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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on December 19, 2014

Registration No. 333-198701


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



AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



KOLLTAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  26-1476129
(I.R.S. Employer
Identification No.)

300 George Street, Suite 530
New Haven, Connecticut 06511
(203) 773-3000

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



Gerald McMahon, Ph.D.
President and Chief Executive Officer
Kolltan Pharmaceuticals, Inc.
300 George Street, Suite 530
New Haven, Connecticut 06511
(203) 773-3000
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

David E. Redlick
Brian A. Johnson
Wilmer Cutler Pickering Hale and Dorr LLP
7 World Trade Center
250 Greenwich Street
New York, New York 10007
Telephone: (212) 230-8800
Fax: (212) 230-8888

 

William Hicks
Sahir Surmeli
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, PC
666 3rd Avenue
New York, New York 10017
Telephone: (212) 935-3000
Fax: (212) 983-3115



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared effective.

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

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

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

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

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

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



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
To Be Registered

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee(2)(3)

 

Common Stock, $0.001 par value per share

  $86,250,000   $11,109

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
(3)
The registration fee of $11,109 was previously paid in connection with the Registration Statement.



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

   


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

Subject to completion, dated December 19, 2014

PRELIMINARY PROSPECTUS

LOGO

            SHARES OF COMMON STOCK

        Kolltan Pharmaceuticals, Inc. is offering          shares of its common stock. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $          and $          per share.

        Prior to this offering, there has been no public market for our common stock. We have applied to have our common stock listed on The NASDAQ Global Market under the symbol "KLTN."

        We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012, and as such are subject to reduced public company disclosure standards. See "Prospectus Summary—Implications of Being an Emerging Growth Company."

        Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in "Risk Factors" beginning on page 12 of this prospectus.

       
 
 
  Per Share
  Total
 

Initial public offering price

  $             $          
 

Underwriting discounts and commissions(1)

  $             $          
 

Proceeds, before expenses, to us

  $             $          

 

(1)
We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See "Underwriting."

        We have granted the underwriters an option for a period of 30 days to purchase up to an additional                shares of common stock. The underwriters can exercise this right at any time within 30 days after the date of this prospectus.

        Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

        The underwriters expect to deliver the shares of common stock to investors on or about          , 2015.

Leerink Partners   Stifel

Guggenheim Securities

 

Janney Montgomery Scott

The date of this prospectus is            , 2015.


Table of Contents


TABLE OF CONTENTS

 
  Page  

Prospectus Summary

    1  

Risk Factors

    12  

Special Note Regarding Forward-Looking Statements and Industry Data

    51  

Use of Proceeds

    52  

Dividend Policy

    53  

Capitalization

    54  

Dilution

    56  

Selected Consolidated Financial Data

    59  

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

    61  

Business

    81  

Management

    143  

Executive Compensation

    150  

Transactions with Related Persons

    163  

Principal Stockholders

    169  

Description of Capital Stock

    173  

Shares Eligible for Future Sale

    178  

Material U.S. Tax Considerations for Non-U.S. Holders of Common Stock

    180  

Underwriting

    184  

Legal Matters

    189  

Experts

    189  

Where You Can Find More Information

    189  

Index to Consolidated Financial Statements

    F-1  



        Neither we nor the underwriters have authorized anyone to provide you with information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give to you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

        No action is being taken in any jurisdiction outside the United States to permit a public offering of our common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.


Table of Contents

 


PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the sections titled "Risk Factors," "Special Note Regarding Forward-Looking Statements and Industry Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes appearing at the end of this prospectus, before making an investment decision.

Company Overview

        We are a clinical-stage biopharmaceutical company focused on the discovery and development of novel antibody-based drugs targeting receptor tyrosine kinases, or RTKs, for the treatment of cancer and other diseases with significant unmet need. We are a leader in understanding the mechanism of action and the biomedical roles of RTKs and their signaling pathways. RTKs are a group of cell-surface receptors that play important signaling roles in a variety of key cellular functions. Genetic mutations and abnormal regulation of RTKs play critical roles in many diseases. We are employing a systematic investigation of RTKs and applying our insights with the goal of developing important new medicines with novel mechanisms of action. Our founders and members of our management team have deep expertise and a proven track record in drug discovery, development and commercialization of innovative therapeutics, including drugs targeting kinases. We have also established an extensive network of relationships with leading academic institutions, clinical and scientific advisors and biopharmaceutical companies to augment our internal research and development capabilities.

        Our lead product candidate, KTN3379, is an antibody targeting the ErbB3 RTK and is currently in Phase 1b clinical development for adult patients with advanced solid tumors. We also have two preclinical programs targeting the KIT RTK for inflammatory diseases and oncology. We have a robust discovery pipeline, including antibody drug conjugates, or ADCs, directed at a range of RTK targets and recently acquired rights to additional technologies to enhance our position in the RTK field. For example, our recent acquisition of Xetrios Therapeutics, Inc., or Xetrios, enables us to deepen our focus on the TAM family of RTKs, which includes TYRO3, AXL and MER, to address immuno-oncology, autoimmune and infectious diseases. We believe our product candidates are distinct from other antibodies targeting RTKs, offer the potential to improve patient outcomes and have an opportunity to be first-in-class or best-in-class.

 

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        The following table summarizes our product development pipeline:

GRAPHIC

        We were founded in 2007 by Dr. Joseph Schlessinger and Arthur Altschul, Jr. We licensed our founding intellectual property from Yale University, or Yale, and commenced operations in 2008. Dr. Schlessinger was a founder of SUGEN, Inc., or SUGEN, and Plexxikon, Inc., or Plexxikon. Mr. Altschul was an executive at and involved in the founding of SUGEN and was a founding investor in Plexxikon. In 1999, SUGEN was acquired by Pharmacia & Upjohn, Inc., now part of Pfizer, Inc., or Pfizer. Three drugs targeting RTKs that were under development by SUGEN at the time it was acquired by Pfizer, Sutent® (sunitinib), Palladia® (toceranib) and Xalkori® (crizotinib), have been approved by the U.S. Food and Drug Administration, or FDA, and are currently on the market for the treatment of cancer. Plexxikon was acquired by Daiichi-Sankyo Company, Limited in 2011, after announcing positive interim Phase 3 clinical trial data for Zelboraf® (vemurafenib), a drug targeting the oncogenic, or tumor promoting, BRAF kinase mutant. Zelboraf (vemurafenib) was approved by the FDA under priority review, is currently on the market for the treatment of cancer and was widely viewed as a breakthrough for the treatment of melanoma. Dr. Schlessinger serves as a member of our board of directors and as Chairman of our scientific advisory board, or SAB. He is a recognized leader in the field of RTK biology, having authored or co-authored over 475 scientific articles and papers on pharmacology and cancer biology, many of which relate to tyrosine kinase signaling. He is chair of the Pharmacology Department at Yale University School of Medicine, as well as the founding director of Yale's Cancer Biology Institute. Mr. Altschul serves as Chairman of our board of directors, was involved in the founding of FibroGen, Inc. and serves as a director of General American Investors, Child Mind Institute and The Neurosciences Research Foundation.

        Our President and Chief Executive Officer is Dr. Gerald McMahon. He also is a member of our board of directors. Dr. McMahon has over 25 years of experience in the pharmaceutical industry, has authored over 85 publications and is a co-inventor on 65 issued U.S. patents. Dr. McMahon served as President of SUGEN, and was instrumental in the discovery and development of Sutent (sunitinib), Palladia (toceranib) and Xalkori (crizotinib). In addition, Dr. McMahon was a key executive at MedImmune, LLC, or MedImmune, a subsidiary of AstraZeneca AB, or AstraZeneca, where he was

 

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involved in the creation of a portfolio of oncology biologics. While at MedImmune, Dr. McMahon was actively involved in the development of KTN3379, which we have licensed from MedImmune.

        We have established a broad relationship with Yale. We are a party to both a license agreement and a sponsored research agreement with Yale that we believe align our financial and scientific interests with Yale's in the RTK field. Our SAB is comprised of a team of experts with strong scientific and clinical experience who contribute to our understanding of RTK targets and product candidates directed toward these targets. Further, we have selectively executed agreements with biopharmaceutical companies to acquire rights to complementary technologies and product candidates. We believe our relationships with Yale, other academic institutions, our SAB and selected biopharmaceutical companies allow us to expand our product candidate pipeline and leverage the insights of leading scientists, researchers and clinicians.

Our Focus on Therapeutic Antibodies Targeting RTKs

        Kinases are a broad class of 518 distinct enzymes. Kinases play essential roles in cell signaling and regulation of important cellular processes, such as cell proliferation, differentiation and survival as well as cell metabolism and other activities. Many kinases are targets of approved drugs, including antibody-based drugs, or biologics, as well as small molecule, or conventional chemical based drugs. RTKs comprise approximately 10% of all kinases. As shown in the chart in "Business—Background on Kinases and RTKs," total worldwide net sales of small molecule drugs that target RTKs were approximately $12.6 billion in 2013. Two of these small molecule drugs are Gleevec® (imatinib) and Tarceva® (erlotinib). As shown in the chart in "Business—Background on Kinases and RTKs," total worldwide net sales of biologics that target RTKs or their ligands were approximately $22.5 billion in 2013, despite targeting only three of the 58 known RTKs. Three of these biologics are the well-known cancer drugs Herceptin® (traztuzumab), Avastin® (bevacizumab) and Erbitux® (cetuximab). We believe that the remaining 55 RTK targets, for which there are no approved biologics, provide an opportunity to create a broad portfolio of therapeutic biologics.

        Small molecules and biologics represent two different approaches to RTK drug discovery and development. While small molecules are well suited for targeting genetic alterations, such as mutations which are generally associated with defined patient populations, we believe there are several advantages to targeting RTKs through a biologic-based approach, including:

    antibodies are better suited to more potently inhibit the activation and action of cancers and other diseases driven by wild type, or normal, RTKs;

    antibodies can block distinct critical steps essential for RTK activation;

    antibodies selectively target RTKs and, therefore, have fewer and more predictable side effects, making them easier to combine with standard of care therapies;

    inhibitory antibodies block RTK activity by binding to large surfaces, therefore reducing the probability of resistance caused by new mutations;

    antibodies are injectable drugs that do not go through the gut and are not processed by the liver, resulting in fewer complications related to bioavailability and metabolism; and

    antibodies circulate in the bloodstream after injection, often for weeks, resulting in prolonged drug exposure that permits less frequent dosing.

 

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Our Lead Programs

KTN3379—ErbB3 RTK Inhibitor

        Our lead product candidate, KTN3379, is an antibody that targets ErbB3, an RTK that belongs to the epidermal growth factor receptor, or EGFR, family. ErbB3 is believed to be an important receptor regulating cancer cell growth and survival. ErbB3 is expressed in many cancers including head and neck, breast, colorectal, lung, gastric, ovarian and melanoma. While there are several successful, currently marketed drugs targeting two members of the EGFR family, there are none that directly target ErbB3.

        KTN3379 has been demonstrated to be differentiated from other ErbB3 antibodies in development based on preclinical observations supporting its potency and pharmacology and on its novel binding to ErbB3 and mechanism of inhibition of ErbB3. We and Dr. Schlessinger recently elucidated the x-ray crystal structure of KTN3379 bound with the extracellular domain of ErbB3. We believe that the unique binding site, or epitope, of KTN3379 with ErbB3 prevents activation that is dependent on ErbB3's ligand, known as neuregulin, as well as ligand independent binding. Ligands are substances that bind RTKs and activate signaling within the cell. We believe that the novel binding of this antibody with ErbB3 and its dual mechanism of action suggest that KTN3379 has the potential to completely inactivate ErbB3 and potentially is applicable as a therapy for all tumor types in which ErbB3 plays a role. We believe that the best approach for targeting ErbB3 is an antibody in combination with other therapeutic agents, such as an EGFR or ErbB2 inhibitor, because ErbB3 signaling requires the presence of either EGFR or ErbB2 to initiate signaling through dimerization. Dimerization is the process by which two single RTK proteins physically interact, ultimately resulting in their activation and cell signaling. We believe this approach is supported by the recent approval of the combination of Perjeta® (pertuzumab), which blocks ErbB2 dimerization with ErbB3, with Herceptin (trastuzumab), which inhibits ErbB2 signaling, for the treatment of metastatic breast cancer.

        We are conducting an open-label Phase 1 clinical trial program of KTN3379. In September 2014, we completed the dose escalation monotherapy portion of this clinical trial program in adult patients with advanced solid tumors. In October 2014, we initiated the Phase 1b portion of this clinical trial program in which we are evaluating KTN3379 in combination with selected currently approved cancer drugs in a variety of types of solid tumors. We plan to enroll approximately six to 12 patients in each of the four concurrent arms in the Phase 1b portion of this clinical trial program. The first arm will test KTN3379 in combination with Erbitux (cetuximab) in head and neck or colorectal cancer patients, the second arm will test KTN3379 in combination with Tarceva (erlotinib) in non-small cell lung cancer patients, the third arm will test KTN3379 in combination with Zelboraf (vemurafenib) in melanoma patients and the fourth arm will test KTN3379 in combination with Herceptin (trastuzumab) in breast or gastric cancer patients. We expect to announce preliminary data from the Phase 1b portion of our Phase 1 clinical trial program in the first half of 2015.

        In the completed dose escalation monotherapy portion of our Phase 1 clinical trial program, KTN3379 administered at doses of 5 mg/kg, 10 mg/kg and 20 mg/kg every 21 days was well tolerated in the advanced cancer patients in the trial. No dose limiting toxicities were observed and a maximum tolerated dose was not determined. In this dose escalation portion, we also observed a linear and dose proportional pharmacokinetic profile based on the concentration of the drug in the patients' blood. Levels of KTN3379 in patients' blood at doses of 10 mg/kg and 20 mg/kg exceeded the target exposure determined from experiments assessing antitumor activity in preclinical models. All doses tested resulted in modulation of soluble ErbB3, a biomarker circulating in the patients' blood.

        We plan to enroll a total of at least 40 patients in our overall Phase 1 clinical trial program. The primary objectives of our Phase 1 clinical trial program are to determine the maximum tolerated dose, establish a dosing regimen for Phase 2 clinical trials and evaluate the general safety profile of KTN3379. The secondary objectives of our Phase 1 clinical trial program are to determine the

 

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pharmacokinetics, to evaluate the immunogenicity and to evaluate preliminary anti-tumor activity of KTN3379. Based on the results from the dose escalation portion of our Phase 1 clinical trial program, we were able to identify a recommended dose for Phase 2 clinical trials.

        We plan to initiate two additional clinical trials of KTN3379 in the first half of 2015. The first, commonly referred to as a window study, will evaluate KTN3379 as a single agent in head and neck cancer patients. The second is another Phase 1b clinical trial that will evaluate KTN3379 in combination with Zelboraf (vemurafenib) in thyroid cancer patients. Subject to the satisfactory completion of our overall Phase 1 clinical trial program, we plan to initiate Phase 2 clinical trials in the first half of 2016. In the Phase 2 clinical trials, we plan to test KTN3379 in combination with other cancer drugs in certain indications based on the results from the ongoing Phase 1b portion of our Phase 1 clinical trial program.

KTN0158—KIT RTK Inhibitor

        Our second product candidate, KTN0158, is an antibody targeting KIT, an RTK that plays a role in modulating the activity of a variety of cell signaling pathways, including those associated with mast cells. Mast cells are a part of the immune system and are implicated in several disease categories including inflammatory diseases, oncology, idiopathic pulmonary fibrosis, atopic dermatitis and infection. We applied novel insights about the x-ray crystal structure of KIT that were elucidated in Dr. Schlessinger's laboratory to identify a unique way to inhibit the function of KIT, which led to our discovery of KTN0158. In preclinical studies, we determined that KTN0158 can modulate the activity of mast cells, suggesting that this agent could represent a novel approach to the treatment of inflammatory diseases in both chronic and acute settings.

        We are evaluating KTN0158 as a potential therapeutic for a range of disease indications, beginning with neurofibromatosis type 1, or NF1. NF1 is a subtype of neurofibromatosis, which is a rare genetic disorder leading to activation of mast cells resulting in benign growths, known as neurofibromas. Neurofibromas can cause pain, itching and obstruction of organ function, as well as cosmetic effects. The disease usually manifests in childhood and in its more severe forms leads to substantial disfiguration and morbidities, including enlarged heads, scoliosis, congenital defects of bones, optic gliomas, learning disabilities and high blood pressure. According to the National Institutes of Health, approximately 100,000 individuals in the United States suffer from NF1 and one in 3,500 individuals born in the United States each year carries the genetic defect causing NF1. We believe that KTN0158 as a treatment for NF1 will qualify for orphan drug designation in both the United States and the European Union. A product candidate may be eligible for orphan drug designation prior to submitting a new drug application, or NDA, or a biologics license application, or BLA, if the product candidate is intended to treat a rare disease or condition, generally defined as a condition affecting less than 200,000 individuals in the United States. If a product candidate with orphan drug designation receives the first FDA approval for the rare disease or condition for which it has been designated, the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. See "Business—Government Regulation—Orphan Designation and Exclusivity" for additional information.

        There are no currently approved drugs indicated for patients afflicted with NF1, which may allow us to qualify for favorable regulatory strategies, such as breakthrough therapy or fast track designation. The FDA may designate a product candidate as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence demonstrates the product may provide a substantial improvement over available therapies on at least one clinically significant endpoint. If a product candidate receives this designation, the FDA may take certain actions that may expedite review of the product. The FDA may designate a product candidate for fast track review if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and the product

 

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candidate demonstrates the potential to address an unmet medical need for the disease or condition. If a product candidate receives this designation, sponsors may have greater interactions with the FDA, and the FDA may initiate review of sections of a fast track product's NDA before the application is complete. See "Business—Government Regulation—Fast Track, Breakthrough Therapy and Priority Review Designations" for additional information related to the foregoing eligibility criteria and benefits of each designation. We expect to submit an investigational new drug application, or IND, to the FDA for this product candidate in mid-2015 and, if accepted, initiate a Phase 1 clinical trial in NF1 patients in the second half of 2015. Subject to the satisfactory completion of this Phase 1 clinical trial, we plan to initiate a Phase 2 clinical trial in NF1 patients in the second half of 2016. We are also actively exploring the development of KTN0158 for a variety of inflammatory diseases, including atopic dermatitis and idiopathic pulmonary fibrosis, and plan to submit an IND and initiate clinical trials in an additional indication in the second half of 2016.

KIT-ADC

        Our third development program, which we refer to as KIT-ADC, is focused on using an ADC to target cancers that express the KIT receptor. In addition to KIT's role in mast cells and inflammation, KIT is expressed in many types of human cancers, including small cell lung cancer, the family of tumors in Ewing's sarcoma, melanoma, acute myeloid leukemia and gastro-intestinal stromal tumors. However, in most of these cancers KIT is not oncogenic. Our KIT-ADC is comprised of our antibody, KTN0158, conjugated to a novel cytotoxic, which is a substance that kills tumor cells, from a class called Pyrrolobenzodiazepine, or PBD. In May 2013, we licensed certain PBDs from Spirogen Developments LP and Spirogen SARL (Bermuda Branch), each of which are subsidiaries of AstraZeneca and which we refer to together as Spirogen. In preclinical studies of our KIT-ADC, the KTN0158 antibody portion bound to KIT on tumor cells and was internalized by the cell, resulting in the release of the PBD cytotoxic, which then bound to DNA and killed the tumor cell. We are currently working to optimize the PBD-linker chemistry and conjugation of the PBD cytotoxic to our KTN0158 antibody and have initiated nonclinical toxicology studies. We plan to identify an IND candidate in the first half of 2015, initiate IND enabling preclinical studies in 2015 and submit an IND in late 2016. We plan to use the drug supply, nonclinical toxicology data and expected regulatory filings for our KTN0158 development program to support the KIT-ADC IND submission.

TAM Research Program

        In August 2014, we acquired Xetrios to obtain rights to intellectual property relating to TAM RTKs owned in whole or in part by Xetrios, or licensed by Xetrios from the Salk Institute for Biological Studies, or Salk, in La Jolla, California. The TAM RTK family consists of TYRO3, AXL and MER. The intellectual property licensed from Salk was generated in the laboratory of Dr. Greg Lemke, an international expert in the biology of TAM RTKs. TAM RTKs have been shown to be important drug targets for immuno-oncology, autoimmune and infectious diseases. In addition, new evidence from Dr. Lemke's laboratory suggests that certain TAM RTKs may modify the function of macrophages and dendritic cells, which has further implications for the role of TAM RTKs in immuno-oncology.

Additional Research Programs

        We are building a robust product development pipeline by systematically creating antibodies against RTK targets and pursuing novel biologic mechanisms. In addition to the two RTK targets that are the subject of our lead development programs and our separate TAM research program, we are currently pursuing five other areas of RTK research to identify candidates for clinical development either internally or in collaboration with third parties. Some of these programs may include ADC technology. We believe our understanding of the structure, biology and activity of RTKs and our innovative scientific approach will allow us to develop antibody-based drugs to modulate the function of

 

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RTKs and create novel product candidates that have an opportunity to be first-in-class or best-in-class. In certain cases, we expect our new antibody-based product candidates will incorporate the innovative technologies that we have in-licensed.

Our Strategy

        Our goal is to become a leader in the discovery, development and commercialization of important medicines targeting RTKs for the treatment of patients with cancer and other diseases with significant unmet need.

        Key elements of our strategy include:

    Rapidly advance the clinical development of KTN3379 as a combination therapy.

    Establish clinical proof of concept of KTN0158 in NF1, an underserved orphan indication, in order to accelerate development and regulatory review.

    Expand our product candidate pipeline by continuing development of our KIT-ADC program, discovering product candidates for our TAM research program, conducting additional proprietary research and applying insights from our network of collaborators.

    Opportunistically in-license or acquire technologies and product candidates.

    Establish specialized sales and marketing capabilities in the United States in order to maximize the commercial potential of our product candidates.

    Collaborate selectively to augment and accelerate development and commercialization of our product candidates.

Our Network of Collaborators

        We augment our internal research and development efforts through our network of academic, scientific and clinical relationships that we have established so as to benefit from the knowledge and experience of other experts in the RTK field and specific disease categories. The primary example of these relationships is our set of arrangements with Yale. We believe our relationships with Yale and other institutions, including the Salk Institute for Biological Studies, the Sarah Cannon Research Institute, Children's Hospital of Philadelphia and Indiana University, allow us to expand our product candidate pipeline and obtain the insights of leading scientists, researchers and clinicians.

        Our strong presence in the RTK field has enabled us to access additional technologies that we believe will further enhance the quality of our product candidate pipeline and provide flexibility in optimizing our clinical programs. We have selectively executed agreements with biopharmaceutical companies, including MedImmune and Spirogen, that are intended to enhance our product candidate pipeline and proprietary scientific and technological capabilities.

