Angeles Biomedical Research Institute, or LA Biomed, pursuant to which we license key intellectual property relating to the active ingredient in ATX-101. This existing license imposes various diligence, royalty, insurance and other obligations on us. If we fail to comply with these obligations, LA Biomed may have the right to terminate the license, in which event we would not be able to develop or market ATX-101. If we lose such license rights, our business, results of operations, financial condition and prospects would be materially adversely affected. We may enter into additional licenses in the future and if we fail to comply with obligations under those agreements, we could suffer adverse consequences.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. The United States 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 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 the U.S. Congress, the federal courts, and the U.S. PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

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

The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are

34


Table of Contents

situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

We have not yet registered trademarks for a commercial trade name for ATX-101 in the United States or Canada and failure to secure such registrations could adversely affect our business.

We have not yet registered trademarks for a commercial trade name for ATX-101 in the United States or Canada, the countries in which we have rights to commercialize it, if approved. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the U.S. PTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

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

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in 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 patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

35


Table of Contents


Risks Related to Government Regulation

The regulatory approval process is highly uncertain and we or Bayer may not obtain regulatory approval for the commercialization of ATX-101 or any future product candidates.

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Furthermore, we rely upon Bayer to obtain regulatory approval for ATX-101 outside the United States and Canada, and we cannot guarantee that they will be successful in doing so. Neither we nor any collaboration partner is permitted to market ATX-101 or any future product candidate in the United States until we receive approval of an NDA from the FDA. Neither we nor Bayer has submitted an application or obtained marketing approval for ATX-101 anywhere in the world. Obtaining regulatory approval of an NDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable United States and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions or other actions, including:

warning letters;

civil and criminal penalties;

injunctions;

withdrawal of approved products;

product seizure or detention;

product recalls;

total or partial suspension of production; and

refusal to approve pending NDAs or supplements to approved NDAs.

Prior to obtaining approval to commercialize a drug candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory agencies, that such drug candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we and our collaborator believe the preclinical or clinical data for our drug candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering drug candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA or other regulatory authorities denying approval of a drug candidate for any or all targeted indications.

Regulatory approval of an NDA or NDA supplement, or foreign equivalents, is not guaranteed, and the approval process is expensive and may take several years. The FDA and other foreign regulatory authorities also have substantial discretion in the approval process. Despite the time and expense exerted, failure can occur at any stage, and we or our collaborators could encounter problems that cause us to abandon or repeat clinical trials, or perform additional preclinical studies and clinical trials. The number of preclinical studies and clinical trials that will be required for approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. The FDA and other foreign regulatory

36


Table of Contents

authorities can delay, limit or deny approval of a drug candidate for many reasons, including, but not limited to, the following:

a drug candidate may not be deemed safe or effective;

they may not find the data from preclinical studies and clinical trials sufficient;

they might not approve our third party manufacturers' processes or facilities; or

they may change its approval policies or adopt new regulations.

If ATX-101 or any future product candidate fails to demonstrate safety and efficacy in clinical trials or does not gain regulatory approval, our business and results of operations will be materially and adversely harmed.

Even if we receive regulatory approval for ATX-101 or any future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, any product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

Any regulatory approvals that we or our collaborators receive for ATX-101 or any future product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the applicable regulatory agency approves ATX-101 or any future product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, and continued compliance with CGMP and GCP, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with ATX-101 or any future product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

fines, warning letters or holds on clinical trials;

refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic collaborators, or suspension or revocation of product license approvals;

product seizure or detention, or refusal to permit the import or export of products; and

injunctions or the imposition of civil or criminal penalties.

Regulatory agency policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to

37


Table of Contents

changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business.

Failure of Bayer to obtain regulatory approvals in foreign jurisdictions for ATX-101 would prevent us from marketing ATX-101 internationally.

Bayer is responsible for obtaining approval of, and distribution and marketing of, ATX-101 outside the United States and Canada. In order to market any product in the EEA (which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein) and many other foreign jurisdictions, separate regulatory approvals are required. In the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. Before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. Bayer may not be able to file for regulatory approvals or to do so on a timely basis, and even if it does file it may not receive necessary approvals to commercialize our products in any market.

If approved, ATX-101 or any future products may cause or contribute to adverse medical events that we and Bayer are required to report to regulatory agencies and if we fail to do so, we could be subject to sanctions that would materially harm our business.

Some participants in our clinical studies have reported adverse effects after being treated with ATX-101. If we are successful in commercializing ATX-101 or any other products, FDA and foreign regulatory agency regulations require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA or a foreign regulatory agency could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.

We may in the future be subject to various U.S. federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.

While we do not expect that ATX-101, if approved, will be covered for patients in whole or in part by Medicare, Medicaid or other federal healthcare programs, we may still be subject to the various U.S. federal and state laws intended to prevent health care fraud and abuse. The federal anti-kickback statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the

38


Table of Contents

referral of patients or the use of products or services that would be paid for in whole or in part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state health care programs as well as private payors. Violations of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.

The federal False Claims Act, or FCA, imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The FCA includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements were determined to violate anti-kickback or related laws, including the FCA, then our revenues could be adversely affected, which would likely harm our business, financial condition, and results of operations.

State and federal authorities have aggressively targeted pharmaceutical and medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans, and have often become subject to consent decrees severely restricting the manner in which they conduct their business. If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business.

Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties, or prosecution and have a negative impact on our business, results of operations and reputation.

Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or approval of ATX-101 or any future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of ATX-101 or any future product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:

changes to manufacturing, testing or distribution methods;

39


Table of Contents

recall, replacement, or discontinuance of one or more of our products; and

additional record keeping.

Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition, and results of operations.


Risks Related to Our Common Stock and this Offering

Our stock price may be volatile and investors in our common stock could incur substantial losses.

From October 11, 2012, the first day of trading of our common stock, to October 4, 2013, our stock has had low and high closing sales prices in the range of $19.05 to $46.05 per share. The trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this "Risk Factors" section of this prospectus and others such as:

announcements from Bayer related to our ongoing collaboration for ATX-101, including announcements regarding its intentions to commercialize ATX-101 outside the United States and Canada, the timing of its regulatory filings or submissions for ATX-101 or its decision to terminate our collaboration arrangement and cease development and commercialization of ATX-101;

results from, and any delays in, our trials for ATX-101, or any other future clinical development programs;

announcements of regulatory approval or disapproval of ATX-101 or any future product candidates;

failure or discontinuation of any of our research and development programs;

announcements relating to future licensing, collaboration or development agreements;

delays in the commercialization of ATX-101 or any future product candidates;

acquisitions and sales of new products, technologies or businesses;

manufacturing and supply issues related to our product candidates for clinical trials or future product candidates for commercialization;

quarterly variations in our results of operations or those of our future competitors;

changes in earnings estimates or recommendations by securities analysts;

announcements by us or our competitors of new products, significant contracts, commercial relationships, acquisitions or capital commitments;

developments with respect to intellectual property rights;

our commencement of, or involvement in, litigation;

changes in financial estimates or guidance, including our ability to meet our future revenue and operating profit or loss estimates or guidance;

40


Table of Contents

any major changes in our board of directors or management;

new legislation in the United States relating to the sale or pricing of pharmaceuticals;

FDA or other U.S. or foreign regulatory actions affecting us or our industry;

product liability claims or other litigation or public concern about the safety of our drug candidates or future drugs;

market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors; and

general economic conditions in the United States and abroad.

In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.

We are an "emerging growth company" and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an "emerging growth company," as defined in the JOBS Act, and we are taking 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, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we are relying on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) December 31, 2017 (the last day of the fiscal year following the fifth anniversary of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the fiscal year in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock before giving effect to this offering. Accordingly, if you purchase our common stock in this offering, you will incur immediate substantial dilution of approximately $39.20 per share, based on the issuance and sale of approximately $100.0 million of shares of our common stock at an assumed public offering price of $45.89 per share, which is the last reported sale price of our common stock as reported on The NASDAQ Global Select Market on October 4, 2013,

41


Table of Contents

and our net tangible book value as of June 30, 2013. Furthermore, if the underwriters exercise their over-allotment option, or outstanding options are exercised, you could experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section titled "Dilution."

If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.

We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.

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

As of September 20, 2013, our executive officers, directors and their respective affiliates beneficially owned approximately 32.1% of our outstanding voting stock. These stockholders have the ability to influence us through this ownership position and may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

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

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of June 30, 2013, we have a total of 18,624,962 shares of common stock outstanding. In addition, as of June 30, 2013, 2,831,753 shares of common stock that are either subject to outstanding options or reserved for future issuance under our equity incentive plans are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

We have broad discretion to determine how to use the funds raised in this offering, and may use them in ways that may not enhance our operating results or the price of our common stock.

Our management will have broad discretion over the use of proceeds from this offering, and we could spend the proceeds from this offering in ways our stockholders may not agree with or that do not yield a favorable return, if at all. We currently intend to use substantially all of the net proceeds of this offering to fund our ongoing development and preparation for potential commercialization of ATX-101, including the preparation and submission of our NDA for ATX-101, and the balance for working capital and general corporate purposes, including research and development. However, our use of these proceeds may differ substantially from our current plans. If we do not invest or apply the proceeds of this offering in ways that improve our operating results, we may fail to achieve expected financial results, which could cause our stock price to decline.

42


Table of Contents

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions include the following:

a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

the required approval of at least 662/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors;

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders' meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror's own slate of directors or otherwise attempting to obtain control of us.

In addition, these provisions apply even if we were to receive an offer that some stockholders may consider beneficial.

We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

43


Table of Contents

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

Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:

We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person's conduct was unlawful.

We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

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

We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.

The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

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

Our employment agreements with our executive officers may require us to pay severance benefits to any of those persons who are terminated in connection with a change in control of us, which could harm our financial condition or results.

Our named executive officers are parties to employment agreements that contain change in control and severance provisions providing for cash payments for severance and other benefits and acceleration of vesting of stock options in the event of a termination of employment in connection with a change in control. The accelerated vesting of options could result in dilution to our existing stockholders and harm the market price of our common stock. The payment of these severance benefits could harm our financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us.

44


Table of Contents

We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Additionally, the terms of our credit facility restrict our ability to pay dividends. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.

45


Table of Contents


Special Note Regarding Forward-Looking Statements

This prospectus and the information incorporated by reference herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained or incorporated by reference herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "aim," "anticipate," "assume," "believe," "contemplate," "continue," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "seek," "should," "target," "will," "would," and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our expectations regarding the timing of our submission of a NDA for approval of ATX-101 with the FDA;

our expectation regarding the timing of Bayer's regulatory submissions for approval of ATX-101 in countries in Europe;

the actual receipt and timing of any milestone payments or royalties from our collaborator, Bayer;

the potential for commercialization of ATX-101 by us or our collaborator, Bayer;

our expectations regarding the potential market size and opportunity for ATX-101, if approved for commercial use;

estimates of our expenses, future revenue, capital requirements and our needs for additional financing;

the timing or likelihood of regulatory filings and approvals;

our ability to advance product candidates into, and successfully complete, clinical trials;

the implementation of our business model, strategic plans for our business, product candidates and technology;

the initiation, timing, progress and results of future preclinical studies and clinical trials, and our research and development programs;

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

our ability to maintain and establish collaborations or obtain additional funding;

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

our use of proceeds from this offering;

our financial performance; and

developments and projections relating to our competitors and our industry.

46


Table of Contents

These forward-looking statements are based on management's current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and management's beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements contained or incorporated by reference in this prospectus may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus and the information incorporated by reference herein. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of the respective documents. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See "Where You Can Find More Information."

47


Table of Contents


Market, Industry and Other Data

This prospectus and the documents incorporated by reference herein also contain estimates, projections and other information concerning our industry, our business, and the markets for ATX-101, including data regarding the estimated size of those markets, their projected growth rates, the perceptions and preferences of patients and physicians regarding certain therapies and other prescription, prescriber and patient data, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

48


Table of Contents


Use of Proceeds

We estimate that the net proceeds from the sale of shares of common stock in this offering will be approximately $93.4 million, or approximately $107.5 million if the underwriters exercise their over-allotment in full, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

We currently expect to use substantially all of the net proceeds from this offering to fund the ongoing development and preparation for potential commercialization of ATX-101, including the preparation and submission of our NDA for ATX-101, and the balance for working capital and general corporate purposes, including research and development.

Our management will have broad discretion over the use of the net proceeds from this offering. The amounts and timing of our expenditures will depend upon numerous factors, including: any unexpected results of our analysis beyond topline data of our U.S. Phase III clinical trials for ATX-101; the amount and timing of any milestone payments or royalties we may receive from our collaborator, Bayer; the scope of research and development efforts; the timing and success of preclinical studies or clinical trials we may commence in the future; and the timing of regulatory submissions and FDA approval, if approved.

Pending the use of the proceeds from this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities, certificates of deposit or government securities.


Price Range of our Common Stock and Dividend Policy

Our common stock has been publicly traded on The NASDAQ Global Select Market under the symbol "KYTH" since our initial public offering on October 11, 2012. Prior to that time, there was no public market for our common stock. The following table sets forth on a per share basis, for the periods indicated, the low and high sale intraday prices of our common stock as reported by The NASDAQ Global Select Market.

 
  High   Low  

Year ended December 31, 2012

             

Fourth Quarter (from October 11, 2012)

  $ 31.93   $ 18.49  

Year ended December 31, 2013

             

First Quarter

  $ 31.49   $ 14.07  

Second Quarter

  $ 27.33   $ 18.56  

Third Quarter

  $ 47.50   $ 23.03  

Fourth Quarter (through October 4, 2013)

  $ 47.04   $ 42.08  

As of October 3, 2013, there were approximately 54 holders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name. The closing price of our common stock as reported on The NASDAQ Global Select Market on October 4, 2013 was $45.89 per share.

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. In addition, unless waived, the terms of our credit facility with Lighthouse Capital Partners VI, L.P. prohibit us from paying any cash dividends. Any future determination related to dividend policy will be made at the discretion of our board of directors.

49


Table of Contents


Capitalization

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

on an actual basis;

on an as adjusted basis to give effect to the issuance and sale by us of approximately $100.0 million of shares of our common stock in this offering at an assumed public offering price of $45.89 per share, which is the last reported sale price of our common stock as reported on The NASDAQ Global Select Market on October 4, 2013, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the headings "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of June 30, 2013  
 
  Actual   As Adjusted  
 
  (unaudited)
(in thousands)

 

Stockholders' equity:

             

Common stock, $0.00001 par value per share; 300,000,000 shares authorized, 18,624,962 shares outstanding, actual; 300,000,000 shares authorized, 20,804,085 shares issued and outstanding, as adjusted

         

Preferred stock, $0.00001 par value per share; 5,000,000 shares authorized, no shares outstanding, actual and as adjusted

         

Additional paid in capital

    192,585     285,985  

Accumulated other comprehensive loss

    (31 )   (31 )

Accumulated deficit

    (146,690 )   (146,690 )
           

Total stockholders' equity

    45,864     139,264  
           

Total capitalization

  $ 45,864   $ 139,264  
           

The outstanding share information in the table above excludes the following:

2,307,671 shares of common stock issuable upon the exercise of outstanding stock awards having a weighted-average exercise price of $11.60 per share; and

524,082 shares of common stock reserved for issuance pursuant to future awards under our 2012 Equity Incentive Award Plan.

50


Table of Contents


Dilution

If you invest in our common stock, your interest will be diluted to the extent of the difference between the offering price per share of our common stock in this offering and the net tangible book value per share of our common stock after this offering. As of June 30, 2013, we had a historical net tangible book value of $45.9 million, or $2.46 per share of common stock. Our net tangible book value represents total tangible assets less total liabilities, all divided by the number of shares of common stock outstanding on June 30, 2013.

After giving effect to the sale of approximately $100.0 million of shares of our common stock in this offering at an assumed public offering price of $45.89 per share, which was the closing price of our common stock as reported on The NASDAQ Global Select Market on October 4, 2013, and after deducting the underwriting discounts and commissions and estimated offering expenses, our as adjusted net tangible book value at June 30, 2013 would have been approximately $139.3 million, or $6.69 per share. This represents an immediate increase in as adjusted net tangible book value of $4.23 per share to existing stockholders and an immediate dilution of $39.20 per share to new investors. The following table illustrates this per share dilution:

Assumed public offering price per share

        $ 45.89  

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

  $ 2.46        

Increase in as adjusted net tangible book value per share attributable to new investors

    4.23        
             

As adjusted net tangible book value per share after this offering

          6.69  
             

Dilution per share to new investors participating in this offering

        $ 39.20  
             

If the underwriters fully exercise their over-allotment option, as adjusted net tangible book value after this offering would increase to approximately $7.26 per share, and there would be an immediate dilution of approximately $38.63 per share to new investors.

To the extent that outstanding options with an exercise price per share that is less than the as adjusted net tangible book value per share, before giving effect to the issuance and sale of shares in this offering, are exercised, new investors will experience further dilution. If all of our outstanding options described above were exercised, our net tangible book value as of June 30, 2013, before giving effect to the issuance and sale of shares in this offering, would have been approximately $72.6 million, or approximately $3.47 per share, and our as adjusted net tangible book value as of June 30, 2013 after this offering would have been approximately $166.0 million, or approximately $7.18 per share, causing dilution to new investors of approximately $38.71 per share.

In addition, we may choose to raise additional capital 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 we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of June 30, 2013 and assumes the issuance and sale of approximately $100.0 million of shares of our common stock at an assumed public offering price of $45.89, which is the last reported sale price of our common stock on October 4, 2013, and excludes the following:

2,307,671 shares of common stock issuable upon the exercise of outstanding stock awards having a weighted-average exercise price of $11.60 per share; and

524,082 shares of common stock reserved for issuance pursuant to future awards under our 2012 Equity Incentive Award Plan.

51


Table of Contents


Selected Financial Data

You should read the following selected financial data together with our audited financial statements, the related notes appearing at the end of this prospectus and the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected financial data included in this section are not intended to replace the financial statements and the related notes included elsewhere in this prospectus.

We derived the selected statement of operations data for the years ended December 31, 2010, 2011 and 2012 and the balance sheet data as of December 31, 2011 and 2012 from our audited financial statements appearing elsewhere in this prospectus. The selected statement of operations data for the years ended December 31, 2008 and 2009 and the balance sheet data as of December 31, 2008, 2009 and 2010 are derived from our audited financial statements not included in this prospectus. The statement of operations data for the six months ended June 30, 2012 and 2013 and balance sheet data as of June 30, 2013 have been derived from our unaudited financial statements appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future, and results for the six months ended June 30, 2013 are not necessarily indicative of results to be expected for the full year ending December 31, 2013.

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2008   2009   2010   2011   2012   2012   2013  
 
   
   
   
   
   
  (unaudited)
 
 
  (in thousands, except share and per share data)
 

Statement of Operations Data:

                                           

License income

  $   $   $ 4,488   $ 12,985   $ 19,687   $ 19,687   $  

Sublicense expense

            411     1,188     1,936     1,936      
                               

Gross margin

            4,077     11,797     17,751     17,751      

Operating expenses:

                                           

Research and development

    15,672     9,823     14,842     15,766     43,184     14,884     17,801  

General and administrative

    4,522     4,930     6,785     6,879     10,505     4,661     7,698  
                               

Total operating expenses

    20,194     14,753     21,627     22,645     53,689     19,545     25,499  
                               

Loss from operations

    (20,194 )   (14,753 )   (17,550 )   (10,848 )   (35,938 )   (1,794 )   (25,499 )

Interest income

    492     66     19                 63  

Interest expense

                (75 )   (441 )   (104 )   (948 )

Warrant and other income (expense), net

    (35 )   (73 )   570     (229 )   (420 )   (476 )    

Other income

            930                  
                               

Net loss

  $ (19,737 ) $ (14,760 ) $ (16,031 ) $ (11,152 ) $ (36,799 ) $ (2,374 ) $ (26,384 )
                               

Per share information:

                                           

Net loss per share of common stock, basic and diluted(2)

  $ (14.62 ) $ (10.85 ) $ (11.64 ) $ (7.98 ) $ (7.47 ) $ (1.68 ) $ (1.44 )
                               

Weighted-average number of shares used in computing net loss per share of common stock, basic and diluted(1)(2)

    1,350,000     1,360,000     1,377,000     1,398,000     4,924,000     1,412,000     18,379,000  
                               

(1)
The net loss per share of common stock, basic and diluted, does not give effect to the issuance of shares from the proposed offering nor do they give effect to potential dilutive securities where the impact would be anti-dilutive. See Note 2 to our audited financial statements included elsewhere in this prospectus.

(2)
See Note 2, "Summary of Significant Accounting Policies—Restatement," to our audited financial statements included elsewhere in this prospectus for a reconciliation of restated net loss per share of common stock, basic and diluted, and restated weighted average shares, basic and diluted.

52


Table of Contents

 
  As of December 31,   As of June 30,  
 
  2008   2009   2010   2011   2012   2013  
 
   
   
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Balance Sheet Data:

                                     

Cash, cash equivalents and marketable securities

  $ 24,536   $ 19,754   $ 21,676   $ 34,577   $ 79,311   $ 64,542  

Working capital

    20,920     16,912     3,890     29,524     71,367     54,492  

Total assets

    25,327     20,092     45,509     45,079     96,222     76,383  

Redeemable convertible preferred stock warrant liability

    1,528     1,601     1,031     2,145          

Redeemable convertible preferred stock

    60,933     70,930     71,300     107,587          

Accumulated deficit

    (41,564 )   (56,324 )   (72,355 )   (83,507 )   (120,306 )   (146,690 )

Total stockholders' (deficit) equity

    (41,182 )   (55,445 )   (70,747 )   (81,024 )   68,906     45,864  

53


Table of Contents


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

You should read the following discussion and analysis of financial condition and results of operations together with the section entitled "Selected Financial Data" and our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Risk Factors" section.


Overview

We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. Our objective is to develop first-in-class, prescription products using an approach that relies on the scientific rigor of biotechnology to address unmet needs in the rapidly-growing market for aesthetic medicine. Our initial focus is on the facial aesthetics market, which comprises the majority of the aesthetic medicine market. Our product candidate, ATX-101, is a potential first-in-class, injectable drug in late stage clinical development for the reduction of submental fat, which commonly presents as an undesirable "double chin." Based on clinical trials conducted to date, ATX-101 has exhibited significant, meaningful and durable results in the reduction of submental fat. These results correspond with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. If approved by applicable regulatory authorities, we believe ATX-101 will be an attractive solution for the reduction of submental fat, representing a new product category within the rapidly growing facial aesthetics market. ATX-101 is our only product candidate in clinical development and we are substantially dependent on its regulatory approval and successful commercialization.

Since commencing operations in August 2005, we have devoted substantially all our efforts to identify and develop products for the aesthetics market, recruiting personnel and raising capital. We have devoted predominantly all of our resources to the preclinical and clinical development of ATX-101. In August 2010, we entered into a license agreement and related collaboration agreement with Bayer to develop and commercialize ATX-101 for all indications. We have retained all rights to develop and commercialize ATX-101 in the United States and Canada and Bayer exclusively licensed the rights to ATX-101 in the rest of the world. We have not filed for approval with the FDA and Bayer has not filed for approval with any foreign regulatory agencies for the commercialization of ATX-101 and we have not generated any revenue from product sales. Historically we have funded substantially all of our operations through the sale and issuance of our common and preferred stock, convertible debt, amounts received from U.S. government grants and pursuant to our collaboration arrangement with Bayer.

On October 16, 2012, we completed our IPO of 5,060,000 shares of common stock at an offering price of $16.00 per share, which included the exercise in full by the underwriters of their option to purchase up to 660,000 additional shares of common stock. We received net proceeds of approximately $72.5 million, after deducting underwriting discounts, commissions and offering related expenses.

We have never been profitable and, as of June 30, 2013, we had an accumulated deficit of $146.7 million. We incurred net losses of $16.0 million, $11.2 million, $36.8 million, $2.4 million and $26.4 million for the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively. We expect to continue to incur net operating losses for at least

54


Table of Contents

the next several years as we advance ATX-101 through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization. We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party clinical research organizations, or CROs, to carry out our clinical development and we do not yet have a sales organization. We will need substantial additional funding to support our operating activities, especially as we approach anticipated regulatory approval in the United States and Canada and begin to establish our sales capabilities. Adequate funding may not be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

We recently announced topline results from our U.S. and Canadian Phase III clinical trials.


Restatement

We determined in September 2013 that restatements were required to previously reported basic and diluted net income (loss) per share for all periods prior to and including the period ended December 31, 2012 due to an error in their computation. Basic and diluted net income (loss) per share is calculated by dividing net income (loss) for the period by the basic and diluted weighted average number of shares outstanding during that period. In the restated periods, preferred shares issued prior to our initial public offering in October 2012 were inappropriately included in the weighted average shares outstanding used to calculate basic and diluted net income (loss) per share from their date of issuance, rather than from the date of actual conversion to common shares as a result of our initial public offering. The effects of the assumed conversion of the preferred shares should have only been included in the diluted net income per share prior to actual conversion to the extent that the impact was dilutive, which occurred only for the three month period ended June 30, 2012. In addition, options to purchase common stock should have been included in the calculation of diluted net income per share for the three month period ended June 30, 2012 as the effect was dilutive. See Note 2, "Summary of Significant Accounting Policies—Restatement," to our audited financial statements included elsewhere in this prospectus for a description of the restatement.

Management determined that the Company did not maintain effective controls over the process for calculating and reporting weighted average shares outstanding as used in the earnings per share calculations for each period presented through December 31, 2012. A material weakness in internal control over financial reporting 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 the Company's annual or interim financial statements will not be prevented or detected on a timely basis by the Company's internal controls. Specifically, management did not perform a sufficiently precise review to ensure the accuracy of the Company's calculation of weighted average common shares outstanding and earnings per share. We determined that this deficiency constituted a "material weakness" in our internal control over financial reporting.

In response to the material weakness in our internal controls that existed as of December 31, 2012 as identified and discussed in our Annual Report on Form 10-K/A filed with the SEC on September 27, 2013, the Company has established an appropriate calculation model to properly capture current share activity and properly determine the number of weighted average shares outstanding for each reporting period. This process includes the preparation and review of the calculation by individuals who have appropriate knowledge of the accounting literature and knowledge of transactions that may impact share activity to be considered for earnings per share purposes.

55


Table of Contents


Financial Overview

Revenue

To date, all of our revenue has been derived from license fees we have received pursuant to our collaboration arrangement with Bayer. We have not generated any revenue from product sales.

