10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from         to         

Commission File Number: 001-37785

Reata Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	11-3651945
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5320 Legacy Drive   Plano, Texas	75024
(Address of principal executive offices)	(Zip Code)

(972) 865-2219

(Registrant’s telephone number, including area code)

2801 Gateway Drive, Suite 150

Irving, Texas 75063

(Former name, former address and former fiscal year, if changes since last report)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, Par Value $0.001 Per Share	RETA	NASDAQ Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No  ☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

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

As of November 7, 2019, the registrant had 24,765,410 shares of Class A common stock, $0.001 par value per share, and 5,506,495 shares of Class B common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

		Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		1
DEFINED TERMS		3
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Stockholders’ Equity (Deficit)	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		38

i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.  We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.  All statements, other than statements of historical or present facts, including statements regarding our future financial condition, future revenues, projected costs, prospects, business strategy, and plans and objectives of management for future operations, are forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “target,” “project,” “model,” “should,” “would,” “plan,” “expect,” “predict,” “could,” “seek,” “goals,” “potential,” and similar terms or expressions that concern our expectations, strategy, plans, or intentions.  These forward-looking statements include, but are not limited to, statements about:

• our expectations regarding the timing, costs, conduct, and outcome of our clinical trials, including statements regarding the timing of the initiation and availability of data from such trials;

• the timing and likelihood of regulatory filings and approvals for our product candidates;

• our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

• our plans to research, develop, and commercialize our product candidates;

• the commercialization of our product candidates, if approved;

• the rate and degree of market acceptance of our product candidates;

• our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved for commercial use, and the potential market opportunities for commercializing our product candidates;

• the success of competing therapies that are or may become available;

• our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

• the ability to license additional intellectual property relating to our product candidates and to comply with our existing license agreements;

• our ability to maintain and establish relationships with third parties, such as contract research organizations, suppliers, and distributors;

• our ability to maintain and establish collaborators with development, regulatory, and commercialization expertise;

• our ability to attract and retain key scientific or management personnel;

• our ability to grow our organization and increase the size of our facilities to meet our anticipated growth;

• the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;

• our expectations related to the use of our available cash;

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

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

• the impact of governmental laws and regulations and regulatory developments in the United States and foreign countries;

• developments and projections relating to our competitors and our industry; and

1

• other risks and uncertainties, including those described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019, as supplemented by our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed with the SEC on August 8, 2019.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.  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.

2

DEFINED TERMS

Unless the context requires otherwise, references to “Reata,” “the Company,” “we,” “us,” or “our” in this Quarterly Report on Form 10-Q refer to Reata Pharmaceuticals, Inc. and its subsidiaries.  We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below.

Abbreviated Term	Defined Term
6MWD	6-minute walk distance
AbbVie	AbbVie Inc.
ADPKD	Autosomal dominant polycystic kidney disease
ASU	Accounting Standards Update
Bardoxolone	Bardoxolone methyl
CKD	Chronic kidney disease
CRO	Contract research organization
CTD-PAH	Pulmonary arterial hypertension associated with connective tissue disease
DSMB	Data safety monitoring board
EGC	Emerging growth company
eGFR	Estimated glomerular filtration rate
ESKD	End stage kidney disease
Exchange Act	Securities Exchange Act of 1934
FA	Friedreich’s ataxia
FASB	Financial Accounting Standards Board
FDA	United States Food and Drug Administration
FSGS	Focal segmental glomerulosclerosis
GFR	Glomerular filtration rate
IgAN	IgA nephropathy
I-PAH	Idiopathic form of PAH
IPO	Initial public offering
IRS	Internal Revenue Service
JOBS Act	Jumpstart Our Business Startups Act of 2012
KKC	Kyowa Kirin Co., Ltd. (formerly KHK or Kyowa Hakko Kirin Co., Ltd.)
mFARS	Modified Friedreich’s Ataxia Rating Scale
NDA	New Drug Application
PAH	Pulmonary arterial hypertension
Retained eGFR	eGFR change after a four-week withdrawal of drug
SAE	Serious adverse event
Sarbanes-Oxley Act	The Sarbanes-Oxley Act of 2002
SEC	Securities and Exchange Commission
T1D CKD	Type 1 diabetic CKD
T2D CKD	Type 2 diabetic CKD

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Reata Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

	September 30, 2019			December 31, 2018
	(unaudited)
Assets
Cash and cash equivalents	$	240,149		$	337,790
Prepaid expenses and other current assets		6,382			4,483
Total current assets		246,531			342,273
Property and equipment, net		2,859			1,445
Other assets		9,733			1,490
Total assets	$	259,123		$	345,208
Liabilities and stockholders’ (deficit) equity
Accounts payable		3,582			4,473
Accrued direct research liabilities		19,848			15,416
Other current liabilities		14,398			4,696
Current portion of long-term debt, net of debt issuance cost		5,313			—
Current portion of deferred revenue		31,421			31,335
Total current liabilities		74,562			55,920
Other long-term liabilities		6,198			524
Long-term debt, net of current portion and debt issuance cost		74,923			79,219
Deferred revenue, net of current portion		170,863			194,386
Total noncurrent liabilities		251,984			274,129
Commitments and contingencies
Stockholders’ (deficit) equity:
Common stock A, $0.001 par value:    500,000,000 shares authorized; issued and outstanding – 24,525,768 and    24,000,683 at September 30, 2019 and December 31, 2018, respectively		25			24
Common stock B, $0.001 par value:    150,000,000 shares authorized; issued and outstanding – 5,598,731    and 5,728,175 shares at September 30, 2019 and December 31, 2018		6			6
Additional paid-in capital		456,097			435,452
Accumulated deficit		(523,551	)		(420,323	)
Total stockholders’ (deficit) equity		(67,423	)		15,159
Total liabilities and stockholders’ (deficit) equity	$	259,123		$	345,208

See accompanying notes.

4

Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except share and per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Collaboration revenue
License and milestone	$	7,898		$	4,766		$	23,437		$	44,452
Other revenue		344			409			409			685
Total collaboration revenue		8,242			5,175			23,846			45,137
Expenses
Research and development		32,279			27,144			87,948			71,979
General and administrative		14,283			7,486			36,027			24,802
Depreciation		258			105			659			311
Total expenses		46,820			34,735			124,634			97,092
Other income (expense)
Investment income		1,311			1,094			4,812			1,787
Interest expense		(2,389	)		(2,360	)		(7,199	)		(3,773	)
Loss on extinguishment of debt		—			—			—			(1,007	)
Other income (expense)		—			—			7			—
Total other income (expense)		(1,078	)		(1,266	)		(2,380	)		(2,993	)
Loss before taxes on income		(39,656	)		(30,826	)		(103,168	)		(54,948	)
Provision for taxes on income		38			9			60			15
Net loss	$	(39,694	)	$	(30,835	)	$	(103,228	)	$	(54,963	)
Net loss per share—basic and diluted	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)
Weighted-average number of common shares used in    net loss per share basic and diluted		30,110,391			28,704,853			30,004,211			27,022,269

See accompanying notes.

5

Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Stockholders’ (Deficit) Equity

(in thousands, except share and per share data)

	Three Months Ended September 30, 2019
	Common Stock A				Common Stock B					Additional Paid-In		Shareholder Notes		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Receivable		Deficit			(Deficit) Equity
Balance at June 30, 2019		24,466,407	$	24		5,631,527		$	6	$	450,354	$	—	$	(483,857	)	$	(33,473	)
Net loss		—		—		—			—		—		—		(39,694	)		(39,694	)
Compensation expense    related to stock options		—		—		—			—		5,380		—		—			5,380
Exercise of options		—		—		26,565			—		363		—		—			363
Conversion of common stock    Class B to Class A		59,361		1		(59,361	)		—		—		—		—			1
Balance at September 30, 2019		24,525,768	$	25		5,598,731		$	6	$	456,097	$	—	$	(523,551	)	$	(67,423	)

	Nine Months Ended September 30, 2019
	Common Stock A				Common Stock B					Additional Paid-In		Shareholder Notes		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Receivable		Deficit			(Deficit) Equity
Balance at December 31, 2018		24,000,683	$	24		5,728,175		$	6	$	435,452	$	—	$	(420,323	)	$	15,159
Net loss		—		—		—			—	$	—		—		(103,228	)		(103,228	)
Compensation expense    related to stock options		—		—		—			—	$	14,090		—		—			14,090
Exercise of options		—		—		395,641			—	$	6,448		—		—			6,448
Conversion of common stock    Class B to Class A		525,085		1		(525,085	)		—	$	—		—		—			1
Other shareholder    transactions		—		—		—			—	$	107		—		—			107
Balance at September 30, 2019		24,525,768	$	25		5,598,731		$	6	$	456,097	$	—	$	(523,551	)	$	(67,423	)

	Three Months Ended September 30, 2018
	Common Stock A				Common Stock B					Additional Paid-In		Shareholder Notes		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Receivable		Deficit			(Deficit) Equity
Balance at June 30, 2018		20,244,675	$	20		5,961,183		$	6	$	196,013	$	—	$	(363,913	)	$	(167,874	)
Net loss		—		—		—			—		—		—		(30,835	)		(30,835	)
Compensation expense    related to stock options		—		—		—			—		2,745		—		(10	)		2,735
Exercise of options		—		—		41,672			—		672		—		—			672
Public offering of common stock, net of offering costs		3,450,000		4		—			—		232,843		—		—			232,847
Conversion of common stock    Class B to Class A		189,290		—		(189,290	)		—		—		—		—			—
Balance at September 30, 2018		23,883,965	$	24		5,813,565		$	6	$	432,273	$	—	$	(394,758	)	$	37,545

	Nine Months Ended September 30, 2018
	Common Stock A				Common Stock B						Additional Paid-In		Shareholder Notes			Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital		Receivable			Deficit			(Deficit) Equity
Balance at December 31, 2017		19,975,340	$	20		6,166,166		$	7		$	190,145	$	(2	)	$	(337,143	)	$	(146,973	)
Net loss		—		—		—			—			—		—			(54,963	)		(54,963	)
Compensation expense    related to stock options		—		—		—			—			7,781		—			(18	)		7,763
Exercise of options		—		—		106,024			—			1,498		—			—			1,498
Proceeds from payments of    shareholder promissory     notes		—		—		—			—			6		2			—			8
Public offering of common stock, net of offering costs		3,450,000		4		—			—			232,843		—			—			232,847
Conversion of common stock    Class B to Class A		458,625		—		(458,625	)		(1	)		—		—			—			(1	)
Adoption of new accounting    guidance		—		—		—			—			—		—			(2,634	)		(2,634	)
Balance at September 30, 2018		23,883,965	$	24		5,813,565		$	6		$	432,273	$	—		$	(394,758	)	$	37,545

6

Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Nine Months Ended
	September 30,
	2019			2018
Operating activities
Net loss	$	(103,228	)	$	(54,963	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		659			311
Amortization of debt issuance costs		1,017			549
Stock-based compensation expense		14,090			7,783
Loss on extinguishment of debt		—			1,007
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(1,899	)		(1,304	)
Other assets		20			14
Accounts payable		(440	)		2,933
Accrued direct research and other current and long-term liabilities		11,442			10,836
Deferred revenue		(23,437	)		(13,452	)
Net cash used in operating activities		(101,776	)		(46,286	)
Investing activities
Purchases of property and equipment		(2,420	)		(370	)
Net cash used in investing activities		(2,420	)		(370	)
Financing activities
Proceeds from issuance of common stock		—			232,846
Proceeds from long-term debt		—			60,000
Payments on deferred issuance costs		—			(2,289	)
Exercise of options		6,448			1,504
Other shareholder transactions		107			—
Net cash provided by financing activities		6,555			292,061
Net (decrease) increase in cash and cash equivalents		(97,641	)		245,405
Cash and cash equivalents at beginning of year		337,790			129,780
Cash and cash equivalents at end of period	$	240,149		$	375,185
Supplemental disclosures
Cash paid for interest	$	6,226		$	2,715
Purchases of equipment in accounts payable and other current liabilities	$	145		$	31
Accrued deferred offering cost	$	—		$	22
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	8,262		$	—

See accompanying notes.

7

Reata Pharmaceuticals, Inc.

Notes to Unaudited Consolidated Financial Statements

1. Description of Business

The Company’s mission is to identify, develop, and commercialize innovative therapies that change patients’ lives for the better.  The Company focuses on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  The Company’s lead programs are in rare forms of chronic kidney disease (CKD) and rare forms of neurological diseases.  The Company’s lead product candidates, bardoxolone methyl (bardoxolone) in CKD and omaveloxolone in neurological diseases, activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation.  Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, the Company believes bardoxolone and omaveloxolone have many potential clinical applications.

The Company has reported top-line efficacy and safety Year 1 results from its registrational CARDINAL Phase 3 clinical trial of bardoxolone in CKD caused by Alport syndrome.  Alport syndrome is a rare and serious hereditary disease with no approved therapy.  The trial met its primary and key secondary Year 1 endpoints.  CARDINAL demonstrated a statistically significant change in the estimated glomerular filtration rate (eGFR) relative to placebo after 48 weeks of treatment and in retained eGFR, which is the change in eGFR after 48 weeks of treatment and a four-week withdrawal period. Subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

The Company has reported top-line efficacy and safety results from its registrational part 2 portion of the MOXIe Phase 2 trial of omaveloxolone in Friedreich’s ataxia (FA).  FA is a rare, inherited, debilitating, and degenerative neuromuscular disorder with no approved therapy.  The trial demonstrated statistically significant evidence of efficacy for its primary endpoint of change in the modified Friedreich’s Ataxia Rating Scale (mFARS) relative to placebo after 48 weeks of treatment. Subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

The Company is also conducting two additional registrational trials:  FALCON, studying bardoxolone in patients with autosomal dominant polycystic kidney disease (ADPKD), and CATALYST, studying bardoxolone in patients with a rare and serious form of pulmonary arterial hypertension (PAH) caused by connective tissue disease (CTD-PAH).  The Company initiated enrollment of FALCON in May 2019, and the Company expects to have top-line data from CATALYST in mid-2020.

The Company’s consolidated financial statements include the accounts of all majority-owned subsidiaries.  Accordingly, the Company’s share of net earnings and losses from these subsidiaries is included in the consolidated statements of operations.  Intercompany profits, transactions, and balances have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  The consolidated balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

The Company’s significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report

8

on Form 10-K).  During the first quarter of 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). As a result of the adoption of Topic 842, the Company has updated its Leases accounting policies. There were no other changes to its significant accounting policies from those disclosed in its 2018 Annual Report on Form 10-K.

Liquidity

As of September 30, 2019, the Company had cash and cash equivalents of $240,149,000. The Company has experienced losses and negative operating cash flows for many years since inception and has no marketed drug or other products. The Company’s ability to generate future revenue depends upon the results of its development programs, the success of which cannot be guaranteed.

The Company expects its current cash and its access to additional equity or debt funding will enable it to meet its current obligations through December 31, 2020. See Note 9, Subsequent Events.

Leases

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on the unique facts and circumstances present in that arrangement. Lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized at the lease commencement date based on the present value of lease payments over the lease term calculated using its incremental borrowing rate based on the information available at commencement unless the implicit rate is readily determinable.  Lease assets also include upfront lease payments, lease incentives paid, and direct costs incurred and exclude lease incentives received.  The lease term used to calculate the lease assets and related lease liabilities includes the options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the expected lease term as an operating expense while the expense for finance leases is recognized as depreciation expense over the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company will account for each lease component separately from the nonlease components.  The depreciable life of lease assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of its exercise.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expenses for these short-term leases and operating leases are recognized on a straight-line basis over the lease term.

Recently Adopted Accounting Pronouncements

The Company is an emerging growth company (EGC), as defined in the JOBS Act.  Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.  The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.  The Company will remain an EGC until December 31, 2019.

In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. The new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures. Topic 842 requires adoption using a modified retrospective transition approach with either 1) transition provisions at the beginning of the earliest comparative period records its cumulative adjustment to retained earnings at the beginning of the earliest period presented or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption.  We adopted this standard on January 1, 2019 using the cumulative-effect adjustment approach. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.

As a result of implementing Topic 842, the Company recognized an operating lease right-of-use asset of $1,544,000 and an operating lease liability of $1,659,000 on January 1, 2019, with no impact on its beginning retained earnings, consolidated statements of operations, or cash flows.  See Note 5, Leases, for further details.

9

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (ASU 2018-09).  This ASU provided various minor codification updates and improvements to address comments that the FASB had received regarding unclear or vague accounting guidance.  The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.  The adoption of this guidance did not have a material impact on our financial position, results of operations or disclosures.

In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections. The ASU clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply.  The guidance is effective upon issuance. The adoption of this guidance did not have a significant impact on the Company’s reported consolidated financial results.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) (ASU 2018-18).  This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics.  This update is effective in fiscal years, including interim periods, beginning after December 15, 2020, and early adoption is permitted.  The Company is evaluating the impact on its financial statements of adopting this guidance.

3. Collaboration Agreements

AbbVie

In December 2011, the Company entered into a collaboration agreement with AbbVie Inc. (AbbVie) (the Collaboration Agreement) to jointly research, develop, and commercialize the Company’s portfolio of second and later generation oral Nrf2 activators.  The terms of the Collaboration Agreement include payment to the Company of a nonrefundable, up-front payment of $400,000,000. The Company is also participating with AbbVie on joint steering committees.  

The up-front payment and the Company’s collaboration on research, development, and commercialization are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2026, which is the estimated minimum period that is needed to complete the performance obligations under the terms of the Collaboration Agreement.  The Company began recognizing revenue related to the up-front payment upon execution of the Collaboration Agreement. During the three months ended September 30, 2019 and 2018, the Company recognized approximately $6,717,000, and during the nine months ended September 30, 2019 and 2018, recognized $19,931,000, as collaboration revenue.  As of September 30, 2019, the Company recorded deferred revenue totaling approximately $191,714,000 of which approximately $26,720,000 is reflected as the current portion of deferred revenue.

On October 9, 2019, the Company and AbbVie entered into an Amended and Restated License Agreement (the Amended AbbVie Agreement) pursuant to which the Company reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the License Agreement, dated as of September 21, 2010, which the Company entered into with AbbVie (the License Agreement), and the Collaboration Agreement. See Note 9, Subsequent Events.

KKC

In December 2009, the Company entered a license agreement with Kyowa Kirin Co., Ltd. (KKC) (the KKC Agreement), which granted KKC an exclusive license to develop and commercialize bardoxolone in the licensed territory.  The Company received a nonrefundable, up-front license fee of $35,000,000 in 2009 and regulatory milestones totaling $45,000,000 in 2010, 2012, and 2018 and could receive additional regulatory milestones of $52,000,000 and commercial milestones of $140,000,000, as well as tiered royalties ranging from the low teens to the low 20 percent range, depending on the country of sale and the amount of annual net sales, on net sales by KKC in the licensed territory.  

The up-front payment and regulatory milestones are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2021, which is the estimated minimum period that is needed to

10

complete the deliverables under the terms of the KKC Agreement.  The Company began recognizing revenue related to the up-front payment upon execution of the KKC Agreement. During the three months ended September 30, 2019 and 2018, the Company recognized approximately $1,181,000 and $(2,951,000), respectively, and during the nine months ended September 30, 2019 and 2018, recognized $3,506,000 and $23,521,000, respectively, as collaboration revenue.  As of September 30, 2019, the Company recorded deferred revenue totaling approximately $10,570,000 of which approximately $4,701,000 is reflected as the current portion of deferred revenue.

4. Term Loan

On June 14, 2018, the Company entered into an Amended and Restated Loan and Security Agreement (the Restated Loan Agreement) with Oxford Finance LLC and Silicon Valley Bank (collectively, the Lenders), which amended and restated the Loan and Security Agreement entered into among Reata and the Lenders on March 31, 2017, as amended on November 3, 2017 (the Loan Agreement).

Under the Restated Loan Agreement, the Term A Loan was increased to $80,000,000, and the Term B Loan availability was increased to $45,000,000, available to be drawn within 30 days, but no later than December 31, 2019, after the achievement of one of two milestones.  If the Company is entitled to draw the Term B Loan but does not draw the Term B Loan by December 31, 2019, the Company is obligated to pay a non-utilization fee of $450,000.

All outstanding Term Loans will mature on June 1, 2023.  Under the Term A Loan, the Company will make interest-only payments for 24 months through June 1, 2020; however, if the Company draws the Term B Loan, the Company will make interest-only payments for 36 months through June 1, 2021.  The interest-only payment period will be followed by 36 equal monthly payments, or 24 equal monthly payments if the Company draws the Term B Loan, of principal and interest payments. The Term Loans will bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or 1.91%, with a minimum rate of 9.7% and maximum rate of 12.29%.

The Company has the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company will be obligated to pay a prepayment fee equal to (a) the aggregate amount of interest that the Company would have paid through the maturity date if prepayment is made on or before the first anniversary of the applicable funding date of the Term Loan, (b) 4.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the applicable funding date, (c) 3.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the second anniversary date and on or before the third anniversary of the applicable funding date, or (d) 1.5% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the third anniversary date and on or before the fourth anniversary of the applicable funding date.  The Company will also be required to make a final exit fee payment of 6.5% of the principal balance of the Term A Loan and 4.0% of the Term B Loan, payable on the earliest of the prepayment of the Term Loans, acceleration of any Term Loan, or at maturity of the Term Loans.  As of September 30, 2019, the Term A Loan has an effective interest rate of 10.71% before debt issuance costs and final exit fee and 13.26% including debt issuance costs and final exit fee.  The Company was in compliance with all covenants under the Restated Loan Agreement as of September 30, 2019.

The Company may use the proceeds from the Term Loans for working capital and to fund its general business requirements.  The Company’s obligations under the Restated Loan Agreement are secured by substantially all of its current and future assets, including its owned intellectual property.

11

Term A Loan and unamortized issuance cost balance are as follows:

	As of September 30, 2019		As of December 31, 2018
	(in thousands)
Current portion of long-term debt1	$	6,667	$	—
Less current portion of unamortized issuance cost		1,354		—
Total current portion of long-term debt, net of debt issuance cost		5,313		—
Principal Amount		80,000		80,000
Exit Fee		5,200		5,200
Less long-term unamortized issuance cost		3,610		5,981
Less current portion of long-term debt		6,667	$	—
Total long-term debt, net of current portion and debt issuance cost	$	74,923	$	79,219
1 Current portion of principal payments reflects the interest-only payment period under the Term A Loan. If the Company draws the Term B Loan, the interest-only period will extend through June 1, 2021, and the current portion will be $0 until July 1, 2020.

The future principal payments by fiscal year for the Company’s Term A Loan:

	As of September 30, 2019
	(in thousands)
2019 (remaining three months)	$	—
2020		15,555
2021		26,667
2022		26,667
2023		11,111
	$	80,000

On October 9, 2019, the Company entered into the First Amendment to Amended and Restated Loan and Security Agreement (the Amendment) with the Lenders, which amended the Restated Loan Agreement. See Note 9, Subsequent Events.

5. Leases

The Company has offices located in Irving, Texas, where it leases approximately 34,890 square feet of office and laboratory space, and in Plano, Texas, where it leases approximately 122,000 square feet of office space.

The Company’s leases have remaining contractual terms of up to approximately 33 months, which includes the options to extend the leases for up to one year.  Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

At September 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 8.3% and 2.5 years, respectively.  During the nine months ended September 30, 2019, cash paid for amounts included for the measurement of lease liabilities was $1,667,000. During the three and nine months ended September 30, 2019 the Company recorded operating lease expense of $911,000 and $2,489,000, respectively.  The Company has elected to net the amortization of the right-of-use assets and the reduction of the lease liabilities principal in accrued direct research and other current and long-term liabilities in the consolidated statements of cash flows.

Supplemental balance sheet information related to the Company’s operating leases is as follows:

	Balance Sheet Classification	As of September 30, 2019
		(in thousands)
Non-current right-of-use assets	Other assets	$	8,262
Current lease liabilities	Other current liabilities		2,941
Non-current lease liabilities	Other long-term liabilities		6,198

12

Maturities of lease liabilities by fiscal year for the Company’s operating leases:

	As of September 30, 2019
	(in thousands)
2019 (remaining three months)	$	718
2020		3,999
2021		4,090
2022		1,178
Total lease payments		9,985
Less: Imputed interest		(846	)
Present value of lease liabilities	$	9,139

On October 15, 2019, the Company entered into a lease agreement, relating to the lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas (Lease Agreement).  See Note 9, Subsequent Events.

6. Income Taxes

The Company’s effective tax rate varies with the statutory rate due primarily to the impact of nondeductible stock-based compensation and the changes in valuation allowance related to certain deferred tax assets generated or utilized in the applicable period.  The Company’s deferred tax assets have been fully offset by a valuation allowance at September 30, 2019, and the Company expects to maintain this valuation allowance until there is sufficient evidence that future earnings can be achieved, which is uncertain at this time.

The IRS examination team has completed its examination of the Company’s 2013, 2014, and 2015 U.S. tax returns and proposed adjustments with respect to certain items that were reported by the Company for the 2013 tax year.  In June 2018, the Company received the Revenue Agent Report from the IRS.  The Company believes that it has accurately reported all amounts in its tax returns and has submitted an administrative protest with the IRS contesting the examination team’s proposed adjustments.  The Company intends to vigorously defend its reported positions and believes the ultimate resolution of the adjustments proposed by the IRS examination team will not have a material adverse effect on its consolidated financial statements.

7. Stock-Based Compensation

Stock Options

The following table summarizes stock-based compensation expense reflected in the consolidated statements of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)
Research and development	$	1,885	$	988	$	5,235	$	2,924
General and administrative		3,495		1,757		8,855		4,859
	$	5,380	$	2,745	$	14,090	$	7,783

13

The following table summarizes stock option activity as of September 30, 2019, and changes during the nine months ended September 30, 2019, under the Second Amended and Restated Long Term Incentive Plan and standalone option agreements:

	Number of Options			Weighted-Average Exercise Price
Outstanding at January 1, 2019		3,320,571			21.20
Granted		1,624,133			64.94
Exercised		(395,641	)		16.30
Forfeited		(276,306	)		34.42
Outstanding at September 30, 2019		4,272,757			37.51
Exercisable at September 30, 2019		1,743,886			22.56

The total intrinsic value of all outstanding options and exercisable options at September 30, 2019 was $184,473,000 and $100,782,000, respectively.

Restricted Stock Units (RSUs)

As of September 30, 2019, the Company granted 50,000 RSUs under a Restricted Stock Unit Agreement. As the awards granted are performance-based, there was $3,635,000 of unrecognized compensation expense related to these RSUs.

	Number Performance Based RSUs		Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2019		—		—
Granted		50,000		72.70
Vested		—		—
Forfeited		—		—
Outstanding at September 30, 2019		50,000		72.70

8. Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands, except share and per share data)
Numerator
Net loss	$	(39,694	)	$	(30,835	)	$	(103,228	)	$	(54,963	)
Denominator
Weighted-average number of common shares    used in net loss per share – basic		30,110,391			28,704,853			30,004,211			27,022,269
Dilutive potential common shares		—			—			—			—
Weighted-average number of common shares    used in net loss per share – diluted		30,110,391			28,704,853			30,004,211			27,022,269
Net loss per share – basic	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)
Net loss per share – diluted	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)

The number of weighted average options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented 4,272,757 and 3,337,262 shares for the nine months ended September 30, 2019 and 2018, respectively.

14

9. Subsequent Events

On October 9, 2019, the Company and AbbVie entered into the Amended AbbVie Agreement pursuant to which the Company reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the License Agreement and the Collaboration Agreement. Except as otherwise set forth in the Amended AbbVie Agreement, the other provisions of the License Agreement and the Collaboration Agreement have been terminated. Under the Amended AbbVie Agreement, certain licenses granted to AbbVie will continue, for which AbbVie has granted exclusive sublicenses to the Company, resulting in its reacquiring worldwide rights to bardoxolone, excluding certain Asian countries that the Company previously licensed to KKC, and worldwide rights to omaveloxolone and the other second-generation Nrf2 activators (the Second-Generation Activators), in each case that the Company had licensed to AbbVie under the License Agreement and the Collaboration Agreement.  In exchange, the Company will pay AbbVie $330,000,000, of which $75,000,000 is payable on December 8, 2019, $150,000,000 is payable on June 30, 2020, and $105,000,000 is payable on November 30, 2021.  If the Company raises cash proceeds of $200,000,000 or more in one or more equity offerings, it is required to prepay AbbVie $25,000,000, which prepayment will reduce the amount payable to AbbVie on November 30, 2021, from $105,000,000 to $80,000,000.  The Company also will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and an identified list of existing Second-Generation Activators. By reacquiring its rights, the Company was relieved from its obligations under the License Agreement and the Collaboration Agreement.  

On October 9, 2019, the Company entered into the Amendment with the Lenders, which amended the Restated Loan Agreement entered into among Reata and the Lenders on June 14, 2018.  Under the Amendment, the Term B Loan availability was increased from $45,000,000 to $75,000,000 and the availability period was increased from within 30 days to 60 days after the achievement of the one of two milestones. As one of the milestones was achieved on October 14, 2019, the availability period will end on December 13, 2019.  

Under the Restated Loan Agreement, the Company has significantly increased its current obligations, but the Company believes that its current cash, along with its access to additional equity or debt funding, will enable the Company to meet its current obligations through December 31, 2020.  

On October 15, 2019, the Company entered into the Lease Agreement, relating to the lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas. The term of the Lease is estimated to commence mid-2022, when construction is completed, and continue for 16 years, with up to 10 years of extension at the Company’s option. The initial annual base rent will be determined based on the project cost, subject to an initial annual cap of approximately $13,344,000, which may increase in certain circumstances.  Beginning in the third lease year, the base rent will increase 1.95% per annum each year.  In addition to the annual base rent, the Company will pay for taxes, insurance, utilities, operating expenses, assessments under private covenants, maintenance and repairs, certain capital repairs and replacements, and building management fees.

15

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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing in this Quarterly Report on Form 10-Q.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, operations, and product candidates, includes forward-looking statements that involve risks and uncertainties.  Factors that may cause actual results to differ materially from current expectations include, among other things, those described under the heading “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a clinical stage biopharmaceutical company focused on identifying, developing, and commercializing innovative therapies that change patients’ lives for the better.  We concentrate on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  Our lead programs are in rare forms of CKD and rare forms of neurological disease.  The Company’s lead product candidates, bardoxolone in CKD and omaveloxolone in neurological disease, activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation.  Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, we believe bardoxolone and omaveloxolone have many potential clinical applications.