Risks Associated with Our Business

        Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the "Risk Factors" section of this prospectus immediately following this prospectus summary. These risks include the following:

    We have incurred significant losses since our inception and will need substantial additional funding. To date, we have not generated any revenue. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. As of September 30, 2014, we had an accumulated deficit of $91.7 million.

 

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    We have a limited operating history and are very early in our development efforts. All of our product candidates other than KTN3379 are still in preclinical development, and we have not received marketing approval for any product candidate.

    Clinical trials of KTN3379 or any of our other product candidates may not be successful. The results of the dose escalation monotherapy portion of our Phase 1 clinical trial program of KTN3379 may not be predictive of the results of further clinical trials of KTN3379 or any of our other product candidates. If we are unable to obtain required marketing approvals for, commercialize, manufacture, obtain and maintain patent protection for or gain market acceptance by physicians, patients and third party payors of KTN3379 or any of our other product candidates, or experience significant delays in doing so, our business will be materially harmed and our ability to generate revenue will be materially impaired.

    We may not be successful in obtaining rights to technologies and product candidates for our development pipeline through in-licenses and acquisitions.

    We may depend on third party collaborators for the development and commercialization of some of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

    We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates receive marketing approval. Manufacturing biologic products, such as antibodies, is complex, especially in large quantities.

    If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

Our Corporate Information

        We were incorporated under the laws of the State of Delaware on November 16, 2007 under the name Kolltan Pharmaceuticals, Inc. Our executive offices are located at 300 George Street, Suite 530, New Haven, Connecticut 06511, and our telephone number is (203) 773-3000. Our website address is www.kolltan.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

        In this prospectus, unless otherwise stated or the context otherwise requires, references to "Kolltan," "Kolltan Pharmaceuticals," "we," "us," "our" and similar references refer to Kolltan Pharmaceuticals, Inc. and, where appropriate, its consolidated subsidiaries. The trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

Implications of Being an Emerging Growth Company

        As a company with less than $1 billion of revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

 

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THE OFFERING

Common stock to be offered by us

                  shares

Common stock to be outstanding after this offering

 

                shares

Over-allotment option

 

We have granted the underwriters an option for a period of 30 days to purchase up to                        additional shares of our common stock to cover over-allotments.

Use of proceeds

 

We intend to use the net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities to continue clinical development of KTN3379, to advance development of our lead preclinical programs, KTN0158 and KIT-ADC, to continue work on our research programs, including our TAM research program and for working capital and other general corporate purposes. See the "Use of Proceeds" section in this prospectus for a more complete description of the intended use of proceeds from this offering.

Risk factors

 

You should read the "Risk Factors" section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

Proposed NASDAQ Global Market symbol

 

"KLTN"



        The number of shares of our common stock to be outstanding after this offering is based on 22,944,889 shares of our common stock outstanding as of November 30, 2014 and 127,833,776 additional shares of our common stock issuable upon the automatic conversion of all outstanding shares of our preferred stock upon the closing of this offering.

        The number of shares of our common stock to be outstanding after this offering excludes:

    26,887,209 shares of our common stock issuable upon the exercise of stock options outstanding as of November 30, 2014, at a weighted average exercise price of $0.41 per share;

    35,577 additional shares of our common stock available for future issuance as of November 30, 2014 under our amended and restated 2008 equity incentive plan;

    10,623,678 additional shares of our common stock that will become available for future issuance under our 2014 stock incentive plan after this offering; and

    1,770,613 additional shares of our common stock that will become available for future issuance under our 2014 employee stock purchase plan after this offering.

        Unless otherwise indicated, all information in this prospectus assumes:

    no exercise of the outstanding options described above;

    no exercise by the underwriters of their option to purchase up to                        additional shares of our common stock to cover over-allotments;

    the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 127,833,776 shares of our common stock upon the closing of this offering; and

    the restatement of our certificate of incorporation and the amendment and restatement of our bylaws upon the closing of this offering.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

        You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2012 and 2013 from our audited consolidated financial statements appearing at the end of this prospectus. The consolidated statement of operations data for the nine months ended September 30, 2013 and 2014 and the consolidated balance sheet data as of September 30, 2014 have been derived from our unaudited consolidated financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited consolidated financial data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information as of and for the periods presented. Our historical results are not necessarily indicative of results that should be expected in any future period, and our results for any interim period are not necessarily indicative of results that should be expected for any full year.

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
  (in thousands, except per share data)
 

Statement of Operations Data:

                         

Revenue

  $   $   $   $  
                   

Operating expenses:

                         

Research and development

    8,307     20,269     16,809     17,217  

General and administrative

    5,783     6,223     4,970     7,202  
                   

Total operating expenses

    14,090     26,492     21,779     24,419  
                   

Loss from operations

    (14,090 )   (26,492 )   (21,779 )   (24,419 )

Interest income

    85     47     45     22  

Other income (expense), net

    129     96     66     98  
                   

Net loss

  $ (13,876 ) $ (26,349 ) $ (21,668 ) $ (24,299 )
                   
                   

Net loss attributable to common stockholders

  $ (13,876 ) $ (26,349 ) $ (21,668 ) $ (24,299 )
                   
                   

Net loss per share attributable to common stockholders, basic and diluted(1)

  $ (0.69 ) $ (1.31 ) $ (1.08 ) $ (1.16 )
                   
                   

Weighted average common shares outstanding, basic and diluted(1)

    20,007     20,090     20,007     21,016  
                   
                   

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)

        $ (0.32 )       $ (0.18 )
                       
                       

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)(2)

          83,085           132,272  
                       
                       

(1)
See Note 11 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders.

(2)
See Note 11 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted pro forma net loss per share attributable to common stockholders.

 

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  As of September 30, 2014  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (in thousands)
 

Balance Sheet Data:

                   

Cash, cash equivalents and marketable securities

  $ 52,732   $ 52,732   $    

Working capital(1)

    48,626     48,626        

Total assets

    58,154     58,154        

Convertible preferred stock

    138,800            

Total stockholders' equity (deficit)

    (85,736 )   53,064        

(1)
We define working capital as current assets less current liabilities.

        The pro forma balance sheet data give effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 127,833,776 shares of our common stock upon the closing of this offering.

        The pro forma as adjusted balance sheet data give further effect to our issuance and sale of              shares of our common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        A $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders' equity by $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. An increase or decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders' equity on a pro forma as adjusted basis by $             million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions.

 

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occur, our business, prospects, operating results and financial condition could suffer materially. In such event, the trading price of our common stock could decline and you might lose all or part of your investment.

Risks Related to Our Financial Position and Need For Additional Capital

We have incurred significant losses since our inception. We expect to incur losses over at least the next several years and may never achieve or maintain profitability.

        Our net loss was $13.9 million for the year ended December 31, 2012, $26.3 million for the year ended December 31, 2013 and $24.3 million for the nine months ended September 30, 2014. As of September 30, 2014, we had an accumulated deficit of $91.7 million. To date, we have not generated any revenue and have financed our operations primarily through sales of our preferred stock. We have devoted substantially all of our financial resources and efforts to organizing and staffing our company, business planning, raising capital, conducting research and development, filing patents, identifying potential product candidates, undertaking preclinical studies, acquiring rights to technologies and product candidates, initiating and completing the dose escalation monotherapy portion of our Phase 1 clinical trial program for our most advanced product candidate, KTN3379, initiating the Phase 1b portion of this Phase 1 clinical trial program and establishing arrangements with third parties for the manufacture of initial quantities of our product candidates. We are still in the early stages of development of our product candidates, and we have not completed development of any drugs. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially as we:

    continue our Phase 1 clinical trial program for our most advanced product candidate, KTN3379, in patients with advanced solid tumors, including the ongoing Phase 1b portion of the clinical trial program to evaluate KTN3379 in combination with currently approved cancer drugs;

    initiate a planned Phase 1 clinical trial of our second most advanced product candidate, KTN0158, which we plan to evaluate for several indications, including neurofibromatosis type 1, or NF1, a rare genetic disorder;

    seek to identify a lead product candidate for our third development program, which we refer to as our KIT-ADC program, and then pursue a planned Phase 1 clinical trial for such product candidate, which we plan to evaluate for several cancer indications;

    seek to identify a lead product candidate for our TAM research program;

    continue the research and development of our other product candidates;

    seek to discover and develop additional product candidates;

    acquire or in-license rights to other technologies and product candidates;

    establish additional arrangements with third parties for the manufacture of clinical supplies of our product candidates;

    seek marketing approvals for any product candidates that successfully complete clinical trials;

    ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products for which we may obtain marketing approval;

    maintain, expand and protect our intellectual property portfolio;

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    hire additional clinical, regulatory and scientific personnel; and

    add operational, financial and management information systems and personnel to support our research, product development and future commercialization efforts.

        To become and remain profitable, we must succeed in developing, and eventually commercializing, products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates, discovering additional product candidates, establishing arrangements with third parties for the manufacture of clinical supplies of our product candidates, obtaining marketing approval for our product candidates and manufacturing, marketing and selling any products for which we may obtain marketing approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability.

        Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses we will incur or when, or if, we will be able to achieve profitability. If we are required by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, or other regulatory authorities to perform studies in addition to those currently expected, or if there are any delays in establishing appropriate manufacturing arrangements for or in completing our clinical trials or the development of any of our product candidates, our expenses could increase materially.

        Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our research or product development programs or future commercialization efforts.

        We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue our Phase 1 clinical trial program for KTN3379, prepare for and initiate our planned Phase 1 clinical trial of KTN0158, seek to identify a lead product candidate in each of our KIT-ADC and TAM programs and continue research and development and initiate additional clinical trials of, establish arrangements with third parties for the manufacture of clinical supplies of and seek marketing approval for our lead programs and our other product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research, product development programs or any future commercialization efforts.

        We believe that the net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements through at least                . We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. This estimate also assumes that we do not obtain any funding through collaborations or other strategic alliances, including under the license and option agreement that we entered into with MedImmune, LLC,

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or MedImmune, relating to specified antibodies, including KTN3379. Our future capital requirements will depend on many factors, including:

    the progress, costs and results of our Phase 1 clinical trial program for KTN3379 in patients with advanced solid tumors and any future clinical development of KTN3379;

    the outcome of the process under our license and option agreement with MedImmune which, if MedImmune delivers to us a notice triggering a determination by an expert panel of the fair market value of our rights with respect to KTN3379 and related products, through various elections that we and MedImmune are permitted to make, could result in:

    payment by MedImmune to us of the fair market value of our rights with respect to KTN3379 and related products and the assignment and license by us of certain intellectual property to MedImmune, in exchange for termination of the MedImmune agreement;

    payment by us to MedImmune of a minimum amount of $20.0 million, in which case this election process will terminate and the MedImmune agreement will remain in effect; or

    an obligation for us and MedImmune to enter into a co-development and co-commercialization agreement relating to KTN3379 and related products under which we would receive from MedImmune an upfront payment determined based on a formula in the MedImmune agreement, or if we and MedImmune fail to enter into the co-development and co-commercialization agreement related to KTN3379 and related products, the joint auction of KTN3379 and related products to a third party, which would result in a payment to us of half of the proceeds from such sale;

    the scope, progress, costs and results of preclinical development and clinical trials for our other product candidates and development programs, including KTN0158 and KIT-ADC;

    the number and development requirements of other product candidates that we pursue, including in our TAM research program and others we may acquire from third parties;

    the costs and timing of arrangements with third parties for the manufacture of clinical supplies of our product candidates;

    the costs, timing and outcome of regulatory review of our product candidates;

    the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

    the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

    the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

    our ability to establish collaboration arrangements with other biotechnology or pharmaceutical companies on favorable terms, if at all, for the development or commercialization of our product candidates; and

    the extent to which we acquire or in-license other product candidates and technologies.

        Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or

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strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

        Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

        If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

        We commenced operations in 2008, and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, conducting research and development, filing patents, identifying potential product candidates, undertaking preclinical studies, acquiring rights to technologies and product candidates, initiating and completing the dose escalation monotherapy portion of our Phase 1 clinical trial program for our most advanced product candidate, KTN3379, initiating the Phase 1b portion of this Phase 1 clinical trial program and establishing arrangements with third parties for the manufacture of initial quantities of our product candidates. All of our product candidates other than KTN3379 are still in preclinical development. We have not yet demonstrated our ability to successfully complete any clinical trials, obtain marketing approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

        In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

        We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

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Risks Related to the Discovery and Development of Our Product Candidates

We are very early in our development efforts and have only one product candidate in a Phase 1 clinical trial. All of our other product candidates are still in preclinical development. If we are unable to commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.

        We are very early in our development efforts and have only one product candidate in a Phase 1 clinical trial. All of our other product candidates are still in preclinical development. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. The success of our product candidates will depend on several factors, including the following:

    successful completion of preclinical studies and clinical trials;

    receipt and related terms of marketing approvals from applicable regulatory authorities;

    obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

    making arrangements with third party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our product candidates;

    establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in collaboration with others;

    acceptance of our products, if and when approved, by patients, the medical community and third party payors;

    effectively competing with other therapies;

    obtaining and maintaining third party coverage and adequate reimbursement;

    protecting our rights in our intellectual property portfolio; and

    maintaining a continued acceptable safety profile of the products following approval.

        If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business. For example, our business could be harmed if results of the Phase 1b portion of our Phase 1 clinical trial program for KTN3379 vary meaningfully from our expectations.

Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

        All but one of our product candidates are in preclinical development, and one is in early clinical development, and their risk of failure is high. We are unable to predict when or if any of our product candidates will prove effective or safe in humans or will receive marketing approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to the outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. In particular, the small number of patients in our early clinical trials may make the results of these trials less predictive of the outcome of later clinical trials. For example, the results of the dose escalation monotherapy portion of our Phase 1 clinical trial program of KTN3379 may not be predictive of the results of further clinical trials of KTN3379 or any of our other

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product candidates. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

        We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

    regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

    we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

    clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

    the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

    our third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

    we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;

    regulators or institutional review boards may require that we or our investigators suspend or terminate clinical trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

    our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials;

    the cost of clinical trials of our product candidates may be greater than we anticipate; and

    the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate.

        If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

    be delayed in obtaining marketing approval for our product candidates;

    not obtain marketing approval at all;

    obtain approval for indications or patient populations that are not as broad as intended or desired;

    obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

    be subject to additional post-marketing testing requirements; or

    have the product removed from the market after obtaining marketing approval.

        Our product development costs will also increase if we experience delays in preclinical studies or clinical trials or in obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on

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schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary marketing approvals could be delayed or prevented.

        We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside of the United States. In particular, we are evaluating KTN3379 for the treatment of various types of solid tumors. Until we receive the results of the Phase 1b portion of our Phase 1 clinical trial program, we will not know the particular type or types of solid tumors on which we will focus our Phase 2 clinical trials. We cannot predict how difficult it will be to enroll patients for future trials in the indications that we ultimately decide to pursue. For example, we are evaluating KTN0158 for several indications, including NF1, a rare genetic disorder, which affects a very limited number of patients worldwide. Therefore, our ability to identify and enroll eligible patients for KTN0158 clinical trials and possibly other clinical trials may be limited or may result in slower enrollment than we anticipate. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors' product candidates. Patient enrollment is affected by other factors including:

    the severity of the disease under investigation;

    the eligibility criteria for the trial in question;

    the perceived risks and benefits of the product candidates under study;

    the efforts to facilitate timely enrollment in clinical trials;

    the patient referral practices of physicians;

    the burden on patients due to inconvenient procedures;

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

    the proximity and availability of clinical trial sites for prospective patients.

        Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If serious adverse or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates.

        If our product candidates are associated with serious adverse events or undesirable side effects in clinical trials or have characteristics that are unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In pharmaceutical development, many drugs that initially show promise in early stage testing for treating cancer are later found to cause side effects that prevent further development of the drug. Currently marketed therapies for the treatment of cancer are generally limited to some extent by their toxicity. In the dose escalation monotherapy portion of our Phase 1 clinical trial program of KTN3379, three serious adverse events were experienced by patients, two of which were judged by the trial investigator to be related to the underlying cancer and one of which, severe diarrhea, was judged by the trial investigator to be related to KTN3379. In addition some of our product candidates would be chronic therapies or be used in pediatric populations, for which safety concerns may be particularly

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important. Use of our product candidates as monotherapies may also result in adverse events consistent in nature with other marketed therapies. In addition, when used in combination with other marketed therapies, our product candidates may exacerbate adverse events associated with the marketed therapy.

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

        Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

We expect to develop KTN3379 in combination with other drugs. If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing or supply issues arise with, the drugs we choose to evaluate in combination with KTN3379, we may be unable to obtain approval of KTN3379 or market KTN3379.

        We have initiated an open-label Phase 1 clinical trial program of KTN3379 in patients with advanced solid tumors. In September 2014, we completed the dose escalation portion of this clinical trial program of KTN3379 as a monotherapy. However, we intend to develop KTN3379 in combination with one or more currently approved cancer drugs. We did not develop or obtain marketing approval for, nor do we manufacture or sell, any of the currently approved drugs that we may study in combination with KTN3379. If the FDA or similar regulatory authorities outside of the United States revoke their approval of the drug or drugs in combination with which we determine to develop KTN3379, we will not be able to market KTN3379 in combination with such revoked drugs. We may also evaluate KTN3379 in combination with one or more other cancer drugs that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States. We will not be able to market and sell KTN3379 in combination with any such unapproved cancer drugs that do not ultimately obtain marketing approval.

        If safety or efficacy issues arise with any of these drugs, we could experience significant regulatory delays, and the FDA or similar regulatory authorities outside of the United States may require us to redesign or terminate the applicable clinical trials. If the drugs we use are replaced as the standard of care for the indications we choose for KTN3379, the FDA or similar regulatory authorities outside of the United States may require us to conduct additional clinical trials. In addition, if manufacturing or other issues result in a shortage of supply of the drugs with which we determine to combine with KTN3379, we may not be able to complete clinical development of KTN3379 on our current timeline or at all.

        Even if KTN3379 were to receive marketing approval or be commercialized for use in combination with other existing drugs, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the drug used in combination with KTN3379 or that safety, efficacy, manufacturing or supply issues could arise with these existing drugs. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similar risks if we develop any of our other product candidates for use in combination with other drugs or for indications other than cancer. This could result in our own products being removed from the market or being less successful commercially.

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We may not be successful in our efforts to identify or discover additional potential product candidates.

        A key element of our strategy is to apply our proprietary knowledge and our understanding of the structure, biology and activity of receptor tyrosine kinases, or RTKs, to discover and develop additional antibodies to modulate the function of RTKs. The therapeutic discovery activities that we are conducting may not be successful in identifying product candidates that are useful in treating cancer or other diseases. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:

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

    potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval or achieve market acceptance; or

    potential product candidates may not be effective in treating their targeted diseases.

        Research programs to identify new product candidates require substantial technical, financial and human resources. We may choose to focus our efforts and resources on a potential product candidate that ultimately proves to be unsuccessful. If we are unable to identify suitable product candidates for preclinical and clinical development, we will not be able to obtain revenues from sale of products in future periods, which likely would result in significant harm to our financial position and adversely impact our stock price.

We may not be successful in obtaining rights to technologies and product candidates for our development pipeline through in-licenses and acquisitions.

        We plan to further expand our product candidate pipeline through continuing to in-license or acquire the rights to complementary technologies and product candidates on an opportunistic basis. For example, we licensed KTN3379 from MedImmune. However, we may be unable to in-license or acquire any additional technologies or product candidates from third parties. The acquisition and licensing of technologies and product candidates is a competitive area, and a number of more established companies also have similar strategies to in-license or acquire technologies and product candidates that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to in-license or acquire the relevant technology or product candidate on terms that would allow us to make an appropriate return on our investment.

        In addition, we expect competition for in-licensing and acquiring product candidates that are attractive to us may increase in the future, especially if our approach of developing RTK product candidates is successful, which may mean fewer suitable opportunities for us as well as higher licensing or acquisition prices. If we are unable to successfully obtain rights to additional technologies or product candidates, our prospects for future growth could be limited.

Risks Related to the Commercialization of Our Product Candidates

Even if any of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third party payors and others in the medical community necessary for commercial success.

        If any of our product candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third party payors and others in the medical community. For example, current cancer treatments, such as chemotherapy and radiation therapy, are

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well established in the medical community, and doctors may continue to rely on these treatments. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

    the efficacy and potential advantages compared to alternative treatments;

    the prevalence and severity of any side effects, in particular compared to alternative treatments;

    our ability to offer our products for sale at competitive prices;

    the convenience and ease of administration compared to alternative treatments;

    the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

    the strength of marketing and distribution support;

    the availability of third party coverage and adequate reimbursement;

    the timing of any marketing approval in relation to other product approvals;

    support from patient advocacy groups; and

    any restrictions on the use of our products together with other medications.

If we are unable to establish sales and marketing capabilities, we may not be successful in commercializing our product candidates if and when they are approved.

        We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of biopharmaceutical products. To achieve commercial success for any product for which we have obtained marketing approval, we will need to establish sales, marketing and distribution capabilities, either ourselves or through collaboration or other arrangements with third parties.

        We plan to build our own focused, specialized sales and marketing organization to support the commercialization in the United States of product candidates for which we receive marketing approval and that can be commercialized with such capabilities. There are risks involved with establishing our own sales and marketing capabilities. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. These efforts may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

        Factors that may inhibit our efforts to commercialize our products on our own include:

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

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

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

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

        If we are unable to establish our own sales and marketing capabilities and enter into arrangements with third parties to perform these services, our product revenues and our profitability, if any, are likely

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to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to market and sell our product candidates or may be unable to do so on terms that are acceptable to us. We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

        The development and commercialization of new pharmaceutical and biotechnology products is highly competitive. We face competition with respect to our current product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing our product candidates. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

        Specifically, there are a large number of pharmaceutical and biotechnology companies developing or marketing treatments for cancer which would be competitive with the product candidates we are developing for the treatment of cancer, if our product candidates are approved. Many of these companies are developing cancer therapeutics that work by targeting RTKs, including the ErbB3 RTK. Although there are currently marketed drugs that have activity against ErbB3 through their targeting of EGFR and ErbB2, no currently marketed drug directly targets ErbB3. Some of the companies working in this field that are developing biologics that target ErbB3 include Amgen Inc., GlaxoSmithKline plc, Novartis AG, or Novartis, F. Hoffmann-La Roche Ltd., Regeneron Pharmaceuticals, Inc., Merrimack Pharmaceuticals, Inc. and Aveo Pharmaceuticals, Inc. With respect to KTN0158, there are a number of large pharmaceutical companies and biotechnology companies marketing small molecule drugs which target the KIT RTK, including Novartis, Pfizer Inc., Bayer AG and Onyx Pharmaceuticals, Inc. We are also aware of pharmaceutical and biotechnology companies developing drugs for the treatment of mast cell related diseases. Further, there are a large number of pharmaceutical and biotechnology companies developing or marketing treatments for the cancers that we are seeking to address in our KIT-ADC program, including Ewing's sarcoma, small cell lung cancer and leukemia. For example, Novartis is developing an ADC that directly targets the KIT RTK for the treatment of cancer. There are several biotechnology and pharmaceutical companies developing small molecules and antibodies that target the TAM RTKs as a primary target.

        Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are approved for broader indications or patient populations, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other marketing approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Amgen Inc. is beginning Phase 3 clinical development of patritumab, an antibody that targets the inhibition of ErbB3 and which could receive marketing approval prior to the time, if any, that we receive marketing approval for KTN3379. In addition, our ability to compete may be affected in many cases by insurers or

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other third party payors seeking to encourage the use of generic products. Generic products are currently on the market for some of the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium over any competitive generic products.

        Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining marketing approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives, which would harm our business.

        The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues, if any, we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

        Our ability to commercialize any product candidates successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers and other organizations. Government authorities and third party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, government authorities and third party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage and reimbursement may not be available for any product that we commercialize and, even if these are available, the level of reimbursement may not be satisfactory. Reimbursement may affect the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are not available or reimbursement is available only to limited

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levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

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

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

        We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

    decreased demand for any product candidates or products that we may develop;

    injury to our reputation and significant negative media attention;

    withdrawal of clinical trial participants;

    significant costs to defend the related litigation;

    substantial monetary awards to trial participants or patients;

    loss of revenue;

    reduced resources of our management to pursue our business strategy; and

    the inability to commercialize any products that we may develop.

        We currently hold $5.0 million in product liability insurance coverage in the aggregate, with a per incident limit of $5.0 million, which may not be adequate to cover all liabilities that we may incur. We likely will need to increase our insurance coverage as we expand our clinical trials or if we commence commercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

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Risks Related to Our Dependence on Third Parties

We may enter into collaborations with third parties for the development and commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

        We may seek third party collaborators for the development and commercialization of some of our product candidates on a selected basis. Our likely collaborators for any collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. For example, under our license and option agreement with MedImmune, we could enter into a co-development and co-commercialization agreement with MedImmune under which we and MedImmune would develop and commercialize KTN3379 and share equally the development costs of and the net profit and loss from this product candidate.

        If we do enter into any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators' abilities and efforts to successfully perform the functions assigned to them in these arrangements. Collaborations involving our product candidates would pose numerous risks to us, including the following:

    collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations and may not perform their obligations as expected;

    collaborators may deemphasize or not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators' strategic focus, including as a result of a sale or disposition of a business unit or development function, or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

    collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

    collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

    a collaborator with marketing and distribution rights to multiple products may not commit sufficient resources to the marketing and distribution of our product relative to other products;

    collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

    disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources;

    collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates;

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    collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all; and

    if a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated.

If we are not able to establish collaborations, we may have to alter our development and commercialization plans.

        Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.

        We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the following:

    the design or results of clinical trials;

    the likelihood of approval by the FDA or similar regulatory authorities outside of the United States;

    the potential market for the subject product candidate;

    the costs and complexities of manufacturing and delivering such product candidate to patients;

    the potential of competing products;

    the existence of uncertainty with respect to our ownership of technology or other rights, which can exist if there is a challenge to such ownership without regard to the merits of the challenge; and

    industry and market conditions generally.

        The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under our license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators and changes to the strategies of the combined company.

        We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such product candidate, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any sales or marketing activities for such product candidate, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

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The development and commercialization of KTN3379 will depend on the outcome of the option process under our license and option agreement with MedImmune.

        Pursuant to our license and option agreement with MedImmune, which we refer to as the MedImmune agreement, we licensed intellectual property relating to specified antibodies, including KTN3379, controlled by MedImmune. Under this agreement, we agreed, at our expense, to conduct a Phase 1 clinical trial and Phase 1b/2a clinical trials of KTN3379 for at least two indications in up to 40 patients. After we deliver the results of such trials to MedImmune, if MedImmune delivers to us a notice triggering determination by an expert panel of the fair market value of our rights with respect to KTN3379 and related products, through various elections we and MedImmune are permitted to make, one of the following could occur:

    payment by MedImmune to us of the fair market value of our rights with respect to KTN3379 and related products and the assignment and license by us of certain intellectual property to MedImmune in exchange for termination of the MedImmune agreement;

    payment by us to MedImmune of a minimum amount of $20.0 million, in which case this election process will terminate and the MedImmune agreement will remain in effect; or

    an obligation for us and MedImmune to enter into a co-development and co-commercialization agreement relating to KTN3379 and related products under which we would receive from MedImmune an upfront payment determined based on a formula in the MedImmune agreement, or if we and MedImmune fail to enter into the co-development and co-commercialization agreement related to KTN3379 and related products, the joint auction of KTN3379 and related products to a third party, which would result in a payment to us of half of the proceeds from such sale.

        The terms of the MedImmune agreement, including these options rights, are described in greater detail in "Business—Collaborations and Licensing Agreements—License and Option Agreement with MedImmune, LLC."

        If MedImmune terminates the MedImmune agreement, we would be required to assign and license the intellectual property originally licensed to us back to MedImmune, which would prevent our development and commercialization of KTN3379. Although we would be entitled to receive a product acquisition price as determined by an expert panel if MedImmune terminates the agreement under these circumstances, this product acquisition price may not appropriately or fully compensate us for the market potential of KTN3379. The loss of our rights to KTN3379 and the associated market potential of this product candidate could have a material adverse effect on our business.

        If MedImmune's option rights terminate under the MedImmune agreement, we would need to pay a minimum of $20.0 million to MedImmune and then either fund the clinical development and commercialization of KTN3379 on our own or seek an alternative collaborator. If we do not have the resources necessary both to pay such amount to MedImmune and subsequently develop KTN3379 on our own or are unable to establish a collaboration with a third party on acceptable terms, we would have to abandon the development and commercialization of this product candidate.

        If we enter into a co-development and co-commercialization agreement with MedImmune relating to KTN3379, the financial terms of such an agreement may not appropriately compensate us for the exchange of our rights to this program with MedImmune. In addition, if we enter into a co-development and co-commercialization agreement, we will be subject to all of the risks posed by collaborations that are described above.

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        If we and MedImmune are required under the MedImmune agreement to enter into a co-development and co-commercialization agreement but fail to do so within a specified period of time, we will be required to conduct an auction process to identify a preferred bidder to whom we and MedImmune would exclusively license rights to KTN3379, pursuant to an agreement we refer to as the auction license agreement. We and MedImmune would share the proceeds under the auction license agreement in accordance with the MedImmune agreement. However, such proceeds may not fully reimburse us for the costs we incur while conducting the Phase 1 and Phase 1b/2a clinical trials of KTN3379 or appropriately compensate us for the market potential of KTN3379.

We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

        We currently rely on a third party clinical research organization, or CRO, to conduct our ongoing Phase 1 clinical trial program for KTN3379 and do not plan to independently conduct any clinical trials of KTN3379 or of our other product candidates, including KTN0158. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials. These agreements might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that would delay our product development activities.

        Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, or GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.

        Furthermore, these third parties may have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.

We rely and expect to continue to rely on agreements with Yale University to supplement our internal research and development program. If Yale University decides to discontinue or devote less resources to such research, our research efforts could be diminished, which could harm our business.

        Our set of arrangements with Yale University, or Yale, provide us with access to Dr. Schlessinger's laboratory in a manner that we believe closely aligns our scientific and financial interests with those of Yale. We are a party to both a license agreement and a sponsored research agreement with Yale. While Yale has contractual obligations to us, it is an independent entity and is not under our control or the control of our officers or directors. The license agreement is structured to provide Yale with a low single-digit royalty and a commercial milestone payment of $3.0 million with respect to each of our drugs that target RTKs, and not just those based on intellectual property from Yale. Furthermore, our research agreement with Yale does not obligate Yale to devote any specified level of resources to, nor does the Yale research agreement require the principal researchers, or any member of their research teams, to continue to conduct research related to our research and development collaboration. In addition, we have only a right of first negotiation and are not automatically granted license rights to inventions or discoveries that are not RTK-related under the research agreement. Upon the expiration of the Yale research agreement in June 2017, the research agreement may not be renewed, and any renewal could be on terms less favorable to us than those contained in the existing agreement. Furthermore, either we or Yale may terminate the research agreement for convenience following a

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specified notice period. If Yale decides to not renew or to terminate the Yale research agreement, devote less resources to such activities, our research efforts would be diminished. As a result, our future pipeline of additional product candidates may be reduced and our research and development expenses may substantially increase, while our royalty obligations to Yale for RTK product candidates would continue unmodified, which could have a material adverse effect on our business and financial condition.

Manufacturing biologic products is complex and subject to product loss for a variety of reasons. We contract with third parties for the manufacture of our product candidates for preclinical testing and clinical trials and expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

        We do not have any manufacturing facilities. We produce in our laboratory very small quantities of antibodies for evaluation in our research programs. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates receive marketing approval. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

        We may be unable to establish any agreements with third party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third party manufacturers, reliance on third party manufacturers entails additional risks, including:

    reliance on the third party for regulatory, compliance and quality assurance;

    the possible breach of the manufacturing agreement by the third party;

    the possible misappropriation of our proprietary information, including our trade secrets and know-how; and

    the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

        We have only limited supply arrangements in place with respect to our product candidates, and these arrangements do not extend to commercial supply. We acquire many key materials on a purchase order basis. As a result, we do not have long term committed arrangements with respect to our product candidates and other materials. If we receive marketing approval for any of our product candidates, we will need to establish an agreement for commercial manufacture with a third party.

        Third party manufacturers may not be able to comply with current good manufacturing practices, or cGMP, regulations or similar regulatory requirements outside of the United States. Our failure, or the failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.

        Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. As a result, we may not obtain access to these facilities on a priority basis or at all. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

        Manufacturing biologic products, such as antibodies, is complex, especially in large quantities. Manufacturing antibody drug conjugates adds to this complexity. Biologic products must be made consistently and in substantial compliance with a clearly defined manufacturing process. Accordingly, it is essential to be able to validate and control the manufacturing process to assure that it is

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reproducible. The manufacture of biologics is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the product process. We have not yet scaled up the manufacturing process for any of our product candidates. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.

        Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply or a second source for bulk drug substance. If our current contract manufacturers cannot perform as agreed, we may be required to replace such manufacturers. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in identifying and qualifying any such replacement manufacturer or be able to reach agreement with any alternative manufacturer.

        We have identified a possible alternative supplier of drug substance for KTN3379. While we plan to supply this alternative manufacturer with certain aspects of the manufacturing process for KTN3379 that we have received from MedImmune, this alternative manufacturer will need to perform development work to establish a viable manufacturing process for KTN3379, and may be unable to do so in a timely fashion or at all.

        Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired, and we may not be able to compete effectively in our market.

        Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and product candidates. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market. Moreover, the patent applications we own, co-own or license may fail to result in issued patents in the United States or in other foreign countries.

        Composition-of-matter patents on the active pharmaceutical ingredients can be the strongest form of intellectual property for pharmaceutical and biotechnological products because they provide protection irrespective of any method of use. We cannot be certain that the claims in our patent applications covering the composition-of-matter of our product candidates will be considered patentable by the United States Patent and Trademark Office, or USPTO, courts in the United States, or by patent offices and courts in foreign countries. Method-of-use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products "off-label." Although off-label prescriptions may

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infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.

        The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

        The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned, co-owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

        Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These changes include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition. Furthermore, for applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third party or instituted by the USPTO to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.

        Moreover, we may be subject to a third party preissuance submission of prior art to the USPTO or in addition to interference proceedings, may become involved in opposition, derivation, reexamination, inter partes review, post-grant review or other post-grant proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it

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could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

        Our owned, co-owned and licensed patent estate consists principally of patent applications, many of which are at an early stage of prosecution. Even if our owned, co-owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned, co-owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

        The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned, co-owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned, co-owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

We may become involved in lawsuits to protect or enforce our patents, the patents of our licensors, or other intellectual property, which could be expensive, time-consuming and unsuccessful.

        Competitors may infringe our issued patents, the patents of our licensors, or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive, time-consuming and unpredictable. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours or our licensors is invalid or unenforceable, in whole or in part, construe the patent's claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Even if we successfully assert our patents, a court may not award remedies that sufficiently compensate us for our losses.

We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

        A third party may hold intellectual property, including patent rights, that are important or necessary to the development of our products. It may be necessary for us to use the patented or proprietary technology of a third party to commercialize our own technology or products, in which case we would be required to obtain a license from such third party. A license to such intellectual property may not be available or may not be available on commercially reasonable terms, which could have a material adverse effect on our business and financial condition.

        We are aware of a third party European patent that relates to use of ErbB3 antibodies for treatment of hyperproliferative disorders, including cancer. A counterpart of this patent has also issued in Japan and Australia. As a result of an opposition proceeding, the European patent was revoked in its entirety. The owner of the European patent has appealed the decision in the opposition proceeding. We do not know if the appeal will succeed, or, if successful, whether the scope of claims, post-appeal, would be relevant to our activities. Should the appeal be successful and a license be necessary for our program that targets ErbB3, we cannot predict whether we would be able to obtain such a license, or, if a license were available, whether it would be available on commercially reasonable terms. If the appeal results in such third party's patents having a valid claim relevant to our use of ErbB3 antibodies

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and a license under the patents is unavailable on commercially relevant terms, or at all, our ability to commercialize KTN3379 in Europe may be impaired or delayed. We would vigorously defend ourselves, but we cannot predict whether the patents would be found valid, enforceable or infringed. We continue to monitor counterpart patent applications pending in other jurisdictions, including the United States. While we cannot predict whether claims will issue in these other jurisdictions or whether the scope of such claims would be relevant to our activities, these applications entail comparable risks to us in these other jurisdictions.

        Certain of our existing agreements contain restrictions on the scope of our license. For example, under our license agreement with Lonza, our right to sublicense is subject to Lonza's prior written consent, which may not be unreasonably withheld, delayed or conditioned. This could limit our ability to develop and commercialize KTN0158.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

        Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, reexamination, and inter partes review proceedings before the USPTO and oppositions and other comparable proceedings in foreign jurisdictions. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference or inter partes review proceedings before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others. There may be third party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our drug candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.

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

If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.

        We are party to a number of license agreements, including the Yale license agreement, the MedImmune license and option agreement and the Spirogen license agreement that impose diligence, development and commercialization timelines and milestone payment, royalty, insurance and other

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obligations on us. For a variety of purposes we will likely enter into additional licensing and funding arrangements with third parties that may also impose such obligations on us.

        We are subject to diligence and development obligations under our license agreements with Yale, MedImmune and Spirogen among others. Generally, these diligence obligations require us to use commercially reasonable efforts to develop, seek regulatory approval for and commercialize our products in the United States, the European Union and, in some cases, other specified countries. Our general diligence obligations in the Yale license agreement apply to all of our drugs that target RTKs, and not just those based on intellectual property from Yale. If we fail to comply with our obligations under current or future agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product that is covered by these agreements or may face other penalties under the agreements. Such an occurrence could materially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. Any of the foregoing could prevent us from commercializing our other product candidates, which could have a material adverse effect on our operating results and overall financial condition.

        In addition to the above risks, certain of our licensed intellectual property rights include sublicenses under intellectual property owned by third parties, in some cases through multiple tiers. The actions of our licensors may therefore affect our rights to use our sublicensed intellectual property, even if we are in compliance with all of the obligations under our license agreements. Should our licensors or any of the upstream licensors fail to comply with their obligations under the agreements pursuant to which they obtain the rights that are sublicensed to us, or should such agreements be terminated or amended, our ability to develop and commercialize our product candidates may be materially harmed.

        Further, we do not have the right to control the prosecution, maintenance and enforcement of all of our licensed and sublicensed intellectual property, and even when we do have such rights, we may require the cooperation of our licensors and upstream licensors, which may not be forthcoming. For example, under our license agreement with Spirogen, Spirogen has the sole right and authority to enforce the intellectual property related to PBD or linkers subject to the license and to defend against any charge that such intellectual property is invalid or unenforceable. Our business could be adversely affected if we or our licensors are unable to prosecute, maintain and enforce our licensed and sublicensed intellectual property effectively.

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

        We have received confidential and proprietary information from collaborators, prospective licensees and other third parties. Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee's former employer. Litigation may be necessary to defend against these claims.

        In addition, while it is our policy to require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Such assignment agreements may not

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be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

        If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management and employees.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

        Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.

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

        Periodic maintenance fees on any issued patent are due to be paid to the USPTO and patent offices in foreign countries in several stages over the lifetime of the patent. The USPTO and patent offices in foreign countries require compliance with a number of procedural, documentary, fee payment and other requirements during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of a patent or patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

        In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally

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disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside of the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance Matters

Even if we complete the necessary clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

        Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the EMA and similar regulatory authorities outside the United States. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. Our product candidates are in the early stages of development and are subject to the risks of failure inherent in drug development. We have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. We have only limited experience in conducting and managing the clinical trials, and in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third party CROs to assist us in this process. Securing marketing approval requires the submission of extensive nonclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate's safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

        The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional nonclinical, clinical or other studies. In addition, varying interpretations of the data obtained from nonclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.

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We may not be able to obtain orphan drug exclusivity for our product candidates.

        Regulatory authorities in some jurisdictions, including the United States and Europe, may in response to a request from the sponsor designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. For example, we believe that KTN0158 as a treatment for neurofibromatosis type 1, or NF1, will qualify for orphan drug designation in both the United States and the European Union.

        Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the approval of another marketing application for the same drug for the same indication for that time period. The applicable period is seven years in the United States and ten years in Europe. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. In addition, the FDA can subsequently approve the same drug for treatment of the same disease or condition if it concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

        Even if we obtain orphan drug exclusivity for a product's use in a specific indication, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same indication.

A fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval process.

        We intend to seek fast track designation for some of our product candidates. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA fast track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

A breakthrough therapy designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

        We may seek a breakthrough therapy designation for some of our product candidates. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs and biologics that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval.

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

Our therapeutic product candidates for which we intend to seek approval as biological products may face competition sooner than expected.

        With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, abbreviated pathways for approval of biosimilar and interchangeable biological products were created. The BPCIA establishes legal authority for the FDA to review and approve biosimilar biologics for marketing, as well as biosimilars that have been designated as "interchangeable" with a previously approved biologic, or reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the reference product was approved under a full biologics license application, or BLA. This period of non-patent exclusivity runs concurrently with, but is independent of, periods of patent protection for the reference product.

        We believe that any of our product candidates approved as a biological product under a full BLA should qualify for a 12-year period of exclusivity. However:

    the U.S. Congress could amend the BPCIA to significantly shorten this exclusivity period, as has been previously proposed by President Obama in connection with the administration's budget proposals; and

    a potential competitor could seek and obtain approval of its own BLA during our exclusivity period instead of seeking approval of a biosimilar version.

        The new law is complex and is only beginning to be interpreted and implemented by the FDA. As a result, the ultimate impact, implementation and meaning of the BPCIA is subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could compromise the future commercial prospects for our biological products. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear and will depend on a number of marketplace and regulatory factors that are still developing at both the federal and state levels of government.

Our failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad, and any approval we are granted for our product candidates in the United States would not assure approval of product candidates in foreign jurisdictions.

        In order to market and sell our products in the European Union and many other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not

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ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.

Even if we obtain marketing approval for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we manufacture and market our products and compliance with such requirements may involve substantial resources, which could materially impair our ability to generate revenue.

        Even if marketing approval of a product candidate is granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation, which may include the requirement to implement a risk evaluation and mitigation strategy or to conduct costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. We must also comply with requirements concerning advertising and promotion for any of our product candidates for which we obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product's approved labeling. Thus, we will not be able to promote any products we develop for indications or uses for which they are not approved. In addition, manufacturers of approved products and those manufacturers' facilities are required to ensure that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We and our contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs.

        Accordingly, assuming we receive marketing approval for one or more of our product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we are not able to comply with post-approval regulatory requirements, we could have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. As a result, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

Any product candidate for which we obtain marketing approval will be subject to ongoing enforcement of post-marketing requirements and we could be subject to substantial penalties, including withdrawal of our product from the market, if we fail to comply with all regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

        Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include, but are not limited to, restrictions governing promotion of an approved product, submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping.

        The FDA and other federal and state agencies, including the Department of Justice, closely regulate compliance with all requirements governing prescription drug products, including requirements pertaining to marketing and promotion of drugs in accordance with the provisions of the approved labeling and manufacturing of products in accordance with cGMP requirements. Violations of such requirements may lead to investigations alleging violations of the FDCA and other statutes, including the False Claims Act and other federal and state health care fraud and abuse laws as well as state consumer protection laws. Our failure to comply with all regulatory requirements, and later discovery

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of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, may yield various results, including:

    litigation involving patients taking our products;

    restrictions on such products, manufacturers or manufacturing processes;

    restrictions on the labeling or marketing of a product;

    restrictions on product distribution or use;

    requirements to conduct post-marketing studies or clinical trials;

    warning or untitled letters;

    withdrawal of the products from the market;

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

    recall of products;

    fines, restitution or disgorgement of profits or revenues;

    suspension or withdrawal of marketing approvals;

    damage to relationships with any potential collaborators;

    unfavorable press coverage and damage to our reputation;

    refusal to permit the import or export of our products;

    product seizure; or

    injunctions or the imposition of civil or criminal penalties.

        Non-compliance by us or any future collaborator with regulatory requirements, including safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population can also result in significant financial penalties. Similarly, failure to comply with applicable regulatory requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

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

        Healthcare providers, physicians and third party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

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

    the federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment by a federal government

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      program, or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government;

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

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

    the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

    federal law requires applicable manufacturers of covered drugs to report payments and other transfers of value to physicians and teaching hospitals;

    the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA, requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; andanalogous state laws and regulations such as state anti-kickback and false claims laws and analogous non-U.S. fraud and abuse laws and regulations, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.

        Some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance regulations promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and non-U.S. laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

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

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

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

        In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

        In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Affordability Reconciliation Act, or collectively the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.

        Among the provisions of the ACA of importance to our potential product candidates are the following:

    an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents;

    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

    expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

    extension of manufacturers' Medicaid rebate liability;

    expansion of eligibility criteria for Medicaid programs;

    expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

    requirements to report financial arrangements with physicians and teaching hospitals;

    a requirement to annually report drug samples that manufacturers and distributors provide to physicians; and

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

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers

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from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.

        We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.

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

Governments outside of the United States tend to impose strict price controls, which may adversely affect our revenues, if any.