In the future, if ATX-101 is approved for commercial sale in the United States and Canada, we may generate revenue from product sales. Pursuant to our license agreement with Bayer, we may generate additional revenue from a combination of payments of up to approximately $297.0 million contingent upon Bayer's achievement of specified regulatory and commercialization milestones and tiered escalating royalties in the mid- to high-teens on Bayer's sales of ATX-101. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further global development activities of ATX-101 under the terms of the collaboration arrangement. We expect that any revenue we generate from our license agreement will fluctuate from quarter to quarter as a result of the uncertain timing and amount of license fees, milestone payments, royalties and other payments.

Even if ATX-101 is approved for commercial sale, we do not expect to generate revenue from product sales until at least 2015, if at all. If we fail to complete the development of ATX-101, or other product candidates, in a timely manner or to obtain regulatory approval, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and Development Expenses

Major components of our research and development costs are personnel costs, including cash compensation and stock-based compensation expense, pre-clinical studies, clinical trials and related clinical manufacturing, materials and supplies, and fees paid to consultants and other entities that conduct certain research and development activities on our behalf. We expense all research and development costs in the periods in which they are incurred. To date, our research and development expenses have related predominately to the development of ATX-101. In the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013 we spent $14.8 million, $15.8 million, $43.2 million, $14.9 million and $17.8 million, respectively, on research and development expenses. Since inception through June 30, 2013, we have spent approximately $87.3 million on research and development expenses related to the development of ATX-101, excluding cash and stock-based compensation expenses. We do not allocate cash and stock-based compensation expense to individual product candidates, as we are organized and record expense by functional department and our employees may allocate time to more than one development project. We do not utilize a formal time allocation system to capture expenses on a project-by-project basis.

Conducting significant research and development is central to our business and strategy. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and greater duration of late stage clinical trials as compared to earlier clinical and preclinical development. We expect our research and development expenses will decrease as we recently completed our Phase III clinical trials of ATX-101 in the United States and Canada.

56


Table of Contents

General and Administrative Expenses

Our general and administrative costs primarily consist of personnel costs, including cash compensation and stock-based compensation expense, associated with our executive, accounting and finance, legal, marketing and human resources departments. Other general and administrative expenses include costs in connection with patent filing, prosecution and defense, facility costs and professional fees for legal, consulting, marketing, audit and tax services. For the years ended December 31, 2010, 2011 and 2012, and the six months ended June 30, 2012 and 2013 our general and administrative expenses totaled approximately $6.8 million, $6.9 million, $10.5 million, $4.7 million and $7.7 million, respectively. We expect our general and administrative costs will rise as we increase our headcount and expand our staffing and activities to support our operations as a public company and as we prepare for a potential commercial launch of ATX-101. Additionally, we anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, director and officer insurance premiums and investor relations costs associated with being a public company.

Other Income

Other income represents amounts received under the Qualified Therapeutic Discovery Credit Programs included in healthcare reform legislation enacted in March 2010. This program established a one-time pool of $1 billion for grants to small biotech companies developing novel therapeutics, which met certain requirements. Under this program, we received a one-time grant in 2010, which totaled $0.9 million, related to four research and development projects.

Collaboration Arrangement with Bayer

In August 2010, we entered into a license agreement with Bayer Consumer Care AG and a related collaboration agreement with Bayer's affiliate, Intendis GmbH. We refer to these agreements jointly as our collaboration arrangement with Bayer, and we refer to Bayer Consumer Care AG and Intendis GmbH jointly as Bayer. Pursuant to our collaboration arrangement, we licensed to Bayer all of the development and commercial rights to ATX-101 outside the United States and Canada. In connection with establishing the collaboration arrangement, we received upfront payments of $43.6 million in 2010 comprised of license fees and amounts to fund certain further global development activities of ATX-101. We remain eligible to receive up to an aggregate of approximately $297.0 million in additional payments contingent upon Bayer's achievement of specified regulatory and commercialization milestones, as well as escalating royalties from the mid- to high-teens on Bayer's net product sales of ATX-101. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, in May 2012, we also received $17.4 million from Bayer to fund certain further Bayer global development activities of ATX-101 under the terms of the collaboration arrangement.

The next contingent event-based payment is $39.6 million and is subject to Bayer achieving regulatory approval of ATX-101 in the first of any major European country, which is defined as Germany, the United Kingdom, France, Spain or Italy. In addition, the Company is eligible to receive further payments upon the first commercial sales in two defined territories outside of the EU if approved in those territories. The remaining contingent event payments are based on achieving certain net sales targets in Bayer's territory in a calendar year. Bayer expects to file a Marketing Authorization Application in 2014.

57


Table of Contents

License Fees

License fees received in 2010 of approximately $21.3 million were deferred and recognized on a straight-line basis over the expected period of substantial involvement in the collaboration activities that were required to be conducted relative to the upfront license fee and development funds received from Bayer and completion of which was a condition to Bayer's decision to pursue continued development and regulatory approval for ATX-101. These activities were completed as of May 31, 2012.

Collaboration Development Funds

Additionally, we have received approximately $39.6 million to fund certain further global development activities of ATX-101, which were recorded as restricted cash and deferred development funds and are an offset to research and development expenses as the restricted cash is utilized to fund development activities. Amounts recognized as offsets to research and development expenses were $1.0 million, $14.6 million, $10.1 million, $6.5 million and $5.2 million for the years ended December 31, 2010, 2011 and 2012, and the six months ended June 30, 2012 and 2013, respectively.

Los Angeles Biomedical Research Institute

We entered into a license agreement with the Los Angeles Biomedical Research Institute, or LA Biomed, in August 2005, which granted us exclusive worldwide rights to key intellectual property for the active ingredient in ATX-101. As part of this license agreement, we incur sublicense fees equal to 10% of any non-royalty sublicense income, up to a total of an aggregate of $5.0 million. We are obligated to pay LA Biomed low- to mid-single digit royalties on net product sales of ATX-101 by us and Bayer. Additionally, we will incur a milestone payment of $0.5 million upon receipt of marketing approval.

In August 2010, due to the receipt of the license fee income from Bayer, we incurred non-royalty sublicense fees of $2.0 million, which was deferred and recorded as sublicense expense on a straight-line basis over the same period as the license income recorded. During 2010, we made payments to LA Biomed in cash and stock totaling $0.4 million related to the non-royalty sublicense fee incurred and the remaining $1.6 million was paid upon our IPO in 50% cash and 50% stock. Due to the receipt of the $15.8 million contingent event-based payment from Bayer in May 2012, we incurred an additional non-royalty sublicense fee of $1.6 million due to LA Biomed which was paid in 50% cash and 50% stock.


Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements as well as the reported revenues and expenses during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ materially from these estimates.

While our significant accounting policies are described in the notes to our financial statements appearing elsewhere in this prospectus we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

58


Table of Contents

Revenue Recognition

To date, we have only recognized revenue derived from license fees pursuant to our license agreement with Bayer executed in August 2010. In the future, we may receive revenue from the sale of our products, if approved, as well as royalties and milestone payments from our license agreement with Bayer. We recognize revenue when all of the following four criteria are present: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured. For arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets, the elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has "standalone value" to the collaborator and whether there is objective and reliable evidence of the fair value of the undelivered obligation(s). The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-party evidence of selling price (TPE) and (iii) best estimate of selling price (BESP). The BESP reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a standalone basis. In most cases we expect to use TPE or BESP for allocating consideration to each deliverable. The consideration received is allocated among the separate units either on the basis of each unit's fair value or using the residual method and the applicable revenue recognition criteria is applied to each of the separate units. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation.

Our license agreement with Bayer provides for various types of payments, including non-refundable upfront license fees, milestone payments, and royalties on Bayer's net product sales of ATX-101 under the terms of the license agreement.

The non-refundable upfront license payment we received upon execution of our license agreement with Bayer has continuing performance obligations under the terms of our collaboration arrangement with Bayer, including development and clinical manufacturing supply obligations. Due to these ongoing performance obligations, we determined that the license did not have standalone value. We also did not have objective and reliable evidence of the fair value of these undelivered obligations. Accordingly, amounts received upfront under the license agreement were recorded as deferred revenue and revenue was recognized on a straight-line basis over the expected period of substantial involvement in the collaboration activities. The period over which these activities were to be performed was based upon management's estimate of the period to complete the development activities required to be conducted relative to the upfront license fee and development funds received from Bayer, and all revenue was recognized as of May 31, 2012. Short term deferred revenue represents amounts that are expected to be recognized within one year.

We recognize revenue from milestone payments when earned; provided that (i) the milestone event is substantive in that it can only be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance and its achievability was not reasonably assured at the inception of the agreement, (ii) we do not have ongoing performance obligations related to the achievement of the milestone and (iii) it would result in the receipt of additional payments. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment is non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved to achieve the milestone; and the amount of the milestone payments appears reasonable in relation to the effort expended, the other milestones in the arrangement and the related risk associated with the achievement of the milestone. Any amounts received under the agreements in advance of performance, if deemed substantive, are recorded as deferred revenue and recognized as revenue as we complete our performance obligations.

59


Table of Contents

Clinical Trial 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 contract with vendors, consultants 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 trial expense 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 patient 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 services providers as to the progress or state of completion of trials, or the services completed. During the course of a clinical trial, we adjust our rate of 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. 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. Through June 30, 2013, there have been no material adjustments to our prior period estimates of accrued expenses for clinical trials. Our clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party vendors.

Stock-Based Compensation

We account for all stock-based compensation payments issued to employees and directors using an option pricing model for estimating fair value. Accordingly, stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant, net of forfeitures. Compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line single option method. In accordance with authoritative guidance, the fair value of non-employee stock-based awards is re-measured as the awards vest, and the resulting value, if any, is recognized as expense during the period the related services are rendered.

Significant Factors, Assumptions and Methodologies Used in Determining Fair Value

We estimate the fair value of our stock-based awards to employees and directors using the Black-Scholes option pricing model. The Black-Scholes model requires the input of subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of the expected term of the award, (c) the risk free interest rate and (d) expected dividends. Due to our limited operating history and a lack of company specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies, which are publicly- traded. When selecting these public companies on which we have based our expected stock price volatility, we selected companies with comparable characteristics to us, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of our stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. We have estimated the expected life of our employee stock options using the "simplified" method, whereby, the expected life

60


Table of Contents

equals the arithmetic average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have never paid, and do not expect to pay dividends in the foreseeable future.

The weighted-average assumptions used to estimate the fair value of stock options using the Black-Scholes option pricing model were as follows:

 
  Year Ended December 31,   Six Months
Ended
June 30,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Weighted-average exercise price of options granted

  $ 5.81   $ 7.26   $ 10.19   $ 8.63   $ 23.63  

Expected volatility

    77 %   77 %   75 %   76 %   67 %

Expected term (in years)

    5.9     5.8     6.1     6.1     5.9  

Weighted-average risk free interest rate

    1.82 %   1.55 %   1.05 %   1.09 %   1.11 %

Expected dividends

                     

We are also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. For the years ended December 31, 2011 and 2012, we applied a forfeiture rate, which was determined based on historical forfeitures. No forfeiture rate was applied for any period prior to January 1, 2011 as forfeitures prior to such date had been insignificant.

Total compensation cost recorded in the statements of operations and comprehensive loss, which includes stock-based compensation expense, restricted stock issued to our founders, which were subject to vesting conditions and are fully vested, and the value of stock and options issued to non-employees for services are allocated as follows:

 
  Year Ended December 31,   Six Months
Ended
June 30,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Research and development

  $ 510   $ 451   $ 904   $ 366   $ 1,476  

General and administrative

    527     407     2,525     443     1,256  
                       

  $ 1,037   $ 858   $ 3,429   $ 809   $ 2,732  
                       

As of June 30, 2013, there was $11.9 million of unrecognized compensation expense related to unvested employee stock award agreements, which is expected to be recognized over a weighted-average period of approximately 2.51 years. For stock option awards subject to graded vesting, the Company recognizes compensation cost on a straight-line basis over the service period for the entire award.

Common stock valuation

Prior to our IPO, the fair value of the shares of common stock underlying the stock awards has historically been determined by our board of directors. Given the absence of a public trading market

61


Table of Contents

prior to the IPO, and in accordance with the American Institute of Certified Public Accountants Practice Aid, our board of directors exercised its reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at the time of grant of the award. These factors included contemporaneous, independent valuations of our common stock, the rights and preferences of our convertible preferred stock relative to our common stock, valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of our capital stock, the likelihood of achieving a discrete liquidity event, such as an IPO, given prevailing market conditions, and general and industry specific economic outlook, among other factors. The fair value of the underlying common stock was determined by the board of directors until our IPO in October 2012 when our common stock started trading on The NASDAQ Global Select Market under the ticker symbol KYTH. Consequently, after the IPO the fair value of the shares of common stock underlying the stock awards is the closing price on the award grant date.

The table below shows the intrinsic value of our outstanding vested and unvested awards as of June 30, 2013 based upon the closing price of our common stock on June 30, 2013 of $27.05.

 
  Number of shares
underlying awards
  Intrinsic Value  
 
  (unaudited)
 

Total vested awards outstanding

    993,510   $ 22,487,916  

Total unvested awards outstanding

    1,314,161   $ 13,362,220  

Total awards outstanding

    2,307,671   $ 35,850,136  

Redeemable Convertible Preferred Stock Warrants

Freestanding warrants that are related to the purchase of redeemable convertible preferred stock are classified as liabilities and recorded at fair value regardless of the timing of the redemption feature or the redemption price or the likelihood of redemption. Previously outstanding warrants were subject to re-measurement at each balance sheet date and any change in fair value was recognized as a component of warrant and other income (expense), net. Pursuant to the terms of these warrants, upon the conversion of the class of preferred stock underlying the warrant, the warrants automatically became exercisable for shares of our common stock based upon the conversion ratio of the underlying class of preferred stock. Upon consummation of our initial public offering, all classes of our preferred stock converted into common stock and the warrants were reclassified as a component of equity which are no longer subject to re-measurement.

Net Operating Loss Carryforwards

We recorded deferred tax assets of approximately $49.4 million as of December 31, 2012, which have been fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits. The deferred tax assets are primarily composed of federal and state tax net operating loss, or NOL, carryfowards, start-up expenditures and research and development tax credit carryforwards. As of December 31, 2012, we have federal NOL carryforwards of approximately $96.0 million available to reduce future taxable income, if any. These federal NOL carryforwards expire at various times through 2032. In general, if we experience a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period (a "Section 382 ownership change"), utilization of our pre-change NOL carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code (and similar state laws). Such limitations may result in expiration of a portion of the NOL carryforwards before utilization and may be substantial. We have determined that we have experienced ownership changes in the past. If we experience a Section 382 ownership change in

62


Table of Contents

connection with this offering or as a result of future changes in our stock ownership, some of which changes are outside our control, the tax benefits related to the NOL carryforwards may be further limited or lost.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act 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. Thus, 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 extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies.


Results of Operations

Comparison of Six Months Ended June 30, 2012 and 2013 (unaudited)

 
  Six Months
Ended June 30,
  Change  
 
  2012   2013   $   %  
 
  (unaudited)
   
   
 
 
  (in thousands, except percentages)
 

License income

  $ 19,687   $   $ (19,687 )   (100 )%

Sublicense expense

    1,936         (1,936 )   (100 )
                   

Gross margin

    17,751         (17,751 )   (100 )

Operating expenses:

                         

Research and development

    14,884     17,801     2,917     20  

General and administrative

    4,661     7,698     3,037     65  
                   

Total operating expenses

    19,545     25,499     5,954     30  
                   

Loss from operations

    (1,794 )   (25,499 )   (23,705 )   1,321  

Interest income

        63     63     100  

Interest expense

    (104 )   (948 )   (844 )   812  

Warrant and other income (expense), net

    (476 )       476     (100 )
                   

Net loss

  $ (2,374 ) $ (26,384 ) $ (24,010 )   1,011 %
                   

License income.    License income in the six months ended June 30, 2012 represents the amortization of upfront license fees received in 2010 from our license agreement with Bayer, which was entered into in August 2010, and was fully amortized by May 31, 2012.

Sublicense expense.    Sublicense expense in the six months ended June 30, 2012 represents the amortization of our $2.0 million non-royalty sublicense fee payable to LA Biomed as a result of our receipt of license fee income pursuant to our license agreement with Bayer, and was recognized on a straight-line basis over the same period that the license income was recorded and was fully amortized by May 31, 2012.

Research and development expenses.    Research and development expenses increased $2.9 million, or 20%, from $14.9 million for the six months ended June 30, 2012 to $17.8 million for the six months ended June 30, 2013. The increase is primarily attributable to higher costs from an increase in

63


Table of Contents

headcount and related personnel costs of $2.4 million, including increased stock compensation expense of $1.1 million, and increased clinical costs of approximately $0.5 million due to increased consulting and other costs of approximately $3.5 million related to NDA filing preparations. The increase was partially offset by a decrease in the U.S. and Canadian Phase III clinical trial costs of approximately $3.0 million as we transitioned from the enrollment and initiation of patient treatment during the first half of 2012 to the post-treatment follow up stage.

General and administrative expenses.    General and administrative expenses increased by $3.0 million, or 65%, from $4.7 million for the six months ended June 30, 2012 to $7.7 million for the six months ended June 30, 2013. The increase is primarily due to increased personnel costs associated with an increase in headcount in support of the growing organization of approximately $1.1 million, including increased stock compensation expense of $0.8 million, increased accounting, legal, director fees and insurance costs of $0.9 million as a result of being a public company and increased marketing costs of $0.9 million in connection with ATX-101 brand development and market research.

Interest income.    Interest income for the six months ended June 30, 2013 represents interest earned on marketable securities purchased during the first half of 2013 offset by the amortization of premiums paid on the purchased securities.

Interest expense.    Interest expense increased by $0.8 million from $0.1 million for the six months ended June 30, 2012 to $0.9 million for the six months ended June 30, 2013. The increase is due to the interest expense incurred on the outstanding balance of the note payable.

Warrant and other income (expense), net.    Warrant and other income (expense), net, of $0.5 million for the six months ended June 30, 2012 relates to the fair value of the warrants due to revaluation. All warrants were exercised on a cashless basis in December 2012 and no warrants are outstanding as of June 30, 2013.

Comparison of Years Ended December 31, 2011 and 2012

 
  Year Ended
December 31,
  Change  
 
  2011   2012   $   %  
 
  (in thousands, except percentages)
 

License income

  $ 12,985   $ 19,687   $ 6,702     52 %

Sublicense expense

    1,188     1,936     748     63  
                   

Gross margin

    11,797     17,751     5,954     50  

Operating expenses:

                         

Research and development

    15,766     43,184     27,418     174  

General and administrative

    6,879     10,505     3,626     53  
                   

Total operating expenses

    22,645     53,689     31,044     137  
                   

Loss from operations

    (10,848 )   (35,938 )   (25,090 )   231  

Interest expense

    (75 )   (441 )   (366 )   488  

Warrant and other income (expense), net

    (229 )   (420 )   (191 )   83  
                   

Net loss

  $ (11,152 ) $ (36,799 ) $ (25,647 )   230 %
                   

License income.    License income represents the recognition of the $15.8 million contingent event-based payment from Bayer in May 2012, as well as the amortization of upfront license fees received in 2010 from our license agreement with Bayer, which was entered into in August 2010, and was amortized on

64


Table of Contents

a straight-line basis through June 30, 2012. The increase of $6.7 million from $13.0 million for the year ended December 31, 2011 to $19.7 million for the year ended December 31, 2012 is due to the recognition of the $15.8 million payment from Bayer, offset by a decrease in amortization due to partial year recognition in 2012.

Sublicense expense.    Sublicense expense represents the recognition of the $1.6 million non-royalty sublicense fee payable to LA Biomed as a result of the receipt of the $15.8 million contingent event-based payment from Bayer in May 2012, as well as the amortization of our $2.0 million non-royalty sublicense fee payable to LA Biomed as a result of our receipt of license fee income pursuant to our license agreement with Bayer, which was recognized on a straight-line basis over the same period that the license income was recorded. The increase of $0.7 million from $1.2 million for the year ended December 31, 2011 to $1.9 million for the year ended December 31, 2012 is due to the recognition of the $1.6 million non-royalty sublicense fee in May 2012, offset by a decrease in amortization due to partial year recognition in 2012.

Research and development expenses.    Research and development expenses increased $27.4 million, or 174%, from $15.8 million for the year ended December 31, 2011 to $43.2 million for the year ended December 31, 2012. The increase is primarily due to an increase in clinical trial costs of approximately $21.8 million mainly attributable to our U.S. Phase III clinical trials. The remainder of the increase is primarily attributable to an increase in consulting expense of approximately $3.5 million primarily relating to increased clinical consulting costs related to our ongoing clinical trials and preparing for our regulatory submissions for drug approval and an increase in personnel costs of approximately $2.1 million relating primarily to increased salary and salary related expense as a result of increased headcount.

General and administrative expenses.    General and administrative expenses increased by $3.6 million, or 53%, from $6.9 million for the year ended December 31, 2011 to $10.5 million for the year ended December 31, 2012. The increase is primarily due to increased personnel costs of $1.4 million relating primarily to increased salary and salary related expense as a result of increased headcount, an increase in costs associated with brand development and market research of $1.1 million, increased consulting costs of $0.5 million and increased director fees and insurance costs of $0.2 million as a result of going public.

Interest expense.    Interest expense increased by $0.4 million from $0.1 million for the year ended December 31, 2011 to $0.4 million for the year ended December 31, 2012. The increase in interest expense is due to the interest expense on the $5.0 million draw on our credit facility in the fourth quarter.

Warrant and other income (expense), net.    Warrant and other income (expense), net, increased by $0.2 million from $0.2 million for the year ended December 31, 2011 to $0.4 million for the year ended December 31, 2012. The increase in warrant and other income (expense), net is due to the revaluation of the redeemable convertible preferred stock warrants prior to our IPO.

65


Table of Contents

Comparison of Years Ended December 31, 2010 and 2011

 
  Year Ended December 31,   Change  
 
  2010   2011   $   %  
 
  (in thousands, except percentages)
 

License income

  $ 4,488   $ 12,985   $ 8,497     189 %

Sublicense expense

    411     1,188     777     189  
                   

Gross margin

    4,077     11,797     7,720     189  

Operating expenses:

                         

Research and development

    14,842     15,766     924     6  

General and administrative

    6,785     6,879     94     1  
                   

Total operating expenses

    21,627     22,645     1,018     5  
                   

Loss from operations

    (17,550 )   (10,848 )   6,702     (38 )

Interest income

    19         (19 )   (100 )

Interest expense

        (75 )   (75 )   *  

Warrant and other income (expense), net

    570     (229 )   (799 )   (140 )

Other income

    930         (930 )   (100 )
                   

Net loss

  $ (16,031 ) $ (11,152 ) $ 4,879     (30 )%
                   

*
Percentage not meaningful

License income.    License income represents the amortization of upfront license fees received in 2010 from our license agreement with Bayer, which was entered into in August 2010, and was amortized on a straight-line basis through June 30, 2012. The increase of $8.5 million from $4.5 million for the year ended December 31, 2010 to $13.0 million for the year ended December 31, 2011 is due to the recognition of a full year of amortization of license income during 2011 compared to a partial year in 2010.

Sublicense expense.    Sublicense expense represents the amortization of our $2.0 million non-royalty sublicense fee payable to LA Biomed as a result of our receipt of license fee income pursuant to the license agreement with Bayer, which was recognized on a straight-line basis over the same period as the license income was recorded. The increase of $0.8 million from $0.4 million for the year ended December 31, 2010 to $1.2 million for the year ended December 31, 2011 is due to the recognition of a full year of amortization during 2011 compared to a partial year in 2010.

Research and development expenses.    Research and development expenses increased $0.9 million, or 6%, from $14.8 million for the year ended December 31, 2010 to $15.8 million for the year ended December 31, 2011. The increase was primarily due to an increase in manufacturing costs of approximately $3.6 million, partially offset by a decrease in clinical expenses of $2.6 million. The increase in manufacturing costs was primarily due to commercial process validation work in connection with a new filling process in Europe, as well as the build-up of clinical supply in preparation for the U.S. Phase III clinical trials. The decrease in clinical expenses is the result of the completion of our U.S. Phase IIb study for ATX-101 and substantially incurring all the related costs in 2010, while in 2011, we initiated but had not yet begun incurring substantial costs in connection with our U.S. and Canadian Phase III and Phase IIb clinical trials. The European Phase III clinical trials for ATX-101 were funded through the deferred development fund associated with the collaboration agreement with Bayer, whereby restricted cash was utilized to fund development activities and expenditures were recognized as an offset to research and development expense.

66


Table of Contents

General and administrative expenses.    General and administrative expenses increased by $0.1 million, or 1%, from $6.8 million for the year ended December 31, 2010 to $6.9 million for the year ended December 31, 2011. The increase was primarily due to increased spending on patent filings and related intellectual property costs, increased accounting fees associated with tax services and increased information technology and infrastructure costs, offset by decreased financing and legal costs associated with preparing and negotiating our collaboration arrangement with Bayer, which were incurred in 2010.

Interest income.    Interest income for the year ended December 31, 2010 represents interest earned on marketable securities and the amortization of discounts on the purchased securities.

Interest expense.    Interest expense for the year ended December 31, 2011 represents the amortization of the deferred financing cost related to warrants issued in connection with our credit facility.

Warrant and other income (expense), net.    Warrant and other income (expense), net, decreased $0.8 million from income of $0.6 million for the year ended December 31, 2010 to expense of $0.2 million for the year ended December 31, 2011. The decrease in warrant and other income (expense), net was due to the revaluation of the redeemable convertible preferred stock warrants.

Other income.    Other income decreased to $0 from $0.9 million for the year ended December 31, 2010. Amounts recorded in 2010 were from a one-time U.S. Government grant under the Qualified Therapeutic Discovery Credit Programs.


Liquidity and Capital Resources

As of June 30, 2013, we had working capital of $54.5 million. We have principally financed our operations through sales and issuances of our equity securities, including our initial public offering in October 2012, as well as private placements of redeemable convertible preferred stock and convertible debt, and amounts received pursuant to our collaboration arrangement with Bayer for the development of our product candidate, ATX-101.

