S-1/A 1 v440209_s1a.htm S-1/A

As filed with the Securities and Exchange Commission on May 19, 2016

Registration No. 333-208718

 

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



 

AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

Cancer Prevention Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Its Charter)



 

   
Delaware   2834   27-3037551
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)


 

1760 East River Road, Suite 250
Tucson, AZ 85718
(520) 908-7774

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)



 

Jeffrey Jacob
Chairman of the Board and Chief Executive Officer
Cancer Prevention Pharmaceuticals, Inc.
1760 East River Road, Suite 250
Tucson, AZ 85718
(520) 908-7774

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)



 

Copies to:

 
Leslie Marlow, Esq.
Hank Gracin, Esq.
Patrick J. Egan, Esq.
Gracin & Marlow, LLP
The Chrysler Building
405 Lexington Avenue, 26th Floor
New York, NY 10174
(212) 907-6457
  Oded Har-Even, Esq.
Robert V. Condon III, Esq.
Zysman, Aharoni, Gayer and
Sullivan & Worcester LLP
1633 Broadway
New York, NY 10019
(212) 660-3000


 

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

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

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

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

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

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

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

 


 
 

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CALCULATION OF REGISTRATION FEE

   
Title of each class of securities to be registered   Proposed
maximum
aggregate
offering
price(1)
  Amount of
registration
fee(2)
Common Stock, $0.001 par value(2)(3)   $ 18,687,500     $ 1,882  
Representative’s Warrants(4)            
Shares of Common Stock underlying Representative’s Warrants(2)(5)   $ 893,750     $ 90  
Total   $ 19,581,250     $ 1,972 (6) 

(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended (the “Securities Act”).
(2) Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
(3) Includes shares of common stock the underwriters have the option to purchase to cover over-allotments, if any.
(4) No fee pursuant to Rule 457(g) under the Securities Act.
(5) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The representative’s warrants are exercisable at a per share exercise price equal to 137.5% of the public offering price per share. As estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the representative’s warrants is $893,750, which is equal to 137.5% of $650,000 (4% of $16,250,000).
(6) Previously paid.

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 that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the 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 jurisdiction where the offer or sale is not permitted.

   
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED MAY 19, 2016

1,250,000 Shares
Common Stock

[GRAPHIC MISSING] 

This is a firm commitment initial public offering of 1,250,000 shares of common stock of Cancer Prevention Pharmaceuticals, Inc. No public market currently exists for our shares. We anticipate that the initial public offering price will be between $12.00 and $14.00 per share.

We effected a one-for-five reverse stock split of our outstanding common stock and our preferred stock on February 1, 2016. Prior to this offering, there has been no public market for our common stock. Our common stock has been approved for listing on the NYSE MKT under the symbol “CPP,” subject to meeting all of the requirements of the NYSE MKT listing standards on the date of this offering and official notice of issuance.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.

Neither the Securities and Exchange Commission (the “SEC”) 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.

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act, and we have elected to comply with certain reduced public company reporting requirements.

   
  Per Share   Total
Public offering price   $          $            
Underwriting discounts and commissions(1)   $     $  
Proceeds to us, before expenses   $     $  
(1) The underwriters will receive compensation in addition to the discounts and commissions. See “Underwriting” for a description of compensation payable to the underwriters.

One of our investors has agreed to purchase up to $5.0 million of shares of our common stock in this offering, at the initial public offering price, as further described in this prospectus. However, the underwriters may sell more, less or none of our shares of common stock to this investor. We have granted the representative of the underwriters an option to purchase up to an additional 187,500 shares of common stock from us at the public offering price, less the underwriting discounts and commissions, within 45 days from the date of this prospectus to cover over-allotments, if any. If the representative of the underwriters exercises the option in full the total underwriting discounts and commissions payable will be $    , and the total proceeds to us, before expenses, will be $    .

The underwriters expect to deliver our shares to purchasers in the offering on or about            , 2016.