        In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain product candidates and products outside of the United States and require us to develop and implement costly compliance programs.

        If we expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of such third party in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the company, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

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

        Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to

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comply with these laws, and these laws may preclude us from developing, manufacturing or selling certain product candidates and products outside of the United States, which could limit our growth potential and increase our development costs.

        The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The Securities and Exchange Commission also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

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

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

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

Risks Related to Employee Matters and Managing Growth

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

        We are highly dependent on the research expertise of Joseph Schlessinger, our co-founder and Chairman of our scientific advisory board, and the research, development and clinical expertise of Gerald McMahon, our President and Chief Executive Officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain "key person" insurance for any of our executives or other employees.

        Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain marketing approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for

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the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

        We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, manufacturing, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively.

        Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our product research, development and commercialization efforts could be delayed.

We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

        From time to time, we may consider strategic transactions, such as acquisitions of companies, businesses or assets and out-licensing or in-licensing of products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near term or long term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions may entail numerous operational and financial risks, including:

    exposure to unknown liabilities;

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    disruption of our business and diversion of our management's time and attention in order to develop acquired products, product candidates or technologies;

    incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions;

    higher than expected acquisition and integration costs;

    write-downs of assets or goodwill or impairment charges;

    increased amortization expenses;

    difficulty and cost in combining the operations, systems and personnel of any acquired businesses with our operations, systems and personnel;

    impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

    inability to retain key employees of any acquired businesses.

Risks Related to Our Common Stock and This Offering

After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control or significantly influence all matters submitted to stockholders for approval.

        Upon the closing of this offering, our executive officers and directors, combined with our stockholders who owned more than 5% of our outstanding common stock before this offering will, in the aggregate, beneficially own shares representing approximately            % of our capital stock. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

    delay, defer or prevent a change in control;

    entrench our management and the board of directors; or

    impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.

Provisions in our corporate charter documents, under Delaware law and in our license agreements could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

        Provisions in our certificate of incorporation and our bylaws that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

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

    allow the authorized number of our directors to be changed only by resolution of our board of directors;

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    limit the manner in which stockholders can remove directors from our board of directors;

    establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

    require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

    limit who may call stockholder meetings;

    authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a "poison pill" that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

    require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal specified provisions of our charter or bylaws.

        Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

        Provisions in our agreement with Yale change upon the occurrence of a change of control, as defined therein. For example, under our license agreement with Yale, upon a qualifying change of control, Dr. Schlessinger will be deemed no longer to be concurrently working with us and Yale for purposes of the Yale license agreement. If this occurs, intellectual property developed by Dr. Schlessinger thereafter will not be considered part of the Yale intellectual property subject to the Yale license agreement unless it arises under the Yale research agreement. In addition, following the occurrence of such a change of control, the annual license maintenance fee that we are obligated to pay to Yale before we begin commercializing an RTK royalty-bearing product would increase from a low ten-thousands of dollars fee to a low hundred-thousands of dollars fee and the milestone payment amount that would otherwise be due upon the achievement of a commercial milestone with respect to each RTK royalty-bearing product would instead be apportioned to clinical, regulatory and commercial milestones and, therefore, could become due sooner.

        The MedImmune agreement contains limits on our ability to assign our rights or obligations to a third party who is then developing or commercializing a pharmaceutical product that contains an antibody and operates by targeting ErbB3, which we refer to as a competing product. For example, if a third party assignee has a competing product, in certain cases we may only assign the MedImmune agreement without the consent of MedImmune if that assignee divests its competing product within a year of its acquisition of us.

If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.

        The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding options, you will incur further dilution. Based on an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $            per share, representing the difference between our pro forma net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. In addition, purchasers of common stock in this offering will have contributed

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approximately            % of the aggregate price paid by all purchasers of our stock but will own only approximately            % of our common stock outstanding after this offering.

An active trading market for our common stock may not develop.

        Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. Although we have applied to have our common stock approved for listing on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

        Our stock price is likely to be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

    the degree of success of competitive products or technologies;

    results of clinical trials and preclinical studies, of our product candidates or those of our competitors;

    regulatory or legal developments in the United States and other countries;

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

    the recruitment or departure of key personnel;

    the level of expenses related to any of our product candidates or clinical development programs;

    the results of our efforts to discover, develop, acquire or in-license additional technologies or product candidates;

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

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

    changes in the structure of healthcare payment systems;

    market conditions in the pharmaceutical and biotechnology sectors;

    general economic, industry and market conditions; and

    the other factors described in this "Risk Factors" section.

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

        Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

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A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

        Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have                        outstanding shares of common stock based on the number of shares outstanding as of                , 2014. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates or existing stockholders. Of the remaining shares,                        shares are currently restricted as a result of securities laws or lock-up agreements but will become eligible to be sold at various times after the offering. Moreover, after this offering, holders of an aggregate of                        shares of our common stock will have rights, subject to specified conditions, to require us to file registration statements covering their shares or, along with holders of an additional                        shares of our common stock, to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the "Underwriting" section of this prospectus.

We are an "emerging growth company," and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

        We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

    being permitted to provide only two years of audited financial statements in this prospectus, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure;

    not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

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

    reduced disclosure obligations regarding executive compensation; and

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

        We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging

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growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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

        As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

        We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

        Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

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

        We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements we may enter into may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

        This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

        The forward-looking statements in this prospectus include, among other things, statements about:

    the timing and conduct of our clinical trial program of KTN3379 and preclinical and clinical development of our other product candidates, including statements regarding the timing of regulatory submissions, the initiation and completion of preclinical studies and clinical trials and the period during which the results of the clinical trials will become available;

    our plans to pursue research and development of other product candidates;

    the potential advantages and attributes of our product candidates;

    the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

    the rate and degree of market acceptance and clinical utility of our product candidates;

    our estimates regarding the potential market opportunity for our product candidates;

    our ability to establish and maintain collaborations;

    our sales, marketing and distribution capabilities and strategy;

    our ability to establish and maintain arrangements for manufacture of our product candidates;

    our ability to in-license or acquire complementary technologies and product candidates;

    our intellectual property position;

    our expectations related to the use of proceeds from this offering;

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

    the impact of government laws and regulations; and

    our competitive position.

        We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the "Risk Factors" section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

        You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this prospectus are made as of the date of this prospectus, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.

        This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

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USE OF PROCEEDS

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

        A $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease our net proceeds from this offering by approximately $            million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. An increase or decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease our net proceeds from this offering by approximately $            million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions.

        As of September 30, 2014, we had cash, cash equivalents and marketable securities of $52.7 million. We currently estimate that we will use the net proceeds from this offering, together with our cash, cash equivalents and marketable securities, as follows:

    approximately $             million to continue clinical development of our product candidate KTN3379, including our ongoing Phase 1 clinical trial program, other planned clinical trials and the manufacture of additional quantities of KTN3379;

    approximately $             million to continue to advance our product candidate KTN0158, including IND enabling preclinical studies, the manufacture of drug supply in preparation for an IND submission and initiation of Phase 1 clinical trials;

    approximately $             million to advance our KIT-ADC program, including identification of an IND candidate and initiation of IND enabling preclinical studies;

    approximately $             million to continue to advance and expand our research programs, including our TAM research program, and our preclinical research pipeline to identify additional development candidates; and

    the remainder for working capital and other general corporate purposes, which may include the acquisition or licensing of other product candidates or technologies.

        This expected use of the net proceeds from this offering and our existing cash, cash equivalents and marketable securities represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development and commercialization efforts, including expenses related to product manufacturing, the status of and results from preclinical studies and clinical trials, as well as any collaborations that we may enter into with third parties for our product candidates, and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We have no current agreements, commitments or understandings for any material acquisitions or licenses of any product candidates or technologies.

        Based on our planned use of the net proceeds from this offering and our existing cash, cash equivalents and marketable securities, we estimate that such funds will be sufficient to enable us to                        . We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

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

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DIVIDEND POLICY

        We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends in respect of our common stock in the foreseeable future.

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CAPITALIZATION

        The following table sets forth our cash, cash equivalents and marketable securities and our capitalization as of September 30, 2014:

    on an actual basis;

    on a pro forma basis to give effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 127,833,776 shares of our common stock upon the closing of this offering; and

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

        Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the sections of this prospectus titled "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Capital Stock."

 
  As of September 30, 2014  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (in thousands, except share data)
 

Cash, cash equivalents and marketable securities

  $ 52,732   $ 52,732   $    
               
               

Convertible preferred stock (Series A, B, C and D), $0.001 par value; 160,000,000 shares authorized, 124,090,909 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

  $ 138,800   $   $  

Stockholders' equity (deficit):

   
 
   
 
   
 
 

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual;              shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted

             

Common stock, $0.001 par value; 202,500,000 shares authorized, 22,913,827 shares issued and outstanding, actual;              shares authorized, 150,747,603 shares issued and outstanding, pro forma;              shares authorized,              shares issued and outstanding, pro forma as adjusted

    23     151        

Additional paid-in capital

    5,971     144,643        

Accumulated other comprehensive income

    2     2        

Accumulated deficit

    (91,732 )   (91,732 )      
               

Total stockholders' equity (deficit)

    (85,736 )   53,064        
               

Total capitalization

  $ 53,064   $ 53,064   $    
               
               

        A $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders' equity by $            million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. An increase or decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this

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prospectus, would increase or decrease each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders' equity on a pro forma as adjusted basis by $             million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions.

        The table above does not include:

    26,311,194 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2014, at a weighted average exercise price of $0.40 per share;

    642,654 additional shares of our common stock available for future issuance as of September 30, 2014 under our amended and restated 2008 equity incentive plan;

    10,623,678 additional shares of our common stock that will become available for future issuance under our 2014 stock incentive plan after this offering; and

    1,770,613 additional shares of our common stock that will become available for future issuance under our 2014 employee stock purchase plan after this offering.

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DILUTION

        If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

        Our historical net tangible book value (deficit) as of September 30, 2014 was $(87.4) million, or $(3.81) per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and preferred stock, which is not included within our stockholders' equity (deficit). Historical net tangible book value per share represents historical net tangible book value (deficit) divided by the 22,913,827 shares of our common stock outstanding as of September 30, 2014.

        Our pro forma net tangible book value as of September 30, 2014 was $51.4 million, or $0.34 per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 127,833,776 shares of our common stock upon the closing of this offering. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of September 30, 2014, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 127,833,776 shares of our common stock upon the closing of this offering.

        After giving effect to our issuance and sale of                shares of our common stock in this offering at an assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2014 would have been $                 million, or $            per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $                to existing stockholders and immediate dilution of $                in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share

        $    

Historical net tangible book value (deficit) per share as of September 30, 2014

  $ (3.81 )      

Increase per share attributable to the conversion of all outstanding shares of preferred stock

    4.15        
             

Pro forma net tangible book value per share as of September 30, 2014

    0.34        

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

             

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

             
             

Dilution per share to new investors purchasing shares in this offering

        $    
             
             

        A $1.00 increase or decrease in the assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value by $                 million, our pro forma as adjusted net tangible book value per share after this offering by $                and dilution per share to new investors purchasing shares in this offering by $                , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. An increase of 1,000,000 shares in the number of

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shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share after this offering by $                and decrease the dilution per share to new investors participating in this offering by $                , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $                and increase the dilution per share to new investors participating in this offering by $                , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions.

        If the underwriters exercise their over-allotment option in full, our pro forma as adjusted net tangible book value per share after this offering would be $            per share, representing an immediate increase in pro forma as adjusted net tangible book value per share of $            to existing stockholders and immediate dilution of $            in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering, assuming an initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus. If any additional shares are issued in connection with outstanding options, you will experience further dilution.

        The following table summarizes, on a pro forma as adjusted basis as of September 30, 2014, the total number of shares purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by new investors in this offering at an assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid.

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

Existing stockholders

                 % $                   % $         

New investors

                                              $         
                         

Total

               100.0 % $            100.0 %           
                         
                         

        A $1.00 increase or decrease in the assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $                 million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by             percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by              percentage points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase or decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $                 million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by             percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by             percentage points, assuming no change in the assumed initial public offering price.

        The table above is based on 22,913,827 shares of our common stock outstanding as of September 30, 2014 and gives effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 127,833,776 shares of our common stock upon the closing of this offering.

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        The table above does not include:

    26,311,194 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2014, at a weighted average exercise price of $0.40 per share;

    642,654 additional shares of our common stock available for future issuance as of September 30, 2014 under our amended and restated 2008 equity incentive plan;

    10,623,678 additional shares of our common stock that will become available for future issuance under our 2014 stock incentive plan after this offering; and

    1,770,613 additional shares of our common stock that will become available for future issuance under our 2014 employee stock purchase plan after this offering.

        The table above assumes no exercise of the underwriters' over-allotment option. If the underwriters exercise their over-allotment option in full, the following will occur:

    the percentage of shares of our common stock held by existing stockholders will decrease to                    % of the total number of shares of our common stock outstanding after this offering; and

    the number of shares of our common stock held by new investors will increase to                    % of the total number of shares of our common stock outstanding after this offering.

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SELECTED CONSOLIDATED FINANCIAL DATA

        You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2012 and 2013 and the consolidated balance sheet data as of December 31, 2012 and 2013 from our audited consolidated financial statements appearing at the end of this prospectus. The consolidated statement of operations data for the nine months ended September 30, 2013 and 2014 and the balance sheet data as of September 30, 2014 have been derived from our unaudited consolidated financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited consolidated financial data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information as of and for the periods presented. Our historical results are not necessarily indicative of results that should be expected in any future period, and our results for any interim period are not necessarily indicative of results that should be expected for any full year.

 
  Year Ended
December 31,
  Nine Months
Ended September 30,
 
 
  2012   2013   2013   2014  
 
  (in thousands, except per share data)
 

Statement of Operations Data:

                         

Revenue

  $   $   $   $  
                   

Operating expenses:

                         

Research and development

    8,307     20,269     16,809     17,217  

General and administrative

    5,783     6,223     4,970     7,202  
                   

Total operating expenses

    14,090     26,492     21,779     24,419  
                   

Loss from operations

    (14,090 )   (26,492 )   (21,779 )   (24,419 )

Interest income

    85     47     45     22  

Other income (expense), net

    129     96     66     98  
                   

Net loss

  $ (13,876 ) $ (26,349 ) $ (21,668 ) $ (24,299 )
                   
                   

Net loss attributable to common stockholders

  $ (13,876 ) $ (26,349 ) $ (21,668 ) $ (24,299 )
                   
                   

Net loss per share attributable to common stockholders, basic and diluted(1)

  $ (0.69 ) $ (1.31 ) $ (1.08 ) $ (1.16 )
                   
                   

Weighted average common shares outstanding, basic and diluted(1)

    20,007     20,090     20,007     21,016  
                   
                   

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)

        $ (0.32 )       $ (0.18 )
                       
                       

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)(2)

          83,085           132,272  
                       
                       

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  As of December 31,    
 
 
  As of
September 30, 2014
 
 
  2012   2013  
 
  (in thousands)
 

Balance Sheet Data:

                   

Cash, cash equivalents and marketable securities

  $ 34,532   $ 12,890   $ 52,732  

Working capital(3)

    32,688     11,016     48,626  

Total assets

    37,318     17,041     58,154  

Convertible preferred stock

    74,185     79,185     138,800  

Total stockholders' deficit

    (39,582 )   (65,077 )   (85,736 )

(1)
See Note 11 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders.

(2)
See Note 11 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted pro forma net loss per share attributable to common stockholders.

(3)
We define working capital as current assets less current liabilities.

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

Overview

        We are a clinical-stage biopharmaceutical company focused on the discovery and development of novel antibody-based drugs targeting receptor tyrosine kinases, or RTKs, for the treatment of cancer and other diseases with significant unmet need. RTKs are a group of cell-surface receptors that play important signaling roles in a variety of key cellular functions. Genetic mutations and abnormal regulation of RTKs play critical roles in many diseases. We are employing a systematic investigation of RTKs and applying our insights with the goal of developing important new medicines with novel mechanisms of action.

        Our lead product candidate, KTN3379, is an antibody targeting the ErbB3 RTK and is currently in Phase 1b clinical development for adult patients with advanced solid tumors. In September 2014, we completed the dose escalation monotherapy portion of our Phase 1 clinical trial program. In October 2014, we initiated the Phase 1b portion of this clinical trial program. Our Phase 1b clinical development plans are designed to evaluate the general safety profile and preliminary antitumor activity of KTN3379 in combination with other approved cancer drugs. We plan to begin Phase 2 clinical trials of KTN3379 in various solid tumor indications in the first half of 2016, subject to satisfactory completion of our overall Phase 1 clinical trial program.

        We also have two preclinical programs targeting the KIT RTK. In one of these preclinical programs, we are evaluating our product candidate KTN0158 as a potential therapeutic for a range of disease indications, beginning with neurofibromatosis type 1, or NF1, a rare genetic disorder. We expect to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or FDA, for this product candidate in mid-2015 in order to initiate a Phase 1 clinical trial in NF1 patients. In our other preclinical program, which we refer to as KIT-ADC, we are focused on using an antibody drug conjugate, or ADC, to target cancers that express the KIT receptor. We are actively working to identify an IND candidate for our KIT-ADC program in the first half of 2015. We also have a robust discovery pipeline directed at a range of RTK targets and recently acquired rights to additional technologies to enhance our position in the RTK field, including with respect to the TAM family of RTKs.

        We were incorporated in November 2007 and commenced operations in July 2008. Our operations to date have been primarily limited to organizing and staffing our company, business planning, raising capital, conducting research and development, filing patents, developing our technology, identifying potential product candidates, undertaking preclinical studies, acquiring rights to technologies and product candidates, initiating and completing the dose escalation monotheraphy portion of our Phase 1 clinical trial program for KTN3379, initiating the Phase 1b portion of this Phase 1 clinical trial program for KTN3379 and establishing arrangements with third parties for the manufacture of initial quantities of our product candidates. From our inception through September 30, 2014, we have financed our operations primarily through sales of our preferred stock, receiving aggregate gross proceeds of $135.0 million.

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        We are a development stage company and have not generated any revenue. All of our product candidates other than KTN3379 are still in preclinical development. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Since inception, we have incurred significant operating losses. Our net loss was $13.9 million for the year ended December 31, 2012, $26.3 million for the year ended December 31, 2013 and $24.3 million for the nine months ended September 30, 2014. As of September 30, 2014, we had an accumulated deficit of $91.7 million.

        Our total operating expenses were $14.1 million for the year ended December 31, 2012, $26.5 million for the year ended December 31, 2013 and $24.4 million for the nine months ended September 30, 2014, and resulted from costs incurred in connection with research and development activities and general and administrative costs. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue our Phase 1 clinical trial program for KTN3379, prepare for and initiate our planned Phase 1 clinical trial of KTN0158, seek to identify a lead product candidate in each of our KIT-ADC and TAM programs and continue research and development and initiate additional clinical trials of, establish arrangements with third parties for the manufacture of clinical supplies of and seek marketing approval for, our lead programs and our other product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

        We do not expect to generate revenue from sales of any product for several years, if ever. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research or product development programs or any future commercialization efforts, or to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

        We believe that the net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements through at least                        . See "—Liquidity and Capital Resources."

Xetrios Acquisition

        In August 2014, we acquired Xetrios Therapeutics, Inc., or Xetrios, a privately held biopharmaceutical company with rights to intellectual property focused on human therapeutics targeting TAM receptors. As consideration for the acquisition, we issued 2,367,674 shares of our common stock with an aggregate fair value of $1.97 million and paid $0.36 million of liabilities of Xetrios at the time of closing of the transaction. We accounted for the transaction as an asset acquisition as Xetrios did not meet the definition of a business pursuant to the guidance prescribed in Accounting Standards Codification Topic 805, Business Combinations. Accordingly, related to the aggregate consideration paid, we recorded $2.33 million as research and development expense in the three and nine months ended September 30, 2014.

        We concluded that Xetrios did not meet the definition of a business because the transaction principally resulted in our acquisition of intellectual property relating to TAM RTKs from the Salk Institute for Biological Studies in La Jolla, California that was generated in the laboratory of Dr. Greg Lemke. At the time of the acquisition, Xetrios did not have, and we did not acquire, any employees or tangible assets, or any processes, protocols or operating systems. Xetrios had no physical facilities and conducted no activities directly. We expensed the acquired intellectual property asset as of the acquisition date because we will use it in our research and development activities and believe it has no alternative future uses.

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Financial Operations Overview

    Revenue

        We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future. If our development efforts result in clinical success and regulatory approval or we enter into collaboration agreements with third parties for our product candidates, we may generate revenue from those product candidates.

    Operating Expenses

        Our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs.

    Research and Development Expenses

        Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:

    salaries, benefits and other related costs, including stock-based compensation expense, for personnel in our research and development functions;

    expenses incurred under agreements with third parties, including contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and consultants that conduct preclinical studies and clinical trials;

    costs associated with preclinical activities and regulatory operations;

    costs of acquiring, developing and manufacturing clinical trial materials;

    expenses related to the in-license of certain technologies and early-stage drug compounds;

    costs related to compliance with regulatory requirements; and

    allocated depreciation and other facility-related and overhead expenses.

        We expense research and development costs as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.

        Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to CROs, CMOs and consultants in connection with our preclinical studies and clinical trials, costs related to manufacturing or purchasing clinical trial materials, and third party license fees related to our product candidates. Our indirect and internal research and development expenses are allocated on a program-by-program basis based on approximate time incurred by our employees who work on our drug development programs. Indirect and internal research and development costs include employee salaries and related costs as well as allocated depreciation and other facility-related and overhead expenses.

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        The table below summarizes our research and development expenses incurred by program:

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
  Cumulative Period
From Inception
(November 16, 2007)
to September 30,
2014
 
 
  2012   2013   2013   2014  
 
  (in thousands)
 

KTN3379

  $   $ 4,955   $ 4,392   $ 7,211   $ 12,166  

KTN0158

        260     90     2,434     2,694  

KIT-ADC

    805     7,194     6,536     713     11,478  

Other research programs

    7,502     7,860     5,791     6,859     38,185  
                       

Total research and development expenses          

  $ 8,307   $ 20,269   $ 16,809   $ 17,217   $ 64,523  
                       
                       

        We expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we continue our Phase 1 clinical trial program for KTN3379, prepare for and initiate our planned Phase 1 clinical trial of KTN0158, seek to identify a lead product candidate in each of our KIT-ADC and TAM programs and continue research and development and initiate additional clinical trials of, establish arrangements with third parties for the manufacture of clinical supplies of and seek marketing approval for our lead programs and our other product candidates. The timing and amount of these expenses will depend upon the outcome of our ongoing preclinical studies and clinical trial program and the costs associated with our planned clinical trials. The timing and amount of these expenses will also depend on the costs associated with potential future clinical trials of our product candidates and the related expansion of our research and development organization, regulatory requirements, advancement of our research programs and product candidate manufacturing costs.