On November 11, 2019, we announced that the Phase 3 portion of the CARDINAL study of bardoxolone in patients with CKD caused by Alport syndrome met its primary and key secondary Year 1 endpoints.  After 48 weeks of treatment, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean eGFR of 9.50 mL/min/1.73 m² (p<0.0001).  After 48 weeks of treatment and a four-week withdrawal period, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean retained eGFR of 5.14 mL/min/1.73 m² (p=0.0012).  Bardoxolone treatment was generally reported to be well-tolerated and showed a similar safety profile to the Phase 2 portion of the CARDINAL study.  Based on these positive results, and subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

On October 14, 2019, we announced that the registrational Part 2 portion of the MOXIe Phase 2 trial of omaveloxolone in patients with FA met its primary endpoint of change in mFARS relative to placebo after 48 weeks of treatment.  Patients treated with omaveloxolone (150 mg/day) demonstrated a statistically significant, placebo-corrected 2.40 point mean improvement (decrease) in mFARS after 48 weeks of treatment (p=0.014).  Omaveloxolone treatment was generally reported to be well-tolerated.  Based on these positive results, and subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval of omaveloxolone for the treatment of FA in the United States and internationally.

We are also conducting two additional registrational trials:  FALCON, studying bardoxolone in patients with ADPKD, and CATALYST, studying bardoxolone in patients with a rare and serious form of CTD-PAH.  We initiated enrollment in FALCON in May 2019.  We completed enrollment of CATALYST and expect to have top-line data in mid-2020.  We have received orphan drug designation from the United States Food and Drug Administration (FDA) for bardoxolone for the treatment of Alport syndrome, PAH, and ADPKD and for omaveloxolone for the treatment of FA.

16

The chart below is a summary of our current registrational programs:

Program	Current Registrational Trial	Next Expected Milestone
CKD caused by Alport syndrome	CARDINAL	Regulatory Filings
Bardoxolone
FA	MOXIe	Regulatory Filings
Omaveloxolone
ADPKD	FALCON	Completion of Enrollment
Bardoxolone
CTD-PAH	CATALYST	Phase 3 Data
Bardoxolone

Programs in CKD

We are developing bardoxolone for the treatment of patients with the following rare forms of CKD:  

• Alport syndrome in our registrational CARDINAL study;

• ADPKD in our registrational FALCON study; and

• three other rare forms of CKD in our Phase 2 PHOENIX study.  

In addition, KKC, our strategic collaborator in CKD, is currently conducting its registrational trial of bardoxolone in diabetic (type 1 and 2) CKD in Japan.  KKC completed patient enrollment in this trial in June 2019 and expects to have topline data in the first half of 2022.

CKD is characterized by a progressive worsening in the rate at which the kidney filters waste products from the blood, called the glomerular filtration rate (GFR).  When GFR gets too low, patients develop end-stage kidney disease (ESKD) and require dialysis or a kidney transplant to survive.  Dialysis leads to a reduced quality of life and increases the likelihood of serious and life-threatening complications.  The five-year survival rate for hemodialysis patients is only approximately 42%.  

eGFR is an estimate of GFR that nephrologists use to track the decline in kidney function and progression of CKD.  In 11 separate CKD clinical trials, bardoxolone has been shown to improve eGFR in patients with diverse etiologies of CKD.  We believe that bardoxolone treatment has the potential to delay or prevent GFR declines that cause the need for dialysis or a transplant in patients with Alport syndrome, ADPKD, and other rare forms of CKD.  

Bardoxolone in CKD Caused by Alport Syndrome

Alport syndrome is a rare and serious hereditary disease that can manifest as early as the first decade of life, causes average annual declines in eGFR of approximately 3 to 4 mL/min/1.73 m², and affects approximately 30,000 to 60,000 patients in the United States.  In patients with the most severe forms of the disease, approximately 50% of patients progress to dialysis by age 25, 90% by age 40, and nearly 100% by age 60.  There are no approved therapies for Alport syndrome anywhere in the world.  

On November 11, 2019, we announced the topline, Year 1 results from the Phase 3 portion of CARDINAL studying bardoxolone in Alport syndrome patients.  The Phase 3 portion of CARDINAL is an international, multi-center, double-blind, placebo-controlled, randomized registrational trial that enrolled 157 patients with Alport syndrome at approximately 50 study sites in the United States, Europe, Japan, and Australia.  Pediatric patients represented approximately 15% of enrolled patients.  Patients were randomized one-to-one to bardoxolone or placebo.  The primary endpoint for the study was the change in eGFR, an important measure of the ability of the kidney to filter waste products out of the blood, after 48 weeks of treatment.  The key secondary endpoint for the study was the change in retained eGFR after 48 weeks of treatment and withdrawal of drug for four weeks.  After 52 weeks, patients who completed the first 48 weeks of treatment are restarted on study drug with their original treatment assignments and continue on study drug for a second year.  The second-year on-treatment eGFR will be measured after 100 weeks of treatment and the retained eGFR will be measured at Week 104 after withdrawal of drug for four weeks.  Additionally, patients who complete the study and meet eligibility requirements can participate in the open-label extension.  The FDA has provided us with written guidance that, in patients with CKD caused by

17

Alport syndrome, an analysis of retained eGFR demonstrating an improvement versus placebo after one year of bardoxolone treatment may support a NDA submission for accelerated approval and an improvement versus placebo after two years of treatment may support full approval.

After 48 weeks of treatment, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean eGFR of 9.50 mL/min/1.73 m² (p<0.0001).  Patients treated with bardoxolone experienced a statistically significant increase from baseline in mean eGFR of 4.72 mL/min/1.73 m²  (p<0.0004), while patients treated with placebo experienced a statistically significant decline from baseline in mean eGFR of -4.78 mL/min/1.73 m² (p<0.0002).  Patients’ retained eGFR was also assessed at Week 52, after 48 weeks of treatment and four weeks of drug withdrawal.  At Week 52, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean retained eGFR of 5.14 mL/min/1.73 m² (p=0.0012).  Patients treated with bardoxolone experienced a nonsignificant decline from baseline in mean retained eGFR of -0.96 mL/min/1.73 m² (p=0.45), while patients treated with placebo experienced a statistically significant decline from baseline in mean retained eGFR of -6.11 mL/min/1.73 m² (p<0.0001).  Similar efficacy at Week 48 and Week 52 was observed across multiple subgroups, including among pediatric patients.

Bardoxolone was generally reported to be well tolerated in this study and showed a similar safety profile to the Phase 2 portion of the CARDINAL study.  Seventy-five patients (97%) receiving bardoxolone and 73 patients (91%) receiving placebo experienced an adverse event (AE).  Nine patients (12%) receiving bardoxolone and four patients (5%) receiving placebo discontinued study drug due to an AE, and no individual AE contributed to more than two discontinuations in either group.

Four patients (5%) receiving bardoxolone and 10 patients (13%) receiving placebo experienced a treatment-emergent serious adverse event (SAE).  No fluid overload or major adverse cardiac events were reported in patients treated with bardoxolone.  Blood pressure was reduced relative to baseline in the bardoxolone group but was not significantly different between the two groups.  The reported AEs were generally mild to moderate in intensity, and the most common AEs observed more frequently in patients treated with bardoxolone compared to patients treated with placebo were increases in aminotransferases and muscle spasms.  Increases in aminotransferases are a pharmacological effect of bardoxolone, which increases production of aminotransferases in vitro. The aminotransferase increases observed in CARDINAL were associated with improvements (reductions) in total bilirubin and were not associated with liver injury, and we believe they are related to restoration of mitochondrial function.  Laboratory markers associated with pharmacodynamic activity, including urinary albumin to creatinine ratio and aminotransferases, were unchanged relative to placebo at Week 52 after a four week withdrawal.

Bardoxolone in ADPKD

ADPKD is an inherited, rare form of CKD caused by a genetic defect in PKD1 or PKD2 and is characterized by formation of fluid-filled cysts in the kidneys.  Inflammation appears to play a role in cyst growth and is associated with disease progression in ADPKD.  PKD1 is the most common mutation, causing about 85% of ADPKD cases, and patients generally progress to ESKD, on average, by age 54.  ADPKD is the most common single-gene disorder of the kidneys, and there are an estimated 400,000 patients in the United States, with approximately 140,000 diagnosed.  The only therapy approved for ADPKD is tolvaptan, which was approved in the United States in 2018.

We have initiated a registrational Phase 3 trial called FALCON in patients with ADPKD.  FALCON is an international, multi-center, randomized, double-blind, placebo-controlled trial studying the safety and efficacy of bardoxolone in approximately 300 patients with ADPKD randomized one-to-one to active drug or placebo.  We began enrollment in FALCON in May 2019.  The FDA has provided us with guidance that, in patients with ADPKD, an analysis of retained eGFR, demonstrating an improvement versus placebo after one year of bardoxolone treatment, may support an NDA submission for accelerated approval of bardoxolone for the treatment of ADPKD, and data demonstrating an improvement versus placebo in retained eGFR after two years of treatment may support full approval.  We will measure the retained eGFR benefit versus placebo at 52 weeks after treatment on study drug for 48 weeks and a four-week withdrawal of drug.  After 52 weeks, patients will resume study drug and will continue on study drug for a second year.  The second-year retained eGFR benefit will be measured at Week 104.

18

Bardoxolone in Other Rare Forms of CKD

PHOENIX was an open-label, multi-center Phase 2 trial evaluating the safety and efficacy of bardoxolone in patients with ADPKD, IgA nephropathy (IgAN), type 1 diabetic CKD (T1D CKD), and focal segmental glomerulosclerosis (FSGS).  In aggregate, the prevalence of these diseases exceeds 700,000 patients in the United States, representing a meaningful market for bardoxolone in rare forms of CKD.  A total of 103 patients were enrolled in the trial in four separate cohorts, including 31 patients with ADPKD, 26 with IgAN, 28 with T1D CKD, and 18 with FSGS.  Patients were treated with bardoxolone for 12 weeks in all four cohorts, and each cohort showed statistically significant increases in mean eGFR, with the change in mean eGFR from baseline across all four cohorts of 7.8 mL/min/1.73 m² (n=103; p<0.0001).  Of the patients that reached Week 12, 88% experienced increases in eGFR at Week 12.  We observed that bardoxolone significantly reduced mean systolic blood pressure by 3.8 mmHg (n=103; p=0.002) and mean diastolic blood pressure by 2.8 mmHg (n=103; p=0.0009).  Urinary albumin excretion was low upon study entry and remained unchanged by bardoxolone treatment (n=103; p=0.6).  The most commonly reported AE across all cohorts was muscle spasms, which were not associated with clinical signs or symptoms of muscle injury.  The overall rate of SAEs was low, with three patients reporting SAEs while they received trial drug, none of which were reported as related to bardoxolone.

Based on the eGFR improvements observed in PHOENIX patients, we plan to pursue IgAN, T1D CKD, and FSGS as commercial indications.  We believe that registrational clinical trials similar to the design of the Phase 3 CARDINAL and FALCON trials, with a two-year duration and a retained eGFR benefit endpoint after one and two years of treatment, would be sufficient to form the basis of an NDA submission to the FDA seeking approval of bardoxolone for the treatment of these forms of CKD.

Historical Development of Bardoxolone

Prior to our CARDINAL Phase 3 trial, bardoxolone has been evaluated in multiple clinical trials enrolling over 2,000 patients exposed to active drug and has demonstrated consistent, clinically meaningful improvement in kidney function across several disease states as measured by eGFR and other markers of kidney function.  Specifically, we have observed statistically significant increases in eGFR in all Phase 2 and Phase 3 clinical trials in seven distinct patient populations treated with bardoxolone, including patients with PAH and CKD caused by type 2 diabetes (T2D CKD), Alport syndrome, ADPKD, IgAN, T1D CKD, and FSGS.  

We believe these data, in addition to the CARDINAL Phase 3 data, support the potential for bardoxolone to delay or prevent dialysis, kidney transplant, and death in patients with Alport syndrome and other rare forms of CKD.  Additional observations from the prior clinical trials of bardoxolone include the following:

• Statistically significant increases in directly-measured GFR using the “gold standard” inulin clearance method, improvements in creatinine clearance, and reduction in the levels of blood waste products filtered by the kidney.  

• Statistically significant improvements in eGFR versus baseline or placebo in six different types of CKD, including Alport syndrome, ADPKD, IgAN, T1D CKD, T2D CKD, and FSGS.

• Sustained improvement in kidney function in long-term trials:  

o In the Phase 2 portion of CARDINAL, bardoxolone treatment produced a statistically significant increase from baseline in mean eGFR of 10.4 mL/min/1.73 m² (p<0.0001) after 48 weeks of treatment, which, based on historical data available for 22 of the patients prior to enrolling in the trial, represents a recovery of over two years of average decline in kidney function.

o In two large, placebo-controlled clinical studies (BEAM and BEACON) in patients with T2D CKD, statistically significant increases in mean eGFR of 14.9 mL/min/1.73 m² (p<0.001) and 5.6 mL/min/1.73 m² (p<0.001), respectively, were sustained for at least one year.

• Reduction in risk of adverse kidney outcomes, suggesting that bardoxolone treatment preserves kidney function and may delay the onset of kidney failure in patients with T2D and stage 4 CKD:

o In BEACON, patients randomized to bardoxolone were significantly less likely to experience adverse kidney outcomes as defined by a composite endpoint consisting of ≥30% decline from baseline in eGFR, eGFR <15 mL/min/1.73 m², or ESKD events (HR=0.48, p<0.0001).  

19

o In BEACON, bardoxolone treatment resulted in a decreased number of kidney-related SAEs and ESKD events.  

• Statistically significant improvement in retained eGFR, which is the eGFR change after a four-week withdrawal of drug, above baseline in BEAM, BEACON, and the Phase 2 portion of CARDINAL.  To our knowledge, bardoxolone is the first therapy to produce a retained eGFR benefit that is above baseline in a long-term CKD trial.  

o The FDA has provided guidance to us and other sponsors that clinical trials with a retained eGFR benefit versus placebo may support approval in certain rare forms of CKD.  The FDA has provided guidance to us that, in patients with CKD caused by Alport syndrome or ADPKD, a retained eGFR benefit versus placebo after one year of bardoxolone treatment may support accelerated approval and after two years of bardoxolone treatment may support full approval.

o We believe the retained eGFR benefit observed in these clinical trials demonstrates that bardoxolone treatment improved the structure of the kidney, modified the course of the disease, and may prevent or delay kidney failure and the need for dialysis or a kidney transplant.

• Recently, the mechanism underlying the regulation of GFR by the Keap1/Nrf2 pathway was investigated in the laboratory of Dr. Naoki Kashihara at the Kawasaki Medical School in Japan.  RTA dh404 (10 mg/kg/day) increased single nephron GFR in the control group but not in mice lacking the Nrf2 gene (p<0.05).  The glomerular afferent/efferent arteriole ratio was not significantly altered in any group, indicating that activation of the Keap1/Nrf2 pathway increases GFR by increasing glomerular effective filtration area without affecting the afferent/efferent arteriole ratio.

Programs in Neurological Diseases

We are developing omaveloxolone for the treatment of patients with FA and recently announced the results of our registrational Phase 2 MOXIe trial in patients with FA.  In addition, we have studied omaveloxolone and other Nrf2 activators in preclinical models of Huntington’s disease, ALS, Parkinson’s disease, Alzheimer’s disease and epilepsy, and we plan to pursue the development of omaveloxolone and our other Nrf2 activators for one or more of these diseases.  We are also developing RTA 901 in neurodegeneration and neuroprotection indications.

Omaveloxolone in FA

We are developing omaveloxolone for the treatment of patients with FA, an inherited, debilitating, and degenerative neuromuscular disorder that is usually diagnosed during adolescence and can ultimately lead to premature death.  Patients with FA experience progressive loss of coordination, muscle weakness, and fatigue, which commonly progress to motor incapacitation and wheelchair reliance.  Symptoms generally occur in children, with patients requiring a wheelchair by their teens or early 20s.  Based on literature and proprietary research, we believe FA affects approximately 5,000 children and adults in the United States and 22,000 globally.  There are no approved therapies for the treatment of FA anywhere in the world.  

Our Phase 2 trial, called MOXIe, was a two-part, international, multi-center, randomized, double-blind, placebo-controlled registrational trial that studied the safety and efficacy of omaveloxolone in patients with FA.  Additionally, patients who completed the study and meet eligibility requirements can participate in the open-label extension.  Part 1 of MOXIe was a dose-ranging study designed to assess safety and identify an optimal dose of omaveloxolone to test in the registrational part 2 portion of the study. A dose of 150 mg per day was selected for part 2, and no safety concerns were noted by the data safety monitoring board (DSMB) that oversaw the trial and reviewed all safety data.  

Based on data from part 1 of MOXIe, we designed and powered part 2 of MOXIe, an international, multi-center, double-blind, placebo-controlled, randomized registrational Phase 2 trial, that enrolled 103 patients with FA at 11 trial sites in the United States, Europe, and Australia.  Part 2 of MOXIe is the largest global, interventional trial ever conducted in FA.  Patients were randomized one-to-one to omaveloxolone or placebo.  The primary analysis population included patients without pes cavus (n=82), a musculoskeletal foot deformity that may interfere with the patient’s ability to perform some components of the neurological exam used to score the primary endpoint of the study.  Safety analyses were evaluated in the all randomized population (n=103).

20

The primary endpoint for the trial was the change in the mFARS score relative to placebo after 48 weeks of treatment.  The mFARS is a physician-assessed neurological rating scale used to measure FA disease progression.  The FDA has indicated that mFARS is an acceptable primary endpoint to evaluate the effect of omaveloxolone for the treatment of patients with FA.  Omaveloxolone treatment demonstrated statistically significant evidence of efficacy for the primary endpoint of the trial, producing a placebo-corrected 2.40 point mean improvement (decrease) in mFARS (n=82; p=0.014).  Patients treated with omaveloxolone experienced a mean improvement (decrease) in mFARS of 1.55 points from baseline, while patients treated with placebo experienced a mean worsening (increase) in mFARS of 0.85 points from baseline.  

Further, the observed placebo-corrected improvements in mFARS were time-dependent, increasing over the course of treatment with the largest improvement observed after 48 weeks of treatment.  Omaveloxolone treatment also demonstrated statistically significant evidence of efficacy in mFARS at Week 48 when the pes cavus patients were included in the analysis (the all randomized population).  In the all randomized population, omaveloxolone treatment produced a statistically significant, placebo-corrected 1.93 point mean improvement (decrease) in mFARS (n=103; p=0.034).  Omaveloxolone treatment also improved several secondary endpoints included in the trial.

Omaveloxolone was reported to be generally well-tolerated in this trial.  Four (8%) omaveloxolone patients and two (4%) placebo patients discontinued trial drug due to an AE.  The reported AEs were generally mild to moderate in intensity, and the most common AEs (i.e., reported in > 20% of patients in either treatment group) observed more frequently in omaveloxolone compared to placebo were headache, nausea, increased aminotransferases, fatigue, and abdominal pain.  Increases in aminotransferases are a pharmacological effect of omaveloxolone, which increases production of aminotransferases in vitro, which we believe are related to restoration of mitochondrial function.  In MOXIe, the aminotransferase increases were associated with improvements (reductions) in total bilirubin and were not associated with liver injury.  

The overall rate of SAEs was low, with three patients on omaveloxolone and three patients on placebo reporting SAEs while on treatment.  Two additional omaveloxolone-treated patients reported SAEs approximately two weeks after receiving their final dose.  No new safety signals were identified, and the reported SAEs were sporadic and generally expected in FA patients.  In the three omaveloxolone patients who reported SAEs while receiving omaveloxolone, none led to discontinuation.  Atrial fibrillation was balanced and reported in one omaveloxolone and one placebo patient.  One omaveloxolone patient reported anemia that was due to a complication of a procedure and was considered unrelated to omaveloxolone.  One omaveloxolone patient reported multiple SAEs, including viral upper respiratory tract infection and laryngitis, along with palpitations, non-cardiac chest pain, and sinus tachycardia.  While several of these SAEs were considered possibly related to omaveloxolone, no imbalances in infection or arrhythmia adverse events were observed overall in the trial.

Based on the positive MOXIe results, and subject to discussions with regulatory authorities, we plan to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

RTA 901 in Neurodegeneration and Neuroprotection Diseases

RTA 901 is the lead product candidate from our Hsp90 modulator program, which includes highly potent and selective C-terminal modulators of Hsp90.  We have observed favorable activity of RTA 901 in a range of preclinical models of neurodegeneration and neuroprotection, including models of diabetic neuropathy, neural inflammation, and neuropathic pain.  RTA 901, administered orally once-daily, has been observed to rescue existing nerve function, restore thermal and mechanical sensitivity, and improve nerve conductance velocity and mitochondrial function in rodent disease models.  We have completed a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 901 in healthy adult volunteers.  No safety or tolerability concerns were reported.  We are the exclusive licensee of RTA 901 and have worldwide commercial rights.

Other Programs

In addition to our lead programs in rare forms of CKD and rare forms of neurological diseases, we are exploring additional clinical and preclinical programs.  We believe bardoxolone has many potential clinical applications, and we are studying bardoxolone in CTD-PAH in our registrational Phase 3 CATALYST trial.  RTA 1701 is the lead product candidate from our proprietary series of RORγt inhibitors for the potential treatment of a broad range of autoimmune, inflammatory, and fibrotic diseases.  We have completed a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 1701 in healthy adult volunteers.  

21

Bardoxolone in CTD-PAH

We are studying bardoxolone in CTD-PAH, which is a late and often fatal manifestation of many types of autoimmune diseases, including systemic sclerosis (scleroderma), systemic lupus erythematosus, mixed connective tissue disease, and others.  CTD-PAH is a subset of PAH, which results in a progressive increase in pulmonary vascular resistance, ultimately leading to right ventricular heart failure and death.  Based on literature and proprietary research, we believe there are approximately 12,000 patients with CTD-PAH in the United States and 50,000 worldwide.

In comparison to patients with the idiopathic form of PAH (I-PAH), patients with CTD-PAH generally have a worse prognosis and experience a higher occurrence of small vessel fibrosis and pulmonary veno-obstructive diseases.  CTD-PAH represents approximately 30% of the overall PAH population and approximately 10 to 15% of patients with scleroderma or lupus erythematosus. Patients with CTD-PAH are less responsive to existing vasodilator therapies than patients with I-PAH and have a five-year survival rate of approximately 44%, in contrast with a five-year survival rate of approximately 68% for patients with I-PAH.  Currently approved therapies, all systemic vasodilators, are used to treat all etiologies of PAH.  A meta-analysis of 11 registrational trials comprised of more than 2,700 patients demonstrated that the currently approved therapies are less beneficial for patients with CTD-PAH compared to patients with I-PAH as measured by 6-minute walk distance (6MWD).  Patients with CTD-PAH experienced improvement in their 6MWD of only 9.6 meters, or approximately one-third, compared to the improvements observed in patients with I-PAH of 30 meters.  Bardoxolone is an Nrf2 activator, not a systemic vasodilator, and directly targets the bioenergetic and inflammatory components of PAH.  Additionally, because bardoxolone does not have systemic hemodynamic effects or cause drug-drug interactions in patients with PAH, it may be used in combination with other therapies to a greater incremental effect than an additional vasodilator.

Initial results from our Phase 2 LARIAT trial in patients with PAH showed that bardoxolone provided the greatest improvement in 6MWD to patients with CTD-PAH.  Patients with CTD-PAH treated with bardoxolone demonstrated a statistically significant increase in mean 6MWD of 38.2 meters (p<0.001) compared to baseline and a placebo-corrected change in 6MWD of 28.4 meters (p=0.07).  Further analysis of data from patients with CTD-PAH who would be eligible for inclusion in our Phase 3 trial, CATALYST, demonstrated a statistically significant increase in mean 6MWD of 42.7 meters (p<0.001) compared to baseline and a placebo-corrected change in 6MWD of 48.5 meters (p=0.005).

We are currently conducting CATALYST, an international, multi-center, randomized, double-blind, placebo-controlled Phase 3 trial that studies the safety and efficacy of bardoxolone in patients with CTD-PAH when added to standard-of-care therapy.  The trial has been fully enrolled with 202 patients with CTD-PAH, and we expect to have top-line data from the CATALYST trial in mid-2020.  Data from CATALYST demonstrating an improvement in 6MWD versus placebo may support an NDA submission for approval of bardoxolone for the treatment of CTD-PAH.  No safety concerns have been reported by the DSMB.

RTA 1701 in Autoimmune Diseases

RTA 1701 is the lead product candidate from our proprietary series of RORγt inhibitors for the potential treatment of a broad range of autoimmune, inflammatory, and fibrotic diseases.  RTA 1701 is an orally-bioavailable, RORγt-selective allosteric inhibitor that suppresses Th17 differentiation in vitro and demonstrates strong efficacy in rodent disease models of autoimmune disease.  RTA 1701 also potently suppresses production of IL-17A, a clinically important cytokine, in human immune cells and when dosed orally to non-human primates.  We have conducted a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 1701 in healthy adult volunteers.  No safety or tolerability concerns were reported, and we observed an acceptable pharmacokinetic profile.  We retain all rights to our RORγt inhibitors, which are not subject to any existing commercial collaborations.

Financial Operations Overview

To date, we have focused most of our efforts and resources on developing our product candidates and conducting preclinical studies and clinical trials.  We have historically financed our operations primarily through revenue generated from our collaborations with AbbVie and KKC, sales of our securities, and secured loans.  We have not received any payments or revenue from collaborations other than nonrefundable upfront, milestone, and cost sharing payments from our collaborations with AbbVie and KKC and reimbursements of expenses under the

22

terms of our agreement with KKC.  We have incurred losses in each year since our inception, other than in 2014.  As of September 30, 2019, we had $240.1 million of cash and cash equivalents and an accumulated deficit of $523.6 million.  

On October 9, 2019, we and AbbVie entered into the Amended AbbVie Agreement pursuant to which we reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the License Agreement and the Collaboration Agreement. Except as otherwise set forth in the Amended AbbVie Agreement, the other provisions of the License Agreement and the Collaboration Agreement have been terminated. Under the Amended AbbVie Agreement, certain licenses granted to AbbVie will continue, for which AbbVie has granted exclusive sublicenses to us, resulting in our reacquiring worldwide rights to bardoxolone, excluding certain Asian countries that we previously licensed to KKC, and worldwide rights to omaveloxolone and the Second-Generation Activators, in each case that we had licensed to AbbVie under the License Agreement and the Collaboration Agreement.  In exchange, we will pay AbbVie $330 million, of which $75 million is payable on December 8, 2019, $150 million is payable on June 30, 2020, and $105 million is payable on November 30, 2021. If we raise cash proceeds of $200 million or more in one or more equity offerings, we are required to prepay AbbVie $25 million, which prepayment will reduce the amount payable to AbbVie on November 30, 2021, from $105 million to $80 million. We also will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and an identified list of existing Second-Generation Activators.  By reacquiring its rights, we were relieved from our obligations under the License Agreement and the Collaboration Agreement.  

We continue to incur significant research and development and other expenses related to our ongoing operations.  Despite contractual product development commitments and the potential to receive future payment from KKC, we anticipate that we will continue to incur losses for the foreseeable future, and we anticipate that our losses will increase as we continue our development of, and seek regulatory approval for, our product candidates.  If we do not successfully develop and obtain regulatory approval of our existing product candidates or any future product candidates and effectively manufacture, market, and sell any products that are approved, we may never generate revenue from product sales.  Furthermore, even if we do generate revenue from product sales, we may never again achieve or sustain profitability on a quarterly or annual basis.  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.  Our failure to become and remain profitable could depress the market price of our Class A common stock and could impair our ability to raise capital, expand our business, diversify our product offerings, or continue our operations.

Revenue

Our revenue to date has been generated primarily from licensing fees received under our collaborative license agreements and reimbursements for expenses.  We currently have no approved products and have not generated any revenue from the sale of products to date.  In the future, we may generate revenue from product sales, royalties on product sales, reimbursements for collaboration services under the KKC Agreement, or license fees, milestones, or other upfront payments if we enter into any new collaborations or license agreements.  We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.

Our license and milestone revenue has been generated primarily from the KKC Agreement, the License Agreement with AbbVie, and the Collaboration Agreement with AbbVie and consists of upfront payments and milestone payments.  License revenue recorded with respect to the KKC Agreement, the License Agreement, and the Collaboration Agreement consists solely of the recognition of deferred revenue.  Under our revenue recognition policy, collaboration revenue associated with upfront, non-refundable license payments received under our license and collaboration agreements are deferred and recognized ratably over the expected term of the performance obligations under each agreement.  The License Agreement and the Collaboration Agreement with AbbVie were terminated under the Amended AbbVie Agreement.  The related remaining balance of deferred revenue for the License Agreement was fully recognized in 2017 and, as discussed below, the remaining deferred balance of $191.7 million related to the Collaboration Agreement will be terminated in the fourth quarter of 2019.  Based on existing collaboration agreements, we only expect to recognize revenue under the KKC Agreement, which extends through 2021.

23

Research and Development Expenses

The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates.  From our inception through September 30, 2019, we have incurred a total of $734.7 million in research and development expense, the majority of which relates to the development of bardoxolone and omaveloxolone.  We expect our research and development expense to continue to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio.  The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and we consider the active management and development of our clinical pipeline to be crucial to our long-term success.  The actual probability of success for each product candidate and preclinical program may be affected by a variety of factors, including the safety and efficacy data for product candidates, investment in the program, competition, manufacturing capability, and commercial viability.

Research and development expenses include:

• expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf;

• expenses incurred under contract research agreements and other agreements with third parties;

• employee and consultant-related expenses, which include salaries, benefits, travel, and stock-based compensation;

• laboratory and vendor expenses related to the execution of preclinical and non-clinical studies and clinical trials;

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

• the cost of development, scale up, and process validation activities to support product registration; and

• facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supply costs.

Research and development costs are expensed as incurred.  Costs for certain development activities such as clinical trials are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations (CROs) that conduct and manage clinical trials on our behalf.  The financial terms of these agreements vary from contract to contract and may result in uneven payment flows.  Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.  In accruing costs, we estimate the time period over which services will be performed and the level of effort to be expended in each period.  If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

To date, we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period.  However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.

