S-1 1 d82988sv1.htm FORM S-1 sv1
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As filed with the Securities and Exchange Commission on June 23, 2011
Registration No. 333-          
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
 
 
CLOVIS ONCOLOGY, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
         
Delaware   2834   90-0475355
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
2525 28th Street, Suite 100
Boulder, Colorado 80301
(303) 625-5000
 
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Patrick J. Mahaffy
President and Chief Executive Officer
Clovis Oncology, Inc.
2525 28th Street, Suite 100
Boulder, Colorado 80301
(303) 625-5000
 
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies to:
 
     
Peter H. Jakes, Esq.
William H. Gump, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
(212) 728-8000
  Cheston J. Larson, Esq.
Divakar Gupta, Esq.
Latham & Watkins LLP
12636 High Bluff Drive, Suite 400
San Diego, California 92130
(858) 523-5400
 
 
 
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes 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, check the following box.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
             
      Proposed Maximum
    Amount of
Title of Each Class of
    Aggregate Offering
    Registration
Securities to be Registered     Price(1)(2)     Fee
Common Stock, par value $0.001 per share
    $149,500,000     $17,357
             
(1) Estimated solely for purposes of determining the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
 
(2) Includes shares of common stock which may be purchased by the underwriters to cover over-allotments, if any.
 
 
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this 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 we are not soliciting offers to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.
 
Subject to completion, dated June 23, 2011
 
Prospectus
 
          Shares
 
(CLOVIS LOGO)
 
COMMON STOCK
 
 
 
 
This is the initial public offering of common stock of Clovis Oncology, Inc. We are selling           shares of common stock. Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $     and $      per share.
 
 
 
 
We have applied for listing of our common stock on the NASDAQ Global Market under the symbol CLVS.
 
 
 
 
                 
   
Per Share
    Total  
 
Initial public offering price
  $                  $               
Underwriting discounts and commissions
  $     $  
Proceeds to Clovis, before expenses
  $     $  
 
We have granted the underwriters an option to purchase up to           additional shares of common stock to cover over-allotments.
 
 
 
 
Investing in our common stock involves risks. See “Risk Factors” beginning on page 10.
 
 
 
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The underwriters expect to deliver the shares on or about          , 2011.
 
 
 
 
J.P. Morgan Credit Suisse
 
Leerink Swann
 
          , 2011


 

 
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You should rely only on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell shares of our common stock. The information 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 shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.
 
Until          , 2011 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 
For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.


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PROSPECTUS SUMMARY
 
The following summary highlights information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and consolidated financial statements included elsewhere in this prospectus. This summary does not contain all of the information that may be important to you. You should read and carefully consider the following summary together with the entire prospectus, including our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus and the matters discussed in the sections in this prospectus entitled “Risk Factors,” “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our common stock. Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements and Industry Data.” Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those discussed in the “Risk Factors” and other sections of this prospectus.
 
Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to “Clovis,” “the Company,” “we,” us,” and “our,” refer to Clovis Oncology, Inc. together with its consolidated subsidiary.
 
Overview
 
We are a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in the United States, Europe and additional international markets. We target our development programs for the treatment of specific subsets of cancer populations, and seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients that are most likely to benefit from their use. We are currently developing three product candidates for which we hold global marketing rights: CO-101, a lipid-conjugated form of the anti-cancer drug gemcitabine, which is in a pivotal study in a specific patient population for the treatment of metastatic pancreatic cancer; CO-1686, an orally available, small molecule epidermal growth factor receptor, or EGFR, covalent inhibitor that is currently in preclinical development for the treatment of non-small cell lung cancer, or NSCLC, in patients with activating EGFR mutations, including the initial activating mutations, as well as the primary resistance mutation, T790M; and CO-338, an orally available, small molecule poly (ADP-ribose) polymerase, or PARP, inhibitor being developed for various solid tumors that is currently in a Phase I clinical trial.
 
We believe that discovery productivity exceeds development capacity in oncology, and we have built our organization to meet the need for innovative patient-specific oncology drug development. To implement our strategy, we have assembled an experienced team with core competencies in global clinical development and regulatory operations in oncology, as well as conducting collaborative relationships with companies specializing in companion diagnostic development. As our product candidates mature, we intend to build our own commercial organizations in major global markets and contract with local distributors in smaller markets.
 
The most common anti-cancer drug therapies typically address cancers within a specific organ as a single disease as opposed to a collection of different disease subtypes, often resulting in poor response rates and minimal effect on overall survival. We believe the oncology community is increasingly recognizing that tumors in a particular organ have unique pathologic and molecular characteristics that may warrant different treatment strategies. By better understanding differences in tumor biology and underlying disease pathways, researchers are identifying biomarkers to guide development of targeted oncology therapies, with streamlined clinical trials, stratified patient populations and improved patient outcomes. We believe that targeted therapies and companion diagnostics offer a patient-tailored approach to the treatment of cancers with improved diagnosis and outcomes.
 
We were founded in April 2009 by former executives of Pharmion Corporation, which successfully developed and commercialized novel oncology products in the United States and Europe and was ultimately acquired by Celgene Corporation in 2008. Our investors include the following entities or their affiliates: Domain Associates, New Enterprise Associates, Versant Ventures, Aberdare Ventures, Abingworth Bioventures, Frazier Healthcare Ventures, Pfizer, Inc., ProQuest Investments and our management team.


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Our Strategy
 
Our strategy is to acquire, develop, and commercialize innovative anti-cancer agents in the United States, Europe and additional international markets in oncology indications with significant unmet medical need. The critical components of our business strategy include the following:
 
  •   Focus on oncology.  The oncology market is characterized by a number of disorders with high rates of recurrence and a limited response from current therapies or treatments. Many of these therapies include severe side effects. New oncology product candidates addressing unmet medical needs or providing superior safety profiles are frequently the subject of expedited regulatory reviews and, if approved, can experience rapid adoption rates. We believe that the increasing role of targeted therapies and companion diagnostics to identify selected patient subsets in oncology presents the potential for improved patient outcomes.
 
  •   Focus on compounds where improved outcomes are associated with specific biomarkers.  Our licensing strategy to date has been to prioritize opportunities in which a strong biological hypothesis has been established linking a specific biomarker with improved outcomes for the product candidate. Significant progress has been made over the last several years in the identification of molecular targets and pathways that more narrowly specify the causes of cancer and the variation in responses to different therapies experienced by patient subsets with a particular cancer or tumor type. In certain cases, the underlying science has progressed to the point that subset patient populations deriving little or no benefit from existing therapies can be identified and targeted by newly developed therapies, such as our product candidates. We believe that the identification of such subsets, and the correlation of their specific characteristics to the drug under development, should increase the clinical benefit to targeted patients and the probability of success in our clinical trials. Such patient identification should also enable us to design clinical trials that may be completed more rapidly than has traditionally been the case, and, if successful, to achieve clinical outcomes for the targeted group that are sufficiently attractive to support the risk/benefit metrics of healthcare payors.
 
  •   Combine companion diagnostics with drug development efforts to realize superior clinical outcomes.  Our development strategy is based on the premise that we can utilize effective companion diagnostics to identify different patient subsets who we believe will uniquely benefit from our product candidates. We are partnering to develop these companion diagnostics for use in the clinical development and ultimate commercial utilization of our product candidates. Because we do not develop diagnostics internally, we are able to select from among all available technologies when choosing a partner for our programs under development. This flexibility allows us to choose the most appropriate partner and diagnostic platform for each program under development and affords us the best chance of clinical success. We have partnered with experienced diagnostic companies that we believe have the ability and commitment to gain the required regulatory approvals and support global commercialization for these companion diagnostics.
 
  •   Manage and control global development activities and regulatory operations.  We believe our development and regulatory experience enables us to devise time- and cost-efficient strategies to develop and obtain regulatory approvals for new drugs, and to identify the regulatory pathway that allows us to get a product candidate to market as quickly as possible. Unlike many early stage biotechnology and pharmaceutical companies that have development or regulatory capabilities only in the country in which they are located, we have assembled an experienced team with a successful track record at managing global clinical development activities, and with multinational expertise in obtaining regulatory approvals for new drugs and in maintaining compliance with the regulations governing the sales, marketing and distribution of pharmaceutical products. Because authorities in major markets are increasingly accepting one core dossier as the basis for regulatory approvals in multiple jurisdictions, we believe we can manage a global development program without local partners, thereby leveraging a single core dossier to gain approvals in multiple geographies. We manage critical functions in house, including clinical development, biostatistics, pharmaceutical development, molecular diagnostics and clinical and regulatory operations, and we outsource certain activities where economically and strategically appropriate.
 
  •   Seek and maintain global commercial rights.  We believe that it is very important to maintain global rights to our product candidates, and that we can build our own commercial organizations in major


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  pharmaceutical markets as well as a network of third-party distributors in smaller markets. There are a relatively small number of oncologists practicing in each of the major pharmaceutical markets and an even smaller number of oncology opinion leaders who significantly influence the types of drugs prescribed in cancer therapy. We therefore believe that we can effectively reach the oncology markets with a relatively small sales and marketing organization focused on these physicians and oncology opinion leaders. As a result, we plan to maintain commercial autonomy and will not require a pharmaceutical partner for commercialization activities. By managing the global sales and marketing of our products on our own, we believe we can provide uniform marketing programs and consistent product positioning, pricing and labeling. Finally, by controlling commercial activities ourselves in major markets, we will retain the vast majority of the revenues from our product candidates.
 
Our Product Pipeline
 
Consistent with our strategy, each of our initial three in-licensed product candidates, for which we hold global marketing rights, is being developed for selected patient subsets. The following table summarizes the status of our product pipeline:
 
(GRAPH)
 
CO-101 – a Lipid-Conjugated Form of the Anti-Cancer Drug Gemcitabine
 
CO-101 is currently in a pivotal clinical study for first-line treatment of metastatic pancreatic cancer. CO-101 is a novel, patented, lipid-conjugated form of the anti-cancer drug gemcitabine that is designed to treat patients with pancreatic cancer whose tumors express low amounts of a membrane transporter protein on the surface of the cancer cell known as hENT1 and are thus expected to be resistant to standard gemcitabine-based therapy. Based on the published results of multiple studies assessing the correlation of hENT1 expression to survival outcomes in pancreatic cancer patients treated with gemcitabine, we estimate that approximately 40% to 50% of pancreatic patients express low levels of hENT1, and thus derive little or no benefit from gemcitabine therapy.
 
CO-101 is currently in an international, randomized and controlled 360-patient pivotal study for the first-line treatment of metastatic pancreatic cancer. This open-label study compares CO-101 to gemcitabine as a first-line therapy in patients with metastatic pancreatic cancer. The primary objective of this study is to compare the overall survival of patients with metastatic pancreatic cancer and low hENT1 expression that are treated with CO-101 versus gemcitabine. Secondary endpoints include overall survival in all patients and in patients with high hENT1 expression, disease response rate, and drug tolerability and toxicity. We expect to complete enrollment for this trial in the first quarter of 2012 and report top line results as to overall survival in the prespecified hENT1-low patient subset in the fourth quarter of 2012. If data from this study are positive, we expect to file a New Drug Application, or


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NDA, with the U.S. Food and Drug Administration, or FDA, and a Marketing Authorization Application, or MAA, with the European Medicines Agency, or EMA, in mid-2013. We have partnered with Ventana Medical Systems for the development and commercialization of a companion diagnostic for the assessment of hENT1 levels.
 
CO-1686–an Oral EGFR Mutant-Selective Inhibitor
 
CO-1686 is a novel, orally available, small molecule covalent inhibitor of the cancer-causing mutant forms of EGFR for the treatment of NSCLC. Because CO-1686 targets both the initial activating EGFR mutations as well as the primary resistance mutation, T790M, it has the potential to treat both first- and second-line NSCLC patients with EGFR mutations. Such initiating activating mutations occur in approximately 10% to 15% of NSCLC cases in Caucasian patients and approximately 30% to 35% of NSCLC cases in East Asian patients. Following treatment with approved NSCLC therapies, Tarceva™ (erlotinib) or Iressa™ (gefitinib), both known as tyrosine kinase inhibitors, or TKIs, approximately half of these patients develop the T790M mutation.
 
CO-1686 is currently in preclinical development and we plan to file an Investigational New Drug application, or IND, in the first quarter of 2012. We have designed an accelerated clinical development program for CO-1686, and if successful, have a goal of filing an NDA for an initial indication within approximately four years of filing our IND. We intend to pursue the development of CO-1686 as both a second-line therapy for EGFR-mutated NSCLC patients who become resistant to TKIs due to the emergence of the T790M secondary mutation and potentially as a first-line treatment for EGFR-mutated NSCLC. We expect to initiate a Phase I/II trial of CO-1686 in the first half of 2012. We have partnered with Roche Molecular Systems for the development and commercialization of a companion diagnostic for identification of EGFR mutations.
 
CO-338–a PARP Inhibitor
 
CO-338 is a novel, orally available, small molecule PARP inhibitor that we intend to develop as both monotherapy and in combination with chemotherapeutic agents for the treatment of selected cancer patients. CO-338 is currently in a Phase I clinical trial to determine the maximum tolerated dose of oral CO-338 that can be combined with intravenous, or IV, platinum chemotherapy in the treatment of solid tumors. This program is supplemented by two ongoing investigator-initiated trials, currently using the IV formulation of CO-338: a Phase I/II study in germ-line BRCA mutant breast and ovarian cancer and a Phase II study in the adjuvant treatment of germ-line BRCA mutant and triple-negative breast cancer. As soon as practical, we intend to replace the IV formulation with the oral formulation in these studies. We also intend to initiate a Phase I monotherapy study of the oral formulation in the fourth quarter of 2011 to determine an appropriate dose and schedule for long term administration.
 
Risks Associated with Our Business
 
Our business and our future results of operations and financial condition are subject to a number of risks and uncertainties. These risks and uncertainties that could adversely affect our actual results and performance, as well as the successful implementation of our business strategy, are discussed more fully in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements and Industry Data” sections of this prospectus. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements and Industry Data” in deciding whether to invest in our common stock. Among these important risks and uncertainties that could adversely affect our results of operations and business condition are the following:
 
  •   We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We are a clinical-stage company with no approved products, and no historical revenues, which makes it difficult to assess our future viability.
 
  •   If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates, or continue our development programs. In addition, the report of our independent registered public accounting firm on our financial statements appearing at the end of this prospectus contains an explanatory paragraph stating that our recurring losses raise substantial doubt about our ability to continue as a going concern.


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  •   We are heavily dependent on the success of our three product candidates, two of which are in clinical development, and one of which is in preclinical development, and we cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.
 
  •   Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
 
  •   The regulatory approval processes of the FDA and similar foreign authorities is lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
 
  •   Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics could harm our drug development strategy.
 
  •   Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, healthcare payors and major operators of cancer clinics.
 
  •   We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
 
  •   If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.
 
  •   Other factors identified elsewhere in this prospectus, including those set forth under “Risk Factors”.
 
Our Corporate Information
 
We were incorporated under the laws of the State of Delaware in April 2009. Our principal executive offices are located at 2525 28th Street, Suite 100, Boulder, Colorado 80301, and our telephone number is (303) 625-5000. Our website address is www.clovisoncology.com.  Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.
 
This prospectus includes references to trademarks and service marks of other entities, and those trademarks and service marks are the property of their respective owners.


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THE OFFERING
 
Common stock offered
          shares
Common stock to be outstanding immediately following this offering
          shares
 
Over-allotment option
Up to           shares
 
Use of proceeds
We estimate that the net proceeds from this offering will be approximately $      million, or approximately $      million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $      per share, 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. We expect to use the proceeds of this offering to fund our clinical trials related to CO-101 and CO-338, to advance the development of CO-1686, our preclinical product candidate, and for working capital and general corporate purposes. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.
 
Risk factors
You should read “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our common stock.
 
Proposed NASDAQ Global Market symbol
CLVS
 
The number of shares of our common stock to be outstanding after this offering set forth above is based on           shares of our common stock outstanding as of March 31, 2011, after giving effect to (1) the conversion of all outstanding shares of our convertible preferred stock into 21,009,196 shares of common stock immediately prior to the closing of this offering and (2) the issuance of           shares of our common stock immediately prior to the closing of this offering as a result of the conversion of $35.0 million in aggregate principal amount of our 5% convertible promissory notes due 2012 (including accrued and unpaid interest thereon), assuming an initial public offering price of           per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming the conversion occurs on          , 2011 (the expected closing date of this offering).
 
The number of shares of our common stock to be outstanding after this offering set forth above excludes:
 
  •   2,746,779 shares of our common stock issuable upon the exercise of stock options outstanding as of March 31, 2011 at a weighted-average exercise price of $0.91 per share;
 
  •             shares of our common stock reserved for future issuance under our 2011 Equity Incentive Plan, or the 2011 Plan, which will become effective immediately prior to the completion of this offering, plus 1,248,621 shares of our common stock available for grant under our 2009 Equity Incentive Plan, or the 2009 Plan, as of March 31, 2011, which shares will be added to the shares to be reserved under our 2011 Plan upon the effectiveness of the 2011 Plan, plus any annual increases in the number of shares of common stock reserved for future issuance under the 2011 Plan pursuant to an “evergreen provision” and any other shares that may become issuable under the 2011 Plan pursuant to its terms, as more fully described in “Executive and Director Compensation—Employee Benefit Plans—2011 Equity Incentive Plan”; and
 
  •             shares of our common stock reserved for future issuance under our 2011 Employee Stock Purchase Plan, or the ESPP, which will become effective immediately prior to the completion of this offering, plus any annual increases in the number of shares of our common stock reserved for future issuance under the ESPP pursuant to an “evergreen provision” and any other shares that may become


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  issuable under the ESPP pursuant to its terms, as more fully described in “Executive and Director Compensation—Employee Benefit Plans—2011 Employee Stock Purchase Plan.”
 
Unless we specifically state otherwise, the information in this prospectus assumes or gives effect to:
 
  •   no exercise by the underwriters of their over-allotment option to purchase up to           additional shares of common stock from us;
 
  •   the consent of the requisite holders of our preferred stock for the conversion of their shares of preferred stock into common stock;
 
  •   the implementation of a           for           reverse stock split that we anticipate will occur prior to completion of this offering; and
 
  •   the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the completion of this offering.


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SUMMARY CONSOLIDATED FINANCIAL DATA
 
The following table sets forth a summary of our historical consolidated financial data at the dates and for the periods indicated. The summary historical financial data presented below for the year ended December 31, 2010 and the period from April 20, 2009 (inception) to December 31, 2009 has been derived from our audited financial statements, which are included elsewhere in this prospectus.
 
The summary historical consolidated financial data presented below for the three months ended March 31, 2011 and 2010 has been derived from our unaudited consolidated financial statements and has been prepared on the same basis as the audited financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of results as of and for these periods. The historical results are not necessarily indicative of results to be expected in any future period and the results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the full fiscal year.
 
The summary historical financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto, which are included elsewhere in this prospectus. The summary historical financial data in this section is not intended to replace our financial statements and the related notes thereto.
 
                                         
          Period from
                Cumulative from
 
          April 20, 2009
                April 20, 2009
 
    Year Ended
    (inception) to
    Three Months Ended
    (inception) to
 
    December 31,
    December 31,
    March 31,     March 31,
 
    2010     2009     2011     2010     2011  
                (Unaudited)     (Unaudited)     (Unaudited)  
    (In thousands, except per share amounts)  
 
Revenue
  $     $     $     $     $  
Operating expenses:
                                       
Research and development
    22,323       1,762       7,041       3,259       31,126  
General and administrative
    4,302       2,209       1,405       830       7,916  
Acquired in-process research and development
    12,000       13,085                   25,085  
                                         
Operating loss
    (38,625 )     (17,056 )     (8,446 )     (4,089 )     (64,127 )
Other income (expense), net
    795       (43 )     118       (2 )     870  
                                         
Net loss
  $ (37,830 )   $ (17,099 )   $ (8,328 )   $ (4,091 )   $ (63,257 )
                                         
Basic and diluted net loss per common share(1)
  $ (9.85 )   $ (5.30 )   $ (2.15 )   $ (1.07 )   $ (17.45 )
                                         
Basic and diluted weighted average common shares outstanding
    3,842       3,225       3,877       3,832       3,625  
Pro forma basic and diluted net loss per common share (unaudited)(2)
  $ (1.52 )           $ (0.33 )           $ (3.20 )
                                         
Pro forma basic and diluted weighted average common shares outstanding (unaudited)
    24,851               24,886               19,784  
 
                         
    As of March 31, 2011  
                Pro Forma
 
    Actual     Pro Forma(2)     As Adjusted(3)(4)  
          (Unaudited)     (Unaudited)  
    (In thousands)  
 
Balance sheet data:
                       
Cash, cash equivalents and available for sale securities
    $13,926     $       $    
Working capital
    11,540                  
Total assets
    17,531                  
Convertible preferred stock
    75,499                  
Total stockholders’ equity (deficit)
    (63,023 )                


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(1) See Note 11 within the notes to our financial statements for a description of the method used to compute basic and diluted loss per common share.
 
(2) Pro forma to reflect (i) the issuance of $35.0 million in aggregate principal amount of our 5% convertible promissory notes due 2012; (ii) the conversion of all outstanding shares of our convertible preferred stock into 21,009,196 shares of common stock immediately prior to the closing of this offering; and (iii) the conversion of $35.0 million in aggregate principal amount of our 5% convertible promissory notes due 2012 (including accrued and unpaid interest thereon) into           shares of our common stock immediately prior to the closing of this offering, assuming an initial public offering price of $           per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming the conversion occurs on          , 2011 (the expected closing date of this offering).
 
(3) Pro forma as adjusted to further reflect the sale of           shares of our common stock offered in this offering, assuming an initial public offering price of $           per share, 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.
 
(4) A $1.00 increase or decrease in the assumed initial public offering price of $           per share, 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 available for sale securities and each of working capital, total assets and total stockholders’ equity (deficit) 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 and estimated offering expenses payable by us.


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RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before making your decision to invest in shares of our common stock. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. We cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition and cash flows. If that were to happen, the trading price of our common stock could decline, and you could lose all or part of your investment.
 
This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus. See “Cautionary Note Regarding Forward-Looking Statements and Industry Data” for information relating to these forward-looking statements.
 
Risks Related to Our Financial Position and Capital Requirements
 
We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We are a clinical-stage company with no approved products, and no historical revenues, which makes it difficult to assess our future viability.
 
We are a clinical-stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We have focused primarily on in-licensing and developing our product candidates, CO-101, CO-1686 and CO-338. We are not profitable and have incurred losses in each year since our inception in April 2009. Because we were only recently formed, we have only a limited operating history upon which you can evaluate our business and prospects. In addition, as an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. We have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the year ended December 31, 2010 and for the three months ended March 31, 2011 was approximately $37.8 million and approximately $8.3 million, respectively. As of March 31, 2011, we had an accumulated deficit of $63.3 million. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. As such, we are subject to all of the risks incident in the development of new biopharmaceutical products and related companion diagnostics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
 
If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates, or continue our development programs. In addition, the report of our independent registered public accounting firm on our financial statements appearing at the end of this prospectus contains an explanatory paragraph stating that our recurring losses raise substantial doubt about our ability to continue as a going concern.
 
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to advance the clinical development of our product candidates and launch and commercialize any product candidates for which we receive regulatory approval, including building our own commercial organizations to address certain markets.


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The report of our independent registered public accounting firm on our financial statements appearing at the end of this prospectus contains an explanatory paragraph stating that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. We estimate that our net proceeds from this offering will be approximately $      million, based upon an assumed initial public offering price of $      per share, 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. We expect that the net proceeds from this offering, together with our existing cash and cash equivalents will be sufficient to fund our capital requirements for at least the next 12 months. We will require additional capital for the further development and commercialization of our product candidates and may also need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate.
 
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any of these events could significantly harm our business, financial condition and prospects.
 
Risks Related to Our Business and Industry
 
We are heavily dependent on the success of our three product candidates, two of which are in clinical development, and one of which is in preclinical development, and we cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.
 
To date, we have invested a significant portion of our efforts and financial resources in the acquisition and development of our product candidates. Our future success is substantially dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize such product candidates. Two of our product candidates, CO-101 and CO-338, are in clinical trials, while our third product candidate, CO-1686, is in preclinical development. Our business depends entirely on the successful development and commercialization of our product candidates, which may never occur. We currently generate no revenues from sales of any drugs, and we may never be able to develop or commercialize a marketable drug.
 
Each of our product candidates will require additional clinical development, management of clinical, preclinical and manufacturing activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. We believe that, depending on the result of our current CO-101 clinical trial, this trial may serve as a pivotal trial to support our application for approval of CO-101. To the extent that the results of the trial are not satisfactory to the FDA or the EMA for support of an NDA or MAA, respectively, with respect to CO-101, we will be required to expend significant additional resources to conduct additional clinical trials in support of approval of CO-101. In addition, many of our product development programs contemplate the development of companion diagnostics by our third-party collaborators. Companion diagnostics are subject to regulation as medical devices and must themselves be approved for marketing by the FDA or certain other foreign regulatory agencies before we may commercialize our product candidates.
 
We have not previously submitted an NDA to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in part, upon our collaborators’ ability to obtain regulatory approval of the companion diagnostics to be used with our product candidates, as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for


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patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.
 
We plan to seek regulatory approval to commercialize our product candidates both in the United States, the European Union and in additional foreign countries. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions.
 
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
 
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. For example, the positive results generated to date in clinical trials for CO-101 and CO-338 do not ensure that later clinical trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.
 
Although we have clinical trials ongoing for CO-101 and CO-338, and although we are planning to initiate clinical trials for CO-1686 in the first half of 2012, we may experience delays in our ongoing clinical trials and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:
 
  •   obtaining regulatory approval to commence a trial;
 
  •   reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
 
  •   obtaining institutional review board, or IRB, approval at each site;
 
  •   recruiting suitable patients to participate in a trial;
 
  •   developing and validating companion diagnostics on a timely basis;
 
  •   having patients complete a trial or return for post-treatment follow-up;
 
  •   clinical sites deviating from trial protocol or dropping out of a trial;
 
  •   adding new clinical trial sites; or
 
  •   manufacturing sufficient quantities of product candidate for use in clinical trials.
 
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance.
 
We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical


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protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
 
In addition, we only recently entered into a license agreement with Pfizer with respect to CO-338 and have not previously been involved in the development of that product candidate. We may experience difficulties in the transition of this product candidate from Pfizer to us, which may result in delays in clinical trials as well as problems in our development efforts and regulatory filings, particularly if we do not receive all of the necessary information and data from Pfizer in a timely manner. These problems could result in increased costs and delays in the development of CO-338 which could adversely affect any future revenues from this product candidate.
 
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
 
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials, depending upon numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development. We have not obtained regulatory approval for any product candidate.
 
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
 
  •   the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
 
  •   we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
 
  •   the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
 
  •   we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
 
  •   the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
 
  •   the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
 
  •   the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
 
  •   the FDA or comparable foreign regulatory authorities may fail to approve the companion diagnostics we contemplate developing with partners; and
 
  •   the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.


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This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market CO-101, CO-338 and CO-1686, which would significantly harm our business, results of operations and prospects.
 
In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
 
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
 
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. To date, patients treated with CO-101 have experienced drug-related side effects including nausea, vomiting, anorexia, fatigue and myelosuppression and those treated with CO-338 have experienced drug-related side effects such as nausea and vomiting. While we have not yet initiated clinical trials for CO-1686, as is the case with all oncology drugs, it is likely that there may be side effects associated with its use. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
 
Additionally if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
 
  •   regulatory authorities may withdraw approvals of such product;
 
  •   regulatory authorities may require additional warnings on the label;
 
  •   we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
 
  •   we could be sued and held liable for harm caused to patients; and
 
  •   our reputation may suffer.
 
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
 
Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics could harm our drug development strategy.
 
As one of the key elements of our clinical development strategy, we seek to identify patient subsets within a disease category who may derive selective and meaningful benefit from the product candidates we are developing. In collaboration with partners, we plan to develop companion diagnostics to help us to more accurately identify patients within a particular subset, both during our clinical trials and in connection with the commercialization of our product candidates. Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and require separate regulatory approval prior to commercialization. We are dependent on the sustained cooperation and effort of our third-party collaborators in developing and obtaining approval for these companion diagnostics. We and our collaborators may encounter difficulties in developing and obtaining approval for the companion diagnostics, including issues relating to selectivity/specificity, analytical validation, reproducibility, or clinical validation. Any delay or failure by our collaborators to develop or obtain


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regulatory approval of the companion diagnostics could delay or prevent approval of our product candidates. In addition, our collaborators may encounter production difficulties that could constrain the supply of the companion diagnostics, and both they and we may have difficulties gaining acceptance of the use of the companion diagnostics in the clinical community. If such companion diagnostics fail to gain market acceptance, it would have an adverse effect on our ability to derive revenues from sales of our products. In addition, the diagnostic company with whom we contract may decide to discontinue selling or manufacturing the companion diagnostic that we anticipate using in connection with development and commercialization of our product candidates or our relationship with such diagnostic company may otherwise terminate. We may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our product candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our product candidates.
 