        The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of, or the period, if any, in which material net cash inflows may commence from, KTN3379, KTN0158, a KIT-ADC product candidate or any of our preclinical product candidates. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

    the scope, progress, outcome and costs of our preclinical studies, clinical trials and other research and development activities;

    establishing an appropriate safety profile with IND enabling studies;

    successful patient enrollment in, and completion of, clinical trials;

    timing and receipt of marketing approvals from applicable regulatory authorities;

    establishing commercial manufacturing capabilities or making arrangements with third party manufacturers;

    obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

    launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and

    maintaining a continued acceptable safety profile of the product candidates following approval.

        Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical or preclinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or

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another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

    General and Administrative Expenses

        General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our executive, finance and administrative functions. General and administrative expenses also include professional fees for accounting, auditing, tax and legal services, including legal expenses to pursue patent protection of our intellectual property, travel expenses and allocated facility-related costs.

        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 activities, continued business development activities and the potential commercialization of our product candidates. We also expect to incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company.

    Other Income (Expense)

        Interest income.    Interest income consists of interest income earned on our marketable securities and our cash and cash equivalents.

        Other income (expense), net.    Other income (expense), net consists of amounts received by us or due under a state research and development tax credit exchange program. As permitted by legislation in the State of Connecticut, we have taken the opportunity to exchange certain of our research and development tax credit carryforwards for a cash payment equivalent to 65% of such tax credit.

Critical Accounting Policies and Significant Estimates

        Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of our consolidated financial statements and the related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience, known trends and events, and various other factors that we believe are 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.

        While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

    Accrued Research and Development Expenses

        As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued and prepaid research and development expenses. This process involves reviewing quotations and open contracts, identifying services that have been performed on our behalf, and

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estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued and prepaid expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:

    CROs in connection with performing research and development services on our behalf;

    investigative sites or other providers in connection with clinical trials;

    vendors in connection with preclinical development activities; and

    CMOs related to product manufacturing, development and distribution of preclinical and clinical supplies.

        We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs and CMOs that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid asset accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

    Stock-Based Compensation

        We measure stock options and other stock-based awards granted to employees and directors at the fair value on the date of the grant using the Black-Scholes option-pricing model. We recognize the fair value of the awards as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. We apply the straight-line method of expense recognition to all awards with service-only conditions.

        For stock-based awards granted to consultants and nonemployees, we recognize compensation expense over the period during which services are rendered by such consultants and nonemployees until completed. At the end of each financial reporting period prior to completion of the service, we remeasure the fair value of these awards using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.

        We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Use of this model requires that we make assumptions as to the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Because we are currently a private company and lack company-specific historical and implied volatility information, we estimate our expected volatility based on the historical volatility of a publicly traded group of peer companies. We expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded stock price. We use the simplified method prescribed by Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term of

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options granted to employees and directors. We base the expected term of options granted to consultants and nonemployees on the contractual term of the options. We determine the risk-free interest rate by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.

        The assumptions we used to determine the fair value of stock options granted to employees and directors are as follows, presented on a weighted average basis:

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  

Risk-free interest rate

    0.34 %   1.15 %   1.09 %   2.03 %

Expected term (in years)

    6.2     5.0     5.0     6.3  

Expected volatility

    111.0 %   106.0 %   106.0 %   100.0 %

Expected dividend yield

    0 %   0 %   0 %   0 %

        These assumptions represented our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. We recognize compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate for pre-vesting forfeitures, we have considered our historical experience of actual forfeitures. If our future actual forfeiture rate is materially different from our estimate, our stock-based compensation expense could be significantly different from what we have recorded in the current period.

        The following table summarizes the classification of stock-based compensation expenses recognized in our consolidated statements of operations:

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
  (in thousands)
 

Research and development

  $ 70   $ 224   $ 146   $ 478  

General and administrative

    806     543     396     1,192  
                   

  $ 876   $ 767   $ 542   $ 1,670  
                   
                   

    Determination of the Fair Value of Common Stock

        We are a privately held company with no active public market of our common stock. Therefore, our board of directors has estimated the fair value of our common stock at various dates, with input from management, considering our most recently available third party valuations of common stock and its assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and restricted stock.

        In the absence of a public trading market for our common stock, our determination of the fair value of our common stock was performed using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants' Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation. We performed these

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contemporaneous valuations, with the assistance of a third party specialist, as of March 25, 2012, July 31, 2013, March 17, 2014, July 31, 2014 and November 7, 2014, which resulted in valuations of our common stock of $0.37 per share as of March 25, 2012, $0.55 per share as of July 31, 2013, $0.56 per share as of March 17, 2014, $0.83 per share as of July 31, 2014 and $0.84 per share as of November 7, 2014. In addition, our board of directors considered various objective and subjective factors to determine its best estimate of the fair value of our common stock as of each grant date, including the following:

    external market conditions affecting the biotechnology industry;

    trends within the biotechnology industry;

    the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;

    our financial position, including cash on hand, and our historical and forecasted performance and operating results;

    the progress of our research and development programs, including the status of preclinical studies and clinical trials for our product candidates;

    our stage of development and commercialization and our business strategy;

    the lack of an active public market for our capital stock;

    the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions; and

    the analysis of IPOs and the market performance of similar companies in the biotechnology industry.

        There are significant judgments and estimates inherent in these valuations. These judgments and estimates include assumptions regarding our future operating performance, the stage of development of our product candidates, the timing of a potential IPO or other liquidity event, and the determination of the appropriate valuation methodology at each valuation date. If we had made different assumptions, our stock-based compensation expense, net loss attributable to common stockholders, and net loss per share attributable to common stockholders could have been significantly different.

    Valuation Methodologies

        Our common stock valuation as of March 25, 2012 was prepared utilizing the option-pricing method, or OPM, to determine the estimated fair value of our common stock. Our common stock valuations as of July 31, 2013, March 17, 2014, July 31, 2014 and November 7, 2014 were prepared utilizing the probability-weighted expected return method, or PWERM, to determine the estimated fair value of our common stock. The method selected was based on availability and the quality of information to develop the assumptions for the methodology.

        OPM.    The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceed the value of the preferred stock liquidation preference at the time of a liquidity event, such as a strategic sale or merger. The common stock is modeled as a call option on the underlying equity value at a predetermined exercise price. In the model, the exercise price is based on a comparison with the total equity value rather than, as in the case of a regular call option, a comparison with a per share stock price. Thus, common stock is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred stock liquidation preference is paid.

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        The OPM uses the Black-Scholes option-pricing model to price the call options. This model defines the fair values of securities as functions of the current fair value of a company and uses assumptions such as the anticipated timing of a potential liquidity event and the estimated volatility of the equity securities.

        We used the OPM backsolve approach to estimate enterprise value under the OPM. The OPM backsolve approach uses the OPM to derive the implied equity value for one type of equity security from a contemporaneous sale transaction involving another type of the company's equity securities. In the OPM, the assumed volatility factor was based on the historical trading volatility of our publicly traded peer companies. At the valuation date, we determined the appropriate volatility to be used, considering such factors as the expected time to a liquidity event and our stage of development.

        To derive the fair value of the common stock using the OPM, the proceeds to the common stockholders were calculated based on the preferences and priorities of the preferred and common stock, including the participation features of certain series of the preferred stock. We then applied a discount for lack of marketability to the common stock to account for the lack of access to an active public market. The aggregate value of the common stock derived from the OPM was then divided by the number of shares of common stock outstanding to arrive at the per share value.

        PWERM.    The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. We considered five scenarios for the valuation of our common stock determined using the PWERM methodology: a low-value and a high-value IPO scenario, a low-value and a high-value sale scenario, and a distressed sale scenario.

        To determine our enterprise value for the low-value and high-value IPO scenarios, we used the guideline public company method under the market approach, which analyzed enterprise values at the IPO date of publicly traded oncology-focused biopharmaceutical companies that recently completed IPOs. The resulting common stock value was divided by the number of outstanding common stock, assuming that all outstanding shares of our convertible preferred stock had converted into common stock.

        To determine our enterprise value for the low-value and high-value sale scenarios, we applied the guideline transaction method, which considered the transaction value of several oncology-focused biopharmaceutical companies that were recently acquired. To derive our equity value, cash was added and debt, if any, was deducted. This resulting equity value was allocated among common and preferred stock that comprise our capital structure, taking into account the liquidation preferences of our convertible preferred stock. To determine our enterprise value for the distressed sale scenario, we assumed a sale at the net book value of our assets and liabilities.

        The common stock value was based on the probability-weighted present value of expected future investment returns considering each of the five possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome was discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. We then applied a discount for lack of marketability to the common stock to account for the lack of access to an active public market.

    Option Grants

        The following table summarizes by grant date the number of shares subject to options granted between January 1, 2013 and November 30, 2014, the per share exercise prices of the options, the fair

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value of common stock on each option grant date, and the per share estimated fair value of the options:

Grant Date
  Number of
Shares Subject
to Options
Granted
  Per Share
Exercise Price
of Options(1)
  Fair Value of
Common Stock
per Share on Date
of Option Grant
  Per Share
Estimated Fair
Value of
Options(2)(3)
 

January 31, 2013

    425,000   $ 0.37   $ 0.37   $ 0.45  

February 8, 2013

    1,250,000   $ 0.37   $ 0.37   $ 0.27  

April 30, 2013

    740,000   $ 0.37   $ 0.37   $ 0.27  

July 31, 2013

    366,600   $ 0.55   $ 0.55   $ 0.46  

September 18, 2013

    1,055,000   $ 0.55   $ 0.55   $ 0.40  

April 2, 2014

    8,863,665   $ 0.56   $ 0.56   $ 0.45  

May 14, 2014

    260,000   $ 0.56   $ 0.56   $ 0.50  

June 17, 2014

    1,295,000   $ 0.56   $ 0.56   $ 0.45  

August 4, 2014

    300,000   $ 0.83   $ 0.83   $ 0.60  

November 11, 2014

    750,000   $ 0.84   $ 0.84   $ 0.56  

(1)
The Per Share Exercise Price of Options represents the fair value of our common stock on the date of grant, as determined by our board of directors after taking into account our most recently available contemporaneous valuation of our common stock as well as additional factors that may have changed since the date of such contemporaneous valuation through the date of grant.

(2)
The Per Share Estimated Fair Value of Options reflects the weighted average grant-date fair value of options granted on each grant date, determined using the Black-Scholes option-pricing model.

(3)
For purposes of recording stock-based compensation for grants of options to nonemployees, we measure the fair value of the award on the service completion date (vesting date). At the end of each reporting period prior to completion of the services, we remeasure the value of any unvested portion of the option based on the then-current fair value of the option and adjust the expense accordingly. The weighted average fair value amounts presented in this column for employee, director and nonemployee grants reflect the grant-date fair value of options granted to nonemployees and not any subsequently remeasured fair value.

    Emerging Growth Company Status

        The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

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Results of Operations

    Comparison of the Nine Months Ended September 30, 2013 and 2014

        The following table summarizes our results of operations for the nine months ended September 30, 2013 and 2014:

 
  Nine Months Ended September 30,    
 
 
  Increase (Decrease)  
 
  2013   2014  
 
  (in thousands)
 

Revenue

  $   $   $  
               

Operating expenses:

                   

Research and development

    16,809     17,217     408  

General and administrative

    4,970     7,202     2,232  
               

Total operating expenses

    21,779     24,419     2,640  
               

Loss from operations

    (21,779 )   (24,419 )   (2,640 )

Interest income

    45     22     (23 )

Other income (expense), net

    66     98     32  
               

Net loss

  $ (21,668 ) $ (24,299 ) $ (2,631 )
               
               

    Research and Development Expenses

 
  Nine Months Ended September 30,    
 
 
  Increase
(Decrease)
 
 
  2013   2014  
 
  (in thousands)
 

KTN3379

  $ 4,392   $ 7,211   $ 2,819  

KTN0158

    90     2,434     2,344  

KIT-ADC

    6,536     713     (5,823 )

Other research programs

    5,791     6,859     1,068  
               

Total research and development expenses

  $ 16,809   $ 17,217   $ 408  
               
               

        Research and development expenses were $16.8 million for the nine months ended September 30, 2013, compared to $17.2 million for the nine months ended September 30, 2014. The increase of $0.4 million was primarily due to the following:

    an increase of $2.8 million in expenses of our KTN3379 program, consisting primarily of higher personnel related costs of $1.0 million to support the program, higher clinical trial costs of $0.5 million, higher costs of in vivo and pharmacology studies of $0.4 million, higher allocated facility-related and other costs of $0.4 million, and higher manufacturing costs and supplies of $0.2 million;

    an increase of $2.3 million in expenses of our KTN0158 program, consisting primarily of higher manufacturing costs of $0.8 million, higher personnel related costs of $0.6 million, higher materials and supplies of $0.2 million, higher costs of preliminary toxicology studies of $0.3 million and higher allocated facility-related and other costs of $0.2 million;

    a decrease of $5.8 million in expenses of our KIT-ADC program, primarily due to non-cash expense of $5.0 million recorded in the nine months ended September 30, 2013 in connection with our issuance of 2,500,000 shares of our Series C convertible preferred stock to acquire the exclusive license to certain of Spirogen's Pyrrolobenzodiazepine, or PBD, technology, which is part of our KIT-ADC program, as well as initial cell line development costs of $0.7 million

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      incurred in the nine months ended September 30, 2013. We did not incur any similar license or cell line development charges for this program during the nine months ended September 30, 2014, but did incur expenses for optimizing chemistry and conjugation; and

    a net increase of $1.1 million in expenses of our other research programs, primarily attributable to our acquisition of Xetrios in August 2014, related to which we recorded $2.3 million as research and development expense, and severance costs of $0.6 million (including stock-based compensation expense of $0.2 million) recorded in the nine months ended September 30, 2014 in connection with the termination of an executive-level employee engaged in our drug discovery efforts. These expenses were partially offset by lower personnel related costs of $0.6 million due to a redirection of personnel focus to our lead product candidates and programs, lower contract research and consulting expenses of $0.6 million, lower facility-related and other costs of $0.4 million, and lower materials and supplies of $0.3 million for research activities.

    General and Administrative Expenses

 
  Nine Months Ended September 30,    
 
 
  Increase
(Decrease)
 
 
  2013   2014  
 
  (in thousands)
 

Personnel related (including stock-based compensation)

  $ 2,999   $ 3,965   $ 966  

Professional fees

    1,341     2,437     1,096  

Facility-related and other

    630     800     170  
               

Total general and administrative expenses

  $ 4,970   $ 7,202   $ 2,232  
               
               

        General and administrative expenses were $5.0 million for the nine months ended September 30, 2013, compared to $7.2 million for the nine months ended September 30, 2014. The increase of $2.2 million was primarily due to increased personnel related fees of $1.0 million, increased professional fees of $1.1 million and increased facility-related and other costs of $0.1 million. Personnel related costs increased primarily as a result of severance costs for the termination of certain executive-level employees of $0.8 million (including stock-based compensation expense of $0.2 million), partially offset by salary and other cost reductions as a result of those terminations. Personnel related costs also increased by $0.2 million due to stock-based compensation expense related to an option modification for a former member of our board of directors. The increase in professional fees was primarily attributable to an increase in legal and patent fees of $0.7 million and an increase in accounting, audit and other professional fees of $0.4 million due to ongoing business activities.

    Other Income (Expense)

        Interest income and other income (expense), net were insignificant for the nine months ended September 30, 2013 and 2014.

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    Comparison of the Years Ended December 31, 2012 and 2013

        The following table summarizes our results of operations for the years ended December 31, 2012 and 2013:

 
  Year Ended December 31,    
 
 
  Increase (Decrease)  
 
  2012   2013  
 
  (in thousands)
 

Revenue

  $   $   $  
               

Operating expenses:

                   

Research and development

    8,307     20,269     11,962  

General and administrative

    5,783     6,223     440  
               

Total operating expenses

    14,090     26,492     12,402  
               

Loss from operations

    (14,090 )   (26,492 )   (12,402 )

Interest income

    85     47     (38 )

Other income (expense), net

    129     96     (33 )
               

Net loss

  $ (13,876 ) $ (26,349 ) $ (12,473 )
               
               

    Research and Development Expenses

 
  Year Ended December 31,    
 
 
  Increase
(Decrease)
 
 
  2012   2013  
 
  (in thousands)
 

KTN3379

  $   $ 4,955   $ 4,955  

KTN0158

        260     260  

KIT-ADC

    805     7,194     6,389  

Other research programs

    7,502     7,860     358  
               

Total research and development expenses

  $ 8,307   $ 20,269   $ 11,962  
               
               

        Research and development expenses were $8.3 million for the year ended December 31, 2012, compared to $20.3 million for the year ended December 31, 2013. The increase of $12.0 million was primarily due to the following:

    an increase of $5.0 million in expenses of our KTN3379 program, consisting of the expense of a $4.0 million upfront payment to MedImmune, LLC, or MedImmune, to acquire the exclusive license to KTN3379 in July 2013 and $1.0 million of expenses related to start-up activities of our Phase 1 clinical trial program, including personnel related costs of $0.3 million to support the program;

    $0.3 million in initial expenses of our KTN0158 program exploring the role of KIT in diseases in which mast cells play an important role. We initiated this research in the three months ended September 30, 2013;

    an increase of $6.4 million in expenses of our KIT-ADC program, reflecting (1) non-cash expense of $5.0 million in connection with our issuance of 2,500,000 shares of our Series C convertible preferred stock to acquire the exclusive license to certain PBD technology from Spirogen, which is part of our KIT-ADC program, and (2) $1.4 million of development costs, consisting primarily of $0.6 million for manufacturing, $0.4 million for cell line development, $0.2 million for pharmacology and in vivo studies and $0.1 million for costs of academic collaborations; and

    a net increase of $0.4 million in expenses of our other research programs, reflecting higher personnel costs of $0.3 million as a result of increased allocated headcount to support our drug

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      discovery efforts and an increase in contract research expenses of $0.2 million, offset by other cost reductions.

    General and Administrative Expenses

 
  Year Ended December 31,    
 
 
  Increase
(Decrease)
 
 
  2012   2013  
 
  (in thousands)
 

Personnel related (including stock-based compensation)

  $ 3,289   $ 3,487   $ 198  

Professional fees

    1,728     1,766     38  

Facility-related and other

    766     970     204  
               

Total general and administrative expenses

  $ 5,783   $ 6,223   $ 440  
               
               

        General and administrative expenses for the year ended December 31, 2012 were $5.8 million, compared to $6.2 million for the year ended December 31, 2013. The increase of $0.4 million was primarily due to increased personnel related costs of $0.2 million and increased facility-related and other expenses of $0.2 million. The increase in personnel related expenses reflected a $0.7 million increase due to higher headcount to support growth in our operations, including the addition of our Chief Business Officer in 2013, offset by $0.5 million (including $0.3 million of stock-based compensation expense) of severance recorded in 2012 for a former executive officer. The increase in facility-related and other costs of $0.2 million was primarily due to higher depreciation expense of $0.1 million and increased public relations expense of $0.1 million.

    Other Income (Expense)

        Interest income and other income (expense), net were insignificant for the years ended December 31, 2012 and 2013.

Liquidity and Capital Resources

        Since inception, we have not generated any revenue and have incurred significant operating losses. As of September 30, 2014, we had an accumulated deficit of $91.7 million. We have financed our operations since inception primarily through sales of our convertible preferred stock, receiving aggregate gross proceeds of $135.0 million.

        As of September 30, 2014, we had cash, cash equivalents and marketable securities totaling $52.7 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

    Cash Flows

        The following table summarizes our sources and uses of cash for each of the periods presented:

 
  Year Ended December 31,   Nine Months Ended September 30,  
 
  2012   2013   2013   2014  
 
  (in thousands)
 

Cash used in operating activities

  $ (12,343 ) $ (19,825 ) $ (16,043 ) $ (19,231 )

Cash provided by (used in) investing activities

    (9,544 )   17,060     11,232     (5,402 )

Cash provided by financing activities

    24,879     97         59,593  
                   

Net increase (decrease) in cash and cash equivalents

  $ 2,992   $ (2,668 ) $ (4,811 ) $ 34,960  
                   
                   

        Operating Activities.    Net cash used in operating activities was $19.2 million for the nine months ended September 30, 2014, primarily resulting from our net loss of $24.3 million, partially offset by

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non-cash charges of $4.5 million and by cash provided by changes in our operating assets and liabilities of $0.6 million. Our net loss was primarily attributable to research and development activities and our general and administrative expenses, as we had no revenue in the period. Our non-cash charges during the nine months ended September 30, 2014 consisted primarily of non-cash research and development expense recorded in connection with Xetrios acquisition of $2.3 million, expenses from stock-based compensation of $1.7 million and depreciation and amortization expense of $0.5 million. Net cash provided by changes in our operating assets and liabilities during the nine months ended September 30, 2014 consisted primarily of a $0.3 million increase accounts payable and a $0.3 million increase in accrued expenses and other current liabilities. The increases in accounts payable and in accrued expenses and other current liabilities were due to the timing of vendor invoicing and payments.

        Net cash used in operating activities was $16.0 million for the nine months ended September 30, 2013, primarily resulting from our net loss of $21.7 million and from cash used by changes in our operating assets and liabilities of $0.4 million, partially offset by non-cash charges of $6.0 million. Our net loss was primarily attributable to research and development activities and our general and administrative expenses, as we had no revenue in the period. Net cash used by changes in our operating assets and liabilities during the nine months ended September 30, 2013 consisted primarily of a $0.4 million decrease in accrued expenses and other current liabilities and a $0.1 million increase in prepaid expenses and other current assets, partially offset by an increase in deferred rent of $0.1 million. The change in our accrued expenses and other current liabilities was due to the timing of vendor invoicing and payments. Our prepaid expenses and other current assets primarily increased due to a $0.1 million higher amount due for state tax credit receivables. Our net non-cash charges during the nine months ended September 30, 2013 consisted primarily of licensing fees of $5.0 million paid in shares of our convertible preferred stock, stock-based compensation expense of $0.5 million, depreciation and amortization expense of $0.4 million and amortization of premium on marketable securities of $0.1 million.