At June 30, 2013, we had capital resources consisting of cash and cash equivalents, marketable securities and restricted cash of $75.7 million, of which $11.1 million was restricted. Additionally, we have drawn $15.0 million under our existing credit facility and have no further borrowing capacity under our credit facility. Our funds are currently invested in money market funds, U.S. government agency securities, corporate debt securities and demand deposit accounts. Restricted cash was received in accordance with our collaboration arrangement with Bayer in order to fund continued development of ATX-101 under the terms of our collaboration agreement.

In accordance with the terms of the collaboration arrangement with Bayer, we received a contingent event-based payment on May 31, 2012 for $15.8 million triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further global development activities of ATX-101 under the terms of the collaboration arrangement. Due to the receipt of the contingent event-based payment, we incurred an additional non-royalty sublicense fee of $1.6 million due to LA Biomed, which was paid in a combination of cash and common stock.

The next contingent event based payment is expected to be $39.6 million and is subject to Bayer achieving regulatory approval of ATX-101 in the first of any major European country, which is defined as Germany, the United Kingdom, France, Spain or Italy. In addition, we are eligible to receive further payments upon the first commercial sales in two defined territories outside of the European Union, if

67


Table of Contents

approved in those territories. The remaining contingent event payments are based on achieving certain net sales targets in Bayer's territory in a calendar year.

Summary Statement of Cash Flows

The following table shows a summary of our cash flows for each of the three years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013.

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Net cash (used in) provided by

                               

Operating activities

  $ 1,945   $ (22,707 ) $ (32,688 ) $ (7,028 ) $ (24,484 )

Investing activities

    12,597     (696 )   (190 )   (131 )   (32,428 )

Financing activities

    58     36,304     77,612     48     10,187  
                       

Net (decrease) increase in cash and cash equivalents

  $ 14,600   $ 12,901   $ 44,734   $ (7,111 ) $ (46,725 )
                       

Net cash (used in) provided by operating activities.    Net cash used in operating activities was $24.5 million for the six months ended June 30, 2013 and consisted primarily of a net loss of $26.4 million and stock based compensation of $2.7 million. The significant items in the change in operating assets and liabilities include a decrease in deferred development funds of $5.1 million and a decrease in accounts payable and other accrued liabilities of $1.4 million offset by a decrease in restricted cash of $4.8 million. The decrease in the deferred development funds and restricted cash is due to the continuing performance of our obligations under our collaboration agreement with Bayer.

Net cash used in operating activities was $7.0 million for the six months ended June 30, 2012 and consisted primarily of a net loss of $2.4 million and stock based compensation of $0.8 million. The significant items in the change in operating assets and liabilities include an increase in prepaid expenses and other current assets of $3.6 million, an increase in restricted cash of $11.4 million, a decrease in deferred revenue of $3.8 million and a decrease in accounts payable and other accrued liabilities of $1.4 million, offset by an increase in deferred development funds of $12.3 million and an increase in long term payables of $1.3 million. The increase in prepaid expenses and other current assets is primarily due to the prepayment of investigator and other upfront costs for the U.S. Phase III clinical trials for patient enrollment activities during the first half of the year. The decrease in deferred revenue is due to the recognition of the remaining unamortized portion of the upfront license payment received as part of our license agreement with Bayer. The increase in the deferred development funds and restricted cash is due to the receipt of $17.4 million under the collaboration agreement with Bayer.

Net cash used in operating activities was $32.7 million for the year ended December 31, 2012 and consisted primarily of a net loss of $36.8 million and stock based compensation of $3.4 million. The significant items in the change in operating assets and liabilities include an increase in restricted cash of $8.6 million, a decrease in deferred revenue of $3.8 million and a decrease in payable to a licensor of $1.6 million, offset by an increase in deferred development funds of $9.2 million and an increase in accounts payable and other accrued liabilities of $3.2 million. The decrease in deferred revenue is due to the recognition of the remaining unamortized portion of the upfront license payment received as part of our license agreement with Bayer. The increase in the deferred development funds and restricted cash is due to the receipt of $17.4 million under the collaboration agreement with Bayer,

68


Table of Contents

offset by funds utilized for the continuing performance of our obligations under the collaboration agreement with Bayer.

Net cash used in operating activities was $22.7 million for the year ended December 31, 2011 and consisted primarily of a net loss of $11.2 million and stock-based compensation expense of $0.9 million. The significant items in the change in operating assets and liabilities include a decrease in deferred revenue of $13.0 million, a decrease in deferred development funds of $14.7 million, offset by a decrease in restricted cash of $14.4 million and a decrease in deferred licensor payment of $1.2 million. The decrease in deferred revenue and deferred licensor payment was due to the recognition of a portion of the upfront license payment received as part of our license agreement with Bayer and the related sublicense expense. The decrease in the deferred development funds and restricted cash is due to the continuing performance of our obligations under the collaboration agreement with Bayer.

Net cash provided by operating activities was $1.9 million for the year ended December 31, 2010 and consisted primarily of a net loss of $16.0 million and stock-based compensation of $1.0 million. The significant items in the change in operating assets and liabilities include an increase of $21.8 million of restricted cash offset by an increase in deferred development funds of $19.6 million, an increase in deferred revenue of $16.8 million, and an increase in accounts payable and other accrued liabilities of $2.9 million. The increase in deferred revenue was due to the receipt of the upfront license payment under our license agreement with Bayer. The increase in the deferred development funds and restricted cash was due to the receipt of cash to fund the continued efforts in accordance with the collaboration agreement.

Net cash (used in) provided by investing activities.    Net cash (used in) provided by investing activities for the six months ended June 30, 2012 and 2013 and the year ended December 31, 2010, 2011 and 2012 was $(0.1) million, $(32.4) million, $12.6 million, $(0.7) million, and $(0.2) million, respectively, and consisted of purchases of fixed assets, purchases of marketable securities, and proceeds from the sale of marketable securities. Net cash used in the six months ended June 30, 2012 and the year ended December 31, 2011 was for the purchases of fixed assets. Net cash used in investing activities for the six months ended June 30, 2013 was $32.4 million and was comprised mainly of purchases of marketable securities. Net cash provided by investing activities for the year ended December 31, 2010 was $12.6 million and consisted primarily of proceeds from the sale of marketable securities of $12.7 million.

Net cash provided by financing activities.    Net cash provided by financing activities was $10.2 million for the six months ended June 30, 2013, which was primarily due to the draw of $10.0 million from the credit facility. Net cash provided by financing activities was $77.6 million for the year ended December 31, 2012, which was primarily due to proceeds from our initial public offering and borrowings of $5.0 million from our credit facility. Net cash provided by financing activities was $36.3 million for the year ended December 31, 2011, which was primarily due to proceeds from the issuance of Series D redeemable convertible preferred stock. Net cash provided by financing activities in the six months ended June 30, 2012 and for the year ended December 31, 2010 was due to proceeds received from the exercise of stock options to purchase shares of our common stock.

Operating and Capital Expenditure Requirements

We have not achieved profitability on a quarterly or annual basis 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 U.S. Phase III clinical trials of our product candidate, ATX-101. Additionally, as a public company, we incur significant audit, legal, and other expenses that we did not incur as a private company. We believe that our existing capital resources, including funds utilized from

69


Table of Contents

our credit facility, together with the net proceeds from this offering, will be sufficient to fund our operations for at least the next 12 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 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. Further, the achievement of milestones and receipt from Bayer of milestone payments and royalties, if ATX-101 is approved for commercial use in Bayer's licensed territories, are not assured. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

Our future capital requirements depend on many factors, including:

any unexpected results from further analysis beyond the topline data of our recently completed U.S. and Canadian Phase III clinical trials for ATX-101;

whether Bayer continues to pursue or terminates our collaboration arrangement for the development and commercialization of ATX-101;

the amount and timing of any milestone payments or royalties we may receive from Bayer pursuant to our collaboration arrangement;

the number and characteristics of any other product candidates we develop or acquire;

the scope, progress, results and costs of researching and developing ATX-101 or any future product candidates, and conducting preclinical and clinical trials;

the timing of, and the costs involved in, obtaining regulatory approvals for ATX-101 or any future product candidates;

the cost of commercialization activities if ATX-101 or any future product candidates are approved for sale, including marketing, sales and distribution costs;

the cost of manufacturing ATX-101 and any future product candidates and any products we successfully commercialize;

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

any product liability or other lawsuits related to our products;

our ability to enter into new borrowing arrangements to establish a new credit facility;

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

70


Table of Contents

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

Please see "Risk Factors" 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 December 31, 2012, including the extended lease of office space beginning in March 2013.

 
  Payments Due by Period  
Contractual Obligations
  Total   Less than
One Year
  1-3 Years   3-5 Years   More than
5 Years
 
 
  (in thousands)
 

Operating lease obligations(1)

  $ 621   $ 410   $ 211          
                       

Total contractual obligations

  $ 621   $ 410   $ 211          
                       

(1)
We lease our facilities and certain equipment under operating leases.

Purchase Commitments

We have no material non-cancelable purchase commitments with contract manufacturers or service providers as we have generally contracted on a cancelable purchase order basis.

Other Milestone-Based Commitments

We have obligations to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones. Because the achievement and timing of these milestones is not fixed and determinable, such commitments have not been included on our balance sheet or in the Contractual Obligations and Commitments table above. The total aggregate amount of such commitments is approximately $1.9 million.

Note Payable

On March 21, 2011, we entered into a credit facility with Lighthouse Capital Partners VI, L.P., or Lighthouse, which we refer to as our credit facility, providing access to borrow up to $15.0 million of senior loan financing through January 1, 2012. In December 2011, July 2012 and November 2012, we amended the credit facility to provide for an extension of our drawdown period. As of June 30, 2013 and December 31, 2012, we had drawn $15.0 million and $5.0 million, respectively, and no longer have any further borrowing capacity under the credit facility. The credit facility includes various covenants, and we were in compliance with all covenants at June 30, 2013 and December 31, 2012.

For each drawdown, we will make six months of interest only payments at a fixed rate of 11.5% followed by 30 months of interest and principal payments at a fixed rate of 8.5%, and a final payment of 6% of the amount drawn. The debt is secured by all of our assets, except for intellectual property, which is subject to a negative pledge agreement. In accordance with the terms of the credit facility, we issued to Lighthouse warrants to purchase 33,700 shares of our Series C redeemable convertible preferred stock at a price per share of $13.3530 and 86,306 shares of our Series D redeemable convertible preferred stock at a price per share of $13.9040.

71


Table of Contents

All of the warrants issued to Lighthouse converted to warrants to purchase 120,006 shares of common stock in connection with our initial public offering and were subsequently net exercised on a cashless basis for 49,435 shares of common stock in December 2012.


Indemnification

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

In accordance with our certificate of incorporation and bylaws, we have indemnification obligations to our officers and directors for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date, and we have director and officer insurance that may enable us to recover a portion of any amounts paid for future potential claims.


Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, revenues and expenses results of operations, liquidity, capital expenditures or capital resources, except warrants and stock options.


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 and foreign currency exchange rates fluctuations. Due to the fixed interest rate of our credit facility, we do not currently have any exposure to changes in our interest expense as a result of changes in interest rates.

Cash and Cash Equivalents and Restricted Cash

As of June 30, 2013, we had cash and cash equivalents, marketable securities and restricted cash of $75.7 million, of which $11.1 million is restricted. 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. At June 30, 2013, our cash and cash equivalents and marketable securities and restricted cash were comprised of funds in cash, money market accounts, U.S. government agency securities and highly rated, highly liquid corporate debt securities. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio, and therefore, we do not expect our operating results or cash flows to be materially affected to any degree by a sudden change in market interest rates.

Foreign Currency Exchange Rate Fluctuations

As part of our license agreement with Bayer, we may, in the future, receive royalties and milestone payments based on sales of ATX-101 and certain milestone events, in each case, denominated in Euros. As such, in the future, we may be subject to fluctuations in foreign currency exchange rate risk. We are

72


Table of Contents

not currently exposed to any foreign currency exchange rate risk and, as a result, we do not currently hedge any foreign currency exposure.


Recent Accounting Pronouncements

In February 2013, a new accounting standard was issued that requires increased disclosure requirements regarding amounts that are reclassified out of accumulated other comprehensive income. The standard is required to be adopted prospectively beginning on January 1, 2013. Adoption of this standard did not have a material impact on the Company's financial statements.

73


Table of Contents


Business

Overview

We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. Our objective is to develop first-in-class, prescription products using an approach that relies on the scientific rigor of biotechnology to address unmet needs in the rapidly-growing market for aesthetic medicine. Our initial focus is on the facial aesthetics market, which comprises the majority of the aesthetic medicine market. Our product candidate, ATX-101, is a potential first-in-class, injectable drug in late-stage clinical development for the reduction of submental fat, which commonly presents as an undesirable "double chin." Based on clinical trials conducted to date, ATX-101 has exhibited significant, meaningful and durable results in the reduction of submental fat. These results correspond with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. If approved by applicable regulatory authorities, we believe ATX-101 will be an attractive solution for the reduction of submental fat, representing a new product category within the rapidly growing facial aesthetics market.

In 2012, consumers spent nearly $11.0 billion on 10.1 million physician -administered aesthetic procedures, according to the American Society of Aesthetic Plastic Surgery, or ASAPS. Additionally, ASAPS estimates that from 1997 to 2012, surgical aesthetic procedures increased by more than 80%, and non-surgical procedures increased by 461%, reflecting increasing demand for aesthetic procedures over more than a decade. The primary driver of this growth is the demand for facial injectables, such as botulinum toxins and dermal fillers, which represented 48% of all physician -administered aesthetic procedures in the United States and Canada in 2012, and is the fastest growing segment of the aesthetic medicine market. While botulinum toxins and dermal fillers have created a market for non-surgical facial rejuvenation of the upper and mid-face as Food and Drug Administration, or FDA, approved injectables, liposuction and other surgical procedures remain the only proven treatment options for submental fat reduction. Although effective at fat reduction, these invasive procedures often involve significant pain, downtime and expense, as well as risks associated with invasive surgery.

We believe ATX-101 will be an attractive non-surgical solution for the reduction of submental fat. ATX-101 is a proprietary formulation of a purified synthetic version of deoxycholic acid, a naturally occurring molecule in the body that aids in the breakdown of dietary fat. ATX-101 treatment contours the area under the chin by destroying fat cells while leaving surrounding tissue largely unaffected. Our Phase II and Phase III studies have demonstrated that ATX-101, when injected subcutaneously into the target fat deposit, reduces the localized fat deposit while leaving the surrounding tissue largely unaffected.

In the United States and Canada, we conducted two pivotal Phase III trials of ATX-101 for the reduction of submental fat. We initiated this pivotal Phase III clinical program in March 2012 and completed enrollment of 1,022 patients in these trials in August 2012. In these multi-center, randomized, double-blind, placebo-controlled pivotal trials, ATX-101 was found to be well tolerated and resulted in a statistically significant reduction in submental fat, as assessed by validated clinician and patient scales. These scales were validated using scientific principles and process recommendations per the FDA's Patient Reported Outcome Guidance (FDA, 2009) in an effort to ensure reliability, construct validity and sensitivity to change over time, and are similar to other rating scales used for approved aesthetic drug products and medical devices, such as botulinum toxins and dermal fillers. ATX-101 also demonstrated statistically significant reduction in submental volume using MRI in a subset of patients. In addition, treatment with ATX-101 resulted in improvements in patients' self-perception related to the appearance of their "chin fat" as measured by a patient-reported treatment impact scale. We reported positive topline results in September 2013. These trials are

74


Table of Contents

expected to form the basis for our New Drug Application, or NDA, and for our New Drug Submission, or NDS, for approval of ATX-101 in the United States and Canada, respectively.

In Europe, Bayer, our collaborator outside the United States and Canada, completed two pivotal Phase III trials of ATX-101 for the reduction of submental fat in April 2012. In these multi-center, randomized, double-blind, placebo-controlled pivotal trials involving 723 patients, ATX-101 was found to be well tolerated and resulted in a statistically significant reduction in submental fat, as assessed by a validated clinician scale and a patient satisfaction scale. These scales were validated using scientific principles and process recommendations per the FDA's Patient Reported Outcome Guidance (FDA, 2009) in an effort to ensure reliability, construct validity and sensitivity to change over time, and are similar to other rating scales used for approved aesthetic drug products and medical devices, such as botulinum toxins and dermal fillers. ATX-101 also demonstrated statistically significant reduction in submental fat thickness using calipers. In addition, treatment with ATX-101 resulted in improvements in patients' self-perception related to the appearance of their "chin fat" as measured by a patient-reported treatment impact scale. These Phase III results were comparable to those achieved in our three Phase II studies, which evaluated various dosing regimens of ATX-101 in 284 patients. Positive top line results from the Phase III trials were reported in the second quarter of 2012 and are expected to provide the basis for Bayer's regulatory submissions for approval of ATX-101 in countries in Europe, which Bayer expects to occur in 2014.

In August 2010, we entered into a collaboration arrangement with Bayer to develop and commercialize ATX-101 for all indications outside the United States and Canada. Bayer operates in over 80 countries and is well-positioned to commercialize ATX-101 outside the United States and Canada through its dermatology unit, which reaches more than 50,000 dermatologists in markets worldwide. In connection with establishing the collaboration arrangement, we received an upfront payment of $43.6 million. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further global development activities of ATX-101 under the terms of the collaboration arrangement. We remain eligible to receive up to approximately $297.0 million in additional payments contingent upon Bayer's achievement of specified regulatory and commercialization milestones pursuant to the collaboration arrangement. If ATX-101 is approved for commercial use in territories licensed to Bayer, we will also be eligible to receive escalating royalties in the mid- to high-teens based on Bayer's net product sales of ATX-101.

The next contingent event-based payment is $39.6 million and is subject to Bayer achieving regulatory approval of ATX-101 in the first of any major European country, which is defined as Germany, United Kingdom, France, Spain or Italy. In addition, the Company is eligible to receive further payments upon the first commercial sales in two defined territories outside of the European Union ("EU"), if approved in those territories. The remaining contingent event payments are based on achieving certain net sales targets in Bayer's territory in a calendar year.


The Aesthetics Market

Today's culture places significant value on physical appearance, leading to widespread adoption of anti-aging and aesthetic treatments among the U.S. population. The aesthetics market has grown dramatically in the United States, driven by a large population of consumers who are looking to delay signs of aging and improve general appearance. In 2012, consumers spent nearly $11.0 billion on over 10.1 million physician-administered surgical and non-surgical aesthetic procedures in the United States, according to ASAPS. This reflects increasing demand for aesthetic procedures over more than a decade. A strong consumer preference for non-surgical options and the increasing availability of

75


Table of Contents

effective alternatives has prompted adoption of non-surgical aesthetic procedures by a broader patient population. These trends have made non-surgical procedures the primary driver of growth in the aesthetic medicine market, accounting for 83% of the total number of procedures performed in 2012.


Facial Aesthetics—a Large, Rapidly Growing Market

Leading the growth in the non-surgical aesthetic market are facial injectables, principally botulinum toxins and dermal fillers, which have solidified their place as the foundation of the aesthetic medicine market. According to GlobalData Facial Aesthetics, or GlobalData, in 2011 an estimated $2.1 billion was spent by clinicians globally on facial injectable drugs, and such spending is expected to grow at a compounded annual growth rate of 12% through 2018, as illustrated in Figure 1 below.

GRAPHIC

Source: GlobalData Facial Aesthetics (Botulinum Toxin, Dermal Fillers) - Global Pipeline Analysis, Competitive Landscape

Demand for facial injectable procedures is driven by the considerable importance of the face to overall appearance. Patients seek these procedures to help achieve a rejuvenated appearance and improve facial features while avoiding long recovery periods and the associated risks that may result from surgical procedures. As such, non-surgical injectables attract a significantly broader demographic compared to surgical interventions. ASAPS reports that younger patients are increasingly opting for facial injectable treatments to delay the appearance of lines and wrinkles. In addition, older men are increasingly trying to minimize and delay the signs of aging and are seeking facial injectable treatments, a market that has traditionally been dominated by female patients. In the United States and Canada, facial injectable procedures represented 48% of all physician-administered aesthetic procedures in the United States and Canada in 2012, and are the fastest growing segment of the aesthetic medicine market, according to ASAPS.

76


Table of Contents

Most aesthetic procedures are entirely patient funded (not reimbursed by a third-party payor) and discretionary. Despite a decrease in procedure volumes between 2009 and 2010 as a result of the economic downturn, injectable facial treatments proved relatively resilient, while higher cost surgical procedures experienced a steeper decline. We believe consumers' desire to minimize and delay the signs of aging will continue to fuel the growth in facial injectable procedures.

According to ASAPS, approximately 5.9 million facial injectable procedures were performed in the United States in 2012. Based on ASAPS reports and other industry sources, we estimate that approximately 2.1 million patients received botulinum toxin and dermal filler procedures in 2012. The number of facial injectable procedures in North America is expected to grow at a compounded annual growth rate of over 12% through 2018, according to industry sources. We believe this projected growth in the facial injectable market will be driven by a number of trends including:

high patient demand for non-invasive aesthetic procedures;

positive media promotion leading to heightened patient awareness and education and expanding patient pool/demographics;

affordability (relative to invasive surgical aesthetic procedures) driven by competitive pricing pressures;

more indications for current products, new product approvals and emerging alternative technologies;

increasing popularity of receiving several treatments in combination; and

more physician specialties performing facial injectable procedures.

Beyond the United States and Canada, the facial aesthetics market is also growing at a significant rate, with industry sources projecting the European facial injectable market to reach an annual growth rate of nearly 12% by 2018. We believe its long-term potential will approximate the North American market.

Patient and Physician Preference for Facial Injectables

We believe several factors contribute to patients' increased preference for facial injectables, including:

significant and predictable results;

non-surgical alternative;

minimal or no downtime; and

high-degree of patient satisfaction.

In addition to offering features that are desirable to patients, facial injectable treatments also deliver benefits that are attractive to physicians, including:

ease of injectable administration, with office visits typically lasting 15 to 20 minutes;

high-degree of patient satisfaction leading to patient trust and loyalty;

77


Table of Contents

ability to command premium procedure fees to reflect physician expertise and artistry;

patient self-pay, insulating physicians from medical reimbursement risk;

no capital equipment requirements and limited upfront costs; and

demonstrated safety and efficacy supported by FDA approval.

We believe these benefits will drive rapid adoption of new FDA-approved injectable treatments among dermatologists and plastic surgeons, who together perform a significant majority of these procedures.

Unmet Need for Injectable Therapy For Double Chin

Botulinum toxins and dermal fillers have created a market for non-surgical facial rejuvenation of the upper and mid-face. Despite this, undesirable submental fat, or "double chin," remains an important yet unaddressed aesthetic target for injectable facial treatments. The following graphic depicts the areas of the face in which currently-approved injectable products are used, and highlights the lack of treatments for undesirable submental fat, or double chin.

GRAPHIC

1.
American Society of Aesthetic Plastic Surgery, ASAPS, 2012

According to Dermatologic Therapy, cosmetic patients often express concern over fat under the chin. Based on our market research of 385 patients using botulinum toxins and dermal fillers, 78% had treatable fat in this area.

78


Table of Contents

Despite the patient and physician shift in favor of non-surgical and injectable procedures, there are no FDA-approved drugs for the reduction of submental fat, and liposuction and other surgical procedures remain the only proven treatment options. Although effective at fat reduction, these procedures often involve significant pain, downtime and expense, and involve the risks associated with invasive surgery.


Our Injectable Solution to Reshape the Chin

ATX-101 is an injectable, facial treatment that we are initially developing to reduce unwanted fat under the chin. Excess submental fat appears in an area of the body that is not easily concealed with clothing, makeup or accessories and has been found to impact adversely a patient's self-perception. If approved by applicable regulatory authorities, we believe ATX-101 will be an attractive non-surgical solution for the reduction of submental fat, representing a new product category within the rapidly growing facial aesthetics market, for the following reasons:

Significant, meaningful and durable results.  Our clinical studies demonstrated a marked reduction in submental fat, which corresponded with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. As is consistent across our U.S. Phase IIb study, our pivotal U.S. and Canadian Phase III trials, and the pivotal European Phase III trials, ATX-101 demonstrated statistically significant reduction of submental fat in all three efficacy measures: patient assessment, physician assessment and objective measures (magnetic resonance imaging, or MRI, in the U.S. and Canadian Phase III trials and Phase IIb study, and calipers in the European Phase III trials). In addition, the results from our U.S. and Canadian Phase III trials and the European Phase III trials demonstrated that treatment with ATX-101 resulted in a statistically significant improvement in patient happiness with the appearance of their "chin fat" and associated self-perception of youthfulness, as well as a reduction in feeling embarrassed, bothered and self-conscious about the appearance of their "chin fat." Further, an interim analysis of our long-term follow-up study monitoring Phase II patients who received ATX-101 treatment and were responders in their predecessor study indicates that more than 90% sustained or improved their response (defined as ³ 1 grade change from baseline on the Clinician-Reported Submental Fat Rating Scale, or CR-SMFRS) at two years (n=75), and more than 80% sustained or improved their response at three and four years (n=50 and n=10, respectively). As is consistent with previous findings at the two-year mark, no long-term safety concerns were noted in this interim analysis.

Ready group of target patients.  Our market research surveys indicated that 78% of existing botulinum toxin or dermal filler patients had excess treatable submental fat and that 89% of dermal filler patients were also botulinum toxin patients. Taken together, we believe these results indicate that patients who have undergone, or are currently receiving facial injectable treatments, are highly likely to adopt new, similar procedures. Our market research in 385 patients receiving botulinum toxin or dermal fillers indicated that 61% of such patients were likely to try ATX-101 after reading the product profile. Accordingly, we believe that there is a large, readily addressable market of experienced patients, already in our target physicians' practices, who are likely to adopt an injectable facial treatment for the reduction of submental fat to enhance their facial appearance.

Low barrier to physician adoption.  If approved, we expect ATX-101 to be an easily adopted solution for the reduction of submental fat. We believe the short treatment sessions and ease of administration should facilitate physician adoption of ATX-101 as a natural complementary therapy for physicians already administering botulinum toxins and dermal fillers. Unlike some aesthetic procedures that require a physician practice to acquire and make space for often expensive and bulky capital equipment, ATX-101 will not require capital equipment. In addition, given the patient self-pay model in aesthetic medicine, physicians receive procedure fees from patients at the time of service and are not exposed to potential reimbursement risks.