Currently, KKC is not participating in the development of bardoxolone in CTD-PAH, ADPKD, or other rare kidney diseases but is reimbursing us the majority of the costs for our registrational trial in CKD caused by Alport syndrome in Japan and is responsible for the costs for our registrational trial in ADPKD in Japan.  Our expenses were reduced by $0.5 million for KKC’s share of the study costs for the nine months ended September 30, 2019.  

24

The following table summarizes our research and development expenses incurred:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(unaudited; in thousands)
Bardoxolone methyl	$	12,511	$	11,281	$	31,904	$	32,337
Omaveloxolone	$	5,999		6,817		17,478		14,105
RTA 901	$	560		62		1,616		328
RTA 1701	$	452		621		1,433		2,125
Other research and development expenses	$	12,757		8,363		35,517		23,084
Total research and development expenses	$	32,279	$	27,144	$	87,948	$	71,979

The program-specific expenses summarized in the table above include costs that we directly allocate to our product candidates.  Our other research and development expenses include employee-related expenses for research and development functions and preclinical, research, and discovery costs, which we do not allocate on a program-specific basis.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, and human resource functions.  Other general and administrative expenses include facility-related costs, professional fees, accounting and legal services, depreciation expense, other external services, and expenses associated with obtaining and maintaining our intellectual property rights.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates.  We have also incurred, and anticipate incurring in the future, increased expenses associated with being a public company, including exchange listing and SEC requirements, director and officer insurance premium, legal, audit, and tax fees, compliance with the Sarbanes-Oxley Act, regulatory compliance programs, and investor relations costs.  Based on positive results from CARDINAL and MOXIe, and subject to discussions with regulatory authorities, we plan to proceed with the submission of regulatory filings for marketing approval in the United States and internationally. Accordingly, we have increased and anticipate continued increases in payroll and related expenses as a result of our preparation for commercial operations, especially for the sales and marketing of our product candidates.

Other Income

Other income represents interest and gains earned on our cash and cash equivalents, which include money market funds.

Provision for Taxes on Income

Provision for taxes on income consists of net loss, taxed at federal tax rates and adjusted for certain permanent differences.  We maintain a full valuation allowance against our net deferred tax assets.  Changes in this valuation allowance also affect the tax provision.

25

Results of Operations

Comparison of the Three Months Ended September 30, 2019 and 2018 (unaudited)

The following table sets forth our results of operations for the three months ended September 30:

	2019			2018			Change $			Change %
	(in thousands)
Collaboration revenue
License and milestone	$	7,898		$	4,766		$	3,132			66
Other revenue		344			409			(65	)		(16	)
Total collaboration revenue		8,242			5,175			3,067			59
Expenses
Research and development		32,279			27,144			5,135			19
General and administrative		14,283			7,486			6,797			91
Depreciation		258			105			153			146
Total expenses		46,820			34,735			12,085			35
Other income (expense)
Investment income		1,311			1,094			217			20
Interest expense		(2,389	)		(2,360	)		(29	)		(1	)
Total other income (expense)		(1,078	)		(1,266	)		188			15
Loss before taxes on income		(39,656	)		(30,826	)		(8,830	)		(29	)
Provision for taxes on income		38			9			29			322
Net loss	$	(39,694	)	$	(30,835	)	$	(8,859	)		(29	)

Collaboration Revenue

License and milestone revenue represented approximately 96% and 92% of total revenue for the three months ended September 30, 2019 and 2018, respectively.  License and milestone revenue increased by $3.1 million or 66% during the three months ended September 30, 2019, compared to the three months ended September 30, 2018.  A reduction in revenue related to an adjustment in the calculation of a regulatory milestone revenue included as variable consideration in the transaction price under the KKC Agreement was recognized in the prior year period. Since we did not have a similar event in the current period, the revenue increased by comparison.

Other revenue was immaterial for the three months ended September 30, 2019 and 2018.

The following table summarizes the sources of our revenue for the three months ended September 30:

	2019		2018
	(in thousands)
License and milestone
Collaboration Agreement	$	6,717	$	6,717
KKC Agreement		1,181		(2,951	)
Other		—		1,000
Total license and milestone		7,898		4,766
Other revenue		344		409
Total collaboration revenue	$	8,242	$	5,175

26

Research and Development Expenses

Research and development expenses increased by $5.1 million, or 19%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018.  The increase was primarily due to $3.3 million in increased personnel and equity compensation expenses to support growth of our development activities, $0.9 million in increased medical affairs and other research activities, and $0.7 million caused by two components: increased manufacturing to support product registration and startup activities for FALCON and the extension trials for our registrational programs, which were offset by decreased clinical expenses due to fully enrolled and completed studies.

Research and development expenses, as a percentage of total expenses, was 69% and 78% for the three months ended September 30, 2019 and 2018, respectively.  The decrease of 9% was primarily due to a proportionately larger increase in general and administrative expenses such as personnel and equity compensation expenses and rent and office expenses to support growth in our development activities.

General and Administrative Expenses

General and administrative expenses increased by $6.8 million, or 91%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018.  The increase was primarily due to $3.3 million in increased personnel and equity compensation expenses, $1.7 million in increased rent and office expenses to support growth in our development activities, $0.3 million in increased professional fees related to audit, legal, and tax-related services, and $0.9 million in increase patent fees.

General and administrative expenses, as a percentage of total expenses, was 31% and 22%, for the three months ended September 30, 2019 and 2018, respectively.  The increase of 9% was primarily due to a proportionately larger increase in general and administrative expenses, compared to research and development expenses.

Depreciation

Depreciation was increased by $0.2 million, or 146%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, due to increases in property and equipment related to growth in personnel and office space.

Investment Income

Investment income increased by $0.2 million, or 20%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, due to investment and interest income earned on higher average balances of cash and cash equivalents.

Interest Expenses

Interest expense during the three months ended September 30, 2019 was consistent with the three months ended September 30, 2018.

Provision for Taxes on Income

Provision for taxes on income was immaterial for the three months ended September 30, 2019 and 2018.

27

Comparison of the Nine Months Ended September 30, 2019 and 2018 (unaudited)

The following table sets forth our results of operations for the nine months ended September 30:

	2019			2018			Change $			Change %
	(in thousands)
Collaboration revenue
License and milestone	$	23,437		$	44,452		$	(21,015	)		(47	)
Other revenue		409			685			(276	)		(40	)
Total collaboration revenue		23,846			45,137			(21,291	)		(47	)
Expenses
Research and development		87,948			71,979			15,969			22
General and administrative		36,027			24,802			11,225			45
Depreciation		659			311			348			112
Total expenses		124,634			97,092			27,542			28
Other income (expense)
Investment income		4,812			1,787			3,025			169
Interest expense		(7,199	)		(3,773	)		(3,426	)		(91	)
Loss on extinguishment of debt		—			(1,007	)		1,007			100
Other income (expense)		7			—			7			100
Total other income (expense)		(2,380	)		(2,993	)		613			20
Loss before taxes on income		(103,168	)		(54,948	)		(48,220	)		(88	)
Provision for taxes on income		60			15			45			300
Net loss	$	(103,228	)	$	(54,963	)	$	(48,265	)		(88	)

Collaboration Revenue

License and milestone revenue represented approximately 98% of total revenue for each of the nine months ended September 30, 2019 and 2018.  License and milestone revenue decreased by $21.0 million, or 47%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018.  Additional revenue related to variable consideration that was included in the transaction price under the KKC Agreement was recognized in the prior year period.  Since we did not have a similar event in the current period, the revenue decreased by comparison.

Other revenue decreased by $0.3 million or 40%, during the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, primarily due to a decrease in reimbursements of expenses from KKC for expenses incurred.

The following table summarizes the sources of our revenue for the nine months ended September 30:

	2019		2018
	(in thousands)
License and milestone
Collaboration Agreement	$	19,931	$	19,931
KKC Agreement		3,506		23,521
Other		—		1,000
Total license and milestone		23,437		44,452
Other revenue		409		685
Total collaboration revenue	$	23,846	$	45,137

Research and Development Expenses

Research and development expenses increased by $16.0 million, or 22%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018.  The increase was primarily due to $8.6 million in increased personnel and equity compensation expenses to support growth of our development

28

activities, $3.3 million in increased medical affairs and other research activities to support our registrational trials, and $3.6 million caused by two components: increased manufacturing to support product registration and startup activities for FALCON and the extension trials for our registrational programs, which were offset by decreased clinical expenses due to fully enrolled and completed studies.

Research and development expenses, as a percentage of total expenses, was 71% and 74% for the nine months ended September 30, 2019 and 2018, respectively. The decrease of 3% is primarily due to a proportionately larger increase in general and administrative expenses such as personnel and equity compensation expenses and rent and office expenses to support growth in our development activities.

General and Administrative Expenses

General and administrative expenses increased by $11.2 million, or 45%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018.  The increase was primarily due to $8.4 million in increased personnel and equity compensation expenses, $3.8 million in increased rent and office expenses to support growth in our development activities, and $0.9 million in increased professional fees related to audit, legal, and tax-related services, which were offset by a decrease in sublicense fees of $2.5 million and other expenses related to the achievement of a KKC milestone in 2018.

General and administrative expenses, as a percentage of total expenses, was 29% and 26%, for the nine months ended September 30, 2019 and 2018, respectively. The 3% increase was primarily due to a proportionately larger increase in general and administrative expenses, compared to research and development expenses.

Depreciation

Depreciation was increased by $0.3 million, or 112%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, due to increases in property and equipment related to growth in personnel and office space.

Investment Income

Investment income increased by $3.0 million, or 169%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, due to investment and interest income earned on higher average balances of cash and cash equivalents.

Interest Expense

Interest expense increased by $3.4 million, or 91%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, due to additional borrowings under our Restated Loan Agreement entered in June 2018.

Provision for Taxes on Income

Provision for taxes on income was immaterial for the nine months ended September 30, 2019 and 2018.

Cash-based Operating Expenses (non-GAAP) for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)

Total expenses (GAAP) were $46.8 million and $124.6 million for the three and nine months ended September 30, 2019, respectively, compared to $34.7 million and $97.1 million for the three and nine months ended September 30, 2018, respectively. Our cash-based operating expenses (a non-GAAP measure calculated as total expenses, less stock-based compensation expense and depreciation expense) were $41.2 million and $109.9 million for the three and nine months ended September 30, 2019, respectively, compared to $31.9 million and $89.0 million for the three and nine months ended September 30, 2018, respectively.

29

We expect our cash-based operating expenses to continue to increase in the future as we advance bardoxolone and omaveloxolone through ongoing and future clinical trials, scale manufacturing for registrational and validation purposes, advance other product candidates into mid and later stage clinical trials, expand our product candidate portfolio, increase both our research and development and administrative personnel, and plan for commercialization of our product candidates.  

We believe cash-based operating expenses, in addition to GAAP financial measures, provides a meaningful measure of our ongoing business and operating performance, by allowing investors to analyze our financial results similarly to how management analyzes our financial results by viewing period expense totals more indicative of effort directly expended to advance the business and our product candidates. The table below reconciles cash-based operating expenses to total expenses as reported on the Unaudited Consolidated Statements of Operations:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands)
Total expenses - GAAP	$	46,820		$	34,735		$	124,634		$	97,092
Stock-based compensation expense		(5,380	)		(2,745	)		(14,090	)		(7,783	)
Depreciation		(258	)		(105	)		(659	)		(311	)
Cash-based operating expenses - Non-GAAP	$	41,182		$	31,885		$	109,885		$	88,998

For additional information about our non-GAAP financial measure, see “—Non-GAAP Financial Measure”.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through collaboration and license agreements, the sale of preferred and common stock, and secured loans.  Through September 30, 2019, we have raised gross cash proceeds of $476.6 million through the sale of convertible preferred stock and $780.0 million from payments under license and collaboration agreements. We also obtained $402.3 million in net proceeds from our IPO and follow-on offerings of our Class A common stock, and $77.2 million in net proceeds from our Restated Loan Agreement.  We have not generated any revenue from the sale of any products.  As of September 30, 2019, we had available cash and cash equivalents of approximately $240.1 million.  Our cash and cash equivalents are invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

Cash Flows

The following table sets forth the primary sources and uses of cash for each of the nine months ended September 30 (unaudited):

	2019			2018
	(in thousands)
Net cash (used in) provided by:
Operating activities	$	(101,776	)	$	(46,286	)
Investing activities		(2,420	)		(370	)
Financing activities		6,555			292,061
Net change in cash and cash equivalents	$	(97,641	)	$	245,405

30

Operating Activities

Net cash used in operating activities was $101.8 million for the nine months ended September 30, 2019, consisting primarily of a net loss of $103.2 million adjusted for non-cash items including stock-based compensation expense of $14.1 million, depreciation and amortization expense of $1.7 million, and a net decrease in operating assets and liabilities of $14.4 million.  The significant items in the change in operating assets that impacted our use of cash in operations include increases in accrued direct research and other current and long-term liabilities of $11.4 million primarily due to activities directly related to our clinical trials and other activities to support our registrational trials, an increase in prepaid expenses and other current assets of $1.9 million due to increases in prepaid subscriptions and insurance premiums, and decreases in amounts earned or due from collaboration agreements and deferred revenue of $23.4 million.  The decrease in deferred revenue is due to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with AbbVie and KKC, which resulted in recognition of $23.4 million of license and milestone revenue.

Net cash used in operating activities was $46.3 million for the nine months ended September 30, 2018, consisting primarily of a net loss of $55.0 million adjusted for non-cash items including stock-based compensation expense of $7.8 million, depreciation and amortization expense of $0.9 million, loss on extinguishment of debt of $1.0 million, and a net increase in operating assets and liabilities of $1.0 million.  The significant items in the change in operating assets and liabilities include an increase in prepaid expenses, other current assets, and other assets of $1.3 million primarily due to receivables from KKC related to reimbursement for expenses incurred, an increase in accrued direct research and other current and long-term liabilities of $10.8 million due clinical trial activities, and a decrease in deferred revenue of $13.5 million.  The decrease in deferred revenue is due to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with AbbVie and KKC, which resulted in recognition of $43.5 million of license and milestone revenue, offset by the achievement of the regulatory milestone of $30 million related to the KKC Agreement, which was recognized as deferred revenue.

Investing Activities

Net cash used in investing activities of $2.4 million for the nine months ended September 30, 2019 were primarily due to capital expenditures in connection with an expansion of our office space and purchases of property and equipment.

Net cash used in investing activities for the nine months ended September 30, 2018 was not significant.

Financing Activities

Net cash provided by financing activities of $6.6 million for the nine months ended September 30, 2019 were primarily due to stock option exercises.

Net cash provided by financing activities of $292.1 million for the nine months ended September 30, 2018 were primarily due to net proceeds of $232.8 million from our follow-on public offering and $57.7 million from our Restated Loan Agreement.

Operating Capital Requirements

To date, we have not generated any revenue from product sales.  We do not know when or whether we will generate any revenue from product sales.  We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one or more of our current or future product candidates.  We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products.  We are subject to all the risks related to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.  We continue to incur additional costs associated with operating as a public company.  We anticipate that we will need substantial additional funding in connection with our continuing operations.

31

On October 15, 2019, we entered into a Lease Agreement, relating to the lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas. The term of the Lease is estimated to commence mid-2022, when construction is completed, and continue for 16 years, with up to 10 years of extension at our option. The initial annual base rent will be determined based on the project cost, subject to an initial annual cap of approximately $13.3 million, which may increase in certain circumstances.  Beginning in the third lease year, the base rent will increase 1.95% per annum each year.  In addition to the annual base rent, we will pay for taxes, insurance, utilities, operating expenses, assessments under private covenants, maintenance and repairs, certain capital repairs and replacements, and building management fees.

On October 9, 2019, we and AbbVie entered into the Amended AbbVie Agreement pursuant to which we reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the License Agreement and the Collaboration Agreement. In exchange, we will pay AbbVie $330 million, of which $75 million is payable on December 8, 2019, $150 million is payable on June 30, 2020, and $105 million is payable on November 30, 2021. If we raise cash proceeds of $200 million or more in one or more equity offerings, we are required to prepay AbbVie $25 million, which prepayment will reduce the amount payable to AbbVie on November 30, 2021, from $105 million to $80 million. We also will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and an identified list of existing Second-Generation Activators.  As a result of entering into the Amended AbbVie Agreement, while we are finalizing our assessment of the accounting for the transaction, we anticipate that we will recognize a charge in the fourth quarter of 2019, which will reflect the repurchase of the rights and the termination of the future obligations on which the Company has deferred revenue recorded as of September 30, 2019. The termination of our deferred revenue balance will not have an impact on our cash flow.

On October 9, 2019, we entered into the Amendment with the Lenders, which amended the Restated Loan Agreement entered into among us and the Lenders on June 14, 2018.  Under the Amendment, the Term B Loan availability was increased from $45 million to $75 million and the availability period was increased from within 30 days to 60 days after the achievement of the one of two milestones. As one of the milestones was achieved on October 14, 2019, the availability period will end on December 13, 2019.  If we borrow under the Term B Loan, we expect to incur additional related interest expense.  As of September 30, 2019, the current portion of the loan is $5.3 million, which is based on the interest-only payment period under the Term A Loan. If we draw the Term B Loan, the interest-only period will extend through June 1, 2021, and the current portion of the loan will be $0 until July 1, 2020.

On July 27, 2018, we closed a follow-on underwritten public offering of 3,450,000 shares of its Class A common stock for gross proceeds of $248.4 million.  Net proceeds to us from the offering were approximately $232.8 million, after deducting underwriting discounts and commissions and offering expenses.

On June 14, 2018, we amended and restated our Loan Agreement.  Under our Restated Loan Agreement, the Term A Loan was increased from $20.0 million to $80.0 million, of which Reata borrowed an additional $60.0 million on June 14, 2018, which resulted in an outstanding principal balance of $80.0 million under the Term A Loan at June 14, 2018.  

In November 2017, we entered into an at-the-market equity offering sales agreement with Stifel, Nicolaus & Company, Incorporated, that established a program pursuant to which they may offer and sell up to $50.0 million of our Class A common stock from time to time in at-the-market transactions as stated in the prospectus supplement filed with the SEC pursuant to Rule 424(b)(5), dated as of November 9, 2017.  To date, no sales have been made under the at-the-market offering program.

Under the Amended AbbVie Agreement, we have significantly increased our current obligations, but we believe that our current cash, along with our access to additional equity or debt funding, will enable us to meet our current obligations through December 31, 2020.  Our longer term liquidity requirements will require us to raise additional capital.  Our future capital requirements will depend on many factors, including the receipt of milestones under the KKC Agreement and the timing of our expenditures related to clinical trials.  We anticipate opportunistically raising additional capital before that time through equity offerings, collaboration or license agreements, additional debt, or royalty financings in order to maintain adequate capital reserves.  In addition, we may choose to raise additional capital at any time for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates.  Decisions about the timing or nature of any financing will be based on, among other things, our

32

perception of our liquidity and of the market opportunity to raise equity or debt.  Additional securities may include common stock, preferred stock, or debt securities.  We may explore strategic collaborations or license arrangements for certain of our earlier stage assets, including RTA 901 and RTA 1701.  If we do explore any arrangements, there can be no assurance that any agreement will be reached, and we may determine to cease exploring a potential transaction for any or all of the assets at any time.  If an agreement is reached, there can be no assurance that any such transaction would provide us with a material amount of additional capital resources.

Until we can generate a sufficient amount of revenue from our product candidates, if ever, we expect to finance future cash needs through public or private equity or debt offerings, commercial loans, collaboration or license transactions, and royalty financings.  Additional capital may not be available on reasonable terms, if at all.  If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of one or more of our product candidates.  If we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock.  If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business, and any such debt could be secured by some or all of our assets.  If we sell royalty interests, we may be required to make significant royalty payments for an extended period of time. Any of these events could significantly harm our business, financial condition, and prospects.  For a description of the numerous risks and uncertainties associated with product development and raising additional capital, see “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2018 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.

Our forecast of the period through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors.  We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.  Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:

• the scope, rate of progress, results, and cost of our clinical trials, preclinical testing, and other activities related to the development of our product candidates;

• the number and characteristics of product candidates that we pursue;

• the costs of development efforts for our product candidates that are not subject to reimbursement from our collaborator;

• the costs necessary to obtain regulatory approvals, if any, for our product candidates in the United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained;

• the continuation of our existing collaboration with KKC and entry into new collaborations and the receipt of any collaboration payments;

• the time and unreimbursed costs necessary to commercialize products in territories in which our product candidates are approved for sale;

• the revenue from any future sales of our products for which we are entitled to a profit share, royalties, and milestones;

• the level of reimbursement or third-party payor pricing available to our products;

• the costs of obtaining third-party commercial supplies of our products, if any, manufactured in accordance with regulatory requirements;

• the costs associated with any potential loss or corruption of our information or data in a cyberattack on our computer system;

• the costs associated with being a public company; and

33

• the costs we incur in the filing, prosecution, maintenance, and defense of our patent portfolio and other intellectual property rights.

If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be materially adversely affected.

Contractual Obligations and Commitments

As of September 30, 2019, there have been no material changes, outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as contained in our Annual Report on Form 10-K for year ended December 31, 2018.

Below are our contractual obligations as of September 30, 2019 (unaudited):

	Payments due by period
	Less than 1 year		1 to 3 years		4 to 5 years		Total
	(in thousands)
Operating lease obligations	$	3,336	$	2,424	$	—	$	5,760
Outstanding secured term loan		6,666		55,556		17,778		80,000
Total contractual obligations	$	10,002	$	57,980	$	17,778	$	85,760

Clinical Trials

As of September 30, 2019, we have several on-going clinical trials in various stages.  Under agreements with various CROs and clinical trial sites, we incur expenses related to clinical trials of our product candidates and potential other clinical candidates.  The timing and amounts of these disbursements are contingent upon the achievement of certain milestones, patient enrollment, and services rendered or as expenses are incurred by the CROs or clinical trial sites.  Therefore, we cannot estimate the potential timing and amount of these payments and they have been excluded from the table above.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements.  On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses, income taxes, and stock-based compensation.  We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part I, Item 7, “Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018.  During the quarter ended March 31, 2019 we adopted Topic 842.  As a result of this adoption, we updated our Leases policies.  There have been no other changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2018.

Off-Balance Sheet Arrangements

Since our inception, we have not had any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements, and we have not engaged in any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

34

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, please see Note 2 of Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

In addition to the U.S. GAAP financial measures, this Quarterly Report on Form 10-Q includes cash-based operating expenses, a non-GAAP financial measure, which the Company defines as total expenses excluding stock-based compensation expense and depreciation expense.  A reconciliation of this non-GAAP financial measure to its most directly comparable U.S. GAAP financial measure is included in “—Results of Operations—Cash-based Operating Expenses (non-GAAP) for the three and nine months ended September 30, 2019 (unaudited)” above.  

Non-GAAP financial measures should be considered in addition to, not in isolation or as a substitute for, U.S. GAAP financial measures.  In addition, our non-GAAP financial measure may differ from similarly named measures used by other companies.  You should carefully evaluate our non-GAAP financial measure, the adjustments included in our non-GAAP financial measure, and the reasons we consider it appropriate for analysis supplemental to our GAAP information. This non-GAAP financial measure has important limitations as an analytical tool due to the exclusion of some but not all items that affect the most directly comparable GAAP financial measure.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business.  These market risks are principally limited to interest rate fluctuations.  We had cash and cash equivalents of $240.1 million at September 30, 2019, consisting primarily of funds in operating cash accounts.  The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk.  We do not enter into investments for trading or speculative purposes.  Due to the short-term nature of our investment portfolio, we do not believe an immediate increase of 100 basis points in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect a sudden change in market interest rates to affect materially our operating results or cash flows.

We also have interest rate exposure as a result of our Term A Loan.  As of September 30, 2019, the outstanding principal amount of our Term A Loan was $80.0 million.  Our Term A Loan bears interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal or 1.91%, with a minimum rate of 9.7% and a maximum rate of 12.29%.  Changes in the U.S. Dollar LIBOR rate may therefore affect our interest expense associated with the Term A Loan.  An increase of 100 basis points in interest rates would increase expense by approximately $0.8 million annually based on the amounts currently outstanding and would not materially affect our results of operations.

We contract with research, development, and manufacturing organizations and investigational sites globally.  Generally, these contracts are denominated in United States dollars.  However, we may be subject to fluctuations in foreign currency rates in connection with agreements not denominated in United States dollars.  We do not hedge our foreign currency exchange rate risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2019.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing

35

similar functions, as appropriate to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of September 30, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.  

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, during the three months ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors.

In addition to other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2018, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which could materially affect our businesses, financial condition, or future results.  Additional risks and uncertainties currently unknown to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition, or future results.  There have been no material changes in our risk factors from those described in the Annual Report on Form 10-K for the year ended December 31, 2018 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

36

Item 6. Exhibits.

Exhibit Number	Description
3.1	Thirteenth Amended and Restated Certificate of Incorporation, dated May 11, 2016 (incorporated by reference to Exhibit 3.7 to the Company’s Form S-1 (File No. 333-208843), filed with the SEC on May 16, 2016).
3.2	Second Amended and Restated Bylaws, dated as of December 7, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on December 7, 2016).
10.1+*	Indemnification Agreement by and between the Company and Manmeet S. Soni dated August 28, 2019.
10.2+*	Employment Agreement by and between the Company and Manmeet S. Soni dated August 28, 2019.
10.3+*	Restricted Stock Unit Agreement.
10.4+*	Notice of Grant of Restricted Stock Units for employees.
10.5#	Amended and Restated License Agreement, dated as of October 9, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on October 10, 2019).
10.6	First Amendment to Amended and Restated Loan and Security Agreement, dated as of October 9, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on October 10, 2019).
10.7	Lease Agreement, dated as of October 15, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on October 16, 2019).
10.8	Expansion Agreement, dated as of October 15, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on October 16, 2019).
10.9#	Fifth Supplement to Exclusive License and Supply Agreement, dated August 22, 2019, between Reata Pharmaceuticals, Inc. and Kyowa Kirin Co., Ltd (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on August 22, 2019).
10.10#	Sixth Supplement to Exclusive License and Supply Agreement, dated August 22, 2019, between Reata Pharmaceuticals, Inc. and Kyowa Kirin Co., Ltd (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on August 22, 2019).
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.

** Furnished herewith.

+ Indicates management contract or compensatory plan.

# Confidential information has been omitted from this Exhibit pursuant to Securities and Exchange Commission regulations.

37

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 12, 2019	REATA PHARMACEUTICALS, INC.
	By:	/s/ J. Warren Huff
	Name:	J. Warren Huff
	Title:	Chief Executive Officer and President

By:	/s/ Manmeet S. Soni
Name:	Manmeet S. Soni
Title:	Chief Financial Officer

38

EX-10.1

Exhibit 10.1

REATA PHARMACEUTICALS, INC.

INDEMNIFICATION AGREEMENT

This Agreement (“Agreement”) is made and entered into as of the 28th day of August, 2019, by and between Reata Pharmaceuticals, a Delaware corporation (the “Company”), and Manmeet S. Soni (“Indemnitee”).

RECITALS

A.    Highly competent and experienced persons are reluctant to serve corporations as directors, executive officers or in other capacities unless they are provided with adequate protection through insurance and indemnification against claims and actions against them arising out of their service to and activities on behalf of the Company.

B.    The Board of Directors of the Company (the “Board”) has determined that the inability to attract and retain such persons would be detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

C.    The Board has also determined that it is reasonable, prudent and necessary for the Company, in addition to purchasing and maintaining directors’ and officers’ liability insurance (or otherwise providing for adequate arrangements of self-insurance), contractually to obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be adequately protected.

D.    Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company, but only on the condition that Indemnitee be so indemnified to the fullest extent permitted by law, as permitted herein.

E.    Article Thirteen of the Amended and Restated Certificate of Incorporation of the Company provides for indemnification of directors and officers to the fullest extent permitted by law.

In consideration of the foregoing and the mutual covenants herein contained, and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereby agree as follows:

ARTICLE I 
Certain Definitions

As used herein, the following words and terms shall have the following respective meanings (whether singular or plural):

“Acquiring Person” means any Person other than (i) the Company, (ii) any of the Company’s Subsidiaries, (iii) any employee benefit plan of the Company or of a Subsidiary of the Company or of a Company owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (iv) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Subsidiary of the Company or of a Company owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

“Change in Control” means the occurrence of any of the following events:

(i)    The acquisition, after the date of this Agreement, by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (x) the then outstanding shares of Common Stock of the Company (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Subparagraph (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of paragraph (iii) below; or

(ii)    Members of the Incumbent Board cease for any reason to constitute at least a majority of the Board; or

(iii)    Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or an acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common equity and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or other similar governing body, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or the entity resulting from such Business Combination) beneficially owns, directly or indirectly, 40% or more of, respectively, the then outstanding shares of common equity of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership results solely from ownership of the Company that existed prior to the Business Combination and (C) at least a majority of the members of the board of directors or other similar governing body of the entity resulting from such Business Combination were members ofthe Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

2

(iv)    Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

“Claim” means an actual or threatened claim or request for relief which was, is or may be made by reason of anything done or not done by Indemnitee in, or by reason of any event or occurrence related to, Indemnitee’s Corporate Status, including any threatened, pending or completed action, suit, arbitration, investigation, inquiry, alternate dispute resolution mechanism, administrative or legislative hearing, or any other proceeding (including, without limitation, any securities laws action, suit, arbitration, alternative dispute resolution mechanism, hearing, or procedure) whether civil, criminal, administrative, arbitrative or investigative and whether or not based upon events occurring, or actions taken, before the date hereof, and any appeal in or related to any such action, suit, arbitration, investigation, hearing or procedure and any inquiry or investigation (including discovery), whether conducted by or in the right of the Company or any other Person, that Indemnitee in good faith believes could lead to any such action, suit, arbitration, alternative dispute resolution mechanism, hearing or other proceeding or appeal thereof.

“Corporate Status” means the status of a person who is, becomes or was a director, officer, employee, agent or fiduciary of the Company or is, becomes or was serving at the request of the Company as a director, officer, partner, member, venturer, proprietor, trustee, employee, agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, limited liability company, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise. For purposes of this Agreement, the Company agrees that Indemnitee’s service on behalf of or with respect to any Subsidiary of the Company shall be deemed to be at the request of the Company.