If we establish the hENT1 cut-off improperly, or if our LEAP trial results do not support the hENT1 hypothesis, we could jeopardize our potential for success with CO-101.
 
Retrospective analysis of tissue samples has shown a correlation between hENT1 expression levels and response to gemcitabine therapy such that patients with low levels of hENT1 expression are believed to derive little or no benefit from the drug. Our ongoing pivotal trial will, to our knowledge, be the first clinical trial to prospectively identify patients as hENT1-low and to then correlate their response to CO-101 versus gemcitabine. We will utilize both previously published research data, as well as the data we derive from our own retrospective analysis of tissue samples, to reach a judgment as to those pancreatic cancer patients whose level of hENT1 expression we will characterize as “hENT1-low”. If we set the cut-off too high (to cover a broader range of patients), we may reduce our chances of being able to show a statistically significant improvement in the rate of survival in the patients classified as hENT1-low, and thereby fail to meet the pre-defined endpoint of the trial. Conversely, if we are overly conservative in our judgment of classifying patients as hENT1-low, we may improve our chance of success in achieving the pre-defined endpoint, but at the cost of limiting the prescribing label on CO-101 to such a small subset of potential patients as to significantly constrain the commercial potential for this product candidate, if approved. Finally, we will establish our hENT1 cut-off based on tissue samples that came from primary pancreatic tumors, but are using tissue samples from metastatic cancer sites to define the hENT1 status of the patients in the trial. While there are limited data that suggest that the hENT1 status is generally consistent between metastatic and primary tumors, this may not be the case in the clinical setting, which could adversely affect the outcome of the trial.
 
There have been multiple publications addressing the relationship between hENT1 levels and gemcitabine treatment outcomes. To date, all of these publications have suggested the same relationship, namely that hENT1-high patients tend to respond better to gemcitabine therapy than hENT1-low patients. It is possible that other retrospective analyses of tissue samples may be published that do not reflect this correlation. Moreover, none of such studies have attempted to do what our LEAP trial is designed to do, which is to seek to prospectively prove this hENT1 hypothesis. Accordingly, we bear the risk that in a prospective, well controlled clinical trial, we may not be able to prove the hENT1 hypothesis. Our failure to achieve the predefined endpoints of the LEAP trial that support this hENT1 hypothesis would have an adverse impact on our ability to obtain approval for CO-101 and on our business, financial condition and prospects.
 
If we are unable to obtain regulatory approval of our product candidates, we will not be able to commercialize them and our business will be adversely impacted.
 
The FDA, the EMA and other comparable foreign regulatory authorities each have substantial discretion in the approval process and may either refuse to consider our application for substantive review or may form the opinion after review of our data that our application is insufficient to allow approval of our product candidates. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States. One of our primary strategies is to leverage the same data from a small number of global clinical studies to obtain regulatory approval in multiple jurisdictions. To the extent that approval procedures vary significantly, we may be unable to implement this strategy and achieve the time and cost savings we anticipate from managing our global regulatory operations. Moreover, any approvals that we obtain may not cover all of the clinical indications for which we are seeking approval, or could contain significant limitations in


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the form of narrow indications, warnings, precautions or contra-indications with respect to conditions of use. In such an event, our ability to generate revenues from such products would be greatly reduced and our business would be harmed.
 
If a regulatory authority does not consider or approve our application, it may require that we conduct additional clinical, preclinical or manufacturing validation studies and submit that data before it will reconsider our application. Depending on the extent of these or any other studies, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient by the applicable regulatory authority for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or more of our applications for approval, which might significantly harm our business and prospects.
 
Even if we do receive regulatory approval to market a product candidate, any such approval may be subject to limitations on the indicated uses for which we may market the product. It is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us to commence product sales. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our product is also subject to approval. Any delay in obtaining, or an inability to obtain, applicable regulatory approvals would prevent us from commercializing our product candidates, generating revenues and achieving and sustaining profitability.
 
We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
 
We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs. We rely heavily on these parties for execution of our preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with current good clinical practices, or cGCP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with cGCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
 
Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.
 
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be


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extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
 
Switching or adding additional CROs involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
 
We rely completely on third parties to manufacture our preclinical and clinical drug supplies and we intend to rely on third parties to produce commercial supplies of any approved product candidate, and our commercialization of any of our product candidates could be stopped, delayed or made less profitable if those third parties fail to obtain approval of the FDA, Competent Authorities of the Member States of the EEA or comparable regulatory authorities, fail to provide us with sufficient quantities of drug product or fail to do so at acceptable quality levels or prices.
 
We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our preclinical and clinical drug supplies for use in the conduct of our clinical trials and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements, known as current good manufacturing practices, or cGMPs, for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
 
We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture our drugs and there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.
 
We expect to continue to depend on third-party contract manufacturers for the foreseeable future. We have not entered into long-term agreements with our current contract manufacturers or with any alternate fill/finish suppliers, and though we intend to do so prior to commercial launch in order to ensure that we maintain adequate supplies of finished drug product, we may be unable to enter into such an agreement or do so on commercially reasonable terms, which could have a material adverse impact upon our business.


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Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.
 
Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
 
  •   restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
 
  •   fines, warning letters or holds on clinical trials;
 
  •   refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;
 
  •   product seizure or detention, or refusal to permit the import or export of products; and
 
  •   injunctions or the imposition of civil or criminal penalties.
 
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
 
We currently have no marketing and sales organization. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.
 
We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any product candidates, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If our product candidates receive regulatory approval, we intend to establish our sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. With respect to our product candidates, we may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.


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Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, healthcare payors and major operators of cancer clinics.
 
Even if we obtain regulatory approval for our product candidates, the product may not gain market acceptance among physicians, health care payors, patients and the medical community, which are critical to commercial success. Market acceptance of any product candidate for which we receive approval depends on a number of factors, including:
 
  •   the efficacy and safety as demonstrated in clinical trials;
 
  •   the timing of market introduction of such product candidate as well as competitive products;
 
  •   the clinical indications for which the drug is approved;
 
  •   the approval, availability, market acceptance and reimbursement for the companion diagnostic;
 
  •   acceptance by physicians, major operators of cancer clinics and patients of the drug as a safe and effective treatment;
 
  •   the potential and perceived advantages of such product candidate over alternative treatments, especially with respect to patient subsets that we are targeting with such product candidate;
 
  •   the safety of such product candidate seen in a broader patient group, including its use outside the approved indications;
 
  •   the cost of treatment in relation to alternative treatments;
 
  •   the availability of adequate reimbursement and pricing by third-party payors and government authorities;
 
  •   relative convenience and ease of administration;
 
  •   the prevalence and severity of adverse side effects; and
 
  •   the effectiveness of our sales and marketing efforts.
 
If our product candidates are approved but fail to achieve an adequate level of acceptance by physicians, health care payors and patients, we will not be able to generate significant revenues, and we may not become or remain profitable.
 
We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.
 
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. In addition, the competition in the oncology market is intense. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis drug products that are more effective or less costly than any drug candidate that we are currently developing or that we may develop. If approved, our product candidates will face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors.
 
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy,


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convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA, EMA or other regulatory approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business.
 
Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.
 
There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. We intend to seek approval to market our product candidates in the United States, Europe and other selected foreign jurisdictions. Market acceptance and sales of our product candidates in both domestic and international markets will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for any of our product candidates and may be affected by existing and future health care reform measures.
 
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:
 
  •   a covered benefit under its health plan;
 
  •   safe, effective and medically necessary;
 
  •   appropriate for the specific patient;
 
  •   cost-effective; and
 
  •   neither experimental nor investigational.
 
Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
 
In both the United States and certain foreign jurisdictions, there have been and we expect there will continue to be a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methodology for many products under the Medicare program in the United States. This has resulted in lower rates of reimbursement. In 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively, the Healthcare Reform Law, was enacted. The Healthcare Reform Law substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. Among the provisions of the Healthcare Reform Law of greatest importance to the pharmaceutical industry are the following:
 
  •   an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, beginning in 2011;
 
  •   an increase in the minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
 
  •   a new Medicare Part D coverage gap discount program, under which manufacturers must agree to offer 50 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D, beginning in 2011;
 
  •   extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, effective March 23, 2010;


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  •   expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program, effective January 2010;
 
  •   a licensure framework for follow-on biologic products; and
 
  •   a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research.
 
There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:
 
  •   the demand for any drug products for which we may obtain regulatory approval;
 
  •   our ability to set a price that we believe is fair for our products;
 
  •   our ability to generate revenues and achieve or maintain profitability;
 
  •   the level of taxes that we are required to pay; and
 
  •   the availability of capital.
 
In addition, governments may impose price controls, which may adversely affect our future profitability.
 
In some foreign countries, particularly in 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 candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability of our products in such country.
 
If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
 
Our industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, especially Patrick J. Mahaffy, our President and Chief Executive Officer, Erle T. Mast, our Executive Vice President and Chief Financial Officer, Andrew R. Allen, our Executive Vice President of Clinical and Pre-Clinical Development and Chief Medical Officer, and Gillian C. Ivers-Read, our Executive Vice President, Technical Operations and Chief Regulatory Officer, whose services are critical to the successful implementation of our product candidate acquisition, development and regulatory strategies. We are not aware of any present intention of any of these individuals to leave our company. In order to induce valuable employees to continue their employment with us, we have provided stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.
 
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Our employment arrangements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.


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We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.
 
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
 
As of June 1, 2011, we had 38 full-time employees. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including:
 
  •   managing our clinical trials effectively;
 
  •   identifying, recruiting, maintaining, motivating and integrating additional employees;
 
  •   managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
 
  •   improving our managerial, development, operational and finance systems; and
 
  •   expanding our facilities.
 
As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.
 
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
 
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we have established, comply with federal and state health-care fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. In connection with this offering, we will adopt a Code of Business Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.


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We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
 
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
 
  •   the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
 
  •   federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;
 
  •   the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
 
  •   HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; and
 
  •   state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
 
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
 
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
 
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
 
  •   decreased demand for our product candidates or products that we may develop;
 
  •   injury to our reputation;
 
  •   withdrawal of clinical trial participants;
 
  •   initiation of investigations by regulators;


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  •   costs to defend the related litigation;
 
  •   a diversion of management’s time and our resources;
 
  •   substantial monetary awards to trial participants or patients;
 
  •   product recalls, withdrawals or labeling, marketing or promotional restrictions;
 
  •   loss of revenues from product sales; and
 
  •   the inability to commercialize our product candidates.
 
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry $5.0 million of product liability insurance, which we believe is adequate for our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
 
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
 
We have incurred substantial losses during our history and do not expect to become profitable in 2011 and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We do not believe that we will experience an ownership change as a result of this initial public offering. However, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As of December 31, 2010, we had federal net operating loss carryforwards of approximately $24.4 million that could be limited if we experience an ownership change, which could have an adverse effect on our results of operations.
 
Our business and operations would suffer in the event of system failures.
 
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach 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 the further development of our product candidates could be delayed.
 
Risks Related to Our Intellectual Property
 
If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.
 
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. 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.


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The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patent applications we hold or pursue with respect to our product candidates is threatened, it could threaten our ability to commercialize our product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Furthermore, an interference proceeding can be provoked by a third-party or instituted by the United States Patent and Trademark Office, or the U.S. PTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.
 
In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.
 
Third-party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts.
 
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including interference and reexamination proceedings before the U.S. PTO or oppositions and other comparable proceedings in foreign jurisdictions. Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. 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.
 
Third parties may assert that we are employing their proprietary technology without authorization. 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 product 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 any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any


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such patent may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license, limit our uses, or until such patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.
 
We are aware of a family of patents and patent applications controlled by a third party that claim certain uses of PARP inhibitors that could potentially be asserted against our use of CO-338 in certain indications. Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, limit our uses, pay royalties or redesign our infringing product candidates, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly.
 
The patent protection and patent prosecution for some of our product candidates is dependent on third parties.
 
While we normally seek and gain the right to fully prosecute the patents relating to our product candidates, there may be times when platform technology patents that relate to our product candidates are controlled by our licensors. This is the case with our license of CO-1686 from Avila Therapeutics, Inc., in which Avila retained the right to prosecute and maintain the patents and patent applications covering its core discovery technology, including molecular backbones, building blocks and classes of compounds generated by that technology, aspects of which relate to CO-1686. While we have the right to prosecute and maintain the patent rights for the composition of matter for CO-1686, if Avila or any of our future licensing partners fail to appropriately prosecute and maintain patent protection for patents covering any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.
 
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.
 
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing.
 
Interference proceedings provoked by third parties or brought by the U.S. PTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.
 
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other


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interim proceedings or developments. 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.
 
We may not be able to protect our intellectual property rights throughout the world.
 
Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
 
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
 
If we breach any of the agreements under which we license commercialization rights to our product candidates from third parties, we could lose license rights that are important to our business.
 
We license the use, development and commercialization rights for all of our product candidates, and may enter into similar licenses in the future. Under each of our existing license agreements, we are subject to commercialization and development, diligence obligations, milestone payment obligations, royalty payments and other obligations. If we fail to comply with any of these obligations or otherwise breach our license agreements, our licensing partners may have the right to terminate the license in whole or in part. Generally, the loss of any one of our three current licenses or other licenses in the future could materially harm our business, prospects, financial condition and results of operations.
 
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
 
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
 
  •   Others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.
 
  •   We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.
 
  •   We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
 
  •   Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.
 
  •   It is possible that our pending patent applications will not lead to issued patents.
 
  •   Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
 
  •   Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.
 
  •   We may not develop additional proprietary technologies that are patentable.


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  •   The patents of others may have an adverse effect on our business.
 
Should any of these events occur, they could significantly harm our business, results of operations and prospects.
 
Risks Related to This Offering and Ownership of our Common Stock
 
We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and as a result it may be difficult for you to sell your shares of our common stock.
 
Prior to this offering there has been no market for shares of our common stock. Although we expect that our common stock will be approved for listing on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price for our common stock was determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of our common stock after this offering. This initial public offering price may vary from the market price of our common stock after the offering. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.
 
The price of our stock may be volatile, and you could lose all or part of your investment.
 
The trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors include:
 
  •   our failure to commercialize our product candidates, if approved;
 
  •   actual or anticipated adverse results or delays in our clinical trials;
 
  •   unanticipated serious safety concerns related to the use of any of our product candidates;
 
  •   adverse regulatory decisions;
 
  •   changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;
 
  •   disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates;
 
  •   our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
 
  •   our dependence on third parties, including CROs as well as our partners that provide us with companion diagnostic products;
 
  •   additions or departures of key scientific or management personnel;
 
  •   failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public;
 
  •   actual or anticipated variations in quarterly operating results;
 
  •   failure to meet or exceed the estimates and projections of the investment community;
 
  •   overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies;
 
  •   conditions or trends in the biotechnology and biopharmaceutical industries;
 
  •   introduction of new products offered by us or our competitors;


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  •   announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
 
  •   our ability to maintain an adequate rate of growth and manage such growth;
 
  •   issuances of debt or equity securities;
 
  •   significant lawsuits, including patent or stockholder litigation;
 
  •   sales of our common stock by us or our stockholders in the future;
 
  •   trading volume of our common stock;
 
  •   publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;
 
  •   ineffectiveness of our internal controls;
 
  •   general political and economic conditions;
 
  •   effects of natural or man-made catastrophic events; and
 
  •   other events or factors, many of which are beyond our control.
 
In addition, the stock market in general, and the NASDAQ Global Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.
 
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
 
Prior to this offering, our executive officers, directors, 5% stockholders and their affiliates beneficially owned approximately 82.0% of our voting stock and, upon the closing of this offering, that same group will hold approximately     % of our outstanding voting stock (assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options) in each case assuming an initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of          , 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock). Therefore, even after this offering these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
 
If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.
 
The initial public offering price is substantially higher than the net tangible book value per share of our common stock. Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $      per share, based on an initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus). Further, investors purchasing common stock in this offering will contribute approximately     % of the total amount invested by stockholders since our inception, but will own only approximately     % of the shares of common stock outstanding after giving effect to this offering.


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This dilution is due to our investors who purchased shares prior to this offering having paid substantially less than the price offered to the public in this offering when they purchased their shares. In addition, as of March 31, 2011, options to purchase 2,746,779 shares of our common stock at a weighted-average exercise price of $0.91 per share were outstanding. The exercise of any of these options would result in additional dilution. As a result of the dilution to investors purchasing shares in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. Further, because we will need to raise additional capital to fund our clinical development programs, we may in the future sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in further dilution to investors. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.”
 
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
 
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes Oxley Act, as well as rules subsequently adopted by the SEC and the NASDAQ Stock Market, or NASDAQ. The Exchange Act will require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. In addition, on July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access, and the SEC has since issued final rules implementing “say on pay” measures. We expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. The increased costs will decrease our net income or increase our consolidated net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
 
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report, commencing in our annual report on Form 10-K for the year ending December 31, 2012, on the effectiveness of our internal controls over financial reporting, if then required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner or if we identify or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.
 
New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act and rules adopted by the SEC and by NASDAQ, would likely result in increased costs to us as we respond to their requirements.


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Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
 
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Upon the closing of this offering, we will have outstanding a total of           shares of common stock, assuming no exercise of the underwriters’ overallotment option. Of these shares, only the           shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters’ overallotment option, will be freely tradable, without restriction, in the public market immediately following this offering. J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC, however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.
 
We expect that the lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus (subject to extension upon the occurrence of specified events). After the lock-up agreements expire, up to an additional           shares of common stock will be eligible for sale in the public market,          of which shares are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, assuming an initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of          , 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock). In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
 
After this offering, the holders of           shares of our common stock, or     % of our total outstanding common stock as of          , 2011, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the lock-up agreements described above and assuming an initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of          , 2011 (for purposes of calculating the accrued interest on the notes to be converted to shares of common stock). Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.
 
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
 
We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock, including shares of common stock sold in this offering.
 
Pursuant to our equity incentive plan(s), our compensation committee (or a subset thereof) is authorized to grant equity-based incentive awards to our employees, directors and consultants. The number of shares of our common stock available for future grant under our 2011 Equity Incentive Plan is           and the number of shares available for future grant will automatically increase each year by an amount equal to     % of all shares of our common stock outstanding as of January 1 of each calendar year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given calendar year. Future option grants and issuances of common stock under our 2011 Equity Incentive Plan may have an adverse effect on the market price of our common stock.


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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 you will be relying on the judgment of our management regarding the application of these proceeds. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use the net proceeds from this offering to fund our clinical trials related to CO-101 and CO-338, to advance the development of CO-1686, our preclinical product candidate, and for working capital and general corporate purposes. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
 
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.
 
Provisions in our amended and restated certificate of incorporation and bylaws that will be in effect immediately prior to the closing of this offering, as well as provisions of Delaware law, could make it more difficult for a third-party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management. These provisions include:
 
  •   authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
 
  •   limiting the removal of directors by the stockholders;
 
  •   creating a staggered board of directors;
 
  •   prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
 
  •   eliminating the ability of stockholders to call a special meeting of stockholders;
 
  •   permitting our board of directors to accelerate the vesting of outstanding option grants upon certain transactions that result in a change of control; and
 
  •   establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.
 
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
 
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
 
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the


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trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
 
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to the Company.
 
Our certificate of incorporation provides that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
 
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws to be effective immediately prior to the completion of this offering and our indemnification agreements that we have entered into with our directors and officers provide that:
 
  •   We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.
 
  •   We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.
 
  •   We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
 
  •   We will not be obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.
 
  •   The rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.
 
  •   We may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
 
This prospectus includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned preclinical studies and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates, the degree of clinical utility of our products, particularly in specific patient populations, expectations regarding clinical trial data, our results of operations, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us.
 
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and industry change and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, they may not be predictive of results or developments in future periods.
 
Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include:
 
  •   the success and timing of our preclinical studies and clinical trials;
 
  •   our ability to obtain and maintain regulatory approval of our product candidates, and the labeling under any approval we may obtain;
 
  •   our plans to develop and commercialize our product candidates;
 
  •   our ability, with partners, to validate, develop and obtain regulatory approval of companion diagnostics for our product candidates;
 
  •   the loss of key scientific or management personnel;
 
  •   the size and growth of the potential markets for our product candidates and our ability to serve those markets;
 
  •   regulatory developments in the United States and foreign countries;
 
  •   the rate and degree of market acceptance of any of our product candidates;
 
  •   our use of the proceeds from this offering;
 
  •   the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
 
  •   our ability to obtain and maintain intellectual property protection for our product candidates;
 
  •   the successful development of our sales and marketing capabilities;
 
  •   the success of competing drugs that are or become available; and
 
  •   the performance of third-party manufacturers.
 
Any forward-looking statements that we make in this prospectus speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this


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prospectus or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
 
You should also read carefully the factors described in the “Risk Factors” section of this prospectus to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act do not protect any forward-looking statements that we make in connection with this offering.
 
This prospectus also includes estimates of market size and industry data that we obtained from industry publications and surveys and internal company sources. The industry publications and surveys used by management to determine market size and industry data contained in this prospectus have been obtained from sources believed to be reliable, but there can be no assurance as to their accuracy or completeness. Although we believe these sources are reliable, we have not independently verified any of the data from third-party sources, nor have we ascertained the underlying assumptions relied upon therein. You are cautioned not to give undue weight to such data. Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty. In addition, we do not know all of the assumptions that were used in preparing such industry and market data. While we are not aware of any misstatements regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.


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USE OF PROCEEDS
 
We estimate that our net proceeds from the sale of the shares of common stock in this offering will be approximately $      million, based on an assumed initial public offering price of $      per share, 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.
 
If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $     , based on an assumed initial public offering price of $      per share, 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.
 
The principal purposes of this offering are to obtain additional capital to support our operations, establish a public market for our common stock and to facilitate our future access to the public capital markets. We anticipate that we will use the net proceeds of this offering to fund our clinical trials related to CO-101 and CO-338, to advance the development of CO-1686, our preclinical product candidate, and for working capital and general corporate purposes.
 
Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations for at least the next 12 months.
 
The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures depend on numerous factors, including the ongoing status of and results from clinical trials and other studies, as well as any strategic partnerships that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, management will have broad discretion in applying the net proceeds of this offering. Pending these uses, we intend to invest the net proceeds of this offering in short-term, interest-bearing investment grade securities, certificates of deposit or direct or guaranteed obligations of the U.S. government.
 
Each $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $     , assuming 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 and estimated offering expenses payable by us.
 
DIVIDEND POLICY
 
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant.


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CAPITALIZATION
 
The following table sets forth our consolidated cash and cash equivalents and our consolidated capitalization as of March 31, 2011 on:
 
  •   an actual basis;
 
  •   a pro forma basis giving effect to:
 
  (1)   the issuance of $35.0 million in aggregate principal amount of our 5% convertible promissory notes due 2012;
 
  (2)   the conversion of all outstanding shares of our convertible preferred stock into 21,009,196 shares of common stock immediately prior to the closing of this offering; and
 
  (3)   the conversion of $35.0 million in aggregate principal amount of our 5% convertible promissory notes due 2012 (including accrued and unpaid interest thereon) into           shares of our common stock immediately prior to the closing of this offering, assuming an initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming the conversion occurs on          , 2011 (the expected closing date of this offering); and
 
  •   a pro forma as adjusted basis giving additional effect to the sale of           shares of our common stock offered in this offering, assuming an initial public offering price of $      per share, 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.
 
The information in this table is illustrative only and our capitalization following the completion 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 in conjunction with the information contained in “Use of Proceeds,” “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the consolidated financial statements and the notes thereto included elsewhere in this prospectus.
 
                         
    As of March 31, 2011  
                Pro Forma
 
    Actual     Pro Forma     as Adjusted(1)  
    (dollars in thousands)  
 
Cash and cash equivalents
    $4,602     $       $        
                         
5% convertible promissory notes due 2012
                     
                         
Convertible preferred stock, par value $0.001 per share; 36,296,552 shares authorized; 21,009,196 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted
    75,499                  
Stockholders’ equity:
                       
Preferred stock, par value $0.001 per share; no shares authorized, issued or outstanding, actual;           shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted
                   
Common stock, par value $0.001 per share; 55,000,000 shares authorized and 3,879,600 shares issued and outstanding, actual;           shares authorized and          shares issued and outstanding, pro forma and           shares issued and outstanding, pro forma as adjusted
    4                  
Additional paid-in capital
    195                  
Accumulated deficit
    (63,257 )                
Accumulated other comprehensive income (loss)
    35                  
                         
Total stockholders’ equity (deficit)
    (63,023 )                
                         
Total capitalization
    $12,476     $       $             
                         


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(1) A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization 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 and estimated offering expenses payable by us.
 
The number of shares of our common stock to be outstanding after this offering set forth above is based on           shares of our common stock outstanding as of March 31, 2011, after giving effect to (1) the conversion of all outstanding shares of our convertible preferred stock into 21,009,196 shares of common stock immediately prior to the closing of this offering and (2) the issuance of           shares of our common stock immediately prior to the closing of this offering as a result of the conversion of $35.0 million in aggregate principal amount of our 5% convertible promissory notes due 2012 (including accrued and unpaid interest thereon), assuming an initial public offering price of           per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming the conversion occurs on          , 2011 (the expected closing date of this offering).
 
The number of shares of our common stock to be outstanding after this offering set forth above excludes:
 
  •   2,746,779 shares of our common stock issuable upon the exercise of stock options outstanding as of March 31, 2011 at a weighted-average exercise price of $0.91 per share;
 
  •             shares of our common stock reserved for future issuance under our 2011 Equity Incentive Plan, or the 2011 Plan, which will become effective immediately prior to the completion of this offering, plus 1,248,621 shares of our common stock available for grant under our 2009 Equity Incentive Plan, or the 2009 Plan, as of March 31, 2011, which shares will be added to the shares to be reserved under our 2011 Plan upon the effectiveness of the 2011 Plan, plus any annual increases in the number of shares of common stock reserved for future issuance under the 2011 Plan pursuant to an “evergreen provision” and any other shares that may become issuable under the 2011 Plan pursuant to its terms, as more fully described in “Executive and Director Compensation—Employee Benefit Plans—2011 Equity Incentive Plan”; and
 
  •             shares of our common stock reserved for future issuance under our 2011 Employee Stock Purchase Plan, or the ESPP, which will become effective immediately prior to the completion of this offering, plus any annual increases in the number of shares of our common stock reserved for future issuance under the ESPP pursuant to an “evergreen provision” and any other shares that may become issuable under the ESPP pursuant to its terms, as more fully described in “Executive and Director Compensation—Employee Benefit Plans—2011 Employee Stock Purchase Plan.”


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DILUTION
 
If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock upon completion of this offering. Net tangible book value (deficit) per share of our common stock is determined at any date by subtracting our total liabilities from the amount of our total tangible assets (total assets less intangible assets) and dividing the difference by the number of shares of our common stock deemed to be outstanding at that date.
 
Our historical net tangible book value (deficit) as of March 31, 2011 was approximately $(63.0) million, or $(16.24) per share, based on 3,879,600 shares of common stock outstanding as of March 31, 2011.
 
On a pro forma basis, after giving effect to (1) a           for          reverse stock split that we anticipate will occur prior to the closing of this offering; (2) the issuance of $35.0 million in aggregate principal amount of our 5% convertible promissory notes due 2012; (3) the conversion of all outstanding shares of our convertible preferred stock into 21,009,196 shares of common stock immediately prior to the closing of this offering; and (4) the conversion of $35.0 million in aggregate principal amount of our 5% convertible promissory notes due 2012 (including accrued and unpaid interest thereon) into          shares of our common stock immediately prior to the closing of this offering, assuming an initial public offering price of $     per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming the conversion occurs on          , 2011 (the expected closing date of this offering), our net tangible book value as of March 31, 2011 would have been approximately $      million, or approximately $      per share of our pro forma outstanding common stock.
 
Investors participating in this offering will incur immediate, substantial dilution. After giving effect to our receipt of approximately $      of estimated net proceeds (after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us) from our sale of common stock in this offering at an assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of March 31, 2011 would have been $      , or $      per share. This amount represents an immediate increase in net tangible book value of $      per share of our common stock to existing stockholders and an immediate dilution in net tangible book value of $      per share of our common stock to new investors purchasing shares of common stock in this offering.
 