79


Table of Contents

Facilitates physician practice expansion.  We believe ATX-101 will provide dermatologists and plastic surgeons an opportunity to expand the scope and reach of their current aesthetic medicine practices. If approved, ATX-101 for submental fat reduction will be positioned as a naturally complementary procedure for experienced toxin and dermal filler patients, while potentially being an attractive point of entry for new patients that have never received an aesthetic procedure. For example, our market research indicates that men have a significantly higher interest in an injectable solution for submental fat reduction versus other facial injectable treatment options, but according to ASAPS, only comprised 10.0% of the facial injectable market in 2012. We believe ATX-101 provides an opportunity for dermatologists and plastic surgeons to address a broader patient demographic within the facial aesthetics market while also expanding the scope of treatments they can offer to their patient base.

A favorable safety profile with no or limited downtime.  ATX-101 has been well tolerated across all clinical studies completed to date, with the most notable side effects being local to the treatment area and typically mild to moderate in severity. Treatment with ATX-101 also avoids the inherent risks and recovery time associated with general anesthesia and invasive surgical methods. Together, these attributes could make ATX-101 an aesthetic option with limited or no downtime with most patients able to resume normal daily activity immediately after treatment.

We believe ATX-101, if approved, has the potential to reach peak year annual sales of $500 million in the United States.


Our Strategy

In order to achieve our objective of developing first-in-class, non-surgical, prescription products in aesthetic medicine, our near- and long-term strategies include:

Near-term:

Develop and commercialize ATX-101 in the United States and Canada for the non-surgical reduction of submental fat. We believe ATX-101 will satisfy a significant unmet need and view it as a beachhead for our entry into the aesthetics market. If we are successful in receiving regulatory approval, we expect to build a sales organization to commercialize ATX-101 in the United States and Canada. We believe this would include establishing a specialty field sales force initially focused on core aesthetic dermatologists and plastic surgeons.

Maximize the value of ATX-101 through our collaboration arrangement with Bayer.  This collaboration allows early access to clinical data, substantial operating funding, and efficient, effective access to markets outside the United States and Canada. Bayer operates in over 80 countries and is well-positioned to commercialize ATX-101 through its dermatology unit, which reaches more than 50,000 dermatologists in markets worldwide.

Assess and prioritize future indications for ATX-101.  While we are initially developing ATX-101 for the reduction of submental fat, we expect to assess future potential treatment indications for ATX-101. Over time we may develop ATX-101 for the reduction of other small, localized fat deposits in the body with high aesthetic value.

Long-term:

Build KYTHERA into a leading aesthetics company.  We are focused on high-value, self-pay aesthetic products that yield high patient satisfaction. We expect that ATX-101 will serve as a foundation for

80


Table of Contents

    us to develop a franchise of aesthetic products. We intend to leverage ATX-101 to build KYTHERA into a leading biopharmaceutical company solely focused on aesthetics.

Leverage our biotechnology and aesthetics experience.  We strive to attract, retain and incentivize a unique team with significant biotech and aesthetic medicine capabilities to create an environment of high achievement. Our management team, with more than 200 years of combined biotechnology and aesthetics experience, played a leadership role in securing FDA approval of marquee aesthetic products, such as BOTOX® and JUVEDERM®, and in successfully commercializing established biotechnology products such as Aranesp®, NEUPOGEN® and Neulasta®.

Apply rigorous clinical, regulatory and scientific practices to the development of novel, FDA-regulated, aesthetic medicine product candidates such as ATX-101.  We were founded on the premise of combining the scientific and clinical rigor of biotechnology with the attractive market potential of aesthetics. We believe applying scientific rigor to our product candidates allows both patients and physicians to be confident that the product is efficacious and safe based on clinical data.

Be capital efficient and opportunistically expand our product portfolio.  Our capital deployment decisions are an integral part of executing our strategy. To date, we have advanced ATX-101 through Phase III clinical development with an organization of approximately 60 people by taking a disciplined approach that utilizes a network of clinical research organizations and contract manufacturers. We are focused on differentiated opportunities in aesthetics, and have been disciplined in our evaluation of opportunities to date. We will continue to search for new opportunities and intend to advance only those product candidates that meet our criteria for innovation, novelty and large addressable markets.

Continue to build a robust and defensible patent portfolio.  Our ATX-101 patent estate consists, on a worldwide basis, of over 80 issued or allowed patents, including foreign counterparts, and over 70 additional pending patent applications. We will continue to aggressively pursue additional patent protection as well as take appropriate measures to obtain and maintain proprietary protection for our innovative technologies.


Our Drug Candidate: ATX-101

If approved, we believe ATX-101 will be a first-in-class submental contouring injectable drug. It is currently in late-stage development for the reduction of submental fat, which commonly presents as a double chin. ATX- 101 is a proprietary formulation of a purified synthetic version of deoxycholic acid, a naturally occurring molecule in the body that aids in the breakdown of dietary fat. ATX-101 treatment contours the area under the chin by destroying fat cells while leaving surrounding tissue largely unaffected. It has been observed to be well tolerated in Phase I, II and III studies for the reduction of submental fat. Deoxycholic acid has a long track record of safe administration to humans and is a common excipient in the formulation of several marketed drug products.

Mechanism of Action

ATX-101 is designed to be a locally-injected drug that causes proximal, preferential destruction of adipocytes, or fat cells, with minimal effect on surrounding tissue. Upon subcutaneous injection under the skin, ATX-101 disrupts cell membranes in protein-poor tissues, such as fat, while being attenuated by interactions with protein-rich tissue, such as skin, muscle and blood vessels. This attenuation by protein-rich tissue results in the preferential destruction of adipocytes by ATX-101. The destruction of adipocytes, or adipocytolysis, elicits a natural response in which macrophages are attracted to remove cellular debris and fat particles through the lymphatic system. The macrophages also emit low levels of

81


Table of Contents

chemical messengers, known as cytokines, which attract fibroblasts, another cell type, to the area. Fibroblasts produce collagen, and it is believed that new collagen production, or neocollagenesis, promotes retraction of the skin in the areas of fat reduction. Importantly, the fat removal process with ATX-101 is incremental with each treatment, thereby allowing for control of the aesthetic outcome.

Nonclinical Program

In accordance with international guidelines and in consultation with the FDA, we have conducted a broad nonclinical development program for subcutaneously-administered ATX-101. The program included preclinical efficacy, safety pharmacology, pharmacokinetics/bioavailability and single/repeat-dose toxicity studies of ATX-101, including chronic studies of up to nine months duration. Genotoxicity, local tolerance and formulation bridging studies were also conducted, along with a complete battery of reproductive toxicity testing. Together, these studies supported the clinical development and anticipated future safety labeling of ATX-101 for the reduction of submental fat. We do not expect to be required by regulatory bodies to perform additional nonclinical studies.

Clinical Development Program

To support approval of ATX-101, we are pursuing a rigorous, science-based clinical development program. ATX-101 is the subject of four pivotal Phase III clinical trials for the reduction of submental fat, consisting of two recently completed trials in the United States and Canada, with total enrollment of 1,022 patients, and two completed trials in Europe that involved 723 total patients. These clinical trials were designed based on promising results observed in three multi-center, double-blind, placebo-controlled Phase II studies that evaluated various dosing regimens for ATX-101 and also served to validate potential efficacy endpoints, including patient and physician submental fat rating scales. Altogether, a total of 681 patients have participated in 12 Phase I and Phase II clinical studies of ATX-101 for the treatment of submental fat reduction including two early studies for the treatment of superficial lipomas, a common type of benign fatty tumor found under the skin. This included a 218-patient cardiac safety (QT/QTc) Phase I study that met the pre-specified FDA agreed primary endpoint, demonstrating that ATX-101, at and above therapeutic levels, did not prolong the rate corrected QT interval in healthy individuals. An additional open-label long-term safety study of ATX-101 for the reduction of submental fat was recently completed in 165 patients, with interim data demonstrating ATX-101 was well tolerated and may be effective in reducing SMF by both clinician- and patient-reported outcome measures. Overall, subcutaneous treatment with ATX-101 has been observed to be well tolerated across all clinical studies to date.

Clinical development of ATX-101 in the United States is being conducted under an Investigational New Drug Application, or IND, that was opened in December 2007 and is currently active with the FDA. In Canada, Europe and other territories, clinical development is being conducted under similar national clinical trial applications.

Phase I Clinical Studies

Seven Phase I studies were conducted in a total of 319 patients and evaluated safety, tolerability, pharmacokinetics and/or histopathology following administration of ATX-101, as described below:

    Pharmacokinetic studies (2008-2009, 2011, 2012).    Three Phase I studies have been conducted to evaluate the pharmacokinetics of ATX-101. The first study was an open-label, single-center, dose-escalation, safety study and was conducted in 24 patients. Each patient received a single ATX-101 treatment at 0-4mg/cm2, given subcutaneously into the submental fat, using a variety of concentrations, volumes and injection grid patterns. Treatment with ATX-101 was well tolerated.

82


Table of Contents

    The most common adverse effects were mild-to-moderate local injection site reactions. Peak deoxycholate blood levels occurred within about 30 minutes after administration of ATX-101 and were dose-related. At all doses, deoxycholate returned to endogenous levels within 12 to 24 hours. The second study was an open-label, single-center, cross-over study in five patients that compared blood levels of deoxycholate following injection of ATX-101 into the abdomen or submental fat. Comparable overall exposure was observed when ATX-101 was injected into the two locations, although peak exposure was somewhat higher following injection into submental fat. The third study was an open-label, single-center study conducted in 24 patients to determine the pharmacokinetics of injecting a single dose of ATX-101 in its final proposed commercial formulations. Each patient received a single ATX-101 treatment at 2 mg/cm2, given subcutaneously into the submental fat. No serious adverse events were reported and no subjects were discontinued due to adverse events.

    Histology study (2008-2009).    In this open-label, vehicle-controlled, multi-center study, various doses of ATX-101 were injected into the abdominal fat of 14 patients who were scheduled to undergo abdominoplasty at differing time points. Histological evaluation of the excised fat tissue demonstrated the initial destruction of adipocytes followed by a local immune response and thickening of fibrous septae within the fat tissue consistent with the proposed mechanism of action of ATX-101.

    Lipid study (2010-2011).    This 10-patient, open-label, single-center study evaluated blood levels of lipids and other biological markers following administration of ATX-101. Results confirmed that adipocytolysis induced by ATX-101 did not result in adverse levels of serum lipids (including cholesterol, triglycerides and free fatty acids) or metabolic and inflammatory markers.

    Formulation tolerability study (2010).    The comfort and tolerability of two formulations of ATX-101, one with and one without a benzyl alcohol preservative, were compared in 24 patients in this single-dose study. Both formulations were considered acceptable for use in future studies. We intend to use the benzyl alcohol formulation for the U.S. and Canadian markets and Bayer plans to use the formulation without benzyl alcohol in Europe and certain other countries.

    Cardiac safety study (2013).    This 218-patient cardiac safety study of ATX-101, known as the QT/QTc study, met the pre-specified FDA agreed primary endpoint, demonstrating that ATX-101, at and above therapeutic levels, did not prolong the QTc interval in healthy individuals. Further, the study found no relationship between QTc interval and plasma ATX-101 concentrations.

Clinical Development in Reduction of Submental Fat

The following key measures were developed, and assessed in Phase II and Phase III clinical trials:

    Clinician-Reported Submental Fat Rating Scale (CR-SMFRS):  a physician assessment of the prominence and convexity of submental fat on a 5-point ordinal scale (0-none, 1-mild, 2-moderate, 3-severe, 4-extreme).

    Patient-Reported Submental Fat Rating Scale (PR-SMFRS):  a patient self-assessment of the amount of their "chin fat" on a 5-point ordinal scale (0-none, 1-slight, 2-moderate, 3-large, 4-very large).

    Subject-Self Rating Scale (SSRS):  a patient self-assessment of satisfaction with the appearance of their face and chin on a 7-point ordinal scale (0-extremely dissatisfied, 1-dissatisfied, 2-somewhat

83


Table of Contents

      dissatisfied, 3-neither satisfied nor dissatisfied, 4-somewhat satisfied, 5-satisfied, 6-extremely satisfied) when asked the following question:

      "...how satisfied do you feel with your appearance at the present time whether or not in your judgment it is due to treatment with ATX-101?"

    Patient-Reported Submental Fat Impact Scale (PR-SMFIS):  a patient self-assessment, each on a 10-point ordinal scale, of their perception measuring:

    How happy are you with the appearance with your chin fat?

    How bothered are you by the appearance of your chin fat?

    How self-conscious are you about the appearance of your chin fat?

    How embarrassed are you about the appearance of your chin fat?

    How much older do you look because of your chin fat?

    How much overweight do you look because of your chin fat?

    Patient Satisfaction with Treatment:  a patient self-assessment of satisfaction with treatment measured on a 7-point ordinal scale (0-extremely dissatisfied, 1-moderately dissatisfied, 2-a little dissatisfied, 3-neither satisfied nor dissatisfied, 4-a little satisfied, 5-moderately satisfied, 6-extremely satisfied).

    Submental Skin Laxity Grade (SMSLG):  a physician assessment of submental wrinkling, skin folding and apposition to underlying neck structures on a 4-point photo-numeric grading scale (1-none, 2-mild, 3-moderate, 4-severe).

    Change in Submental Volume via Magnetic Resonance Imaging, or MRI:  an objective measure of submental volume within a 1 cm wide sagittal slice acquired through MRI measured in cubic millimeters (mm3).

    Change in Submental Fat Thickness via Calipers:  an objective measure of submental fat thickness measured in millimeters (mm).

84


Table of Contents


Figure 2. Summary of Statistical Significance of ATX-101 Effects Compared to Placebo

The following tables (Figures 2 and 3) summarize the results from our completed U.S. Phase IIb study, European pivotal Phase III trials and U.S. and Canadian pivotal Phase III trials:

GRAPHIC

* except "Self-Conscious" and "Overweight" measures NS, overall score: p =0.005.

"D" signifies change, "nm" signifies not measured, "Tx" signifies treatment

"NS" signifies not statistically significant (p >0.05)

For secondary measures of PR-SMFRS, PR-SMFIS, MRI Volume, Calipers and Global Post-Tx Satisfaction, analysis includes only subjects with available data.

85


Table of Contents


Figure 3. Summary of Statistical Significance of ATX-101 Effects Compared to Placebo in U.S. and Canadian Phase III Trials

GRAPHIC

"D" signifies change from baseline

Phase II Clinical Studies

Three multi-center, randomized, double-blind, placebo-controlled Phase II studies were conducted in 284 patients and evaluated various dosing regimens of ATX-101 vs. placebo for the reduction of submental fat. The Phase II program included two early Phase IIa studies, which formed the basis for Bayer's European Phase III trials, and one Phase IIb study that provided the basis for the U.S. and Canadian Phase III trials.

    Phase IIa Studies (2007-2008).    The two initial Phase IIa studies were conducted in a total of 155 patients. The first study evaluated various concentrations of ATX-101 administered subcutaneously directly into the submental fat, using a grid pattern of small-volume injections. The exact number of injections was at the discretion of the clinician based on the distribution of submental fat in each particular patient, but could not exceed 10 mL. In a similar manner, the second Phase IIa study utilized a constant concentration of ATX-101 and varied the volume of each injection and the spacing of the grid pattern. In both studies, patients received up to four treatment cycles at 28-day intervals, and agreed to maintain consistent diet and exercise practices throughout the study in order to minimize potential changes in body weight. Principal efficacy measures in these

86


Table of Contents

    two early studies were the CR-SMFRS and a 7-point patient-reported outcome scale, or PRO, assessing satisfaction with appearance of the face and chin. These rating instruments are similar to other rating scales used for approved aesthetic drug products and/or medical devices, such as botulinum toxins and dermal fillers. For both measures, we observed statistically significant improvements in patients treated with ATX-101, particularly patients dosed at 1 or 2 mg/cm2 and, following discussions with various European regulatory authorities, the Phase IIa data were deemed sufficient to inform the design of Bayer's European pivotal Phase III clinical trials.

    Phase IIb Study (2009-2010).    Subsequent discussions with the FDA led to the development of additional submental fat assessment tools, including the PR-SMFRS, which parallels the clinician-reported assessment, and the PR-SMFIS, which assesses the visual and psychological impacts of "chin fat." These patient-reported scales, along with the CR-SMFRS, were rigorously validated, including demonstrations of multi-patient and multi-physician inter- and intra-rater reliability. These scales were used along with MRI assessments in a definitive Phase IIb dose-ranging study in 129 patients. This study compared ATX-101 at 1 or 2 mg/cm2 vs. placebo in patients with moderate to severe submental fat. As in our Phase IIa studies, the exact number of injections of ATX-101 in our Phase IIb study was at the discretion of the clinician based on the distribution of submental fat for each particular patient, with a maximum of 10 mL injected per treatment cycle. Patients were allowed to receive up to six treatments at 28-day intervals and, as in previous studies, were requested to maintain consistent diet and exercise practices. Results from this study indicated that both doses were superior to placebo in most measures; however, the higher 2 mg/cm2 dose appeared to consistently outperform the lower 1 mg/cm2 dose. Compared to placebo-treated patients, dose-related improvements were observed in ATX-101-treated patients for mean changes in CR-SMFRS ratings (Figure 4), mean changes in PR-SMFRS ratings (Figure 5) and mean changes in submental fat volume (Figure 6) as assessed using MRI. In addition, treatment with ATX-101 resulted in improvements in patients' self-perception related to their submental fat as measured by the PR-SMFIS (Figure 7). Treated patients reported statistically significant increases in happiness with the appearance of their "chin fat" and self-perceptions of youthfulness and looking less overweight. The patients also reported feeling significantly less embarrassed, bothered and self-conscious about the appearance of their "chin fat."

Across all three Phase II studies, ATX-101 was well tolerated in all dosing regimens. The observed safety profile of ATX-101 is characterized by transient, local injection site reactions of typically mild to moderate severity. Pain was the most common injection site reaction, followed by numbness, bruising, swelling, induration and redness. Less frequently, itching, nodules and tingling were reported. Most of the injection site reactions resolved within the 28-day treatment interval, with some cases extending beyond the treatment interval gradually diminishing over the treatment period. Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifests as an asymmetric smile, were reported in 0.6% of ATX-101 procedures across all studies to date and, in each case, resolved. Across studies, the 1 and 2 mg/cm2 dosing regimens selected for use in later European Phase III trials appeared to have slightly better tolerability than other regimens that included higher ATX-101 concentrations or volumes, or tighter injection grid spacing.

All figures below are based on "Intent-to-Treat," or ITT, population which comprises all randomized subjects with baseline efficacy data. For regulatory purposes, the primary efficacy analyses will be based on the ITT population. Statistically significant results at various levels are denoted by asterisks or p-values in the figures below. The p-value is the probability that the reported result was achieved purely by chance (e.g., a p-value £0.01 means that there is a 1% or less chance that the difference between the placebo group and the treatment group is purely due to chance). A p-value £ 0.05 is a commonly used criterion for statistical significance. The symbol "n" is used to denote sample size per group.

87


Table of Contents


Figure 4. Phase IIb study, Mean Change from Baseline in Clinician Rating, CR-SMFRS, by Treatment Group

GRAPHIC


Figure 5. Phase IIb study, Mean Change from Baseline in Patient Rating, PR-SMFRS, by Treatment Group

GRAPHIC

88


Table of Contents


Figure 6. Phase IIb study, Mean Change from Baseline in MRI Volume of Submental Fat by Treatment Group

GRAPHIC


Figure 7. Phase IIb study, Mean Change from Baseline in Patient Rating, PR-SMFIS, by Treatment Group

GRAPHIC

Representative before/after photographs of three Phase IIb patients, one male and two females, are shown in Figures 8, 9 and 10, respectively.

89


Table of Contents


Figure 8. Phase IIb study, 32-year-old male

This 32-year-old male entered the Phase IIb study with his baseline submental fat rated as grade 3 (severe) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, he achieved a 1-grade reduction in submental fat according to the clinician-reported scale and a 2-grade reduction according to the patient-reported scale.

Baseline   Week 32

GRAPHIC

BMI=25.2   CR-SMFRS=3   BMI=25.2   CR-SMFRS=2
Wt=81.8 kg   PR-SMFRS=3   Wt=81.8 kg   PR-SMFRS=1

90


Table of Contents


Figure 9. Phase IIb study, 33-year-old female

This 33-year-old female entered the Phase IIb study with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 1-grade reduction in submental fat according to both the clinician- and patient-reported scales.

Baseline   Week 32

GRAPHIC

BMI=25.8   CR-SMFRS=2   BMI=26.5   CR-SMFRS=1
Wt=68.6 kg   PR-SMFRS=2   Wt=70.5 kg   PR-SMFRS=1

91


Table of Contents


Figure 10. Phase IIb study, 52-year-old female

This 52-year-old female entered the Phase IIb study with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 2-grade reduction in submental fat according to both the clinician- and patient-reported scales.

Baseline   Week 32

GRAPHIC

BMI=27.6   CR-SMFRS=2   BMI=26.7   CR-SMFRS=0
Wt=81.6 kg   PR-SMFRS=2   Wt=79.8 kg   PR-SMFRS=0

92


Table of Contents

    Long-Term Phase II Follow-Up Study.    In an effort to assess long-term safety and duration of treatment effects, we are conducting an ongoing observational study to capture up to five years of long-term follow-up data on a subset of patients who completed Phase II studies of ATX-101 for submental fat reduction. An interim analysis of patients who received ATX-101 and were responders in their predecessor Phase II study indicates that more than 90% sustained or improved their response (defined as ³ 1 grade change from baseline on the Clinician-Reported Submental Fat Rating Scale, or CR-SMFRS) at two years (n=75), and more than 80% sustained or improved their response at three and four years (n=50 and n=10, respectively). As is consistent with previous findings at the two-year mark, no long-term safety concerns were noted in this interim analysis.

Summary of Regulatory Endpoints

The table (Figure 11) below summarizes the regulatory endpoints developed during the Phase II studies and used in the Phase III clinical trials to measure ATX-101 performance. These patient and physician scales are similar to other rating scales used for approved aesthetic drug products and medical devices, such as botulinum toxins and dermal fillers, and the CR-SMFRS, PR-SMFRS and PR-SMFIS were validated using scientific principles and process recommendations per the FDA's Patient Reported Outcome Guidance (FDA, 2009) in an effort to ensure reliability, construct validity and sensitivity to change over time.


Figure 11.    Summary of Phase III Regulatory Endpoints

GRAPHIC

Bayer's European Pivotal Phase III Clinical Trials (2010-2012)

In Europe, Bayer conducted two identical pivotal, multi-center, randomized, double-blind, placebo-controlled, Phase III clinical trials designed to assess the efficacy, safety and tolerability of ATX-101, dosed at 1 or 2 mg/cm2, vs. placebo for the reduction of moderate to severe submental fat. The design of these trials was based on results from the prior Phase IIa studies and further informed by the then-ongoing development of additional patient-reported endpoints. Patients received up to four treatments at 28-day intervals and, as in previous studies, were requested to maintain consistent diet

93


Table of Contents

and exercise practices. Together, the trials enrolled 723 patients in 57 centers in the United Kingdom, France, Germany, Belgium, Spain and Italy. The results are discussed below for each trial:

    Trial ATX-101-10-16.    This trial, which included 363 patients, met the pre-specified primary endpoints by demonstrating statistically significant reduction of moderate to severe submental fat, for both the 1 and 2 mg/cm2 doses compared to placebo, as assessed by: percentage of patients with at least a 1-point improvement on the 5-point Clinician-Reported Submental Fat Rating Scale, or CR-SMFRS (Figures 12 and 13), and percentage of patients expressing satisfaction with their appearance in association with their face and chin as measured by a rating of 4 or higher on the 7-point Subject Self Rating Scale, or SSRS (Figure 14).

    In addition, treatment with ATX-101 resulted in dose-dependent, statistically significant improvements in a number of secondary outcomes measured by: the 5-point Patient-Reported Submental Fat Rating Scale, or PR-SMFRS (Figure 15), caliper measurements of the submental area (Figure 18), and patients' self-perception related to the appearance of their submental fat as measured by the Patient-Reported Submental Fat Impact Scale, or PR-SMFIS (Figure 16). Treated patients reported statistically significant increases in happiness with the appearance of their "chin fat" and associated self-perceptions of youthfulness and looking less overweight. The patients also reported feeling less embarrassed, bothered and self-conscious about the appearance of their "chin fat." Patients also reported a statistically significant difference in overall satisfaction with treatment as compared to placebo (Figure 17).

    In this trial, the observed safety profile of ATX-101 was characterized by transient, local injection site reactions of predominately mild to moderate severity. Pain was the most common injection site reaction, followed by swelling, bruising, numbness, redness and induration. Less frequently, itching, tingling and nodules were reported. Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifests as an asymmetric smile, were reported in 0.6% of ATX-101 procedures across all studies to date and, in each case, resolved. While there was a higher incidence of pain rated as moderate or severe in this trial than in the Phase II studies, patient satisfaction with treatment was high, and patient withdrawal from treatment due to adverse events was similar and less than 10%. Incidence of the most commonly reported injection site reactions are shown below (Figure 19).

    Analyses of primary efficacy measures shown in the figures below are based on the protocol specified, "Intent-to-Treat," or ITT, population which comprises all randomized subjects with baseline efficacy data (CR-SMFRS or SSRS). The protocol specified, "Per Protocol," or PP, population comprises randomized subjects who have data at both baseline and Visit 7 for CR-SMFRS, SSRS, or both, and no major protocol violations. For secondary measures of PR-SMFRS, PR-SMFIS and Patient Satisfaction with treatment, analysis includes only subjects with available data. Statistically significant results at various levels are denoted by asterisks or p-values in the figures below. The p-value is the probability that the reported result was achieved purely by chance (e.g., a p-value £ 0.01 means that there is a 1% or less chance that the difference between the placebo group and the treatment group is purely due to chance). A p-value £ 0.05 is a commonly used criterion for statistical significance. The symbol "n" is used to denote sample size per group.

94


Table of Contents

Figure 12. European Phase III Trial ATX-101-10-16, Percent of Patients with at least 1 Grade Improvement in Clinician Rating, CR-SMFRS, at Week 24 by Treatment Group

GRAPHIC

Figure 13. European Phase III Trial ATX-101-10-16, Mean Change from Baseline in Clinician Rating, CR-SMFRS, by Treatment Group

GRAPHIC

95


Table of Contents

Figure 14. European Phase III Trial ATX-101-10-16, Percent of Patients Expressing Satisfaction With The Appearance of Their Face and Chin, SSRS ³ 4, at Week 24 by Treatment Group

GRAPHIC

Figure 15. European Phase III Trial ATX-101-10-16, Mean Change from Baseline in Patient Rating, PR-SMFRS, at Week 24 by Treatment Group

GRAPHIC

96


Table of Contents

Figure 16. European Phase III Trial ATX-101-10-16, Mean Change from Baseline in Patient Ratings, PR-SMFIS, at Week 24 by Treatment Group

GRAPHIC

Figure 17. European Phase III Trial ATX-101-10-16, Percent of Patients Expressing Satisfaction with Treatment, at Week 24 by Treatment Group, PP

"How Satisfied are You with the Treatment You Received in this Study?"