        Net cash used in operating activities was $19.8 million for the year ended December 31, 2013, primarily resulting from our net loss of $26.3 million, partially offset by non-cash charges of $6.4 million and cash provided from changes in our operating assets and liabilities of $0.1 million. Our net loss was primarily attributable to research and development activities and our general and administrative expenses, as we had no revenue in the period. Our net non-cash charges during the year ended December 31, 2013 consisted primarily of licensing fees of $5.0 million we paid in shares of our convertible preferred stock, stock-based compensation expense of $0.8 million, depreciation and amortization expense of $0.5 million, and amortization of premium on marketable securities of $0.1 million. Net cash provided from changes in our operating assets and liabilities during the year ended December 31, 2013 consisted primarily of a $0.4 million increase in accounts payable and a $0.1 million increase in deferred rent, partially offset by a $0.3 million decrease in accrued expenses and other current liabilities and a $0.1 million increase prepaid expenses and other current assets. The changes in our accrued expenses and other current liabilities and accounts payable balances were due to the timing of vendor invoicing and payments. Our prepaid expenses and other current assets primarily increased due to a $0.1 million higher amount due for state tax credit exchange receivables.

        Net cash used in operating activities was $12.3 million for the year ended December 31, 2012, primarily resulting from our net loss of $13.9 million and from cash used by changes in our operating assets and liabilities of $47,000, partially offset by non-cash charges of $1.6 million. Our net loss was primarily attributable to research and development activities and our general and administrative expenses, as we had no revenue in the period. Net cash used by changes in our operating assets and liabilities during the year ended December 31, 2012 consisted primarily of a $0.1 million increase in prepaid expenses and other current assets and a $0.1 million decrease in accrued expenses and other current liabilities, both partially offset by an increase in accounts payable of $0.2 million. The increase in accounts payable was due to the timing of vendor invoicing and payments. Our net non-cash charges during the year ended December 31, 2012 consisted primarily of stock-based compensation expense of

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$0.9 million, amortization of premium on marketable securities of $0.4 million, and depreciation and amortization expense of $0.3 million.

        Investing Activities.    Net cash used in investing activities was $5.4 million for the nine months ended September 30, 2014, consisting primarily of purchases of marketable securities of $25.1 million, payments made in connection with our acquisition of Xetrios of $0.4 million and purchases of property and equipment of $0.1 million, partially offset by proceeds from maturities and sales of our marketable securities of $20.2 million.

        Net cash provided from investing activities was $11.2 million for the nine months ended September 30, 2013, consisting primarily of proceeds from maturities and sales of our marketable securities of $24.8 million, partially offset by purchases of marketable securities of $11.8 million and purchases of property and equipment of $1.7 million.

        Net cash provided from investing activities was $17.1 million for the year ended December 31, 2013, consisting primarily of proceeds from maturities and sales of our marketable securities of $35.8 million, partially offset by purchases of marketable securities of $16.9 million and purchases of property and equipment of $1.8 million.

        Net cash used in investing activities was $9.5 million for the year ended December 31, 2012, consisting primarily of purchases of marketable securities of $40.7 million and purchases of property and equipment of $0.6 million, partially offset by proceeds from maturities and sales of our marketable securities of $31.7 million.

        Financing Activities.    Net cash provided by financing activities for the nine months ended September 30, 2014 was $59.6 million, comprised of net proceeds received from our sale of Series D convertible preferred stock.

        Net cash provided by financing activities for the year ended December 31, 2013 was $0.1 million, consisting of proceeds received from the exercise of employee stock options.

        Net cash provided by financing activities for the year ended December 31, 2012 was $24.9 million, comprised of net proceeds received from our sale of Series C convertible preferred stock.

    Funding Requirements

        We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue our Phase 1 clinical trial program for KTN3379, prepare for and initiate our planned Phase 1 clinical trial of KTN0158, seek to identify a lead product candidate in each of our KIT-ADC and TAM programs and continue research and development and initiate additional clinical trials of, establish arrangements with third parties for the manufacture of clinical supplies of and seek marketing approval for our lead programs and product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

        We believe that the net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements through at least                        . We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. This estimate also assumes that we do not obtain any funding through collaborations or other strategic alliances, including under the license and option agreement that we entered into with MedImmune relating to specified antibodies, including KTN3379. Our future capital requirements will depend on many factors, including:

    the progress, costs and results of our Phase 1 clinical trial program for KTN3379 in patients with advanced solid tumors and any future clinical development of KTN3379;

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    the outcome of the process under our license and option agreement with MedImmune which, if MedImmune delivers to us a notice triggering a determination by an expert panel of the fair market value of our rights with respect to KTN3379 and related products, through various elections that we and MedImmune are permitted to make, could result in:

    payment by MedImmune to us of the fair market value of our rights with respect to KTN3379 and related products and the assignment and license by us of certain intellectual property to MedImmune in exchange for termination of the MedImmune agreement;

    payment by us to MedImmune of a minimum amount of $20.0 million, in which case this election process will terminate and the MedImmune agreement will remain in effect; or

    an obligation for us and MedImmune to enter into a co-development and co-commercialization agreement relating to KTN3379 and related products under which we would receive from MedImmune an upfront payment determined based on a formula in the MedImmune agreement, or if we and MedImmune fail to enter into the co-development and co-commercialization agreement related to KTN3379 and related products, the joint auction of KTN3379 and related products to a third party, which would result in a payment to us of half of the proceeds from such sale;

    the scope, progress, costs and results of preclinical development and clinical trials for our other product candidates and development programs, including KTN0158 and KIT-ADC;

    the number and development requirements of other product candidates that we pursue, including in our TAM research program and others we may acquire from third parties;

    the costs and timing of arrangements with third parties for the manufacture of clinical supplies of our product candidates;

    the costs, timing and outcome of regulatory review of our product candidates;

    the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

    the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

    the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

    our ability to establish collaboration arrangements with other biotechnology or pharmaceutical companies on favorable terms, if at all, for the development or commercialization of our product candidates; and

    the extent to which we acquire or in-license other product candidates and technologies.

        Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

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        Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

        If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

        The following table summarizes our contractual obligations at September 30, 2014:

 
  Payments Due by Period  
 
  Total   Less Than
1 Year
  1 - 3
Years
  4 - 5
Years
  More than
5 Years
 
 
  (in thousands)
 

Payments due under license, research and consulting agreements(1)(2)(3)

  $ 4,403   $ 1,548   $ 2,645   $ 20   $ 190  

Operating lease commitments(4)

    1,008     637     371          
                       

Total

  $ 5,411   $ 2,185   $ 3,016   $ 20   $ 190  
                       
                       

(1)
We are a party to an amended and restated research agreement under which we reimburse Yale University, or Yale, for research expenses. Under this agreement, we have an option to extend the term for successive three-year periods. We provided such notice of extension in August 2013 and amended the agreement with a June 4, 2014 effective date. Therefore, we are obligated to make annual payments of $1.5 million, on a quarterly basis, until March 2017.

(2)
We are a party to an amended and restated license agreement with Yale under which we are obligated to pay a low ten-thousands of dollars annual license maintenance fee, which increases to a low hundred-thousands of dollars fee if a qualifying change of control event occurs with respect to our company. Our obligation to pay the annual license maintenance fee will continue each calendar year through the earlier to occur of May 30, 2038 and when we commercialize a product and begin making minimum royalty payments to Yale under the license agreement. The table reflects only our annual license maintenance fee obligations through 2038, as we cannot predict when, if ever, we may commercialize a product.

(3)
We are party to an amended and restated consulting agreement with Dr. Joseph Schlessinger under which we agreed to pay an annual consulting fee of $0.2 million to Dr. Schlessinger and reimburse him for reasonable out-of-pocket expenses. The agreement automatically extends for successive one-year periods, subject to advance notice of either party's election not to renew the agreement. The table reflects payments due for 2014 only and not for any renewal period.

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(4)
We lease office and laboratory space in New Haven, Connecticut under an operating lease agreement that expires in April 2016 and has two renewal options, the first for an additional three-year term and the second for an additional two-year term.

        Under various licensing and related agreements, we will be required to make milestone payments and pay royalties and other amounts to third parties. We have not included any contingent payment obligations, such as milestones or royalties, in the table above as the amount, timing and likelihood of such payments are not known.

        Under a license agreement with Yale, we have agreed to make a one-time payment to Yale of $3.0 million with respect to each therapeutic or prophylactic RTK royalty-bearing product, as described in the license agreement, that achieves a specified commercial milestone. We have also agreed to make a one-time payment to Yale of $300,000 with respect to each diagnostic RTK royalty-bearing product that achieves a specified commercial milestone. Following the occurrence of a change of control, as described in the license agreement, the milestone payment amount that would otherwise be due upon the achievement of a commercial milestone with respect to each RTK royalty-bearing product would instead be apportioned to clinical, regulatory and commercial milestones and, therefore, could become due sooner. In addition, we have agreed to pay a low single-digit royalty on annual worldwide net sales of each RTK royalty-bearing product.

        Under a license and option agreement with MedImmune, we have agreed to make one-time payments to MedImmune of up to an aggregate of $15.0 million if we achieve specified clinical and regulatory milestones with respect to a KTN3379 product, as described in the license and option agreement, and up to an aggregate of $11.5 million if we achieve specified clinical and regulatory milestones with respect to a follow-on product, as described in the license and option agreement. We have also agreed to make one-time payments to MedImmune of up to an aggregate of $180.0 million if we achieve specified commercial milestones with respect to a KTN3379 product, and up to an aggregate of $90.0 million if we achieve specified commercial milestones with respect to a follow-on product. We have also agreed to pay MedImmune a tiered royalty on annual net sales of each KTN3379 product at rates ranging from high single-digit to low teens percentages and a tiered royalty on annual net sales of each follow-on product at rates ranging in the mid single-digit percentages. In addition, we have agreed to pay MedImmune additional royalties and development milestone payments with respect to the license by MedImmune of intellectual property from certain third parties.

        Under a license agreement with Spirogen Developments LP and Spirogen SARL (Bermuda Branch), or collectively Spirogen, we have agreed to issue to Spirogen an aggregate of $22.0 million in shares of our common stock, determined based on the market price of our common stock for the 30 days preceding achievement of the applicable milestone, if we achieve specified clinical milestones with respect to a targeting product containing a Spirogen compound conjugated to an antibody, as described in the license agreement. We have the right, at our election, to pay $20.0 million of the aggregate value of the milestones in cash. Thereafter, we have agreed to issue to Spirogen an aggregate of $5.0 million in shares of our common stock, or, at our election, to pay such amount in cash, if we achieve a specified clinical milestone with respect to each new indication for a targeting product. We have also agreed to pay Spirogen an aggregate of $50.0 million in cash if we achieve a specified regulatory milestone, and an aggregate of $25.0 million in cash in the event we achieve a specified commercial milestone with respect to each targeting product. In addition, we have agreed to pay a royalty on net sales of targeting products equal to a mid single-digit percentage.

        Under a license agreement with Lonza Sales AG, or Lonza, that we entered into in conjunction with a development and manufacturing services agreement, we have agreed to make one-time payments to Lonza of £100,000 if we achieve a specified regulatory milestone with respect to each product that is manufactured by Lonza. We have also agreed to pay a tiered royalty on annual worldwide net sales of each such product in a range of low single-digit percentages.

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        See "Business—Licensing Agreements" and "Business—Manufacturing" for more information about the payment obligations and other terms of these license agreements.

        In addition, we enter into contracts in the normal course of business with CROs for clinical trials and CMOs for clinical supply manufacturing, and with vendors for preclinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.

Off-Balance Sheet Arrangements

        We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Recently Issued and Adopted Accounting Pronouncements

        In June 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-10, Development Stage Entities. The amendments in this update removed all incremental financial reporting requirements, including inception-to-date information and certain other disclosures currently required under GAAP, in the financial statements of development stage companies. The amendments are effective for annual reporting periods beginning after December 15, 2014 and interim reporting periods beginning after December 15, 2015. Early adoption is permitted. We elected to early adopt this guidance and, therefore, have not presented inception-to-date and other related disclosures in our consolidated financial statements.

        In July 2013, the FASB issued changes to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These changes require an entity to present an unrecognized tax benefit as a liability in the financial statements if (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or (ii) the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset to settle any additional income taxes that would result from the disallowance of a tax position. Otherwise, an unrecognized tax benefit is required to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. These changes became effective for us as of January 1, 2014, and the adoption of this guidance did not have a significant impact on our consolidated financial statements.

        In February 2013, the FASB issued guidance to provide information about the amounts reclassified out of accumulated other comprehensive income, or AOCI, by component. An entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. On January 1, 2013, we adopted this standard and it had no impact on our financial position, results of operations or cash flows.

Quantitative and Qualitative Disclosures about Market Risk

        Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates on our investment portfolio.

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BUSINESS

Overview

        We are a clinical-stage biopharmaceutical company focused on the discovery and development of novel antibody-based drugs targeting receptor tyrosine kinases, or RTKs, for the treatment of cancer and other diseases with significant unmet need. We are a leader in understanding the mechanism of action and the biomedical roles of RTKs and their signaling pathways. RTKs are a group of cell-surface receptors that play important signaling roles in a variety of key cellular functions. Genetic mutations and abnormal regulation of RTKs play critical roles in many diseases. We are employing a systematic investigation of RTKs and applying our insights with the goal of developing important new medicines with novel mechanisms of action. Our founders and members of our management team have deep expertise and a proven track record in drug discovery, development and commercialization of innovative therapeutics, including drugs targeting kinases. We have also established an extensive network of relationships with leading academic institutions, clinical and scientific advisors and biopharmaceutical companies to augment our internal research and development capabilities.

        Our lead product candidate, KTN3379, is an antibody targeting the ErbB3 RTK and is currently in Phase 1b clinical development for adult patients with advanced solid tumors. We also have two preclinical programs targeting the KIT RTK for inflammatory diseases and oncology. We have a robust discovery pipeline, including antibody drug conjugates, or ADCs, directed at a range of RTK targets and recently acquired rights to additional technologies to enhance our position in the RTK field. For example, our recent acquisition of Xetrios Therapeutics, Inc., or Xetrios, enables us to deepen our focus on the TAM family of RTKs, which includes TYRO3, AXL and MER, to address immuno-oncology, autoimmune and infectious diseases. We believe our product candidates are distinct from other antibodies targeting RTKs, offer the potential to improve patient outcomes and have an opportunity to be first-in-class or best-in-class.

        We were founded in 2007 by Dr. Joseph Schlessinger and Arthur Altschul, Jr. We licensed our founding intellectual property from Yale University or Yale, and commenced operations in 2008. Dr. Schlessinger was a founder of SUGEN, Inc., or SUGEN, and Plexxikon, Inc., or Plexxikon. Mr. Altschul was an executive at and involved in the founding of SUGEN and was a founding investor in Plexxikon. In 1999, SUGEN was acquired by Pharmacia & Upjohn, Inc., now part of Pfizer, Inc., or Pfizer. Three drugs targeting RTKs that were under development at SUGEN at the time it was acquired by Pfizer, Sutent (sunitinib), Palladia (tororanib) and Xalkori (crizotinib), have been approved by the U.S. Food and Drug Administration, or FDA, and are currently on the market for the treatment of cancer. Plexxikon was acquired by Daiichi-Sankyo Company, Limited, or Daiichi-Sankyo, in 2011, after announcing positive interim Phase 3 clinical trial data for Zelboraf (vemurafenib), a drug targeting the oncogenic, or tumor promoting, BRAF kinase mutant. Zelboraf (vemurafenib) was approved by the FDA under priority review, is currently on the market for the treatment of cancer and was widely viewed as a breakthrough for the treatment of melanoma. Dr. Schlessinger serves as a member of our board of directors and as Chairman of our scientific advisory board, or SAB. He is a recognized leader in the field of RTK biology, having authored over 475 scientific articles and papers on pharmacology and cancer biology, many of which relate to tyrosine kinase signaling. He is chair of the Pharmacology Department at Yale University School of Medicine, as well as the founding director of Yale's Cancer Biology Institute. Mr. Altschul serves as Chairman of our board of directors was involved in the founding of FibroGen, Inc., and serves as a director of General American Investors, Child Mind Institute and The Neurosciences Research Foundation.

        Our President and Chief Executive Officer is Dr. Gerald McMahon. He also is a member of our board of directors. Dr. McMahon has over 25 years of experience in the pharmaceutical industry, has authored over 85 publications and is a co-inventor on 65 issued U.S. patents. Dr. McMahon served as President of SUGEN, and was instrumental in the discovery and development of Sutent, Palladia and Xalkori. In addition, Dr. McMahon was a key executive at MedImmune, LLC, or MedImmune, a

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subsidiary of AstraZeneca AB, or AstraZeneca, where he was involved in the creation of a portfolio of oncology biologics. While at MedImmune, Dr. McMahon was actively involved in the development of KTN3379, which we have licensed from MedImmune.

        We have established a broad relationship with Yale. We are a party to both a license agreement and a sponsored research agreement with Yale that we believe align our financial and scientific interests with Yale's in the RTK field. Our SAB is comprised of a team of experts with strong scientific and clinical experience who contribute to our understanding of RTK targets and product candidates directed toward these targets. Further, we have selectively executed agreements with biopharmaceutical companies to acquire rights to complementary technologies and product candidates. We believe our relationships with Yale, other academic institutions, our SAB and selected biopharmaceutical companies allow us to expand our product candidate pipeline and leverage the insights of leading scientists, researchers and clinicians.

        The following table summarizes our product development pipeline:

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Our Strategy

        Our goal is to become a leader in the discovery, development and commercialization of important medicines targeting RTKs for the treatment of patients with cancer and other diseases with significant unmet need. Key elements of our strategy include:

        Rapidly advance the clinical development of KTN3379 as a combination therapy.    We plan to rapidly advance the development of KTN3379 in refractory cancer patient populations in an effort to commercialize a product as quickly as possible and validate our expertise and approach. The profile of KTN3379 suggests that this product candidate has the potential to synergize with drugs that target the EGFR or ErbB2 (HER2) RTKs and to overcome resistance. Our Phase 1b clinical development trials are designed to evaluate the general safety profile and preliminary antitumor activity of KTN3379 in combination with other approved cancer drugs. In the first half of 2015, we plan to to initiate a clinical trial, commonly referred to as a window study, to evaluate KTN3379 as a single agent in head and neck

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cancer patients and another Phase 1b clinical trial to evaluate KTN3379 in combination with Zelboraf (vemurafenib) in thyroid cancer patients. We plan to begin Phase 2 clinical trials of KTN3379 in various solid tumor indications in the first half of 2016, subject to satisfactory completion of our overall Phase 1 clinical trial program. In Phase 2 clinical trials of KTN3379, we intend to target patient populations with tumors that have a strong preclinical and clinical basis for being driven by ErbB3, including tumors of the head and neck, breast, lung, stomach and skin.

        Establish clinical proof of concept of KTN0158 in neurofibromatosis type 1, an underserved orphan indication, in order to accelerate development and regulatory review.    We plan to develop our second product candidate, KTN0158, for the treatment of a wide range of mast cell-related diseases in which we believe inhibition of KIT can provide a unique and meaningful clinical benefit. To accelerate the clinical development and potentially the regulatory review of KTN0158, we plan to focus initially on the treatment of neurofibromatosis type 1, or NF1, a subtype of neurofibromatosis. NF1 is a rare genetic disorder with a small patient population and for which there is no currently approved drug. We believe that KTN0158 as a treatment for NF1 will qualify for orphan drug designation in both the United States and the European Union. See "—Government Regulation—Orphan Designation and Exclusivity" for additional information. We expect to submit an investigational new drug application, or IND, to the FDA for this product candidate in mid-2015 and, if accepted, initiate a Phase 1 clinical trial in NF1 patients in the second half of 2015. Subject to the satisfactory completion of this Phase 1 clinical trial, we plan to initiate a Phase 2 clinical trial of NF1 patients in the second half of 2016. We selected NF1 as the initial indication in part because we may be able to establish clinical proof of concept in a trial with relatively few patients. We further believe that focusing on NF1, rather than indications with approved therapies, may allow us to qualify for favorable regulatory strategies, such as breakthrough therapy or fast track designation. See "—Government Regulation—Fast Track, Breakthrough Therapy and Priority Review Designations" for additional information related to the eligibility criteria and benefits of each designation. In addition, we may be able to use the data from our clinical trials and preclinical studies in the development of this product candidate for NF1 to pursue other indications, including potentially atopic dermatitis and idiopathic pulmonary fibrosis. We are unaware of any other company developing a novel compound for the treatment of NF1 and are aggressively seeking to be the first to initiate clinical development of such a product candidate.

        Expand our product candidate pipeline by continuing development of our KIT-ADC program, discovering product candidates for our TAM research program, conducting additional proprietary research and applying insights from our network of collaborators.    We are focusing our current research and development efforts in areas in which we believe that there is significant opportunity to create new antibody-based product candidates targeting RTKs that are first-in-class or best-in-class. We are principally addressing this opportunity by applying our proprietary knowledge, and our understanding of the mechanism of action and the biomedical roles of RTKs and their signaling pathways to discover and develop additional antibodies to modulate the function of RTKs. In addition to KTN3379 and KTN0158, we are actively working to identify an IND candidate for each of our KIT-ADC and TAM programs in 2015. We augment our internal research and development efforts through the network of academic, scientific and clinical relationships that we have established so as to benefit from the knowledge and experience of other experts in the RTK field and in specific disease categories.

        Opportunistically in-license or acquire technologies and product candidates.    We plan to further expand our product candidate pipeline by continuing to in-license or acquire the rights to complementary technologies and product candidates on an opportunistic basis. We believe that our deep understanding of RTKs and our experienced management and scientific team will make us an attractive collaborator or acquirer for companies and academic institutions seeking to out-license or sell rights to technologies or product candidates in our areas of focus. We believe that our approach of in-licensing or acquiring these rights from external sources may allow us to initiate and advance clinical development of a diverse pipeline of product candidates more quickly than if we were to focus solely on internally discovered product candidates. For example, we licensed from Spirogen Developments LP

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and Spirogen SARL (Bermuda Branch), which we refer to together as Spirogen, certain Pyrrolobenzodiazepine, or PBD, cytotoxics, which are substances that kill tumor cells, that we are conjugating to our KTN0158 antibody in our KIT-ADC program. In addition, our recent acquisition of Xetrios Therapeutics, Inc., or Xetrios, enables us to deepen our focus on the TAM family of RTKs, which includes TYRO3, AXL and MER, to address immuno-oncology, autoimmune and infectious diseases.

        Establish specialized sales and marketing capabilities in the United States in order to maximize the commercial potential of our product candidates.    We have retained commercialization or co-commercialization rights for all of our development programs. We plan to build our own focused, specialized sales and marketing organization to support the commercialization in the United States of product candidates for which we receive marketing approval and that can be commercialized with such capabilities. We expect to utilize a variety of types of collaboration, co-promotion, distribution and other marketing arrangements with one or more third parties to commercialize our product candidates in markets outside the United States or for situations in which a larger sales and marketing organization is required.