The following tables illustrate this dilution on a per share basis:
 
                 
 
Assumed initial public offering price per share
          $             
                 
Historical net tangible book deficit per share as of March 31, 2011 (unaudited)
  $                     
                 
Pro forma increase in net tangible book value per share attributable to pro forma transactions described in preceding paragraphs
               
                 
Pro forma net tangible book value per share as of March 31, 2011 (unaudited)
               
                 
Pro forma increase in net tangible book value per share attributable to investors participating in this offering
               
                 
Pro forma as adjusted net tangible book value per share after this offering
               
                 
Dilution of pro forma as adjusted net tangible book value per share to new investors
          $    
                 
 
Each $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $     , the pro forma as adjusted net tangible book value per share per share after this offering by $      per share and the dilution in pro forma as adjusted net tangible book value to new investors in this offering by $     per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
The following table summarizes, as of March 31, 2011, the differences between the number of shares purchased from us, the total consideration paid to us, and the average price per share paid to us by existing stockholders and by new investors purchasing shares in this offering, before deducting estimated underwriting


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discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus.
 
                                         
    Shares Purchased     Total Consideration     Average Price
 
    Number     Percent     Amount     Percent     per Share  
    (dollars in thousands, except per share amounts)  
 
Existing stockholders before this offering
                  $               $        
Investors purchasing common stock in this offering
                                       
                                         
Total
                              $                           $          
                                         
 
The number of shares of our common stock to be outstanding immediately following this offering set forth above excludes:
 
  •   2,746,779 shares of our common stock issuable upon the exercise of stock options outstanding as of March 31, 2011 at a weighted-average exercise price of $0.91 per share;
 
  •             shares of our common stock reserved for future issuance under our 2011 Equity Incentive Plan, or the 2011 Plan, which will become effective immediately prior to the completion of this offering, plus 1,248,621 shares of our common stock available for grant under our 2009 Equity Incentive Plan, or the 2009 Plan, as of March 31, 2011, which shares will be added to the shares to be reserved under our 2011 Plan upon the effectiveness of the 2011 Plan, plus any annual increases in the number of shares of common stock reserved for future issuance under the 2011 Plan pursuant to an “evergreen provision” and any other shares that may become issuable under the 2011 Plan pursuant to its terms, as more fully described in “Executive and Director Compensation—Employee Benefit Plans—2011 Equity Incentive Plan”; and
 
  •             shares of our common stock reserved for future issuance under our 2011 Employee Stock Purchase Plan, or the ESPP, which will become effective immediately prior to the completion of this offering, plus any annual increases in the number of shares of our common stock reserved for future issuance under the ESPP pursuant to an “evergreen provision” and any other shares that may become issuable under the ESPP pursuant to its terms, as more fully described in “Executive and Director Compensation—Employee Benefit Plans—2011 Employee Stock Purchase Plan.”
 
If the underwriters’ over-allotment option is exercised in full, the pro forma as adjusted net tangible book value per share after giving effect to this offering would be $      per share, which amount represents an immediate increase in net tangible book value of $      per share of our common stock to existing stockholders and an immediate dilution in net tangible book value of $      per share of our common stock to new investors purchasing shares of common stock in this offering.
 
If all our outstanding stock options had been exercised as of March 31, 2011, assuming the treasury stock method, our pro forma net tangible book value as of March 31, 2011 (calculated on the basis of the assumptions set forth above) would have been approximately $      million or $      per share of our common stock, and the pro forma as adjusted net tangible book value would have been $      per share, representing dilution in our pro forma as adjusted net tangible book value per share to new investors of $     .
 
In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership will be further diluted.


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SELECTED CONSOLIDATED FINANCIAL DATA
 
The following table sets forth certain of our selected historical financial data at the dates and for the periods indicated. The selected historical statement of operations data presented below for the year ended December 31, 2010 and the period from April 20, 2009 (inception) to December 31, 2009 and as of December 31, 2010 and 2009 have been derived from our audited financial statements, which are included elsewhere in this prospectus.
 
The selected historical consolidated financial data presented below for the three months ended March 31, 2011 and 2010 and as of March 31, 2011 have been derived from our unaudited consolidated financial statements and have been prepared on the same basis as the audited financial statements included elsewhere in this prospectus. The financial information presented from April 20, 2009 (inception) to December 31, 2010 was based solely on the results of Clovis Oncology, Inc. Subsequent to January 1, 2011, the financial information is consolidated and includes the results of our wholly owned subsidiary in the United Kingdom. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of results as of and for these periods. The historical results are not necessarily indicative of results expected in any future period and the results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the full fiscal year.
 
The selected historical financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto, which are included elsewhere in this prospectus. The selected historical financial information in this section is not intended to replace our financial statements and the related notes thereto.
 
Statement of Operations Data:
 
                                         
          Period from
                Cumulative from
 
          April 20, 2009
                April 20, 2009
 
    Year Ended
    (Inception) to
    Three Months Ended
    (Inception) to
 
    December 31,
    December 31,
    March 31,     March 31,
 
    2010     2009     2011     2010     2011  
                (unaudited)     (unaudited)     (unaudited)  
    (in thousands, except per share amounts)  
 
Revenue
  $     $     $     $     $  
Operating expenses:
                                       
Research and development
    22,323       1,762       7,041       3,259       31,126  
General and administrative
    4,302       2,209       1,405       830       7,916  
Acquired in-process research and development
    12,000       13,085                   25,085  
                                         
Operating loss
    (38,625 )     (17,056 )     (8,446 )     (4,089 )     (64,127 )
Other income (expense), net
    795       (43 )     118       (2 )     870  
                                         
Net loss
  $ (37,830 )   $ (17,099 )   $ (8,328 )   $ (4,091 )   $ (63,257 )
                                         
Basic and diluted net loss per common share
  $ (9.85 )   $ (5.30 )   $ (2.15 )   $ (1.07 )   $ (17.45 )
                                         
Common shares used in the computation of basic and diluted net loss per common share
    3,842       3,225       3,877       3,832       3,625  
Pro forma basic and diluted net loss per common share (unaudited)
  $ (1.52 )           $ (0.33 )           $ (3.20 )
                                         
Pro forma basic and diluted weighted average common shares outstanding (unaudited)
    24,851               24,886               19,784  
                                         


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Balance Sheet Data:
 
                         
    As of December 31,   As of March 31,
    2010   2009   2011
            (unaudited)
    (in thousands)
 
Cash, cash equivalents and available for sale securities
    $22,299       $57,311       $13,926  
Working capital
    19,886       57,349       11,540  
Total assets
    26,200       59,574       17,531  
Convertible preferred stock
    75,499       75,499       75,499  
Total stockholders’ deficit
    (54,749 )     (17,058 )     (63,023 )


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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 our 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. You should read the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to 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 biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in the United States, Europe and additional international markets. We target our development programs for the treatment of specific subsets of cancer populations, and seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients that are most likely to benefit from their use. We are currently developing three product candidates for which we hold global marketing rights: CO-101, a lipid-conjugated form of the anti-cancer drug gemcitabine, which is in a pivotal study in a specific patient population for the treatment of metastatic pancreatic cancer; CO-1686, an orally available, small molecule EGFR covalent inhibitor that is currently in preclinical development for NSCLC patients with activating EGFR mutations, including the initial activating mutations, as well as the primary resistance mutation, T790M; and CO-338, an orally available, small molecule PARP inhibitor being developed for various solid tumors that is currently in a Phase I clinical trial. As our product candidates mature, we intend to build commercial organizations of our own in major global markets and contract with local distributors in smaller markets.
 
We were incorporated in Delaware in April 2009 and commenced operations in May 2009. To date, we have devoted substantially all of our resources to identifying and in-licensing product candidates, performing development activities with respect to those product candidates, and the general and administrative support of these operations. We have generated no revenues and, through March 31, 2011, have principally funded our operations using net proceeds from the sale of $75.5 million of convertible preferred stock to our investors. In addition, in May and June 2011, we issued $35.0 million aggregate principal amount of convertible promissory notes due 2012 to investors. As further discussed under the heading “Convertible Promissory Notes”, these notes will convert into shares of our common stock upon the completion of an initial public offering of our common stock at a per share price equal to the initial public offering price shown on the cover page of this prospectus.
 
We have never been profitable and, as of March 31, 2011, we had an accumulated deficit of $63.3 million. We incurred losses of $17.1 million, $37.8 million, and $8.3 million for the period from April 20, 2009 (inception) through December 31, 2009, the year ended December 31, 2010, and the three months ended March 31, 2011, respectively. We expect to incur significant and increasing losses for the foreseeable future as we advance our product candidates through preclinical activities and clinical trials to seek regulatory approval and, if approved, commercialize such product candidates. We will need additional financing to support our operating activities. In addition, the report of our independent registered public accounting firm on our financial statements appearing at the end of this prospectus contains an explanatory paragraph stating that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. We will seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We expect that research and development expenses will increase as we continue the development of our product candidates and general and administrative costs will increase as we grow and operate as a public company. We will need to generate significant revenues to achieve profitability and we may never do so.
 
The financial information presented from April 20, 2009 (inception) to December 31, 2010 was based solely on the results of Clovis Oncology, Inc. Subsequent to January 1, 2011, the financial information is consolidated and


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includes the results of our wholly owned subsidiary in the United Kingdom. All intercompany transactions and balances are eliminated in this consolidation.
 
Convertible Promissory Notes
 
In May and June 2011, we issued an aggregate $35.0 million aggregate principal amount of 5% convertible promissory notes due 2012 in two separate transactions described as follows.
 
  •  In May 2011, we issued $20.0 million aggregate principal amount of 5% convertible promissory notes due 2012 to raise additional working capital to advance the development programs of our product candidates and for general corporate purposes. The notes accrue interest at an annual rate of 5% and mature on May 25, 2012. Upon the completion of this offering, the principal balance and all accrued and unpaid interest due on the notes will be converted into shares of our common stock at a per share price equal to the initial public offering price shown on the cover page of this prospectus.
 
  •  In June 2011, we entered into a license agreement with Pfizer as further described under the heading “Product License Agreements”. Pursuant to the terms of the license agreement, we made an up-front payment by issuing Pfizer $7.0 million principal amount of a 5% convertible promissory note due 2012. Pfizer concurrently purchased for cash an additional $8.0 million principal amount of another 5% convertible promissory note due 2012, bringing the total principal amount of the notes issued to Pfizer to $15.0 million. These convertible notes have substantially the same terms as the $20.0 million aggregate principal amount of convertible promissory notes described in the preceding paragraph, including identical interest provisions, maturity date, and conversion features.
 
Product License Agreements
 
CO-101
 
In November 2009, we entered into a license agreement with Clavis to develop and commercialize CO-101 in North America, Central America, South America and Europe. Under the terms of the license agreement, we made an up-front payment to Clavis in the amount $15.0 million, which was comprised of $13.1 million for development costs incurred prior to the execution of the agreement, which we recognized as acquired in-process research and development and $1.9 million for the prepayment of preclinical activities to be performed by Clavis. In November 2010, the license agreement was amended to expand the license territory to include Asia and other international markets. We paid Clavis $10.0 million for the territory expansion and recognized that payment as acquired in-process research and development expense. As part of the amendment to the license agreement, Clavis has also agreed to reimburse up to $3.0 million of our research and development costs for certain CO-101 development activities subject to our incurring such costs. We are responsible for all remaining development and commercialization costs of the compound and, if approved, Clavis will be entitled to receive royalties based on the volume of annual net sales achieved. We may be required to pay Clavis an aggregate of up to $115.0 million in development and regulatory milestone payments if certain clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we may be required to pay Clavis an aggregate of up to $445.0 million in sales milestone payments if certain annual sales targets are met for CO-101.
 
Subject to certain conditions set forth in the license agreement, Clavis may elect to co-develop and co-promote CO-101 in Europe. If Clavis were to make this election, it would be required to reimburse us for a portion of both past and future development costs. In addition, our milestone payment obligations described above would be reduced. Clavis would not be entitled to royalties on the net sales in Europe, but would instead share equally in the pretax profits or losses resulting from commercialization activities in Europe.
 
CO-1686
 
In May 2010, we entered into a worldwide license agreement with Avila to discover, develop and commercialize preclinical covalent inhibitors of mutant forms of EGFR. CO-1686 was identified as the lead inhibitor candidate developed by Avila under the license agreement. We are responsible for all preclinical, clinical, regulatory and other activities necessary to develop and commercialize CO-1686. We made an up-front payment of


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$2.0 million to Avila upon execution of the license agreement which we recognized as acquired in-process research and development expense. We are obligated to pay Avila royalties on net sales of CO-1686, based on the volume of annual net sales achieved. Avila has the option to increase royalty rates by electing to reimburse a portion of our development expenses. This option must be exercised within a limited period of time of Avila’s being notified by us of our intent to pursue regulatory approval of CO-1686 in the United States or the European Union as a first-line therapy. We may be required to pay Avila up to an aggregate of $119.0 million in development and regulatory milestone payments if certain clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we may be required to pay Avila up to an aggregate of $120.0 million in sales milestone payments if certain annual sales targets are achieved.
 
CO-338
 
In June 2011, we entered into a license agreement with Pfizer to acquire exclusive global development and commercialization rights to Pfizer’s drug candidate PF-01367338, which we have renamed CO-338. This drug candidate is a small molecule PARP inhibitor which we are developing for the treatment of selected solid tumors. Pursuant to the terms of the license agreement, we made an up-front payment by issuing Pfizer $7.0 million principal amount of a 5% convertible promissory note due 2012. We are responsible for all development and commercialization costs of CO-338 and, if approved, we will be required to pay Pfizer royalties on sales of the product. In addition, we may be required to pay Pfizer up to an aggregate of $259.0 million in milestone payments if certain development, regulatory and sales milestones are achieved.
 
Financial Operations Overview
 
Revenue
 
To date, we have not generated any revenues. In the future, we may generate revenue from the sales of product candidates that are currently under development. Based on our current development plans, we do not expect to generate revenue until 2014 at the earliest. If we fail to complete the development of our product candidates and, together with our partners, companion diagnostics or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.
 
Research and Development Expenses
 
Research and development expenses consist of costs incurred for the development of our product candidates and companion diagnostics, which include:
 
  •  license fees related to the acquisition of in-licensed products, which are reported on our statements of operations as acquired in-process research and development;
 
  •  employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;
 
  •  expenses incurred under agreements with CROs and investigative sites that conduct our clinical trials and preclinical studies;
 
  •  the cost of acquiring, developing and manufacturing clinical trial materials;
 
  •  costs associated with preclinical activities and regulatory operations; and
 
  •  activities associated with the development of companion diagnostics for our product candidates.
 
Research and development costs are expensed as incurred. License fees and milestone payments related to in-licensed products and technology are expensed if it is determined that they have no alternative future use. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.
 
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. We plan to increase our research and


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development expenses for the foreseeable future as we seek to complete development of our most advanced product candidate, CO-101, and its companion diagnostic, transition our CO-1686 product candidate into human clinical trials, and assume responsibility for the development costs of CO-338, which was in-licensed in June 2011, including the cost of ongoing clinical trials.
 
The following table identifies research and development costs and acquired in-process research and development costs on a program-specific basis for our product candidates in-licensed through March 31, 2011 and their companion diagnostics. Personnel-related costs, depreciation and stock-based compensation are not allocated to a program as they are deployed across multiple projects under development and, as such, are separately classified as personnel and other expenses in the table below.
 
                                         
          Period from
             
          April 20, 2009
          Cumulative from
 
    Year Ended
    (Inception) to
    Three Months Ended
    April 20, 2009
 
    December 31,     December 31,     March 31,     (Inception) to
 
    2010     2009     2011     2010     March 31, 2011  
                (unaudited, in thousands)  
    (in thousands)                    
 
CO-101 Expenses
                                       
Acquired in-process R&D
  $ 10,000     $ 13,085     $     $     $ 23,085  
Research and development
    14,461       371       3,762       2,387       18,594  
                                         
CO-101 Total
    24,461       13,456       3,762       2,387       41,679  
CO-1686 Expenses
                                       
Acquired in-process R&D
    2,000                         2,000  
Research and development
    2,432             1,289             3,721  
                                         
CO-1686 Total
    4,432             1,289             5,721  
Personnel and other expenses
    5,430       1,391       1,990       872       8,811  
                                         
Total
  $ 34,323     $ 14,847     $ 7,041     $ 3,259     $ 56,211  
                                         
 
General and Administrative Expenses
 
General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, and information technology functions. Other general and administrative expenses include facility costs, communication expenses, and professional fees for legal, patent review, consulting and accounting services.
 
We anticipate that our general and administrative expenses will increase due to many factors and the most significant of these factors include:
 
  •  increased personnel expenses to support the growth in research and development activities; and
 
  •  increased expenses related to becoming a publicly traded company, including increased legal and accounting services, addition of new headcount to support compliance and communication needs, and increased insurance premiums.
 
Other Income and Expense
 
Other income is comprised of interest income earned on cash, cash equivalents and available for sale securities, gain on the sale of available for sale securities, and a federal grant awarded to us under the Qualifying Therapeutic Discovery Project Program in 2010. In addition, we hold cash balances at financial institutions denominated in currencies other than the U.S. dollar to fund research and development activities performed by various third-party vendors. The translation of these currencies into U.S. dollars results in foreign currency gains or losses, depending on the change in value of these currencies against the U.S. dollar. These gains and losses are included in Other Income and Expense.


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Critical Accounting Policies and Significant Judgments and Estimates
 
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
Our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this prospectus. We believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
 
Accrued Research and Development Expenses
 
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and 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. We make estimates of our accrued expenses as of each balance sheet date in our 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 clinical studies;
 
  •  fees paid to investigative sites in connection with clinical studies;
 
  •  fees paid to vendors in connection with preclinical development activities;
 
  •  fees paid to vendors associated with the development of companion diagnostics; and
 
  •  fees paid to vendors related to product manufacturing, development and distribution of clinical supplies.
 
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies 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 clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated 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 accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. Based on the amount of accrued research and development expenses as of March 31, 2011, if our estimates are too high or too low by 5%, this could increase or decrease our research and development expenses by approximately $162,000.
 
Stock-Based Compensation
 
To date, stock-based compensation expense has not been material to our financial results. Nevertheless, as we continue to expand our work force, we expect to make additional stock option grants, which will result in additional stock-based compensation expense. Accordingly, we describe below the methodology we have employed to date in


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measuring such expenses. Following the consummation of this offering, stock option values will be determined based on the quoted market price of our common stock.
 
Since our inception in 2009, we have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, 718 “Accounting for Stock Based Compensation”, which we refer to as ASC 718. Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date. Compensation expense is recognized over the vesting period of the award. Calculating the fair value of stock-based awards requires that we make highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the price 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 a privately-held company with a limited operating history, we utilize data from several peer companies to estimate expected stock price volatility and the expected term of our options. We selected peer companies from the biopharmaceutical industry with similar characteristics as us, including stage of product development, market capitalization, number of employees and therapeutic focus. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.
 
The fair value of stock options was estimated at the grant date using the following weighted average assumptions:
 
                               
            Period from April 20
      Three Months
   
    Year Ended
      (Inception) Through
      Ended
   
    December 31,
      December 31,
      March 31,
   
    2010       2009       2011    
                    (unaudited)    
 
Dividend yield
                       
Volatility
    80   %     80   %     74   %
Risk-free interest rate
    2.10   %     2.33   %     2.48   %
Expected term (years)
    5.61         5.30         6.00    
 
There were no options granted during the three months ended March 31, 2010.
 
In accordance with ASC 718, we recognized stock-based compensation expense of approximately $4,000 and $68,000 for the period April 20, 2009 (inception) through December 31, 2009 and for the year ended December 31, 2010, respectively, and $4,000 and $59,000 for the three months ended March 31, 2010 and 2011, respectively. As of March 31, 2011, we had $1.2 million in total unrecognized compensation expense, net of related forfeiture estimates, which is expected to be recognized over a weighted-average remaining vesting period of approximately 3.6 years. While our stock-based compensation has not been significant historically, we expect the impact to grow in future periods due to the potential increases in the value of our common stock and headcount.
 
Under ASC 718, we are required to estimate the level of forfeitures expected to occur and record compensation expense only for those awards that we ultimately expect will vest. Due to the lack of historical forfeiture activity of our plan, we estimated our forfeiture rate based on peer company data with characteristics similar to our company.


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The following table presents the grant dates and related exercise prices of stock options granted to employees and our board of directors since April 20, 2009 (inception):
 
                         
    Number of
       
    Shares
      Common Stock
    Underlying
  Exercise
  Fair Value per
    Options
  Price per
  Share on Grant
Period of Grant
  Granted   Share   Date
 
April 20, 2009 (inception) to June 30, 2009
        $     $  
July 1, 2009 to September 30, 2009
    755,000     $ 0.10     $ 0.10  
October 1, 2009 to December 31, 2009
    147,500     $ 0.10     $ 0.10  
January 1, 2010 to March 31, 2010
                 
April 1, 2010 to June 30, 2010
    451,500     $ 1.06     $ 1.06  
July 1, 2010 to September 30, 2010
    3,000     $ 1.06     $ 1.06  
October 1, 2010 to December 31, 2010
    245,000     $ 1.06     $ 1.06  
January 1, 2011 to March 31, 2011
    1,549,900     $ 1.13     $ 1.13  
 
We have granted stock options at exercise prices not less than the estimated fair market value of our common stock. As there was no public market for our common stock, the estimated fair value of our common stock was determined by our board of directors based on valuation estimates provided by management.
 
For the period from April 20, 2009 (inception) to December 31, 2009, our board of directors determined the fair value of our common stock to be $0.10 per share. Due to the minimal value of non-cash assets owned during this period, the superior preferences associated with our convertible preferred stock in relation to our common stock and our focus on start up activities, there was a nominal value attributed to the fair value of our common stock during this time.
 
In the fourth quarter of 2009, we completed the in-licensing of our first product candidate and the issuance of our Series A-2 and Series B convertible preferred stock for total net proceeds of $65.6 million. Based on the significance of these transactions, we deemed it appropriate to update the estimated valuation of our common stock as of December 31, 2009. This valuation was updated again as of December 31, 2010.
 
Utilizing the assistance of a third-party valuation specialist, we performed contemporaneous valuations of our common stock as of December 31, 2009 and 2010 in accordance with the framework of the 2004 AICPA Technical Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. Based on the valuation methodology selection criteria set forth in the Practice Aid and the stage of our development as a company as of December 31, 2009 and 2010, we determined that the Option Pricing Method based on a Black-Scholes option pricing model was the most appropriate valuation methodology to estimate the fair value of our common stock. We concluded that there were no significant transactions affecting our capital structure which would have indicated that an update to our valuation was required at dates other than December 31, 2009 and 2010, which was validated by the relatively insignificant change in value during each period.
 
Key variables in the Option Pricing Method are as follows:
 
  •  Underlying equity value — To estimate the value of our total equity (including both common and preferred equity), we utilized the marketable equity value based on the most recent rounds our preferred stock issuances, which we believed to be the most indicative of our value.
 
  •  Volatility — We estimated volatility based on comparison to volatility of publicly-traded comparable companies.
 
  •  Time to liquidity — We estimated time to a liquidity event based on the forecasted time to significant clinical development events for our product candidates which we believed could lead to an initial public offering, or IPO, or other type of liquidation event for our stockholders.
 
  •  Risk-free interest rate — We determined the risk-free interest rate based on the yield of a U.S. Treasury bill with a maturity date closest to the estimated time to a liquidation event for our stockholders.


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  •  Discounts for lack of marketability — Because we are a privately-held company, shares of our common stock are highly illiquid and, as such, warrant a discount in value from their estimated “marketable” price. We estimate the discount factor for illiquidity using legal guidelines from U.S. Tax Court cases regarding privately-held business valuations, fundamental business factors, and empirical studies on the discount for lack of marketability. We corroborated the discount factor based on the value of a put option compared to the value of common stock using a Black-Scholes option pricing model.
 
For our valuation as of December 31, 2009, we assumed a three-year time to liquidity based on our assumption that clinical data from the LEAP study for CO-101 would be available in the fourth quarter of 2012. At that time, we believed that an IPO or other liquidity event would most likely occur following the availability of those data. For our valuation as of December 31, 2010, we performed two valuation models, one that assumed a one-year time to liquidity and another that assumed a two-year time to liquidity. As of December 31, 2010, we believed that a liquidity event was possible within one year due to the fact that we had in-licensed a second product candidate (CO-1686), which was expected to commence human clinical trials in the first half of 2012, and the development of CO-101 was progressing as planned. We also believed that a liquidity event was equally likely after the availability of the clinical data from the LEAP study of CO-101, which was still expected within two years of the valuation. Since neither of these scenarios seemed more likely than the other, we calculated valuations using both liquidity event assumptions and equally weighted the results to estimate the fair value of our common stock.
 
In April 2011, our board of directors authorized management to pursue an initial public offering in the second half of 2011. Considering this change in assumptions and other events, including the issuance of our convertible promissory notes, we are in the process of updating our estimate of the fair value of our common stock for periods subsequent to that authorization.
 
There are significant judgments and estimates inherent in the determination of these valuations. These judgments and estimates include assumptions regarding our future performance, including the successful completion of our clinical trials as well as the determination of the appropriate valuation methods. If we had made different assumptions, our share-based compensation expense could have been different. The foregoing valuation methodology is not the only methodology available and it will not be used to value our common stock once this offering is complete. We cannot make assurances as to any particular valuation for our common stock. Accordingly, investors are cautioned not to place undue reliance on the foregoing valuation methodology as an indicator of future stock prices.
 
Results of Operations
 
Comparison of the Three Months Ended March 31, 2011 and 2010:
 
                         
    Three Months Ended
       
    March 31,     Increase
 
    2011     2010     (Decrease)  
    (unaudited, in thousands)        
 
Revenues
  $     $     $  
Expenses:
                       
Research and development
    7,041       3,259       3,782  
General and administrative
    1,405       830       575  
                         
Operating loss
    (8,446 )     (4,089 )     4,357  
Other income (expense), net
    118       (2 )     120  
                         
Net loss
  $ (8,328 )   $ (4,091 )   $ 4,237  
                         
 
Research and Development Expenses.  Research and development expenses for the three months ended March 31, 2011 were $7.0 million compared to $3.3 million for the three months ended March 31, 2010, an increase of $3.8 million. Clinical trial expenses increased by $1.4 million due to growth in the number of patients, active sites and investigators that are participating in our pivotal CO-101 clinical trial. In addition, $1.3 million of the increase was the result of discovery, formulation development and the commencement of preclinical activities associated


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with CO-1686, a compound that was in-licensed in May 2010. The remaining increase of $1.1 million was due to an increase in salaries, benefits and personnel related costs resulting from additional headcount hired to support the expanding development activities of CO-101 and CO-1686.
 
General and Administrative Expenses.  General and administrative expenses for the three months ended March 31, 2011 were $1.4 million compared to $0.8 million for the three months ended March 31, 2010, an increase of $0.6 million. The increase was primarily attributable to the lease of new office space in San Francisco, California commencing in May 2010 as well as legal fees associated with patent review and analysis activities for two of our product candidates.
 
Other Income (Expense), Net.  Other income (expense), net for the three months ended March 31, 2011 was $118,000 compared to $(2,000) for the three months ended March 31, 2010, a change of $120,000. This change was largely due to the increase to the value of the Euro in relation to the U.S. Dollar which created a foreign currency transaction gain to our Euro denominated cash account in the first quarter of 2011 of $113,000. The Euro cash account was established in May 2010 and had no impact to the first quarter of 2010.
 
Comparison of the Year Ended December 31, 2010 to the Period from April 20, 2009 (Inception) to December 31, 2009:
 
                         
          Period from
       
          April 20, 2009
       
    Year ended
    (Inception) to
       
    December 31,     December 31,     Increase
 
    2010     2009     (Decrease)  
 
Revenues
  $     $     $  
Expenses:
                       
Research and development
    22,323       1,762       20,561  
General and administrative
    4,302       2,209       2,093  
Acquired in-process research and development
    12,000       13,085       (1,085 )
                         
Operating loss
    (38,625 )     (17,056 )     21,569  
Other income (expense), net
    795       (43 )     838  
                         
Net loss
  $ (37,830 )   $ (17,099 )   $ 20,731  
                         
 
Research and Development Expenses.  Research and development expenses were $22.3 million for the year ended December 31, 2010, compared to $1.8 million for the period from April 20, 2009 (inception) to December 31, 2009, an increase of $20.6 million. The increase was due to the commencement of research and development activities in 2010 for our in-licensed compounds CO-101 and CO-1686. Significant 2010 development activities included:
 
  •  increase of $5.5 million related to the commencement of our pivotal clinical trial for CO-101 in January 2010;
 
  •  increase of $4.7 million for CO-101 drug product development, clinical supply manufacturing and distribution;
 
  •  increase of $2.3 million associated with CO-1686 product development and IND enabling activities;
 
  •  increase of $2.0 million for the initiation of additional supporting CO-101 clinical studies;
 
  •  increase of $1.1 million for companion diagnostic development related to both CO-101 and CO-1686; and
 
  •  increase of $4.0 million to salaries, benefits and other personnel costs to support the growth in our 2010 development activities.
 