GRAPHIC

97


Table of Contents

Figure 18. European Phase III Trial ATX-101-10-16, Mean Change [%] from Baseline in Caliper Measurements at Week 24 by Treatment Group

GRAPHIC

Figure 19. European Phase III, ATX-101-10-16, Incidence of Common Injection Site Reactions

GRAPHIC

    Trial ATX-101-10-17.    This trial, which included 360 patients, also met the pre-specified primary endpoints by demonstrating statistically significant reduction of moderate to severe submental fat, for both the 1 and 2 mg/cm2 doses compared to placebo, as assessed by: percent of patients with at least a 1-point improvement on the 5-point Clinician-Reported Submental Fat Rating Scale, or CR-SMFRS (Figures 20 and 21), and percentage of patients expressing satisfaction with their appearance in association with their face and chin as measured by a rating of 4 or higher on the 7-point Subject Self Rating Scale, or SSRS (Figure 22).

98


Table of Contents

    Likewise, treatment with ATX-101 resulted in statistically significant improvements in a number of secondary outcomes measured by: the 5-point Patient-Reported Submental Fat Rating Scale, or PR-SMFRS (Figure 23), caliper measurements of the submental area (Figure 26), and patients' self-perception related to the appearance of their submental fat as measured by the Patient-Reported Submental Fat Impact Scale, or PR-SMFIS (Figure 24). Treated patients reported statistically significant increases in happiness with the appearance of their "chin fat" and associated self-perceptions of youthfulness and looking less overweight. The patients also reported feeling significantly less embarrassed, bothered and self-conscious about the appearance of their "chin fat." Patients also reported a statistically significant difference in overall satisfaction with treatment as compared to placebo (Figure 25).

    In this trial, the observed safety profile of ATX-101 was consistent with that observed in Trial ATX-101-10-16 and was characterized by transient, local injection site reactions of predominately mild to moderate severity. Pain was the most common injection site reaction, followed by swelling, bruising, numbness, redness and induration. Less frequently, itching, tingling and nodules were reported. Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifest as an asymmetric smile, were reported in 0.6% of ATX-101 procedures across all studies to date and, in each case, resolved. While there was a higher incidence of pain rated as moderate or severe in this trial than in the Phase II studies, patient satisfaction with treatment was high, and patient withdrawal from treatment due to adverse events was similar and less than 10%. Incidence of the most commonly reported injection site reactions are shown below (Figure 27).

    Analyses of primary efficacy measures shown in the figures below are based on the protocol specified, "Intent-to-Treat," or ITT, population which comprises all randomized subjects with baseline efficacy data (CR-SMFRS or SSRS). The protocol specified, "Per Protocol," or PP, population comprises randomized subjects who have data at both baseline and Visit 7 for CR-SMFRS, SSRS, or both, and no major protocol violations. For secondary measures of PR-SMFRS, PR-SMFIS and Patient Satisfaction with treatment, analysis includes only subjects with available data. Statistically significant results at various levels are denoted by asterisks or p-values in the figures below. The p-value is the probability that the reported result was achieved purely by chance (e.g., a p-value £ 0.01 means that there is a 1% or less chance that the difference between the placebo group and the treatment group is purely due to chance). A p-value £ 0.05 is a commonly used criterion for statistical significance. The symbol "n" is used to denote sample size per group.

99


Table of Contents


Figure 20. European Phase III Trial ATX-101-10-17, Percent of Patients with At Least 1 Grade Improvement in Clinician Rating, CR-SMFRS, at Week 24 by Treatment Group

GRAPHIC


Figure 21. European Phase III Trial ATX-101-10-17, Mean Change from Baseline in Clinician Rating, CR-SMFRS, by Treatment Group

GRAPHIC

100


Table of Contents

Figure 22. European Phase III Trial ATX-101-10-17, Percent of Patients Expressing Satisfaction With The Appearance of Their Face and Chin, SSRS ³ 4, at Week 24 by Treatment Group

GRAPHIC

Figure 23. European Phase III Trial ATX-101-10-17, Mean Change from Baseline in Patient Rating, PR-SMFRS, at Week 24 by Treatment Group

GRAPHIC

101


Table of Contents

Figure 24. European Phase III Trial ATX-101-10-17, Mean Change from Baseline in Patient Ratings, PR-SMFIS, at Week 24 by Treatment Group, PP

GRAPHIC

Figure 25. European Phase III Trial ATX-101-10-17, Percent of Patients Expressing Satisfaction with Treatment, at Week 24 by Treatment Group

GRAPHIC

102


Table of Contents


Figure 26. European Phase III Trial ATX-101-10-17, Mean Change [%] from Baseline in Caliper Measurements at Week 24 by Treatment Group

CHART


Figure 27. European Phase III, ATX-101-10-17, Incidence of Common Injection Site Reactions

CHART

Representative before/after photographs of four Phase III female patients are shown in Figures 28, 29, 30 and 31.

103


Table of Contents


Figure 28. European Phase III, 36-year-old female

This 36-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 24, she achieved a 1-grade reduction in submental fat according to the CR-SMFRS, a 2-grade reduction according to the PR-SMFRS, and a 3-point improvement in satisfaction with the appearance of her face and chin (SSRS).

CHART

104


Table of Contents


Figure 29. European Phase III, 33-year-old female

This 33-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on the clinician-rated scale (CR-SMFRS) and grade 1 (mild) on the patient-rated scale (PR-SMFRS). By the end of study at week 24, she achieved a 2-grade reduction in submental fat according to the CR-SMFRS, and a 4-point improvement in satisfaction with the appearance of her face and chin (SSRS).

CHART

105


Table of Contents


Figure 30: European Phase III, 38-year-old female

This 38-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 24, she achieved a 0-grade reduction in submental fat according to the CR-SMFRS, a 1-grade reduction according to the PR-SMFRS, and a 3-point improvement in satisfaction with the appearance of her face and chin (SRSS).

CHART

106


Table of Contents


Figure 31. European Phase III, 42-year-old female

This 42-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 24, she achieved a 1-grade reduction in submental fat according to the CR-SMFRS and PR-SMFRS and a 2-point improvement in satisfaction with the appearance of her face and chin (SRSS).

CHART

Results from these trials were received in the second quarter of 2012 and are anticipated to provide the basis for Bayer's regulatory submissions for approval of ATX-101 in countries in Europe, which Bayer expects to occur in 2014.

Bayer has also initiated a two-year, non-treatment, follow-up trial on a subset of patients from the European Phase III trials to assess long-term safety and duration of treatment effects.

U.S. and Canadian Pivotal Phase III Clinical Trials—"REFINE-1" and "REFINE-2" (2012-2013)

Based on study results to date, as well as substantive discussions with the FDA, our U.S. and Canadian pivotal Phase III trials were designed following the treatment regimen used in our completed Phase IIb study. These trials were designed to test against regulatory approval requirements using rigorous statistical analysis of validated physician and patient scales. These patient and physician scales are similar to other rating scales used for approved aesthetic drug products and medical devices, such as botulinum toxins and dermal fillers. As a substantiating objective measure, MRI was used to measure the change in submental volume following treatment with ATX-101. In addition, secondary and other

107


Table of Contents

measures evaluated patient satisfaction, perception of change and the psychological impacts associated with reduction of submental fat.

Our pivotal U.S. and Canadian Phase III trials, known as REFINE-1 and REFINE-2, or Randomized Double-blind Evaluation of Submental Fat Reduction IN ATX-101 TrEated Patients, were initiated in March 2012 and were designed to confirm the efficacy, safety and tolerability of ATX-101 for reduction of moderate to severe submental fat. These trials were identical multi-center, randomized, double-blind, placebo-controlled trials that compared subcutaneous injections of ATX-101 dosed at 2 mg/cm2 to similar injections of placebo, with the primary efficacy assessments at 12 weeks after final treatment. Patients received up to six treatments at 28-day intervals and agreed to maintain consistent diet and exercise practices throughout the study in order to minimize potential changes in body weight. The trials were conducted in approximately 70 centers across the United States and Canada. We enrolled 1,022 patients across the two trials, randomized 1:1 to ATX-101 or placebo (REFINE-1 enrolled 506 patients and REFINE-2 enrolled 516 patients).

These Phase III trials had as principal efficacy measures both the CR-SMFRS and the PR-SMFRS. The two scales were used together as a composite to define a responder as a patient who achieved a pre-defined threshold of improvement simultaneously on both measures. Such a composite analysis was designed to eliminate variances that may be seen in data from either scale alone and substantially increased the difficulty in achieving any given threshold of improvement. These trials pre-specified two different thresholds as co-primary endpoints: a 1-grade improvement in the CR-SMFRS / PR-SMFRS composite, and a 2-grade improvement in the CR-SMFRS / PR-SMFRS composite. As co-primary endpoints, both had to be achieved for trial success. ATX-101 studies to date indicate that a 1-grade improvement represents a meaningful and positive change to both patients and physicians as indicated by high patient satisfaction and the patient's global impression of change in submental fat. Based on FDA guidance on interpretation of patient reported outcomes, these scores are used as an "anchor-based" method to establish a clinically meaningful threshold of response. The requirement of a 2-grade composite threshold represents a more difficult statistical standard for both product and scale performance.

To better understand treatment outcomes, secondary endpoints measured patients' self-perception related to the appearance of their submental fat as measured by the Patient-Reported Submental Fat Impact Scale, or PR-SMFIS, including treatment related impacts in patients' happiness with the appearance of their "chin fat" as well as associated self-perceptions of youthfulness, looking overweight, or feeling embarrassed, bothered or self-conscious about the appearance of their "chin fat." In addition, these trials measured the change in submental volume using MRI in a subset of approximately 400 patients at selected centers. We completed enrollment in these trials in August 2012 and reported positive topline results in September 2013. These trials are expected to form the basis for our NDA for approval of ATX-101 for the treatment of moderate to severe submental fat.

Trial ATX-101-11-22 (REFINE-1) and Trial ATX-101-11-23 (REFINE-2).    These trials met the pre-specified co-primary endpoints by demonstrating statistically significant reduction of moderate to severe submental fat for the 2 mg/cm2 dose compared to placebo.

    Primary Efficacy Endpoints

REFINE-1 (Study ATX-101-11-22)

70.3% of ATX-101 (2mg/cm2) REFINE-1 subjects demonstrated a simultaneous improvement of at least one grade from baseline on the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS) vs. 18.7% in placebo (p<0.001) (Figure 32).

108


Table of Contents

13.4% of ATX-101 (2mg/cm2) REFINE-1 subjects demonstrated a simultaneous improvement of at least two grades from baseline on the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS) vs. 0% in placebo (p<0.001) (Figure 33).

REFINE-2 (Study ATX-101-11-23)

66.9% of ATX-101 (2mg/cm2) REFINE-2 subjects demonstrated a simultaneous improvement of at least one grade from baseline on the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS) vs. 22.4% in placebo (p<0.001) (Figure 32).

18.7% of ATX-101 (2mg/cm2) REFINE-2 subjects demonstrated a simultaneous improvement of at least two grades from baseline on the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS) vs. 3.2% in placebo (p<0.001) (Figure 33).

    Secondary Efficacy Endpoints

Additionally, an assessment of the trials' first secondary endpoint showed 46.6% of REFINE-1 and 40.0% of REFINE-2 patients achieved a predefined, statistically significant reduction in the volume of their submental region vs. 5.4% and 5.1% for placebo, respectively (both p<0.001), as measured by MRI (Figure 34).

Subjects also rated the visual and psychological impacts of submental fat using the Patient-Reported Submental Fat Impact Scale (PR-SMFIS), which assessed whether they perceived themselves to be happier, less bothered, less self-conscious, less embarrassed, younger or less overweight after treatment with ATX-101. Statistical significance was achieved for the change from baseline in PR-SMFIS with 3.63 vs. 1.14, and 3.47 vs. 1.48, for ATX-101 (2mg/cm2) and placebo for REFINE-1 and REFINE-2, respectively (p<0.001 for both) (Figure 35). Each individual component within the PR-SMFIS also demonstrated statistical significance vs. placebo in both trials (p<0.001 for all PR-SMFIS measures).

    Additional Efficacy Analyses

79.5% of ATX-101 (2mg/cm2) REFINE-1 subjects demonstrated an improvement of at least one grade from baseline based on clinician assessment using the validated clinician-rated scale (CR-SMFRS) vs. 36.4% in placebo (p<0.001).

78.3% of ATX-101 (2mg/cm2) REFINE-2 subjects demonstrated an improvement of at least one grade from baseline based on clinician assessment using the validated clinician-rated scale (CR-SMFRS) vs. 34.6% in placebo (p<0.001).

82.4% of ATX-101 (2mg/cm2) REFINE-1 subjects demonstrated an improvement of at least one grade from baseline based on clinician assessment using the validated patient-rated scale (PR-SMFRS) vs. 38.4% in placebo (p<0.001).

78.9% of ATX-101 (2mg/cm2) REFINE-2 subjects demonstrated an improvement of at least one grade from baseline based on clinician assessment using the validated patient-rated scale (PR-SMFRS) vs. 38.1% in placebo (p<0.001).

Furthermore, 88.9% of REFINE-1 and 84.1% of REFINE-2 subjects reported satisfaction with treatment received in the trial, compared to 37.7% and 43.6% of placebo subjects, respectively (p<0.001).

109


Table of Contents

Additionally, there were no treatment-related serious adverse events. The most common adverse events, which were predominantly mild to moderate, were swelling, pain, bruising, numbness and redness (Figure 37). In REFINE-1 and REFINE-2, 98.5% and 98.8%, respectively, of adverse events were reported as mild or moderate. Consistent with previous trials, these adverse events were predominately transient and local to the treatment area. Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifest as an asymmetric smile, were reported in 0.6% of ATX-101 procedures across all studies to date, and in each case, resolved. Less than four percent of subjects discontinued the trial due to adverse events.

Analyses of primary efficacy measures shown in the figures below are based on the protocol specified "Intent-to-Treat," or ITT, population which comprises all randomized subjects with baseline efficacy data (CR-SMFRS/PR-SMFRS). For secondary measures of PR-SMFIS and MRI, analysis includes only subjects with available data. Statistically significant results at various levels are denoted by asterisks or p-values in the figures below. The p-value is the probability that the reported result was achieved purely by chance (e.g., a p-value £ 0.01 means that there is a 1% or less chance that the difference between the placebo group and the treatment group is purely due to chance). A p-value £ 0.05 is a commonly used criterion for statistical significance. The symbol "n" is used to denote sample size per group.


Figure 32. U.S. and Canadian Phase III Trials, ATX-101-11-22 and ATX-101-11-23, Percent of Patients with at least a 1-Grade Improvement in Clinician and Patient Composite Rating, CR-SMFRS/PR-SMFRS, at Week 32 by Treatment Group

GRAPHIC

All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

110


Table of Contents


Figure 33. U.S. and Canadian Phase III Trials, ATX-101-11-22 and ATX-101-11-23, Percent of Patients with at least a 2-Grade Improvement in Clinician and Patient Composite Rating, CR-SMFRS/PR-SMFRS, at Week 32 by Treatment Group

GRAPHIC

All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

111


Table of Contents


Figure 34. U.S. and Canadian Phase III Trials, ATX-101-11-22 and ATX-101-11-23, Percent of Patients with MRI Volume Threshold Change, at Week 32 by Treatment Group

GRAPHIC

Per protocol, MRIs were planned for approximately 200 subjects per study
All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

112


Table of Contents


Figure 35. U.S. and Canadian Phase III Trials, ATX-101-11-22 and ATX-101-11-23, Mean Change in Visual and Psychological Impact of Chin Fat, or PR-SMFIS, at Week 32 by Treatment Group

GRAPHIC

All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

113


Table of Contents


Figure 36. U.S. and Canadian Phase III Trials, ATX-101-11-22, Patient Reported Improvements in Visual and Psychological Impact of Chin Fat

GRAPHIC

REFINE-1 (ATX-101-11-22) ITT population, week 32
PR-SMFIS is an 11-point patient scale that rates visual and psychological impacts of SMF


Figure 37. U.S. and Canadian Phase III Trials, ATX-101-11-22 and ATX-101-11-23, Incidence of Common Injection Site Reactions

GRAPHIC

*Adverse Events occurring in >10% in any treatment group

114


Table of Contents


Figure 38. U.S. and Canadian Phase III, 26-year-old female

This 26-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on the clinician-rated scale (CR-SMFRS) and a grade 3 (severe) on the patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 2-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

GRAPHIC

*Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

115


Table of Contents


Figure 39. U.S. and Canadian Phase III, 34-year-old male

This 34-year-old male entered the Phase III trial with his baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, he achieved a 1-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

GRAPHIC

*Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

116


Table of Contents


Figure 40. U.S. and Canadian Phase III, 35-year-old female

This 35-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 1-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

GRAPHIC

*Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

117


Table of Contents


Figure 41. U.S. and Canadian Phase III, 45-year-old female

This 45-year-old female entered the Phase III trial with her baseline submental fat rated as grade 3 (severe) on the clinician-rated scale (CR-SMFRS) and a grade 2 (moderate) on the patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 1-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

GRAPHIC

*Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

118


Table of Contents


Figure 42. U.S. and Canadian Phase III, 55-year-old female

This 55-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 1-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

GRAPHIC

*Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

119


Table of Contents


Figure 43. U.S. and Canadian Phase III, 65-year-old female

This 65-year-old female entered the Phase III trial with her baseline submental fat rated as grade 3 (severe) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 2-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

GRAPHIC

*Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

120


Table of Contents


Figure 44.

This 40-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on the clinician-rated scale (CR-SMFRS) and grade 3 (severe) on the patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 0-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

GRAPHIC

*Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

Additional In-Process and Planned Clinical Studies of ATX-101 for Reduction of Submental Fat

An additional study, ATX-101-11-26, is a multi-center, open-label, long-term study to evaluate the safety of ATX-101 for the reduction of submental fat in 165 patients. We announced interim study results in the fourth quarter of 2012. This study captured patients who received ATX-101 (2 mg/cm2) for up to six treatments spaced 28 days apart. The interim results included patients who had completed Visit 9, or three months after last injection, which is the same study endpoint as the U.S. and Canadian Phase III pivotal trials. In this study, ATX-101 was found to be well tolerated and the observed overall safety profile was consistent with findings from previous Phase II and European Phase III clinical trials. Adverse events were mostly mild to moderate, and transient. The most common adverse events were bruising, numbness, pain, swelling, redness, induration, itching and nodule formation. These adverse events were limited to the injection site and were temporally associated with treatment. Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifest as an asymmetric smile, were reported in 0.6% of ATX-101 procedures across all studies to date and, in each case, resolved.

Although not designed to measure efficacy, the interim results from this open-label study were also consistent with the efficacy results observed in previous studies of similar design. Interim results from

121


Table of Contents

the study demonstrated that 71.3% of subjects had at least a 1-grade improvement on the CR-SMFRS/PR-SMFRS composite and 14.0% had at least a 2-grade improvement on the same composite measure.

Additional results from the trial were announced in the first quarter of 2013. Results demonstrated that 87% of patients achieved at least a 1-grade improvement from baseline on the CR-SMFRS. Similarly, 83% of patients achieved at least a 1-grade improvement on the PR-SMFRS. Additionally, 96% of patients had unchanged or improved skin laxity based on the clinician-rated Submental Skin Laxity Grading Scale (SMSLG).

Other Clinical Studies

In addition, and prior to our NDA submission to the FDA, we will initiate further clinical studies of ATX-101 such as studies assessing safety in patients with submental fat grades 1 (mild) and 4 (extreme), in patients over age 65 and an additional long-term follow-up study from our U.S. and Canadian Phase III trials. Completion of these clinical studies is not required for our NDA submission of ATX-101.

As noted above, a Phase I/II study was conducted in a total of 78 patients to evaluate the potential of ATX-101 as a treatment for superficial lipomas. In these studies, ATX-101 was administered directly into the lipomas by intralipomal injection, and the observed safety profile was similar to that seen in submental fat studies. Adverse effects typically consisted of mild-to-moderate local injection site reactions. While the specific adverse events were similar to those seen in our submental fat studies, the occurrence of local skin ulcerations above the lipomas of four patients appeared to be a notable difference. These occurred at higher doses (average = 7.5 mg/cm2) than are currently being tested and were believed to be due to reflux of excess ATX-101 from encapsulated lipomas. In addition, although there were suggestions of potential efficacy in terms of lipoma size reductions, the magnitude of effect was considered insufficient to warrant further study.


Sales and Marketing

We currently have limited marketing capabilities and no sales organization. We have retained all commercial rights to ATX-101 in the United States and Canada and, if ATX-101 is approved by the FDA, expect to access the market through a focused, specialized sales force. For territories outside of the United States and Canada, we have granted our collaborator, Bayer, exclusive rights to develop and commercialize ATX-101 for all indications.

Core Physicians

If approved for sale, we will focus our initial marketing of ATX-101 on those core dermatologists, plastic surgeons and facial plastic surgeons we identify as having substantial experience in performing facial injectable procedures. While plastic surgery specialties currently have tools, such as liposuction, for submental fat reduction, ATX-101, if approved as of today, would represent a significant opportunity to expand the number of potential patients. For the dermatologist community, ATX-101, if approved, will provide the only approved non-surgical tool for reduction of submental fat.

Patient Targeting

Our research indicates that the potential for ATX-101 to provide meaningful changes to lower facial appearance will interest both injectable "experienced" and injectable "naive" patients (i.e., patients that have not received injectable toxins or fillers). According to ASAPS, in 2012 there were an estimated 4.1 million cosmetic botulinum toxin procedures and 1.8 million dermal filler procedures performed in

122


Table of Contents

the United States and Canada, all of which were for aesthetic purposes. In an analysis of 207 respondents based on general market research conducted by us, 45% indicated that they were likely to try ATX-101 based on the product profile. In addition, industry research conducted in 2008 indicated that 24% of women aged 30 to 60 years old with a household income of $50,000 or greater would consider botulinum toxin and/or dermal filler medical aesthetic procedure. The likely early adopters of ATX-101 will be injectable experienced patients, however, we also plan to target injectable-naive patients, as we believe ATX-101 provides a solution for a commonly desired aesthetic improvement. In 2012, women comprised 90% of the injectable procedures market; however, our internal market research indicates that men have a significantly higher interest in an injectable solution for reducing submental fat than other facial injectable treatments.


Competition

The aesthetic product market, and the facial aesthetic market in particular, is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. Demand for ATX-101 could be limited by the treatments, products and technologies offered now or in the future. We and Bayer are seeking regulatory approval of ATX-101 for the reduction of submental fat. While we do not believe there are any other injectable treatments approved as drugs by the FDA or equivalent foreign regulatory agencies designed specifically for this indication, we anticipate that ATX-101, if approved, will face significant competition from surgical alternatives for submental fat reduction and other medical device technologies designed for the reduction of fat.

Surgical Submental Fat Reduction Market

Liposuction and neck surgical procedures remain the primary treatment options for submental fat reduction. While we believe that most patients seeking facial aesthetics prefer non-surgical modalities, we do expect that ATX-101 may compete indirectly with liposuction for physician preference and resources.

FDA Approved Technologies for Fat Reduction

The FDA has approved several medical devices for fat reduction. Although at this time none of these devices have been approved for the treatment of submental fat, there is the possibility that these devices could develop alternative application methods to accommodate use on the submental region. In addition, we may in the future face competition from new and emerging technologies.

Aesthetic Medicine Market Competition

Injectable botulinum toxins and dermal fillers dominate the aesthetic medicine market for facial rejuvenation. While we believe ATX-101 will be a complementary procedure to these existing facial injectables, for some patients we may compete for a share of their discretionary budget and share of mind within the physician's office for improving facial aesthetics.

Many of our potential competitors are large, experienced companies that have substantially greater resources and brand recognition than we do. For a description of the risks we face related to competition, please see "Risk Factors—Risks Related to Our Business—ATX-101, if approved, will face significant competition and the failure by us or Bayer to effectively compete may prevent us from achieving significant market penetration" and "—The commercial success of ATX-101, if approved, will depend significantly on broad physician adoption and use of ATX-101."

We believe that ATX-101 will compete largely on the basis of the following competitive factors: significant, meaningful and durable results; a ready group of target patients; favorable safety profile

123


Table of Contents

with limited or no downtime as compared to surgical alternatives; low barrier to physician adoption and the ability to facilitate physician practice expansion; our collaboration strategy with Bayer for sales outside the United States and Canada; and the effectiveness of sales and marketing programs and initiatives.


Strategic Relationships

ATX-101 Collaboration with Bayer Outside of the United States and Canada

In August 2010, we entered into a License Agreement with Bayer Consumer Care AG that provides for an exclusive license to develop, manufacture and commercialize ATX-101 outside of the United States and Canada. In connection with this license agreement, we entered into a related Services, Research, Development and Collaboration Agreement with Bayer's affiliate, Intendis GmbH, or collaboration agreement. We refer to these agreements jointly as our collaboration arrangement with Bayer, and we refer to Bayer Consumer Care AG and Intendis GmbH jointly as Bayer. In connection with the entry into the collaboration arrangement, Bayer paid us an upfront license fee of approximately $21.3 million and approximately $22.2 million for research and development to fund certain further global development activities of ATX-101. We remain eligible to receive up to approximately $297.0 million in additional payments contingent upon Bayer's achievement of specified regulatory and commercialization milestones, as well as escalating royalties from the mid-to high-teens on Bayer's net product sales of ATX-101. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further global development activities of ATX-101 under the terms of the collaboration arrangement.

The next contingent event-based payment is $39.6 million and is subject to Bayer achieving regulatory approval of ATX-101 in the first of any major European country, which is defined as Germany, the United Kingdom, France, Spain or Italy. In addition, the Company is eligible to receive further payments upon the first commercial sales in two defined territories outside of the European Union ("EU") if approved in those territories. The remaining contingent event payments are based on achieving certain net sales targets in Bayer's territory in a calendar year.