        Collaborate selectively to augment and accelerate development and commercialization of our product candidates.    We may seek third party collaborators for the development and commercialization of some of our product candidates on a selected basis. We plan to evaluate the merits of entering into collaboration agreements with leading pharmaceutical or biotechnology companies for each of our product candidates, and in particular for those product candidates that have high anticipated development costs, address markets requiring a large sales and marketing organization or are directed at indications for which a potential collaborator has particular expertise. For example, we plan to consider a possible collaboration for KTN3379 prior to initiating Phase 2 clinical trials for this product candidate.

Background on Kinases and RTKs

Kinases, Tyrosine Kinases and Receptor Tyrosine Kinases

        Kinases are a broad class of 518 distinct enzymes. Kinases play essential roles in cell signaling and regulation of important cellular processes, such as cell proliferation, differentiation and survival as well as cell metabolism and other activities. Many kinases are targets of approved drugs. Because of their key role in regulating the life cycle of cells, kinases can be involved in the underlying mechanisms for many human diseases, including cancer, autoimmune and inflammatory diseases, fibrosis and infection. Aberrant kinase function, caused by mutation or overexpression, underlies many cancer cell processes. Kinase inhibitors have had a dramatic impact on the treatment of cancer following the FDA approval of the antibody Herceptin (trastuzumab) in 1998 and the small molecule drug Gleevec (imatinib) in 2001.

        Kinases were first catalogued and characterized from the human genome by the biopharmaceutical company SUGEN in the 1990s. SUGEN named its catalogue of this class of enzymes the kinome. We believe that SUGEN and its co-founders were among the pioneers in using kinases as drug targets for the treatment of cancer and other diseases. This approach ultimately resulted in SUGEN and other companies bringing a number of new drugs to market.

        Kinases are classified into subgroups based on which part of a protein, either tyrosine or serine/threonine, they phosphorylate. Phosphorylation is an enzymatic process in which chemicals known as phosphates are transferred in the cell to a specific part of a protein to change the protein's function. Tyrosine kinases are enzymes that transfer phosphates to tyrosine. There are a number of approved small molecule drugs that target tyrosine kinases, including Sutent (sunitinib), Tarceva (erlotinib) and Gleevec (imatinib).

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        RTKs are a subgroup of tyrosine kinases that straddle the cell membrane and therefore have both extracellular and intracellular portions. Other types of tyrosine kinases are confined to the internal portion of the cell. The extracellular portion of the RTK is available as a switch to activate cell growth or survival. RTKs are attractive targets for therapeutic intervention with antibodies because the extracellular portions of the RTKs are easily accessible to antibodies. RTKs and their cellular signaling pathways play important roles in many diseases. RTKs comprise approximately 10% of all kinases. There are 58 known RTKs grouped into 20 families.

        The following figure shows the 20 unique families of RTKs. In this figure, the portions of each RTK family above the horizontal line, which represents the cell membrane, are the extracellular receptors. The portions of each RTK family below the horizontal line are the intracellular kinase domains.

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        The extracellular portion of the RTK functions as a binding site for ligands or growth factors, which are substances that bind RTKs and activate signaling within the cell, thereby regulating cell growth and survival. Each RTK is characterized by two single protein chains. Upon binding with the ligand or growth factor, the single protein chains of the RTK physically interact in a process known as dimerization. Dimerization in which two protein chains of the same RTK bind is referred to as homodimerization. During dimerization, the RTK is phosphorylated. Upon phosphorylation, other intracellular proteins engage with the RTK, leading to cell signaling that can result in multiple processes, including cell growth and survival. This understanding of the kinase activation cascade has been central to the development of innovative, targeted drugs for cancer and inflammatory diseases.

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        The following figure depicts ligand binding followed by dimerization of the two single protein chains and activation of intracellular signaling.

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Currently-Approved Drugs Targeting RTKs

        There are currently 30 approved drugs for human use that target RTKs. Of these approved drugs, nine are biologics and 21 are small molecules. All of these drugs are approved for the treatment of oncology diseases, other than several biologics targeting VEGF or VEGFR and approved for the treatment of ophthalmic indications.

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        The following table sets forth information regarding selected approved biologics and small molecule drugs targeting RTKs:


Selected RTK Biologics and Small Molecules

 
  Target   Indication(s)   Launch Year   2013
Worldwide
Net Sales
(in millions)(1)
 

Biologics

                     

Avastin(4)

  VEGF   Cancer     2004   $ 6,748  

Herceptin

  ErbB2   Cancer     1998     6,559  

Lucentis(4)

  VEGF   Ophthalmology     2006     4,205  

Eylea

  VEGF   Ophthalmology     2011     1,880  

Erbitux

  EGFR   Cancer     2004     1,868  

Vectibix

  EGFR   Cancer     2006     582 (2)

Perjeta

  ErbB2   Cancer     2012     352  

Kadcyla

  ErbB2   Cancer     2013     252  

Zaltrap

  VEGF, PLGF   Cancer     2012     70  
                     

                $ 22,516  
                     
                     

Small Molecules

 

 

 

 

   
 
   
 
 

Gleevec

  Bcr-Abl, KIT, PDGFR   Cancer     2001   $ 4,700  

Tarceva

  EGFR   Cancer     2004     1,445  

Sprycel

  Bcr-Abl, Fyn, Src, Lck, Btk, PDGFR   Cancer     2006     1,280  

Tasigna

  Bcr-Abl, KIT, PDGFR   Cancer     2007     1,266  

Nexavar

  VEGFR, PDGFR, FLT3, KIT, RET   Cancer     2005     1,172  

Iressa

  EGFR   Cancer     2002     674  

Votrient

  VEGFR, PDGFR, KIT   Cancer     2010     520  

Tykerb

  Pan-ErbB   Cancer     2007     325 (3)

Inlyta

  VEGFR1, VEGFR2, VEGFR3   Cancer     2012     319  

Sutent

  VEGFR2, PDGFR, FLT3, KIT   Cancer     2006     312  

Xalkori

  ALK, MET   Cancer     2011     282  

Stivarga

  VEGFR, PDGFR, KIT, RET, Raf   Cancer     2012     262  
                     

                $ 12,557  
                     
                     

(1)
Based on publicly reported information by the companies marketing these drugs.

(2)
Takeda Pharmaceutical Company, Ltd.'s Vectibix net sales for fiscal year ended March 31, 2012.

(3)
Reflects only GlaxoSmithKline plc net sales; Nippon Kayaku Co. Ltd. did not disclose 2013 Tykerb net sales.

(4)
References in this prospectus to the target of RTKs by Avastin and Lucentis refer to their target of the ligand of VEGF rather than VEGF.

        We believe that the net sales levels achieved by these drugs demonstrate that a drug targeting an RTK in an effective manner can achieve significant commercial success. We believe that the remaining 55 RTK targets for which there are no approved biologics provide an opportunity to create a broad portfolio of therapeutic biologics. Pharmaceutical companies continue to focus on the development of antibodies that target RTKs, as evidenced by the recent approvals of the cancer drugs Perjeta® (pertuzumab), Kadcyla® (trastuzumab emtansine) and Cyramza® (ramucirumab). Currently, there are no approved biologics that target RTKs for the treatment of an inflammatory disease.

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Development of Drugs Targeting RTKs

        While there are a number of marketed biologics that target RTKs, many companies have instead pursued small molecule approaches. We believe this reflects the relative ease and comparatively low development cost of targeting kinases with small molecules. In addition, small molecules are well suited for targeting genetic alterations, such as mutations, which are generally associated with defined patient populations and, potentially, accelerated development.

        We believe using a small molecule-based approach to target RTKs is subject in many cases to important shortcomings, including:

    small molecule RTK drugs frequently have off-target activity, which can lead to undesirable side effects and suboptimal efficacy;

    small molecule kinase inhibitors are potent at blocking the activity of mutant kinases in most cases, but are poor inhibitors of cancers driven by wild type, or normal, RTKs;

    the side effect profile of some small molecule RTK drugs limits the ability to administer them in combination with other small molecules and biologics, which in turn restricts their use to refractory or late stage disease; and

    acquired resistance through mutation and subsequent disease progression remains a particular challenge for small molecule RTK drugs.

        In contrast to a small molecule-based approach, we believe there are several advantages to targeting RTKs through a biologic-based approach, including:

    antibodies are better suited to more potently inhibit the activation and action of cancers and other diseases driven by wild type RTKs;

    antibodies can block distinct critical steps essential for RTK activation;

    antibodies selectively target RTKs and, therefore, have fewer and more predictable side effects, making them easier to combine with standard of care therapies;

    inhibitory antibodies block RTK activity by binding to large surfaces, therefore reducing the probability of resistance caused by new mutations;

    antibodies are injectable drugs that do not go through the gut and are not processed by the liver, resulting in fewer complications related to bioavailability and metabolism; and

    antibodies circulate in the bloodstream after injection, often for weeks, resulting in ongoing exposure of the patient to the drug and permitting less frequent dosing.

Our Expertise and Approach

        We believe that we have important insights based on our proprietary knowledge of RTKs, our extensive work in the RTK field and the seminal discoveries made by Dr. Schlessinger's laboratory. We are systematically creating antibodies against RTK targets and pursuing novel biologic mechanisms with the goal of creating a proprietary portfolio of product candidates. We evaluate the antibodies that we create for potency, relevance in biologic models and differentiation from other therapeutic agents as criteria for lead identification and selection. We prioritize antibody leads and, in some cases, enhance them with additional technologies in creating product candidates. We apply the collective experience that our scientific and development personnel and key collaborators derived from the successful development and commercialization of RTK drugs to build a portfolio of product candidates for clinical evaluation.

        Our KTN0158 and KIT-ADC programs illustrate the application of our expertise and approach, including our scientific understanding of RTKs and their signaling pathways, our antibody discovery capabilities, our access to novel technologies and our ability to position product candidates for clinical development. Dr. Schlessinger elucidated the x-ray crystal structure of the extracellular domain of KIT. This work revealed a molecular explanation for how KIT is activated and predicted that targeting sites on KIT proximal to the cell membrane would provide a unique mechanism of action that could

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potently inhibit the ability of KIT to signal and activate cell growth and survival. Based on this finding, we discovered KTN0158, a novel antibody which binds tightly with the target on the KIT RTK indicated by the x-ray crystal structure and acts through the predicted mechanism.

        Applying our understanding of the biology of KIT and mast cells, we tested KTN0158 in cell culture and animal models and concluded that the development of KTN0158 in human diseases in which mast cells and potentially eosinophils, a type of inflammatory cell, play a role was warranted. We focused on NF1 as the first indication for clinical development based on our insights into the role of KIT and mast cells in this genetic disease. Our insight that, while KIT is expressed on tumor cells, it may not necessarily be an oncogenic driver, led us to an antibody-drug conjugate, or ADC, approach for development in oncology. Taking this approach, we are using KTN0158, an antibody with affinity for KIT, to target this RTK and are linking a cytotoxic agent to provide the therapeutic effect. We evaluated several ADC platforms in animal models and concluded that KTN0158, when linked with Spirogen's PBD platform, would likely be most effective for oncology indications. On this basis, we entered into the license with Spirogen to access certain PBDs in order to create the KIT-ADC conjugate built on our KTN0158 antibody.

        We also leverage our RTK experience and knowledge base in connection with our business development activities. For example, in determining to enter into the KTN3379 license with MedImmune, we compared KTN3379 with our internal and third party ErbB3 programs and concluded that KTN3379 was differentiated based on preclinical observations about its potency, pharmacology, novel binding and potential to completely inactivate ErbB3. Similarly, our understanding of the RTK class of drug targets was critical in our decision to acquire Xetrios and its intellectual property covering TAM RTKs. In both cases, we believe that the other parties to these transactions were particularly interested in collaborating with us because of our experience, knowledge base and development capabilities in the RTK field.

Our Product Pipeline

        The following table summarizes our product development pipeline:

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KTN3379

        KTN3379 is a novel antibody designed to target the ErbB3 RTK and is in Phase 1 clinical development in adult patients with advanced solid tumors. We licensed this product candidate from MedImmune.

EGFR Family and ErbB3

        ErbB3 is an RTK that belongs to the epidermal growth factor receptor, or EGFR family and is believed to be an important cell receptor regulating cell growth and survival. The EGFR family consists of four RTKs: ErbB1, also known as EGFR; ErbB2, also known as HER2; ErbB3, also known as HER3; and ErbB4, also known as HER4. Several currently approved drugs target EGFR or ErbB2, including Genentech's antibody Herceptin targeting ErbB2 and Bristol-Myers Squibb's and Eli Lilly's antibody Erbitux targeting EGFR.

        ErbB3 is expressed in many cancers, including head and neck, breast, colorectal, lung, gastric, ovarian and melanoma. In addition to directly promoting tumor growth, ErbB3 has been implicated in conferring therapeutic resistance to several targeted drugs, including antibodies targeting ErbB2 and EGFR and small molecule inhibitors of other signaling targets. We believe the role of ErbB3 in both tumor growth and drug resistance makes it a promising therapeutic target. Although there are currently marketed drugs that have activity against ErbB3 through their targeting of EGFR and ErbB2, no currently marketed drug directly targets ErbB3. However, a number of companies have product candidates in development that directly target ErbB3.

        ErbB3 is different from other members of the EGFR family in two key ways:

    ErbB3 has a pseudo kinase domain, meaning that it lacks an active intracellular kinase function normally associated with other kinases. As a result, ErbB3 alone is incapable of independently initiating signaling and regulation of important cellular processes, such as cell growth and survival. Small molecules are generally ineffective in blocking ErbB3 due to the lack of the intracellular kinase domain to which small molecule drugs are targeted; and

    Cell signaling occurs by tyrosine phosphorylation of ErbB3 due to dimerization with ErbB2 or EGFR in a process known as heterodimerization, resulting in a complex formation between different types of RTKs. This heterodimerization causes ErbB3 activation and in turn leads to activation of multiple downstream signals that promote tumor cell growth and survival.

        We believe that the best approach for targeting ErbB3 is an antibody in combination with other therapeutic agents, such as an EGFR or ErbB2 inhibitor, because ErbB3 signaling requires heterodimerization with EGFR or ErbB2. We believe this approach is supported by the recent approval of the combination of Herceptin (trastuzumab), which inhibits ErbB2 signaling, and Perjeta (pertuzumab), a monoclonal antibody that binds ErbB2 at a different epitope than Herceptin (trastuzumab) and blocks ErbB2 dimerization with ErbB3, for the treatment of metastatic breast cancer. In a recently completed clinical trial conducted by a third party in breast cancer patients, treatment with the combination of Herceptin (trastuzumab) and Perjeta (pertuzumab) along with the chemotherapy agent docetaxel resulted in a significant improvement in survival compared to treatment with Herceptin (trastuzumab) alone with chemotherapy. The results from this study support the critical role of ErbB3 inhibition in ErbB2, or HER2, positive breast cancer patients and the benefit of using two antibodies that have complementary mechanisms to result in complete blockage of ErbB2. Combinations of antibodies targeting ErbB3 and other therapeutic agents targeting the kinases BRAF and MEK, which play important roles in many different types of cancer, may also be of interest.

Structure and Function of KTN3379

        We believe KTN3379 may be differentiated from other ErbB3 antibodies in development based on preclinical observations about its potency, pharmacology, novel binding and potential to completely

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inactivate ErbB3. The amino acids in the backbone of KTN3379 have been engineered to increase its half-life in the blood, which may lead to more potent inhibition of ErbB3. We recently elucidated with Dr. Schlessinger the x-ray crystal structure of KTN3379 bound with the extracellular domain of ErbB3. In preclinical experiments, the unique binding site, or epitope, of KTN3379 on ErbB3 prevented activation that is dependent on ErbB3's ligand, known as neuregulin, as well as ligand independent activation that occurs when ErbB3 heterodimerizes with ErbB2 in cancer cells that overexpress ErbB2. In contrast with certain other antibodies in development that target ErbB3, KTN3379 binds ErbB3 outside the ligand binding domains and locks ErbB3 in an inactive configuration.

        We believe that the novel binding and dual mechanism of action suggest that KTN3379 has the potential to completely inactivate ErbB3 and potentially is applicable as a therapy for all tumor types in which ErbB3 plays a role, including tumor types that express neuregulin and tumor types in which ErbB2 is expressed. We do not anticipate that complete inactivation would result in dose limiting side effects because ErbB3 does not generally play an important role in healthy tissues. We believe that we may be able to design antibodies that lock other RTKs in an inactive configuration or have other attractive properties by applying the knowledge we have obtained from the x-ray crystal structure of ErbB3 in a complex with KTN3379.

        The following figure depicts the x-ray crystal structure of KTN3379 bound to ErbB3.

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        The following schematic depicts ErbB3 in its inactive conformation, in its heterodimerized and active conformation and as bound with KTN3379 and locked in its inactive conformation.

GRAPHIC

Clinical development

        We are conducting an open-label Phase 1 clinical trial program of KTN3379. In September 2014, we completed the dose escalation monotherapy portion of this clinical trial program in adult patients with advanced solid tumors. In October 2014, we initiated the Phase 1b portion of this clinical trial program in which we are evaluating KTN3379 in combination with selected currently approved cancer drugs in a variety of types of solid tumors. To date, we have conducted our Phase 1 clinical trial program of KTN3379 at four sites in the United States pursuant to an active IND. MedImmune initially submitted the IND to the FDA in December 2012. In September 2013, the FDA accepted the transfer of the IND from MedImmune to us as the sponsor. The IND indication is cancer. We expect to add additional clinical trial sites shortly. We plan to enroll a total of at least 40 patients in our overall Phase 1 clinical trial program, consisting of the completed dose escalation monotherapy portion together with the ongoing Phase 1b combination therapy portion of the clinical trial program. In our Phase 1 clinical trial program, we are administering KTN3379 as an intravenous infusion every 21 days. This dosing regimen reflects the duration of drug exposure expected based on our preclinical models. We are treating patients until disease progression or toxicity.

        In the completed dose escalation portion of the Phase 1 clinical trial program, we identified a recommended dose for Phase 2 clinical trials and observed a linear and dose proportional pharmacokinetic profile based on the concentration of the drug in the patients' blood. Levels of KTN3379 in patients' blood at doses of 10 mg/kg and 20 mg/kg exceeded the target exposure determined from experiments assessing antitumor activity in preclinical models. All doses tested resulted in modulation of soluble ErbB3, a biomarker circulating in the patient's blood. KTN3379 at doses of 5 mg/kg, 10 mg/kg and 20 mg/kg every 21 days was well tolerated by the advanced cancer patients in the trial. No dose limiting toxicities were observed and a maximum tolerated dose was not determined. Three serious adverse events were experienced by patients, two of which were judged by

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the trial investigator to be related to the underlying cancer and one of which, severe diarrhea, was judged by the trial investigator to be related to KTN3379.

        We plan to enroll approximately six to 12 patients in each of the four concurrent arms in the Phase 1b portion of our clinical trial program. The first arm will test KTN3379 in combination with Erbitux (cetuximab) in head and neck or colorectal cancer patients, the second arm will test KTN3379 in combination with Tarceva (erlotinib) in non-small cell lung cancer patients, the third arm will test KTN3379 in combination with Zelboraf (vemurafenib) in melanoma patients and the fourth arm will test KTN3379 in combination with Herceptin (trastuzumab) in breast or gastric cancer patients. We expect to announce preliminary data from the Phase 1b portion of our Phase 1 clinical trial program in the first half of 2015.

        The primary objectives of our Phase 1 clinical trial program are to determine the maximum tolerated dose, establish a dosing regimen for Phase 2 clinical trials of KTN3379 and evaluate the general safety profile of KTN3379. The secondary objectives of our Phase 1 clinical trial program are to determine the pharmacokinetics, to evaluate the immunogenicity and to evaluate preliminary anti-tumor activity of KTN3379.

        We also plan to evaluate KTN3379 as a single agent in a clinical trial in head and neck cancer patients. The primary objective of this trial, which is commonly referred to as a window study, will be to evaluate the biologic activity of KTN3379 in tumor tissue samples taken from patients based on selected biomarkers. Neuregulin has been shown to be expressed in many patients with head and neck cancers, and we will be able to monitor the activation of ErbB3 by neuregulin during the treatment phase of the study. We believe data from this study would help define a pharmacodynamic biomarker, or a molecular indicator of drug candidate effect, for KTN3379 as a monotherapy to help with Phase 2 study design in head and neck and other tumor types in which neuregulin would be expected to play a role. We plan to initiate this window study in the first half of 2015.

        In addition, we plan to evaluate KTN3379 in combination with Zelboraf (vemurafenib), a BRAF inhibitor, in another Phase 1b clinical trial in thyroid cancer patients who are resistant to radioiodine therapy. Although radioiodine therapy is standard treatment for thyroid cancer, patients may become resistant. While treatment with a BRAF or MEK inhibitor may restore sensitivity to radioiodine in some patients, ErbB3 signaling is considered a possible mechanism for resistance to BRAF or MEK inhibition in others. The resistance to radioiodine treatment can be assessed by radioiodine uptake by the tumor cells and by objective tumor response measurements. We believe that the combination of KTN3379 with a BRAF or MEK inhibitor may restore sensitivity to radioiodine therapy and has the potential to provide a treatment strategy for these patients leading to clinical benefit. We plan to initiate this Phase 1b clinical trial in the first half of 2015.

        Subject to the satisfactory completion of our overall Phase 1 clinical trial program, we plan to initiate our Phase 2 clinical trials in the first half of 2016. In the Phase 2 clinical trials, we plan to test KTN3379 in combination with other cancer drugs in certain indications based on the results from the ongoing Phase 1b portion of our Phase 1 clinical trial program as well as our access to patients with specific tumor types, our ability to use biomarkers and companion diagnostics and the competitive landscape. We intend to target patient populations with tumors that have a strong preclinical and clinical basis for being driven by ErbB3, including tumors of the head and neck, breast, lung, stomach and skin. We have selected these tumor types because they are characterized by a high prevalence of neuregulin expression or ErbB2 amplification.

Preclinical Studies

        We and MedImmune have conducted a comprehensive program of preclinical testing of KTN3379, including in vitro and in vivo drug candidate activity, mechanism analyses and toxicity studies. Based on the results from this preclinical program, we decided to advance KTN3379 into clinical development.

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        KTN3379 and Erbitux combination xenograft tumor studies.    As part of our in-license of KTN3379 from MedImmune, we obtained data from two preclinical animal studies conducted by MedImmune regarding the antitumor activity of KTN3379 alone and in combination with the anti-EGFR antibody Erbitux (cetuximab), which is approved for the treatment of head and neck and colorectal cancer. In these studies, MedImmune used nude mouse tumor xenograft models, which are mice implanted with human cancer cells, in this case head and neck cancer cells. Two different human head and neck cancer cells, called FADU and OE-21, were implanted into the mice. In both studies, after the head and neck cancer cells were allowed to establish, the mice were divided into four treatment groups of ten animals each and treated twice weekly. At the end of the treatment phase, tumor growth inhibition was assessed. Tumor growth inhibition was calculated by comparing mean tumor volume at the end of treatment between each treatment group and the control group. Because tumor growth inhibition for a treatment group reflects the percentage of tumor growth inhibition in comparison to the control group, rather than in comparison to the initial mean tumor volume for such treatment group, it does not indicate tumor regression.