General and Administrative Expenses.  General and administrative expenses for the year ended December 31, 2010 were $4.3 million compared to $2.2 million for the period from April 20, 2009 (inception) to December 31, 2009, an increase of $2.1 million. The increase was due primarily to an increase of $0.9 million in personnel related expenses to support corporate operational activities and the commencement of research and


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development activities for CO-101 and CO-1686 in 2010. In addition, office lease expense increased by $0.9 million due to new lease agreements for the Boulder, Colorado and San Francisco, California locations, effective in December 2009 and May 2010, respectively. In addition, we commenced operations in May 2009 and, as such, expenses for the period ended December 31, 2009 reflect only a partial year’s activity.
 
Acquired In-Process Research and Development Expenses.  The rights to develop and commercialize CO-101 in North America, Central America, South America and Europe were licensed from Clavis in November 2009. As part of the in-license transaction, we recognized $13.1 million in 2009 as acquired in-process research and development expense. In November 2010, we made a payment of $10.0 million to Clavis to expand the territory rights under the license agreement to include Asia and other international markets and we recorded this payment as acquired in-process research and development expense. The acquired in-process research and development expense associated with CO-101 decreased $3.1 million for the year ended December 31, 2010 in comparison to the period from April 20, 2009 (inception) to December 31, 2009 as a result of the transactions described above. This reduction was partially offset by the acquisition of the worldwide rights to CO-1686 in May 2010. We recognized the up-front payment of $2.0 million for CO-1686 rights as acquired in-process research and development expense during 2010.
 
Other Income (Expense), Net.  Other income (expense), net for the year ended December 31, 2010 was $795,000 compared to $(43,000) for the period from April 20, 2009 (inception) to December 31, 2009, a change of $838,000. The net change to other income (expense) was largely due to a $489,000 award received in 2010 under the Qualifying Therapeutic Discovery Project Program for the development of CO-101 and CO-1686. In addition, $232,000 was due to the strengthening of the Euro value in relation to the U.S. Dollar over the 2010 year, which created an exchange gain to our Euro denominated cash account. The Euro cash account was established in May 2010 and had no impact in the period ended December 31, 2009.
 
Liquidity and Capital Resources
 
We have funded our operations primarily through the private placement of equity and convertible debt securities. As of March 31, 2011, we have received $75.5 million in net proceeds from the issuance of convertible preferred stock. In May and June 2011, we received proceeds of $28.0 million through the issuance of convertible promissory notes. As more fully described under the heading “Convertible Promissory Notes”, the convertible promissory notes will automatically convert into shares of our common stock upon completion of this offering. As of March 31, 2011, we had cash, cash equivalents and available for sale securities totaling $13.9 million. This amount does not reflect the additional $28.0 million in cash proceeds we received from the issuance of the convertible promissory notes after March 31, 2011.
 
The following table sets forth the primary sources and uses of cash for each of the periods set forth below:
 
                                 
          Period from
       
          April 20, 2009
       
    Year Ended
    (Inception) to
    Three Months Ended
 
    December 31,     December 31,     March 31,  
    2010     2009     2011     2010  
                (unaudited)     (unaudited)  
 
Net cash used in operating activities
  $ (34,011 )   $ (17,955 )   $ (8,188 )   $ (4,911 )
Net cash provided by (used in) investing activities
    (12,821 )     (270 )     2,280       (20,306 )
Net cash provided by financing activities
    29       75,536       2        
                                 
Net increase (decrease) in cash and cash equivalents
  $ (46,803 )   $ 57,311     $ (5,906 )   $ (25,217 )
                                 
 
Operating Activities
 
The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. The significant increase in cash used in operating activities for the year ended December 31, 2010 compared to the period from April 20, 2009 (inception) to December 31, 2009 is due to an increase in research and development expenses as we commenced development work on CO-101 and CO-1686 following the in-licensing of those programs in November 2009 and May 2010, respectively. In addition, we commenced operations in May 2009 and, as such, the period ended December 31, 2009 reflects only a partial year of


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activity. The increase of $3.3 million to cash used in operating activities for the three months ended March 31, 2011 in comparison to the same period in the prior year was due to an increase in clinical trial costs for CO-101 resulting from an increase in the number of patients enrolled and sites activated for our ongoing LEAP trial and commencement of CO-1686 research and development activities, a product candidate we in-licensed in May 2010.
 
Investing Activities
 
The cash used in investing activities for all periods primarily reflects the purchase of available for sale securities partially offset by maturities and sales of available for sale securities. The net use of cash for these activities increased from zero in 2009 to $12.0 million in 2010 as we invested a portion of the proceeds received from the sale of convertible preferred stock in November 2009 in available for sale securities. In addition, we purchased $0.8 million in property and equipment in 2010 compared to $0.3 million in 2009. The increase of $22.6 million in cash provided by investing activities for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 was due primarily to a reduction of cash outflows for the purchase of available for sale securities in the first quarter of 2011.
 
Financing Activities
 
The cash provided by financing activities in 2009 is the result of the sale and issuance of 5,044,828 shares of our Series A-1 convertible preferred stock for net proceeds of $9.9 million, 5,044,828 shares of our Series A-2 convertible preferred stock for net proceeds of $15.1 million, and 10,919,540 shares of our Series B convertible preferred stock for net proceeds of $50.4 million. Cash provided by financing activities for other periods presented are due to the exercise of stock options.
 
Operating Capital Requirements
 
Assuming we successfully complete clinical trials and obtain requisite regulatory approvals, we do not anticipate commercializing any of our product candidates until 2014 at the earliest. As such, we anticipate that we will continue to generate significant losses for the next several years as we incur expenses to complete our development activities for each of our programs, including clinical trial activities, companion diagnostic development, drug development, establishing our commercial capabilities, and expanding our general and administrative functions to support the growth in our research and development and commercial organizations. In addition, the report of our independent registered public accounting firm on our financial statements appearing at the end of this prospectus contains an explanatory paragraph stating that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. We believe that the successful completion of this offering will eliminate this doubt and enable us to continue as a going concern; however, if we are unable to raise sufficient capital in this offering, we will need to obtain alternative financing or significantly modify our operational plan for us to continue as a going concern.
 
The net proceeds from this offering alone will not be sufficient to fund our operations through successful development and commercialization of our product candidates. As a result, we will need to raise additional capital following this offering to fund our operations and continue to conduct clinical trials to support additional development and potential regulatory approval, make milestone payments to our licensors and commercialize our product candidates.
 
We believe that the net proceeds from this offering, together with our existing cash and cash equivalents and available for sale securities, will allow us to fund our operating plan through at least the next 12 months. If our available cash and cash equivalents and available for sale securities are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity and debt securities may result in additional dilution to our shareholders.
 
In addition, if we raise additional funds through the issuance of debt securities or convertible preferred stock, these securities may have rights senior to those of our common stock and could contain covenants that would restrict our operations. Furthermore, any such required additional capital may not be available on reasonable terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay, or eliminate some or all of our planned development and commercialization activities, which could harm our business.


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Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including but not limited to:
 
  •  the number and characteristics of the product candidates, companion diagnostics, and indications we pursue;
 
  •  the achievement of various development, regulatory and commercial milestones resulting in required payments to partners pursuant to the terms of our license agreements;
 
  •  the scope, progress, results and costs of researching and developing our product candidates and related companion diagnostics and conducting clinical and preclinical trials;
 
  •  the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates and companion diagnostics;
 
  •  the cost of commercialization activities, if any, of our product candidates are approved for sale, including marketing and distribution costs;
 
  •  the cost of manufacturing any of our product candidates we successfully commercialize;
 
  •  the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and outcome of such litigation; and
 
  •  the timing, receipt and amount of sales, if any, of our product candidates.
 
Contractual Obligations and Commitments
 
The following table summarizes our contractual obligations at December 31, 2010 (in thousands):
 
                                         
        Less than
          More than
    Total   1 Year   1 to 3 Years   3 to 5 Years   5 Years
 
Operating lease obligations
  $ 2,198     $ 665     $ 1,140     $ 393        
 
In addition, we have certain obligations under licensing agreements with third parties contingent upon achieving various development, regulatory and commercial milestones. Pursuant to our license agreement with Clavis for the development and commercialization of CO-101, we may be required to pay Clavis an aggregate of up to $115.0 million if certain clinical study objectives and regulatory filings and approvals are achieved. Further, we may be required to pay Clavis up to an aggregate of $445.0 million in sales milestone payments if certain annual sales targets are met for CO-101. Subject to certain conditions set forth in the license agreement, Clavis may elect to co-develop and co-promote CO-101 in Europe. If Clavis were to make this election, it would be required to reimburse us for a portion of both past and future development costs. In addition, the milestone payments described above would be reduced. Pursuant to our license agreement with Avila for the development and commercialization of CO-1686, we may be required to pay Avila an aggregate of up to $119.0 million if certain clinical study objectives and regulatory approvals are achieved, including $4.0 million payable upon our planned filing of an IND for CO-1686 in the first quarter of 2012. Further, we may be required to pay Avila an aggregate of up to $120.0 million in sales milestone payments if certain annual sales targets are met for CO-1686. Pursuant to our license agreement with Pfizer for the development of CO-338, which was signed in June 2011, we may be required to pay Pfizer up to an aggregate $259.0 million in milestone payments upon the successful attainment of development, regulatory and sales milestones. Finally, pursuant to terms of each of these license agreements, we will pay royalties to our licensors on sales, if any, of the respective products.
 
In May and June 2011, we issued an aggregate $35.0 million aggregate principal amount of 5% convertible promissory notes in two separate transactions as described under the heading “Convertible Promissory Notes.” Upon the completion of this offering, the principal balance and all accrued and unpaid interest due on the notes will be converted into shares of our common stock at a per share price equal to the initial public offering price shown on the cover page of this prospectus.


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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 under the rules promulgated by the SEC.
 
Tax Loss Carryforwards
 
As of December 31, 2010, we have federal net operating loss carryforwards of $24.4 million to offset future federal income taxes. We also have federal research and development tax credit carryforwards of $7.2 million to offset future federal income taxes. The federal net operating loss carryforwards and research and development tax credit carryforwards expire at various times through 2030. The federal tax credits expire at various times through 2030. To date, there have not been any ownership changes under Section 382 of the Code that would limit the amount of net operating loss carryforwards and tax credit carryfowards available in future years. However, the occurrence of certain events, including significant changes in ownership interests, may limit the amount of the tax carryforwards available in future years. At December 31, 2010, we recorded a 100% valuation allowance against our net operating loss and research and development tax credit carryforwards of approximately $16.6 million, as we believe it is more likely than not that the tax benefits will not be fully realized. In the future, if we determine that a portion or all of the tax benefits associated with our tax carryforwards will be realized, net income would increase in the period of determination.
 
Quantitative and Qualitative Disclosures about Market Risks
 
We are exposed to market risk related to changes in interest rates. As of December 31, 2010 and March 31, 2011, we had cash, cash equivalents and available for sale securities of $22.3 million and $13.9 million, respectively, consisting of money market funds, U.S. government and agency obligations, and corporate debt securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Our available for sale securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.
 
We contract with CROs, investigational sites, and contract manufacturers globally. We may be subject to fluctuations in foreign currency rates in connection with these agreements. While we periodically hold foreign currencies, primarily Euros, we do not use other financial instruments to hedge our foreign exchange risk. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. As of March 31, 2011 and December 31, 2010, approximately 29% and 23% of our total liabilities, respectively, were denominated in currencies other than the functional currency.
 
The convertible promissory notes we issued in May and June 2011 bear interest at a fixed rate. As a result we have limited exposure to changes in interest rates. In addition, these convertible promissory notes will convert into shares of our common stock upon the completion of this offering.
 
Recently Adopted Accounting Standards
 
We have not recently adopted any new accounting standards. There are no recently issued accounting standards that have a material impact on us.
 
Financial Statements and Supplementary Data
 
Reference is made to the consolidated financial statements, the report thereon, and the notes thereto, commencing at page F-1 of the consolidated financial statements included in this prospectus.


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BUSINESS
 
Overview
 
We are a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in the United States, Europe and additional international markets. We target our development programs for the treatment of specific subsets of cancer populations, and seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients that are most likely to benefit from their use. We are currently developing three product candidates for which we hold global marketing rights: CO-101, a lipid-conjugated form of the anti-cancer drug gemcitabine, which is in a pivotal study in a specific patient population for the treatment of metastatic pancreatic cancer; CO-1686, an orally available, small molecule epidermal growth factor receptor, or EGFR, covalent inhibitor that is currently in preclinical development for the treatment of non-small cell lung cancer, or NSCLC, in patients with activating EGFR mutations, including the initial activating mutations, as well as the primary resistance mutation, T790M; and CO-338, an orally available, small molecule poly (ADP-ribose) polymerase, or PARP, inhibitor being developed for various solid tumors that is currently in a Phase I clinical trial.
 
We believe that discovery productivity exceeds development capacity in oncology, and we have built our organization to meet the need for innovative patient-specific oncology drug development. To implement our strategy, we have assembled an experienced team with core competencies in global clinical development and regulatory operations in oncology, as well as conducting collaborative relationships with companies specializing in companion diagnostic development. As our product candidates mature, we intend to build our own commercial organizations in major global markets and contract with local distributors in smaller markets.
 
The most common anti-cancer drug therapies typically address cancers within a specific organ as a single disease as opposed to a collection of different disease subtypes, often resulting in poor response rates and minimal effect on overall survival. We believe the oncology community is increasingly recognizing that tumors in a particular organ have unique pathologic and molecular characteristics that may warrant different treatment strategies. By better understanding differences in tumor biology and underlying disease pathways, researchers are identifying biomarkers to guide development of targeted oncology therapies, with streamlined clinical trials, stratified patient populations and improved patient outcomes. We believe that targeted therapies and companion diagnostics offer a patient-tailored approach to the treatment of cancers with improved diagnosis and outcomes.
 
Our pipeline consists of the following three product candidates, each of which is being developed for selected patient subsets:
 
  •  CO-101-Our most advanced product candidate, CO-101, is currently in a pivotal clinical study comparing CO-101 to gemcitabine for first-line treatment of metastatic pancreatic cancer. We expect to complete enrollment for this trial in the first quarter of 2012 and report top line results as to overall survival in the prespecified hENT1-low patient subset in the fourth quarter of 2012. CO-101 is a novel, patented, lipid-conjugated form of the anti-cancer drug gemcitabine that is designed to treat patients with pancreatic cancer whose tumors express low amounts of a membrane transporter protein on the surface of the cancer cell known as hENT1 and are thus expected to be resistant to standard gemcitabine-based therapy. Based on the published results of multiple studies assessing the correlation of hENT1 expression to survival outcomes in pancreatic cancer patients treated with gemcitabine, we estimate that approximately 40% to 50% of pancreatic patients express low levels of hENT1, and thus derive little or no benefit from gemcitabine therapy. We have partnered with Ventana Medical Systems for the development and commercialization of a companion diagnostic for the assessment of hENT1 levels.
 
  •  CO-1686-Our second product candidate, CO-1686, is an orally available, small molecule covalent inhibitor of the cancer-causing mutant forms of EGFR for the treatment of NSCLC. Because CO-1686 targets both the initial activating mutations as well as the primary resistance mutation, T790M, it has the potential to treat both first- and second-line NSCLC patients with EGFR mutations. CO-1686 is currently in preclinical development and we plan to file an Investigational New Drug application, or IND, in the first quarter of 2012. We have designed an accelerated clinical development program for CO-1686, and if successful, have a goal of filing a New Drug Application, or NDA, for an initial indication within


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  approximately four years of filing our IND. We have partnered with Roche Molecular Systems for the development and commercialization of a companion diagnostic for EGFR mutations.
 
  •  CO-338-Our third product candidate, CO-338, is an orally available, small molecule PARP inhibitor being developed for use as monotherapy or in combination with chemotherapeutic agents for the treatment of various cancers. CO-338 is currently in a dose ranging Phase I clinical trial in combination with carboplatin chemotherapy for the treatment of solid tumors. This program is supplemented by two investigator-sponsored trials of CO-338 for the treatment of breast and ovarian cancers. We intend to initiate a Phase I monotherapy study of the oral formulation in the fourth quarter of 2011 to determine an appropriate dose and schedule for long term administration.
 
We were founded in April 2009 by former executives of Pharmion Corporation, which successfully developed and commercialized novel oncology products in the United States and Europe and was ultimately acquired by Celgene Corporation in 2008. Our investors include the following entities or their affiliates: Domain Associates, New Enterprise Associates, Versant Ventures, Aberdare Ventures, Abingworth Bioventures, Frazier Healthcare Ventures, Pfizer, Inc., ProQuest Investments and our management team.
 
Our Strategy
 
Our strategy is to acquire, develop, and commercialize innovative anti-cancer agents in the United States, Europe and additional international markets in oncology indications with significant unmet medical need. The critical components of our business strategy include the following:
 
  •  Focus on oncology.  The oncology market is characterized by a number of disorders with high rates of recurrence and a limited response from current therapies or treatments. Many of these therapies include severe side effects. New oncology product candidates addressing unmet medical needs or providing superior safety profiles are frequently the subject of expedited regulatory reviews and, if approved, can experience rapid adoption rates. We believe that the increasing role of targeted therapies and companion diagnostics to identify selected patient subsets in oncology presents the potential for improved patient outcomes.
 
  •  Focus on compounds where improved outcomes are associated with specific biomarkers.  Our licensing strategy to date has been to prioritize opportunities in which a strong biological hypothesis has been established linking a specific biomarker with improved outcomes for the product candidate. Significant progress has been made over the last several years in the identification of molecular targets and pathways that more narrowly specify the causes of cancer and the variation in responses to different therapies experienced by patient subsets with a particular cancer or tumor type. In certain cases, the underlying science has progressed to the point that subset patient populations deriving little or no benefit from existing therapies can be identified and targeted by newly developed therapies, such as our product candidates. We believe that the identification of such subsets, and the correlation of their specific characteristics to the drug under development, should increase the clinical benefit to targeted patients and the probability of success in our clinical trials. Such patient identification should also enable us to design clinical trials that may be completed more rapidly than has traditionally been the case, and, if successful, to achieve clinical outcomes for the targeted group that are sufficiently attractive to support the risk/benefit metrics of healthcare payors.
 
  •  Combine companion diagnostics with drug development efforts to realize superior clinical outcomes.  Our development strategy is based on the premise that we can utilize effective companion diagnostics to identify different patient subsets who we believe will uniquely benefit from our product candidates. We are partnering to develop these companion diagnostics for use in the clinical development and ultimate commercial utilization of our product candidates. Because we do not develop diagnostics internally, we are able to select from among all available technologies when choosing a partner for our programs under development. This flexibility allows us to choose the most appropriate partner and diagnostic platform for each program under development and affords us the best chance of clinical success. We have partnered with experienced diagnostic companies that we believe have the ability and commitment to gain the required regulatory approvals and support global commercialization for these companion diagnostics.


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  •  Manage and control global development activities and regulatory operations.  We believe our development and regulatory experience enables us to devise time- and cost-efficient strategies to develop and obtain regulatory approvals for new drugs, and to identify the regulatory pathway that allows us to get a product candidate to market as quickly as possible. Unlike many early stage biotechnology and pharmaceutical companies that have development or regulatory capabilities only in the country in which they are located, we have assembled an experienced team with a successful track record at managing global clinical development activities, and with multinational expertise in obtaining regulatory approvals for new drugs and in maintaining compliance with the regulations governing the sales, marketing and distribution of pharmaceutical products. Because authorities in major markets are increasingly accepting one core dossier as the basis for regulatory approvals in multiple jurisdictions, we believe we can manage a global development program without local partners, thereby leveraging a single core dossier to gain approvals in multiple geographies. We manage critical functions in house, including clinical development, biostatistics, pharmaceutical development, molecular diagnostics and clinical and regulatory operations, and we outsource certain activities where economically and strategically appropriate.
 
  •  Seek and maintain global commercial rights.  We believe that it is very important to maintain global rights to our product candidates, and that we can build our own commercial organizations in major pharmaceutical markets as well as a network of third-party distributors in smaller markets. There are a relatively small number of oncologists practicing in each of the major pharmaceutical markets and an even smaller number of oncology opinion leaders who significantly influence the types of drugs prescribed in cancer therapy. We therefore believe that we can effectively reach the oncology markets with a relatively small sales and marketing organization focused on these physicians and oncology opinion leaders. As a result, we plan to maintain commercial autonomy and will not require a pharmaceutical partner for commercialization activities. By managing the global sales and marketing of our products on our own, we believe we can provide uniform marketing programs and consistent product positioning, pricing and labeling. Finally, by controlling commercial activities ourselves in major markets, we will retain the vast majority of the revenues from our product candidates.
 
Product Candidates
 
Consistent with our strategy, each of our initial three in-licensed product candidates, for which we hold global marketing rights, is being developed for selected patient subsets. The following table summarizes the status of our product pipeline:
 
(GRAPH)


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CO-101 - a Lipid-Conjugated form of the Anti-Cancer Drug Gemcitabine
 
Overview
 
CO-101 is a new chemical entity that we in-licensed in November 2009 from Clavis Pharma ASA, a publicly traded biotechnology company based in Oslo, Norway. CO-101 is a novel, patented, lipid-conjugated form of the anti-cancer drug gemcitabine. CO-101 is designed to treat patients with pancreatic cancer whose tumors express low amounts of a membrane transporter protein known as hENT1 and thus are expected to be resistant to standard gemcitabine-based therapy. CO-101 is currently in an international, randomized, controlled 360-patient pivotal study comparing CO-101 to gemcitabine for the first-line treatment of metastatic pancreatic cancer. We expect to complete enrollment for this trial in the first quarter of 2012 and report top line results as to overall survival in the prespecified hENT1-low patient subset in the fourth quarter of 2012, and, if positive, we expect to file an NDA, with the U.S. Food and Drug Administration, or FDA, and a Marketing Authorization Application, or MAA, with the European Medicines Agency, or EMA, in mid-2013. We are also conducting clinical trials of CO-101 for the second-line treatment of pancreatic cancer and to evaluate a modified formulation of the drug for improved manufacturing efficiencies.
 
Pancreatic Cancer Market Overview
 
According to published reports, over 43,000 new cases of pancreatic cancer occurred in the United States in 2010. In addition, over 60,000 new cases are reported each year in the European Union and over 20,000 new cases are reported annually in Japan. According to a number of published reports, 85% of patients with pancreatic cancer present with unresectable, locally advanced, also referred to as Stage III, or metastatic, also referred to as Stage IV, disease. Even after surgical resection and adjuvant chemotherapy or radiotherapy for apparently localized disease, these patients often experience early recurrence and rapid disease progression. As a result, pancreatic cancer has one of the highest mortality rates among all cancers, with estimates for one- and five-year overall survival of 24% and 5%, respectively, in the United States.
 
The standard first-line therapy for patients with unresectable or metastatic disease is gemcitabine, given as monotherapy. Gemcitabine was originally introduced in the United States in 1996 under the brand name Gemzar®, and is now widely available as a generic drug. Gemcitabine is part of a class of drugs known as nucleoside analogues and can be used alone or in combination with other chemotherapy agents in the treatment of various malignancies, including pancreatic, NSCLC, breast, and ovarian cancers. Current guidelines of the National Comprehensive Cancer Network list gemcitabine monotherapy as an appropriate therapy for all pancreatic cancer patients eligible for cytotoxic therapy. Although the drug Tarcevatm (erlotinib) is approved in combination with gemcitabine in patients with metastatic pancreatic cancer, this combination involves increased toxicity and has been shown to confer a median survival benefit of only approximately two weeks when compared to gemcitabine monotherapy. Alternative therapies for the treatment of pancreatic cancer include: FOLFIRINOX (combination 5-fluorouracil (5-FU), leucovorin, irinotecan and oxaliplatin), gemcitabine combination therapy or capecitabine. Some patients initially respond to cytotoxic chemotherapy, but all eventually progress, and many fail to derive even an initial benefit from such treatment. There are no approved second-line therapies for pancreatic cancer, and in practice, for those patients that do receive second-line therapy, it is typically a therapy that was not utilized in the first-line setting. Based upon a survey which we commissioned in 2009 of approximately 25 physicians in the United States and Europe, we believe that the consequence of this treatment paradigm is that approximately 80% of all pancreatic cancer patients will receive gemcitabine during their disease course.
 
Targeting Gemcitabine Non-Responders: the hENT1 Hypothesis
 
For gemcitabine to kill cancer cells, it must enter them through specific membrane transporters, or channels, on the surface of the cancer cells. The human equilibrative nucleoside transporter 1, or hENT1, is believed to be the dominant transporter for gemcitabine. As a consequence, it is believed that tumor cells with low hENT1 expression will be resistant to gemcitabine therapy. This was first supported by clinical data in 2004. Specifically, Clinical Cancer Research reported the study results of 21 metastatic pancreatic cancer patients treated with gemcitabine. This study demonstrated that survival after gemcitabine therapy was positively correlated with hENT1 expression. As shown in the figure below, also referred to as a Kaplan-Meier estimate of survival, patients with a high level of


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hENT1 expression had a median overall survival of 13 months compared to four months for those patients with a low level of hENT1 expression when treated with gemcitabine.
 
Kaplan-Meier estimate of survival in gemcitabine-treated hENT1-high and hENT1-low pancreatic cancer patients.
 
(GRAPH)
 
*hENT1-high = all tumor cells had detectable hENT1 protein by IHC
Source: Spratlin et al Clin Can Res(2004)
 
This correlation of overall survival and hENT1 expression in pancreatic cancer patients treated with gemcitabine has been further demonstrated in multiple studies. For example, in 2009, Gastroenterology reported the results of a retrospective analysis of a large, randomized study of 198 pancreatic cancer patients comparing treatment with gemcitabine versus 5-FU. Patients in this study treated with gemcitabine who had a high level of hENT1 expression had a median overall survival of 21 months, compared to a median overall survival of 16 months for gemcitabine-treated patients with low hENT1 expression and 12 months for gemcitabine-treated patients with no hENT1 expression. Importantly, the results of this study also demonstrated that there was no correlation between overall survival and hENT1 expression for patients treated with 5-FU. This suggests that the correlation between survival and hENT1 expression is specific to pancreatic cancer patients treated with gemcitabine and not a prognostic marker. The Kaplan-Meier curves for this study are shown in the figure below.
 
(GRAPH)


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Source: Farrell et. al Gastroenterology 2009:136:187-195
 
A positive, and statistically significant association is seen between tumor hENT1 expression and overall survival for recipients of gemcitabine (left, p=0.002 for high vs. no hENT1, p=0.03 for low vs. no hENT1), but not for recipients of 5-FU (right, p=not significant). hENT1 expression was characterized as no, low or high. “High hENT1” was defined by strong reactivity in greater than 50% of neoplastic cells on IHC, whereas “no hENT1” was defined as no staining in greater than 50% of neoplastic cells. A score of low hENT1 staining was given to all cases in between.
 
The table below summarizes studies performed by various groups that repeatedly confirmed the correlation between survival outcomes for pancreatic cancer patients treated with gemcitabine and their hENT1 expression.
 
CHART
 
CO-101: Addressing Patients with Low Levels of hENT1
 
CO-101, also known as gemcitabine-5’-elaidate, is a new chemical entity that is derived by adding a fatty acid to the gemcitabine chemical structure, creating a lipid-conjugate. In contrast to the conventional form of gemcitabine, the lipid-conjugate enables CO-101 to enter cancer cells without the need for a specific membrane transporter protein on the surface of the cancer cell known as hENT1. CO-101 is thus designed to address the unmet need of patients with pancreatic cancer whose tumors express low amounts of hENT1 and are thus expected to be resistant to standard gemcitabine-based therapy. Based on the published results of multiple studies assessing the correlation of hENT1 expression to survival outcomes in pancreatic cancer patients treated with gemcitabine, we estimate that approximately 40% to 50% of pancreatic patients express low levels of hENT1. CO-101 has a broad spectrum of anti-proliferative activity in vitro and antitumor activity in a wide range of mouse and human tumor models in vivo. These tumor models are similar to those used for evaluating the in vivo activity of gemcitabine.
 
CO-101 Clinical Development
 
LEAP Study: Pivotal Trial of CO-101 in First-Line Pancreatic Cancer. In mid-2010, we commenced a pivotal study of CO-101, which we refer to as LEAP (Low hENT1 and Adenocarcinoma of the Pancreas). We plan to enroll a total of 360 patients across approximately 90 sites in North and South America, Europe and Australia. This open-label, randomized, controlled, multicenter study compares CO-101 to gemcitabine as a first-line therapy in patients with metastatic pancreatic cancer. The primary objective of this study is to compare the overall survival of patients with metastatic pancreatic cancer and low hENT1 expression that are treated with CO-101 versus gemcitabine. Secondary endpoints include overall survival in all patients and in patients with high hENT1 expression, disease response rate, and drug tolerability and toxicity. Patients enrolled in the trial are being randomized on a one-to-one basis to receive either CO-101 or gemcitabine. Patients receiving CO-101 are dosed at 1250mg/m2 delivered through intravenous infusion once per week for three out of every four weeks. Gemcitabine patients are dosed at its standard prescribing regimen of 1000mg/m2 delivered through intravenous infusion once per week for seven weeks,


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followed by one week of rest and then once per week for three out of every four weeks. We expect enrollment to be completed in the first quarter of 2012. We expect to report top line overall survival data from this trial in the fourth quarter of 2012. If the LEAP data are positive, we expect to file an NDA with the FDA and an MAA with the EMA in mid-2013.
 