License Agreement

Under the license agreement, each company is responsible for regulatory activities, interactions and submissions and commercial activities, including branding, within its territory. Bayer is responsible for the commercialization of ATX-101 outside of the United States and Canada, including conducting post-marketing clinical studies and preventing the sale of ATX-101 into unauthorized territories, and we are responsible for such activities in the United States and Canada. Bayer will utilize data from our nonclinical, clinical and drug substance manufacturing and quality programs for its European Marketing Authorization Application, among others. All ATX-101 clinical safety data will be shared between our companies.

Bayer may grant sublicenses under the license agreement as commercially necessary in Bayer's reasonable determination, and is obligated to pay us a portion of certain fees, milestones and royalties received pursuant to such sublicense.

We are responsible for all drug substance process development work and GMP drug substance supply. We are obligated to enter into and maintain agreements with suppliers and packagers to manufacture ATX-101 for clinical and other non-commercial uses of ATX-101 by us and Bayer. Furthermore, we are responsible for supplying sufficient quantities of synthetic deoxycholate to Bayer for commercial

124


Table of Contents

manufacture at a price equal to cost plus an agreed-upon management fee. Each company is responsible for its own commercial drug product manufacturing. In 2011, we completed method and analytic technology transfer to support Bayer's ATX-101 drug product manufacturing.

We are responsible for worldwide ATX-101 intellectual property and patent prosecution, including defending against any claims concerning patent infringement by ATX-101 in its commercialized form, whether sold by Bayer or us. We have also indemnified Bayer and its affiliates against certain damages and losses, including those due to certain intellectual property actions and personal liability claims relating to manufacturing defects.

Under the license agreement, we have formed a Joint Steering Committee with Bayer to coordinate developmental and regulatory activities relating to ATX-101 and otherwise pursuant to a project plan maintained by the Joint Steering Committee. Disputes within the Joint Steering Committee not otherwise resolved between us and Bayer shall be submitted to arbitration as provided for more generally in the license agreement. The Joint Steering Committee, and any related subcommittees and operations, may be dissolved by Bayer if we undergo a change in control.

Bayer has the right to terminate the license agreement at any time upon advance notice of 180 days if Bayer determines that ATX-101 does not appear to be commercially viable or if there is a material change in circumstances that impacts the prospective profitability of ATX-101. The license agreement expires simultaneously with the expiration of royalties on a product-by-product/country-by-country basis, and expires in its entirety upon the expiration of royalties with respect to all products outside of the United States and Canada. Such royalties expire on the later of (i) the expiration of patent claims relating to ATX-101, (ii) the expiration of exclusivity extensions for ATX-101, or (iii) 15 years from the date of first commercial sale, each with respect to the relevant country. The royalty payments discussed above are subject to reduction in connection with, among other things, the entry into the market of certain products competitive to ATX-101. In the event a competitive product meeting certain qualifications is approved for sale and is actually and legally sold in a particular territory (in the case of the EU, any member country), our royalties on Bayer's net sales of ATX-101 in that territory would be reduced from the mid- to high-teens to the low-single digits to low-teens depending upon the timing and territory of such competitive entry. Except with respect to the EU, the entry of a qualifying competitive product into one territory does not result in a reduction in the royalty payments applicable to Bayer's net sales in other territories. Similarly, our royalties on Bayer's net sales of ATX-101 would be reduced to the low- to mid-single digits, or eliminated entirely, in each country in which an approved generic is actually and legally sold in such country, depending on the timing and country of such generic entry. The license agreement may also be terminated by us upon Bayer commencing an action that challenges the validity of ATX-101 related patents or if Bayer ceases or abandons developing ATX-101 outside of the United States and Canada. The license agreement may also be terminated by either party in the event of a material breach by the other party.

Services, Research, Development and Collaboration Agreement

Under the collaboration agreement, Bayer is obligated to use its commercially reasonable efforts to develop ATX-101 in certain major markets outside of the United States and Canada in accordance with the project plan maintained by the Joint Steering Committee. The collaboration agreement provides for a Project Plan Committee, consisting of us and Bayer, to oversee such development. Funds to execute the project plan, as well as compensation to Bayer for its services under the collaboration agreement, are paid out of a bank account controlled by us and funded by research and development payments from Bayer under the license agreement. We must transfer control of this bank account to Bayer if we undergo a change in control. Disputes within the Project Plan Committee not otherwise resolved

125


Table of Contents

between us and Bayer shall be submitted to arbitration as provided for more generally in the collaboration agreement.

The collaboration agreement expires upon the earlier of completion of development of ATX-101 by Bayer or a decision not to pursue further development and commercialization after completion of the European Phase III clinical trials. The collaboration agreement may also be terminated by either party in the event of a material breach by the other party.

Los Angeles Biomedical Research Institute

In August 2005, we entered into an exclusive license agreement with Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center, or LA Biomed, pursuant to which we obtained a worldwide exclusive license to practice, enforce and otherwise exploit certain patent rights related to ATX-101. Our exclusive license requires us to pay LA Biomed a milestone payment of $0.5 million upon receipt of marketing approval of ATX-101, as well as non-royalty sublicense fees equal to 10% of any sublicense income, up to an aggregate of $5.0 million. In August 2010 and May 2012, we incurred non-royalty sublicense fees of $2.0 million and $1.6 million, respectively, in connection with the license fee paid by Bayer upon execution of the license agreement, and receipt of the $15.8 million contingent event- based payment triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. Upon receipt of these non-royalty sublicense fees, we initially paid a total of $0.7 million, with the remaining amount of $2.8 million satisfied subsequent to the initial public offering of which 50% was satisfied with shares of our common stock, and 50% in cash.

Additionally, upon commercialization of a licensed product or service, we are obligated to pay low- to mid-single digit royalties on net product sales of ATX-101 by us and Bayer. We may terminate this license without penalty upon 90 days notice to LA Biomed and LA Biomed may terminate the license in certain circumstances if we fail to perform, or violate any term of the agreement, subject to applicable cure provisions. Subject to default by us or earlier termination, the license remains in effect until the last patent or patent application in the licensed patent rights has expired or been revoked, invalidated or abandoned.


Manufacturing

We contract with third parties for the manufacture of ATX-101 and intend to do so in the future. We do not own or operate and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. Because we rely on contract manufacturers, we have personnel with extensive technical, manufacturing, analytical and quality experience and strong project management discipline to oversee contract manufacturing and testing activities, and to compile manufacturing and quality information for our regulatory submissions.

Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements, and which govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. Our systems and our contractors are required to be in compliance with these regulations, and this is assessed regularly through monitoring of performance and a formal audit program.

Drug Substance

We are responsible for supplying ATX-101 drug substance for all territories, including for Bayer's requirements. Our current drug substance supply chain involves four contractors: the supplier of a key

126


Table of Contents

raw material, the supplier of regulatory starting material for the drug substance and two suppliers of the synthetic deoxycholate, which is the drug substance in ATX-101.

We currently have an exclusive supply agreement with Pfizer as the single-source supplier of a key raw material used in manufacture of the regulatory starting material. Our agreement with Pfizer expires in December 2014. The agreement can also be terminated prior to expiration by either party (i) upon 60 days' written notice of an uncured material breach, (ii) upon 24 months' written notice, (ii) the bankruptcy or insolvency of the other party or (iv) by Pfizer if we abandon development of ATX-101. Additionally, Pfizer cannot sell the key raw material to any other party for the manufacturing of bile acids and bile acid derivatives. We are not required to purchase any minimum or specific quantities from Pfizer. However, under current terms, any purchase of this key raw starting material must be made from Pfizer. The Pfizer contract also contains customary commercial terms regarding forecasting, payment, pricing, ordering, compliance, quality and indemnification.

We currently have a non-exclusive supply agreement with Sai Life Sciences, Inc. for the supply of our regulatory starting material. We are not required to purchase any minimum or specific quantities from Sai Life Sciences, Inc. and our agreement contains customary commercial terms for forecasting, payment, pricing, ordering, compliance, quality and indemnification. Our agreement with SAI expires in June 2018.

Manufacture of synthetic deoxycholate can be contracted with Albany Molecular Research, Inc., or AMRI, or with Cambridge Major Laboratories, Inc., or CML; purchases from AMRI are on a purchase order basis under a master services agreement and purchases from CML are under a formal supply agreement. The agreement with CML contains customary commercial terms for drug substance supply regarding forecasting, payment, pricing, ordering, current good manufacturing practices, compliance, quality and indemnification. Commencing on the date ATX-101 is approved for use by the FDA, we have agreed, subject to certain conditions, to purchase a customary minimum supply of drug substance from CML for period of three years. The term of the agreement runs through the fifth anniversary of final FDA approval of ATX-101. Following a pre-termination consultation, if either party determines that it is not feasible to maintain the joint development project, such party may terminate the agreement upon 30 days' written notice. We may terminate the agreement 1) upon 90 days' written notice if denied regulatory approval of ATX-101 in the United States, 2) immediately if CML has not corrected or established a mutually agreed upon remediation plan for results which have been reasonably identified as critical by an audit or regulatory inspection within 90 days of receipt of such audit or inspection report, or 3) without cause with two year's prior written notice following the three-year anniversary of the effective date of the agreement. CML may terminate the agreement without cause with three year's prior written notice following the two-year anniversary of the effective date of the agreement. The agreement may also be terminated by either party in the event of a material breach by or insolvency of the other party.

We believe our current ATX-101 drug substance contractors have the scale, the systems and the experience to supply all remaining and planned clinical studies and the commercial launch in Europe, the United States and other territories. To ensure continuity in our supply chain, we plan to hold adequate inventory and establish supply arrangements with alternative suppliers as needed.

The process to manufacture the drug substance is being validated at a scale we believe will be sufficient for commercial launch in the United States, Canada and the Bayer territories. Our process uses common synthetic chemistry and readily available materials. We have established an ongoing program to identify possible process changes to improve purity, yield, manufacturability, etc., and process changes will be implemented as warranted and appropriate. The drug substance has historically shown stability adequate to support a commercial launch, and stability studies to support registration are ongoing.

127


Table of Contents

Drug substance used to manufacture ATX-101 for nonclinical studies and for early clinical studies was purified from bovine bile. Drug substance used to manufacture ATX-101 for the Phase III trials in Europe, the United States and Canada was chemically synthesized and contains no ingredients of animal origin. The active ingredient in both animal-derived and synthetic drug substance is structurally identical.

Drug Product

The drug product is a terminally sterilized liquid parenteral formulation for injection. Drug product manufacturing uses common processes and readily available materials. Changes to the drug product over the course of development have been relatively minor and have included changes in buffer and salt concentration. The formulation we are using in our U.S. Phase III trials is the formulation anticipated for commercial launch in the United States and Canada. The formulation used in Bayer's European Phase III trials is the formulation anticipated for commercial launch in Europe.

The formulation expected in the United States differs slightly from the formulation anticipated for Europe based on active ingredient concentration and the inclusion of benzyl alcohol as a preservative in the U.S. drug product. Both formulations have historically shown product stability at room temperature adequate to support commercial launch, and stability studies to support registration are underway.

We are responsible for ATX-101 drug product manufacturing solely for the United States and Canada, while Bayer is responsible for drug product manufacturing for the rest of the world. In November 2010, we entered into a long-term agreement with Hospira, which has redundant formulation fill/finish facilities, as our drug product fill/finish supplier at their facility located in McPherson, Kansas. The initial term of our agreement expires five years after the first day of the month after our first bona fide sale of ATX-101 to a non-affiliate customer, and may be extended for additional and successive two-year terms. The agreement may be terminated prior to expiration by either party upon 24 months' written notice. The agreement may also be terminated by either party upon 60 days' written notice of an uncured material breach, the bankruptcy or insolvency of the other party or upon notice if the other party is unable to perform for 180 days due to a force majeure. We are not required to purchase any minimum or specific quantities from Hospira; however, if ATX-101 is approved, Hospira has the right to be our sole provider of drug product for a period of three years following commercialization, and, following the completion of the third year, the right to provide no less than seventy-five percent of our total annual requirement of drug product for the remaining term of the contract. Payments are due to Hospira 30 days after receipt of an invoice or, with respect to certain pre-specified events, upon completion of such event. We believe Hospira has the scale, systems and experience to supply ATX-101 drug product for clinical needs and long-term commercial demand.


Intellectual Property

Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our drug candidates, novel biological discoveries, and drug development technology and other know-how, to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position.

128


Table of Contents

As for the pharmaceutical products we develop and commercialize, as a normal course of business, we intend to pursue dosage and formulation patents, as well as method of use patents on novel indications for known compounds or for new compounds and, where possible, composition-of-matter patents. We also seek patent protection with respect to novel biological discoveries, including new targets and aesthetic applications. We have also pursued patents with respect to our proprietary manufacturing processes and drug development processes and technology. We have sought and plan to continue to seek patent protection, either alone or jointly with our collaborators, as our collaboration agreements may dictate.

Our patent estate, on a worldwide basis, includes over 80 issued or allowed patents and over 60 pending patent applications with claims relating to our current clinical stage drug candidate, ATX-101 which contains synthetic deoxycholate. The issued patents include 11 patents issued by the U.S. Patent and Trademark Office, or U.S. PTO: three of which are related to method of use, or MOU (U.S. Patent Nos. 7,622,130 and 7,754,230, both of which expire on December 10, 2027 and 8,298,556 which expires on August 3, 2025); four of which are related to manufacturing a synthetic form of deoxycholate (U.S. Patent No. 7,902,387 which expires on December 21, 2028 and 7,994,351, 8,362,285 and 8,367,852 all of which expire on May 16, 2028); one of which is related to synthetic deoxycholate or pharmaceutically acceptable salt thereof, including the synthetic form that is used in ATX-101 (U.S. Patent No. 8,242,294, which expires on May 16, 2028); and three of which are related to the formulation of ATX-101 (U.S. Patent Nos. 8,101,593 and 8,367,649, both of which expire on March 2, 2030, and 8,461,140, which expires on May 16, 2028). There are two European patents that were granted by the European Patent Office, or EPO, in 2011, both of which relate to MOU (EP1758590, which expires on February 8, 2025, and EP1748780, which expires on May 19, 2025), which resulted in counterparts in the major markets of Europe. We also have patents related to MOU issued in Australia, Hong Kong, Israel, Japan, Mexico and New Zealand.

Deoxycholate is a naturally occurring substance and in its natural form is not eligible for composition-of-matter patent protection in certain jurisdictions, including the United States. While we believe that MOU, manufacturing and formulation patents are more relevant to protecting our competitive position in the aesthetics market in particular, we have developed a synthetic form of deoxycholate, which we believe is eligible for composition-of-matter patent protection and we have composition-of-matter patent applications with respect to this synthetic form currently pending with the U.S. PTO and the EPO. As described above, on August 14, 2012, the U.S. PTO issued U.S. Patent No. 8,242,294, which claims certain synthetic deoxycholates or pharmaceutically acceptable salts thereof, including the synthetic form that is used in ATX-101. Further, patents covering synthetic deoxycholate as a composition-of-matter, manufacturing process and method of use have been granted in San Marino and South Africa, and patents claiming a synthetic deoxycholate manufacturing process have been granted in Great Britain and Canada.

Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are effective for 20 years from the earliest effective filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the U.S. PTO delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. In addition to the patents described in the preceding paragraph, our pending patent applications, if issued, will expire on dates ranging from 2025 to 2032. However, the actual protection afforded by a patent varies on a product by product basis, from country to country

129


Table of Contents

and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.

Furthermore, in the United States the patent positions of biotechnology and pharmaceutical products and processes like ATX-101 can be uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in such patents has emerged. The patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries can diminish our ability to protect our inventions and enforce our intellectual property rights and more generally could affect the value of intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. Our ability to maintain and solidify our proprietary position for ATX-101 and its manufacturing will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of the patent applications that we may file or license from third parties will result in the issuance of any patents. The issued patents that we own or may receive in the future, may be challenged, invalidated or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may be able to independently develop and commercialize similar drugs or duplicate our technology, business model or strategy without infringing our patents. Because of the extensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, before any of our drugs can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of any such patent.

In addition to patents, we rely upon trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our commercial partners, collaborators, employees and consultants and invention assignment agreements with our employees. We also have confidentiality agreements or invention assignment agreements with our commercial partners and selected consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our commercial partners, collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Our commercial success will also depend in part on 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, or our drugs or processes, obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future drugs may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the U.S. PTO, to determine priority of invention.

In addition, substantial scientific and commercial research has been conducted for many years in the areas in which we have focused our development efforts, which has resulted in third parties having a number of pending patent applications. Patent applications in the United States which are foreign filed

130


Table of Contents

or for which publication is requested are published after 18 months from the priority date as are any foreign applications. Certain applications in the United States which are not foreign filed and for which a request for non-publication has been made will not be published until granted. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Therefore, patent applications relating to drugs similar to ATX-101 and any future drugs, discoveries or technologies we might develop may have already been filed by others without our knowledge.


Other Research and Development Programs

To date, our research and development has focused predominantly on the development of ATX-101 for the reduction of submental fat. However, we have initiated and terminated other development programs in the aesthetic field. Currently, we are working on several additional research programs, from which additional drug candidates may be identified in the future. The most advanced program centers around therapeutic intervention for hair loss. We maintain an active research interest in hair and fat biology, pigmentation modulation and facial contouring. In addition, we expect to assess future potential treatment indications for ATX-101 in the body with high aesthetic value.

Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Overview—Research and Development" for the amounts spent on company-sponsored research and development for the past three fiscal years.


Government Regulation

The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing and distribution of drugs. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling, and export and import of our product candidates.

In the United States, the FDA regulates drug products under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and the FDA's implementing regulations. If we fail to comply with applicable FDA or other requirements at any time during the drug development process, clinical testing, the approval process or after approval, we may become subject to administrative or judicial sanctions. These sanctions could include the FDA's refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any FDA enforcement action could have a material adverse effect on us. FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States.

The process required by the FDA before a drug may be marketed in the United States generally involves:

completion of extensive preclinical laboratory tests, preclinical animal studies and formulation studies all performed in accordance with the FDA's current good laboratory practice, or GLP, regulations;

submission to the FDA of an investigational new drug, or IND, application which must become effective before human clinical trials in the United States may begin;

131


Table of Contents

approval by an independent institutional review board, or IRB, at each clinical trial site before each trial may be initiated;

performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug candidate for each proposed indication;

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practice, or CGMP, regulations;

submission to the FDA of an NDA;

satisfactory completion of a potential review by an FDA advisory committee, if applicable; and

FDA review and approval of the NDA prior to any commercial marketing, sale or shipment of the drug.

The pre-clinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all. Preclinical tests include laboratory evaluation of product chemistry, formulation, stability and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product. The results of pre-clinical tests, together with manufacturing information, analytical data and a proposed clinical trial protocol and other information, are submitted as part of an IND to the FDA. Some pre-clinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to one or more proposed clinical trials and places the clinical trial on a clinical hold, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, our submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be used. Each protocol must be submitted to the FDA as part of the IND. An independent institutional review board, or IRB, for each medical center proposing to conduct a clinical trial must also review and approve a plan for any clinical trial before it can begin at that center and the IRB must monitor the clinical trial until it is completed. The FDA, the IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive Good Clinical Practice, or GCP, requirements, including the requirements for informed consent.

All clinical research performed in the United States in support of an NDA must be authorized in advance by the FDA under the IND regulations and procedures described above. However, a sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to FDA in support of an NDA so long as the clinical trial is conducted in compliance with an international guideline for the ethical conduct of clinical research known as the Declaration of Helsinki and/or the laws and regulations of

132


Table of Contents

the country or countries in which the clinical trial is performed, whichever provides the greater protection to the participants in the clinical trial.

Clinical Trials

For purposes of NDA submission and approval, clinical trials are typically conducted in three or four sequential phases, which may overlap or be combined.

Phase I:  Clinical trials are initially conducted in a limited population of subjects to test the drug candidate for safety, dose tolerance, absorption, metabolism, distribution and excretion in healthy humans or, on occasion, in patients with severe problems or life-threatening diseases to gain an early indication of its effectiveness.

Phase II:  Clinical trials are generally conducted in a limited patient population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks, and evaluate preliminarily the efficacy of the drug for specific targeted indications in patients with the disease or condition under study.

Phase III:  Clinical trials are typically conducted when Phase II clinical trials demonstrate that a dose range of the product candidate is effective and has an acceptable safety profile. Phase III clinical trials are commonly referred to as "pivotal" studies, which typically denotes a study which presents the data that the FDA or other relevant regulatory agency will use to determine whether or not to approve a drug. Phase III clinical trials are generally undertaken with large numbers of patients, such as groups of several hundred to several thousand, to further evaluate dosage, to provide substantial evidence of clinical efficacy and to further test for safety in an expanded and diverse patient population at multiple, geographically-dispersed clinical trial sites.

Phase IV:  In some cases, FDA may condition approval of an NDA for a product candidate on the sponsor's agreement to conduct additional clinical trials after NDA approval. In other cases, a sponsor may voluntarily conduct additional clinical trials post approval to gain more information about the drug. Such post approval trials are typically referred to as Phase IV clinical trials.

Concurrent with clinical trials, companies usually complete additional animal trials and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the drug in commercial quantities in accordance with CGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

New Drug Applications

The results of preclinical studies and of the clinical trials, together with other detailed information, including extensive manufacturing information and information on the composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the drug for one or more specified indications. The FDA reviews an NDA to determine, among other things, whether a drug is safe and effective for its intended use.

Once an NDA has been accepted for filing, by law the FDA has 180 days to review the application and respond to the applicant. However, the review process is often significantly extended by FDA requests

133


Table of Contents

for additional information or clarification. Under the Prescription Drug User Fee Act, the FDA has a goal of responding to NDAs within ten months of submission for standard review, but this timeframe is also often extended. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. The FDA may deny approval of an NDA if the applicable statutory and regulatory criteria are not satisfied, or it may require additional clinical data or an additional Phase III clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret data. Once the FDA approves an NDA, or supplement thereto, the FDA may withdraw the approval if ongoing regulatory requirements are not met or if safety problems are identified after the drug reaches the market. Where a withdrawal may not be appropriate, the FDA still may seize existing inventory of such drug or require a recall of any drug already on the market. In addition, the FDA may require testing, including Phase IV clinical trials and surveillance programs to monitor the effect of approved drugs which have been commercialized. The FDA has the authority to prevent or limit further marketing of a drug based on the results of these post-marketing programs.

Drugs may be marketed only for the FDA approved indications and in accordance with the provisions of the approved labeling. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require us to develop additional data or conduct additional preclinical studies and clinical trials.

Before approving an application, the FDA will inspect the facility or the facilities at which the finished drug product, and sometimes the active drug ingredient, is manufactured, and will not approve the drug unless CGMP compliance is satisfactory. The FDA may also inspect the sites at which the clinical trials were conducted to assess their compliance, and will not approve the drug unless compliance with GCP requirements is satisfactory.

The testing and approval processes require substantial time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all. Even if we believe a clinical trial has demonstrated safety and efficacy of one of our drug candidates for the treatment of a disease, the results may not be satisfactory to the FDA. Preclinical and clinical data may be interpreted by the FDA in different ways, which could delay, limit or prevent regulatory approval. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals which could delay or preclude us from marketing drugs. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial application of the drugs. After approval, certain changes to the approved drug, such as adding new indications, manufacturing changes, or additional labeling claims are subject to further FDA review and approval. Depending on the nature of the change proposed, an NDA supplement must be filed and approved before the change may be implemented. For many proposed post-approval changes to an NDA, the FDA has up to 180 days to review the application. As with new NDAs, the review process is often significantly extended by the FDA requests for additional information or clarification.

Other Regulatory Requirements

Any drugs manufactured or distributed by us or our collaborators pursuant to FDA approvals would be subject to continuing regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences associated with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory

134


Table of Contents

requirements, including CGMPs, which impose certain procedural and documentation requirements upon us and our third party manufacturers. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil penalties. We cannot be certain that we or our present or future third-party manufacturers or suppliers will be able to comply with the CGMP regulations and other ongoing FDA regulatory requirements. If we or our present or future third-party manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a drug from distribution or withdraw approval of the NDA for that drug.

The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product's labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers' communications regarding off-label use.

Other Healthcare Laws and Regulations

In the future, we may also be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we conduct our business. The laws that may affect our ability to operate include:

the federal healthcare programs' Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce 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 federal healthcare programs such as the Medicare and Medicaid programs;

federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and

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

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

135


Table of Contents

from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and impact our financial results.

International Regulation

In addition to regulations in the United States, we, or our collaborators, will be subject to a variety of foreign regulations governing manufacturing, clinical trials, commercial sales and distribution of our future drugs. Whether or not we obtain FDA approval for a drug, we or our collaborators must obtain approval of a drug by the comparable regulatory authorities of foreign countries before commencing clinical trials or marketing of the drug in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized, decentralized or mutual recognition procedure. The centralized procedure provides for the grant of a single marking authorization that is valid for all European Union member states. The decentralized procedure includes selecting one "reference member state," or RMS, and submitting to more than one member state at the same time. The RMS National Competing Authority conducts a detailed review and prepares an assessment report, to which concerned member states provide comment. The mutual recognition procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marking authorization may submit an application to the remaining member states post-initial approval. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.

In addition to regulations in Europe and the United States, we, or our collaborators, will be subject to a variety of foreign regulations governing clinical trials and commercial distribution of our future drugs.

Environmental Regulation

We are subject to numerous foreign, federal, state, and local environmental, health and safety laws and regulations relating to, among other matters, safe working conditions, product stewardship and end-of-life handling or disposition of products, and environmental protection, including those governing the generation, storage, handling, use, transportation and disposal of hazardous or potentially hazardous materials. Some of these laws and regulations require us to obtain licenses or permits to conduct our operations. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. Although the costs to comply with applicable laws and regulations, including requirements in the European Union relating to the restriction of use of hazardous substances in products, have not been material, we cannot predict the impact on our business of new or amended laws or regulations or any changes in the way existing and future laws and regulations are interpreted or enforced, nor can we ensure we will be able to obtain or maintain any required licenses or permits.


Employees

As of September 27, 2013, we had 60 full-time employees, including a total of 14 employees with M.D. or Ph.D. degrees. Within our workforce, 43 employees are engaged in research and development and 17 in marketing, business development, finance, legal, human resources, facilities, information technology and general management and administration. None of our employees are represented by labor unions or covered by collective bargaining agreements.

136


Table of Contents


Properties

Our corporate headquarters are located in Calabasas, California, where we lease and occupy 16,947 square feet of office space. The current term of our lease expires on June 30, 2014, with an option to extend the term through December 2016.