“DGCL” means the Delaware General Corporation Law and any successor statute thereto, as either of them may from time to time be amended.

“Disinterested Director” with respect to any request by Indemnitee for indemnification hereunder, means a director of the Company who at the time of the vote is not a named defendant or respondent in the Claim in respect of which indemnification is sought by Indemnitee.

“Exchange Act” means the Securities Exchange Act of 1934.

“Expenses” means all attorneys’ fees and disbursements, retainers, accountant’s fees and disbursements, private investigator fees and disbursements, court costs, transcript costs, fees and expenses of experts, witness fees and expenses, costs and obligations under any bond posted in connection with any Claim, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements, costs or expenses of the types customarily incurred in connection with prosecuting, defending (including affirmative defenses and counterclaims), preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in or preparing to participate in (including on appeal) a Claim and all interest or finance charges attributable to any thereof. Should any payments by the Company under this Agreement be determined to be subject to any federal, state or local

3

income or excise tax, “Expenses” shall also include such amounts as are necessary to place Indemnitee in the same after-tax position (after giving effect to all applicable taxes) as Indemnitee would have been in had no such tax been determined to apply to such payments. Also, in this Agreement “witness” includes responding (or objecting) to a discovery request, whether in writing or in an oral deposition, in any Claim.

“Final Adjudication” means a final adjudication by a court from which there is no further right of appeal or a final adjudication of an arbitration pursuant to Section 5.1 if Indemnitee elects to seek such arbitration.

“Incumbent Board” means the individuals who, as of the date of this Agreement, constitute the Board and any other individual who becomes a director of the Company after that date and whose election or appointment by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption ofoffice occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board.

“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither contemporaneously is, nor in the five years theretofore has been, retained to represent: (a) the Company, any subsidiary of the Company, or Indemnitee in any matter material to either such Person (other than as Independent Counsel under this Agreement or similar agreements), (b) any other party to the Claim giving rise to a claim for indemnification hereunder or (c) the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company’s then outstanding voting securities, or Person controlled by such beneficial owner (other than, in each such case under clauses (a) through (c)), with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements). Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

“Independent Directors” means the directors on the Board that are independent directors as defined in NASDAQ Marketplace Rule 4200(a)(15) or successor provision, or, if the Company’s Common Stock is not then quoted on the NASDAQ Global Select Market, that qualify as independent, disinterested, or a similar term as defined in the rules of the principal securities exchange or inter-dealer quotation system on which the Company’s Common Stock is then listed or quoted.

“Person” means any individual, entity or group (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act).

4

“Potential Change in Control” shall be deemed to have occurred if (i) any Person shall have announced publicly an intention to effect a Change in Control, or commenced any action (such as the commencement of a tender offer for the Company’s Outstanding Company Common Stock or Outstanding Company Voting Securities or the solicitation of proxies for the election of any of the Company’s directors) that, if successful, could reasonably be expected to result in the occurrence of a Change in Control; (ii) the Company enters into an agreement, the consummation of which would constitute a Change in Control; or (iii) any other event occurs which the Board declares to be a Potential Change of Control.

“Subsidiary” means, with respect to any Person, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person.

“Voting Securities” means any securities that vote generally in the election of directors, in the admission of general partners, or in the selection of any other similar governing body.

ARTICLE II 
Services by Indemnitee

Indemnitee is serving as an officer of the Company. Indemnitee may from time to time also agree to serve, as the Company may request from time to time, in another capacity for the Company (including another officer or director position) or as a director, officer, partner, member, venturer, proprietor, trustee, employee, agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, joint venture, limited liability company, sole proprietorship, trust, employee benefit plan or other enterprise. Indemnitee and the Company each acknowledge that they have entered into this Agreement as a means of inducing Indemnitee to serve, or continue to serve, the Company in such capacities. Indemnitee may at any time and for any reason resign from such position or positions (subject to any other contractual obligation or any obligation imposed by operation of law). The Company shall have no obligation under this Agreement to continue Indemnitee in any such position or positions.

ARTICLE III 
Indemnification

Section 3.1General. Subject to the provisions set forth in Article IV, the Company shall indemnify, and advance Expenses to, Indemnitee to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit. The other provisions set forth in this Agreement are provided in addition to and as a means of furtherance and implementation of, and not in limitation of, the obligations expressed in this Article III. No requirement, condition to or limitation of any right to indemnification or to advancement of Expenses under this Article III shall in any way limit the rights of Indemnitee under Article VII.

5

Section 3.2Additional Indemnity of the Company. Indemnitee shall be entitled to indemnification pursuant to this Section 3.2 if, by reason of anything done or not done by Indemnitee in, or by reason of any event or occurrence related to, Indemnitee’s Corporate Status, Indemnitee is, was or becomes, or is threatened to be made, a party to, or witness or other participant in anyClaim. Pursuant to this Section 3.2, Indemnitee shall be indemnified against any and all Expenses, judgments, penalties (including excise or similar taxes), fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of any such Expenses, judgments, penalties, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Claim, issue or matter therein. Notwithstanding the foregoing, the obligations of the Company under this Section 3.2 shall be subject to the condition that no determination (which,in any case in which Independent Counsel is involved, shall be in a form of a written opinion) shall have been made pursuant to Article IV that Indemnitee would not be permitted to be indemnified under applicable law. Nothing in this Section 3.2 shall limit the benefits of Section 3.1, Section 3.3 or any other Section hereunder.

Section 3.3Advancement of Expenses. The Company shall pay, on a current and as-incurred basis, all Expenses reasonably incurred by, or in the case of retainers to be incurred by, or on behalf of Indemnitee (or, if applicable, reimburse Indemnitee for any and all Expenses reasonably incurred by Indemnitee and previously paid by Indemnitee) in connection with any Claim, whether brought by the Company or otherwise, in advance of the later of (a) the final, non-appealable determination or resolution of all such Claims and (b) any determination respecting entitlement to indemnification pursuant to Article IV hereof (and shall continue to pay such Expenses after such determination and until it shall ultimately be determined (in a Final Adjudication) that Indemnitee is not entitled to be indemnified by the Company against such Expenses). Such payments and advances shall be made within 10 days after the receipt by the Company of a written request from Indemnitee requesting such payment or payments from time to time, whether prior to or after the final, non-appealable determination or resolution of such Claim. Any such payment by the Company is referred to in this Agreement as an “Expense Advance.” Any dispute as to the reasonableness of the incurrence of any Expense shall not delay an Expense Advance by the Company, and the Company agrees that any such dispute shall be resolved only upon the final, non-appealable determination or resolution of the respective underlying Claim involving Indemnitee. Indemnitee hereby undertakes and agrees that Indemnitee will reimburse and repay the Company without interest for any Expense Advances to the extent that it shall ultimately be determined (in a Final Adjudication) that Indemnitee is not entitled under the law to be indemnified by the Company against such Expenses. Indemnitee shall not be required to provide collateral or otherwise secure the undertaking and agreement described in the prior sentence. The Company shall make all Expense Advances pursuant to this Section 3.3 without regard to the financial ability of the Indemnitee to make repayment and without regard to whether or not the Indemnitee may ultimately be found to be entitled to indemnification under the provisions of this Agreement.

6

Section 3.4Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all costs and expenses (of the types described in the definition of Expenses in Article I) and, if requested by Indemnitee, shall (within two business days of that request) advance those costs and expenses to Indemnitee, that are incurred by Indemnitee in connection with any claim asserted against, or action brought by, Indemnitee for (i) indemnification or an Expense Advance by the Company under this Agreement or any other agreement or provision of the Company’s Certificate of Incorporation or Bylaws now or hereafter in effect relating to any Claim, (ii) recovery under any directors’ and officers’ liability insurance policies maintained by the Company, or (iii) enforcement of, or claims for breaches of, any provision of this Agreement, in each of the foregoing situations regardless of whether Indemnitee ultimately isdetermined to be entitled to that indemnification, Expense Advance payment, insurance recovery, enforcement, or damage claim, as the case may be, and regardless of whether the nature of the proceeding with respect to such matters is judicial, by arbitration, or otherwise.

Section 3.5Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties, and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims, or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

ARTICLE IV 
Procedure for Determination of Entitlement to Indemnification

Section 4.1Request by Indemnitee. To obtain indemnification under this Agreement, Indemnitee shall, at such time as determined by Indemnitee in Indemnitee’s sole discretion, submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary or an Assistant Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Nevertheless, any failure of Indemnitee to provide a request to the Company, or to provide such a requestwithin any time frame, shall not relieve the Company of any liability that it may have to Indemnitee hereunder.

Section 4.2Determination of Request. Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 4.1 hereof, a determination, if required by applicable law, with respect to whether Indemnitee is permitted under applicable law to be indemnified shall be made in accordance with the terms of Section 4.5, in the specific case as set forth in this Section 4.2:

(a)If a Potential Change in Control or a Change in Control shall have occurred, by Independent Counsel (selected in accordance with Section 4.3) in a written opinion to the Board and Indemnitee, unless Indemnitee shall request that such determination be made by the Board, or a committee of the Board, in which case by the person or persons or in the manner provided for in clause (i) or (ii) of paragraph (b) below; or

7

(b)If a Potential Change in Control or a Change in Control shall not have occurred, then the determination shall be made by one of the following, in Indemnitee’s sole discretion, as the Indemnitee requests in writing: (i) by the Board by a majority vote of the Disinterested Directors even though less than a quorum of the Board, or (ii) by a majority vote of a committee solely of two or more Disinterested Directors designated to act in the matter by a majority vote of all Disinterested Directors even though less than a quorum of the Board, or (iii) by Independent Counsel selected by the Board or a committee of the Board by a vote as set forth in clauses (i) or (ii)of this paragraph (b), or if such vote is not obtainable or such a committee cannot be established, by a majority vote of all directors, or (iv) by the stockholders of the Company in a vote that excludes the shares held by directors who are not Disinterested Directors.

If it is so determined that Indemnitee is permitted to be indemnified under applicable law, payment to Indemnitee shall be made within 10 days after such determination. Nothing contained in this Agreement shall require that any determination be made under this Section 4.2 prior to the final, non-appealable determination or resolution of a Claim involving Indemnitee for which indemnification is sought hereunder; provided, that Expense Advances shall continue to be made by the Company pursuant to, and to the extent required by, the provisions of Article III. Indemnitee shall cooperate with the person or persons making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person or persons making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification), and the Company shall indemnify and hold harmless Indemnitee therefrom.

Section 4.3Independent Counsel. If the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company, within 10 days after submission of Indemnitee’s request for indemnification, specifying the identity and address of the Independent Counsel so selected unless Indemnitee shall request that such selection be made by the Disinterested Directors or a committee of the Board, in which event the Company shall give written notice to Indemnitee within 10 days after receipt of Indemnitee’s request for the Board or a committee of the Disinterested Directors to make such selection, specifying the identity and address of the Independent Counsel so selected. In either event, (i) such notice to Indemnitee or the Company, as the case may be, shall be accompanied by a written confirmation by the Independent Counsel so selected that it satisfies the requirements of the definition of “Independent Counsel” in Article I and that it agrees to serve in such capacity and (ii) Indemnitee or the Company, as the case may be, may, within seven days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Any objection to the selection of Independent Counsel pursuant to this Section 4.3 may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of the definition of “Independent Counsel” in Article I, and the objection shall

8

set forth with particularity the factual basis of such assertion. If such written objection is timely made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court of competent jurisdiction(the “Court”) has determined that such objection is without merit or such objection is withdrawn. In the event of a timely written objection to a choice of Independent Counsel, the party originally selecting the Independent Counsel shall have seven days to make an alternate selection of Independent Counsel and to give written notice of such selection to the other party, after which time such other party shall have five days to make a written objection to such alternate selection. If, within 30 days after submission of Indemnitee’s request for indemnification pursuant to Section 4.1, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court for resolution of any objection that shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom an objection is so resolved or the person so appointed shall act as Independent Counsel under Section 4.2. The Company shall pay any and all fees and expenses reasonably incurred by, such Independent Counsel in connection with acting pursuant to Section 4.2, and the Company shall pay all fees and expenses reasonably incurred incident to the procedures of this Section 4.3, regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 5.1, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

Section 4.4Establishment of a Trust. In the event of a Potential Change in Control or a Change in Control, the Company shall, upon written request by Indemnitee, create a trust for the benefit of Indemnitee (the “Trust”) and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, and defending any Claim, and any and all judgments, fines, penalties, and settlement amounts of any and all Claims from time to time actually paid or claimed, reasonably anticipated, or proposed to be paid. The amount to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Independent Counsel (or other person(s) making the determination of whether Indemnitee is permitted to be indemnified by applicable law). The terms of the Trust shall provide that, upon a Change in Control, (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of Indemnitee; (ii) the trustee of the Trust shall advance to Indemnitee, within ten days of a request by Indemnitee, any and all Expenses reasonably incurred by, or in case of retainer to be incurred by, or on behalf of Indemnitee (or, if applicable, reimburse Indemnitee for any Expense reasonably incurred by Indemnitee and previously paid by Indemnitee), with any required determination concerning the reasonableness of the Expenses to be made by the Independent Counsel (and Indemnitee hereby agrees to reimburse the Trust under the circumstances in which Indemnitee would be required to reimburse the Company for Expense Advances under Section 3.3 of this Agreement); (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above; (iv) the trustee of the Trust shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement; and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by the Independent Counsel or a Final Adjudication,

9

as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement. The trustee of the Trust shall be chosen by Indemnitee and shall be an institution that is not affiliated withIndemnitee. Nothing in this Section 4.4 shall relieve the Company of any of its obligations under this Agreement.

Section 4.5Presumptions and Effect of Certain Proceedings.

(a)Indemnitee shall be presumed to be entitled to indemnification under this Agreement upon submission of a request for indemnification under Section 4.1, and the Company shall have the burden of proof in overcoming that presumption in reaching a determination contrary to that presumption. Such presumption shall be used by Independent Counsel (or other person or persons determining entitlement to indemnification) as a basis for a determination of entitlement to indemnification unless the Company provides information sufficient to overcome such presumption by clear and convincing evidence or unless the investigation, review and analysis of Independent Counsel (or such other person or persons) convinces Independent Counsel by clear and convincing evidence that the presumption should not apply.

(b)If the person or persons empowered or selected under Article IV of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within 60 days after receipt by the Company of the request by Indemnitee therefor, the determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating to such determination; and provided, further, that the 60-day limitation set forth in this Section 4.5(b) shall not apply and such period shall be extended as necessary (i) if within 30 days after receipt by the Company of the request for indemnification under Section 4.1 Indemnitee and the Company have agreed, and the Board has resolved, to submit such determination to the stockholders of the Company pursuant to Section 4.2(b) for their consideration at an annual meeting of stockholders to be held within 90 days after such agreement and such determination is made thereat, or a special meeting of stockholders is called within 30 days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 4.2(a) of this Agreement, in which case the applicable period shall be as set forth in Section 5.1(c).

(c)The termination of any Claim, issue or matter by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) by itself adversely affect the rights of Indemnitee to indemnification or create a presumption that Indemnitee failed to meet any particular standard of conduct, that Indemnitee had any

10

particular belief, or that a court has determined that indemnification is not permitted by applicable law. Indemnitee may be found to have failed to meet any particular standard of conduct inrespect of any Claim, issue or matter only after Indemnitee shall have been so adjudged by the Court or arbitrator, as applicable, after exhaustion of all appeals therefrom.

(d)For purposes of the second sentence of Section 3.5, a settlement or other resolution of a Claim short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. For purposes of the second sentence of Section 3.5, in the event that any Claim to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including settlement of such Claim with or without payment of money or other consideration), it shall be presumed that Indemnitee has been successful on the merits or otherwise in suchClaim. Anyone seeking to overcome this presumption shall have the burden of proof by clear and convincing evidence.

(e)The failure of the Company (including by its directors or Independent Counsel) to have made a determination before the commencement of any action pursuant to this Agreement that indemnification is proper because Indemnitee has met the applicable standard of conduct shall not be a defense to the action or create a presumption that Indemnitee has not met the standard of conduct.

ARTICLE V 
Certain Remedies of Indemnitee

Section 5.1Indemnitee Entitled to Adjudication in an Appropriate Court. If (a) a determination is made pursuant to Article IV that Indemnitee is not entitled to indemnification under this Agreement; (b) there has been any failure by the Company to make timely payment or advancement of any amounts due hereunder (including, without limitation, any Expense Advances); or (c) the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 4.2 and such determination shall not have been made and delivered in a written opinion within 60 days after the latest of (i) such Independent Counsel’s being appointed, (ii) the overruling by the Court of objections to such counsel’s selection, or (iii) expiration of all periods for the Company or Indemnitee to object to such counsel’s selection, Indemnitee shall be entitled to commence an action seeking an adjudication in the Court of Indemnitee’s entitlement to such indemnification or advancements due hereunder, including, without limitation, Expense Advances. Alternatively, Indemnitee, in Indemnitee’s sole discretion, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial arbitration rules of the American Arbitration Association. Indemnitee shall commence such action seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such action pursuant to this Section 5.1, or such right shall expire. The Company agrees not to oppose Indemnitee’s right to seek any such adjudication or award in arbitration and it shall continue to pay Expense Advances pursuant to Section 3.3 until it shall ultimately be determined (in a Final Adjudication) that Indemnitee is not entitled to be indemnified by the Company against such Expenses.

11

Section 5.2Adverse Determination Not to Affect any Judicial Proceeding. If a determination shall have been made pursuant to Article IV that Indemnitee is not entitled toindemnification under this Agreement, any judicial proceeding or arbitration commenced pursuant to this Article V shall be conducted in all respects as a de novo trial or arbitration on the merits, and Indemnitee shall not be prejudiced by reason of such initial adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Article V, Indemnitee shall be presumed to be entitled to indemnification or advancement of Expenses, as the case may be, under this Agreement and the Company shall have the burden of proof in overcoming such presumption and to show by clear and convincing evidence that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

Section 5.3Company Bound by Determination Favorable to Indemnitee in any Judicial Proceeding or Arbitration. If a determination shall have been made or deemed to have been made pursuant to Article IV that Indemnitee is entitled to indemnification, the Company shall be irrevocably bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Article V, and shall be precluded from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding and enforceable.

Section 5.4Company Bound by the Agreement. The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Article V that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. Without limiting the generality of the preceding sentence, the Company shall not seek from a court, or agree to, a “bar order” that would have the effect of prohibiting or limiting Indemnitee’s rights to advancement of any Expenses under this Agreement.

ARTICLE VI 
Contribution

Section 6.1Contribution Payment.

(a)Whether or not the indemnification provided in Article III hereof is available, in respect of any threatened, pending or completed action, suit or Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such action, or Claim), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or Claim without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit orClaim) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

12

(b)Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit orClaim), the Company shall contribute to the amountof Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit orClaim), on the one hand, and Indemnitee, on the other hand, from the transaction or events from which such action, suit or Claim arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit orClaim), on the one hand, and Indemnitee, on the other hand, in connection with the transaction or events that resulted in such Expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which applicable law may require to be considered.

(c)The Company hereby agrees, to the fullest extent permitted by applicable law, to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

(d)To the fullest extent permissible under applicable law and without diminishing or impairing the obligations of the Company set forth in the preceding subparagraphs of this Section 6.1, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Claim in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to suchClaim; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

Section 6.2Relative Fault. The relative fault of the Indemnitee, on the one hand, and of the Company and any and all other parties (including officers and directors of the Company other than Indemnitee) who may be at fault with respect to such matter shall be determined (i) by reference to the relative fault of Indemnitee as determined by the court or other governmental agency assessing the contribution amounts or (ii) to the extent such court or other governmental agency does not apportion relative fault, by the Independent Counsel (or such other party which makes a determination under Article IV) after giving effect to, among other things, the degree of which their actions were motivated by intent to gain personal profit or advantage, the degree to

13

which their liability is primary or secondary, the degree to which their conduct is active or passive, the degree of the knowledge, access to information, and opportunity to prevent or correct the subject matter of the Claims and other relevant equitable considerations of each party. The Company and Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 6.2 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6.2.

ARTICLE VII 
Miscellaneous

Section 7.1Non-Exclusivity. The rights of Indemnitee to receive indemnification and advancement of Expenses under this Agreement shall be in addition to, and shall not be deemed exclusive of, any other rights Indemnitee shall under the DGCL or other applicable law, the charter or bylaws of the Company, any other agreement, vote of stockholders or a resolution of directors, or otherwise. Every other right or remedy of Indemnitee shall be cumulative of the rights and remedies granted Indemnitee hereunder. No amendment or alteration of the charter or bylaws of the Company or any provision thereof shall adversely affect Indemnitee’s rights hereunder, and such rights shall be in addition to any rights Indemnitee may have under the charter, bylaws and the DGCL or other applicable law. To the extent that there is a change in the DGCL or other applicable law (whether by statute or judicial decision) that allows greater indemnification by agreement than would be afforded currently under the Company’s charter or bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by virtue of this Agreement the greater benefit so afforded by such change. Any amendment, alteration or repeal of the DGCL that adversely affects any right of Indemnitee shall be prospective only and shall not limit or eliminate any such right with respect to any Claim involving any occurrence or alleged occurrence of any action or omission to act that took place before the effective date of such amendment or repeal.

Section 7.2Insurance and Subrogation.

(a)To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or for individuals serving at the request of the Company as directors, officers, partners, members, venturers, proprietors, trustees, employees, agents, fiduciaries or similar functionaries of another foreign or domestic corporation, partnership, limited liability company, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee, agent or fiduciary under such policy or policies.

(b)In the event of any payment by the Company under this Agreement for which reimbursement is available under any insurance policy or policies obtained by the Company, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee under such insurance policy or policies, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights, provided that all Expenses relating to such action shall be borne by the Company.

14

(c)The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under the Company’s charter or bylaws or any insurance policy, contract, agreement or otherwise.

(d)If Indemnitee is a director of the Company, the Company will advise the Board of any proposed material reduction in the coverage for Indemnitee to be provided by the Company’s directors’ and officers’ liability insurance policy and will not effect such a reduction with respect to Indemnitee without the prior approval of at least 80% of the Independent Directors of the Company.

(e)If Indemnitee is a director of the Company during the term of this Agreement and if Indemnitee ceases to be a director of the Company for any reason, the Company shall procure a run-off directors’ and officers’ liability insurance policy with respect to claims arising from facts or events that occurred before the time Indemnitee ceased to be a director of the Company and covering Indemnitee, which policy, without any lapse in coverage, will provide coverage for a period of six years after the time Indemnitee ceased to be a director of the Company and will provide coverage (including amount and type of coverage and size of deductibles) that are substantially comparable to the Company’s directors’ and officers’ liability insurance policy that was most protective of Indemnitee in the 12 months preceding the time Indemnitee ceased to be a director of the Company and that is reasonably satisfactory to Indemnitee; provided, however, that:

(i)this obligation shall be suspended during the period immediately following the time Indemnitee ceases to be a director of the Company if and only so long as the Company has a directors’ and officers’ liability insurance policy in effect covering Indemnitee for such claims that, if it were a run-off policy, would meet or exceed the foregoing standards, but in any event this suspension period shall end when a Change in Control occurs; and

(ii)no later than the end of the suspension period provided in the preceding clause (i) (whether because of failure to have a policy meeting the foregoing standards or because a Change in Control occurs), the Company shall procure a run-off directors’ and officers’ liability insurance policy meeting the foregoing standards and lasting for the remainder of the six-year period.

(f)Notwithstanding the preceding clause (e) including the suspension provisions therein, if Indemnitee ceases to be an officer or a director of the Company in connection with a Change in Control or at or during the one-year period following the occurrence of a Change in Control, the Company shall procure a run-off directors’ and officers’ liability insurance policy covering Indemnitee that is reasonably satisfactory to Indemnity, meets the foregoing standards in clause (e), and lasts for a six-year period upon the Indemnitee’s ceasing to be an officer or a director of the Company in such circumstances.

15

(g)If at the time of the receipt of a notice of a Claim pursuant to the terms hereof, the Company has directors’ and officers’ liability insurance in effect, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies.

Section 7.3Self Insurance of the Company; Other Arrangements. The parties hereto recognize that the Company may, but except as provided in Section 7.2(d), Section 7.2(e), and Section 7.2(f) is not required to, procure or maintain insurance or other similar arrangements, at its expense, to protect itself and any person, including Indemnitee, who is or was a director, officer, employee, agent or fiduciary of the Company or who is or was serving at the request of the Company as a director, officer, partner, member, venturer, proprietor, trustee, employee, agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, limited liability company, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss asserted against or incurred by such person, in such a capacity or arising out of the person’s status as such a person, whether or not the Company would have the power to indemnify such person against such expense or liability or loss.

Except as provided in Section 7.2(d), Section 7.2(e) and Section 7.2(f), in considering the cost and availability of such insurance, the Company (through the exercise of the business judgment of its directors and officers) may, from time to time, purchase insurance which provides for certain (i) deductibles, (ii) limits on payments required to be made by the insurer, or (iii) coverage which may not be as comprehensive as that previously included in insurance purchased by the Company or its predecessors. The purchase of insurance with deductibles, limits on payments and coverage exclusions, even if in the best interest of the Company, may not be in the best interest of Indemnitee. As to the Company, purchasing insurance with deductibles, limits on payments and coverage exclusions is similar to the Company’s practice of self-insurance in other areas. In order to protect Indemnitee who would otherwise be more fully or entirely covered under such policies, the Company shall, to the maximum extent permitted by applicable law, indemnify and hold Indemnitee harmless to the extent (i) of such deductibles, (ii) of amounts exceeding payments required to be made by an insurer, or (iii) of amounts that prior policies of directors’ and officers’ liability insurance held by the Company or its predecessors have provided for payment to Indemnitee, if by reason of Indemnitee’s Corporate Status Indemnitee is or is threatened to be made a party to anyClaim. The obligation of the Company in the preceding sentence shall be without regard to whether the Company would otherwise be required to indemnify such officer or director under the other provisions of this Agreement, or under any law, agreement, vote of stockholders or directors or other arrangement. Without limiting the generality of any provision of this Agreement, the procedures in Article IV hereof shall, to the extent applicable, be used for determining entitlement to indemnification under this Section 7.3.

Section 7.4Certain Settlement Provisions. The Company shall have no obligation to indemnify Indemnitee under this Agreement for amounts paid in settlement of a Claim without the Company’s prior written consent. The Company shall not settle any Claim in any manner that would impose any fine or other obligation on Indemnitee without Indemnitee’s prior written consent. Neither the Company nor Indemnitee shall unreasonably withhold their consent to any proposed settlement.

16

Section 7.5Duration of Agreement. This Agreement shall continue for so long as Indemnitee serves as a director, officer, employee, agent or fiduciary of the Company or, at the request of the Company, as a director, officer, partner, member, venturer, proprietor, trustee,employee, agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, limited liability company, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, and thereafter shall survive until and terminate upon the later to occur of: (a) the expiration of 20 years after the latest date that Indemnitee shall have ceased to serve in any such capacity; (b) the final non-appealable determination or resolution of all pending Claims in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Article IV relating thereto; or (c) the expiration of all statutes of limitation applicable to possible Claims arising out of Indemnitee’s Corporate Status.

Section 7.6Notice by Each Party. Indemnitee shall promptly notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document or communication relating to any Claim for which Indemnitee may be entitled to indemnification or advancement of Expenses hereunder; provided, however, that any failure of Indemnitee to so notify the Company shall not adversely affect Indemnitee’s rights under this Agreement except to the extent the Company shall have been materially prejudiced as a direct result of such failure. The Company shall promptly notify Indemnitee in writing as to the pendency of any Claim that may involve a claim against Indemnitee for which Indemnitee may be entitled to indemnification or advancement of Expenses hereunder.

Section 7.7Amendment. This Agreement may not be modified or amended except by a written instrument executed by or on behalf of each of the parties hereto.

Section 7.8Waivers. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term only by a writing signed by the party against which such waiver is to be asserted. Unless otherwise expressly provided herein, no delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party hereto of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

Section 7.9Entire Agreement. This Agreement and the documents expressly referred to herein constitute the entire agreement between the parties hereto with respect to the matters covered hereby, and any other prior or contemporaneous oral or written understandings or agreements with respect to the matters covered hereby, including without limitation any prior indemnification agreements, are expressly superseded by this Agreement.

17

Section 7.10Severability. If any provision of this Agreement (including any provision within a single section, paragraph or sentence), or the application of such provision to any Person or circumstance, shall be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement or affect the application of such provision to other Persons or circumstances, it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such provision to the extent necessary to render it valid, legal and enforceable while preserving its intent, or if such modification is not possible, by substituting therefor another provision that is valid, legal and enforceable and thatachieves the same objective. Any such finding of invalidity or unenforceability shall not prevent the enforcement of such provision in any other jurisdiction to the maximum extent permitted by applicable law.

Section 7.11Notices. All notices and other communications hereunder shall be in writing and shall be deemed given upon (a) transmitter’s confirmation of a receipt of a facsimile transmission if during normal business hours of the recipient, otherwise on the next business day, (b) confirmed delivery of a standard overnight courier or when delivered by hand or (c) the expiration of five business days after the date mailed by certified or registered mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice):

If to the Company, to it at:

Reata Pharmaceuticals, Inc.

2801 Gateway Drive

Suite 150

Irving, Texas 75063-2648

Attn: Corporate Secretary

Facsimile: 469-442-4740

If to Indemnitee, to Indemnitee at:

501 Dudley Road

Newton, MA 02459

or to such other address or to such other individuals as any party shall have last designated by notice to the other parties. All notices and other communications given to any party in accordance with the provisions of this Agreement shall be deemed to have been given when delivered or sent to the intended recipient thereof in accordance with and as provided in the provisions of this Section 7.11.

Section 7.12Governing Law. This Agreement and the legal relations among the parties shall, to the fullest extent permitted by law, be governed by, and construed and enforced in accordance with , the laws of the State of Delaware without regard to its conflict of laws rule.

18

Section 7.13 Submission to Jurisdiction. The Company and Indemnitee hereby irrevocably and unconditionally (a) agree that any action or proceeding arising out of or in connection with this Agreement (other than an arbitration provided for in Section 5.1) shall be brought only in the Court of Chancery of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for the purposes of any action or proceeding arising out of or in connection with this Agreement, (c) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (d) waive, and agree not toplead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or otherwise inconvenient forum.