To test the primary hypothesis that CO-101 is more effective than gemcitabine in pancreatic cancer patients with low levels of hENT1, we need to develop an in vitro diagnostic, or IVD, product to reliably measure tissue hENT1 expression and enable prospective classification of patients as either hENT1 high or hENT1 low. We are collaborating with Ventana Medical Systems, Inc., part of the Roche Group, or Ventana, to develop the IVD using an IHC based approach. Key characteristics of this companion diagnostic are:
 
  •  Ability to analyze accessible tissue: Patients with metastatic pancreatic cancer typically have liver metastases which can be biopsied quite easily and analyzed by IHC;
 
  •  Simple assay/local analysis: IHC is a standard laboratory technique that is widely utilized and does not require samples to be sent off-site for analysis;
 
  •  Based on existing technology: Ventana utilized established IHC diagnostic techniques to develop a validated hENT1 IHC assay using knowledge already gained from IHC hENT1 assays developed by academics;
 
  •  Regulatory precedent: IHC IVDs have previously been approved by the FDA as companion diagnostics for cancer therapeutics, including Ventana’s PATHWAY HER-2/neu assay intended to assist in the assessment of breast cancer patients for whom Herceptin treatment is considered; and
 
  •  Reimbursement: IHC diagnostic kits are widely reimbursed by health care payors.
 
In the United States, the marketing approval of this type of IVD requires the submission to and approval by the FDA of a Pre-Market Approval Application, or PMA, submission. We and Ventana will generate data on the IVD, including the necessary analytical and clinical validation studies, with the goal of being in a position to submit a PMA and, assuming a successful outcome for the LEAP trial, seek approval of the PMA for the IHC hENT1 assay substantially simultaneously with the approval of an NDA for CO-101. In the European Union, the EMA is not currently involved in approving companion diagnostics and, instead, Ventana will apply for a CE mark designation in the European Union that will allow it to sell the diagnostic in the European Union.
 
Study CO-101-002: Establishing a hENT1 Cut-Off.  Having developed the IHC assay with Ventana, we need to establish a “cut-off” for determining whether an individual patient is hENT1-high or hENT1-low. This cut-off must be robust such that the assay will provide consistent results when run and interpreted in different geographies by different labs and pathologists. Our goal is for a patient who presents with metastatic pancreatic cancer to undergo a metastasis biopsy and subsequent IHC assay that will be interpreted by a local pathologist, to determine whether a patient is hENT1-low and thus a good candidate for CO-101 therapy. In order to prospectively establish the hENT1-high/low cut-off, we commenced study CO-101-002. Pursuant to the protocol for this study, we are collecting tumor tissue samples from previously completed clinical studies of gemcitabine for the treatment of pancreatic cancer. Using the Ventana IHC assay, we will assess the hENT1 levels in each of the tissue samples and correlate the hENT1 expression with clinical outcomes. We will then define a cut-off level of hENT1 expression that is optimally associated with overall survival outcomes following gemcitabine therapy. According to the hypothesis, patients with tumor hENT1 expression levels below the cut-off will derive minimal benefit from gemcitabine and will constitute the prospectively defined hENT1-low population in the LEAP trial. Collection and analysis of the tissue samples is ongoing. Establishment of the hENT1 cut-off is expected by the fourth quarter of 2011. Importantly, patients from LEAP will thus be prospectively classified as hENT1-high or -low before data from the ongoing LEAP trial are known. The primary efficacy analysis for LEAP is in hENT1-low patients, and their prospective classification prior to analyzing survival outcomes is important to ensure study integrity. Based on the published results of multiple studies assessing the correlation of hENT1 expression to survival outcomes in pancreatic cancer patients treated with gemcitabine, we estimate that approximately 40% to 50% of pancreatic patients are hENT1-low.


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The following chart shows the LEAP study and companion diagnostic validation study design:
 
CHART
 
Study CO-101-003: a Phase II Study in Second-Line Pancreatic Cancer.  We are also conducting a Phase II study to evaluate the efficacy of CO-101 as a second-line therapy for pancreatic cancer patients whose disease has progressed after first-line therapy and whose tumor tissue samples demonstrate a complete absence of hENT1 using an IHC diagnostic test. Study CO-101-003 is being conducted at up to 20 investigational centers in the United States. The first patient was enrolled in February 2011 and enrollment is expected to be completed in the fourth quarter of 2012.
 
Study CO-101-003 uses an open-label, single-arm, two-stage, Phase II design to evaluate CO-101 as second-line therapy in patients with measurable metastatic pancreatic cancer whose best response to gemcitabine as a first-line therapy, measured radiographically after treatment, was progressive disease; that is, patients who received no demonstrable benefit from gemcitabine therapy. Patients receive the same dosing regimen of CO-101 as in the LEAP trial. The primary endpoint for this study is disease control, which is defined as a complete response, partial response, or stable disease using response evaluation criteria in solid tumors, or RECIST, a set of published rules that define when a cancer patient responds, stabilizes, or progresses during treatments. After the first 18 patients have been assessed, the remaining 17 patients will be treated only if three or more patients in the initial 18-patient cohort have exhibited disease control. The study will close when a six-month follow-up has been completed for all patients. If meaningful numbers of patients experience extended stable disease or even partial responses on CO-101, we will view the study as successful in demonstrating CO-101’s activity in second-line pancreatic cancer.
 
Study CO-101-004: a Study Conducted for Formulation Development.  Following our acquisition of rights to CO-101, we engaged in additional formulation development with a goal of improving the formulation by increasing the concentration of the active ingredient in the final drug product. Such increase would allow us to reduce the volume of drug delivered to patients and thereby reduce the number of production batches needed for commercial supply and the overall costs of the finished product. Study CO-101-004 is a multicenter study that compares our current clinical formulation of CO-101 to the potential new commercial formulation for CO-101. Enrollment for this study began in April 2011. In this study, each patient over the course of the protocol will receive both formulations of CO-101 and therefore act as his or her own control. The primary objective of this study is to compare the pharmacokinetic profiles of the current clinical formulation of CO-101 to the newer formulation of CO-101 to determine whether the two formulations are equivalent. We expect to complete this study in 2012, and if successful we believe we will be able to utilize the new formulation upon commercialization of CO-101, if approved.


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Other Potential Indications for CO-101: the hENT1 Hypothesis Applied to other Cancers.  In addition to its use in pancreatic cancer, gemcitabine is approved, generally in combination with cisplatin, for use in NSCLC, ovarian and breast cancer, and we believe the hENT1 hypothesis could be applicable in each of these types of cancers. A small amount of preliminary data suggests the efficacy of gemcitabine in combination with cisplatin in NSCLC may relate to hENT1 expression. Consequently, we are considering clinical studies of CO-101 in other tumor types, initially NSCLC, and will seek to confirm a hENT1 cut-off using the Ventana IHC assay in these tumors. Testing of the IHC assay will be undertaken using lung tissue samples obtained from previously completed studies of gemcitabine in NSCLC, using a retrospective tissue collection protocol. The primary objective of the study will be to correlate the hENT1 expression with clinical outcomes in order to confirm the cut-off level of hENT1 that is optimally associated with treatment outcomes and survival in NSCLC patients treated with gemcitabine in combination with cisplatin.
 
Early Clinical Development of CO-101
 
During its initial development by Clavis Pharma, CO-101, identified by Clavis Pharma as CP4126, was the subject of two clinical trials:
 
Study CP-4126-201: an Abbreviated Phase II Study Conducted by Clavis Pharma.  In June 2009, Clavis Pharma initiated a Phase II, open-label, multicenter European study evaluating CO-101 in patients with advanced pancreatic cancer. This study started as a single-arm study and included patients with locally advanced as well as metastatic disease, who had no prior chemotherapy for advanced disease. The patients were treated with CO-101 1250 mg/m2 once per week for three out of every four weeks. The primary endpoint was change in a specific tumor marker, CA 19-9, and secondary endpoints were overall survival and overall response rate according to RECIST. Tumor hENT1 status was analyzed using an academically available assay only after patients were enrolled and treatment had begun. The protocol was amended in July 2009 to replace the single-arm treatment with a randomized treatment allocation to either CO-101 or gemcitabine after the first 10 patients had been enrolled in the study.
 
Upon obtaining the rights to CO-101, we and Clavis made the decision to stop this trial and begin the LEAP study, which, for the reasons set forth in detail below, we believe offers the potential for an accelerated pathway to approval. Due to the small number of patients in each treatment group of the Clavis Pharma trial, meaningful treatment comparisons between CO-101 and gemcitabine with respect to the primary endpoint of CA 19-9 response and overall survival could not be made. Twenty-one patients completed this study. While the study database has not been locked and the final results are therefore subject to change, a preliminary analysis of the data shows the following: two patients in the CO-101 treatment group had a partial response, driving an overall response rate of 13.3%, whereas no patients in the gemcitabine group had a response. Five additional CO-101 patients achieved stable disease, some for a prolonged period, including one patient for 8 months. When analyzed in the subset of patients with metastatic disease and performance status of 0-1, a set of patient criteria similar to the ongoing LEAP study, the median overall survival time for CO-101 recipients was 7.6 months (N=14) versus 5.9 months for patients receiving gemcitabine (N=4). In this same subset, when analyzed by hENT1 status, the median survival time for hENT1-low patients was 9.2 months for CO-101 (N=3) and 3.3 months for gemcitabine (N=1). The activity of CO-101 appeared to be independent of hENT1 status, whereas the activity of gemcitabine appeared to be correlated with hENT1 expression.
 
Most patients in the study experienced one or more treatment-emergent adverse events, or TEAEs. More than half of the CO-101 patients experienced nausea and/or vomiting, which were the most frequent TEAEs reported and occurred at higher frequencies than gemcitabine. There were 29 Grade 3 and four Grade 4 events in the CO-101 arm, the most significant level of TEAEs. The most frequent Grade 3 or 4 TEAE in CO-101 patients was neutropenia, a reduction in white blood cells. Neutropenia was also one of the events that led most often to dose reduction of CO-101, with the other being thrombocytopenia, or reduction in blood platelet cells, which was rarely assessed as Grade 3 or 4.
 
Phase I Trial: First in Man Study on CP-4126.  The first-in-human study conducted by Clavis Pharma aimed to determine the maximum tolerated dose and the recommended dose for Phase II studies of CO-101. All 43 patients in the study finished treatment by December 2009. The most frequently reported toxicities were mild (Grade 1-2)


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nausea, vomiting, anorexia and fatigue. Myelosuppression, the impairment of bone marrow function, was also reported. Pharmacokinetic data suggested that CO-101 was present in plasma in a dose-proportional manner after IV administration. Gemcitabine can also be measured in plasma after CO-101 administration, and at the 1250mg/m2 dose of CO-101, gemcitabine exposure exceeds that seen with conventional gemcitabine given at the standard dose of 1000mg/m2. Based on the dose limiting toxicities, the recommended Phase II dose of CO-101 was determined to be 1250 mg/m2, given as an IV infusion once per week for three out of every four weeks.
 
Regulatory strategy
 
CO-101 LEAP Trial Design and Requirements for Regulatory Approval.  In most cases, the FDA requires at least two adequate and well-controlled clinical trials to support marketing approval. In certain cases, evidence from a single clinical trial may be sufficient, and it is often the case in oncology where there is an unmet medical need. A single trial may be sufficient in cases where a multicenter study provides highly reliable and statistically strong evidence of an important clinical benefit, such as an effect on survival, and in which confirmation of the result in a second trial would be practically or ethically impossible.
 
We believe that if CO-101 meets the protocol specified endpoints of the LEAP study, this single clinical study should be sufficient for submission for marketing approval in the United States and the European Union. Formal regulatory advice was obtained from the FDA and EMA in response to a briefing document and questions submitted in 2010. In September 2010, we had a joint meeting with the oncology therapeutic and diagnostic device divisions of the FDA to review the clinical development plan for CO-101 and the development plan for its companion diagnostic. Based on this meeting and our adherence to established guidelines, we believe that this single clinical study could be used for registration if the results are positive. The adequacy of the safety and efficacy database will be a review issue, as with any submission. Similarly, following Protocol Assistance in the European Union, the Committee for Medicinal Products for Human Use, part of the EMA, indicated that a submission based on this single clinical study could be acceptable provided a meaningful survival benefit is demonstrated.
 
Applications for FDA approval to market a new drug should be based on adequate and well-controlled studies in order to distinguish the effect of the drug from other influences, such as a spontaneous change in the disease, or a biased observation. The reports on adequate and well-controlled studies provide the primary basis for determining whether there is substantial evidence to support the claims for effectiveness of a new drug. The key characteristics considered in determining whether a study is adequate and well-controlled are as follows:
 
(1) The protocol clearly defines objectives and methods of analysis.
 
(2) The study design provides a valid comparison with a control and quantitative assessment of drug effect.
 
(3) The method for selection of subjects assures that they have the disease being studied.
 
(4) The method of assigning patients to the treatment and control groups minimizes bias and is intended to assure the comparability of the groups.
 
(5) Adequate measures are taken to minimize bias on the part of the subjects, observers and analysts of the data.
 
(6) The methods of assessment of response are well-defined and reliable.
 
(7) The analysis of the results of the study is adequate to assess the effects of the drug.
 
We believe that the LEAP study protocol meets these requirements and that the study fulfills the criteria of an adequate and well-controlled study. The protocol clearly defines the objectives and patient population. The methods of analysis are subject to a detailed statistical analysis plan. The protocol includes an active treatment control, which is the standard of care, gemcitabine. Various types of control arms can be used, but in oncology an active control is most often used. The sample size for the study is predetermined and the study is powered to provide a quantitative assessment of drug effect and detect a difference between treatments. The selection of subjects follows best practice principles and incorporates the guidance provided in a recent consensus report for clinical trials in pancreatic cancer.


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Patients are randomized to therapy with CO-101 or gemcitabine, stratified to ensure the comparability of the groups and precautions are taken to minimize potential bias. The primary efficacy variable is overall survival, which is an objective endpoint and the “gold standard” for measurement of efficacy for oncology clinical trials. Survival is considered the most reliable cancer endpoint and bias is not considered to be a factor in endpoint measurement.
 
CO-101 has an orphan drug designation in the United States and the European Union for the treatment of pancreatic cancer. This designation provides procedures to facilitate the development of drugs for rare diseases and offers incentives for such development, including market exclusivity. However, the submission and approval requirements for an orphan drug are not different from the standard requirements for drugs.
 
The regulations for accelerated approval for new drugs for serious or life threatening illnesses often referred to as subpart H, do not apply to the LEAP study. Although CO-101 is being developed for a serious and life threatening disease, this guidance applies to approvals based on a surrogate endpoint or clinical endpoint other than survival. Since the endpoint in the LEAP study is survival, the NDA would be subject to a regular approval procedure. CO-101 requires the concomitant availability of an in vitro diagnostic device to identify the relevant patient population. This diagnostic needs to be available in parallel with the drug product and therefore the development plan for CO-101 allows for the diagnostic to be developed and validated in a time frame that will allow for regulatory approval at the same time that CO-101 would be approved. We are working with Ventana to develop the data necessary for a PMA submission with the FDA. Assuming a successful outcome of our LEAP study, we expect that Ventana will submit a PMA for the hENT1 IHC assay in parallel with our submission of an NDA for CO-101 such that approval would be expected at the same time for both products.
 
CO-1686 - an Oral EGFR Mutant-Selective Inhibitor
 
Overview
 
CO-1686 is a new chemical entity we in-licensed pursuant to an agreement effective May 2010 from Avila Therapeutics, Inc., a privately held biotechnology company in Waltham, Massachusetts. It is a novel, orally available, small molecule covalent inhibitor of the cancer-causing mutant forms of EGFR for the treatment of NSCLC. Because CO-1686 targets both the initial activating EGFR mutations as well as the primary resistance mutation, T790M, it has the potential to treat both first- and second-line NSCLC patients with EGFR mutations. Such initiating activating mutations occur in approximately 10% to 15% of NSCLC cases in Caucasian patients and approximately 30% to 35% of NSCLC cases in East Asian patients. Following treatment with Tarcevatm (erlotinib) or Iressatm (gefitinib), approximately half of these patients develop the T790M mutation. CO-1686 is currently in IND enabling studies, and we anticipate filing an IND in the first quarter of 2012.
 
Market Overview: Resistance to EGFR Tyrosine Kinase Inhibitors, or TKIs, Represents an Unmet Medical Need
 
Lung Cancer and EGFR TKIs.  According to the American Cancer Society, there were an estimated 223,000 new cases of lung cancer in the United States in 2010, making it the most common type of cancer. In addition, according to published reports there are an estimated 288,000 new cases of lung cancer in the European Union each year and 85,000 new cases in Japan. Lung cancer typically presents relatively late in its clinical course, when locally directed therapy (surgery and radiation) is not curative. The treatment of locally advanced and metastatic lung cancer is a significant unmet medical need.
 
Lung cancer is typically divided into two groups based upon the histologic appearance of the tumor cells—small-cell and non small-cell lung cancer, each of which is treated with distinct chemotherapeutic approaches. NSCLC accounts for approximately 85% of lung cancer cases, and can be subdivided into further histologic subsets—adenocarcinoma, bronchioalveolar, squamous cell, anaplastic and large cell being the most common—although until recently treatment was similar for all of these subsets. The standard of care for treatment of advanced or metastatic NSCLC has historically been a cytotoxic chemotherapy doublet of platinum plus paclitaxel. In the last few years, specifically for non-squamous cell, a subset of NSCLC patients, Avastin® (bevacizumab) has been shown to prolong survival when added to the doublet, and Alimta® (pemetrexed) has replaced paclitaxel on the basis of improved tolerability and ease of administration. Despite these additions, patients with locally advanced or metastatic NSCLC have five-year survival rates of just 24% and 4%, respectively.


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Approximately 10 years ago, orally active small molecule inhibitors of the tyrosine kinase activity of EGFR were introduced into the treatment of lung cancer. The growth-promoting EGFR was known to be frequently expressed on lung cancer cells, often at high levels, and preclinical work had suggested that EGFR TKIs, such as gefitinib and erlotinib, could provide effective cancer therapy in certain patient subsets. Clinical trials were conducted in humans with NSCLC and the drugs were approved by the FDA in 2003 (Iressatm (gefitinib)) and 2004 (Tarcevatm (erlotinib)) for patients who had failed to respond to conventional chemotherapy. At the time, it was noted that a small subset of patients experienced profound tumor responses to TKI therapy.
 
In 2004, it was discovered that the subset of NSCLC patients who experienced dramatic clinical responses to the EGFR TKIs had activating mutations in the EGFR gene in their lung cancer tissue, known as an L858R mutation, rendering the EGFR protein hyperactive. It became clear that the EGFR TKIs potently inhibited the mutant EGFR proteins, switching off their activity and causing dramatic tumor shrinkage in patients. This is an example of “oncogene addiction”, whereby a single gene mutation (EGFR in this case) is absolutely necessary for the proliferation and/or survival of a tumor cell. A corollary of this situation is that inhibition of that single gene product (in this case with TKIs) is therapeutic and drives tumor shrinkage. It was subsequently shown that EGFR mutations generate tumors with adenocarcinoma histology, and are found in approximately 10% to 15% of Caucasian NSCLC patients and 30 to 35% of East Asian NSCLC patients.
 
The original approvals of the TKIs made no reference to patient selection, but these new data have suggested that the majority of their therapeutic benefit can be attributed to the subset of patients with activating EGFR mutations. Recent clinical trials have shown that for patients with activating EGFR mutations, treatment with TKIs is superior to standard cytotoxic chemotherapy as it has resulted in superior progression free survival and improved quality of life. Consequently, many cancer therapy guidelines (National Comprehensive Cancer Network and American Society for Clinical Oncology) suggest that patients with adenocarcinoma histology NSCLC should undergo genetic testing for EGFR mutations and TKIs should be used in those patients with identified activating mutations. Molecular testing of NSCLC tissues for EGFR mutations has become standard across many countries, although no specific diagnostic test is included in the regulatory labels for any of the approved TKIs to date.
 
Resistance to EGFR TKIs.  Despite the success of TKIs in patients with mutant EGFR-related NSCLC, most patients’ disease will progress, typically after approximately one year of therapy. Molecular studies have shown that approximately 50% of the resistant tumors carry a second, acquired resistance mutation in the EGFR gene. This resistance mutation is a specific change in the type of amino acid located at position 790 in the EGFR protein, called a “T790M” mutation. As a consequence of this switch the three-dimensional structure of the TKI binding site changes and thus the EGFR becomes resistant to TKI therapy. This T790M mutation is also called the “gatekeeper” mutation because of its strategically important position in the EGFR protein.
 
An early approach to therapy for this important resistance mutation was to develop covalent inhibitors, drugs that bind irreversibly through a covalent bond to their receptor target, and permanently inactivate it. There is a specific location on the EGFR protein, a cysteine residue, that is close to the protein’s active site, and is where most covalent drugs bind to in order to achieve their inhibitory effect. We are aware of two product candidates currently in clinical development that bind to this cysteine residue in EGFR, which are referred to as “second generation” TKIs. Both drugs have been tested in patients with the T790M mutation in their EGFR, but no responses have been reported to date. We believe the likely explanation for this effect is that these drugs are extremely potent inhibitors of the normal form of the EGFR, and cause very substantial toxicity in the skin (rash) and intestine (diarrhea) which limits dosing significantly. Patients appear to be unable to tolerate the dose of drug needed to inhibit the T790M mutant EGFR in a lung tumor. Consequently, at present, patients who develop TKI resistance receive standard cytotoxic chemotherapy that carries toxicity and only modest palliative efficacy, and all patients will ultimately succumb to their disease. Thus, patients with mutant EGFR-related NSCLC who also carry the T790 mutation represent a defined subset of patients with a clear unmet medical need.


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Opportunity for Clovis
 
We partnered with Avila to discover and develop an orally active, small molecule covalent inhibitor of the mutant forms of EGFR that does not bind to unmutated or normal EGFR. We identified CO-1686 as a potential product candidate because it has three important potential advantages:
 
  •  potential to effectively treat patients with T790M mutant EGFR NSCLC—a large and growing group of patients, which have been identified with greater frequency due to recently approved guidelines, who today have no effective therapy;
 
  •  potential to effectively treat patients with initial activating mutations in the EGFR who receive “first-generation” TKIs, but develop resistance due to the acquired T790M mutation; CO-1686 would be expected to prevent resistance through this mechanism and may thus cause responses of greater duration than seen with first generation TKIs and extend progression-free survival; and
 
  •  it would not be expected to inhibit normal EGFR in skin or intestine, and thus would be less likely to cause skin rash and diarrhea, which are dose limiting with all other EGFR inhibitors.
 
Design of CO-1686 — a Targeted Covalent Drug
 
Most human diseases are rooted in the improper activity of certain proteins. Traditional small molecule drugs, while able to inhibit disease-causing proteins, are generally only able to form transient binding interactions with the disease targets, and thus considered reversible. A covalent drug, however, forms a strong and durable bond with its protein target, known as a covalent bond. A targeted covalent drug is designed to form its covalent bond in a highly directed and controlled manner with a specific site on the disease target. This directed bond formation is key to achieving a distinct selectivity profile that is difficult to achieve with traditional reversible small molecules.
 
Covalent drugs have been developed by the pharmaceutical industry for decades, with several successfully commercialized, including Nexium®, Plavix® and penicillins. However, these drugs were not intentionally designed to be covalent drugs. Avila has developed a proprietary platform called Avilomicstm to purposefully and systematically design and develop targeted covalent inhibitors. CO-1686 was designed using this platform.
 
There are a number of drugs both on the market and being developed that inhibit various kinases, including EGFR. Because kinases are structurally similar to each other, it is difficult to design small molecules that selectively inhibit a single kinase that do not also inhibit other kinases to some degree. Most kinase inhibitors are only modestly selective and inhibit a variety of kinases; these are typically referred to as “multi-kinase inhibitors.”
 
However, because of the design of its bond-forming capability, a targeted covalent drug is potent against the disease target of interest, including EGFR, and due to its selectiveness, it is not potent against other targets, even related targets. This is important to avoid undesired “off-target” side effects which can occur with reversible small molecules, such as multi-kinase inhibitors which are not highly selective.
 
A targeted covalent approach was employed by Avila in order to design a drug that could potently inhibit the mutant forms of EGFR, while sparing normal EGFR.
 
Avila designed CO-1686 by identifying a site on the EGFR protein where a covalent bond could be formed and used its proprietary drug design techniques to model chemical structures that could selectively form a bond with this site. These molecules were then synthesized and tested in assays to verify their ability to form targeted covalent bonds and to potently inhibit the mutant forms of EGFR and also to demonstrate that covalent bonds were not formed indiscriminately with other targets.
 
Preclinical Development
 
CO-1686 has demonstrated up to 200-fold greater binding selectivity for EGFR activating mutations and the T790M resistance mutation relative to the normal receptor when evaluated in vitro. Binding to normal EGFR can cause significant side effects, such as rash and diarrhea, which have been observed upon treatment with first and second-generation EGFR inhibitors. Furthermore, experiments have been conducted in which human tumor tissue or cells have been implanted in mice or rats. These experiments, known as xenograft models, have demonstrated


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that CO-1686 can lead to tumor regression in two relevant models of EGFR-driven lung cancer tumors. The H1975 model employs tumors that contain both the L858R activating EGFR mutation and the T790M resistance mutation. This model represents EGFR-driven NSCLC that is resistant to Tarcevatm (erlotinib). Use of CO-1686 in this model demonstrates a dose response with drug activity at doses of 30mg/kg and greater activity at doses of 100mg/kg. In addition, because CO-1686 is designed to spare the normal EGFR receptor, the drug was well tolerated at all dose levels with no apparent body weight loss in the mice, which is a surrogate measure for intestinal toxicity.
 
CO-1686 is currently in exploratory toxicology studies and undergoing formulation work, to prepare for an IND submission which we expect to file in the first quarter of 2012.
 
Clinical Development
 
We have designed an accelerated clinical development program for CO-1686, and if successful, have a goal of filing an NDA for an initial indication within approximately four years of filing our IND. We intend to pursue the development of CO-1686 as both a second-line therapy for EGFR-mutated NSCLC patients who become resistant to TKIs due to the emergence of the T790M mutation and, potentially, as a first-line treatment for EGFR-mutated NSCLC. We expect to initiate a Phase I/II trial of CO-1686 in the first half of 2012. Data from this trial will be used to determine the tolerability and pharmacokinetics of CO-1686, as well as provide evidence of efficacy in selected NSCLC patients with the T790M mutation. Once we complete the dose ranging portion of the study, we plan to enroll an expanded cohort of NSCLC patients with the T790M mutation to test the efficacy of CO-1686 in the selected patient subset. If this study is successful, it will be followed by a pivotal trial in T790M mutant positive NSCLC patients as a second-line therapy following TKI failure. At the same time, pending data from the Phase I/II study, we may initiate a study comparing CO-1686 to Tarceva™ (erlotinib) in confirmed EGFR-mutant NSCLC patients.
 
In addition to the drug development program, we have commenced a collaboration for the development of a companion diagnostic to enable identification of patients with the T790M mutation. We believe such a patient selection tool would enable a focused clinical development plan, thereby enhancing response rate and optimizing the benefit-to-risk ratio for CO-1686. To achieve this goal, we have partnered with Roche Molecular Systems to develop a molecular diagnostic test for EGFR mutations including T790M. The eventual goal of the collaboration is to commence a pivotal trial of CO-1686 in patients selected for the T790M mutation using a PCR-based tool. The diagnostic test will be developed in parallel with the clinical development of CO-1686, with the goal of filing a PMA with the FDA in a time frame that would allow for regulatory approval of the companion diagnostic at substantially the same time that CO-1686 would be approved.
 
CO-338 - a PARP Inhibitor
 
Overview
 
CO-338 is a new chemical entity we in-licensed from Pfizer, Inc. in June 2011. CO-338, formerly known as PF- 01367338 and AG-014699, is a novel, orally available, small molecule poly ADP-ribose polymerase, known as PARP, inhibitor that we intend to develop as both monotherapy and as a therapy in combination with chemotherapeutic agents for the treatment of selected cancer patients. Pursuant to our license agreement with Pfizer, we possess global development and commercialization rights to CO-338.
 