We believe that our existing facilities are adequate for our current needs. When our lease expires, we may exercise our renewal option or look for additional or alternate space for our operations and we believe that suitable additional or alternative space will be available in the future on commercially reasonable terms.


Legal Proceedings

We may from time to time be involved in various legal proceedings of a character normally incident to the ordinary course of our business. We are not currently a party to any material litigation or other material legal proceedings.


Additional Information

We view our operations and measure our business as one reportable segment operating primarily in the United States.

137


Table of Contents


Management

Executive Officers, Key Employees and Directors

The following table sets forth information regarding our executive officers, key employees and directors, as of September 27, 2013:

Name
  Age   Position(s)

Executive Officers

         

Keith R. Leonard, Jr.

    51   Director, President and Chief Executive Officer

John W. Smither

    60   Chief Financial Officer

Keith L. Klein, J.D.

    50   General Counsel

Jeffrey D. Webster

    51   Senior Vice President, Operations

Frederick Beddingfield, III, M.D., Ph.D.

    49   Chief Medical Officer

Key Employees

         

Deepak Chadha

    43   Vice President, Regulatory Affairs

Jere Fellmann, Ph.D.

    61   Vice President, Clinical Operations

Todd Gross, Ph.D.

    52   Vice President, Clinical Affairs

Ryan Irvine

    44   Vice President, Medical Affairs

Nancy A. Jorgesen

    45   Vice President, Product, Systems and Alliance Management

Serge Lichtsteiner, Ph.D.

    52   Vice President, Research

Susan R. Lundeen

    47   Vice President, Human Resources

Elisabeth A. Sandoval

    51   Chief Commercial Officer

Diane Stroehmann

    36   Vice President, Regulatory Affairs

Non-Employee Directors

         

F. Michael Ball(2)

    58   Director

Nathaniel David, Ph.D.(3)

    45   Director

Dennis Fenton, Ph.D.(1)(2)

    61   Director

François Kress(3)

    47   Director

Robert T. Nelsen

    50   Director

Camille Samuels(1)

    42   Director

David Schnell, M.D.(2)(3)

    53   Director

Joseph L. Turner(1)(2)

    62   Director

(1)
Member of the audit committee.
(2)
Member of the compensation committee.
(3)
Member of the nominating and corporate governance committee.


Executive Officers

Keith R. Leonard, Jr. is our co-founder and has served as our President and Chief Executive Officer and as a member of our Board since August 2005. From 1991 to 2004, Mr. Leonard held various positions at Amgen Inc., a biotechnology company, and its affiliates, or Amgen. From 2001 to 2004, Mr. Leonard served as Senior Vice President and General Manager of Amgen Europe where he was responsible for all commercial operations in 28 European countries. Prior to that role, Mr. Leonard established Amgen's presence in rheumatology with the creation of the Rheumatology Business Unit, served as Head of Information Management, and served in leadership roles in sales and marketing, engineering, operations, and finance. Mr. Leonard previously served on the boards of Affymax, Inc. and ARYx Therapeutics, Inc. He was formerly an active duty officer in the U.S. Navy. Mr. Leonard received a B.S. in Engineering from the University of California, Los Angeles, a B.A. in History from the University of Maryland, a M.S. in Engineering from the University of California, Berkeley, and a M.B.A. from the Anderson School of Management at the University of California, Los Angeles. As our President, Chief Executive Officer and co-founder, Mr. Leonard brings expertise and knowledge

138


Table of Contents

regarding our business and operations to our Board. He also brings to our Board an extensive background in the biopharmaceutical industry and in leadership roles, providing both strategic and operational vision and guidance. We believe Mr. Leonard is qualified to serve on our Board based on his track record of branding, new product development, and value creation, each of which relates to our commercial opportunity.

John W. Smither has served as our Chief Financial Officer since November 2007. From 1999 to 2007, Mr. Smither held various positions at Amgen. From 2001 to 2004, Mr. Smither served as Vice President of Finance and Administration of Amgen's European Division, where he was responsible for financial operations in 28 European countries. Prior to that role, Mr. Smither served as Head of Internal Audit and Executive Director of Corporate Accounting at Amgen. Prior to joining Amgen, Mr. Smither served as Audit Partner at Ernst & Young LLP, a public accounting firm, and as the Chief Financial Officer of several early stage companies. Mr. Smither received a B.S. in Business Administration from California State University, Los Angeles. Mr. Smither is a Certified Public Accountant (inactive) and a member of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants and Financial Executives International.

Keith L. Klein, J.D. has served as our General Counsel since October 2006. From 1991 to 2006, Mr. Klein held various positions of increasing responsibility in the legal department of Amgen where he ultimately served as Senior Associate General Counsel, responsible for legal activities relating to the areas of sales and marketing, federal government affairs, corporate relationships, manufacturing, product supply, product development and real estate. Mr. Klein received a B.A. in Economics from University of California, Los Angeles and a J.D. from the University of California, Davis.

Jeffrey D. Webster has served as our Senior Vice President, Operations since March 2007. From 1996 to 2005, Mr. Webster held various positions at Amgen where he ultimately served as Vice President, Operations Planning, responsible for product development, project management, training and development, and strategy functions within the operations function. Prior to that role, Mr. Webster served as the product development team leader for NEUPOGEN® / Neulasta® and held positions in process development, engineering, investor relations, marketing, product development, portfolio management, corporate development and strategy, and operations. Mr. Webster received a B.S. in Chemical Engineering from the University of California, Berkeley and a M.B.A. from San Jose State University.

Frederick Beddingfield, III, M.D., Ph.D. has served as our Chief Medical Officer since March 2013. Dr. Beddingfield joined KYTHERA from Allergan, Inc., a multi-specialty health care company, where he joined in 2003 and has served as Vice President and Global Therapeutic Area Head of Dermatology and Aesthetics at Allergan since August 2005, as well as Chief Medical Officer of Allergan Medical from December 2008 through August 2010. Since 2001, Dr. Beddingfield has also served as an Assistant Clinical Professor of Medicine, Division of Dermatology, at the David Geffen School of Medicine at UCLA. Dr. Beddingfield received his M.D. from the University of North Carolina at Chapel Hill, with honors, and a Bachelor of Arts in Psychology from North Carolina State University in Raleigh, N.C. In addition, Dr. Beddingfield holds a Ph.D. in Policy Analysis from the RAND Graduate School of Policy Studies.


Key Employees

Deepak Chadha has served as our Vice President, Regulatory Affairs since August 2007. From August 2004 to July 2007, Mr. Chadha served as Vice-President, Global Regulatory Affairs at Allergan, Inc. where he assisted in building the Global Regulatory Affairs Department and was responsible for developing and implementing global regulatory strategies. Prior to that experience, from November

139


Table of Contents

1999 to August 2004, Mr. Chadha held positions of increasing responsibility at Biomeasure Inc. and Stryker Biotech. Mr. Chadha received a B.S. in Pharmaceutical Sciences from Berhampur University in Orissa, India, a M.S. in Pharmaceutics from Hamdard University in New Delhi, India, and a M.B.A. in International Business from California State University, Dominguez Hills.

Jere Fellmann, Ph.D. has served as our Vice President, Clinical Operations since June 2012. Dr. Fellmann is the co-founder of Ocellus Inc., a multidisciplinary consulting company, and has served as its Director since its founding in 1996. Dr. Fellmann was Vice President, Clinical Operations and Project Management from October 2004 to September 2007 at Acologix, Inc., a biopharmaceutical company. Dr. Fellmann has also held leadership positions at various other life sciences companies, including Eunoe, Inc., Symyx Technologies, Elan Pharmaceutical, Inc. and Neurex Corporation. Dr. Fellmann has authored or co-authored numerous publications and patents. Dr. Fellmann received a B.S. in Chemistry from the University of California, Berkeley and a Ph.D. in Inorganic/Organometallic Chemistry from the Massachusetts Institute of Technology.

Todd Gross, Ph.D. has served as our Vice President, Clinical Affairs since August 2013. From August 2009 to August 2013, Dr. Gross served as Senior Director of Biostatistics, and Dermatology Device Program Leader, for Allergan Medical, where he contributed to successful FDA advisory panel recommendations and/or product approvals in obesity (LAP-BAND®), facial aesthetics (VOLUMA®) and plastic surgery (410 silicone breast implants). He has served as Vice-President of Biostatistics and Programming for Pacific Data Designs (a Contract Research Organization) from July 2007 to August 2009, Director of Biostatistics and Clinical Data Management for Boston Scientific, Neuromodulation (formerly Advanced Bionics) from August 2005 to June 2007, Director of U.S. Clinical Studies for Quest Diagnostics from January 2004 to December 2004, and Director of Statistics and Human Factors Evaluation for Medtronic Diabetes (formerly MiniMed) from August 2000 to August January 2004. Dr. Gross received a Ph.D. in Cognitive Psychology from UCLA in 1992.

Ryan Irvine has served as our Vice President, Medical Affairs since July 2013. From May 2012 to July 2013, Dr. Irvine served as Vice President, Head of Medical Affairs at Elan Pharmaceuticals, where he was responsible for leading the medical communications practice for the company's marketed and investigational products. From September 2008 to February 2012, he served as Senior Director for Biosciences Risk Research at RMS, a risk management firm, and as Chief Biological Scientist of Praedicat, Inc., a risk management joint venture of RMS and the RAND Corporation from March 2012 to May 2012. From 2003 to 2008, Dr. Irvine worked at Allergan and held roles of increasing responsibility in medical affairs, including Therapeutic Head for Neurology and Toxin Science. Dr. Irvine received a B.S. in Biochemistry and an M.S. in Neurobiology from Boston College and a Ph.D. in Molecular Microbiology and Immunology from the University of Southern California.

Nancy A. Jorgesen has served as our Vice President, Product, Systems and Alliance Management since January 2012. From January 2007 to December 2011, Ms. Jorgesen served as our Product Team Leader for ATX-101. She is also responsible for the alliance management of our partnership with Bayer. Ms. Jorgesen was previously at Amgen for over 10 years, where she held roles of increasing responsibility in Rheumatology product development, corporate process improvement and change management and molecular biology and protein chemistry research. Prior to that experience, Ms. Jorgesen served as the Product Development Team Leader for the Animal Health unit of Dow AgroSciences, a plant sciences company, focusing on the development of edible vaccines. Ms. Jorgesen received a B.S. in Microbiology and a M.A. in Biochemistry and Molecular Biology from the University of California, Santa Barbara and a M.B.A. from the University of Illinois at Urbana-Champaign.

Serge Lichtsteiner, Ph.D. has served as our Vice President, Research since September 2009. From May 2009 to September 2009, Dr. Lichtsteiner served as a consultant to us, and from September 2008 to

140


Table of Contents

April 2009, he was an independent consultant. From November 2002 to August 2008, Dr. Lichtsteiner served successively as the Director of Molecular Biology, Director of Molecular and Cell Biology, and Director of Lead Discovery and Molecular Biology for Cytokinetics, Inc., a biotechnology company, where he was responsible for multiple functional teams in charge of generating the company's product pipeline and supporting all early stages of drug discovery efforts. Prior to that experience, from November 1991 to November 2002, Dr. Lichtsteiner served as Associate Director and Head of Molecular Biology at Pfizer Global Research and Development, an affiliate of Pfizer Inc., where he was responsible for a team focused on providing engineered, recombinant proteins to enable target validation and lead optimization. Dr. Lichtsteiner holds numerous pending and issued patents in oncology, drug discovery technology, and protein chemistry. Dr. Lichtsteiner received a B.S. in Biology, a M.S. in Molecular Biology, and a Ph.D. in Molecular Biology, all from the University of Geneva in Switzerland.

Susan R. Lundeen has served as our Vice President, Human Resources since October 2006. From September 2005 to June 2007, Ms. Lundeen was Vice President of Human Resources and Administration at Activus Healthcare Solutions, Inc., a healthcare company, where she was responsible for designing people systems and decision-making processes. Prior to that experience, from February 1993 to September 2005, Ms. Lundeen held various positions at Amgen and ultimately served as Senior Director of Human Resources responsible for Strategic Sourcing and Staffing. Ms. Lundeen received a B.A. in Psychology and Business Administration from California Lutheran University and currently sits on the Board of Regents for California Lutheran University.

Elisabeth A. Sandoval has served as our Chief Commercial Officer since March 2012. From December 2010 to March 2012, Ms. Sandoval served as Vice President of Global Marketing and Strategy at Bausch + Lomb Surgical, a medical device company, where she was responsible for creating and leading the global marketing team. Prior to that experience, she spent more than 20 years at Allergan from March 1988 to November 2010 where she held roles of increasing responsibility that spanned from research and development to sales and marketing. Her tenure at Allergan included the role of Vice President of Global Strategic Marketing for Allergan, where she was involved in the launch of JUVEDERM®, and headed the global marketing team for BOTOX® Cosmetic, LATISSE®, Natrelle® breast implants and LAP-BAND®. Ms. Sandoval received a B.S. in Biology from the University of California, Irvine and a M.B.A. from Pepperdine University.

Diane Stroehmann has served as our Vice President, Regulatory Affairs, Pharmacovigilance and Clinical Quality since September 2013. From 2004 to September 2013, Ms. Stroehmann held numerous roles of increasing responsibility at Medicis, a life sciences company, where she most recently served as the Executive Director, Regulatory Affairs. During her tenure at Medicis, Ms. Stroehmann was responsible for numerous filings, including the approval of NDAs for Vanoz, Ammonul, Ziana® and Solodyn® and the BLA./NDS for Dysport® in the U.S. and Canada. Ms, Stroehmann received a B.S. in Biology from the University of Illinois at Urbana-Champaign and a M.S. in Regulatory Affairs from San Diego State University.


Non-Employee Directors

F. Michael Ball has served as a member of our Board since September 2013. Mr. Ball serves as the CEO and director of Hospira. Prior to joining Hospira, Mr. Ball served as President of Allergan from February 2006 to March 2011, and previously held a number of leadership roles including Executive Vice President and President, Pharmaceuticals; President, North America Region and President, Global Eyecare. Prior to Allergan, Mr. Ball served as Senior Vice President for Syntex Laboratories USA, a pharmaceutical company, and as President of Syntex Canada. Mr. Ball served on the board of directors of sTec, Inc, a computer storage company, from 2000 to 2013. Mr. Ball received a B.A. in Life Sciences

141


Table of Contents

and a M.B.A. from Queen's University, Ontario, and has completed the executive management program at Stanford University. Mr. Ball provides the Board with an extensive background in strategy and execution of global commercial matters, including specialty pharmaceuticals, ophthalmology, aesthetics, over-the-counter products and surgical devices.

Nathaniel David, Ph.D. is our co-founder and has served as a member of our Board since our inception in 2005 and as our Chief Science Officer from our inception until August 2009. In 2000, Dr. David co-founded Syrrx, Inc., a biotechnology company, which was acquired by Takeda Pharmaceutical Company Limited. Dr. David has extensive experience creating and growing innovative biotechnology companies, including Syrrx, Achaogen, and Sapphire Energy. Dr. David was named one of the top 100 innovators in the world under 35 by the MIT Technology Review. Dr. David holds numerous pending and issued patents in fields such as nanovolume crystallography, antibiotic resistance, energy production and aesthetic medicine. Dr. David sits on the board of trustees of the University of California Foundation, the Buck Institute for Research on Aging, and on the board of directors of Sapphire Energy, Inc. Dr. David received an A.B. in Biology from Harvard College and a Ph.D. in Molecular and Cellular Biology from the University of California, Berkeley. Dr. David brings to the Board an extensive scientific and operational background gained as a research scientist, founder and executive focused on life science and pharmaceutical companies.

Dennis Fenton, Ph.D. has served as a member of our Board since June 2006. Dr. Fenton is the owner and CEO of Fenton and Associates (biotechnology consulting). Prior to his retirement, Dr. Fenton most recently served as Executive Vice President of Operations at Amgen from 2000 to 2008, where he was responsible for worldwide operations, manufacturing, process development and quality. Starting in 1982, Dr. Fenton held numerous executive leadership roles in operations and sales and marketing at Amgen. Dr. Fenton also serves on the board of directors of Hospira, Inc., Dendreon Corporation and XenoPort, Inc. and the board of trustees of the Keck Graduate Institute. Dr. Fenton was a director of the Genzyme Corporation from 2010 to 2011. Dr. Fenton received a B.S. in Biology from Manhattan College and a Ph.D. in Microbiology from Rutgers University. We believe Dr. Fenton is qualified to serve on our board, audit committee and compensation committee because Dr. Fenton's extensive operating experience provides him a thorough understanding of the transition from start-up company to public company, enabling him to provide management with invaluable resources to assist them in achieving their goals.

François Kress has served as a member of our Board since October 2010. Mr. Kress serves as President and Chief Executive Officer for The ROW, the American luxury fashion brand designed by Mary Kate and Ashley Olsen. Prior to joining The ROW, Mr. Kress served as President and Chief Executive Officer of Prada and Miu Miu USA. Mr. Kress was previously Chief Executive Officer and Managing Director of Bulgari Corporation of America. Prior to that experience, Mr. Kress held numerous positions within LVMH (Moet-Hennessy Louis Vuitton), a fashion company, including President of Fendi North America, Chief Executive Officer of the LVMH Fashion Group Oceania (Australia and New Zealand) and President of Louis Vuitton Malletier Thailand. Mr. Kress serves as a Board Member on the Luxury Education Foundation. Mr. Kress received a degree in Engineering from the Ecole Polytechnique in Palaiseau, France and degrees in International Business and Civil Engineering from the Corps des Ponts et Chaussees in Paris, France. Mr. Kress provides the board with an extensive background in operational and strategic planning, as well as general executive and leadership expertise.

Robert T. Nelsen has served as a member of our Board since January 2006. Since 1994, Mr. Nelsen has served as a co-founder and managing director of ARCH Venture Partners, a venture capital firm focused on early-stage technology companies. Mr. Nelsen has played a significant role in the early sourcing, financing and development of more than 30 companies. Mr. Nelsen is a director of Sapphire Energy, Inc., Ikaria, Inc., Fate Therapeutics, Inc., Agios Pharmaceuticals Inc., Ensemble Therapeutics,

142


Table of Contents

Inc., Syros Pharmaceuticals and NeurogesX, Inc., among other companies, and previously served as a director of Adolor Corp., Illumina, Inc., deCODE Genetics, Inc. and Caliper Life Sciences, Inc. Mr. Nelsen also serves on the board of Fred Hutchinson Cancer Research Institute. Mr. Nelsen received a B.S. from the University of Puget Sound with majors in Economics and Biology and a M.B.A from the University of Chicago. Mr. Nelsen's experience as a venture capitalist building and serving on the boards of many public and private emerging companies, including several life sciences and pharmaceutical companies, gives him valuable insight into our industry as well as seasoned business judgment.

Camille Samuels has served as a member of our Board since our inception in August 2005. Ms. Samuels was previously a Managing Director at Versant Ventures, a venture capital firm with $1.6 B under management, which she joined in 2000. Prior to joining Versant Ventures, Ms. Samuels held business development and strategic marketing roles at Tularik Inc (acquired by Amgen) and Genzyme (acquired by Sanofi). She also worked as a management consultant to healthcare and biotech companies at LEK Consulting. Ms. Samuels also serves on the board of directors of Achaogen, Inc., and Semprae Laboratories, Inc., and previously served on the board of directors of many biotech companies including Novacardia (acquired by Merck), ParAllele (Affymetrix), and Transcept Pharmaceuticals, Inc. Ms. Samuels received a B.A. in Biology from Duke University and a M.B.A. from Harvard Business School. Ms. Samuels brings to our Board and audit committee substantial experience as a venture capitalist both generally and in the life sciences industry, having served on the boards of several private and public companies, as well as relevant strategic and operational experience.

David Schnell, M.D. has served as a member of our Board since May 2006. Dr. Schnell co-founded and has been a Managing Director at Prospect Venture Partners since 1997. Prior to that experience, Dr. Schnell served as a Partner at Kleiner Perkins Caulfield & Byers (KPCB), a venture capital firm. Prior to KPCB, Dr. Schnell served in various executive management positions in product marketing, strategic operations and business development in the U.S. and Switzerland at Sandoz Pharmaceuticals (presently Novartis International AG), a pharmaceutical company. Dr. Schnell has led private investments for and served on the board of directors of numerous public and private companies. Dr. Schnell currently serves on the board of directors of Alvine Pharmaceuticals, NGM Biopharmaceuticals, Nora Therapeutics, and previously served on the board of directors of Amira Pharmaceuticals (acquired by Bristol-Myers Squibb), Gloucester Pharmaceuticals (acquired by Celgene Corporation), Rinat Neurosciences (acquired by Pfizer, Inc.), among others. Dr. Schnell received a B.S. in Biological Sciences from Stanford University, a M.A. in Health Services Research from Stanford University School of Medicine, and a M.D. from Harvard Medical School. We believe Dr. Schnell's medical background, venture and executive experience, and myriad directorships make him qualified to serve on our Board. In addition, Dr. Schnell brings insight on compensation-related matters to the compensation committee based on his breadth of exposure to emerging and public companies.

Joseph L. Turner has served as a member of our Board since January 2008. Mr. Turner retired from active employment in 2006 and currently serves on the board of directors of several companies. From 1999 to 2006, Mr. Turner served as the Chief Financial Officer at Myogen, Inc., a pharmaceutical company, where he led several rounds of financing and was pivotal in the negotiation of the sale of the company to Gilead Sciences. Prior to that experience, from 1996 to 1999, Mr. Turner served as Vice President of Finance at Centaur Pharmaceuticals, a pharmaceutical company, and from 1992 to 1996, Mr. Turner served as Vice President of Finance at Cortech, Inc., a biopharmaceutical company. Mr. Turner has also served in other finance roles including Director of Finance, Eli Lilly and Company, a biopharmaceutical company, (Switzerland) and Treasurer, Eli Lilly and Company (Switzerland). He serves on the boards of four pharmaceutical companies: Alexza Pharmaceuticals, Inc., Corcept Therapeutics, Inc., BioClin Therapeutics, Inc. and Sophiris Bio Inc. Previously, he has served on the boards of NovaCardia, Inc., Sequel Pharmaceuticals, ApoLogic Inc., SGX Pharmaceuticals, Allos

143


Table of Contents

Therapeutics, Inc, and QLT Inc. Mr. Turner received a B.A. in Chemistry from Swarthmore College, an M.A. in Molecular Biology from the University of Colorado at Boulder and a M.B.A. from the University of North Carolina at Chapel Hill. As a result of Mr. Turner's financial and accounting expertise, board service and strategic mergers and acquisition experience, he is familiar with a full range of corporate finance and board functions that are valuable toward his service on our board and audit and compensation committees. As chairperson of the audit committee, Mr. Turner also keeps the board abreast of current audit issues and collaborates with our independent registered public accounting firm and senior management team.

144


Table of Contents


Security Ownership of Certain Beneficial Owners and Management

The following table presents information as to the beneficial ownership of our common stock as of September 20, 2013 for:

each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;

each named executive officer as set forth in the summary compensation table below;

each of our directors; and

all executive officers and directors as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of September 20, 2013 are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

The column entitled "Beneficial Ownership Prior to this Offering" in the following table is based on 18,766,160 shares of our common stock issued and outstanding on September 20, 2013. The column entitled "Beneficial Ownership After this Offering" is based on 20,945,283 shares of our common stock to be outstanding after the offering, including the 2,179,123 shares of our common stock that we are selling in this offering, assuming the issuance and sale of approximately $100.0 million of shares of our common stock at an assumed public offering price of $45.89 per share, which is the last reported sale price of our common stock on October 4, 2013, but not including any additional shares issuable upon exercise of outstanding options. Unless otherwise indicated, the address of each of the individuals and

145


Table of Contents

entities named below is c/o KYTHERA Biopharmaceuticals, Inc., 27200 West Agoura Road, Suite 200, Calabasas, California 91301.

 
  Beneficial Ownership Prior to this Offering(1)   Beneficial Ownership
After this Offering
 
Name of Beneficial Owner
  Number of
Shares
Beneficially
Owner
  Securities
Exercisable
Within 60 Days
  Number of
Shares
Beneficially
Owned
  Percentage of
Beneficial
Ownership
  Number of
Shares
Beneficially
Owned
  Percentage of
Beneficial
Ownership
 

5% Stockholders:

                                     

Entities affiliated with Versant Venture II, L.L.C.(2)

    2,479,593         2,479,593     13.2 %   2,479,593     11.8 %

Fidelity Contrafund: Fidelity Advisor New Insights Fund(3)

    2,247,497         2,247,497     12.0 %   2,247,497     10.7 %

Entities affiliated with ARCH Venture Fund VI, L.P.(4)

    2,105,740         2,105,740     11.2 %   2,105,740     10.1 %

Prospect Venture Partners III, L.P.(5)

    1,914,566         1,914,566     10.2 %   1,914,566     9.1 %

Entities associated with Partner Fund Management, L.P.(6)

    1,116,801         1,116,801     6.0 %   1,116,801     5.3 %

Named Executive Officers and Directors:

                                     

Keith R. Leonard, Jr.(7)

    1,074,071     202,116     1,276,187     6.7 %   1,276,187     6.0 %

John W. Smither(8)

        63,307     63,307     *     63,307     *  

Patricia S Walker, M.D., Ph.D.(9)

    147,560     3,000     150,560     *     150,560     *  

F. Michael Ball(10)

        1,000     1,000     *     1,000     *  

Nathaniel David, Ph.D.(11)

    532,760     13,235     545,995     2.9 %   545,995     2.6 %

Dennis Fenton, Ph.D.(12)

    3,348     39,405     42,753     *     42,753     *  

François Kress(13)

        20,274     20,274     *     20,274     *  

Robert T. Nelsen(14)

    2,105,740     1,891     2,107,631     11.2 %   2,107,631     10.1 %

Camille Samuels(15)

        1,891     1,891     *     1,891     *  

David Schnell, M.D.(16)

    1,914,566     1,891     1,916,457     10.2 %   1,916,457     9.1 %

Joseph L. Turner(17)

    1,872     29,631     31,503     *     31,503     *  

All 13 directors and executive officers as a group(18)

    5,632,357     582,389     6,214,746     32.1 %   6,214,746     28.9 %

*
Represents beneficial ownership of less than one percent of the outstanding shares of our common stock.

(1)
Represents shares of common stock held by such individuals and options held by such individuals that were exercisable within 60 days of September 20, 2013. Includes shares held in the beneficial owner's name or jointly with others, or in the name of a bank, nominee or trustee for the beneficial owner's account. Reported numbers do not include options that vest more than 60 days after September 20, 2013.