Section 7.14Certain Construction Rules.

(a)The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. As used in this Agreement, unless otherwise provided to the contrary, (1) all references to days shall be deemed references to calendar days and (2) any reference to a “Section” or “Article” shall be deemed to refer to a section or article of this Agreement. The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” Unless otherwise specifically provided for herein, the term “or” shall not be deemed to be exclusive. Whenever the context may require, any pronoun used in this Agreement shall include the correspondingmasculine, feminine or neuter forms and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.

(b)For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, nominee, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner the person reasonably believed to be in the interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interest of the Company” for purposes of this Agreement and the DGCL.

(c)In the event of a merger, consolidation or amalgamation of the Company with or into any other entity, references to the “Company” shall include the entity surviving or resulting from the merger, consolidation or amalgamation as well as the Company, and Indemnitee shall stand in the same position under this Agreement with respect to the surviving or resulting entity as Indemnitee would stand with respect to the Company if its existence had continued upon and after the merger, consolidation or amalgamation.

19

Section 7.15Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument, notwithstanding that both parties are not signatories to the original or same counterpart.

Section 7.16Certain Persons Not Entitled to Indemnification. Notwithstanding any other provision of this Agreement (but subject to Section 7.1), Indemnitee shall not be entitled to indemnification or advancement of Expenses pursuant to the terms of this Agreement with respect to any Claim, issue or matter therein, brought or made by Indemnitee against the Company, except as specifically provided in Article III, Article IV or Section 7.3. In addition, the Company shall not be obligated pursuant to the terms of this Agreement:

(a)To indemnify Indemnitee if (and to the extent that) a final, non-appealable decision by a court or arbitration body having jurisdiction in the matter shall determine that such indemnification is not lawful; or

(b)To indemnify Indemnitee for the payment to the Company of profits pursuant to Section 16(b) of the Exchange Act, or Expenses incurred by Indemnitee for Claims in connection with such payment under Section 16(b) of the Exchange Act.

Section 7.17Indemnification for Negligence, Gross Negligence, etc. Without limiting the generality of any other provision hereunder, it is the express intent of this Agreement that Indemnitee be indemnified and Expenses be advanced regardless of Indemnitee’s acts of negligence, gross negligence, intentional or willful misconduct to the extent that indemnification and advancement of Expenses is allowed pursuant to the terms of this Agreement and under applicable law.

Section 7.18Mutual Acknowledgments. Both the Company and Indemnitee acknowledge that, in certain instances, applicable law (including applicable federal law that may preempt or override applicable state law) or public policy may prohibit the Company from indemnifying the directors, officers, employees, agents or fiduciaries of the Company under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the U.S. Securities and Exchange Commission has taken the position that indemnification of directors, officers and controlling Persons of the Company for liabilities arising under federal securities laws is against public policy and, therefore, unenforceable. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee. In addition, the Company and Indemnitee acknowledge that federal law prohibits indemnifications for certain violations of the Employee Retirement Income Security Act of 1974, as amended.

20

Section 7.19Enforcement. The Company agrees that its execution of this Agreement shall constitute a stipulation by which it shall be irrevocably bound in any court or arbitration in which a proceeding by Indemnitee for enforcement of Indemnitee’s rights hereunder shall have been commenced, continued or appealed, that its obligations set forth in this Agreement are unique and special, and that failure of the Company to comply with the provisions of this Agreement will cause irreparable and irremediable injury to Indemnitee, for which a remedy at law will be inadequate. As a result, in addition to any other right or remedy Indemnitee may have at law or in equity with respect to breach of this Agreement, Indemnitee shall be entitled to injunctive or mandatory relief directing specific performance by the Company of its obligations under this Agreement. The Company agrees not to seek, and agrees to waive any requirement for the securing or posting of, a bond in connection with Indemnitee’s seeking or obtaining such relief.

Section 7.20Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators, legal representatives.

Section 7.21Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee or Indemnitee’s spouse, heirs, executors, or personal or legal representatives after the expiration of one year from the date of accrual of that cause of action, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within that one-year period; provided, however, that for any claim based on Indemnitee’s breach of fiduciary duties to the Company or its stockholders, the period set forth in the preceding sentence shall be three years instead of one year; and provided, further, that, if any shorter period of limitations is otherwise applicable to any such cause of action, the shorter period shall govern.

[signatures on following page]

21

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of the date first above written.

REATA PHARMACEUTICALS, INC.
By:	/s/ J. Warren Huff
Name:	J. Warren Huff
Title:	Chief Executive Officer
INDEMNITEE:
	/s/ Manmeet S. Soni
Name:	Manmeet S. Soni

22

EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT
by and between
Reata Pharmaceuticals, Inc.
and

Manmeet S. Soni

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of August 28, 2019, by and between Reata Pharmaceuticals, Inc., a Delaware corporation (together with its successors and assigns permitted hereunder, the “Company”), and Manmeet S. Soni (the “Executive”).

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.Employment Period.  Subject to earlier termination pursuant to Section 3, the Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement, for the period commencing on the date of this Agreement (the “Effective Date”) and ending at the close of business on August 28, 2023 (the “Employment Period”).  Thereafter, such term of employment shall be extended automatically for successive one-year periods (such extended term, the “Additional Employment Period”) unless the Company or Executive provides the other with written notice no less than 30 days prior to the date the Employment Period or the Additional Employment Period, as applicable, would otherwise end either (i) declining to extend such term of employment, or (ii) requesting that the terms of this Agreement are renegotiated prior to the Agreement’s renewal.  If the parties fail to enter into the renegotiation process within 30 days of receipt of such notice, this Agreement will be extended automatically as if such notice was not given.  

2.Terms of Employment.

(a)Position and Duties.

(i)During the Employment Period, or any Additional Employment Period, the Executive shall serve as the Chief Financial Officer and an Executive Vice President of the Company and, in so doing, shall report tothe Chief Executive Officer of the Company.  The Executive shall have supervision and control over, and responsibility for, such management and operational functions of the Company currently assigned to such positions, and shall have such other powers and duties (including holding officer positions with one or more subsidiaries of the Company) as may from time to time be prescribed by the Board of Directors of the Company (the “Board”), so long as such powers and duties are reasonable and customary for the Chief Financial Officer of an enterprise comparable to the Company.

(ii)During the Employment Period, or any Additional Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full business time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully

US 6534781

and efficiently such responsibilities. During the Employment Period, or any Additional Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, or (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement.

(b)Compensation.

(i)Base Salary.  During the Employment Period, or any Additional Employment Period, the Executive shall receive an annual base salary of$530,000 (the “Annual Base Salary”), which shall be paid on a semi-monthly basis in accordance with the customary payroll terms, conditions and practices of the Company. During the Employment Period, or any Additional Employment Period, the Annual Base Salary may be reviewed and may be increased from time to time in accordance with the compensation practices and guidelines of the Company for its executives.  Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.  The term Annual Base Salary as utilized in this Agreement shall refer to the Executive’s Annual Base Salary as so increased.  The Executive will be eligible for an increase in Annual Base Salary beginning 2020 on the same basis as other executive officers of the Company.

(ii)Bonus.  In addition to Annual Base Salary, the Executive shall be eligible to receive during the Employment Period, or any Additional Employment Period, an annual bonus (the “Bonus”), such Bonus to be awarded only upon the Company’s attainment of certain milestones to be determined by the Board (or a committee of the Board).  The Bonus, if any, shall be payable annually to the Executive consistent with the practices for executives of the Company.  The Executive’s target bonus (“Target Bonus”) will be 40% of the Executive’s Annual Base Salary. Additionally, the Executive will receive a sign-on bonus of $150,000, payable at the time of the Executive’s first salary payment.  Bonus payments will be less all required withholding taxes and any other amounts required by law to be deducted.  The Target Bonus for 2019 will be pro-rated based on months of service.

(iii)Incentive, Savings and Retirement Plans.  During the Employment Period, or any Additional Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company (the “Investment Plans”).

(iv)Welfare Benefit Plans.  During the Employment Period, or any Additional Employment Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs (the “Welfare Plans”) provided generally to other executives of the Company.  In the event of a Change in Control, for a period of two years following the occurrence of the Change in Control, the Company, or its successor, will continue to provide the Executive and/or the Executive’s family, as the case may be,

2

benefits that are not materially diminished, taken as a whole, from the benefits provided to the Executive and/or the Executive’s family, as the case may be, under the Welfare Plans in effect immediately prior to the Change in Control.  

(v)Expenses.  During the Employment Period, or any Additional Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive on behalf of the Company in accordance with the policies, practices and procedures of the Company, which provide an objectively determinable nondiscretionary definition of the expenses eligible for reimbursement.    

(vi)Vacation and Holidays.  During the Employment Period, or any Additional Employment Period, the Executive shall be entitled to paid vacation and paid holidays in accordance with the plans, policies, programs and practices of the Company for its executives.

(vii)Equity Grants.  On August 28, 2019, the Company shall grant to the Executive (1) an option to purchase 250,000 shares of the Company's Class B common stock (“Stock”) at a per share exercise price equal to the closing sales price of the Company's Class A common stock (“Class A Stock”) on NASDAQ on August 28, 2019 (the “Time-Vested Option”), (2) an option to purchase 50,000 shares of Stock at a per share exercise price equal to the closing sales price of the Class A Stock on NASDAQ on August 28, 2019 (the “Performance-Based Option”), and (3) 50,000 performance-based restricted stock units for Stock (the “RSUs”). The Time-Vested Option will vest over a period of four years, with 25% of the shares vesting on August 28, 2020, and with the remaining shares vesting in equal amounts quarterly thereafter. One half of the Performance-Based Option and one half of the RSUs will vest on the day prior to the expiration date that a Form 10-K or Form 10-Q, as applicable, is filed reflecting that, in the immediately preceding calendar quarter and any prior periods, cumulatively, the Company (plus any Spin Co (as hereinafter defined) or any Acquiring Co (as hereinafter defined)) booked $100 million or more of gross product sales revenue, including royalty revenue based on product sales. The remaining one half of the Performance-Based Option and remaining one half of the RSUs will vest on the day prior to the expiration date that a Form 10-K or Form 10-Q, as applicable, is filed reflecting that, in the immediately preceding calendar quarter and any prior periods, cumulatively, the Company (plus any Spin Co or any Acquiring Co) booked $200 million or more of gross product sales revenue, including royalty revenue based on product sales. The determination of a Spin Co’s or an Acquiring Co’s revenue shall be based on the latest financial information available to the Company.  “Spin Co” shall mean any company the equity of which had previously been distributed to the stockholders of the Company, but any revenue calculations with respect to Spin Co shall only be made with respect to  assets owned by Spin Co at the time of such distribution of equity. “Acquiring Co” shall mean any company to which the Company sells or licenses a compound  which is or has been subject to a phase 3 or pivotal clinical trial that is being conducted, or has been completed, by the Company (including a compound which has been approved for marketing and sale), but any revenue calculations with respect to an Acquiring Co shall (1) only be made with respect to compounds sold or licensed to Acquiring Co by the Company and (2) be reduced by any royalty revenue based on product sales booked by the Company with respect to compounds sold or licensed to the Acquiring

3

Co by the Company.The expiry period of the Time-Vested Option, the Performance-Based Option, and the RSUs is 10 years from the date of grant. Subject to the terms of Section 4 of this Agreement, in the event the Executive’s employment with the Company terminates, either voluntarily or involuntarily, any unvested Time-Vested Option, Performance-Based Option, or RSUs shall be forfeited upon the employment termination date. The RSUs will settle (i.e., the Executive will receive shares of Stock) within 45 days of vesting of the RSUs.  At the Executive’s election, at the time of vesting of the RSUs, the Executive may pay the required withholding taxes by having the Company withhold shares of Stock equal in value to the amount of required withholding taxes.  For the avoidance of doubt, any portion of the Performance-Based Options or RSUs that have not vested prior to the expiration date will be forfeited.  The Executive will be eligible for a grant of equity awards at the end of 2019 on the same basis as other executive officers of the Company.

(viii)Relocation Expenses.  The Company shall provide reimbursement to the Executive of customary and reasonable expenses associated with the relocation of the Executive’s household to the Dallas area. These expenses shall include (a) for the selling of the Executive’s existing home: realtors fees, title insurance,  inspection fees, transfer taxes, appraisals, and taxes associated with documentation filings; (b) packing, transportation, insurance, storage and  unpacking of the Executive’s personal possessions to the Executive’s new home; and (c) for the purchase of the Executive’s new home: title insurance, inspection fees, transfer and documentation taxes, and loan origination fees not to exceed one percent of your mortgage.  Presentation of proper evidence of expenses incurred will be required for reimbursement of the Executive’s relocation expenses and, once submitted, will be reimbursed within thirty (30) days following such submission. A payment to "gross up" reimbursed expenses will be made at the same time as such reimbursement to offset federal and other taxes deemed to be imposed on such reimbursement using the same tax rate assumptions specified in Section 4(g) for any component of the relocation that is considered taxable per IRS regulations. The Company shall reimburse the Executive for relocation costs up to a maximum of $260,000 (before "gross up" for federal income taxes).  The Company shall make available to the Executive a full-service relocation service. In addition, the Company shall reimburse the Executive for the cost of up to three (3) house hunting trips for the Executive and the Executive’s family, including airfare, hotel, meal costs and the cost of a rental vehicle, which reimbursement shall not be included in the calculation of, or subject to, the $260,000 limitation above. The relocation assistance described in this Section 2(b)(viii) will be paid for expenses incurred through July 2021, though extension of this period is available upon request under special circumstances. Any such extension will be documented in writing.

(ix)Temporary Living Expenses.  In addition to any payments made to the Executive pursuant to Section 2(b)(viii), the Company shall provide the Executive with up to eighteen (18) months temporary accommodation in a serviced apartment (not to include food costs).  The Company shall reimburse the Executive for the Executive’s transportation costs for reasonable commuting to return to the Executive’s family home during the period of temporary accommodation. Presentation of proper evidence of expenses incurred will be required for reimbursement of the Executive’s temporary living expenses and, once submitted, will be reimbursed within thirty (30) days following such submission.

4

3.Termination of Employment.

(a)Death or Disability.  The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period, or any Additional Employment Period.  If a Disability (as defined below) of the Executive has occurred during the Employment Period, or any Additional Employment Period, and subject to Executive’s rights, if any, under the Family Medical Leave Act, Americans with Disabilities Act or similar local, state or federal law, the Company may give to the Executive written notice of its intention to terminate the Executive’s employment.  In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided, that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties.  For purposes of this Agreement, “Disability” shall mean that the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.  

(b)Cause.  The Company may terminate the Executive’s employment during the Employment Period, or any Additional Employment Period, for Cause or without Cause.  For purposes of this Agreement, “Cause” shall mean:

(i)commission by the Executive of an act of fraud upon, or willful misconduct toward, the Company;  

(ii)a material breach by the Executive of the noncompetition provisions of Section 5 or of the Employee Confidentiality, Nondisclosure, Intellectual Property and Nonsolicitation Agreement described in Section 6;

(iii)the conviction of the Executive of any felony (or a plea of nolo contendere thereto); or

(iv)the Executive’s addiction to alcohol, drugs or any other controlled substance.

Upon the occurrence of any event described in Section 3(b), the Company may terminate Executive’s employment hereunder for Cause by giving Executive a Notice of Termination to that effect as provided in Section 3(d) within 30 days after the occurrence of the event giving rise to Cause that specifies the date of Executive’s termination (which may be the date the Notice of Termination is delivered) and describes in reasonable detail the facts or circumstances giving rise to the Company’s right to terminate Executive’s employment for Cause (and, if applicable, the action required to cure same). If the effect of the occurrence of the event described in Section 3(b) may be cured, Executive shall have the opportunity to cure any such effect for a period of 30 days following receipt of the Company’s Notice of Termination. If, within 30 days following Executive’s receipt of a Notice of Termination for Cause, (A) Executive delivers written notice to the Company denying that Cause exists, the question of the existence or nonexistence of Cause will be subject to the dispute resolution procedure set forth in Section 9(f); or (B) Executive has not cured the facts or circumstances giving rise to the Company’s right to terminate Executive’s employment for Cause and shall not have delivered a notice pursuant to clause (A) herein, then

5

Executive’s termination for Cause shall be effective as of the date specified in the Company’s Notice of Termination (which date may not be earlier than the date the Notice of Termination is delivered to Executive). If the Company does not give a Notice of Termination to Executive within 30 days after learning of the occurrence of an event giving rise to Cause, then this Agreement will remain in effect,and Executive may not be terminated for Cause based on the occurrence of the event that gave rise to Cause; provided, however, that the failure of the Company to terminate the Executive’s employment for Cause shall not be deemed a waiver of the Company’s right to terminate Executive’s employment for Cause upon the occurrence of a subsequent event described in Section 3(b) in accordance with the terms of this Agreement. Notwithstanding the foregoing, the right of the Company to terminate Executive’s employment for Cause under this Section 3(b) shall not limit Executive’s right to terminate his employment for Good Reason under Section 3(c) if Good Reason is determined to exist prior to the time Cause is determined to exist.

(c)Good Reason.  The Executive’s employment may be terminated during the Employment Period, or any Additional Employment Period, by the Executive for Good Reason or without Good Reason.  For purposes of this Agreement, “Good Reason” shall mean, without the express written consent of the Executive, the occurrence of any of the following:

(i)a material diminution in the Executive’s base compensation;

(ii)a material diminution in the Executive’s authority, duties or responsibilities; provided, however, following a Change in Control, the Executive’s authority, duties and responsibilities shall be deemed to have been materially diminished (even though his authority, duties and responsibilities have not actually been materially diminished) if, during the two-year period after the Change in Control, (1) the Executive is not serving as the Chief Financial Officer and an Executive Vice President of the Company or its successor, or (2), if the Company or its successor is not the ultimate parent company after a Change in Control, the Executive is not serving as the Chief Financial Officer and an Executive Vice President of the ultimate parent company;

(iii)a material diminution in the authority, duties or responsibilities of the supervisor to whom the Executive is required to report; provided, however, that a change in the person to whom the Executive shall report pursuant to Section 2(a)(i) shall not be or constitute Good Reason;

(iv)a material diminution in the budget over which the Executive retains authority;

(v)a change in the geographic location at which the Executive must perform services of more than 50 miles in radius from such location as of the date of this Agreement; or

(vi)any other action or inaction that constitutes a material breach by the Company of this Agreement.    

6

In the case of the Executive’s allegation of Good Reason, (A) the Executive shall provide notice to the Company of the event alleged to constitute Good Reason within 90 days after the occurrence of such event (such notice the “Notice of Good Reason,”) and (B) the Company shall have the opportunity to remedy the alleged Good Reason event within 30 days after receipt of notice of such allegation (the “Cure Period”).  If, within the Cure Period, the Company delivers written notice to the Executive denying that Good Reason exists, the question of the existence or nonexistence of Good Reason will be subject to the dispute resolution procedure set forth in Section 9(f).  In the event the Company has not cured the facts or circumstances giving rise to the Executive’s right to terminate the Executive’s employment for Good Reason during the Cure Period and shall not have delivered a notice pursuant to the preceding sentence, then the Executive’s employment hereunder will be terminated for Good Reason on the 31^st day following the Cure Period.  If the Executive does not give a Notice of Good Reason to the Company within 90 days after learning of the occurrence of an event giving rise to Good Reason, then this Agreement will remain in effect,and Executive may not terminate his employment for Good Reason based on the occurrence of the event that gave rise to Good Reason; provided, however, that the failure of the Executive to provide a Notice of Good Reason or terminate the Executive’s employment for Good Reason shall not be deemed a waiver of the Executive’s right to terminate the Executive’s employment for Good Reason upon the occurrence of a subsequent event described in Section 3(c) in accordance with the terms of this Agreement.  Notwithstanding anything to the contrary contained herein, any isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive shall not be or constitute Good Reason.

(d)Notice of Termination.  Any termination by the Company for Cause or without Cause, or by the Executive for Good Reason or without Good Reason, shall be communicated by a Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) other than with respect to a termination by the Executive for Good Reason, if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date, except for a termination of Executive’s employment due to a Disability, shall not be more than 15 days after the giving of such notice or the date the applicable cure period expires, whichever is later).  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e)Date of Termination.  “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive without Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, (ii) if the Executive’s employment is terminated by the Executive for Good Reason, the 31^st day following receipt by the Company of the Notice of Good Reason (provided the Company does not otherwise remedy the alleged Good Reason event within the Cure Period), (iii) if the Executive’s employment is terminated by the Company without Cause, the date on which the Company notifies

7

the Executive of such termination (unless a later date is specified in the Notice of Termination, in which case the Executive’s employment will be terminated on such later date), and (iv) if the Executive dies or incurs a Disability, the date of death of the Executive or the Disability Effective Date, as the case may be.  If the Executive is a member of the Board, any continuation of the Executive’s service to the Company as a member of the Board on or after the Executive’s termination of employment shall not result in any deferral of the Date of Termination.  

4.Obligations of the Company upon Termination.

(a)Termination by the Company for Cause or by the Executive other than for Good Reason.  If, during the Employment Period, or any Additional Employment Period,  the Executive’s employment with the Company is terminated by the Company for Cause or by the Executive other than for Good Reason (and not due to death or Disability), the Company shall have no further payment obligations to the Executive or his legal representatives under this Agreement, other than for:

(i)to the extent not theretofore paid, the sum of (w) the Executive’s Annual Base Salary earned through the Date of Termination, (x) the Bonus for the fiscal year ending immediately prior to the Date of Termination, (y)  compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), and (z) any accrued and unused vacation pay through the Date of Termination (the “Accrued Obligations”), which sum shall be paid within 15 days following the Date of Termination; and

(ii)to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive’s family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive’s family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company (“Other Benefits”).

(b)Death or Disability prior to, or more than two years after, a Change in Control.  Upon the Executive’s death or Disability during the Employment Period, or any Additional Employment Period, but prior to the occurrence of a Change in Control or more than two years after the occurrence of a Change in Control, the Company shall have no further payment obligations to the Executive or his legal representatives under this Agreement, other than for (i) payment of the Accrued Obligations (within 15 days following the Date of Termination) and Other Benefits; (ii) payment of a lump sum cash amount equal to the Executive’s current Annual Base Salary, payable on the next payroll date immediately following the eighth day following the delivery to the Company of a properly executed Release in accordance with Section 4(f) of this Agreement;  (iii) Welfare Benefit Continuation as defined, and pursuant to the terms and in the manner described, in Section 4(d)(ii) up to the 12 month, rather than the 24 month, anniversary of the Date of Termination; and (iv) subject to Section 4(f), all equity awards granted by the Company to, or otherwise held by, the Executive shall immediately vest in full and any repurchase provisions (other than fair market value repurchase provisions) shall lapse and may be exercised and/or settled in accordance with the terms of the applicable plan or award agreement; provided, however, the Executive may elect, and the Company will allow, the payment of the exercise price of any outstanding stock options, and the satisfaction of any required tax withholding with respect to any outstanding stock option or other equity award, through the withholding of shares otherwise issuable to the Executive pursuant to the stock option or other equity award.

8

(c)Certain Terminations more than six months prior to, or more than two years after, a Change in Control by the Company other than for Cause or by Executive for Good Reason.  If, during the Employment Period, or any Additional Employment Period, but more than six months  prior to, or more than two years after, the occurrence of a Change in Control, the Executive’s employment with the Company is terminated by the Company for any reason other than for Cause(and not due to death or Disability) or by the Executive for Good Reason, the Executive will be entitled to (i) the Accrued Obligations and Other Benefits, payable in accordance with Section 4(a)(i) and (ii), (ii) subject to Sections 4(f) and (h), a lump sum cash amount equal to the Executive’s current Annual Base Salary, payable on the next payroll date immediately following the eighth day following the Executive’s delivery to the Company of a properly executed Release in accordance with Section 4(f) of this Agreement, and (iii) Welfare Benefit Continuation as defined, and pursuant to the terms and in the manner described, in Section 4(d)(ii) up to the 12 month, rather than the 24 month, anniversary of the Date of Termination. Subject to Section 4(f), and notwithstanding the provisions of Section 2(b)(vii) or the provisions of any applicable plan or agreement, the Performance-Based Option and the RSUs shall immediately vest at the Date of Termination to the same extent as to which the Time-Vested Option shall have been vested at the Date of Termination, and such vested Performance-Based Option and RSUs may be exercised or settled in accordance with the terms of this Agreement and the applicable plan or award agreement. In addition, notwithstanding the provisions of any applicable plan or agreement and subject to Section 4(f), equity awards held by the Executive that otherwise would have been forfeited will continue to remain outstanding, unvested (and will not continue vesting) and subject to forfeiture for a period of six months following the Date of Termination (such equity awards, the “Unvested Equity Awards”).  If a Change in Control occurs during such six month period the Unvested Equity Awards will vest in accordance with Section 4(d)(v).  If a Change in Control does not occur during such six month period, the Unvested Equity Awards will be forfeited immediately following such six month period. The Executive may elect, and the Company will allow, the payment of the exercise price of any outstanding vested stock options, and the satisfaction of any required tax withholding with respect to any vested outstanding stock option or other equity award, through the withholding of shares otherwise issuable to the Executive pursuant to the stock option or other equity award.

(d)Certain Terminations within six months prior to, or within two years following, a Change in Control.  In the event that the Executive’s employment is terminated  by the Company for any reason other than Cause or by the Executive for Good Reason or the Executive dies or incurs a Disability, in each case, during the Employment Period, or any Additional Employment Period, and such termination occurs within six months prior to (excluding death or Disability), or within two years after, a Change in Control, the following provisions shall apply and Sections 4(b) and (c) shall not be applicable until Section 4(d) is no longer applicable:  

(i)The Company shall pay to the Executive (A) the Accrued Obligations within 15 days following the Date of Termination, and (B) subject to Sections 4(f) and 4(h), a lump sum cash amount equal to two times the Executive’s then current Annual Base Salary, such sum to be paid on the next payroll date immediately following the eighth day following the Executive’s delivery to the Company of a properly executed Release in accordance with Section 4(f) of this Agreement.

9

(ii)Until the earlier to occur of (A) the 24 month anniversary of the Date of Termination or (B) the Executive’s acceptance of full-time employment with another entity, the Company shall continue benefits provided under Welfare Plans to the Executive and/or the Executive’s family at least equal to those that would have been provided to them if the Executive’s employment had not been terminated (“Welfare Benefit Continuation”) pursuant to an in-kind benefit arrangement that satisfies the requirements of Treasury Regulation § 1.409A-3(i)(1)(iv)(A), and the Company-provided costs of such Welfare Benefit Continuation will be imputed as income to the Executive and reported on Form W-2; provided, that in the event the Company is unable to provide the Welfare Benefit Continuation under its Welfare Plans or to the extent such Welfare Benefit Continuation would subject the Company to negative tax consequences, the Company will reimburse the Executive for amounts necessary to enable the Executive to obtain similar benefits, and any such reimbursement will be made in accordance with the provisions of Treasury Regulation § 1.409A-3(i)(1)(iv).  Such Welfare Benefit Continuation provided in this Section 4(d)(ii) is in addition to any rights Executive may have to continue such coverages under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).  The COBRA continuation period shall begin on the day following the end of the Welfare Benefit Continuation period provided in this Section 4(d)(ii).

(iii)Subject to Section 4(f), notwithstanding the provisions of any applicable plan or agreement, all equity awards granted by the Company to, or otherwise held by, the Executive shall immediately vest in full and any repurchase provisions (other than fair market value repurchase provisions) will lapse and such awards may be exercised and/or settled in accordance with the terms of the applicable plan or award agreement; provided, however, the Executive may elect, and the Company will allow, the exercise of any outstanding stock options, and the satisfaction of any required tax withholding with respect to any outstanding stock option or other equity award, through the withholding of shares otherwise issuable to the Executive pursuant to the stock option or other equity award.  

(iv)To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive’s family the Other Benefits.

(v)If the Executive’s employment is terminated within six months prior to a Change in Control and the provisions of Section 4(d) apply, but the provisions of Section 4(b) or 4(c) were initially applied, then, subject to Section 4(f), upon the Change in Control, the Company shall pay, no later than the first payroll date following such Change in Control, additional payments and provide additional benefits and vesting in order to provide the Executive the payments, benefits and vesting as set forth in Section 4(d). The post employment exercise period for stock options under the Equity Documents shall be measured from the date of the Change in Control.

(e)In addition, upon a Change in Control, if the Executive’s employment with the Company (or its successor) continues following the Change in Control, any outstanding equity awards that are not vested on the date of the Change in Control shall become vested and, as applicable, exercisable with respect to one-eighteenth of all such unvested equity awards on the one month anniversary of the Change in Control and thereafter with respect to an additional one-

10

eighteenth of all unvested equity awards at the time of the Change in Control on each subsequent month anniversary of the Change in Control such that the equity awards will be 100% vested and, as applicable, exercisable on the eighteen month anniversary of the Change in Control; provided, however, that if 100% of the equity awards would otherwise become vested pursuant to the vesting rules stated above or in the Equity Documents prior to the eighteen month anniversary of the date of the Change in Control, then the equity awards will become vested and, as applicable, exercisable in accordance with such vesting rules or Equity Documents.  For purposes of this Agreement, “Change in Control” means the occurrence of any of the following events:

(i)The Company is not the surviving entity in any merger or consolidation (or survives only as a subsidiary of an entity other than a previously wholly owned subsidiary of the Company) and as a result of such merger or consolidation, stockholders of the Company immediately prior to such merger cease to own more than 50% of the outstanding capital stock of the surviving corporation determined on a fully diluted basis;  

(ii)The Company sells, leases, or exchanges or agrees to sell, lease, or exchange more than 50% of its assets to any other person or entity (other than a wholly owned subsidiary of the Company);

(iii)The Company is to be dissolved and liquidated (in a dissolution taxed under Section 331 of the Internal Revenue Code of 1986, as amended (the “Code”));

(iv)Any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote), directly, by merger or otherwise,  of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power) and as a result of such acquisition, the stockholders holding a majority of the capital stock of the Company receive cash or marketable securities for their shares of capital stock; or

(v)As a result of or in connection with a contested election of directors, the persons who were directors before such election will cease to constitute a majority of the Board.