CO-338 is currently in a Phase I clinical trial to determine the maximum tolerated dose of oral CO-338 that can be combined with IV platinum chemotherapy in the treatment of solid tumors. This program is supplemented by two ongoing investigator-initiated trials, currently using the IV formulation of CO-338: a Phase I/II study in germ-line BRCA mutant breast and ovarian cancer and a Phase II study in the adjuvant treatment of hereditary, or germ-line, BRCA mutant and triple-negative breast cancer, a particularly difficult to treat form of breast cancer. As soon as practical, we intend to replace the IV formulation with the oral formulation in these studies. We also intend to initiate a Phase I monotherapy study of the oral formulation in the fourth quarter of 2011 to determine an appropriate dose and schedule for long term administration.


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DNA Repair and PARP
 
Cells in the human body are under constant attack from agents that can cause damage to DNA, including sunlight and other forms of radiation, as well as DNA-binding chemicals that can cause changes in the composition of DNA. Since DNA is the vehicle by which fundamental information is passed on when a cell divides, it is critical to the integrity of cells and human health that DNA damage can be repaired. Cells have evolved multiple mechanisms to enable such DNA repair, and these mechanisms are complementary to each other, each driving repair of specific types of DNA damage. If a cell’s DNA damage repair system is overwhelmed, then the cell will undergo a form of suicide called apoptosis that appears to operate as a fail-safe system to limit the ability of a mutated cell to proliferate and potentially form a cancer. A fundamental principle of cancer therapy is to damage cells profoundly with radiation or DNA-binding drugs, for example alkylating agents or platinums, and induce apoptosis in those cells, thus killing the cancer cells. DNA repair mechanisms may reduce the activity of these anti-cancer therapies but, conversely, inhibition of DNA repair processes may enhance the effects of DNA-damaging anti-cancer therapy.
 
Poly-ADP ribose (PAR) is a part of the early warning system for DNA damage, and is synthesized by PARP enzymes on regions of damaged DNA, where it signals to the cell that DNA repair needs to take place. In the absence of PARP, as is seen in gene-knockout mice, cells are unusually sensitive to DNA damage when exposed to radiation or DNA-alkylating agents. There are two major forms of PARP that signal DNA damage in this way, PARP-1 and PARP-2. Knockout of either PARP gene leads to enhanced DNA damage in both instances although the mice may survive. However, the double knockout in which both the PARP-1 and PARP-2 genes are deleted is fatal to the mice at an embryonic stage. We believe that a drug that inhibits both PARP-1 and PARP-2 may have enhanced activity in preventing DNA repair.
 
As small molecule inhibitors of PARP became available, they were tested for their ability to inhibit DNA damage repair and potentiate the effects of radiation or cytotoxic chemotherapy, and were shown to be potent enhancers of these anti-cancer therapies in preclinical studies. Subsequently, PARP inhibitors have been explored in clinical trials as “chemopotentiators”, often in combination with drugs that add alkyl groups to DNA, such as temozolamide. Results to date have demonstrated anti-cancer activity, but have clearly demonstrated the need for patient selection in order to show compelling data.
 
Synthetic Lethality
 
A large advance in the field came when it was recognized that germ-line mutations in the BRCA genes (BRCA1 and BRCA2, two tumor suppressor genes) were associated both with high rates of breast and ovarian cancer in female mutant gene carriers, and also impaired the ability of cells to repair DNA damage. BRCA gene products were shown to be key mediators of DNA repair. The notion was advanced that treatment of BRCA-defective cells with PARP inhibitors could lead to a disabling blow against a tumor cell’s ability to repair DNA and could induce apoptosis. This phenomenon was termed “synthetic lethality” and was demonstrated to be true in vitro, and then in 2009 was shown to be valid in humans, as evidenced by women with advanced breast and ovarian cancer and germ-line BRCA mutations experiencing objective tumor responses when treated with monotherapy PARP inhibitors.
 
Germ-line BRCA mutations are a minority subset of all breast and ovarian cancers, and the hypothesis was explored that some tumors might have defective BRCA function for reasons other than germ-line gene mutation. This notion has been called “BRCA-ness”. Subsequent work has shown that BRCA-ness exists, and that cancer patients with normal germ-line BRCA genes can respond to monotherapy with PARP inhibitors. Work is underway to identify a molecular signature for “BRCA-ness” that could enable patient selection for therapy. As a complement to the work to identify a BRCA-ness signature, clinical criteria have been developed to identify patients likely to respond to PARP inhibitors. If the notion of synthetic lethality is accepted, then PARP inhibitors should work well in patients with pre-existing defective DNA repair in their tumors. Defective DNA repair in a tumor would likely mean that the tumor is responsive to DNA-damaging chemotherapy, since the therapeutic DNA damage that triggers apoptosis cannot be effectively repaired by the tumor cell. Platinum chemotherapy drugs are a good example of one such DNA-damaging agent. To examine the hypothesis that platinum-sensitive tumors will respond to PARP inhibition, ovarian cancer patients have recently been studied, since ovarian cancer typically responds well to initial


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platinum-based chemotherapy, although relapses are expected after several months. Recent data demonstrated that in women with advanced ovarian cancer who have responded twice to platinum chemotherapy, maintenance therapy with an oral PARP inhibitor approximately doubled the time until disease progression or death versus a placebo-treated arm. This study was not conducted in all ovarian cancer subtypes, but specifically in high grade serous ovarian cancer, which accounts for 80% of the 22,000 newly diagnosed cases in the United States, and in which BRCA mutation or BRCA-ness is believed to be present in at least 50% of tumors.
 
PARP Inhibitor Development Strategy
 
Based upon the basic science observations and clinical data described above, we will consider at least three ways to develop CO-338 for the treatment of solid tumors:
 
  •  monotherapy in germ-line BRCA patients (mostly breast and ovarian cancer although a few patients develop tumors in pancreas and prostate);
 
  •  monotherapy (induction and/or maintenance therapy) in patients with high BRCA-ness tumors; and
 
  •  combination therapy with cytotoxic chemotherapy or radiation or targeted therapy in other tumors.
 
These approaches will require, in many cases, a patient selection strategy utilizing either a molecular diagnostic or a clinical filter. Consistent with our strategy with other projects, we will consider partnering with a molecular diagnostic company to develop a companion diagnostic where it is needed. Some indications, as noted above, may be adequately explored using clinical selection criteria and obviate the need for a companion diagnostic.
 
Opportunity for Clovis
 
Within the universe of PARP inhibitors, we were particularly attracted to the profile of CO-338 from a variety of perspectives:
 
  •  it is a very potent inhibitor of PARP-1 and PARP-2 proteins;
 
  •  it is available in both oral and IV. In combination with intravenous cytotoxic chemotherapy, it is possible that brief, high-intensity PARP inhibition is optimal for efficacy, and an intravenous formulation may be a preferred option under such conditions;
 
  •  the oral formulation offers good bioavailability and low inter-individual pharmacokinetic variability;
 
  •  CO-338 can be used as monotherapy in germ-line BRCA patients and has shown activity in this setting (with the IV formulation);
 
  •  CO-338 can be used in combination with cytotoxic chemotherapy and can be safely given at doses shown to be highly PARP inhibitory, as suggested by the trial results described below; and
 
  •  CO-338 can likely be used as oral maintenance therapy after cytotoxic chemotherapy.
 
Clinical Development of CO-338
 
IV Formulation.  The IV formulation of CO-338 has been studied in two Phase I clinical trials and one Phase II clinical trial. The first Phase I clinical trial was designed to identify a dose of CO-338 that was both pharmaceutically active and well tolerated by patients and to identify the dose of temozolomide, or TMZ, a chemotherapy, that could be combined with CO-338 in a safe and well-tolerated manner. After appropriate dose-escalation, the study concluded that the recommended treatment dose of CO-338 was 12 mg/m2 each day with TMZ 200 mg/m2 each day.
 
The second Phase I clinical trial is a dose escalation study that began in 2009 to evaluate tolerability and pharmacokinetics in combination with four different chemotherapy regimens in patients with solid tumors. In this study, the initial chemotherapies were carboplatin, carboplatin/paclitaxel, pemetrexed/cisplatin and epirubicin/cyclophosphamide. To date, a total of 52 patients have been enrolled and no maximum tolerated dose was reached in any of the enrolled cohorts. In 27 evaluable patients with no pre-specified tumor type required for enrollment, three had a partial response, including one partial response in a breast cancer patient with a BRCA defect, one partial


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response in a breast cancer patient with no observable BRCA defect and one partial response in an ovarian cancer patient with a BRCA defect.
 
A Phase II study evaluated the combination of CO-338 and TMZ in patients with metastatic melanoma. Forty-six patients were treated at the dose level of 12 mg/m2 each day for three cycles and TMZ 200 mg/m2 every 21 days. Seventeen percent of patients achieved a partial response, an additional 17% had stable disease of greater than or equal to 24 weeks, the median progression free survival was 3.5 months and median overall survival was 9.9 months. The most common adverse events for the CO-338 and temozolomide combination were gastrointestinal, including nausea and vomiting.
 
Oral Formulation.  The ongoing Phase I trial of the IV formulation of CO-338 in combination with four different chemotherapy regimes has been recently amended to investigate the use of an oral formulation of CO-338 in combination only with carboplatin.
 
An oral, continuous daily dosing schedule has not been established for CO-338 monotherapy. Therefore, we plan to conduct a Phase I trial in approximately 30 patients with BRCA-deficiencies to determine the optimal dose and schedule. During such a Phase I trial, careful assessment of the pharmaceutical properties of CO-338 will be performed to establish whether a blood-based assay could be used to guide optimal dosing.
 
Our CO-338 clinical development plan is supplemented by two investigator-sponsored trials of the IV formulation of CO-338. One is a Phase I/II trial in the treatment of germline BRCA mutation breast and ovarian cancer; the second is a Phase II trial in the adjuvant treatment of patients with high risk germline BRCA-defective breast cancer and triple-negative breast cancer. In both of these studies, our intent is to transition to oral CO-338 once the optimal dose and duration of treatment are established.
 
Upon analysis of the Phase I/II trial results, we may pursue future development of CO-338 as monotherapy and/or in combination with chemotherapy. Potential indications may include serous ovarian cancer, breast cancer, NSCLC, endometrial cancer, and chronic lymphocytic leukemia. We may also study the inhibition of PARP in the maintenance setting after cytotoxic chemotherapy, which seems to be effective in the setting of certain cancers that are sensitive to platinum chemotherapy.
 
Competition
 
The commercialization of new drugs is competitive and we will face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Our competitors may develop or market products or other novel technologies that are more effective, safer or less costly than any that have been or will be commercialized by us, or may obtain regulatory approval for their products more rapidly than we may obtain approval for ours.
 
The acquisition or licensing of pharmaceutical products is also very competitive, and a number of more established companies, which have acknowledged strategies to license or acquire products, may have competitive advantages as may other emerging companies taking similar or different approaches to product acquisitions. In addition, a number of established research-based pharmaceutical and biotechnology companies may acquire products in late stages of development to augment their internal product lines. These established companies may have a competitive advantage over us due to their size, cash flows and institutional experience.
 
Many of our competitors will have substantially greater financial, technical and human resources than we have. Additional mergers and acquisitions in the pharmaceutical industry may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances made in the commercial applicability of technologies and greater availability of capital for investment in these fields. Our success will be based in part on our ability to build and actively manage a portfolio of drugs that addresses unmet medical needs and creates value in patient therapy.
 
CO-101 Competition
 
There are currently two agents approved for the treatment of metastatic pancreatic cancer: Gemzar®/gemcitabine marketed by Eli Lilly, Teva Pharmaceutical Industries and APP Pharmaceuticals, and Tarcevatm


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(erlotinib) marketed by Astellas. Gemcitabine represents the current standard of care across all lines of pancreatic cancer therapy, either as monotherapy or as part of combination regimens.
 
There are a number of companies with active clinical trials ongoing in pancreatic cancer. Companies in late stage pancreatic cancer clinical trials include AB Science SA, Amgen Inc., Astellas Pharma, BioSante Pharmaceuticals, Inc., Celgene Corporation, Immunomedics, Inc., Lorus Therapeutics, and Threshold Pharmaceuticals, Inc. The majority of these companies have programs under development in combination with gemcitabine. We are not aware of any competitors with programs targeting low hENT1 expression in pancreatic cancer.
 
CO-1686 Competition
 
We are aware of two products in development targeting cancer-causing mutant forms of the epidermal growth factor receptor, or EGFR, for the treatment of non-small cell lung cancer, or NSCLC, patients. These products include Boehringer Ingelheim’s BIBW-2992 (afatinib), currently in Phase III trials, and Pfizer’s PF-299804, currently in Phase II. We believe CO-1686 potentially offers several important advantages over the second generation EGFR inhibitors, including superior efficacy due to activity against the T790M resistance mutation and higher selectivity for the T790M mutation with relative sparing of normal EGFR, therefore avoiding the significant skin rash and gastro-intestinal toxicities associated with other first and second generation inhibitors. We also believe that other pharmaceutical companies may be seeking to develop EGFR mutant selective inhibitors that may enter clinical development on a similar time frame to CO-1686.
 
CO-338 Competition
 
We believe the products in development targeting the PARP pathway consist of Sanofi-Aventis’ BSI-201 (iniparib) currently in Phase III clinical trials, Astra Zeneca’s AZD-2281 (olaparib) currently in Phase II clinical trials, Abbott’s ABT-888 (velaparib) currently in Phase II clinical trials, Merck’s MK-4827 currently in Phase I trial, Eisai’s E-7016 currently in Phase I trials, Cephalon’s CEP-9722 currently in Phase I trials, and Biomarin’s BMN-673 currently in Phase I trials.
 
Collaborators and License Agreements
 
Clavis Pharma ASA
 
In November 2009, we entered into a license agreement with Clavis to obtain the exclusive rights to develop and commercialize CO-101 in North America, Central America, South America and Europe. The exclusive rights are exclusive even as to Clavis and include the right to grant sublicenses. Under the terms of the license agreement, we made an up-front payment to Clavis of $15.0 million, which was comprised of $13.1 million for development costs incurred prior to the execution of the agreement, and recognized by us as acquired in-process research and development, and $1.9 million for the prepayment of preclinical activities to be performed by Clavis. In November 2010, the license agreement was amended to expand the license territory to include exclusive rights in Asia and other international markets, in consideration for our making a payment of $10.0 million, which again we recognized as acquired in-process research and development. As part of the amended license, Clavis agreed to reimburse us for up to $3.0 million of costs incurred by us for CO-101 development activities. Under the amended license agreement, we are obligated to use commercially reasonable efforts to develop and commercialize CO-101, and with the exception of the specific amounts to be reimbursed by Clavis, we are responsible for all remaining development and commercialization costs for CO-101. When and if commercial sales of CO-101 begin, we will pay Clavis royalties based on the volume of annual net sales achieved, with standard provisions for royalty offsets to the extent we need to obtain any rights from third parties to commercialize CO-101 and royalty reductions in the event of generic competition, each on a country by country basis. We are required to make regulatory milestone payments to Clavis of up to $115.0 million if specified clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we are obligated to make sales milestone payments to Clavis if specified annual sales targets for CO-101 are met, the majority of which relate to annual sales targets of $500.0 million and above, which, in the aggregate, could amount to total milestone payments of $445.0 million.
 
Under the license agreement, for a limited period of time related to the timing of the filing of the first MAA for CO-101 in Europe, Clavis may elect to co-develop and co-promote CO-101 in Europe. If Clavis were to make this


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election, it would be required to reimburse us for either 35% or 40% of all development costs incurred by us up to the date of such election, depending on the timing of such election relative to the disclosure to Clavis of top line data from its first completed Phase II or Phase III clinical trial, and thereafter, Clavis would be required to pay us 25% of all ongoing development costs for CO-101. In addition, milestone payments described above would be reduced and, instead of receiving royalties on net sales in Europe, Clavis would share equally in the pretax profits or losses resulting from commercialization activities in Europe.
 
The license agreement will remain in effect until we or our sublicensees are no longer selling CO-101 in any country in our global licensed territory, unless we elect to terminate the license earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time periods, Clavis can terminate the agreement, resulting in a loss of our rights to CO-101 and an obligation to assign or license to Clavis any intellectual property rights or other rights we may have in CO-101, including our regulatory filings, regulatory approvals, patents and trademarks for CO-101.
 
Avila Therapeutics, Inc.
 
In May 2010, we entered into an exclusive worldwide license agreement with Avila to discover, develop and commercialize a pre-clinical covalent inhibitor of mutant forms of the EGFR gene discovered by Avila and selected by us. As a result of the collaboration contemplated by the agreement, CO-1686 was identified as the lead inhibitor candidate which we are proceeding to develop under the terms of the license agreement. Under the agreement, we are required to use commercially reasonable efforts to develop and commercialize CO-1686, and we are responsible for all preclinical, clinical, regulatory and other activities necessary to develop and commercialize CO-1686. We made an up-front payment of $2.0 million to Avila upon execution of the license agreement, which we recognized as an acquired in-process research and development expense. When and if commercial sales of CO-1686 commence, we will pay Avila royalties based on annual net sales achieved. Avila has the option to increase royalty rates on annual net sales in the United States and the European Union by electing to reimburse us for a share of our development expenses for CO-1686. This option must be exercised within a limited period of time of Avila’s being notified by us of our intent to pursue regulatory approval of CO-1686 in the United States or the European Union as a first-line therapy. Under the agreement, we are required to make regulatory milestone payments to Avila of up to $119.0 million if specified clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we are obligated to make sales milestone payments to Avila if specified annual sales targets for CO-1686 are met, the majority of which relate to annual sales targets of $500.0 million and above, which, in the aggregate, could amount to total milestone payments of $120.0 million.
 
We have full sublicensing rights under the license agreement with Avila, subject to our sharing equally with Avila any up-front payments from any sub-licensing arrangements relating to Japan, or Japan and any one or more of China, South Korea and Taiwan, which we refer to herein as an Asian Partnership, and subject to our paying Avila royalties on sales in Asia equal to the greater of the royalty rates contained in our license agreement with Avila or 50% of the royalties we receive from our Asian Partnership.
 
The license agreement with Avila will remain in effect until the expiration of all of our royalty and sublicense revenue obligations to Avila, determined on a product-by-product and country-by-country basis, unless we elect to terminate the license agreement earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time periods, Avila can terminate the agreement, resulting in a loss of our rights to CO-1686 and an obligation to assign or license to Avila any intellectual property rights or other rights we may have in CO-1686, including our regulatory filings, regulatory approvals, patents and trademarks for CO-1686.
 
Pfizer, Inc.
 
In June 2011, we entered into a license agreement with Pfizer, to obtain the exclusive global rights to develop and commercialize CO-338. The exclusive rights are exclusive even as to Pfizer and include the right to grant sublicenses. Under the terms of the license agreement, we made an up-front payment by issuing to Pfizer $7.0 million principal amount of a 5% convertible promissory note due 2012. Under the license agreement, we will assume responsibility for an ongoing Phase I dose ranging clinical trial previously conducted by Pfizer examining the maximum tolerated dose of the oral form of CO-338 in combination with intravenous platinum chemotherapy in


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the treatment of solid tumors. We are obligated under the license agreement to use commercially reasonable efforts to develop and commercialize CO-338, and with the exception of transfer to us, without cost, of Pfizer’s existing inventory of CO-338, we are responsible for all remaining development and commercialization costs for CO-338. When and if commercial sales of CO-338 begin, we will pay Pfizer royalties on our net sales, with standard provisions for royalty offsets to the extent we need to obtain any rights from third parties to commercialize CO-338. We are required to make regulatory milestone payments to Pfizer of up to $89.0 million if specified clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we are obligated to make sales milestone payments to Pfizer if specified annual sales targets for CO-338 are met, the majority of which relate to annual sales targets of $500.0 million and above, which, in the aggregate, could amount to total milestone payments of $170.0 million.
 
The license agreement with Pfizer will remain in effect until the expiration of all of our royalty and sublicense revenue obligations to Pfizer, determined on a product-by-product and country-by-country basis, unless we elect to terminate the license agreement earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time periods, Pfizer can terminate the agreement, resulting in a loss of our rights to CO-338 and an obligation to assign or license to Pfizer any intellectual property rights or other rights we may have in CO-338, including our regulatory filings, regulatory approvals, patents and trademarks for CO-338.
 
Government Regulation
 
Government authorities in the United States (including federal, state and local authorities) and in other countries, extensively regulate, among other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising and promotion, pricing and export and import of pharmaceutical products, such as those we are developing. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market. Any agency or judicial enforcement action could have a material adverse effect on us.
 
U.S. Government Regulation
 
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process required by the FDA before product candidates may be marketed in the United States generally involves the following:
 
  •  submission to the FDA of an IND which must become effective before human clinical trials may begin and must be updated annually;
 
  •  completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations;
 
  •  performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication;
 
  •  submission to the FDA of an NDA after completion of all pivotal clinical trials;
 
  •  a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review;
 
  •  satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the active pharmaceutical ingredient, or API, and finished drug product are produced and tested to assess compliance with cGMP regulations; and
 
  •  FDA review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States.


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An IND is a request for authorization from the FDA to administer an investigational drug product to humans.
 
The central focus of an IND submission is on the general investigational plan and the protocol(s) for human studies. The IND also includes results of animal studies or other human studies, as appropriate, as well as manufacturing information, analytical data and any available clinical data or literature to support the use of the investigational new drug. An IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to the proposed clinical trials. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before clinical trials can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence.
 
Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance with Good Clinical Practices, or GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s IRB before the trials may be initiated, and the IRB must monitor the study until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
 
The clinical investigation of a drug is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap or be combined. The three phases of an investigation are as follows:
 
  •  Phase I.  Phase I includes the initial introduction of an investigational new drug into humans. Phase I clinical trials are typically closely monitored and may be conducted in patients with the target disease or condition or in healthy volunteers. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational drug in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness. During Phase I clinical trials, sufficient information about the investigational drug’s pharmacokinetics and pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase II clinical trials. The total number of participants included in Phase I clinical trials varies, but is generally in the range of 20 to 80.
 
  •  Phase II.  Phase II includes controlled clinical trials conducted to preliminarily or further evaluate the effectiveness of the investigational drug for a particular indication(s) in patients with the disease or condition under study, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the drug. Phase II clinical trials are typically well-controlled, closely monitored, and conducted in a limited patient population, usually involving no more than several hundred participants.
 
  •  Phase III.  Phase III clinical trials are generally controlled clinical trials conducted in an expanded patient population generally at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the drug has been obtained, and are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational drug product, and to provide an adequate basis for product approval. Phase III clinical trials usually involve several hundred to several thousand participants.
 
The FDA , the IRB or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the study. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.


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Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug product information is submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications.
 
The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product to the satisfaction of the FDA.
 
Once the NDA submission has been accepted for filing, the FDA’s goal is to review applications within ten months of submission or, if the application relates to an unmet medical need in a serious or life-threatening indication, six months from submission. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.
 
After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product and/or its API will be produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase III clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase IV clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. Regulatory approval of oncology products often requires that patients in clinical trials be followed for long periods to determine the overall survival benefit of the drug.
 
After regulatory approval of a drug product is obtained, we are required to comply with a number of post-approval requirements. As a holder of an approved NDA, we would be required to report, among other things, certain adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of our products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval to ensure and preserve the long term stability of the drug product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive and record keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
 
We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our product candidates. Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA,


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including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.
 
Europe/Rest of World Government Regulation
 
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products.
 
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application, or CTA, must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed.
 
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
 
To obtain regulatory approval of an investigational drug under European Union regulatory systems, we must submit a marketing authorization application. The application used to file the NDA in the United States is similar to that required in Europe, with the exception of, among other things, country-specific document requirements.
 
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
 
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
 
Available Special Regulatory Procedures
 
Formal Meetings
 
We are encouraged to engage and seek guidance from health authorities relating to the development and review of investigational drugs, as well as marketing applications. In the United States, there are different types of official meetings that may occur between us and the FDA. Each meeting type is subject to different procedures. Conclusions and agreements from each of these meetings are captured in the official final meeting minutes issued by the FDA.
 
The European Medicines Agency, or EMA, also provides the opportunity for dialogue with us. This is usually done in the form of Scientific Advice, which is given by the Scientific Advice Working Party of the Committee for Medicinal Products for Human Use, or CHMP. A fee is incurred with each Scientific Advice meeting.
 
Advice from either the FDA or EMA is typically provided based on questions concerning, for example, quality (chemistry, manufacturing and controls testing), nonclinical testing and clinical studies, and pharmacovigilance plans and risk-management programs. Such advice is not legally binding on the sponsor. To obtain binding commitments from health authorities in the United States and the European Union, Special Protocol Assessment or Protocol Assistance procedures are available. A Special Protocol Assessment, or SPA, is binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining


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the safety or effectiveness of the product after clinical studies begin, or if the study sponsor fails to follow the protocol that was agreed upon with the FDA. There is no guarantee that a study will ultimately be adequate to support an approval even if the study is subject to a SPA.
 
Orphan Drug Designation
 
The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making the drug for this type of disease or condition will be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the European Union Community. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product.
 
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of 7 years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity.
 
In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following drug or biological product approval. This period may be reduced to 6 years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.
 
Orphan drug designation must be requested before submitting an application for marketing approval. Orphan dug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
 
Pediatric Development
 
In the United States, the FDCA provides for an additional 6 months of marketing exclusivity for a drug if reports are filed of investigations studying the use of the drug product in a pediatric population in response to a written request from the FDA. Separate from this potential exclusivity benefit, NDAs must contain data (or a proposal for post-marketing activity) to assess the safety and effectiveness of an investigational drug product for the claimed indications in all relevant pediatric populations in order to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults or full or partial waivers if certain criteria are met. Discussions about pediatric development plans can be discussed with the FDA at any time, but usually occur any time between the end-of-Phase II meeting and submission of the NDA.
 
For the EMA, a Pediatric Investigation Plan, and/or a request for waiver or deferral, is required for submission prior to submitting a marketing authorization application.
 
Authorization Procedures in the European Union
 
Medicines can be authorized in the European Union by using either the centralized authorization procedure or national authorization procedures.
 
  •  Centralized procedure.  The EMA implemented the centralized procedure for the approval of human medicines to facilitate marketing authorizations that are valid throughout the European Union. This


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  procedure results in a single marketing authorization issued by the EMA that is valid across the European Union, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for human medicines that are: derived from biotechnology processes, such as genetic engineering, contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions, and officially designated orphan medicines.
 
  •  For medicines that do not fall within these categories, an applicant has the option of submitting an application for a centralized marketing authorization to the EMA, as long as the medicine concerned is a significant therapeutic, scientific or technical innovation, or if its authorization would be in the interest of public health.
 
  •  National authorization procedures.  There are also two other possible routes to authorize medicinal products in several countries, which are available for investigational drug products that fall outside the scope of the centralized procedure:
 
  •  Decentralized procedure.  Using the decentralized procedure, an applicant may apply for simultaneous authorization in more than one European Union country of medicinal products that have not yet been authorized in any European Union country and that do not fall within the mandatory scope of the centralized procedure.
 
  •  Mutual recognition procedure.  In the mutual recognition procedure, a medicine is first authorized in one European Union Member State, in accordance with the national procedures of that country. Following this, further marketing authorizations can be sought from other European Union countries in a procedure whereby the countries concerned agree to recognize the validity of the original, national marketing authorization.
 
Priority Review/Standard Review (United States) and Accelerated Review (European Union)
 
Based on results of the Phase III clinical trial(s) submitted in an NDA, upon the request of an applicant, the FDA may grant the NDA a priority review designation, which sets the target date for FDA action on the application at six months. Priority review is granted where preliminary estimates indicate that a product, if approved, has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists, or a significant improvement compared to marketed products is possible. If criteria are not met for priority review, the NDA is subject to the standard FDA review period of 10 months. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.
 
Under the Centralized Procedure in the European Union, the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, defined by three cumulative criteria: the seriousness of the disease (e.g. heavy disabling or life-threatening diseases) to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, EMA ensures that the opinion of the CHMP is given within 150 days, excluding clock stops.
 
Pharmaceutical Coverage, Pricing and Reimbursement
 
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. Third-party payors are increasingly


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challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
 
In 2003, the United States government enacted legislation providing a partial prescription drug benefit for Medicare beneficiaries, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. Further, the Healthcare Reform Law substantially changes the way healthcare is financed in the United States by both government and private insurers. Among other cost containment measures, the Healthcare Reform Law establishes:
 
  •  An annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents;
 
  •  A new Medicare Part D coverage gap discount program, in which pharmaceutical manufacturers who wish to have their drugs covered under Part D must offer discounts to eligible beneficiaries during their coverage gap period (the “donut hole”); and
 
  •  A new formula that increases the rebates a manufacturer must pay under the Medicaid Drug Rebate Program.
 
We expect that federal, state and local governments in the United States will continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the drug candidates that we are developing.
 
Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
 
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
 
Other Healthcare Laws and Compliance Requirements
 
If we obtain regulatory approval for any of our product candidates, we may be subject to various federal and state laws targeting fraud and abuse in the healthcare industry. For example, in the United States, there are federal and state anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services or reward past purchases or


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recommendations. Violations of these laws can lead to civil and criminal penalties, including fines, imprisonment and exclusion from participation in federal healthcare programs.
 