(2)
As reported on Schedule 13G filed with the SEC on February 11, 2013 by Versant Affiliates Fund II-A, L.P., a Delaware limited partnership ("VAF II-A"), Versant Side Fund II, L.P., a Delaware limited partnership ("VSF II"), Versant Venture Capital II, L.P., a Delaware limited partnership ("VVC II"), Versant Ventures II, LLC, a Delaware limited liability company ("VV II"), Brian G. Atwood ("BGA"), Samuel D. Colella ("SDC"), Ross A. Jaffe ("RAJ"), William J. Link ("WJL"), Donald B. Milder ("DBM"), Rebecca B. Robertson ("RBR"), Camille D. Samuels ("CDS"), Bradley J. Bolzon ("BJB"), Charles M. Warden ("CMW"), Barbara N. Lubash ("BNL"). VV II serves as the sole general partner of VAF II-A, VSF II and VVC II and owns no shares directly. BGA, SDC, RAJ, WJL, DBM, RBR, CDS, BJB, CMW and BNL are directors and/or members of VV II and share voting and dispositive power over the shares held by VAF II-A, VSF II and VVC II; however, they disclaim beneficial ownership of the shares held by VAF II-A, VSF II and VVC II except to the extent of their pecuniary interests therein. Following the filing of the Schedule 13G, the Company was informed that CDS no longer serves as a director/ and or member of VV II. The address for such entities and persons is c/o Versant Ventures, 3000 Sand Hill Road Building 4, Suite 210 Menlo Park, California 94025.

(3)
As reported on Schedule 13G filed with the SEC on February 14, 2013. Fidelity Management & Research Company ("Fidelity"), 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 2,225,497 shares as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. The ownership of one investment company, Fidelity Advisor New Insights Fund, amounted to 1,544,335 shares. Fidelity Advisor New Insights Fund has its principal business office at 82 Devonshire Street, Boston, Massachusetts 02109. Edward C. Johnson III, Chairman of FMR LLC, and FMR LLC, through its control of Fidelity, and the funds each has sole power to dispose of the 2,225,497 shares owned by the funds. Members of the family

146


Table of Contents

    of Edward C. Johnson III are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders' voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Edward C. Johnson III has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds, which power resides with the Funds' Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds' Boards of Trustees. In addition, Pyramis Global Advisors Trust Company ("PGATC"), 900 Salem Street, Smithfield, Rhode Island, 02917, an indirect wholly-owned subsidiary of FMR LLC and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 22,000 shares as a result of its serving as investment manager of institutional accounts owning such shares. Edward C. Johnson III and FMR LLC, through its control of Pyramis Global Advisors Trust Company, each has sole dispositive power over 22,000 shares and sole power to vote or to direct the voting of 22,000 shares owned by the institutional accounts managed by PGATC as reported herein.

(4)
As reported on Schedule 13G filed with the SEC on February 8, 2013, ARCH Venture Fund VI, L.P. ("ARCH Venture Fund VI"); ARCH Venture Partners VI, L.P. ("AVP VI LP"); ARCH Venture Partners VI, LLC ("AVP VI LLC"); and Keith Crandell ("Crandell"), Robert Nelsen ("Nelsen") and Clinton Bybee ("Bybee") (collectively, the "Managing Directors" and individually, each a "Managing Director"). ARCH Venture Fund VI is the record owner of 2,105,740 shares. AVP VI LP, as the sole general partner of ARCH Venture Fund VI, may be deemed to beneficially own such shares. AVP VI LLC, as the sole general partner of AVP VI LP, may be deemed to beneficially own such shares. As managing directors of AVP VI LLC, each Managing Director may also be deemed to share the power to direct the disposition and vote of such shares. The address of such entities and persons is 8725 West Higgins Road, Suite 290, Chicago, IL 60631.

(5)
As reported on Schedule 13G filed with the SEC on January 28, 2013 by Prospect Venture Partners III, L.P., a Delaware limited partnership ("PVP III") and Prospect Management Co. III, L.L.C., a Delaware limited liability company ("PMC III"). The shares are owned by PVP III. PMC III serves as the sole general partner of PVP III. As such, PMC III possesses power to direct the voting and disposition of the shares owned by PVP III and may be deemed to have indirect beneficial ownership of the shares held by PVP III. PMC III owns no shares directly. David Schnell, M.D., a member of our Board, is a managing member of PMC III. The managing members of PMC III are deemed to have voting and dispositive power over the shares held by PVP III, and each disclaims beneficial ownership of these shares, except to the extent of his or her pecuniary interest therein. The address for such entities and persons is 435 Tasso Street, Suite 200, Palo Alto, CA 94301.

(6)
As reported on Schedule 13G/A filed with the SEC on February 14, 2013 by Partner Fund Management, L.P. ("PFM"), Partner Fund Management GP, LLC ("PFM-GP"), Partner Investment Management, L.P. ("PIM"), Partner Investment Management GP, LLC ("PIM-GP"), Brian D. Grossman and Christopher M. James with respect to shares held by PFM Healthcare Fund, L.P., a Delaware limited partnership ("HC"), PFM Healthcare Offshore Fund, Ltd., a Cayman Islands limited company ("HCO"), and PFM Healthcare Principals Fund, L.P., a Delaware limited partnership ("HCP" and, collectively with HC and HCO, the "Funds"). PFM is the investment advisor for HCO. PIM is the investment advisor for HC and HCP. PFM-GP and PIM-GP are, respectively, the general partners of PFM and PIM. Mr. Grossman is the portfolio manager for the health care strategy for the Funds. Mr. James is the chief investment officer for PIM and PFM and member manager of PFM-GP and PIM-GP. The address of the principal business office of such entities and persons is c/o Partner Fund Management, L.P., 4 Embarcadero Center, Suite 3500, San Francisco, CA 94111.

(7)
Consists of: (i) 968,103 shares held by Leonard Family Trust, dated 28 August, 1996, of which Mr. Leonard is a trustee, (ii) 52,795 shares held by Keith Richard Leonard Retained Annuity Trust, dated 12 April 2010, of which Mr. Leonard is a trustee, (iii) 52,795 shares held by Nanette LaRosa Leonard Retained Annuity Trust, dated 12 April 2010, of which Mr. Leonard is a trustee, (iv) 189 shares held by Keith R Leonard, III and 189 shares held by Nina R Leonard, members of Mr. Leonard's household, and (v) 202,116 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(8)
Consists of 63,307 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(9)
Consists of 3,000 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013. Dr. Walker ceased to be an officer of the Company in March 2013.

(10)
Consists of 1,000 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(11)
Consists of: (i) 532,760 shares held by Nathaniel David, Ph.D. and (ii) 13,235 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

147


Table of Contents

(12)
Consists of: (i) 3,348 shares held by Dennis Fenton, Ph.D. and (ii) 39,405 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(13)
Consists of 20,274 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(14)
Consists of: (i) shares described in Note (4) above. Mr. Nelsen disclaims beneficial ownership of the shares held by ARCH VI as described in Note (4) above, except to the extent of his pecuniary interest therein, and (ii) 1,891 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(15)
Consists of 1,891 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(16)
Consists of: (i) shares described in Note (5) above. Dr. Schnell disclaims beneficial ownership of the shares held by Prospect Management Co. III, L.L.C. as described in Note (5) above, except to the extent of his pecuniary interest therein, and (ii) 1,891 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(17)
Consists of: (i) 1,872 shares held by Joseph L. Turner and (ii) 29,631 shares that may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

(18)
Includes 5,632,357 shares held, and 582,389 shares beneficially owned by our current executive officers and directors, which may be acquired pursuant to the exercise of stock options within 60 days of September 20, 2013.

148


Table of Contents


Description of Capital Stock

The following summary describes our capital stock and the material provisions of our amended and restated certificate of incorporation and our amended and restated bylaws, the investor rights agreement to which we and certain of our stockholders are parties and of the Delaware General Corporation Law. Because the following is only a summary, it does not contain all of the information that may be important to you. For a complete description, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws and investor rights agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is part.


General

Our amended and restated certificate of incorporation that authorizes 300,000,000 shares of common stock, $0.00001 par value per share, and 5,000,000 shares of preferred stock, $0.00001 par value per share. As of June 30, 2013, there were outstanding:

18,624,962 shares of our common stock; and

2,307,671 shares of our common stock issuable upon exercise of outstanding stock options.


Common Stock

Voting Rights

Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to elect all of the directors.

Dividends

Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. The terms of our credit facility currently prohibit us from paying cash dividends on our common stock.

Liquidation

In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.

Rights and Preferences

Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of our preferred stock that we may designate in the future.

149


Table of Contents

Fully Paid and Nonassessable.

All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.


Preferred Stock

Our board of directors has the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting, or the designation of, such series, any or all of which may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon our liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of our company or other corporate action. No shares of preferred stock are outstanding, and we have no present plan to issue any shares of preferred stock.


Registration Rights

Under our amended and restated investor rights agreement, the holders of up to approximately 11.9 million shares of common stock have the right to require us to register their shares under the Securities Act so that those shares may be publicly resold, or to include their shares in any registration statement we file, in each case as described below.

Demand Registration Rights

Based on the number of shares outstanding as of June 30, 2013, the holders of up to approximately 11.9 million shares of our common stock will be entitled to certain demand registration rights. The holders of at least 40% of these shares can, on not more than two occasions, request that we register all or a portion of their shares. Such request for registration must cover a number of shares with an anticipated aggregate offering price of at least $10.0 million. Additionally, we will not be required to effect a demand registration during the period beginning 60 days prior to the filing and 180 days following the effectiveness of a company-initiated registration statement relating to a public offering of our securities, provided that we have complied with certain notice requirements to the holders of these shares.

Form S-3 Registration Rights

Based on the number of shares outstanding as of June 30, 2013, the holders of up to approximately 11.9 million shares of our common stock, or their transferees, will be entitled to certain Form S-3 registration rights. The holders of these shares can make a written request that we register their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at least $1.0 million. These stockholders may make an unlimited number of requests for registration on Form S-3. However, we will not be required to effect a registration on Form S-3 during the period beginning 60 days prior to the filing and 180 days following the effectiveness of a company-initiated registration statement relating to a public offering of our securities, provided that we have complied with certain notice requirements to the holders of these shares.

150


Table of Contents

Piggyback Registration Rights

Based on the number of shares outstanding as of June 30, 2013, in the event that we determine to register any of our securities under the Securities Act (subject to certain exceptions), either for our own account or for the account of other security holders, the holders of up to approximately 11.9 million shares of our common stock or their transferees, will be entitled to certain "piggyback" registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to a registration related to employee benefit plans, the offer and sale of debt securities, or corporate reorganizations or certain other transactions, the holders of these shares are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration. In an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include.

Expenses of Registration

We will pay the registration expenses of the holders of the shares registered pursuant to the demand, piggyback and Form S-3 registration rights described above, including the expenses of one counsel for the selling holders up to $25,000.

Expiration of Registration Rights.

The demand, piggyback and Form S-3 registration rights described above will expire, with respect to any particular stockholder, upon the earlier of (1) five years after the consummation of our initial public offering, or October 16, 2017, and (2) when that stockholder can sell all of its shares under Rule 144 of the Securities Act.


Anti-Takeover Effects of Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Delaware Law

Some provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Delaware Anti-Takeover Statute

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits persons deemed "interested stockholders" from engaging in a "business combination" with a publicly-held Delaware corporation for three years following the date these persons become interested stockholders

151


Table of Contents

unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation's voting stock. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, such as discouraging takeover attempts that might result in a premium over the market price of our common stock.

Undesignated Preferred Stock

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.

Special Stockholder Meetings

Our charter documents provide that a special meeting of stockholders may be called only by our chairman of the board of directors, Chief Executive Officer or President, or by a resolution adopted by a majority of our board of directors.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

Elimination of Stockholder Action by Written Consent

Our amended and restated certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.

Classified Board; Election and Removal of Directors

Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors. In addition, the removal of any of our directors without cause will require a 662/3% stockholder vote. This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.

Choice of Forum

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf;

152


Table of Contents

any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.

Amendment of Charter Provisions

The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would require approval by holders of at least 662/3% of the voting power of our then outstanding voting stock.

The provisions of the Delaware General Corporation Law, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our Common Stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.


Limitations of Liability and Indemnification Matters

Our amended and restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

any breach of the director's duty of loyalty to us or our stockholders;

any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation provides that we may, and our amended and restated bylaws provide that we are required to, indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and restated bylaws also provide that we may advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys' fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors' and officers' liability insurance.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit

153


Table of Contents

against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage.


The NASDAQ Global Select Market Listing

Our common stock is listed on The NASDAQ Global Select Market under the symbol "KYTH."


Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Wells Fargo Bank, N.A. The transfer agent and registrar's address is Wells Fargo Shareowner Services, 1110 Centre Pointe Curve, Suite 101, Mendota Heights, Minnesota 55120.

154


Table of Contents


Shares Eligible for Future Sale

Future sales of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the perception that those sales may occur, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future. As described below, only a limited number of shares of our common stock will be available for sale in the public market for a period of several months after consummation of this offering due to contractual and legal restrictions on resale described below. Future sales of our common stock in the public market either before (to the extent permitted) or after restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital at a time and price we deem appropriate.


Sale of Restricted Shares

Based on the number of shares of our common stock outstanding as of June 30, 2013, upon the closing of this offering and assuming (1) the issuance and sale of approximately $100.0 million of shares of our common stock at an assumed public offering price of $45.89 per share, which is the last reported sale price of our common stock on October 4, 2013, (2) no exercise of the underwriters' option to purchase additional shares of common stock to cover over-allotments and (3) no exercise of outstanding options, we will have outstanding an aggregate of approximately 20,804,085 shares of common stock. All of the shares sold in our initial public offering in October 2012, all of the shares of common stock to be sold in this offering, and any shares sold upon exercise of the underwriters' option to purchase additional shares to cover over-allotments, will be freely tradable in the public market without restriction or further registration under the Securities Act, unless the shares are held by any of our "affiliates" as such term is defined in Rule 144 of the Securities Act. All remaining shares of common stock held by existing stockholders that have not previously been sold pursuant to Rule 144 are "restricted securities" as such term is defined in Rule 144. These restricted securities were issued and sold by us, or will be issued and sold by us, in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, including the exemptions provided by Rule 144 or Rule 701, which rules are summarized below.


Lock-Up Agreements

In connection with this offering, we, our directors and executive officers and certain of our stockholders have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of the lock-up agreement continuing through the date 90 days after the date of this prospectus, except with the prior written consent of J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated.


Rule 144

In general, under Rule 144, as currently in effect, a person (or persons whose shares are required to be aggregated) who is not deemed to have been one of our "affiliates" for purposes of Rule 144 at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months, including the holding period of any prior owner other than one of our "affiliates," is entitled to sell those shares in the public market (subject to the lock-up agreement referred to above, if applicable) without complying with the manner of sale, volume limitations or notice provisions of Rule 144, but subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than "affiliates," then such person

155


Table of Contents

is entitled to sell such shares in the public market without complying with any of the requirements of Rule 144 (subject to the lock-up agreement referred to above, if applicable). In general, under Rule 144, as currently in effect, "affiliates," as defined in Rule 144, who have beneficially owned the shares proposed to be sold for at least six months are entitled to sell in the public market, upon expiration of any applicable lock-up agreements and within any three-month period, a number of those shares of our common stock that does not exceed the greater of:

1% of the number of common shares then outstanding, which will equal approximately                shares of common stock immediately after this offering (calculated as of June 30, 2013 on the basis of the assumptions described above and assuming no exercise of the underwriter's option to purchase additional shares and no exercise of outstanding options or warrants); or

the average weekly trading volume of our common stock on The NASDAQ Global Select Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Such sales under Rule 144 by our "affiliates" or persons selling shares on behalf of our "affiliates" are also subject to certain manner of sale provisions, notice requirements and to the availability of current public information about us. Notwithstanding the availability of Rule 144, the holders of substantially all of our restricted securities have entered into lock-up agreements as referenced above and their restricted securities will become eligible for sale (subject to the above limitations under Rule 144) upon the expiration of the restrictions set forth in those agreements.


Rule 701

In general, under Rule 701 of the Securities Act, any of an issuer's employees, consultants or advisors who purchased shares from the issuer in connection with a qualified compensatory stock plan or other written agreement before the effective date of a registration statement under the Securities Act is eligible to resell those shares in reliance on Rule 144. An affiliate of the issuer can resell shares in reliance on Rule 144 without having to comply with the holding period requirements of Rule 144, and a non-affiliate of the issuer can resell shares in reliance on Rule 144 without having to comply with the holding period requirements of Rule 144 and without regard to the volume of such sales or the availability of public information about the issuer.

The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after an issuer becomes subject to the reporting requirements of the Exchange Act. In 2012 we filed a registration statement on Form S-1 under the Securities Act to register shares in connection with our initial public offering and a registration statement on Form S-8 under the Securities Act to register all of the shares of our common stock subject to outstanding options and other awards issuable pursuant to our 2004 Stock Plan and 2012 Equity Incentive Plan.


Registration Rights

Based on the number of shares outstanding as of June 30, 2013, the holders of approximately 8.2 million shares of our common stock or their transferees, will, subject to any lock-up agreements they have entered into, be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. For a description of these registration rights, please see the section titled "Description of Capital Stock—Registration Rights." If the offer and sale of these shares are registered, they will be freely tradable without restriction under the Securities Act.

156


Table of Contents


Stock Plans

We have filed with the SEC a registration statement on Form S-8 under the Securities Act covering the shares of common stock that we may issue upon exercise of outstanding options reserved for issuance under our 2004 Stock Plan, as amended, and our 2012 Equity Incentive Award Plan. Accordingly, shares registered under such registration statement are available for sale in the open market, subject to Rule 144 volume limitations and the lock-up agreements described above, if applicable.

157


Table of Contents


Material U.S. Federal Income Tax Consequences
to Non-U.S. Holders

The following is a summary of the material United States federal income tax consequences to non-U.S. holders (as defined below) of the acquisition, ownership and disposition of our common stock issued pursuant to this offering. This discussion is not a complete analysis of all of the potential United States federal income tax consequences relating thereto, nor does it address any estate and gift tax consequences or any tax consequences arising under any state, local or foreign tax laws, or any other United States federal tax laws. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or IRS, all as in effect as of the date of this prospectus. These authorities may change, possibly retroactively, resulting in United States federal income tax consequences different from those discussed below. No ruling has been or will be sought from the IRS with respect to the matters discussed below, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership or disposition of our common stock, or that any such contrary position would not be sustained by a court.

This discussion is limited to non-U.S. holders who purchase our common stock issued pursuant to this offering and who hold our common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all of the United States federal income tax (including the Medicare contribution tax) consequences that may be relevant to a particular holder in light of such holder's particular circumstances. This discussion also does not consider any specific facts or circumstances that may be relevant to holders subject to special rules under the United States federal income tax laws, including, without limitation:

United States expatriates or former long-term residents of the United States;

partnerships or other pass-through entities;

"controlled foreign corporations," "passive foreign investment companies" or corporations that accumulate earnings to avoid United States federal income tax;

banks, insurance companies, or other financial institutions;

brokers, dealers, or traders in securities, commodities or currencies;

tax-exempt organizations;

tax-qualified retirement plans; or

persons holding our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS AND ANY OTHER UNITED STATES FEDERAL TAX LAWS.

158


Table of Contents


Definition of Non-U.S. Holder

For purposes of this discussion, a non-U.S. holder is any beneficial owner of our common stock that is not a "U.S. person" or a partnership (or other entity treated as a partnership) for United States federal income tax purposes. A U.S. person is any of the following:

an individual citizen or resident of the United States;

a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized under the laws of the United States, any state therein or the District of Columbia;

an estate the income of which is subject to United States federal income tax regardless of its source; or

a trust (1) the administration of which is subject to the primary supervision of a United States court and all substantial decisions of which are controlled by one or more United States persons or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.


Distributions on Our Common Stock

As stated above under "Dividend Policy", we do not intend to make distributions on our common stock for the foreseeable future. If, however, we make cash or other property distributions on our common stock, such distributions will constitute dividends for United States federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. Amounts not treated as dividends for United States federal income tax purposes will constitute a return of capital and will first be applied against and reduce a holder's adjusted tax basis in the common stock, but not below zero. Distributions in excess of our current and accumulated earnings and profits and in excess of a non-U.S. holder's tax basis in its shares will be treated as gain realized on the sale or other disposition of the common stock and will be treated as described under "Gain on Disposition of Our Common Stock" below.

Dividends paid to a non-U.S. holder of our common stock will be subject to United States federal withholding tax at a rate of 30% of the gross amount of the dividends, or such lower rate specified by an applicable income tax treaty. To receive the benefit of a reduced treaty rate, a non-U.S. holder must furnish to us or our paying agent a valid IRS Form W-8BEN (or applicable successor form) certifying such holder's qualification for the reduced rate. This certification must be provided to us or our paying agent prior to the payment of dividends and must be updated periodically. Non-U.S. holders that do not timely provide us or our paying agent with the required certification, but who qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

If a non-U.S. holder holds our common stock in connection with the conduct of a trade or business in the United States, and dividends paid on the common stock are effectively connected with such holder's United States trade or business (and if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States), the non-U.S. holder will be exempt from United States federal withholding tax. To claim the exemption, the non-U.S. holder must furnish to us or our paying agent a properly executed IRS Form W-8ECI (or applicable successor form).

159


Table of Contents

Any dividends paid on our common stock that are effectively connected with a non-U.S. holder's United States trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States) will be subject to United States federal income tax on a net income basis at the regular graduated United States federal income tax rates in much the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to a branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of a portion of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders are urged to consult any applicable income tax treaties that may provide for different rules.

A non-U.S. holder who claims the benefit of an applicable income tax treaty will be required to satisfy applicable certification and other requirements prior to the distribution date. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.


Gain on Disposition of Our Common Stock

Subject to the discussion below under "Legislation Relating to Foreign Accounts," a non-U.S. holder will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of our common stock, unless:

the gain is effectively connected with the non-U.S. holder's conduct of a trade or business in the United States, and if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States;

the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the calendar year of the disposition, and certain other requirements are met; or

our common stock constitutes a "United States real property interest" by reason of our status as a United States real property holding corporation, or USRPHC, for United States federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the non-U.S. holder's holding period for our common stock. The determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other trade or business assets and our foreign real property interests.

We believe we are not currently and do not anticipate becoming a USRPHC for United States federal income tax purposes. Even if we become a USRPHC, however, so long as our common stock is regularly traded on an established securities market, such common stock will be treated as United States real property interests only if the non-U.S. holder actually or constructively holds more than 5% of our common stock.

Gain described in the first bullet point above will be subject to United States federal income tax on a net income basis at the regular graduated United States federal income tax rates in much the same manner as if such holder were a resident of the United States. Further, non-U.S. holders that are foreign corporations also may be subject to a branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of a portion of its effectively connected earnings and profits for the taxable year, as adjusted for certain items.

Gain described in the second bullet point above will be subject to United States federal income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty), but may be offset by United States source capital losses (even though the individual is not considered a resident of the United States).

160


Table of Contents

Non-U.S. holders are urged to consult any applicable income tax treaties that may provide for different rules.


Information Reporting and Backup Withholding

We must report annually to the IRS and to each non-U.S. holder the amount of distributions on our common stock paid to such holder and the amount of any tax withheld with respect to those distributions. These information reporting requirements apply even if no withholding was required because the distributions were effectively connected with the holder's conduct of a United States trade or business, or withholding was reduced or eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Backup withholding may apply to distribution payments to a non-U.S. holder of our common stock and information reporting and backup withholding may apply to the payments of the proceeds of a sale of our common stock within the United States or through certain United States-related financial intermediaries, unless the non-U.S. holder furnishes to the relevant paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or IRS Form W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if the relevant paying agent has actual knowledge, or reason to know, that the holder is a U.S. person who is not an exempt recipient.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder's United States federal income tax liability, provided the required information is timely furnished to the IRS.


Legislation Relating to Foreign Accounts

Under legislation enacted in 2010, withholding taxes may apply to certain types of payments made to "foreign financial institutions" (as specially defined under those rules) and certain other non-U.S. entities. The failure to comply with additional certification, information reporting and other specified requirements could result in a withholding tax being imposed on payments of dividends and sales proceeds to foreign intermediaries and certain non-U.S. holders. A 30% withholding tax may be imposed on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a foreign financial institution or to a non-financial foreign entity, unless (i) the foreign financial institution undertakes certain diligence and reporting, (ii) the non-financial foreign entity either certifies it does not have any substantial United States owners or furnishes identifying information regarding each substantial United States owner, or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (i) above, it must enter into an agreement with the United States Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or United States-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to non-compliant foreign financial institutions and certain other account holders.

Under current IRS guidance the withholding provisions described above will generally apply to payments of dividends on our common stock made on or after July 1, 2014 and to payments of gross proceeds from a sale or other disposition of such stock on or after January 1, 2017. Prospective investors should consult their tax advisors regarding this legislation.

161


Table of Contents


Underwriting

We are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as joint book-running managers of the offering and as representatives of the underwriters. Leerink Swann LLC is also acting as a joint book-running manager of the offering. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

   
Name
  Number of Shares
 
   
J.P. Morgan Securities LLC        
Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated
       
Leerink Swann LLC        
Cowen and Company, LLC        
       
Total        
   

The underwriters are committed to purchase all the common shares offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

The underwriters propose to offer the common shares directly to the public at the offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $            per share. After the offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.

The underwriters have an option to buy up to approximately $15.0 million of additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $             per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.

   
 
  Without over-
allotment
exercise

  With full over-
allotment
exercise

 
   

Per Share

  $     $    

Total

  $     $    
   

162


Table of Contents

We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $0.6 million.

We have agreed to reimburse the underwriters for expenses of up to $20,000 related to clearance of this offering with the Financial Industry Regulatory Authority, Inc. (FINRA).

A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

We have agreed that we will not, for a period of 90 days after the date of this prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or any securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of common stock (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock, or such other securities, in cash or otherwise) other than (a) the shares to be sold hereunder and (b) any shares of common stock of our company issued upon the exercise of options granted under company stock plans, in each case without the prior written consent of J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the underwriters.

Our directors and executive officers, and certain of our stockholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities for a period of 90 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the underwriters (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock (including, without limitation, common stock which may be deemed to be beneficially owned by such directors, executive officers, stockholders, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant), (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such oth