Notwithstanding the foregoing definition of Change in Control (other than clause (iii) of such definition), a Change in Control shall only be deemed to occur upon a “change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company” under Section 409A of the Code.

(f)Release.  Notwithstanding any other provision in this Agreement to the contrary, in consideration for receiving the accelerated vesting described in Sections 4(b) or 4(d) and the payments described in Section 4(b)(ii), Section 4(c)(ii) or Section 4(d)(i)(B), the Executive hereby agrees to execute (and not revoke) a release agreement in the form attached hereto as Exhibit A (the “Release”) within 60 days of the Date of Termination.  If the Executive fails to properly execute and timely deliver the Release (or revokes the Release), the Executive agrees that the Executive shall not be entitled to receive the accelerated vesting described in Sections 4(b) or

11

4(d) and the payments described in Section 4(b)(ii), Section 4(c)(ii) orSection 4(d)(i)(B).  For purposes of this Agreement, the Release shall be considered to have been executed by the Executive if it is signed by the Executive’s legal representative (in the case of the Executive’s incapacity due to physical or mental illness) or on behalf of the Executive’s estate (in the case of the Executive’s death).  

(g)Gross-Up for Certain Taxes.  In the event that it is determined that any payment (other than the Gross-Up payment provided for in this Section 4(g)) or distribution by the Company (or any of its Affiliates) to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered “contingent on a change in ownership or control” of the Company, within the meaning of Section 280G of the Code or any successor provision thereto (such tax being hereafter referred to as the “Excise Tax”), then the Executive will be entitled to receive an additional payment or payments (a “Gross-Up Payment”).  The Gross-Up Payment will be in an amount such that, after payment by the Executive of all taxes, penalties and interest, including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.  For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (A) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (B) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes.  The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to in this Section 4(g) will be made at the expense of the Company by the Company’s regular independent accounting firm (the “Accounting Firm”), which shall provide detailed supporting calculations.  Any determination by the Accounting Firm will be binding upon the Company and the Executive.  The Gross-Up Payment will be paid to the Executive as soon as administratively practicable following the later of (i) the date Executive is required to pay the excise tax imposed by Section 4999 of the Code, or (ii) in the event the Executive is determined, in accordance with the methods specified in the regulations issued under Section 409A of the Code, to be a “specified employee” (within the meaning of Section 409A(a)(2)(B)(i) of the Code) of the Company at the time of the Executive’s “separation from service” (within the meaning of Section 409A(a)(2)(A)(i) of the Code and the applicable regulations and administrative guidance issued thereunder), the first day of the seventh month after the date of the Executive’s “separation from service” or, if earlier, the date of death of Executive.  In the event that the Excise Tax is later determined by the Accounting Firm or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the Gross-Up Payment at the time the payment is made under this Section 4(g) (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of such payment), the Company shall make an additional payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined.  In the event that the Excise Tax is subsequently determined by the Accounting Firm or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the Gross-Up Payment at the time payment is

12

made under this Section 4(g), the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior payment that would not have been paid if such Excise Tax had been applied in initially calculating such payment, plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code.  Notwithstanding the foregoing, in the event that any portion of the payment made hereunder that is to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion.  The Gross-Up Payment will be made in a manner that complies with Treasury Regulation § 1.409A-3(i)(1)(v).  

(h)Specified Employee Provisions.  For purposes of determining the time of payment of any severance payable pursuant to Section 4(b)(ii), Section 4(c)(ii) and Section 4(d)(i)(B), and the timely return of the Release in accordance with Section 4(f), the Date of Termination shall be the date that the Executive incurs a “separation from service” within the meaning of Treasury Regulation § 1.409A-1(h).  To the extent the Executive’s “separation from service” is within the 60 day period ending on December 31 of any calendar year, the severance payable pursuant to Section 4(b)(ii), Section 4(c)(ii) and Section 4(d)(i)(B) will be paid no earlier than the first business day of the following calendar year.  In the event the Executive is determined, in accordance with the methods specified in the regulations issued under Section 409A of the Code, to be a “specified employee” (within the meaning of Section 409A(a)(2)(B)(i) of the Code) of the Company at the time of the Executive’s “separation from service” (within the meaning of Section 409A(a)(2)(A)(i) of the Code and the applicable regulations and administrative guidance issued thereunder) then, in-lieu of providing Welfare Benefit Continuation pursuant to this Section 4 with respect to benefits that would not constitute medical expenses deductible under section 213 of the Code (disregarding the requirement of section 213(a) of the Code that the deduction is available only to the extent that such expenses exceed 7.5 percent of adjusted gross income) (“Non-Medical Continuation Benefits”), during the six month period following Executive’s “separation from service,” the Company shall pay to the Executive an amount equal to the Company-provided costs of such Non-Medical Continuation Benefits in a single lump sum payment on the first day of the seventh month following the Executive’s “separation from service.”  Nothing in this Section 4(h) will impact the obligation of the Company to provide Welfare Benefit Continuation as provided in this Section 4 with respect to Welfare Benefits other than Non-Medical Continuation Benefits or to provide Non-Medical Continuation Benefits following the six month period following Executive’s “separation from service.”  This Section 4(h) will have no effect with respect to benefits payable pursuant to this Agreement due to the Executive’s Disability.  

5.Restrictive Covenants.

(a)Confidential Information; Assignment of Rights to Intellectual Property.  

(i)The Executive hereby recognizes and acknowledges that the business of the Company and its Affiliates is highly competitive and that certain information related to their business, including, without limitation, their plans, strategies, research and development, testing methods, clinical trial results, costs, prices, business methods, customer names and needs, prospect names and needs, names of referral sources,

13

identity of contact persons, marketing plans, reports, manuals, methods, costing procedures, information relating to the services provided, developed, used or in the process of development, their services, customer-related lists and other customer information, formatting and programming concepts and plans, computer programs, simulations, data bases, pricing policies, financial information, methods of doing business, policy and/or procedure manuals, training and recruiting procedures, accounting procedures, the status and content of their contracts with their customers, the identity and performance of their employees, their business philosophy, and servicing methods and techniques at any time used, developed, or investigated by them, which are not generally known by or available to the public or which are maintained as confidential by them, comprises confidential or proprietary business information that is a valuable, special, and unique asset of the Company and its Affiliates, that such confidential or proprietary information has been developed through their expenditure of substantial time and money, and that all such confidential or proprietary information could be used by the Executive and others to compete unfairly with them (all such information is jointly referred to herein as “Confidential Information and Trade Secrets”).  The Executive hereby agrees that the Confidential Information and Trade Secrets shall constitute trade secrets, and further agrees not to use or disclose such information except as required to do so by subpoena or other legal process (after the Company has been given reasonable notice and opportunity to seek relief from such subpoena or other legal process). The Executive also agrees to maintain in confidence any confidential or proprietary information of third parties that theExecutive received during the course of and as a result of theExecutive’s employment with the Company and its Affiliates.  No information otherwise in the public domain (other than by an act of the Executive in violation hereof) shall be considered Confidential Information and Trade Secrets.  The Executive understands that the restrictions set forth in this Section 5(a)(i) shall continue to apply following the Executive’s termination of employment with the Company, regardless of the reason for such termination.

(ii)All documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company and any copies, in whole or in part, thereof (“Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company.  The Executive shall safeguard all Documents and shall surrender to the Company all Documents in Executive’s possession or control at the time Executive’s employment terminates, or at such earlier time or times as the Company may specify.  

(iii)The Executive shall promptly and fully disclose all Intellectual Property to the Company.  “Intellectual Property” means all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, that are conceived, developed, made or acquired by the Company, either individually or jointly with others, and that relate to the past, present or anticipated business of the Company, irrespective of whether the Executive utilized the Company’s time or facilities and irrespective of whether such information, ideas, concepts, improvements, discoveries and inventions were conceived, developed, discovered or acquired by the Executive on the job, at home or elsewhere.  The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) Executive’s full right, title and interest in and to all Intellectual Property.  The Executive

14

agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights (including, without limitation, the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property.  The Executive will not charge the Company for time spent in complying with any such obligation to execute.  The Executive will, at the Company’s expense, take such other actions as the Company may reasonably request to so assign or enforce such Intellectual Property.  All copyrightable Intellectual Property that Executive created during Executive’s employment is considered “work made for hire.”

(b)Non-Competition; Non-Solicitation.

(i)The Company hereby makes a binding promise not conditioned upon continued employment to provide the Executive with Confidential Information and Trade Secrets above and beyond any Confidential Information and Trade Secrets the Executive may have previously received.  In order in part to protect the Confidential Information and Trade Secrets, and as part of the consideration for the payments described in Section 4 of this Agreement, the Company and the Executive agree to the provisions of this Section 5(b).  As a part of the employment relationship, the Executive learned of and the Company disclosed to the Executive Confidential Information and Trade Secrets.  Accordingly, the Executive hereby agrees that, for one year after the Executive ceases to provide services to the Company, the Executive will not:

A.directly or indirectly, individually or as an officer, director, employee, stockholder, consultant, contractor, partner, joint venturer, agent, equity owner or in any capacity whatsoever, (1) engage in any Competing Business (as hereinafter defined) or (2) divert or take away any customers of the Company or its Affiliates.  Notwithstanding the foregoing, the Company agrees that the Executive may own less than five percent of the outstanding voting securities of any publicly traded company that is a Competing Business so long as the Executive does not otherwise participate in such Competing Business in any way prohibited by the preceding clause;

B.use Executive’s access to, knowledge of, or application of Confidential Information and Trade Secrets to perform any duty for any Competing Business; it being understood and agreed to that this Section 5(b)(i)(B) shall be in addition to and not be construed as a limitation upon the covenants in Section 5(a);

C.directly or indirectly, for Executive or for others, recruit, solicit or induce any employee of the Company or its Affiliates to terminate his or her employment with the Company or its Affiliates, or hire or assist in the hiring of any such employee by a Person not affiliated with the Company or its Affiliates; or

15

D.induce or attempt to induce any customer, client, supplier, service provider, researcher, scientist or other business relation of the Company or its Affiliates to cease doing business with the Company or its Affiliates, or in any way interfere with the relationship between the Company and any such Person.

(ii)The restrictions in this Section 5(b) shall be in addition to any restrictions imposed upon the Executive by statute or at common law.

(iii)“Competing Business” means any business that researches, develops, manufactures, markets, licenses or sells (A) antioxidant inflammation modulators that target Keap 1 and activate Nrf2 or have similar mechanisms of action or (B) any other product, compound, or agent having the same or similar mechanisms of action as any product, compound or agent that is being actively developed, manufactured, marketed, licensed or sold by the Company at the Date of Termination.

(iv)“Affiliate” means, with respect to the Company or any other specified Person, any other Person directly or indirectly controlling, controlled by or under common control with the Company or such other specified Person, where control may be by management authority, equity interest or other means.

(v)“Person” means any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a limited liability company, a trust or other entity.

(c)Scope of Prohibited Activities.  The parties hereby acknowledge that the restrictions in this Section 5 have been specifically negotiated and agreed to by the parties hereto and are limited only to those restrictions necessary to protect the Company from unfair competition and to protect the Confidential Information and Trade Secrets and the business and goodwill of the Company and its Affiliates.  The parties hereby agree that if the scope or enforceability of any provision, paragraph or subparagraph of this Section 5 is in any way disputed at any time, and should a court find that such restrictions are overly broad, the court may modify and enforce the covenant to the extent that it believes to be reasonable under the circumstances.  Each provision, paragraph and subparagraph of the Section 5 is separable from every other provision, paragraph, and subparagraph and constitutes a separate and distinct covenant.  Nevertheless, the Executive agrees that the enforcement of the restrictions in this Section 5 would not cause the Executive any undue hardship or unreasonably interfere with Executive’s ability to earn a livelihood.  

(d)Non-Disparagement.  The Executive and the Company each agree to refrain from engaging in any conduct, or from making any comments or statements, which have the purpose or effect of harming the Executive’s reputation or goodwill, on the one hand, or the reputation or goodwill of the Company or any of its Affiliates, employees, directors or stockholders, on the other hand.

6.Full Settlement.  The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others.  In no event shall the Executive be obligated to seek other

16

employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. Neither the Executive nor the Company shall be liable to the other party for any damages in addition to the amounts payable under Section 4 hereof arising out of the termination of the Executive’s employment prior to the end of the Employment Period, or any Additional Employment Period; provided, however, that the Company shall be entitled to seek damages for any breach of the noncompetition provisions of Section 5 hereof or of the Employee Confidentiality, Nondisclosure, Intellectual Property and Nonsolicitation Agreement, dated August 28, 2019,by and between the Executive and the Company.

7.Successors.

(a)This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, pursuant to a Change in Control or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

8.Effect of Agreement on Other Benefits.  The existence of this Agreement shall not prohibit or restrict the Executive’s entitlement to full participation in the executive compensation, executive benefit and other plans or programs in which executives of the Company are eligible to participate.

9.Miscellaneous.

(a)This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive: Manmeet S. Soni

501 Dudley Road

Newton, MA 02459

17

If to the Company: Reata Pharmaceuticals, Inc.

2801 Gateway Drive, Suite 150

Irving, Texas 75063

Attention:  Chief Executive Officer

or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.

(c)If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.  Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

(d)The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e)The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or of any other provision or right of this Agreement.

(f)If any dispute arises out of this Agreement, the “complaining party” shall give the “other party” written notice of such dispute.  The other party shall have 10 business days to resolve the dispute to the complaining party’s satisfaction.  If the dispute is not resolved by the end of such period, either disputing party may require the other to submit to non-binding mediation with the assistance of a neutral, unaffiliated mediator.  If the parties encounter difficulty in agreeing upon a neutral unaffiliated mediator, they shall seek the assistance of the American Arbitration Association in the selection process.  If mediation is unsuccessful or if mediation has not commenced, in either case within 30 days after the other party received the notice of dispute, the complaining party may by written notice (the “Notice”) demand arbitration of the dispute as set out below, and each party hereto expressly agrees to submit to, and be bound by, such arbitration.

(i)Each party will, within 10 business days of the Notice, nominate an arbitrator, who shall be a non-neutral arbitrator.  Each nominated arbitrator must be someone experienced in dispute resolution and of good character without moral turpitude and not within the employ or direct or indirect influence of the nominating party.  The two nominated arbitrators will, within 10 business days of nomination, agree upon a third arbitrator, who shall be neutral.  If the two appointed arbitrators cannot agree on a third arbitrator within such period, the parties may seek such an appointment through any

18

permitted court proceeding or by the American Arbitration Association (“AAA”).  The three arbitrators will set the rules and timing of the arbitration, but will generally follow the rules of the AAA and this Agreement where same are applicable and shall provide for a reasoned opinion.

(ii)The arbitration hearing will in no event take place more than 180 days after the appointment of the third arbitrator.

(iii)The mediation and the arbitration will take place in Irving, Texas unless otherwise unanimously agreed to by the parties.

(iv)The results of the arbitration and the decision of the arbitrators will be final and binding on the parties and each party agrees and acknowledges that these results shall be enforceable in a court of law.

(v)All costs and expenses of the mediation and arbitration shall be born equally by the Company and the Executive.  The Arbitrator shall award the prevailing party its reasonable attorneys fees incurred in connection with the dispute.

(g)The Company and the Executive hereby agree that Sections 4, 5, 6, 7, 8 and 9, shall survive the expiration of the Employment Period, and any Additional Employment Period, in accordance with their terms.

(h)The parties hereto intend that any amounts payable hereunder comply with or are exempt from Section 409A of the Code (“Section 409A”) (including under Treasury Regulation §§ 1.409A-1(b)(4) (“short-term deferrals”) and (b)(9) (“separation pay plans,” including the exceptions under subparagraph (iii) and subparagraph (v)(D)) and other applicable provisions of Treasury Regulation §§ 1.409A-1 through A-6).  For purposes of Section 409A, each of the payments that may be made under this Agreement shall be deemed to be a separate payment for purposes of Section 409A.  This Agreement shall be administered, interpreted and construed in a manner that does not result in the imposition of additional taxes, penalties or interest under Section 409A.  The Company and the Executive agree to negotiate in good faith to make amendments to the Agreement, as the parties mutually agree are necessary or desirable to avoid the imposition of taxes, penalties or interest under Section 409A.  Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A. Notwithstanding any provision of this Agreement to the contrary, (A) the amount of expenses eligible to receive reimbursement or the in-kind benefits provided during any calendar year (including any applicable gross-up) shall not affect the amount of expenses for which the Executive is eligible to receive reimbursement or in-kind benefits provided during any other calendar year within the Employment Period, or any Additional Employment Period, (B) the reimbursement of expenses under this Agreement shall be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and (C) the Executive will not receive a payment or other benefit in lieu of reimbursement or an in-kind benefit under this Agreement.

19

(i)The parties hereto agree that, in the event of any conflict or inconsistency between this Agreement and the terms of any equity award agreement, this Agreement shall govern and shall supersede the terms of the equity award agreement. The parties hereto agree that, in the event of any conflict or inconsistency between this Agreement and the plan document governing any equity award, the terms of the plan document shall control and, if necessary, this Agreement shall be deemed amended so as to carry out the purpose and intent of the plan document.  In the event of any inconsistency between any provision of this Agreement and any provision of any employee handbook, personnel manual, program, policy, or arrangement of the Company or any of its Affiliates, or any provision of any agreement, plan, or corporate governance document of any of them (other than the terms of the plan document governing any equity award), the provisions of this Agreement shall control unless the Executive otherwise agrees in a signed writing that expressly refers to the provision whose control the Executive is waiving.  The Company agrees not to impose any restrictions, enforceable by injunction, on Executive’s post-employment activities, other than those expressly set forth in this Agreement.

(j)Each party hereto agrees with the other party hereto that it will cooperate with such other party and will execute and deliver, or cause to be executed and delivered, all such other instruments and documents, and will take such other actions, as such other party may reasonably request from time to time to effectuate the provisions and purpose of this Agreement.

(k)The provisions of this Agreement constitute the complete understanding and agreement among the parties with respect to the subject matter hereof.

(l)This Agreement may be executed in two or more counterparts.

(m)       The Executive understands, and the Company agrees, that nothing contained in this Agreement, or any other agreement between the Executive and the Company, limits the Executive’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). The Executive further understands, and the Company agrees, that this Agreement, and any other agreement between the Executive and the Company, does not limit the Executive’s ability to communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information to the Government Agency, without notice to the Company. The Executive further understands, and the Company agrees, that this Agreement, and any other agreement between the Executive and the Company, does not limit the Executive’s right to receive an award for information provided to any Government Agency.

The Executive may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. Further, if the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Company’s trade secrets to the attorney and use the trade secret information in the court proceeding if the Executive: (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order.

20

IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board, the Company has caused this Agreement to be executed in its name on its behalf, as of the date first written above.

EXECUTIVE

/s/ Manmeet S. Soni

Manmeet S. Soni

REATA PHARMACEUTICALS, INC.

By:   /s/ J. Warren Huff

J. Warren Huff

Chief Executive Officer

1

RELEASE

This Release (“Release”) is entered into between you, the undersigned employee, and Reata Pharmaceuticals, Inc., a Delaware corporation (the “Company”), in connection with the Employment Agreement between you and the Company dated as of _________, ____ (the “Employment Agreement”).  You have __days to consider this Release, which you agree is a reasonable amount of time.  In order to receive the consideration set forth in Section 2 below, you must return this Release to the Company on or before ____________, ____.

10.Definitions.

(a)“Released Parties” means the Company and its past, present and future parents, subsidiaries, divisions, successors, predecessors, employee benefit plans and affiliated or related companies, and also each of the foregoing entities’ past, present and future owners, officers, directors, stockholders, investors, partners, managers, principals, members, committees, administrators, sponsors, executors, trustees, fiduciaries, employees, agents, assigns, representatives and attorneys, in their personal and representative capacities.  Each of the Released Parties is an intended beneficiary of this Release.

(b)“Claims” means all theories of recovery of whatever nature, whether known or unknown, recognized by the law or equity of any jurisdiction.  It includes but is not limited to any and all actions, causes of action, lawsuits, claims, complaints, petitions, charges, demands, liabilities, indebtedness, losses, damages, rights and judgments in which you have had or may have an interest.  It also includes but is not limited to any claim for wages, benefits or other compensation; provided, however that nothing in this Release will affect your entitlement to any of the following, none of which shall be deemed to be a Claim: (i) benefits pursuant to the terms of any employee benefit plan (as defined in the Employee Retirement Income Security Act of 1974, as amended) sponsored by the Company in which you are a participant; (ii) outstanding equity compensation awards previously granted to you pursuant to any equity compensation plan sponsored by the Company (the “Equity Plan and Equity Awards”); (iii)to enforce your rights to receive the consideration set forth in Section 2 below and any other rights under the Employment Agreement; or (iv) indemnification and D&O insurance (as set forth in the Employment Agreement, any other agreement to which you and the Company are a party, or the charter or bylaws of the Company) (the “Indemnification Rights”).  The term Claims also includes but is not limited to claims asserted by you or on your behalf by some other person, entity or government agency.

11.Consideration.  The Company agrees to provide the accelerated vesting described in [Section 4(b)] [Section 4(d)] and to pay you the consideration set forth in [Section 4(b)(ii)] [Section 4(c)(ii)] [Section 4(d)(i)(B)] of the Employment Agreement.  The Company will make the payment(s) to you on the first pay date of the Company occurring at least eight (8) days following the date you sign this Release (and return it to the Company).  You acknowledge that any payment that the Company makes to you under this Release is in addition to anything else of value to which you are entitled and that the Company is not otherwise obligated to make such payment to you.

2

12.Release of Claims.

(a)You — on behalf of yourself and your heirs, executors, administrators, legal representatives, successors, beneficiaries, and assigns — unconditionally release and forever discharge the Released Parties from, and waive, any and all Claims that you have or may have against any of the Released Parties arising from your employment with the Company, the termination thereof, and any other acts or omissions occurring on or before the date you sign this Release.

(b)The release set forth in Paragraph 3(a) includes, but is not limited to, any and all Claims under (i) the common law (tort, contract or other) of any jurisdiction; (ii) the Rehabilitation Act of 1973, the Age Discrimination in Employment Act of 1967 and the Older Worker’s Benefit Protection Act of 1990, as amended, the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, and any other federal, state and local statutes, ordinances, employee orders and regulations prohibiting discrimination or retaliation upon the basis of age, race, sex, national original, religion, disability, or other unlawful factor; (iii) the National Labor Relations Act; (iv) the Employee Retirement Income Security Act; (v) the Family and Medical Leave Act; (vi) the Fair Labor Standards Act; (vii) the Equal Pay Act; (viii) the Worker Adjustment and Retraining Notification Act; and (ix) any other federal, state or local law.

(c)In furtherance of this Release, you promise not to bring any Claims against any of the Released Parties in or before any court or arbitral authority.

(d.)Nothing in this Release prevents you from filing any non-legally waivable claim with the Equal Employment Opportunity Commission (“EEOC”) or other federal, state or local agency or participating in (or cooperating with) any investigation or proceeding conducted by the EEOC or other federal, state or local agency; however, you understand and agree that you are waiving any and all rights to recover any monetary or personal relief or to obtain any other recovery as a result of such proceeding or subsequent legal action or any action pursued by any person or entity on your behalf.

13.Acknowledgment.  You acknowledge that, by entering into this Release, the Company does not admit to any wrongdoing in connection with your employment or termination, and that this Release is intended as a compromise of any Claims you have or may have against the Released Parties.  You acknowledge that you continue to be subject to the Employee Confidentiality, Nondisclosure, Intellectual Property and Nonsolicitation Agreement by and between you and the Company.

14.ADEA Rights.  You further acknowledge that:

(a)You have been advised that you have the right to seek legal counsel before signing this Release and you have had adequate opportunity to do so.  You warrant that you are executing this Release voluntarily and of your own free will, after having a reasonable period of time to review and deliberate regarding its meaning and effect.

(b)[You have been provided with, and attached to this Release as Annex A is, a listing of: (i) the job titles and ages of all employees selected for termination and offered a payment in exchange for entering into an agreement and release; (ii) the ages of all employees in

3

the same job classification or organizational unit who were not selected for termination and not eligible to receive a payment in exchange for entering into an agreement and release; and (iii) information about coverage, eligibility factors and time limits associated with such terminations and related agreements and releases.]  [To be included as applicable.]

(c)You have been given at least [___________] days to review this Release and you understand that if you do not accept this Release by returning an executed copy to the Company on or before ___________, ___, this offer will expire.

(d)You have seven (7) days after signing this Release to revoke it.  This Release will not become effective or enforceable until the revocation period has expired.  Any notice of revocation of the Release is effective only if received by the Chief Financial Officer, in care of the Company at 2801 Gateway Drive, Suite 150, Irving, Texas, 75063, in writing by the close of business at 5:00 p.m. Central Time on the seventh day after your signing of this Release.  If you revoke your acceptance of this Release pursuant to this Section 5(d), the Company will not provide you with any of the consideration described in Section 2 above and all other terms of this Release will become null and void.

15.Applicable Law.  This Release shall be construed and interpreted pursuant to the laws of the State of Texas without regard to its choice of law rules.

16.Severability.  Each part, term, or provision of this Release is severable from the others.  Notwithstanding any possible future finding by a duly constituted authority that a particular part, term, or provision is invalid, void, or unenforceable, this Release has been made with the clear intention that the validity and enforceability of the remaining parts, terms and provisions shall not be affected thereby.  If any part, term, or provision is so found invalid, void or unenforceable, the applicability of any such part, term or provision shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

17.Litigation Assistance and Cooperation.  You acknowledge and affirm that you may be a witness in litigation, arbitrations, government or other administrative proceedings involving the Company of which you have specific knowledge.  In connection therewith, you covenant and agree, upon reasonable prior notice and during normal business hours, to make yourself reasonably available to and otherwise reasonably assist and cooperate with the Company, and with its respective attorneys and advisors in connection with any such litigation, arbitrations, government or other administrative proceeding; provided, that, in connection with so making yourself available to, assisting or cooperating with such parties (i) the Company shall pay you a mutually agreeable per diem rate, bi-weekly in arrears, (ii) the Company shall bear, and reimburse you for, all out-of-pocket expenses reasonably incurred by you in connection with such services, and (iii) you shall not be required to devote an amount of time that would materially interfere with your other professional responsibilities or services provided to any other person or entity.

18.Other Agreements.  The Company and you acknowledge and agree that each party has continuing obligations to the other party under the Employment Agreement, the Indemnification Rights, and Equity Plan and Equity Agreements.  Accordingly, the Company and you acknowledge and agree that, to the extent expressly provided in each agreement, the Employment Agreement, Indemnification Rights and Equity Plan and Equity Agreements shall remain in full force and effect in accordance with their respective terms.

4

I ACKNOWLEDGE THAT I HAVE CAREFULLY READ THE FOREGOING AGREEMENT, UNDERSTAND ALL OF ITS TERMS, UNDERSTAND THAT IT CONTAINS A COMPLETE RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS, AND AM ENTERING INTO IT VOLUNTARILY.

Name:

Date:

Accepted and Agreed:

REATA PHARMACEUTICALS, INC.

By:

Name:

Title:

Date:

5

ANNEX A

ATTACHMENT TO SEVERANCE AGREEMENT AND GENERAL RELEASE OF CLAIMS

The decisional unit was all employees of Reata Pharmaceuticals, Inc. (the “Company”).  Employees were selected for termination on the basis of business necessity. All persons whose employment was selected for termination in conjunction with the current layoffs are eligible to receive a payment in exchange for entering into an agreement and release.

The following is a listing of employees (by job title and age) in the above-referenced decisional unit who have been selected for termination and offered a payment in exchange for entering into an agreement and release:

[INSERT LIST OF EMPLOYEES]

The above-selected employees must sign the agreement and release and return it to the Company within the 45-day period prescribed in the agreement and release if they wish to receive the payment set forth in the agreement and release.  For employees receiving this Exhibit, once the agreement is signed, the employee has 7 days to revoke the agreement.

The following is a listing of employees (by age) in the above-referenced decisional unit who have not been selected for termination and are not eligible for a payment in exchange for entering into an agreement and release:

[INSERT LIST OF EMPLOYEES]

6

EX-10.3

Exhibit 10.3

REATA PHARMACEUTICALS, INC.

SECOND AMENDED AND RESTATED

LONG TERM INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

This Agreement is made and entered into as of the Date of Grant set forth in the Notice of Grant of Restricted Stock Units (“Notice of Grant”) by and between Reata Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and you.

WHEREAS, the Company, in order to induce you to enter into and to continue and dedicate service to the Company and to materially contribute to the success of the Company, agrees to grant you this restricted stock unit award;

WHEREAS, the Company adopted the Reata Pharmaceuticals, Inc. Second Amended and Restated Long Term Incentive Plan, as it may be amended from time to time (the “Plan”), under which the Company is authorized to grant restricted stock units to certain employees, directors and other service providers of the Company and certain Affiliates;

WHEREAS, a copy of the Plan has been furnished to you and shall be deemed a part of this Restricted Stock Unit Agreement (“Agreement”) as if fully set forth herein, and the terms capitalized but not defined herein shall have the meanings set forth in the Plan or the Notice of Grant; and

WHEREAS, you desire to accept the restricted stock unit award made pursuant to this Agreement.

NOW, THEREFORE, in consideration of and mutual covenants set forth herein and for other valuable consideration hereinafter set forth, the parties agree as follows:

1.The Grant.  Subject to the conditions set forth below, the Company hereby grants you, effective as of the Date of Grant set forth in the Notice of Grant, an award consisting of an aggregate number of Restricted Stock Units as set forth in the Notice of Grant, whereby each Restricted Stock Unit represents the right to receive one share of Stock, plus the additional rights to Dividend Equivalents set forth in Section 3, in accordance with the terms and conditions set forth herein and in the Plan (the “Award”).  

2.No Shareholder Rights.  The Restricted Stock Units granted pursuant to this Agreement do not and shall not entitle you to any rights of a holder of Stock prior to the date shares of Stock are issued to you in settlement of the Award.  