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs. The reach of the Anti-Kickback Statute was broadened by the Healthcare Reform Law, which, among other things, amends the intent requirement of the federal Anti-Kickback Statute and the applicable criminal healthcare fraud statutes contained within 42 U.S.C. § 1320a-7b, effective March 23, 2010. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the Healthcare Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below) or the civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.
 
The federal False Claims Act imposes liability on any person who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The “qui tam” provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In addition, various states have enacted false claims laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third-party payer and not merely a federal healthcare program. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of $5,500 to $11,000 for each separate false claim.
 
Also, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, created several new federal crimes, including health care fraud, and false statements relating to health care matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private third-party payers. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services.
 
In addition, we may be subject to, or our marketing activities may be limited by, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, which established uniform standards for certain “covered entities” (healthcare providers, health plans and healthcare clearinghouses) and their business associates governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information.
 
Regulation of Diagnostic Tests
 
In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. Diagnostic tests are classified as medical devices under the FDCA. Unless an exemption applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution. The two primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and premarket approval, or PMA approval. Because the diagnostic tests being developed by our third-party collaborators are of substantial importance in preventing impairment of human health, they are subject to the PMA approval process.
 
PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. For diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies. As part of its review of the PMA, the FDA will conduct a pre-approval inspection of


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the manufacturing facility or facilities to ensure compliance with the Quality System Regulation, or QSR, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures. FDA review of an initial PMA application is required by statute to take between six to ten months, although the process typically takes longer, and may require several years to complete. If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure the final approval of the PMA. If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable. The FDA may also determine that additional clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and then the data submitted in an amendment to the PMA. Once granted, PMA approval may be withdrawn by the FDA if compliance with post approval requirements, conditions of approval or other regulatory standards is not maintained or problems are identified following initial marketing.
 
We and our third-party collaborators who are developing the companion diagnostics will work cooperatively to generate the data required for submission with the PMA application, and will remain in close contact with the Center for Devices and Radiological Health, or CDRH, at FDA to ensure that any changes in requirements are incorporated into the development plans. We anticipate that meetings with the FDA with regard to our drug product candidates as well as companion diagnostic product candidates will include representatives from the Center for Drug Evaluation and Research, or CDER, and CDRH to ensure that the NDA and PMA submissions are coordinated to enable FDA to conduct a parallel review of both submissions.
 
In the EEA, in vitro medical devices are required to conform with the essential requirements of the E.U. Directive on in vitro diagnostic medical devices (Directive No 98/79/EC, as amended). To demonstrate compliance with the essential requirements, the manufacturer must undergo a conformity assessment procedure. The conformity assessment varies according to the type of medical device and its classification. For low-risk devices, the conformity assessment can be carried out internally, but for higher risk devices it requires the intervention of an accredited EEA Notified Body. If successful, the conformity assessment concludes with the drawing up by the manufacturer of an EC Declaration of Conformity entitling the manufacturer to affix the CE mark to its products and to sell them throughout the EEA. The data generated for the U.S. registration will be sufficient to satisfy the regulatory requirements for the European Union and other countries.
 
Patents and Proprietary Rights
 
The proprietary nature of, and protection for, our product candidates, processes and know-how are important to our business. Our success depends in part on our ability to protect the proprietary nature of our product candidates, technology, and know-how, to operate without infringing on the proprietary rights of others, and to prevent others from infringing our proprietary rights. We seek patent protection in the United States and internationally for our product candidates and other technology. Our policy is to patent or in-license the technology, inventions and improvements that we consider important to the development of our business. We also rely on trade secrets, know-how and continuing innovation to develop and maintain our competitive position. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will be commercially useful in protecting our technology.
 
We have an exclusive, worldwide license from Clavis to a portfolio of patents related to CO-101. United States Patent 6,384,019 and its equivalent counterparts in 32 other countries, directed to the CO-101 composition of matter, expire in 2018 and are potentially eligible for up to five years patent term extension in various jurisdictions. We believe that patent term extension under the Hatch-Waxman Act could be available to extend our patent exclusivity for CO-101 to at least 2020-2021 in the United States depending on timing of our first approval. In Europe, we believe that patent term extension under a supplementary protection certificate could be available for an additional five years to 2023. A patent application directed to the CO-101 formulation is pending in the United States, PCT, and Taiwan and, if issued, would expire in 2030. We and Clavis have also filed patent applications for various aspects related to CO-101 administration and diagnostics to assess hENT1 levels.


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We acquired an exclusive, worldwide license to CO-1686 from Avila in May 2010. Multiple patent applications are pending that claim CO-1686 generically and specifically that, if issued, would have expiration dates between 2029 and 2031.
 
We obtained an exclusive, worldwide license from Pfizer to develop and commercialize CO-338 in June 2011. U.S. Patent 6,495,541, and its equivalent counterparts issued or pending in dozens of countries, directed to the CO-338 composition of matter, expire in 2020 and are potentially eligible for up to five years patent term extension in various jurisdictions. We believe that patent term extension under the Hatch-Waxman Act could be available to extend our patent exclusivity for CO-338 to at least 2022-2024 in the United States depending on timing of our first approval. In Europe, we believe that patent term extension under a supplementary protection certificate could be available for an additional five years to 2025. Additionally, other patents and patent applications are directed to methods of making, methods of using, dosing regimens, and various salt forms have expiration dates ranging from 2020 through 2031.
 
We are aware of a family of patents and patent applications controlled by a third party that claim certain uses of PARP inhibitors that could potentially be asserted against our use of CO-338 in certain indications. We are evaluating whether to seek a license under such patents or patent applications, when and if they issue, or alternatively to initiate proceedings to challenge such patents, and we believe we have identified one or more bases for such challenge. If we are unable to either license or successfully challenge such patents, the size of the aggregate potential market for CO-338 could be significantly reduced.
 
In addition, we intend to seek patent protection whenever available for any products or product candidates and related technology we acquire in the future.
 
The patent positions of pharmaceutical firms like us are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, we do not know whether any of the product candidates we acquire or license will gain patent protection or, if any patents are issued, whether they will provide significant proprietary protection or will be challenged, circumvented or invalidated. Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings declared by the U.S. PTO or a foreign patent office to determine priority of invention, or in opposition proceedings in a foreign patent office, either of which could result in substantial cost to us, even if the eventual outcome is favorable to us. There can be no assurance that the patents, if issued, would be held valid by a court of competent jurisdiction. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using specific compounds or technology. To the extent prudent, we intend to bring litigation against third parties that we believe are infringing one or more of our patents.
 
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. PTO in granting a patent, or may be shortened if a patent is terminally disclaimed over another patent.
 
The patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other non-U.S. jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extensions on patents covering those products.


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To protect our rights to any of our issued patents and proprietary information, we may need to litigate against infringing third parties, or avail ourselves of the courts or participate in hearings to determine the scope and validity of those patents or other proprietary rights. These types of proceedings are often costly and could be very time-consuming to us, and we cannot assure you that the deciding authorities will rule in our favor. An unfavorable decision could allow third parties to use our technology without being required to pay us licensing fees or may compel us to license needed technologies to avoid infringing third-party patent and proprietary rights. Such a decision could even result in the invalidation or a limitation in the scope of our patents or forfeiture of the rights associated with our patents or pending patent applications.
 
In addition we have sought and intend to continue seeking orphan drug status whenever it is available. If a product which has an orphan drug designation subsequently receives the first regulatory approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the applicable regulatory authority may not approve any other applications to market the same drug for the same indication, except in certain very limited circumstances, for a period of seven years in the United States and ten years in the European Union. Orphan drug designation does not prevent competitors from developing or marketing different drugs for an indication.
 
We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our trade secrets. However, we believe that the substantial costs and resources required to develop technological innovations will help us to protect the competitive advantage of our products.
 
It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual shall be our exclusive property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.
 
Plan of Operation
 
Our plan of operation for the remainder of 2011 and the first six months of 2012 is to:
 
  •  continue with the clinical development of our product candidates, including the clinical trials for CO-101 and CO-338; and
 
  •  continue with the preclinical development of CO-1686, looking toward the filing of an IND in the first quarter of 2012, and the commencement of a Phase I clinical trial in the first half of 2012.
 
We believe that the proceeds from this offering will satisfy our cash requirements during this period.
 
Manufacturing
 
We currently contract with third parties for the manufacture of our product candidates for preclinical studies and clinical trials and intend to do so in the future. We do not own or operate manufacturing facilities for the production of clinical quantities of our product candidates. We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. To meet our projected needs for commercial manufacturing, third parties with whom we currently work will need to increase their scale of production or we will need to secure alternate suppliers. Although we rely on contract manufacturers, we have personnel with extensive manufacturing experience to oversee the relationships with our contract manufacturers.
 
One of our contract manufacturers has manufactured what we believe to be sufficient quantities of CO-101’s active pharmaceutical ingredient (or drug substance) to complete the ongoing clinical trials. We have engaged a second drug substance manufacturing to ensure continuity of supply and to increase overall production capacity.


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Improvements to the current drug substance manufacturing process are being implemented to further ensure production capacity adequate to meet future development and commercial demands. Another of our existing contract manufacturers continues to produce CO-101 drug product for use in ongoing clinical trials. We are implementing scale-up operations at this manufacturing site to provide additional quantities of CO-101 drug product. We have also identified a second drug product contract manufacturer to provide further capacity for clinical and commercial production. In addition a separate contract manufacturer labels, packages and distributes clinical supplies of CO-101. We believe the manufacturing processes for the active pharmaceutical ingredient and finished drug product for CO-101 have been developed to adequately support future development and commercial demands. While we believe that our existing suppliers of active pharmaceutical ingredient and drug product would be capable of continuing to produce materials in commercial quantities, we may need to identify additional third-party manufacturers capable of providing commercial quantities of drug product. If we are unable to arrange for such a third-party manufacturing source, or fail to do so on commercially reasonable terms, we may not be able to successfully produce and market CO-101.
 
The process for producing CO-1686 active pharmaceutical ingredient is currently being developed at a single third-party contract manufacturer. The current process has already been sufficiently developed to satisfy immediate clinical demands. Additional process development work and/or additional production capacity may be necessary to support larger clinical development or commercialization requirements. If we are unable to adequately develop a suitable process, or arrange for such a third-party manufacturing source, or fail to do so on commercially reasonable terms, we may not be able to successfully produce and market CO-1686. Drug product formulation development work for CO-1686 is in progress. We have engaged a third-party manufacturer capable of both formulation development and drug product manufacturing. Definition of an acceptable formulation and suitable manufacturing process to prepare that formulation are critical to the successful development of CO-1686. If we fail to define such a formulation and process, or fail to do so on commercially reasonable terms, we may be unable to successfully produce and market CO-1686.
 
We have developed the process for manufacturing CO-338’s active pharmaceutical ingredient to a degree sufficient to meet clinical demands and projected commercial requirements. Pfizer is currently performing manufacturing for CO-338. Although we believe the licensor has available quantities of the active pharmaceutical ingredient to permit current production sufficient to allow us to conclude the currently pending trials for CO-338, we will need to identify an alternate third-party contract manufacturer for preparation of the CO-338 active pharmaceutical ingredient. While we believe that sufficient capacity and capabilities for manufacture of this compound exists, failure to arrange such a third-party source, or failure to do so on commercially reasonable terms may prevent successful production and marketing of CO-338. The CO-338 drug product formulation and manufacturing process to produce that formulation, both as an IV and as an oral dosage form have been developed to a degree sufficient to meet clinical demands and projected commercial requirements. While Pfizer will turn over to us its existing inventory of finished dosage form CO-338, and produce additional quantities for us, we will need to identify an alternate third-party contract manufacturer for preparation of CO-338 in finished dosage form. While we believe that sufficient capacity and capabilities for manufacture of this formulation exists, failure to arrange such a third-party source, or failure to do so on commercially reasonable terms may prevent successful production and marketing of CO-338.
 
To date, our third-party manufacturers have met our manufacturing requirements. We expect third-party manufacturers to be capable of providing sufficient quantities of our product candidates to meet anticipated full scale commercial demands. We believe that there are alternate sources of supply that can satisfy our clinical and commercial requirements, although we cannot be certain that identifying and establishing relationships with such sources, if necessary, would not result in significant delay or material additional costs.
 
Sales and Marketing
 
We intend to build the commercial infrastructure in the United States and Europe necessary to effectively support the commercialization of CO-101, CO-338 and CO-1686, if and when we believe a regulatory approval of the first of such product candidates in a particular geographic market appears imminent. The commercial infrastructure for oncology products typically consists of a targeted, specialty sales force that calls on a limited and focused group of physicians supported by sales management, internal sales support, an internal marketing


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group and distribution support. Additional capabilities important to the oncology marketplace include the management of key accounts such as managed care organizations, group-purchasing organizations, specialty pharmacies, oncology group networks, and government accounts. To develop the appropriate commercial infrastructure, we will have to invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that CO-101, CO-338, or CO-1686 will be approved.
 
Outside of the United States and Europe, where appropriate, we may elect in the future to utilize strategic partners, distributors, or contract sales forces to assist in the commercialization of our products. We are actively considering an Asian commercial presence, including establishing our own sales and marketing organization in Japan.
 
Employees
 
As of June 1, 2011, we had 38 full-time employees. None of our employees is represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.
 
Facilities
 
Our offices are located at three leased facilities, a 10,369 square foot facility in Boulder, Colorado used primarily for corporate functions, a 17,195 square foot facility in San Francisco, California used for clinical development operations and research laboratory space, and a 1,050 square foot facility in Cambridge, United Kingdom used for our European regulatory and clinical operations. These leases expire in December 2015, May 2013, and May 2012, respectively. We believe that our existing facilities are sufficient for our needs for the foreseeable future.
 
Legal Proceedings
 
We are not currently a party to any material legal proceedings.


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MANAGEMENT
 
Executive Officers and Directors
 
The following table sets forth the name, age and position of each of our executive officers and directors as of March 31, 2011:
 
             
Name
  Age   Position
 
Patrick J. Mahaffy
    48     President and Chief Executive Officer; Director
Erle T. Mast
    48     Executive Vice President and Chief Financial Officer
Andrew R. Allen, Ph.D. 
    44     Executive Vice President of Clinical and Pre-Clinical Development and Chief Medical Officer
Gillian C. Ivers-Read
    57     Executive Vice President, Technical Operations and Chief Regulatory Officer
Brian G. Atwood
    58     Director
M. James Barrett, Ph.D. 
    69     Director
James C. Blair, Ph.D. 
    72     Director
Paul Klingenstein
    53     Director
Edward J. McKinley
    59     Director
John C. Reed, M.D., Ph.D. 
    52     Director
Thorlef Spickschen
    70     Director
 
Executive Officers
 
Patrick J. Mahaffy is one of our co-founders and has served as our President and Chief Executive Officer and a member of our board of directors since our inception. Previously, Mr. Mahaffy served as President and Chief Executive Officer and as a member of the board of directors at Pharmion Corporation, which he founded in 2000 and sold to Celgene Corporation in 2008. From 1992 through 1998, Mr. Mahaffy was President and Chief Executive Officer of NeXagen, Inc. and its successor, NeXstar Pharmaceuticals, Inc., a biopharmaceutical company. Prior to that, Mr. Mahaffy was a Vice President at the private equity firm E.M. Warburg Pincus and Co. Mr. Mahaffy also serves on the boards of directors of Orexigen Therapeutics, Inc. (NASDAQ: OREX) and Flexion Therapeutics, Inc. He is also a trustee of Lewis and Clark College. Mr. Mahaffy has a B.A. in international affairs from Lewis and Clark College and a M.A. in international affairs from Columbia University. We believe that Mr. Mahaffy possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience in the venture capital industry, his historical knowledge, his operational and management expertise and his years of leadership experience.
 
Erle T. Mast is one of our co-founders and has served as our Executive Vice President and Chief Financial Officer since our inception. Previously, Mr. Mast served in the same role at Pharmion Corporation, beginning in 2002. From 1997 through 2002, Mr. Mast worked for Dura Pharmaceuticals, Inc. and its successor, Elan Corporation. From 2000 to 2002, he served as Chief Financial Officer for the Global Biopharmaceuticals business unit for Elan. From 1997 to 2000, Mr. Mast served as Vice President of Finance for Dura Pharmaceuticals. Prior to that, Mr. Mast was a partner with Deloitte & Touche, LLP. Mr. Mast also serves on the boards of directors of Somaxon Pharmaceuticals, Inc. (NASDAQ: SOMX) and Zogenix, Inc. (NASDAQ: ZGNX). Mr. Mast received a B.Sc. in business administration from California State University Bakersfield.
 
Dr. Andrew R. Allen is one of our co-founders and has served as our Executive Vice President of Clinical and Pre-Clinical Development and Chief Medical Officer since our inception. Previously, Dr. Allen served in the same role at Pharmion Corporation, beginning in 2006. From 2004 through 2006, Dr. Allen served as Vice President of BioPharma Development and Head of the Oncology Therapeutic Unit for Chiron Corporation. Previously, Dr. Allen served as global project head in Abbott Laboratories’ oncology franchise, and prior to that he progressed through positions of increasing responsibility at the management consulting firm McKinsey & Company, with a focus on oncology strategy. Dr. Allen serves on the board of directors of Nodality, Inc., a privately-held biotechnology company. Dr. Allen qualified in medicine at Oxford University and earned his Ph.D. from the Imperial College of Science, Technology and Medicine in London. Dr. Allen also obtained post-graduate internal medicine qualification as a Member of Royal College of Physicians (MRCP).


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Gillian C. Ivers-Read is one of our co-founders and has served as our Executive Vice President, Technical Operations and Chief Regulatory Officer since our inception. Previously, Ms. Ivers-Read served as Executive Vice President, Development Operations at Pharmion Corporation, beginning in 2002. From 1996 to 2001, Ms. Ivers-Read held various regulatory positions with Hoechst Marion Roussel and its successor, Aventis Pharmaceuticals, Inc., where she most recently held the position of Vice President, Global Regulatory Affairs. From 1994 to 1996, Ms. Ivers-Read was Vice President, Development and Regulatory Affairs for Argus Pharmaceuticals, and from 1984 to 1994, she served as a regulatory affairs director for Marion Merrell Dow. Ms. Ivers-Read serves on the board of Bio-Path Holdings, Inc. (OTC BB: BPTH). Ms. Ivers-Read received a B.Sc. in pharmacology from University College London.
 
Directors
 
Brian G. Atwood has served as a member of our board of directors since our inception. In 1999, he co-founded and currently serves as a Managing Director for Versant Ventures, a healthcare-focused venture capital firm. Prior to founding Versant Ventures, Mr. Atwood served as a general partner of Brentwood Associates, a venture capital firm. Mr. Atwood also serves on the boards of several pharmaceutical and biotechnology companies, including Cadence Pharmaceuticals, Inc. (NASDAQ: CADX), Five Prime Therapeutics, Groove Biopharma Corporation, Helicos BioSciences Corporation (NASDAQ: HLCS), Immune Design Corp., OpGen Inc., PhaseRx Pharmaceuticals, Spark Diagnostics, Trius Therapeutics, Inc. (NASDAQ: TSRX) and Veracyte, Inc. Mr. Atwood also served on the board of Pharmion Corporation from January 2000 until the company’s acquisition in 2008. Mr. Atwood holds a B.S. in biological sciences from the University of California, Irvine, a M.S. in ecology from the University of California, Davis, and an M.B.A. from Harvard University. We believe that Mr. Atwood possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience in the venture capital industry, his years of business and leadership experience and his financial sophistication and expertise.
 
Dr. M. James Barrett has served as a member of our board of directors since our inception. Since September 2001, he has served as a general partner of New Enterprise Associates Inc., a venture capital firm focusing on the healthcare, information technology and energy technology industries. From 1997 to 2001, Dr. Barrett served as Chairman and Chief Executive Officer of Sensors for Medicine and Science, which he founded in 1997. Dr. Barrett serves on the boards of several pharmaceutical and biotechnology companies, including Amicus Therapeutics, Inc. (NASDAQ: FOLD), Cardioxyl Pharmaceuticals, Inc., GlycoMimetics, Inc., Inhibitex, Inc. (NASDAQ: INHX), Peptimmune, Inc., PhaseBio Pharmaceuticals, Inc., Predictive Biosciences, Ltd., Psyadon Pharmaceuticals, Inc. (formerly known as Ruxton Pharmaceuticals, Inc.), Roka Bioscience, Inc., Supernus Pharmaceuticals, Inc., Targacept, Inc. (NASDAQ: TRGT), and Zosano Pharma, Inc., as well as continuing to serve as Chairman of Sensors for Medicine and Science. Dr. Barrett previously served on the board of YM Biosciences, Inc. (NYSE AMEX: YMI), and also served on the board of Pharmion Corporation from December 2001 until the company’s acquisition in 2008. Dr. Barrett received a Ph.D. in biochemistry from the University of Tennessee, his M.B.A. from the University of Santa Clara, and a B.S. in chemistry from Boston College. We believe that Dr. Barrett possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience in the venture capital industry and his years of business and leadership experience.
 
Dr. James C. Blair has served as a member of our board of directors since our inception. Since 1985, he has served as a general partner of Domain Associates, L.L.C., a venture capital management company focused on life sciences. Dr. Blair currently serves on the boards of Astute Medical, Inc., aTyr Pharma, Inc., Cadence Pharmaceuticals, Inc. (NASDAQ: CADX), CoDa Therapeutics, Inc., IntegenX, Inc., Meritage Pharma Inc., NeuroPace, Inc., and Zogenix, Inc. (NASDAQ: ZGNX). He has previously served on the boards of over 40 life science ventures including Amgen Inc. (NASDAQ: AMGN), Aurora Biosciences Corp., Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN), Applied Biosystems Inc., Dura Pharmaceuticals, Inc., Nuvasive, Inc. (NASDAQ: NUVA), and Volcano Corporation (NASDAQ: VOLC). Dr. Blair served on the board of Pharmion Corporation from January 2000 until the company’s acquisition in 2008. Dr. Blair currently serves on the board of directors of the Prostate Cancer Foundation, and he is on the advisory boards of the Department of Molecular Biology at Princeton University and the Department of Biomedical Engineering at the University of Pennsylvania, the USC Stevens Institute for Innovation, and the Division of Chemistry and Chemical Engineering at the California Institute of Technology. He received a B.S.E. from Princeton University and M.S.E. and Ph.D. degrees from the University of


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Pennsylvania, all in electrical engineering. We believe that Dr. Blair possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience in the life science industry and his years of business and leadership experience.
 
Paul Klingenstein has served as a member of our board of directors since our inception. He is the Managing Partner of Aberdare Ventures, a healthcare-focused venture capital firm he formed in 1999. Prior to founding Aberdare, Mr. Klingenstein worked in venture capital and private equity with Warburg Pincus and Accel Partners, and was an advisor to the Rockefeller Foundation. Mr. Klingenstein currently serves on the boards of Anacor Pharmaceuticals, Inc. (NASDAQ: ANAC) and EnteroMedics, Inc. (NASDAQ: ETRM). Mr. Klingenstein has previously served on the boards of Ablation Frontiers, Inc., Alibris, Ample Medical Corporation, Aviron, Conatus Pharmaceuticals Inc., EP Technologies, Glycomed Inc., Idun Pharmaceuticals Inc., Isis Pharmaceuticals, Inc. (NASDAQ: ISIS), Nevro Corp., Pharmion Corp., Posit Science Corporation, U.S. Behavioral Health, VertiFlex Inc., Viagene Inc., and Xomed Surgical Products Inc. He is currently the Chairman of the Board of the International AIDS Vaccine Initiative, and is an advisory board member of the University of California Berkeley School of Public Health. He has also served on the boards of various educational and non-profit institutions. Mr. Klingenstein received an A.B. in anthropology from Harvard University and an M.B.A. from Stanford University. We believe that Mr. Klingenstein possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience in the venture capital industry and his years of business and leadership experience.
 
Edward J. McKinley has served as a member of our board of directors since our inception. Mr. McKinley spent 20 years serving in various roles at the private equity firm Warburg Pincus, including managing the firm’s private equity activity in Europe and serving on the firm’s Management Committee. Before joining Warburg Pincus, he was with the management consulting firm McKinsey & Company. Mr. McKinley also served on the board of Pharmion Corporation from October 2004 until the company’s acquisition in 2008 and currently serves and on the boards of several private companies, and as an advisor or investment committee head for several investment management firms. He also serves on the investment committee of several endowments, and on the boards or advisory boards of several non-profit organizations. He graduated Phi Beta Kappa with honors from Stanford University and holds a graduate management degree from Yale University. We believe that Mr. McKinley possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience in the venture capital industry, his years of business and leadership experience and his financial sophistication and expertise.
 
Dr. John C. Reed has served as a member of our board of directors since our inception. Dr. Reed served as the President and Chief Executive Officer since January 2002, and in 2010 he became Chief Executive Officer, Professor, and Donald Bren Chief Executive Chair, of Sanford-Burnham Medical Research Institute, an independent, nonprofit, public benefit organization dedicated to biomedical research. Dr. Reed has been with Sanford-Burnham Medical Research Institute for the past 19 years, serving as the Deputy Director of the Cancer Center beginning in 1994, as Scientific Director of the Institute beginning in 1995, and as Cancer Center Director in 2002. He also currently serves as an adjunct professor in the medical schools at University of California San Diego School of Medicine and University of Central Florida, and in the graduate Schools of Arts and Sciences at the University of Florida and San Diego State University’s Biology department. Dr. Reed was recognized as the world’s most highly cited scientist in the field of cell biology for the decade 1995-2005. He is the author of approximately 800 scientific and medical journal publications and more than 50 book chapters. Dr. Reed currently serves on the board of Isis Pharmaceuticals, Inc. (NASDAQ: ISIS). He has previously served on the boards of Stratagene Inc., Repros Therapeutics Inc. (NASDAQ: RPRX) and Pharmion Corporation, and was appointed to the Independent Citizen’s Oversight Committee of the California Institute for Regenerative Medicine. Dr. Reed graduated Phi Beta Kappa from the University of Virginia and earned an M.D. and Ph.D. from the University of Pennsylvania School of Medicine. He completed his residency in pathology and laboratory medicine at the Hospital of the University of Pennsylvania and was a postdoctoral fellow in molecular biology at the Wistar Institute of Anatomy and Biology. We believe that Dr. Reed possesses specific attributes that qualify him to serve as a member of our board of directors, including his scientific background and experience as the Chief Executive Officer of the prestigious Sanford-Burnham Medical Research Institute, as well as his expertise reflected in his significant scientific and medical journal publications.
 
Dr. Thorlef Spickschen has served as a member of our board of directors since our inception. From 1994 to 2001, Dr. Spickschen was chairman and Chief Executive Officer of BASF Pharma/Knoll AG. From 1984 to 1994,


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Dr. Spickschen worked with Boehringer Mannheim GmbH, where he was responsible for sales and marketing and has been Chairman of its Executive Board since 1990. From 1976 to 1984, Dr. Spickschen was Managing Director, Germany and Central Europe for Eli Lilly & Co. Dr. Spickschen is currently Chairman of BIOTEST AG, a publicly traded company in Germany and on the board of Cytos Biotechnology AG, which is publicly-traded in Switzerland. Dr. Spickschen also served on the board of Pharmion Corporation from December 2001 through the company’s acquisition in 2008. Dr. Spickschen received a Doctorate in business management from the University of Cologne. We believe that Dr. Spickschen possesses specific attributes that qualify him to serve as a member of our board of directors, including his business and leadership experience in the biomedical industry.
 
Composition of the Board of Directors
 
Our board of directors consists of eight directors, seven of whom, including Drs. Barrett, Blair, Reed and Spickschen and Messrs. Atwood, Klingenstein and McKinley, will qualify as independent directors under the corporate governance standards of the NASDAQ Global Market and the independence requirements of Rule 10A-3 of the Exchange Act.
 
Board Committees and Independence
 
Rule 5605 of the NASDAQ Marketplace Rules requires a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, the NASDAQ Marketplace Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. Under Rule 5605(a)(2), a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
 
In June 2011, our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that none of Drs. Barrett, Blair, Reed and Spickschen or Messrs. Atwood, Klingenstein and McKinley, representing seven of our eight directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under Rule 5605(a)(2) of the NASDAQ Marketplace Rules. Our board of directors also determined that Messrs. Atwood, Klingenstein and McKinley, who comprise our audit committee, Drs. Barrett, Blair and Spickschen, who comprise our compensation committee, and Drs. Barrett and Blair and Mr. Atwood, who comprise our nominating and corporate governance committee, satisfy the independence standards for such committees established by the SEC and the NASDAQ Marketplace Rules, as applicable. In making such determination, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director. Currently, our board of directors has determined that all current members satisfy the independence requirements for service on the audit committee.
 