        In the study with FADU, each of the four treatment groups received one of the following over a 14-day treatment phase:

    a precursor antibody of KTN3379, known as 2C2, alone;

    2C2 in combination with Erbitux (cetuximab);

    Erbitux (cetuximab) alone; or

    an inactive immunoglobulin G type 1, or IgG1, antibody control.

        2C2 is identical to KTN3379, except that 2C2 lacks the amino acid modification for half-life extension, and its antitumor activity is similar to what we expect of KTN3379. In the FADU model, treatment with:

    2C2 alone resulted in 85.3% tumor growth inhibition compared to control;

    Erbitux (cetuximab) alone resulted in 54.7% tumor growth inhibition compared to control; and

    the combination of 2C2 and Erbitux (cetuximab) resulted in 95.2% tumor growth inhibition compared to control.

        The tumor growth inhibition by the combination of 2C2 and Erbitux (cetuximab) was statistically significantly better than either treatment alone (p<0.0001). We determine statistical significance based on a widely used, conventional statistical method that establishes the p-value of clinical results. Typically, a p-value of 0.05 or less represents statistical significance. In addition, tumor regression, or reduction in mean tumor volume from the initiation of treatment through the end of the 14-day treatment phase, was observed in this combination group. The mean tumor volume was also evaluated for an additional 35 days after the 14-day treatment phase for regrowth after treatment. In this phase of the study, there was a marked delay in the regrowth of the tumors in the group treated with the combination of 2C2 and Erbitux compared with either treatment alone. Each of the single agent treatment groups reached maximal allowed mean tumor growth by day 39, whereas the combination treatment group did not reach the maximal allowed mean tumor volume by the end of the study on day 57.

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        The results from this study with FADU are shown in the graph below.

GRAPHIC

        In the study with OE-21, each of the four treatment groups received one of the following over a 14-day treatment phase:

    KTN3379 alone;

    KTN3379 in combination with Erbitux (cetuximab);

    Erbitux (cetuximab) alone; or

    an inactive IgG1 antibody control.

        In the OE-21 model, treatment with:

    KTN3379 alone resulted in 35.5% tumor growth inhibition compared to control;

    Erbitux (cetuximab) alone resulted in 27.9% tumor growth inhibition compared to control; and

    the combination of KTN3379 and Erbitux (cetuximab) resulted in 66.6% tumor growth inhibition compared to control.

        The tumor growth inhibition by the combination of KTN3379 and Erbitux (cetuximab) was statistically significantly better than either treatment alone (p£0.003). In addition, tumor regression from the initiation of treatment through the end of the 14-day treatment phase was observed in this combination group. The mean tumor volume was also evaluated for an additional 11 days after the 14-day treatment phase for regrowth after treatment. In this phase of the study, there was a marked delay in the regrowth of the tumors in the group treated with the combination of KTN3379 and Erbitux

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(cetuximab) compared with either treatment alone. Each of the single agent treatment groups reached maximal allowed mean tumor growth by day 43, whereas the combination treatment group did not reach the maximal mean tumor volume by the end of the study on day 43.

        The results from this study with OE-21 are shown in the graph below.

GRAPHIC

        No weight loss or mortalities were observed in the mice in any treatment group in either of these preclinical studies. We believe that these preclinical studies highlight the potential benefits of KTN3379 in inhibiting cancers in which both ErbB3 and EGFR play a role.

        KTN3379 and anti-ErbB2 drug combination xenograft tumor studies.    We also obtained data from three preclinical animal studies conducted by MedImmune regarding the antitumor activity of KTN3379 alone and in combination with the anti-ErbB2 antibody Herceptin (trastuzumab), which is approved for the treatment of breast and gastric cancers, the anti-ErbB2 small molecule Tykerb® (lapatinib), which is approved for the treatment of breast cancer and Herceptin (trastuzumab) plus the anti-ErbB2 antibody Perjeta (pertuzumab) which is approved for the treatment of breast cancer.

        In the first two of these studies, MedImmune used nude mouse xenograft models in which mice were implanted with a human breast cancer cell line, known as MDA-MB-361, that expresses ErbB2 at moderate levels. In both studies, after the breast cancer cells were allowed to establish, the mice were divided into four treatment groups of ten animals each and treated twice weekly. At the end of the treatment phase, tumor growth inhibition was assessed for each treatment group in comparison to control.

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        In the study with Herceptin (trastuzumab), each of the four treatment groups received one of the following over a 14-day treatment phase:

    KTN3379 alone;

    KTN3379 in combination with Herceptin (trastuzumab);

    Herceptin (trastuzumab) alone; or

    an inactive IgG1 antibody control.

        In this breast cancer model, treatment with:

    KTN3379 alone resulted in 41.2% tumor growth inhibition compared to control;

    Herceptin (trastuzumab) alone resulted in 42.9% tumor growth inhibition compared to control; and

    the combination of KTN3379 and Herceptin (trastuzumab) resulted in 70.5% tumor growth inhibition compared to control.

        The tumor growth inhibition by the combination of KTN3379 and Herceptin (trastuzumab) was statistically significantly better than either treatment alone (p<0.0001). In addition, tumor regression from the initiation of treatment through the end of the 14-day treatment phase was observed in this combination group. The mean tumor volume was also evaluated for an additional 39 days after the 14-day treatment phase for regrowth after treatment. In this phase of the study, there was a marked delay in the regrowth of the tumors in the group treated with the combination of KTN3379 and Herceptin (trastuzumab) compared with either treatment alone. Each of the single agent treatment groups reached maximal allowed mean tumor growth by day 48, whereas the combination treatment group only was approaching the maximal mean tumor volume by the end of the study on day 62.

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        The results from this study with Herceptin (trastuzumab) are shown in the graph below.

LOGO

        In the study with Tykerb (lapatinib), each of the four treatment groups received one of the following over a treatment phase as specified below:

    KTN3379 alone (14-day treatment period);

    KTN3379 in combination with Tykerb (lapatinib) (14-day treatment period);

    Tykerb (lapatinib) alone (12-day treatment); or

    an inactive IgG1 antibody control.

        Each treatment group was given twice weekly injections of antibody or placebo and daily oral Tykerb (lapatinib). In this breast cancer model, treatment with:

    KTN3379 alone resulted in 41.2% tumor growth inhibition compared to control;

    Tykerb (lapatinib) alone resulted in 25.6% tumor growth inhibition compared to control; and

    the combination of KTN3379 and Tykerb (lapatinib) resulted in 65.4% tumor growth inhibition compared to control.

        The tumor growth inhibition by the combination of KTN3379 and Tykerb (lapatinib) was statistically significantly better than either treatment alone (p<0.0001). In addition, tumor regression from the initiation of treatment through the end of the treatment phase was observed in this combination group. The mean tumor volume was also evaluated for an additional 28 days after the

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treatment phase for regrowth after treatment. In this phase of the study, there was a marked delay in the regrowth of the tumors in the group treated with the combination of KTN3379 and Tykerb (lapatinib) compared with either treatment alone.

        The results from this study with Tykerb (lapatinib) are shown in the graph below.

LOGO

        No weight loss was observed in any treatment group in either of these studies. However, several mice in each group had to be removed from the study due to estrogen toxicity. Estrogen toxicity was not correlated to treatment and is an observed side effect for this study design. Estrogen pellets are often implanted along with tumor cells derived from breast cancer to promote growth in a mouse. In this case, the estrogen pellets caused toxicity in some mice.

        In the third study with Herceptin (trastuzumab) plus Perjeta (pertuzumab), MedImmune used a nude mouse xenograft model in which mice were implanted with a human breast cancer cell line, known as JIMT-1, that expresses ErbB2 and neuregulin, and is resistant to Herceptin (trastuzumab) and Perjeta (pertuzumab). In this study, after the breast cancer cells were allowed to establish, the mice were divided into five treatment groups of ten animals each and treated twice weekly for the duration of the study. The study is reported through day 34, when the control group reached the maximal allowed tumor growth. Tumor growth inhibition was assessed for each treatment group in comparison to control at day 34.

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        In this JIMT-1 study with Herceptin (trastuzumab) plus Perjeta (pertuzumab), each of the five treatment groups received one of the following over the duration of the study:

    KTN3379 alone;

    KTN3379 in combination with Herceptin (trastuzumab);

    Herceptin (trastuzumab) alone;

    Herceptin in combination with Perjeta (pertuzumab); or

    an inactive IgG1 antibody control.

        In this breast cancer model, treatment with:

    KTN3379 alone resulted in 57.9% tumor growth inhibition compared to control;

    the combination of KTN3379 and Herceptin (trastuzumab) resulted in 83.8% tumor growth inhibition compared to control;

    Herceptin (trastuzumab) alone resulted in 14.8% tumor growth inhibition compared to control; and

    the combination of Herceptin (trastuzumab) and Perjeta (pertuzumab) resulted in 37.9% tumor growth inhibition compared to control.

        The tumor growth inhibition by the combination of KTN3379 and Herceptin (trastuzumab) was statistically significantly better than the control and treatment with Herceptin (trastuzumab) alone (p<0.0001). In addition, tumor regression was observed in this combination group for a portion of the treatment period (days 22 to 34).

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        The results from this study with Herceptin (trastuzumab) and Perjeta (pertuzumab) are shown in the graph below.

GRAPHIC

        We believe that these preclinical studies highlight the potential benefits of KTN3379 in inhibiting cancers in which both ErbB3 and ErbB2 play a role.

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KTN0158

        KTN0158 is a novel antibody designed to target the KIT RTK. We expect to submit an IND to the FDA for this product candidate in mid-2015 and, if accepted, initiate a Phase 1 clinical trial in NF1 patients in the second half of 2015. Subject to the satisfactory completion of this Phase 1 clinical trial, we plan to initiate a Phase 2 clinical trial in NF1 patients in the second half of 2016. We are also actively exploring the application of KTN0158 to other mast cell related inflammatory diseases, including potentially atopic dermatitis and idiopathic pulmonary fibrosis, and plan to submit an IND and initiate clinical trials in an additional indication in the second half of 2016.

KIT

        When KIT is bound by its ligand, known as stem cell factor, or SCF, it activates a signaling cascade that leads to cell growth and survival. KIT has been shown to be expressed in a variety of cells, including mast cells and other blood cells. Mast cells are part of the immune system and are implicated in several disease categories, including inflammatory diseases, oncology, idiopathic pulmonary fibrosis, atopic dermatitis and infection. We believe that KIT stimulates tumors when expressed in a mutated form in oncology indications and that when not mutated plays a role in autoimmune and inflammatory disease as a result of its activation by SCF.

KIT Structure and Function

        Dr. Schlessinger elucidated the x-ray crystal structure of KIT, which led to our discovery of KTN0158. Dr. Schlessinger's research suggested that an antibody targeting the extracellular sites on KIT proximal to the cell membrane would block dimerization, which is a novel approach to inhibiting RTKs compared to the more common approach of targeting the ligand binding domain. This insight led to our discovery of KTN0158. KTN0158 acts by binding KIT proximal to the cell membrane to block KIT dimerization and is a highly potent inhibitor in vitro of SCF-dependent KIT activation.

        The following figures depicts the extracellular x-ray crystal structure of KIT in its inactive conformation and in its dimerized and activated conformation:

GRAPHIC

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        The following schematic depicts KIT in its inactive conformation, in its dimerized and activated conformation and as bound with KTN0158 and blocking KIT dimerization.

GRAPHIC

Preclinical Studies

        We initiated our research on KTN0158 to explore the role of KIT in diseases in which mast cells play an important role, including inflammatory diseases, oncology, idiopathic pulmonary fibrosis and infection.

        Key findings from our in vitro analyses include:

    KTN0158 was a potent inhibitor of KIT signaling in a variety of cell types.

    KTN0158 was a potent inhibitor of degranulation and cytokine release, steps in the inflammatory cascade, by KIT following activation by SCF in human mast cells, demonstrating the potential to block the release of histamine and other chemicals and cytokines that promote inflammation and itch.

        Key findings from our in vivo studies include:

    Mast cells in animal models were inhibited by intravenous administration of KTN0158. In dogs, a single dose markedly decreased mast cell numbers in the skin, indicating that sufficient concentrations of KTN0158 were achieved to inhibit KIT signaling and mast cell survival.

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    In a recent study that we conducted in an experimental feline chronic allergic asthma model, airway eosinophil levels in both acute and chronic responses were significantly reduced by treatment with KTN0158. Eosinophils are inflammatory cells involved in asthma that express KIT. We selected asthma because it is an inflammatory disease in which mast cells play a central role. The results of this experiment suggest that KTN0158 may modulate mast cells and potentially eosinophils and lead to a significant reduction in eosinophil accumulation in airways during allergic asthma.

        Based on these studies, we determined that KTN0158 could represent a novel approach to treat mast cell-related inflammatory diseases in both chronic and acute settings. Many diseases of the skin and lung are believed to involve mast cells and eosinophils. We believe that KTN0158 represents a potential therapeutic for these and other diseases, including cancer-like syndromes, such as NF1 and mastocytosis.

KTN0158 for Neurofibromatosis Type 1 (NF1)

        We are conducting IND enabling preclinical toxicology studies of KTN0158. We have performed an initial nonclinical toxicology assessment. Our pharmacokinetic assessments indicate good drug exposure and modulation of the KIT RTK target by KTN0158. Based on a Type B pre-IND meeting with the FDA, we expect to submit an IND to the FDA for this product candidate in mid-2015 and, if accepted, initiate a Phase 1 clinical trial in NF1 patients in the second half of 2015. A Type B meeting with the FDA is a routine request for guidance from the FDA during drug development. In this case, we requested information to assist with design of preclinical toxicology studies and initial clinical trials in humans that we plan to include in the IND. We received a response to our questions from the FDA in July 2014. Subject to the satisfactory completion of this Phase 1 clinical trial, we plan to initiate a Phase 2 clinical trial in NF1 patients in the second half of 2016.

        NF1 is a rare genetic disease that usually manifests in childhood and in its more severe forms leads to substantial disfiguration and morbidities, including enlarged heads, scoliosis, congenital defects of bones, optic gliomas, learning disabilities and high blood pressure. The molecular mechanism underlying the disease results from the absence of a gene called neurofibromin 1. This is believed to lead to unregulated signaling driven in some cases by RTKs, in turn causing secretion of SCF that recruits mast cells, provoking the progression to disease. NF1 is a chronic lifelong disease that is characterized by fibromas, which are benign growths that can cause pain, itching and obstruction of organ function, as well as cosmetic effects. Dermal fibromas are found in the skin and plexiform fibromas can be found throughout the body. Fibromas can progress to more severe lesions, including in some cases deadly sarcomas. Plexiform fibromas are often particularly debilitating for children because they can interfere with important bodily functions, such as by obstructing respiratory function. Surgery is often the only treatment option. There are no FDA approved drugs indicated for patients afflicted by neurofibromas. Gleevec (imatinib) has demonstrated modest activity against NF1 in clinical trials, based on its weak activity against KIT RTK. We believe Gleevec (imatinib) may be limited in this setting because of poor tolerability, which is acceptable for cancer treatment, but generally not for a disease such as NF1.

        According to the National Institutes of Health, approximately 100,000 individuals in the United States suffer from NF1 and one in 3,500 individuals born in the United States each year has the genetic defect causing NF1. Patient advocacy groups estimate that more than 30,000 individuals in the United States suffer from plexiform neurofibromas. We believe that KTN0158 as a treatment for NF1 will qualify for orphan drug designation in the United States and the European Union. We further believe that focusing on NF1, rather than indications with approved therapies, may allow us to qualify for favorable regulatory strategies, such as breakthrough therapy or fast track designation.

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        The role of KIT in mast cells in animal models of NF1 and human patients with NF1 has been observed in published studies by Dr. Wade Clapp of Indiana University, who is one of our academic collaborators. Key insights from these studies include:

    NF1 mutant mice that were given KIT depleted bone marrow cells did not manifest disease as quickly as, and lived longer than, NF1 mutant mice with normal KIT containing bone marrow cells. These test results, which are shown in the graph below, suggest that mast cells are critical for NF1. GRAPHIC


    In animal models of NF1, Gleevec (imatinib) depleted mast cells in neurofibromas.

    Treatment of NF1 mutant mice with Gleevec (imatinib) has resulted in reduced severity of disease.

    In a human clinical study, Gleevec (imatinib) was given to NF1 patients relatively frequently and at a high dose to measure effects on lesion growth. Clear clinical effect on lesion size was seen, suggesting that, at least in some NF1 patients, blockade of the KIT RTK may be beneficial and clinically meaningful.

        We believe that an antibody therapeutic likely would be more selective and therefore a better inhibitor of KIT expressing mast cells than a small molecule therapeutic, such as Gleevec (imatinib).

KTN0158 and Imatinib Activity on KIT Receptor Activation

        We recently completed three preclinical in vitro studies that compared the ability of KTN0158 and Gleevec (imatinib) to inhibit activation of KIT in response to stimulation with its ligand, SCF, in Chinese hamster ovary cells that were engineered to overexpress human KIT. We measured receptor activation by detecting phosphorylation of KIT after stimulating with SCF in the absence or the presence of KTN0158 or Gleevec (imatinib). In these studies, KTN0158 and Gleevec (imatinib) treatment resulted in dose dependent decreases in KIT activation. The mean concentrations of drug in these studies needed to inhibit KIT phosphorylation by 50%, referred to as IC50 values, were 0.128 nanomolar, or nM, for KTN0158 and 263 nM for Gleevec (imatinib). The graph below depicts data from a representative experiment. The mean IC50 values from these three studies are shown in the graph legend. In this graph, the y-axis depicts KIT phosphorylation expressed as a percentage of the highest level of phosphorylation observed in the experiment, or % maximal, and the x-axis depicts drug concentration. Drug concentration is shown in the graph on a logarithmic scale, which condenses the wide range of values to a format showing the relative differences in values. Negative numbers on the

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logarithmic scale represent low drug concentrations on an absolute basis. The mean results from these studies, in which KTN0158 achieved the same magnitude of inhibition of KIT phosphorylation as Gleevec (imatinib) at a lower concentration, indicate that KTN0158 was greater than 1,000 fold more potent than imatinib in inhibiting KIT activation in cells.

GRAPHIC

KIT-ADC

        In our KIT-ADC program, we are developing an antibody-drug conjugate, or ADC, to target cancers that express the KIT receptor. Our KIT-ADC is comprised of our antibody, KTN0158, conjugated to a novel Pyrrolobenzodiazepine, or PBD, cytotoxic licensed from Spirogen. A cytotoxic is a drug that kills cancer cells. In preclinical studies of our KIT-ADC, the KTN0158 antibody portion bound to KIT on tumor cells and was internalized by the cell, resulting in the release of the PBD cytotoxic which then bound to DNA and killed the tumor cell.

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        The following schematic depicts KIT bound with our KIT-ADC, the internalization of KIT and our KIT-ADC and the release of the PBD cytotoxic.

GRAPHIC

KIT and Oncology

        In contrast with mutant KIT, wild type KIT does not have the ability to promote tumor growth and development, which means it is not oncogenic. However, wild type KIT is expressed in many types of cancers and can serve as a portal, or site of entry, for an antibody delivering a cytotoxic. The tumors in which wild type KIT is expressed include small cell lung cancer, the family of tumors in Ewing's sarcoma, melanoma, acute myeloid leukemia and gastro-intestinal stromal tumors, or GIST. Several approved drugs target mutant KIT and are effective in the treatment of these cancers. However, these drugs are often eventually compromised due to additional mutations leading to drug resistance or side effects or both.

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        The following bar graph shows the percentage of selected cancers expressing KIT, based principally on our analysis of data from a widely used scientific subscription database, along with the annual incidence of these cancers in the United States from the sources indicated below.

GRAPHIC


Sources: The American Cancer Society, The National Institutes of Health, Cancer.net, Cancergrace.org and the American Society of Hematology.

Our KIT-ADC Approach

        Our KIT-ADC program is designed to identify and develop a product candidate that binds to wild type KIT to treat cancers in which KIT is not mutated and which lack effective therapies. We are currently working to optimize the PBD-linker chemistry and conjugation of the PBD cytotoxic to our KTN0158 antibody and have initiated nonclinical toxicology studies. We plan to identify an IND candidate in the first half of 2015, initiate IND enabling preclinical studies in 2015 and submit an IND in late 2016.

        Several of our KIT-ADC lead candidates have demonstrated potent preclinical anti-tumor activity in multiple animal models and in in vitro systems, indicating that KTN0158 conjugated to PBD potentially is an effective way to kill tumor cells on which KIT is expressed. We conducted in vivo studies of our KIT-ADC in mouse models of human Ewing's sarcoma, small cell lung cancer and leukemia. In these studies, a single dose of our KIT-ADC resulted in statistically significant antitumor activity (p<0.001 for Ewing's Sarcoma and small cell lung cancer and p£0.005 for leukemia), including tumor regression, and was well tolerated. For example, the graph below shows the dose dependent antitumor effect in a xenograft mouse tumor model of small cell lung cancer of treatment with a single

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dose of each of the following: a saline placebo; KIT-SG3227, one of our two KIT-ADC lead candidates at 1 mg/kg; KIT-SG3227 at 3 mg/kg; and a control antibody conjugated with the SG3227 cytotoxic.

GRAPHIC

KIT-ADC Development Plan

        Following identification of an IND candidate based on our ongoing nonclinical toxicologic assessment, we plan to:

    generate our KIT-ADC using multiple contract manufacturers;

    conduct additional toxicology studies in 2015 to assess the safety profile and therapeutic index of the KIT-ADC; and

    prepare our IND submission strategy for our KIT-ADC to support Phase 1 clinical trials in human cancer patients.

        The antibody used in this product candidate is identical to KTN0158. We plan to use the drug supply, nonclinical toxicology and anticipated regulatory filings from the KTN0158 development program to support the KIT-ADC IND submission. We believe that clinical data from our Phase 1 clinical trial of our KIT-ADC could be sufficient to assess preliminary safety and efficacy of our KIT-ADC product candidate.

TAM Research Program

        In August 2014, we acquired Xetrios to obtain rights to intellectual property relating to TAM RTKs owned in whole or in part by Xetrios, or licensed by Xetrios from the Salk Institute for Biological Studies, or Salk, in La Jolla, California. The TAM RTK family consists of TYRO3, AXL and MER. The intellectual property licensed from Salk was generated in the laboratory of Dr. Greg Lemke, an international expert in the biology of TAM RTKs. In Dr. Lemke's laboratory, TAM RTKs have been

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shown to be important drug targets for immuno-oncology, autoimmune and infectious diseases. This family of RTKs is e