3.Dividend Equivalents.  In the event that the Company declares and pays a dividend in respect of its outstanding shares of Stock and, on the record date for such dividend, you hold Restricted Stock Units granted pursuant to this Agreement that have not been settled, the Company will record the amount of such dividend in a bookkeeping account under your name. No later than 45 days following the Settlement Event set forth in the Notice of Grant, the Company will pay to you an amount in cash equal to the cash dividends accumulated in the

US 3645052v.2

bookkeeping account for that Restricted Stock Unit. For purposes of clarity, if the Restricted Stock Units are forfeited by you pursuant to the terms of this Agreement then you shall also forfeit the Dividend Equivalents, if any, accrued with respect to such forfeited Restricted Stock Unit.  No interest will accrue on the Dividend Equivalents between the declaration and settlement of the dividends.

4.Restrictions; Forfeiture.  The Restricted Stock Units are restricted in that they (i) may not be sold, transferred or otherwise alienated or hypothecated until these restrictions are removed or expire as contemplated in Section 6 of this Agreement and as described in the Notice of Grant and (ii) may be forfeited to the Company (the “Forfeiture Restrictions”).  Your rights with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which the Forfeiture Restrictions lapse.

5.Issuance of Stock.  No shares of Stock shall be issued to you prior to the Settlement Event, as set forth in your Notice of Grant.  After the Settlement Event, the Company shall, promptly and within 45 days of such Settlement Event, cause to be issued Stock registered in your name in payment of such vested Restricted Stock Units upon receipt by the Company of any required tax withholding.  The Company shall evidence the Stock to be issued in payment of such vested Restricted Stock Units in the manner it deems appropriate.  The value of any fractional Restricted Stock Units shall be rounded down at the time Stock is issued to you in connection with the Restricted Stock Units.  No fractional shares of Stock, nor the cash value of any fractional shares of Stock, will be issuable or payable to you pursuant to this Agreement.  The value of such shares of Stock shall not bear any interest owing to the passage of time.  Neither this Section 5 nor any action taken pursuant to or in accordance with this Section 5 shall be construed to create a trust or a funded or secured obligation of any kind.  

6.Expiration of Restrictions and Risk of Forfeiture. The restrictions on the Restricted Stock Units granted pursuant to this Agreement, including the Forfeiture Restrictions, will expire as set forth in the Notice of Grant, and shares of Stock that are nonforfeitable and transferable will be issued to you in payment of your vested Restricted Stock Units as set forth in Section 5, provided, subject to Section 31, that you remain in the employ of, or a service provider to, the Company or its Subsidiaries until the applicable dates set forth in the Notice of Grant.

7.Termination of Services.  Subject to Section 31, if your service relationship with the Company or any of its Subsidiaries is terminated for any reason, then those Restricted Stock Units for which the restrictions have not lapsed as of the date of termination shall become null and void and those Restricted Stock Units shall be forfeited to the Company.  The Restricted Stock Units for which the restrictions have lapsed as of the date of such termination, including Restricted Stock Units for which the restrictions lapsed in connection with such termination, shall not be forfeited to the Company and shall be settled as set forth in Section 6.

8.Leave of Absence.  With respect to the Award, the Company may, in its sole discretion, determine that if you are on leave of absence for any reason you will be considered to still be in the employ of, or providing services for, the Company, provided that rights to the Restricted Stock Units during a leave of absence will be limited to the extent to which those rights were earned or vested when the leave of absence began.

2

US 3645052v.2

9.Payment of Taxes.  The Company may require you to pay to the Company (or the Company’s Subsidiary if you are an employee of a Subsidiary of the Company) an amount the Company deems necessary to satisfy its (or its Subsidiary’s) current or future obligation to withhold federal, state or local income or other taxes that you incur as a result of the Award.  With respect to any required tax withholding, you may (a) direct the Company to withhold from the shares of Stock to be issued to you under this Agreement the number of shares necessary to satisfy the Company’s obligation to withhold taxes, which determination will be based on the shares’ Fair Market Value at the time such determination is made; (b) deliver to the Company shares of Stock sufficient to satisfy the Company’s tax withholding obligations, based on the shares’ Fair Market Value at the time such determination is made; (c) deliver cash to the Company sufficient to satisfy its tax withholding obligations; or (d) satisfy such tax withholding through any combination of (a), (b) and (c).  If you desire to elect to use the stock withholding option described in subparagraph (a), you must make the election at the time and in the manner the Company prescribes.If such tax obligations are satisfied under subparagraph (a) or (b), the maximum number of shares of Stock that may be so withheld or surrendered shall be the number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, foreign and/or local tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment with respect to such Award. Subject to Section 31, the Company, in its discretion, may deny your request to satisfy its tax withholding obligations using a method described under subparagraph (a), (b), or (d).  In the event the Company determines that the aggregate Fair Market Value of the shares of Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then you must pay to the Company, in cash, the amount of that deficiency immediately upon the Company’s request.

10.Compliance with Securities Law.  Notwithstanding any provision of this Agreement to the contrary, the issuance of Stock will be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange or market system upon which the Stock may then be listed.  No Stock will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed.  In addition, Stock will not be issued hereunder unless (a) a registration statement under the Securities Act is, at the time of issuance, in effect with respect to the shares issued or (b) in the opinion of legal counsel to the Company, the shares issued may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  YOU ARE CAUTIONED THAT ISSUANCE OF STOCK UPON THE VESTING OF RESTRICTED STOCK UNITS GRANTED PURSUANT TO THIS AGREEMENT MAY NOT OCCUR UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Award will relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained.  As a condition to any issuance hereunder, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the

3

US 3645052v.2

Company.  From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make shares of Stock available for issuance.

11.Adjustments.  The terms of the Award, including the number and type of shares subject to the Award, shall be subject to adjustment in accordance with Section 8 of the Plan.

12.Legends.  The Company may at any time place legends referencing any restrictions imposed on the shares pursuant to this Agreement on all certificates representing shares issued with respect to this Award.

13.Right of the Company and Subsidiaries to Terminate Services.  Nothing in this Agreement confers upon you the right to continue in the employ of or performing services for the Company or any Subsidiary, or interferes in any way with the rights of the Company or any Subsidiary to terminate your employment or service relationship at any time.

14.Furnish Information.  You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.

15.Remedies.  The parties to this Agreement shall be entitled to recover from each other reasonable attorneys’ fees incurred in connection with the successful enforcement of the terms and provisions of this Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise.

16.No Liability for Good Faith Determinations.  The Company and the members of the Board shall not be liable for any act, omission or determination taken or made in good faith with respect to the Plan, this Agreement or the Restricted Stock Units granted hereunder.

17.Execution of Receipts and Releases.  Any payment of cash or any issuance or transfer of shares of Stock or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. The Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a release and receipt therefor in such form as it shall determine.

18.No Guarantee of Interests.  The Board and the Company do not guarantee the Stock of the Company from loss or depreciation.

19.Company Records.  Records of the Company or its Subsidiaries regarding your period of service, termination of service and the reason(s) therefor, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.

20.Notice.  All notices required or permitted under this Agreement must be in writing and personally delivered or sent by mail and shall be deemed to be delivered on the date on which it is actually received by the person to whom it is properly addressed or if earlier the date it is sent via certified United States mail.

4

US 3645052v.2

21.Waiver of Notice.  Any person entitled to notice hereunder may waive such notice in writing.

22.Successors.  This Agreement shall be binding upon you, your legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.

23.Severability.  If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

24.Company Action.  Any action required of the Company shall be by resolution of the Board or by a person or entity authorized to act by resolution of the Board.

25.Headings.  The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.

26.Governing Law.  All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of Delaware, without giving any effect to any conflict of law provisions thereof, except to the extent Delaware state law is preempted by federal law.  The obligation of the Company to sell and deliver Stock hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock.

27.Consent to Texas Jurisdiction and Venue.  You hereby consent and agree that state courts located in Dallas County, Texas and the United States District Court for the Northern District of Texas each shall have personal jurisdiction and proper venue with respect to any dispute between you and the Company arising in connection with the Restricted Stock Units or this Agreement.  In any dispute with the Company, you will not raise, and you hereby expressly waive, any objection or defense to such jurisdiction as an inconvenient forum.

28.Amendment.  This Agreement may be amended the Board or by the Committee at any time (a) without your consent, so long as the amendment does not materially and adversely affect your rights under the Award, or (b) with your consent.  For purposes of clarity, any adjustment made to the Award pursuant to Section 8 of the Plan will be deemed not to materially and adversely affect your rights under this Award.  

29.Clawback. This Agreement and your Award is subject to any written clawback policies of the Company, whether in effect on the Date of Grant or adopted, with the approval of the Board, following the Date of Grant. Any such policy may subject your Award and amounts paid or realized with respect to your Award to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including but not limited to an accounting restatement due to the Company’s material noncompliance with financial reporting regulations or other events or wrongful conduct specified in any such clawback policy adopted to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the Securities and Exchange Commission and that the Company determines should apply to this Award.

5

US 3645052v.2

30.Nonqualified Deferred Compensation Rules.

(a)Notwithstanding any provision of this Agreement to the contrary, all provisions of this Agreement are intended to comply with the Nonqualified Deferred Compensation Rules or an exemption therefrom and shall be construed and administered in accordance with such intent.  Any payments under this Agreement that may be excluded from the Nonqualified Deferred Compensation Rules either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from the Nonqualified Deferred Compensation Rules to the maximum extent possible. Any payments to be made under this Agreement upon a termination of your employment shall only be made if such termination of employment constitutes a “separation from service” under the Nonqualified Deferred Compensation Rules.

(b)Notwithstanding any provision in this Agreement to the contrary, if any payment or benefit provided for herein would be subject to additional taxes and interest under the Nonqualified Deferred Compensation Rules if your receipt of such payment or benefit is not delayed until the earlier of (i) your death or (ii) the date that is six months after the date of your separation from service (such date, the “Section 409A Payment Date”), then such payment or benefit shall not be provided to you (or your estate, if applicable) until the Section 409A Payment Date.  Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement are exempt from, or compliant with, the Nonqualified Deferred Compensation Rules and in no event shall the Company or its Affiliates be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by you on account of non-compliance with the Nonqualified Deferred Compensation Rules.

31.The Plan.  This Agreement and the Notice of Grant are subject to all the terms, conditions, limitations and restrictions contained in the Plan.  In the event of any conflict or inconsistency between any terms and conditions of this Agreement, the Notice of Grant, and the terms and provisions of an employment agreement, consulting agreement, severance or change in control agreement, if any, between you and the Company or any Subsidiary or other Affiliate (the “Employment Agreement”), the terms and conditions of the Employment Agreement shall be controlling.  Taking into account the provisions of Section 6(a) of the Plan, if there is any conflict or inconsistency between the Plan and the Notice of Grant, this Agreement, or the Employment Agreement, then you acknowledge and agree that those terms of the Plan shall control and, if necessary, the applicable terms of the Notice of Grant, this Agreement, or the Employment Agreement shall be deemed amended so as to carry out the purpose and intent of the Plan.

[Remainder of page intentionally left blank]

6

US 3645052v.2

EX-10.4

Exhibit 10.4

Date

Notice of Grant of Restricted Stock Units

(Employee)

Award Details

Name : Address : Employee ID : Award Amount : Grant ID :Date of Grant: Award Type : Vesting Schedule :Expiration Date :Deadline to Accept : 30 days from grant notification

Award Vesting Summary

The Forfeiture Restrictions on the Restricted Stock Units granted pursuant to the Restricted Stock Unit Agreement (the “Agreement”) will expire and the Restricted Stock Units will vest and become nonforfeitable as set in Section 6 of the Agreement, as detailed in the table above under “Vesting Schedule”; provided, however, that the vesting of the Restricted Stock Units shall be subject to the standard methodology for handling fractions of vested Restricted Stock Units that is applied by the Company’s third-party Restricted Stock Unit administrator; provided further, however, that, except as otherwise provided in the Agreement or any applicable employment agreement, such unvested Restricted Stock Units will become vested Restricted Stock Units on such dates only if you remain in the employ of or a service provider to the Company or its Subsidiaries continuously from the Date of Grant through the applicable vesting date.

Notwithstanding the foregoing, following a Change in Control, any Restricted Stock Units that are unvested on the date of the Change in Control shall vest with respect to one eighteenth of all such unvested Restricted Stock Units on the one month anniversary of the Change in Control and thereafter with respect to an additional one eighteenth of all such unvested Restricted Stock Units at the time of the Change in Control on each subsequent month anniversary of the Change in

Control such that the Restricted Stock Units will be 100% vested on the eighteenth month anniversary of the Change in Control, in each case, so long as you remain in the employ of or a service provider to the Company or its Subsidiaries continuously from the Date of Grant through the applicable vesting date; provided, however, that if 100% of the Restricted Stock Units would otherwise become vested pursuant to the vesting rules set forth in the preceding paragraph prior to the eighteenth month anniversary of the date of the Change in Control, then the Restricted Stock Units will become vested in accordance with such vesting rules.

The Restricted Stock Units shall not be settled with a fraction of a share of Stock, and, on the expiration date of the Restricted Stock Units, any fraction of a share of Stock, unless otherwise determined by the Committee, shall be canceled and terminated without consideration.

Settlement Event

Stock will become issuable (which Stock will be fully transferable when issued) and Dividend Equivalents payable to you on the date of vesting of the Restricted Stock Units, which is referred to as the Settlement Event. Absent a provision in the Agreement or the Plan to the contrary, Stock and Dividend Equivalents with respect to vested Restricted Stock Units will be delivered to you no later than 45 days following the Settlement Event. If you elect to pay required withholding taxes by having the Company withhold, or not issue in settlement of the RSUs, and the Company approves that request, then shares of Stock equal in Fair Market Value to the amount of required withholding taxes, the Company is hereby authorized to give instructions to the Company’s third-party Restricted Stock Unit administrator in connection therewith.

Online Grant Acceptance

By your acceptance of the Restricted Stock Units, you hereby acknowledge your receipt of the Restricted Stock Units granted on the Date of Grant indicated above, which have been issued to you under the terms and conditions of this Notice of Grant, the Second Amended and Restated  Long Term Incentive Plan (the “Plan”) and the Agreement, including the vesting and risk of forfeiture provisions set forth therein. Capitalized terms used but not defined in this Notice of Grant shall have the meanings set forth in the Plan or the Agreement.

By your acceptance of the Restricted Stock Units, you agree to the following provisions of this paragraph. You acknowledge and agree that (a) you are not relying upon any written or oral statement or representation of the Company, its affiliates, or any of their respective employees, directors, officers, attorneys or agents (the “Company Parties”) regarding the tax effects associated with your acceptance of the Restricted Stock Units and your receipt and holding of the Restricted Stock Units, and (b) in deciding to accept the Restricted Stock Units, you are relying on your own judgment and the judgment of the professionals of your choice with whom you have consulted.  You hereby release, acquit and forever discharge the Company Parties from all actions, causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way related to the tax effects associated with your acceptance of the Restricted Stock Units and your receipt and holding of the Restricted Stock Units. You consent to receive documents from the Company and any plan administrator by means of electronic delivery, provided that such

delivery complies with applicable law, including, without limitation, documents pursuant or relating to any equity award granted to you under the Plan or any other current or future equity or other benefit plan of the Company (collectively, a “Company Plan”).  This consent shall be effective for the entire time that you are a participant in a Company Plan.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Warren Huff, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Reata Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 12, 2019	By:	/s/ J. Warren Huff
		J. Warren Huff
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Manmeet S. Soni, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Reata Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 12, 2019	By:	/s/ Manmeet S. Soni
		Manmeet S. Soni
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Reata Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Warren Huff, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 12, 2019	By:	/s/ J. Warren Huff
		J. Warren Huff
		Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Reata Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Manmeet S. Soni, Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 12, 2019	By:	/s/ Manmeet S. Soni
		Manmeet S. Soni
		Chief Financial Officer
		(Principal Financial Officer)

XML

Term Loan

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Term Loan

4. Term Loan

On June 14, 2018, the Company entered into an Amended and Restated Loan and Security Agreement (the Restated Loan Agreement) with Oxford Finance LLC and Silicon Valley Bank (collectively, the Lenders), which amended and restated the Loan and Security Agreement entered into among Reata and the Lenders on March 31, 2017, as amended on November 3, 2017 (the Loan Agreement).

Under the Restated Loan Agreement, the Term A Loan was increased to $80,000,000, and the Term B Loan availability was increased to $45,000,000, available to be drawn within 30 days, but no later than December 31, 2019, after the achievement of one of two milestones.  If the Company is entitled to draw the Term B Loan but does not draw the Term B Loan by December 31, 2019, the Company is obligated to pay a non-utilization fee of $450,000.

All outstanding Term Loans will mature on June 1, 2023.  Under the Term A Loan, the Company will make interest-only payments for 24 months through June 1, 2020; however, if the Company draws the Term B Loan, the Company will make interest-only payments for 36 months through June 1, 2021.  The interest-only payment period will be followed by 36 equal monthly payments, or 24 equal monthly payments if the Company draws the Term B Loan, of principal and interest payments. The Term Loans will bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or 1.91%, with a minimum rate of 9.7% and maximum rate of 12.29%.

The Company has the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company will be obligated to pay a prepayment fee equal to (a) the aggregate amount of interest that the Company would have paid through the maturity date if prepayment is made on or before the first anniversary of the applicable funding date of the Term Loan, (b) 4.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the applicable funding date, (c) 3.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the second anniversary date and on or before the third anniversary of the applicable funding date, or (d) 1.5% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the third anniversary date and on or before the fourth anniversary of the applicable funding date.  The Company will also be required to make a final exit fee payment of 6.5% of the principal balance of the Term A Loan and 4.0% of the Term B Loan, payable on the earliest of the prepayment of the Term Loans, acceleration of any Term Loan, or at maturity of the Term Loans.  As of September 30, 2019, the Term A Loan has an effective interest rate of 10.71% before debt issuance costs and final exit fee and 13.26% including debt issuance costs and final exit fee.  The Company was in compliance with all covenants under the Restated Loan Agreement as of September 30, 2019.

The Company may use the proceeds from the Term Loans for working capital and to fund its general business requirements.  The Company’s obligations under the Restated Loan Agreement are secured by substantially all of its current and future assets, including its owned intellectual property.

Term A Loan and unamortized issuance cost balance are as follows:

	As of September 30, 2019		As of December 31, 2018
	(in thousands)
Current portion of long-term debt1	$	6,667	$	—
Less current portion of unamortized issuance cost		1,354		—
Total current portion of long-term debt, net of debt issuance cost		5,313		—
Principal Amount		80,000		80,000
Exit Fee		5,200		5,200
Less long-term unamortized issuance cost		3,610		5,981
Less current portion of long-term debt		6,667	$	—
Total long-term debt, net of current portion and debt issuance cost	$	74,923	$	79,219
1 Current portion of principal payments reflects the interest-only payment period under the Term A Loan. If the Company draws the Term B Loan, the interest-only period will extend through June 1, 2021, and the current portion will be $0 until July 1, 2020.

The future principal payments by fiscal year for the Company’s Term A Loan:

	As of September 30, 2019
	(in thousands)
2019 (remaining three months)	$	—
2020		15,555
2021		26,667
2022		26,667
2023		11,111
	$	80,000

On October 9, 2019, the Company entered into the First Amendment to Amended and Restated Loan and Security Agreement (the Amendment) with the Lenders, which amended the Restated Loan Agreement. See Note 9, Subsequent Events.

XML

Net Loss per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Net Loss per Share

8. Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands, except share and per share data)
Numerator
Net loss	$	(39,694	)	$	(30,835	)	$	(103,228	)	$	(54,963	)
Denominator
Weighted-average number of common shares    used in net loss per share – basic		30,110,391			28,704,853			30,004,211			27,022,269
Dilutive potential common shares		—			—			—			—
Weighted-average number of common shares    used in net loss per share – diluted		30,110,391			28,704,853			30,004,211			27,022,269
Net loss per share – basic	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)
Net loss per share – diluted	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)

The number of weighted average options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented 4,272,757 and 3,337,262 shares for the nine months ended September 30, 2019 and 2018, respectively.

XML

Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Summary of Supplemental Balance Sheet Information Related to Operating Leases

Supplemental balance sheet information related to the Company’s operating leases is as follows:

	Balance Sheet Classification	As of September 30, 2019
		(in thousands)
Non-current right-of-use assets	Other assets	$	8,262
Current lease liabilities	Other current liabilities		2,941
Non-current lease liabilities	Other long-term liabilities		6,198

Schedule of Maturities of Lease Liabilities

Maturities of lease liabilities by fiscal year for the Company’s operating leases:

	As of September 30, 2019
	(in thousands)
2019 (remaining three months)	$	718
2020		3,999
2021		4,090
2022		1,178
Total lease payments		9,985
Less: Imputed interest		(846	)
Present value of lease liabilities	$	9,139

XML

Subsequent Events - Additional Information (Details)						9 Months Ended
	Nov. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Dec. 08, 2019 USD ($)	Oct. 15, 2019 USD ($) ft²	Oct. 09, 2019 USD ($)	Sep. 30, 2019 ft²
Subsequent Event [Line Items]
Contractual term						33 months
Office And Laboratory Space
Subsequent Event [Line Items]
Area of real estate property | ft²						34,890
Amended and Restated Loan and Security Agreement | Term Loan B
Subsequent Event [Line Items]
Period to borrow funds after achievement of milestone						30 days
Subsequent Event | Office And Laboratory Space
Subsequent Event [Line Items]
Area of real estate property | ft²				327,400
Contractual term				16 years
Extension lease term				10 years
Lessee lease commence date and options to extend				The term of the Lease is estimated to commence mid-2022, when construction is completed, and continue for 16 years, with up to 10 years of extension at the Company’s option.
Operating lease, existence of option to extend				true
Initial annual base rent expense				$ 13,344,000
Percentage of increase in base rent per annum after two years				1.95%
Subsequent Event | Amended and Restated Loan and Security Agreement | Term Loan B
Subsequent Event [Line Items]
Current borrowing capacity					$ 45,000,000
Maximum borrowing capacity					$ 75,000,000
Period to borrow funds after achievement of milestone					60 days
AbbVie | Forecast
Subsequent Event [Line Items]
Cash outflows from acquisitions	$ 105,000,000	$ 150,000,000	$ 75,000,000
Cash outflow from acquisition after prepayments	$ 80,000,000
AbbVie | Subsequent Event
Subsequent Event [Line Items]
Cash outflows from acquisitions					$ 330,000,000
Cash proceeds from equity offering					200,000,000
Prepayment for acquisition after equity offering					$ 25,000,000

XML

Stock-Based Compensation - Additional Information (Details)	9 Months Ended
	Sep. 30, 2019 USD ($) shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total intrinsic value of outstanding options	$ 184,473,000
Total intrinsic value of exercisable options	$ 100,782,000
Restricted Stock Unit (RSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Restricted stock units granted | shares	50,000
Unrecognized compensation expense	$ 3,635,000

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2019	Dec. 31, 2018
Common Stock A
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	24,525,768	24,000,683
Common stock, shares outstanding	24,525,768	24,000,683
Common Stock B
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	5,598,731	5,728,175
Common stock, shares outstanding	5,598,731	5,728,175

XML

Description of Business

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of Business

1. Description of Business

The Company’s mission is to identify, develop, and commercialize innovative therapies that change patients’ lives for the better.  The Company focuses on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  The Company’s lead programs are in rare forms of chronic kidney disease (CKD) and rare forms of neurological diseases.  The Company’s lead product candidates, bardoxolone methyl (bardoxolone) in CKD and omaveloxolone in neurological diseases, activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation.  Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, the Company believes bardoxolone and omaveloxolone have many potential clinical applications.

The Company has reported top-line efficacy and safety Year 1 results from its registrational CARDINAL Phase 3 clinical trial of bardoxolone in CKD caused by Alport syndrome.  Alport syndrome is a rare and serious hereditary disease with no approved therapy.  The trial met its primary and key secondary Year 1 endpoints.  CARDINAL demonstrated a statistically significant change in the estimated glomerular filtration rate (eGFR) relative to placebo after 48 weeks of treatment and in retained eGFR, which is the change in eGFR after 48 weeks of treatment and a four-week withdrawal period. Subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

The Company has reported top-line efficacy and safety results from its registrational part 2 portion of the MOXIe Phase 2 trial of omaveloxolone in Friedreich’s ataxia (FA).  FA is a rare, inherited, debilitating, and degenerative neuromuscular disorder with no approved therapy.  The trial demonstrated statistically significant evidence of efficacy for its primary endpoint of change in the modified Friedreich’s Ataxia Rating Scale (mFARS) relative to placebo after 48 weeks of treatment. Subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

The Company is also conducting two additional registrational trials:  FALCON, studying bardoxolone in patients with autosomal dominant polycystic kidney disease (ADPKD), and CATALYST, studying bardoxolone in patients with a rare and serious form of pulmonary arterial hypertension (PAH) caused by connective tissue disease (CTD-PAH).  The Company initiated enrollment of FALCON in May 2019, and the Company expects to have top-line data from CATALYST in mid-2020.

The Company’s consolidated financial statements include the accounts of all majority-owned subsidiaries.  Accordingly, the Company’s share of net earnings and losses from these subsidiaries is included in the consolidated statements of operations.  Intercompany profits, transactions, and balances have been eliminated in consolidation.

XML

Collaboration Agreements - Additional Information (Details) - USD ($)	1 Months Ended		3 Months Ended		9 Months Ended
	Dec. 31, 2011	Dec. 31, 2009	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaboration revenue			$ 8,242,000	$ 5,175,000	$ 23,846,000	$ 45,137,000
Deferred revenue, current			31,421,000		$ 31,421,000		$ 31,335,000
AbbVie | Collaborative Arrangement
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Up-front collaboration payment received	$ 400,000,000
Deferred revenue, expected timing of recognition					2026-12
Collaboration revenue			6,717,000	6,717,000	$ 19,931,000	19,931,000
Deferred revenue			191,714,000		191,714,000
Deferred revenue, current			26,720,000		$ 26,720,000
KKC Agreement | License Agreement Terms
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Deferred revenue, expected timing of recognition					2021-12
Collaboration revenue			1,181,000	$ (2,951,000)	$ 3,506,000	$ 23,521,000
Deferred revenue			10,570,000		10,570,000
Deferred revenue, current			4,701,000		4,701,000
Upfront license fee received		$ 35,000,000
Collaboration revenue, total milestone payments received in 2010, 2012, 2018					45,000,000
Collaboration revenue, potential milestone payments			52,000,000		52,000,000
Collaboration revenue, additional potential commercial milestone payments			$ 140,000,000		$ 140,000,000

XML

Term Loan - Schedule of Future Principal Payments by Fiscal Year for Term A Loan (Details) - Term Loan A - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
2019 (remaining three months)	$ 0
2020	15,555
2021	26,667
2022	26,667
2023	11,111
Term Loan	$ 80,000	$ 80,000

XML

Term Loan - Additional Information (Details) - Amended and Restated Loan and Security Agreement - USD ($)	9 Months Ended
	Sep. 30, 2019	Jun. 14, 2018
Debt Instrument [Line Items]
Debt instrument, prepayment terms	The Company has the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company will be obligated to pay a prepayment fee equal to (a) the aggregate amount of interest that the Company would have paid through the maturity date if prepayment is made on or before the first anniversary of the applicable funding date of the Term Loan, (b) 4.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the applicable funding date, (c) 3.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the second anniversary date and on or before the third anniversary of the applicable funding date, or (d) 1.5% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the third anniversary date and on or before the fourth anniversary of the applicable funding date.
Loan Prepayment After First Anniversary
Debt Instrument [Line Items]
Debt instrument prepayment fee percentage	4.00%
Loan Prepayment After Second Anniversary
Debt Instrument [Line Items]
Debt instrument prepayment fee percentage	3.00%
Loan Prepayment After Third Anniversary
Debt Instrument [Line Items]
Debt instrument prepayment fee percentage	1.50%
Term Loan A
Debt Instrument [Line Items]
Debt instrument, interest only payments period	24 months through June 1, 2020
Debt instrument final exit fee payment percentage	6.50%
Debt instrument, effective interest rate before debt issuance costs and final exit fee	10.71%
Debt instrument, effective interest rate including debt issuance costs and final exit fee	13.26%
Term Loan A | Achievement of One of Two Milestones
Debt Instrument [Line Items]
Maximum borrowing capacity		$ 80,000,000
Term Loan B
Debt Instrument [Line Items]
Period to borrow funds after achievement of milestone	30 days
Debt instrument, possible borrowing date	Dec. 31, 2019
Payment of unused line fee	$ 450,000
Debt instrument, interest only payments period	36 months through June 1, 2021
Debt instrument final exit fee payment percentage	4.00%
Term Loan B | Achievement of One of Two Milestones
Debt Instrument [Line Items]
Maximum borrowing capacity		$ 45,000,000
Term Loans
Debt Instrument [Line Items]
Debt instrument, payment terms	All outstanding Term Loans will mature on June 1, 2023.  Under the Term A Loan, the Company will make interest-only payments for 24 months through June 1, 2020; however, if the Company draws the Term B Loan, the Company will make interest-only payments for 36 months through June 1, 2021.  The interest-only payment period will be followed by 36 equal monthly payments, or 24 equal monthly payments if the Company draws the Term B Loan, of principal and interest payments.
Debt instrument, maturity date	Jun. 01, 2023
Debt instrument, interest rate terms	The Term Loans will bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or 1.91%, with a minimum rate of 9.7% and maximum rate of 12.29%.
Debt instrument, annual interest rate	7.79%
Debt instrument, basis spread on variable rate	1.91%
Term Loans | Minimum
Debt Instrument [Line Items]
Debt instrument, annual interest rate	9.70%
Term Loans | Maximum
Debt Instrument [Line Items]
Debt instrument, annual interest rate	12.29%

XML

Leases - Additional Information (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2019 USD ($) ft²	Sep. 30, 2019 USD ($) ft²	Oct. 15, 2019 ft²
Lessee Lease Description [Line Items]
Contractual term	33 months	33 months
Weighted-average remaining lease term	2 years 6 months	2 years 6 months
Cash paid for amounts included in the measurement of lease liabilities | $		$ 1,667,000
Operating lease, expense | $	$ 911,000	$ 2,489,000
Weighted average incremental borrowing rate	8.30%	8.30%
Office And Laboratory Space
Lessee Lease Description [Line Items]
Area of real estate property	34,890	34,890
Office And Laboratory Space | Subsequent Event
Lessee Lease Description [Line Items]
Area of real estate property			327,400
Contractual term			16 years
Office Space
Lessee Lease Description [Line Items]
Area of real estate property	122,000	122,000

XML

Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock Based Compensation Expense

The following table summarizes stock-based compensation expense reflected in the consolidated statements of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)
Research and development	$	1,885	$	988	$	5,235	$	2,924
General and administrative		3,495		1,757		8,855		4,859
	$	5,380	$	2,745	$	14,090	$	7,783

Summary of Stock Option Activity

The following table summarizes stock option activity as of September 30, 2019, and changes during the nine months ended September 30, 2019, under the Second Amended and Restated Long Term Incentive Plan and standalone option agreements:

	Number of Options			Weighted-Average Exercise Price
Outstanding at January 1, 2019		3,320,571			21.20
Granted		1,624,133			64.94
Exercised		(395,641	)		16.30
Forfeited		(276,306	)		34.42
Outstanding at September 30, 2019		4,272,757			37.51
Exercisable at September 30, 2019		1,743,886			22.56

Summary of Restricted Stock Units

	Number Performance Based RSUs		Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2019		—		—
Granted		50,000		72.70
Vested		—		—
Forfeited		—		—
Outstanding at September 30, 2019		50,000		72.70

XML

Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

5. Leases

The Company has offices located in Irving, Texas, where it leases approximately 34,890 square feet of office and laboratory space, and in Plano, Texas, where it leases approximately 122,000 square feet of office space.