Role of the Board in Risk Oversight
 
Our audit committee is primarily responsible for overseeing our risk management processes on behalf of the full board of directors. Going forward, we expect that the audit committee will receive reports from management at least quarterly regarding our assessment of risks. In addition, the audit committee reports regularly to the full board of directors, which also considers our risk profile. The audit committee and the full board of directors focus on the most significant risks we face and our general risk management strategies. While our board of directors oversees our


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risk management, company management is responsible for day-to-day risk management processes. Our board of directors expects company management to consider risk and risk management in each business decision, to proactively develop and monitor risk management strategies and processes for day-to-day activities and to effectively implement risk management strategies adopted by the audit committee and the board of directors. We believe this division of responsibilities is the most effective approach for addressing the risks we face and that our board leadership structure, which also emphasizes the independence of the board in its oversight of our business and affairs, supports this approach.
 
Term and Class of Directors
 
Upon the closing of this offering, our board of directors will be divided into three staggered classes of directors of the same or nearly the same number, designated Class I, Class II and Class III.          ,          and           will serve as Class I directors whose terms expire at the 2012 annual meeting of stockholders.          ,          and           will serve as Class II directors whose terms expire at the 2013 annual meeting of stockholders.          and          will serve as Class III directors whose terms expire at the 2014 annual meeting of stockholders. At each annual meeting of stockholders beginning in 2012, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term.
 
Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class shall consist of one-third of the directors. The division of the board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control. Our directors may be removed for cause only by the affirmative vote of the holders of at least a majority of our voting stock.
 
Term of Executive Officers
 
Each of our executive officers is appointed and serves at the discretion of our board of directors and is appointed by the board of directors to serve until a successor is appointed and qualified or until his or her death, resignation, retirement or removal, if earlier.
 
Director Compensation
 
For a discussion of our director compensation arrangements, see “Executive and Director Compensation—Director Compensation.”
 
Board Committees
 
Upon the closing of this offering, our board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below. Our board of directors may from time to time establish other committees.
 
Audit Committee
 
The members of the audit committee are Messrs. Atwood, Klingenstein and McKinley, each of whom qualifies as an independent director under the corporate governance standards of the NASDAQ Stock Market and the independence requirements of Rule 10A-3 of the Exchange Act. Mr. McKinley serves as chairman of this committee. Our board of directors has determined that Mr. McKinley qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K.
 
Our audit committee oversees a broad range of issues surrounding our accounting and financial reporting processes and audits of our financial statements, and assists our board of directors by: (1) overseeing and monitoring the quality and integrity of our financial statements, our compliance with legal and regulatory requirements and our internal accounting procedures and systems of internal controls (2) assuming direct responsibility for the appointment, compensation, retention and oversight of work of any independent registered public accounting firm engaged for the purpose of performing any audit, review or attestation services, for overseeing and monitoring our independent registered public accounting firm’s qualifications and independence, and for dealing directly with


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any such accounting firm, including resolving disagreements between management and our independent auditor; (3) providing a medium for consideration of matters relating to any audit issues; and (4) preparing the audit committee report that the rules require be included in our filings with the SEC.
 
The written charter for the audit committee will be available on our website upon the closing of this offering.
 
Compensation Committee
 
The members of the compensation committee are Drs. Barrett, Blair and Spickschen, each of whom qualifies as an independent director under the corporate governance standards of the NASDAQ Stock Market. Each member of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act and is an outside director, as defined pursuant to Section 162(m) of the Code. Dr. Blair serves as chairman of this committee. The purpose of the compensation committee is to assist our board of directors in discharging its responsibilities relating to (1) setting our compensation program and compensation and benefits of all of our executive officers and directors; (2) providing oversight for our incentive and equity-based compensation plans; (3) establishing and reviewing general policies relating to compensation and benefits of our employees; and (4) preparing the compensation committee report required to be included in our proxy statement under the rules and regulations of the SEC. The compensation committee will review and evaluate, at least annually, the performance of the compensation committee and its members, including compliance of the compensation committee with its charter.
 
The written charter for the compensation committee will be available on our website upon the closing of this offering.
 
Nominating and Corporate Governance Committee
 
The members of the nominating and corporate governance committee are Drs. Barrett and Blair and Mr. Atwood, each of whom qualifies as an independent director under the corporate governance standards of the NASDAQ Stock Market. Dr. Barrett serves as chairman of this committee. The purpose of our nominating and corporate governance committee will be to assist our board of directors in discharging its responsibilities relating to (1) developing and recommending criteria for selecting new directors, and identifying, screening and recommending nominees for election as directors; (2) screening and recommending to the board of directors individuals qualified to become executive officers; (3) evaluating our board of directors and our management; (4) developing, reviewing and recommending corporate governance guidelines and a corporate code of business conduct and ethics; and (5) generally advising our board of directors on other corporate governance and related matters.
 
The written charter for the nominating and corporate governance committee will be available on our website upon the closing of this offering.
 
Compensation Committee Interlocks and Insider Participation
 
No member of our compensation committee has ever been an executive officer or employee of ours. None of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more officers serving as a member of our board of directors or compensation committee.
 
Limitation on Liability and Indemnification of Directors and Officers
 
Our amended and restated certificate of incorporation and bylaws limits our directors’ and officers’ liability to the fullest extent permitted under Delaware corporate law. Specifically, our directors and officers will not be liable to us or our stockholders for monetary damages for any breach of fiduciary duty by a director or officer, except for liability:
 
  •   for any breach of the director’s or officer’s duty of loyalty to us or our stockholders;


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  •   for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
 
  •   under Section 174 of the Delaware General Corporation Law (unlawful dividends or stock repurchases); or
 
  •   for any transaction from which a director or officer derives an improper personal benefit.
 
If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of our directors or officers shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
 
The provision regarding indemnification of our directors and officers in our amended and restated certificate of incorporation will generally not limit liability under state or federal securities laws.
 
Delaware law and our amended and restated certificate of incorporation and bylaws provide that we will, in certain situations, indemnify any person made or threatened to be made a party to a proceeding by reason of that person’s former or present official capacity with us against judgments, penalties, fines, settlements and reasonable expenses. Any person is also entitled, subject to certain limitations, to payment or reimbursement of reasonable expenses (including attorneys’ fees and disbursements and court costs) in advance of the final disposition of the proceeding.
 
We maintain a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and officers.
 
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
 
In addition, we have entered into indemnification agreements with each of our directors and executive officers, which also provide, subject to certain exceptions, for indemnification for related expenses, including, among others, reasonable attorney’s fees, judgments, fines and settlements incurred in any action or proceeding.
 
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
 
Code of Business Ethics
 
In connection with this offering, we will adopt a written Code of Business Ethics that is reviewed and published annually and contains the ethical principles by which our chief executive officer and chief financial officer, among others, are expected to conduct themselves when carrying out their duties and responsibilities. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, a provision of our Code of Ethics by posting such information on our website at www.clovisoncology.com.
 
Our Code of Business Ethics will be available on our website upon the closing of this offering.


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EXECUTIVE AND DIRECTOR COMPENSATION
 
Compensation Discussion and Analysis
 
Our “named executive officers” for our fiscal year ending December 31, 2010 consisted of the following individuals:
 
  •   Patrick J. Mahaffy, our President and Chief Executive Officer;
 
  •   Erle T. Mast, our Executive Vice President and Chief Financial Officer;
 
  •   Gillian C. Ivers-Read, our Executive Vice President, Technical Operations and Chief Regulatory Officer; and
 
  •   Andrew R. Allen, our Executive Vice President of Clinical and Pre-Clinical Development and Chief Medical Officer.
 
Compensation Overview and Objectives
 
Compensation decisions with respect to our named executive officers have generally been made based on the need to attract, motivate and retain talented executives, to align executive interests with those of our stockholders, and to motivate the achievement of individual objectives and key strategic financial and operational goals. To that end, our compensation programs are designed to provide fixed compensation within market competitive ranges, to incentivize our executives to achieve performance goals that maximize rational growth, and to motivate our executives to achieve the greatest possible returns for our stockholders. The fixed aspects of our compensation program—including base salary and benefits—enable us to compensate our executives at market compensation levels, which is necessary to attract and retain top talent. Our annual incentive programs allow us to pay for performance, based on achievement of company-wide performance targets, as well as individual goals. Finally, our stock incentive plan enables us to promote executive retention and to directly link the value of the compensation paid to our executive officers to the value of our common stock.
 
Determination of Compensation
 
The compensation committee of our board of directors is primarily responsible for reviewing compensatory arrangements with our named executive officers in light of our compensation philosophies and objectives, and making recommendations, based upon this consideration and review, to the board of directors. Final determinations on compensation levels and arrangements for our named executive officers are made by the board of directors, which meets regularly to discuss compensation matters as they arise, and make any adjustments to compensation as the board of directors deems necessary and advisable for our continued growth and success. Our named executive officers frequently provide input and recommendations to the board of directors on compensation matters, and our President and Chief Executive Officer periodically reviews each named executive officer’s overall performance and makes recommendations to the board of directors on the elements of the named executive officers’ compensation. However, our President and Chief Executive Officer does not participate in discussions regarding his compensation, and recuses himself from meetings when his compensation is discussed.
 
In determining the levels and mix of compensation, our board of directors has not generally relied on formulaic guidelines, but rather has maintained a flexible approach to compensation determinations which allows it to adapt the various elements of compensation to motivate individual executives and achieve our specific strategic and financial goals. The board of directors considered both individual performance and contributions to our growth and success, as well as overall achievement of performance goals, in making its compensation determinations.
 
The board of directors has not made use of compensation consultants or advisors in determining the compensation of our named executive officers in the past, but has engaged Radford, an Aon Hewitt company, to review and advise on our compensation practices during 2011. The board of directors intends to use Radford’s report as one factor for determining the compensation of our named executive officers during 2011. For 2010, the board of directors generally relied on its members’ collective experience and expertise in determining the appropriate levels of compensation.


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Components of Compensation for Fiscal 2010
 
Compensation packages of our named executive officers generally consist of base salary, annual discretionary performance bonuses, retirement and health benefits, and equity compensation. We believe that the relationship of fixed to performance-based compensation was properly balanced and provided us with an effective means to attract, motivate and retain our named executive officers, as well as reward them for increase in the value of our common stock.
 
Base Salary
 
The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, roles, and responsibilities. Base salary amounts for each named executive officer were determined at the time of the named executive officer’s appointment to their position with us. The board of directors periodically reviews the base salary of each named executive officer and may make adjustments as and when appropriate, consistent with our compensation objectives and based on the board of directors’ consideration of an executive’s individual performance and our overall performance. The board of directors reviewed the base salaries of the named executive officers in 2010 and determined that no increases were necessary to achieve performance goals, and consequently none of the named executive officers received salary increases during 2010.
 
Annual Discretionary Performance Bonuses
 
In the initial establishment of compensation packages for the named executive officers in 2009, the board of directors reviewed the advisability of, and approved the use of, a proposed structure of bonuses to be paid to the named executive officers based on the achievement of certain corporate goals. As part of that process, the board of directors determined that Mr. Mahaffy’s target annual bonus for each calendar year should equal 50% of his annual base salary and that the target annual bonuses for Messrs. Mast and Allen and Ms. Ivers-Read should equal 40% of their respective annual base salaries.
 
For 2010, the compensation committee did not set any specific performance targets for the payment of bonuses to our named executive officers. Instead, in the first quarter of 2011, the compensation committee subjectively reviewed our overall performance and determined that in a normal year, bonus awards would have been made in an amount equal to 80% of target levels based on our overall performance during 2010. However, given the early stage of our development, the compensation committee recommended (and the board of directors determined) that bonuses for 2010 would be set at 50% of amounts that the compensation committee otherwise determined would be regular target levels. Therefore, 2010 bonuses for the named executive officers were set at 40% of the target levels.
 
Equity Compensation
 
We maintain the Clovis Oncology, Inc. 2009 Equity Incentive Plan, or the 2009 Plan, the terms of which are described below. In 2010, the board of directors determined that no new equity grants would be made to our named executive officers in 2010.
 
The board of directors determined that the original grants of restricted stock made to the named executive officers in 2009 still provided sufficient incentive to maximize our value for our stockholders, given that the restricted stock was granted subject to a four-year vesting schedule: 25% on the date of grant, and in 48 equal monthly installments thereafter. The board of directors reasoned that vesting of previously granted awards during 2010 would serve as a sufficient retention incentive for the named executive officers in that year.
 
Retirement Benefits
 
In 2010, we provided retirement benefits to our named executive officers through the Clovis Oncology, Inc. 401(k) plan, a defined contribution pension plan, on the same basis as our other employees. We make matching contributions to the account of each eligible employee under the 401(k) plan of 100% of the first 4% of an employee’s contributions to his or her account.


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Other Benefits
 
In 2010, our named executive officers were eligible to receive the same basic benefits, including health benefits, that were available to our other employees.
 
At-Will Employment Agreements
 
We have entered into at-will employment, confidential information, invention assignment, and arbitration agreements with Messrs. Mahaffy, Mast and Allen, and Ms. Ivers-Read, which contain customary confidentiality and invention assignment provisions. The agreements contain a one-year nonsolicitation provision of our employees after termination of employment with us. None of Messrs. Mahaffy, Mast or Allen, or Ms. Ivers-Read, are entitled to receive any severance payments upon a termination of employment under the at-will employment agreements. Our decision to enter into these employment agreements was based on the determination that confidential information and a well-trained employee base represent valuable resources of ours, and it would be in our best interests to protect these resources through the use of customary confidentiality, intellectual property assignment, and nonsolicitation covenants. Additionally, by electing not to provide a set compensation package in the employment agreements, we also felt that we could maximize our flexibility in offering competitive compensation to our employees and more closely link individual performance, as well as market compensation trends, to an executive officer’s individual compensation package.
 
Compensation Decisions Relating to Fiscal Year 2011
 
2011 Option Grants
 
On March 8, 2011, Mr. Mahaffy was granted options to purchase 600,000 shares of common stock pursuant to the 2009 Plan, and Messrs. Mast and Allen and Ms. Ivers-Read were each granted options to purchase 200,000 shares of common stock pursuant to the 2009 Plan, in each case at an exercise price per share of $1.13. Twenty-five percent (25%) of the shares of common stock subject to the options will vest on the one-year anniversary of the date of grant, and the remainder will vest in substantially equal installments over the forty eight (48) months immediately following such anniversary, subject to continued employment through such date. The options may be exercised by the named executive officers prior to vesting in exchange for shares of restricted stock with the same vesting schedule as the options. The shares of our common stock acquired upon exercise of an option (or upon vesting of any restricted shares acquired upon an exercise prior to the vesting) are subject to a 180-day lock-up period following an initial public offering of the Company.
 
Compensation Risk Management
 
Our board of directors has reviewed our overall compensation policies and practices to determine whether those policies and practices are reasonably likely to have a material adverse effect on us and has concluded that they are not reasonably likely to have a material effect on us. In conducting its analysis, the board of directors considered the following factors:
 
  •   Base salary: Base salary is a fixed portion of overall compensation that is set based on factors such as the scope of an employee’s responsibilities, and which provides income regardless of our short-term performance. Our board of directors does not believe that base salary creates an incentive for our employees to take undue risks.
 
  •   Bonus programs: Bonuses are designed to reward employees for achieving annual company-wide performance goals that are important to our success, and intended to compensate our employees for achieving such goals. Although the board of directors has historically based bonuses on the achievement of company-wide goals, the actual amount of any bonus is subject to board of directors discretion. For these reasons, our board of directors does not believe that our bonus programs encourage employees to take risks which could have an adverse effect on us.
 
  •   Equity compensation: Equity awards are designed to encourage our employees to align their interests with the long-term interests of our stockholders. Our board of directors believes that equity compensation discourages our employees from taking unnecessary risks because the ultimate value of the equity awards is determined based on the long-term appreciation in the value of our stock.


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After considering the risk implications of each element of the above elements of our overall compensation program, our board of directors concluded that our overall compensation policies and practices are not likely to have a material adverse effect on us.
 
Executive Compensation
 
The following table shows the compensation of our principal executive officer, our principal financial officer and our other named executive officers for 2010.
 
Summary Compensation Table
 
                                         
                All Other
   
        Salary
  Bonus
  compensation(1)
  Total
Name and principal position
  Year   ($)   ($)   ($)   ($)
 
Patrick J. Mahaffy
    2010       375,000       75,000       9,800       459,800  
President and Chief Executive Officer
                                       
                                         
Erle T. Mast
    2010       325,000       52,000       9,208       386,208  
EVP, Chief Financial Officer
                                       
                                         
Gillian C. Ivers-Read
    2010       325,000       52,000       9,208       386,208  
EVP, Technical Operations and Chief Regulatory Officer
                                       
                                         
Andrew R. Allen
    2010       325,000       52,000       9,208       386,208  
EVP of Clinical and Pre-Clinical Development and Chief Medical Officer
                                       
 
(1) Represents the matching contributions made during 2010 to our 401(k) plan on behalf of each named executive officer.
 
Narrative Disclosure Relating to Summary Compensation Table
 
For an explanation of the amount of salary and bonus paid to our named executive officers, please see the discussion of “Annual Discretionary Performance Bonuses” and “Base Salary” in the Compensation Discussion and Analysis, and the disclosure provided in the “Summary Compensation Table,” above.
 
Outstanding Equity Awards at Fiscal Year End
 
The following table sets forth summary information regarding the outstanding equity awards held by our named executive officers at December 31, 2010.
 
                 
        Market value of
    Number of shares or
  shares or units of
    units of stock that
  stock that have
    have not vested
  not vested
Name
  (#)(1)   ($)(2)
 
Patrick J. Mahaffy
    792,969       896,055  
Erle T. Mast
    264,323       298,685  
Gillian C. Ivers-Read
    264,323       298,685  
Andrew R. Allen
    264,323       298,685  
 
(1) The restricted stock held by the named executive officers was granted in May 2009 and was 25% vested as of the date of grant, and thereafter 1/48th of the restricted stock vests on each monthly anniversary of the date of grant thereafter. In the event that a named executive officer’s employment is terminated by us without “cause” within six months following a change in control of the Company, 100% of the unvested shares of restricted stock will immediately vest upon such termination.
 
(2) Represents the estimated market value of the shares on December 31, 2010 of $1.13 per share.


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Option Exercises and Stock Vested
 
                 
    Restricted stock awards
    Number of shares
  Value realized on
Name
  acquired on vesting (#)   vesting ($)(1)
 
Patrick J. Mahaffy
    328,125       347,813  
Erle T. Mast
    109,375       115,938  
Gillian C. Ivers-Read
    109,375       115,937  
Andrew R. Allen
    109,375       115,937  
 
(1) Represents the aggregate value realized upon vesting based on the estimated market value on each applicable vesting date of $1.06 per share.
 
Potential Payments Upon a Termination or Change in Control
 
As discussed above under “Compensation Discussion and Analysis—At-Will Employment Agreements,” our named executive officers are not entitled to receive cash severance benefits upon their termination of employment. Pursuant to their restricted stock agreements, as discussed above under “Compensation Discussion and Analysis—Equity Compensation,” the named executive officers are entitled to full vesting of their restricted stock upon a termination without “cause” (a “qualifying termination”) within 6 months following a “change in control” (as defined in the restricted stock agreements). Assuming a qualifying termination occurred on December 31, 2010, the total value that would have been received by each of our named executive officers on account of the accelerated vesting described in the previous sentence are as follows (based on the estimated market value of our common stock on December 31, 2010 of $1.13 per share): $896,055 for Mr. Mahaffy, and $298,685 for each of Mr. Mast, Dr. Allen and Ms. Ivers-Read.
 
Director Compensation
 
Director Compensation Table
 
The following table summarizes the compensation received by our directors for the year ended December 31, 2010.
 
                 
    Option awards
   
Name
  ($)(1)(2)   Total ($)
 
Brian G. Atwood
    13,800       13,800  
M. James Barrett
    13,800       13,800  
James C. Blair
    13,800       13,800  
Paul Klingenstein
    13,800       13,800  
Edward J. McKinley
    13,800       13,800  
John C. Reed
    13,800       13,800  
Thorlef Spickschen
    13,800       13,800  
 
(1) The directors each received a grant of options to purchase 20,000 shares of our common stock on December 2, 2010. As of December 31, 2010, each of the directors other than Dr. Blair had a total of 95,000 options outstanding. Dr. Blair exercised his 95,000 options for shares of our restricted common stock.
 
(2) Amount represents the fair value of the awards on the date of grant computed in accordance with FASB ASC Topic 718. The assumptions used in the valuation of these awards are consistent with the valuation methodologies specified in the notes to our financial statements included elsewhere in this prospectus.
 
Narrative Disclosure relating to Director Compensation Table
 
Stock Option Grants
 
On December 2, 2010, we made grants of options to purchase 20,000 shares of our stock to each of our directors pursuant to the 2009 Plan. 25% of the options were fully vested as of the date of grant and 25% will vest on each of the first three anniversaries of the date of grant. The option agreements provide that the directors may exercise their options prior to vesting, in which case the directors will receive grants of restricted stock upon


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exercise of the options and the purchase price of such restricted stock will be the exercise price paid by the directors for the options.
 
Employee Benefit Plans
 
2009 Equity Incentive Plan
 
We maintain the 2009 Equity Incentive Plan (the 2009 Plan), pursuant to which 4,375,000 shares of our common stock are reserved for grant to our employees, consultants and directors. Pursuant to the 2009 Plan, we may make grants of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, and restricted stock units to our employees, consultants, and directors.
 
Upon the occurrence of a corporate event (such as a merger, recapitalization, stock split, reorganization, consolidation, or other similar event), the board of directors may adjust the number, class, and price of shares covered by each award granted under the 2009 Plan. In the event of a merger or a “change in control” (as defined in the 2009 Plan), the board of directors may determine that awards will (i) be assumed or substituted by the acquiring company, (ii) be terminated, (iii) become fully vested and exercisable, (iv) be terminated and cashed out, or (v) be treated in any combination thereof.
 
The board of directors may amend, suspend, alter, or terminate the 2009 Plan or awards granted under the 2009 Plan at any time, provided that a participant’s rights with respect to outstanding awards may not be impaired without their express written consent. Absent earlier termination by the board of directors, the 2009 Plan will expire in February 2021. It is currently anticipated that the 2009 Plan will be terminated as of the effective date of this registration statement and that no additional grants will be made thereunder following the effective date.
 
2011 Equity Incentive Plan
 
We intend to adopt a new equity incentive plan, the 2011 Plan, prior to the closing of this offering that will afford our compensation committee with more flexibility by allowing grants of a wide variety of equity awards to our key employees, directors and consultants. The 2011 Plan will be designed to assist us in attracting, retaining, motivating and rewarding key employees, directors, and consultants, and promoting the creation of long-term value for our stockholders by closely aligning the interests of the participants with those of our stockholders.
 
The 2011 Plan will initially reserve for issuance a number of shares of common stock equal to the sum of (x)     , and (y) the number of shares of our common stock that were available for grant under the 2009 Plan as of the date of this prospectus (not including issued or outstanding shares granted pursuant to awards under the 2009 Plan as of such date). No future grants will be made pursuant to the 2009 Plan following the date of this prospectus. Thereafter, the number of shares of our common stock reserved for issuance under the 2011 Plan will be increased (i) from time to time by the number of shares of our common stock forfeited upon the expiration, cancellation, forfeiture, cash settlement or other termination of awards under the 2009 Plan following the date of this prospectus, and (ii) unless otherwise determined by the board of directors, on the first day of each fiscal year, by a number of additional shares of our common stock representing     % of our then-outstanding shares of common stock on such date, less shares of common stock then available for issuance under the 2011 Plan. The number of shares reserved for issuance will also be subject to adjustment in the event of any stock split, reverse stock split, reorganization, recapitalization, merger, consolidation, combination, share exchange or any other similar change in our capitalization, or in connection with any extraordinary dividend declared and paid in respect of shares of our common stock.
 
2011 Employee Stock Purchase Plan
 
Prior to the closing of this offering, we intend to adopt a new employee stock purchase plan that will provide our employees, including our named executive officers, and employees of certain designated subsidiaries with an opportunity to purchase our ordinary shares at a discount on a tax-qualified basis through payroll deductions following the effective date of this registration statement. The employee stock purchase plan will be designed to qualify as an “employee stock purchase plan” under Section 423 of the U.S. Internal Revenue Code.


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A total of      shares of our common stock will be reserved for issuance under the employee stock purchase plan, subject to adjustment in the event of certain changes in our corporate structure or ordinary shares. The employee stock purchase plan will provide for consecutive offering periods, during which participating employees may elect to have between 1% and 10% of their compensation withheld and applied to the purchase of ordinary shares at the end of the period. Unless otherwise determined by our compensation committee before an offering period, the purchase price will be 85% of the fair market value of the ordinary shares at the start of the offering period.
 
The stock purchase plan will be administered by our compensation committee. Our board of directors will have the ability to suspend, terminate, or amend the employee stock purchase plan at any time, although the board of directors generally may not amend the employee stock purchase plan in such a way that would adversely affect the rights of any participating employee without that employee’s consent or shareholder approval. Unless sooner terminated, the employee stock purchase plan will terminate on the day before the tenth (10th) anniversary of the date the employee stock purchase plan is approved by the board.


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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
The following is a description of transactions, since our formation in April 2009, to which we have been a party, in which the amount involved exceeded or will exceed $120,000, and in which any of our executive officers, directors or holders of more than 5% of our voting securities, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest, other than compensation, termination and change in control arrangements, which are described under “Executive and Director Compensation.” We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions with unrelated third parties.
 
Preferred Stock and Convertible Promissory Note Issuances
 
Since our inception, we have sold an aggregate of 5,044,828 shares of Series A-1 convertible preferred stock, 5,044,828 shares of Series A-2 convertible preferred stock, 10,919,540 shares of Series B convertible preferred stock and $20.0 million aggregate principal amount of convertible promissory notes to our executive officers, directors or holders of more than 5% of our voting securities in the amounts and as of the dates shown below:
 
                                         
                            Principal
 
          Series A-1
    Series A-2
    Series B
    Amount of
 
          Convertible
    Convertible
    Convertible
    Convertible
 
    Common
    Preferred
    Preferred
    Preferred
    Promissory
 
    Stock     Stock     Stock     Stock     Notes  
 
Stockholders beneficially owning 5% or more of our voting securities
                                       
Entities affiliated with Domain Associates
          1,206,897       1,206,897       2,612,330       $4,784,000  
Entities affiliated with New Enterprise Associates
          1,206,897       1,206,897       2,612,330       $4,784,000  
Entities affiliated with Versant Ventures
          862,069       862,069       1,865,950       $3,418,000  
Entities affiliated with Aberdare Ventures
          517,241       517,241       1,119,570       $2,050,000  
Abingworth Bioventures V, L.P. 
          517,241       517,241       1,119,570       $2,050,000  
Directors and Executive Officers
                                       
Patrick J. Mahaffy
    1,750,000       51,724       51,724       111,957       $206,000  
Erle T. Mast
    583,334       6,897       6,897       14,928       $28,000  
Andrew R. Allen
    583,333       10,345       10,345       22,391       $40,000  
Gillian C. Ivers-Read
    583,333       6,897       6,897       14,928       $28,000  
Brian G. Atwood
                             
M. James Barrett
                             
James C. Blair
                             
Paul Klingenstein
                             
Edward J. McKinley
          103,448       103,448       223,914       $410,000  
John C. Reed
                               
Thorlef Spickschen
          17,241       17,241       37,319       $68,000  
Price Per Share
    $0.001       $2.00       $3.00       $4.62       N/A  
Date of Purchase
    May 12, 2009       May 15, 2009       November 9, 2009       November 18, 2009       May 25, 2011  
 
Restricted Stock Purchase Agreements
 
Each of our named executive officers purchased restricted shares of our common stock in May 2009 pursuant to restricted stock purchase agreements between the named executive officers and us. Pursuant to these agreements, Mr. Mahaffy purchased 1,750,000 shares of restricted stock, Mr. Mast purchased 583,334 shares of restricted stock, and Dr. Allen and Ms. Ivers-Read each purchased 583,333 shares of restricted stock. Until such time as the shares vest (as described below), the shares are subject to repurchase by us following a termination of the named executive officer’s employment for any reason at a purchase price equal to the lesser of the then-current fair market value and


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the purchase price paid for such shares. The restricted stock was 25% vested as of the date of grant, and 1/48th of the remaining shares of stock vest on each monthly anniversary thereafter, subject to continued employment through such date. In the event that a named executive officer’s employment is terminated by us without “cause” within six months following a change in control of the Company, 100% of the unvested shares of restricted stock will immediately vest upon such termination. The agreements impose restrictions on transfer of the restricted stock and a lock-up period for 180 days following our initial public offering.
 
Convertible Promissory Notes
 
On May 25, 2011, we issued to existing holders of our convertible preferred stock on a pro rata basis with their respective ownership of our convertible preferred stock, at face value