The Company’s leases have remaining contractual terms of up to approximately 33 months, which includes the options to extend the leases for up to one year.  Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

At September 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 8.3% and 2.5 years, respectively.  During the nine months ended September 30, 2019, cash paid for amounts included for the measurement of lease liabilities was $1,667,000. During the three and nine months ended September 30, 2019 the Company recorded operating lease expense of $911,000 and $2,489,000, respectively.  The Company has elected to net the amortization of the right-of-use assets and the reduction of the lease liabilities principal in accrued direct research and other current and long-term liabilities in the consolidated statements of cash flows.

Supplemental balance sheet information related to the Company’s operating leases is as follows:

	Balance Sheet Classification	As of September 30, 2019
		(in thousands)
Non-current right-of-use assets	Other assets	$	8,262
Current lease liabilities	Other current liabilities		2,941
Non-current lease liabilities	Other long-term liabilities		6,198

Maturities of lease liabilities by fiscal year for the Company’s operating leases:

	As of September 30, 2019
	(in thousands)
2019 (remaining three months)	$	718
2020		3,999
2021		4,090
2022		1,178
Total lease payments		9,985
Less: Imputed interest		(846	)
Present value of lease liabilities	$	9,139

On October 15, 2019, the Company entered into a lease agreement, relating to the lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas (Lease Agreement).  See Note 9, Subsequent Events.

XML

Subsequent Events

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

9. Subsequent Events

On October 9, 2019, the Company and AbbVie entered into the Amended AbbVie Agreement pursuant to which the Company reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the License Agreement and the Collaboration Agreement. Except as otherwise set forth in the Amended AbbVie Agreement, the other provisions of the License Agreement and the Collaboration Agreement have been terminated. Under the Amended AbbVie Agreement, certain licenses granted to AbbVie will continue, for which AbbVie has granted exclusive sublicenses to the Company, resulting in its reacquiring worldwide rights to bardoxolone, excluding certain Asian countries that the Company previously licensed to KKC, and worldwide rights to omaveloxolone and the other second-generation Nrf2 activators (the Second-Generation Activators), in each case that the Company had licensed to AbbVie under the License Agreement and the Collaboration Agreement.  In exchange, the Company will pay AbbVie $330,000,000, of which $75,000,000 is payable on December 8, 2019, $150,000,000 is payable on June 30, 2020, and $105,000,000 is payable on November 30, 2021.  If the Company raises cash proceeds of $200,000,000 or more in one or more equity offerings, it is required to prepay AbbVie $25,000,000, which prepayment will reduce the amount payable to AbbVie on November 30, 2021, from $105,000,000 to $80,000,000.  The Company also will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and an identified list of existing Second-Generation Activators. By reacquiring its rights, the Company was relieved from its obligations under the License Agreement and the Collaboration Agreement.  

On October 9, 2019, the Company entered into the Amendment with the Lenders, which amended the Restated Loan Agreement entered into among Reata and the Lenders on June 14, 2018.  Under the Amendment, the Term B Loan availability was increased from $45,000,000 to $75,000,000 and the availability period was increased from within 30 days to 60 days after the achievement of the one of two milestones. As one of the milestones was achieved on October 14, 2019, the availability period will end on December 13, 2019.  

Under the Restated Loan Agreement, the Company has significantly increased its current obligations, but the Company believes that its current cash, along with its access to additional equity or debt funding, will enable the Company to meet its current obligations through December 31, 2020.  

On October 15, 2019, the Company entered into the Lease Agreement, relating to the lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas. The term of the Lease is estimated to commence mid-2022, when construction is completed, and continue for 16 years, with up to 10 years of extension at the Company’s option. The initial annual base rent will be determined based on the project cost, subject to an initial annual cap of approximately $13,344,000, which may increase in certain circumstances.  Beginning in the third lease year, the base rent will increase 1.95% per annum each year.  In addition to the annual base rent, the Company will pay for taxes, insurance, utilities, operating expenses, assessments under private covenants, maintenance and repairs, certain capital repairs and replacements, and building management fees.

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents	$ 240,149	$ 337,790
Prepaid expenses and other current assets	6,382	4,483
Total current assets	246,531	342,273
Property and equipment, net	2,859	1,445
Other assets	9,733	1,490
Total assets	259,123	345,208
Liabilities and stockholders’ (deficit) equity
Accounts payable	3,582	4,473
Accrued direct research liabilities	19,848	15,416
Other current liabilities	14,398	4,696
Current portion of long-term debt, net of debt issuance cost	5,313
Current portion of deferred revenue	31,421	31,335
Total current liabilities	74,562	55,920
Other long-term liabilities	6,198	524
Long-term debt, net of current portion and debt issuance cost	74,923	79,219
Deferred revenue, net of current portion	170,863	194,386
Total noncurrent liabilities	251,984	274,129
Commitments and contingencies
Stockholders’ (deficit) equity:
Additional paid-in capital	456,097	435,452
Accumulated deficit	(523,551)	(420,323)
Total stockholders’ (deficit) equity	(67,423)	15,159
Total liabilities and stockholders’ (deficit) equity	259,123	345,208
Common Stock A
Stockholders’ (deficit) equity:
Common stock value	25	24
Total stockholders’ (deficit) equity	25	24
Common Stock B
Stockholders’ (deficit) equity:
Common stock value	6	6
Total stockholders’ (deficit) equity	$ 6	$ 6

XML

Unaudited Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Operating activities
Net loss	$ (103,228)	$ (54,963)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	659	311
Amortization of debt issuance costs	1,017	549
Stock-based compensation expense	14,090	7,783
Loss on extinguishment of debt		1,007
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(1,899)	(1,304)
Other assets	20	14
Accounts payable	(440)	2,933
Accrued direct research and other current and long-term liabilities	11,442	10,836
Deferred revenue	(23,437)	(13,452)
Net cash used in operating activities	(101,776)	(46,286)
Investing activities
Purchases of property and equipment	(2,420)	(370)
Net cash used in investing activities	(2,420)	(370)
Financing activities
Proceeds from issuance of common stock		232,846
Proceeds from long-term debt		60,000
Payments on deferred issuance costs		(2,289)
Exercise of options	6,448	1,504
Other shareholder transactions	107
Net cash provided by financing activities	6,555	292,061
Net (decrease) increase in cash and cash equivalents	(97,641)	245,405
Cash and cash equivalents at beginning of year	337,790	129,780
Cash and cash equivalents at end of period	240,149	375,185
Supplemental disclosures
Cash paid for interest	6,226	2,715
Purchases of equipment in accounts payable and other current liabilities	145	31
Accrued deferred offering cost		$ 22
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$ 8,262

XML

Net Loss per Share - Additional Information (Details) - shares	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Earnings Per Share [Abstract]
Weighted average anti-dilutive shares excludes from computation of earnings per share	4,272,757	3,337,262

XML

Stock-Based Compensation - Summary of Stock Option Activity (Details) - $ / shares	9 Months Ended
	Sep. 30, 2019
Number of Options, Abstract
Number of Options, Outstanding - Beginning balance	3,320,571
Number of Options, Granted	1,624,133
Number of Options, Exercised	(395,641)
Number of Options, Forfeited	(276,306)
Number of Options, Outstanding - Ending balance	4,272,757
Number of Options, Exercisable	1,743,886
Weighted Average Exercise Price, Abstract
Weighted-Average Exercise Price, Outstanding - Beginning balance	$ 21.20
Weighted-Average Exercise Price, Granted	64.94
Weighted-Average Exercise Price, Exercised	16.30
Weighted-Average Exercise Price, Forfeited	34.42
Weighted-Average Exercise Price, Outstanding - Ending balance	37.51
Weighted-Average Exercise Price, Exercisable	$ 22.56

XML

Summary of Significant Accounting Policies - Additional Information (Details) - USD ($)	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Operating lease, right-of-use asset	$ 8,262,000	$ 1,544,000
Operating lease, liability	9,139,000	$ 1,659,000
Cash and cash equivalents	$ 240,149,000		$ 337,790,000	$ 375,185,000	$ 129,780,000

XML

Term Loan - Schedule of Term Loan and Unamortized Issuance Cost Balance (Parenthetical) (Details) - Term Loan - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Jun. 30, 2020
Debt Instrument [Line Items]
Debt instrument, interest only payments period	the interest-only period will extend through June 1, 2021
Forecast
Debt Instrument [Line Items]
Current portion of long-term debt		$ 0

XML

Leases - Schedule of Maturities of Lease Liabilities (Details) - USD ($)	Sep. 30, 2019	Jan. 01, 2019
Leases [Abstract]
2019 (remaining three months)	$ 718,000
2020	3,999,000
2021	4,090,000
2022	1,178,000
Total lease payments	9,985,000
Less: Imputed interest	(846,000)
Operating lease, liability	$ 9,139,000	$ 1,659,000

XML

Unaudited Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Collaboration revenue
Collaboration revenue	$ 8,242	$ 5,175	$ 23,846	$ 45,137
Expenses
Research and development	32,279	27,144	87,948	71,979
General and administrative	14,283	7,486	36,027	24,802
Depreciation	258	105	659	311
Total expenses	46,820	34,735	124,634	97,092
Other income (expense)
Investment income	1,311	1,094	4,812	1,787
Interest expense	(2,389)	(2,360)	(7,199)	(3,773)
Loss on extinguishment of debt				(1,007)
Other income (expense)			7
Total other income (expense)	(1,078)	(1,266)	(2,380)	(2,993)
Loss before taxes on income	(39,656)	(30,826)	(103,168)	(54,948)
Provision for taxes on income	38	9	60	15
Net loss	$ (39,694)	$ (30,835)	$ (103,228)	$ (54,963)
Net loss per share—basic and diluted	$ (1.32)	$ (1.07)	$ (3.44)	$ (2.03)
Weighted-average number of common shares used in net loss per share basic and diluted	30,110,391	28,704,853	30,004,211	27,022,269
License and milestone
Collaboration revenue
Collaboration revenue	$ 7,898	$ 4,766	$ 23,437	$ 44,452
Other revenue
Collaboration revenue
Collaboration revenue	$ 344	$ 409	$ 409	$ 685

XML

Stock-Based Compensation - Summary of Restricted Stock Units (Details) - Restricted Stock Unit (RSUs)	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Number Performance Based RSUs, Abstract
Number Performance Based RSUs, Granted | shares	50,000
Number Performance Based RSUs – Ending balance | shares	50,000
Weighted-Average Grant Date Fair Value, Abstract
Weighted-Average Grant Date Fair Value, Granted | $ / shares	$ 72.70
Weighted-Average Grant Date Fair Value - Ending balance | $ / shares	$ 72.70

XML

Income Taxes - Additional Information (Details)	9 Months Ended
	Sep. 30, 2019
Internal Revenue Service (IRS)
Income Tax Disclosure [Line Items]
Examination of U.S. income tax returns, year	2013 2014 2015

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  The consolidated balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

The Company’s significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report

on Form 10-K).  During the first quarter of 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). As a result of the adoption of Topic 842, the Company has updated its Leases accounting policies. There were no other changes to its significant accounting policies from those disclosed in its 2018 Annual Report on Form 10-K.

Liquidity

As of September 30, 2019, the Company had cash and cash equivalents of $240,149,000. The Company has experienced losses and negative operating cash flows for many years since inception and has no marketed drug or other products. The Company’s ability to generate future revenue depends upon the results of its development programs, the success of which cannot be guaranteed.

The Company expects its current cash and its access to additional equity or debt funding will enable it to meet its current obligations through December 31, 2020. See Note 9, Subsequent Events.

Leases

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on the unique facts and circumstances present in that arrangement. Lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized at the lease commencement date based on the present value of lease payments over the lease term calculated using its incremental borrowing rate based on the information available at commencement unless the implicit rate is readily determinable.  Lease assets also include upfront lease payments, lease incentives paid, and direct costs incurred and exclude lease incentives received.  The lease term used to calculate the lease assets and related lease liabilities includes the options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the expected lease term as an operating expense while the expense for finance leases is recognized as depreciation expense over the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company will account for each lease component separately from the nonlease components.  The depreciable life of lease assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of its exercise.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expenses for these short-term leases and operating leases are recognized on a straight-line basis over the lease term.

Recently Adopted Accounting Pronouncements

The Company is an emerging growth company (EGC), as defined in the JOBS Act.  Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.  The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.  The Company will remain an EGC until December 31, 2019.

In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. The new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures. Topic 842 requires adoption using a modified retrospective transition approach with either 1) transition provisions at the beginning of the earliest comparative period records its cumulative adjustment to retained earnings at the beginning of the earliest period presented or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption.  We adopted this standard on January 1, 2019 using the cumulative-effect adjustment approach. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.

As a result of implementing Topic 842, the Company recognized an operating lease right-of-use asset of $1,544,000 and an operating lease liability of $1,659,000 on January 1, 2019, with no impact on its beginning retained earnings, consolidated statements of operations, or cash flows.  See Note 5, Leases, for further details.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (ASU 2018-09).  This ASU provided various minor codification updates and improvements to address comments that the FASB had received regarding unclear or vague accounting guidance.  The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.  The adoption of this guidance did not have a material impact on our financial position, results of operations or disclosures.

In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections. The ASU clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply.  The guidance is effective upon issuance. The adoption of this guidance did not have a significant impact on the Company’s reported consolidated financial results.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) (ASU 2018-18).  This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics.  This update is effective in fiscal years, including interim periods, beginning after December 15, 2020, and early adoption is permitted.  The Company is evaluating the impact on its financial statements of adopting this guidance.

XML

Stock-Based Compensation

9 Months Ended

Sep. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

7. Stock-Based Compensation

Stock Options

The following table summarizes stock-based compensation expense reflected in the consolidated statements of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)
Research and development	$	1,885	$	988	$	5,235	$	2,924
General and administrative		3,495		1,757		8,855		4,859
	$	5,380	$	2,745	$	14,090	$	7,783

The following table summarizes stock option activity as of September 30, 2019, and changes during the nine months ended September 30, 2019, under the Second Amended and Restated Long Term Incentive Plan and standalone option agreements:

	Number of Options			Weighted-Average Exercise Price
Outstanding at January 1, 2019		3,320,571			21.20
Granted		1,624,133			64.94
Exercised		(395,641	)		16.30
Forfeited		(276,306	)		34.42
Outstanding at September 30, 2019		4,272,757			37.51
Exercisable at September 30, 2019		1,743,886			22.56

The total intrinsic value of all outstanding options and exercisable options at September 30, 2019 was $184,473,000 and $100,782,000, respectively.

Restricted Stock Units (RSUs)

As of September 30, 2019, the Company granted 50,000 RSUs under a Restricted Stock Unit Agreement. As the awards granted are performance-based, there was $3,635,000 of unrecognized compensation expense related to these RSUs.

	Number Performance Based RSUs		Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2019		—		—
Granted		50,000		72.70
Vested		—		—
Forfeited		—		—
Outstanding at September 30, 2019		50,000		72.70

XML

Term Loan (Tables) - Term Loan A

9 Months Ended

Sep. 30, 2019

Debt Instrument [Line Items]

Schedule of Term Loan and Unamortized Issuance Cost Balance

Term A Loan and unamortized issuance cost balance are as follows:

	As of September 30, 2019		As of December 31, 2018
	(in thousands)
Current portion of long-term debt1	$	6,667	$	—
Less current portion of unamortized issuance cost		1,354		—
Total current portion of long-term debt, net of debt issuance cost		5,313		—
Principal Amount		80,000		80,000
Exit Fee		5,200		5,200
Less long-term unamortized issuance cost		3,610		5,981
Less current portion of long-term debt		6,667	$	—
Total long-term debt, net of current portion and debt issuance cost	$	74,923	$	79,219
1 Current portion of principal payments reflects the interest-only payment period under the Term A Loan. If the Company draws the Term B Loan, the interest-only period will extend through June 1, 2021, and the current portion will be $0 until July 1, 2020.

Schedule of Future Principal Payments by Fiscal Year for Term A Loan

The future principal payments by fiscal year for the Company’s Term A Loan:

	As of September 30, 2019
	(in thousands)
2019 (remaining three months)	$	—
2020		15,555
2021		26,667
2022		26,667
2023		11,111
	$	80,000

XML

Net Loss per Share - Computation of Basic and Diluted Net (Loss) Income per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator
Net loss	$ (39,694)	$ (30,835)	$ (103,228)	$ (54,963)
Denominator
Weighted-average number of common shares used in net loss per share – basic	30,110,391	28,704,853	30,004,211	27,022,269
Weighted-average number of common shares used in net loss per share – diluted	30,110,391	28,704,853	30,004,211	27,022,269
Net loss per share – basic	$ (1.32)	$ (1.07)	$ (3.44)	$ (2.03)
Net loss per share – diluted	$ (1.32)	$ (1.07)	$ (3.44)	$ (2.03)

XML

Stock-Based Compensation - Summary of Stock Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 5,380	$ 2,745	$ 14,090	$ 7,783
Research and development
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	1,885	988	5,235	2,924
General and administrative
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 3,495	$ 1,757	$ 8,855	$ 4,859

XML

Collaboration Agreements

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Collaboration Agreements

3. Collaboration Agreements

AbbVie

In December 2011, the Company entered into a collaboration agreement with AbbVie Inc. (AbbVie) (the Collaboration Agreement) to jointly research, develop, and commercialize the Company’s portfolio of second and later generation oral Nrf2 activators.  The terms of the Collaboration Agreement include payment to the Company of a nonrefundable, up-front payment of $400,000,000. The Company is also participating with AbbVie on joint steering committees.  

The up-front payment and the Company’s collaboration on research, development, and commercialization are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2026, which is the estimated minimum period that is needed to complete the performance obligations under the terms of the Collaboration Agreement.  The Company began recognizing revenue related to the up-front payment upon execution of the Collaboration Agreement. During the three months ended September 30, 2019 and 2018, the Company recognized approximately $6,717,000, and during the nine months ended September 30, 2019 and 2018, recognized $19,931,000, as collaboration revenue.  As of September 30, 2019, the Company recorded deferred revenue totaling approximately $191,714,000 of which approximately $26,720,000 is reflected as the current portion of deferred revenue.

On October 9, 2019, the Company and AbbVie entered into an Amended and Restated License Agreement (the Amended AbbVie Agreement) pursuant to which the Company reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the License Agreement, dated as of September 21, 2010, which the Company entered into with AbbVie (the License Agreement), and the Collaboration Agreement. See Note 9, Subsequent Events.

KKC

In December 2009, the Company entered a license agreement with Kyowa Kirin Co., Ltd. (KKC) (the KKC Agreement), which granted KKC an exclusive license to develop and commercialize bardoxolone in the licensed territory.  The Company received a nonrefundable, up-front license fee of $35,000,000 in 2009 and regulatory milestones totaling $45,000,000 in 2010, 2012, and 2018 and could receive additional regulatory milestones of $52,000,000 and commercial milestones of $140,000,000, as well as tiered royalties ranging from the low teens to the low 20 percent range, depending on the country of sale and the amount of annual net sales, on net sales by KKC in the licensed territory.  

The up-front payment and regulatory milestones are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2021, which is the estimated minimum period that is needed to

complete the deliverables under the terms of the KKC Agreement.  The Company began recognizing revenue related to the up-front payment upon execution of the KKC Agreement. During the three months ended September 30, 2019 and 2018, the Company recognized approximately $1,181,000 and $(2,951,000), respectively, and during the nine months ended September 30, 2019 and 2018, recognized $3,506,000 and $23,521,000, respectively, as collaboration revenue.  As of September 30, 2019, the Company recorded deferred revenue totaling approximately $10,570,000 of which approximately $4,701,000 is reflected as the current portion of deferred revenue.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 07, 2019
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Trading Symbol	RETA
Entity Registrant Name	REATA PHARMACEUTICALS INC
Entity Central Index Key	0001358762
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Current Reporting Status	Yes
Entity File Number	001-37785
Entity Tax Identification Number	11-3651945
Entity Address, Address Line One	5320 Legacy Drive
Entity Address, City or Town	Plano
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75024
City Area Code	972
Local Phone Number	865-2219
Document Quarterly Report	true
Document Transition Report	false
Title of 12(b) Security	Class A Common Stock, Par Value $0.001 Per Share
Security Exchange Name	NASDAQ
Entity Interactive Data Current	Yes
Entity Incorporation, State or Country Code	DE
Former Address
Document Information [Line Items]
Entity Address, Address Line One	2801 Gateway Drive
Entity Address, Address Line Two	Suite 150
Entity Address, City or Town	Irving
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75063
Common Stock A
Document Information [Line Items]
Entity Common Stock Shares Outstanding		24,765,410
Common Stock B
Document Information [Line Items]
Entity Common Stock Shares Outstanding		5,506,495

XML

Unaudited Consolidated Statements of Stockholders' (Deficit) Equity - USD ($) $ in Thousands	Total	Common Stock A	Common Stock B	Additional Paid-In Capital	Shareholder Notes Receivable	Total Accumulated Deficit
Balance, value at Dec. 31, 2017	$ (146,973)	$ 20	$ 7	$ 190,145	$ (2)	$ (337,143)
Balance, shares at Dec. 31, 2017		19,975,340	6,166,166
Net loss	(54,963)					(54,963)
Compensation expense related to stock options	7,763			7,781		(18)
Exercise of options, value	1,498			1,498
Exercise of options, shares			106,024
Proceeds from payments of shareholder promissory notes	8			6	$ 2
Public offering of common stock, net of offering costs, value	232,847	$ 4		232,843
Public offering of common stock, net of offering costs, shares		3,450,000
Conversion of common stock Class B to Class A, value	(1)		$ (1)
Conversion of common stock Class B to Class A, shares		458,625	(458,625)
Adoption of new accounting guidance	(2,634)					(2,634)
Balance, value at Sep. 30, 2018	37,545	$ 24	$ 6	432,273		(394,758)
Balance, shares at Sep. 30, 2018		23,883,965	5,813,565
Balance, value at Jun. 30, 2018	(167,874)	$ 20	$ 6	196,013		(363,913)
Balance, shares at Jun. 30, 2018		20,244,675	5,961,183
Net loss	(30,835)					(30,835)
Compensation expense related to stock options	2,735			2,745		(10)
Exercise of options, value	672			672
Exercise of options, shares			41,672
Public offering of common stock, net of offering costs, value	232,847	$ 4		232,843
Public offering of common stock, net of offering costs, shares		3,450,000
Conversion of common stock Class B to Class A, shares		189,290	(189,290)
Balance, value at Sep. 30, 2018	37,545	$ 24	$ 6	432,273		(394,758)
Balance, shares at Sep. 30, 2018		23,883,965	5,813,565
Balance, value at Dec. 31, 2018	15,159	$ 24	$ 6	435,452		(420,323)
Balance, shares at Dec. 31, 2018		24,000,683	5,728,175
Net loss	(103,228)					(103,228)
Compensation expense related to stock options	14,090			14,090
Exercise of options, value	$ 6,448			6,448
Exercise of options, shares	395,641		395,641
Conversion of common stock Class B to Class A, value	$ 1	$ 1
Conversion of common stock Class B to Class A, shares		525,085	(525,085)
Other shareholder transactions	107			107
Balance, value at Sep. 30, 2019	(67,423)	$ 25	$ 6	456,097		(523,551)
Balance, shares at Sep. 30, 2019		24,525,768	5,598,731
Balance, value at Jun. 30, 2019	(33,473)	$ 24	$ 6	450,354		(483,857)
Balance, shares at Jun. 30, 2019		24,466,407	5,631,527
Net loss	(39,694)					(39,694)
Compensation expense related to stock options	5,380			5,380
Exercise of options, value	363			363
Exercise of options, shares			26,565
Conversion of common stock Class B to Class A, value	1	$ 1
Conversion of common stock Class B to Class A, shares		59,361	(59,361)
Balance, value at Sep. 30, 2019	$ (67,423)	$ 25	$ 6	$ 456,097		$ (523,551)
Balance, shares at Sep. 30, 2019		24,525,768	5,598,731

XML

Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

6. Income Taxes

The Company’s effective tax rate varies with the statutory rate due primarily to the impact of nondeductible stock-based compensation and the changes in valuation allowance related to certain deferred tax assets generated or utilized in the applicable period.  The Company’s deferred tax assets have been fully offset by a valuation allowance at September 30, 2019, and the Company expects to maintain this valuation allowance until there is sufficient evidence that future earnings can be achieved, which is uncertain at this time.

The IRS examination team has completed its examination of the Company’s 2013, 2014, and 2015 U.S. tax returns and proposed adjustments with respect to certain items that were reported by the Company for the 2013 tax year.  In June 2018, the Company received the Revenue Agent Report from the IRS.  The Company believes that it has accurately reported all amounts in its tax returns and has submitted an administrative protest with the IRS contesting the examination team’s proposed adjustments.  The Company intends to vigorously defend its reported positions and believes the ultimate resolution of the adjustments proposed by the IRS examination team will not have a material adverse effect on its consolidated financial statements.

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  The consolidated balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

The Company’s significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report

on Form 10-K).  During the first quarter of 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). As a result of the adoption of Topic 842, the Company has updated its Leases accounting policies. There were no other changes to its significant accounting policies from those disclosed in its 2018 Annual Report on Form 10-K.

Liquidity

Liquidity

As of September 30, 2019, the Company had cash and cash equivalents of $240,149,000. The Company has experienced losses and negative operating cash flows for many years since inception and has no marketed drug or other products. The Company’s ability to generate future revenue depends upon the results of its development programs, the success of which cannot be guaranteed.

The Company expects its current cash and its access to additional equity or debt funding will enable it to meet its current obligations through December 31, 2020. See Note 9, Subsequent Events.

Leases

Leases

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on the unique facts and circumstances present in that arrangement. Lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized at the lease commencement date based on the present value of lease payments over the lease term calculated using its incremental borrowing rate based on the information available at commencement unless the implicit rate is readily determinable.  Lease assets also include upfront lease payments, lease incentives paid, and direct costs incurred and exclude lease incentives received.  The lease term used to calculate the lease assets and related lease liabilities includes the options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the expected lease term as an operating expense while the expense for finance leases is recognized as depreciation expense over the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company will account for each lease component separately from the nonlease components.  The depreciable life of lease assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of its exercise.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expenses for these short-term leases and operating leases are recognized on a straight-line basis over the lease term.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The Company is an emerging growth company (EGC), as defined in the JOBS Act.  Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.  The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.  The Company will remain an EGC until December 31, 2019.

In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. The new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures. Topic 842 requires adoption using a modified retrospective transition approach with either 1) transition provisions at the beginning of the earliest comparative period records its cumulative adjustment to retained earnings at the beginning of the earliest period presented or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption.  We adopted this standard on January 1, 2019 using the cumulative-effect adjustment approach. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.

As a result of implementing Topic 842, the Company recognized an operating lease right-of-use asset of $1,544,000 and an operating lease liability of $1,659,000 on January 1, 2019, with no impact on its beginning retained earnings, consolidated statements of operations, or cash flows.  See Note 5, Leases, for further details.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (ASU 2018-09).  This ASU provided various minor codification updates and improvements to address comments that the FASB had received regarding unclear or vague accounting guidance.  The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.  The adoption of this guidance did not have a material impact on our financial position, results of operations or disclosures.

In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections. The ASU clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply.  The guidance is effective upon issuance. The adoption of this guidance did not have a significant impact on the Company’s reported consolidated financial results.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) (ASU 2018-18).  This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics.  This update is effective in fiscal years, including interim periods, beginning after December 15, 2020, and early adoption is permitted.  The Company is evaluating the impact on its financial statements of adopting this guidance.

XML

Leases - Summary of Supplemental Balance Sheet Information Related to Operating Leases (Details) - USD ($)	Sep. 30, 2019	Jan. 01, 2019
Assets And Liabilities Lessee [Abstract]
Non-current right-of-use assets	$ 8,262,000	$ 1,544,000
Current lease liabilities	2,941,000
Non-current lease liabilities	$ 6,198,000

XML

Net Loss per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Computation of Basic and Diluted Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands, except share and per share data)
Numerator
Net loss	$	(39,694	)	$	(30,835	)	$	(103,228	)	$	(54,963	)
Denominator
Weighted-average number of common shares    used in net loss per share – basic		30,110,391			28,704,853			30,004,211			27,022,269
Dilutive potential common shares		—			—			—			—
Weighted-average number of common shares    used in net loss per share – diluted		30,110,391			28,704,853			30,004,211			27,022,269
Net loss per share – basic	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)
Net loss per share – diluted	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)

XML

Term Loan - Schedule of Term Loan and Unamortized Issuance Cost Balance (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Total current portion of long-term debt, net of debt issuance cost	$ 5,313
Total long-term debt, net of current portion and debt issuance cost	74,923	$ 79,219
Term Loan A
Debt Instrument [Line Items]
Current portion of long-term debt	6,667
Less current portion of unamortized issuance cost	1,354
Total current portion of long-term debt, net of debt issuance cost	5,313
Principal Amount	80,000	80,000
Exit Fee	5,200	5,200
Less long-term unamortized issuance cost	3,610	5,981
Less current portion of long-term debt	6,667
Total long-term debt, net of current portion and debt issuance cost	$ 74,923	$ 79,219