Aegis Capital Corp

The date of this prospectus is            , 2016


 
 

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TABLE OF CONTENTS

 
  Page
Prospectus Summary     1  
Risk Factors     14  
Special Note Regarding Forward-Looking Statements     51  
Use of Proceeds     53  
Dividend Policy     54  
Capitalization     55  
Dilution     57  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     59  
Business     83  
Management and Board of Directors     128  
Executive and Director Compensation     135  
Certain Relationships and Related Party Transactions     142  
Security Ownership of Management and Other Beneficial Owners     144  
Description of Our Capital Stock     147  
Shares Eligible for Future Sale     155  
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Common Stock     157  
Underwriting     160  
Legal Matters     168  
Experts     168  
Where You Can Find Additional Information     168  
Index to the Financial Statements     F-1  

Neither we nor any of the underwriters has authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we may have referred you in connection with this offering. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor any of the underwriters is making an offer to sell or seeking offers to buy these securities in any jurisdiction where, or to any person to whom, the offer or sale is not permitted. The information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock, and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since those dates.

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

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For investors outside the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus and any free writing prospectus outside of the United States.

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PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes, before deciding to buy shares of our common stock. Unless the context requires otherwise, references in this prospectus to “Cancer Prevention Pharmaceuticals,” “we,” the “Company,” “us” and “our” refer to Cancer Prevention Pharmaceuticals, Inc. Unless otherwise included, all share amounts and per share amounts in this prospectus have been presented on a pro forma basis to reflect the reverse stock split of our outstanding shares of common stock and preferred stock at a ratio of one-for-five, that we effected on February 1, 2016.

Overview

We are a clinical-stage biopharmaceutical company formed primarily to develop and commercialize therapeutic agents for the treatment and prevention of certain pre-cancerous conditions, orphan diseases (i.e., rare diseases) and gastrointestinal conditions. We have achieved target enrollment in our Phase 3 clinical trial with our product candidate CPP-1X/sul for the treatment of familial adenomatous polyposis (“FAP”), a rare inherited condition that can cause the growth of thousands of colorectal adenomas (i.e., adenomatous polyps), which are recognized as a key risk factor for colon cancer, and we are a regulatory and commercial collaborator in a Phase 3 clinical trial funded by the National Cancer Institute (the “NCI”) for the study of colon cancer risk reduction and colon adenoma therapy (“CAT”), a preventative treatment approach for survivors of colorectal cancer or those who have high-risk colon polyps. In addition, our therapeutic agent has been used in several investigator-sponsored trials and company-sponsored preclinical trials including: (1) Phase 1 and Phase 2 investigator-sponsored clinical trials for the treatment of Neuroblastoma (“Neuroblastoma” or “NB”), a particularly deadly cancer affecting children, funded by nonprofit organizations; (2) Phase 1 investigator-sponsored clinical trial for the treatment of early-onset type 1 diabetes funded by the Juvenile Diabetes Research Foundation; (3) Phase 2a investigator-sponsored clinical trial expected to be initiated this year for treatment of gastric cancer funded by the NCI; and (4) preclinical studies that we have sponsored in the orphan disease and cancer fields.

The following chart sets forth our current Company-sponsored and investigator-sponsored clinical trials:

[GRAPHIC MISSING]  

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Our lead investigational new drug product, CPP-1X/sul, is a combination of the polyamine synthesis inhibitor CPP-1X (also known as eflornithine or difluoromethylornithine (“DFMO”)) and the non-steroidal anti-inflammatory drug sulindac. We believe our investigational drug is unique in that it is designed to treat the risk factors (e.g., polyps) that are hypothesized to lead to colon cancer and therefore may have the ability to prevent various types of colon cancer. Unlike other therapies used to treat FAP and for use with CAT, CPP-1X/sul is an oral, non-surgical and non-invasive option that, we believe, has the potential to both improve patients’ quality of life and reduce the sizeable expenses associated with current treatment protocols.

CPP-1X/sul and CPP-1X have received orphan drug designation status for FAP in the United States and Europe. In addition, we have received orphan drug designation status for CPP-1X as a single agent for Neuroblastoma in the United States and Europe and for gastric cancer in the United States. We are also pursuing orphan drug designation status for CPP-1X as a single agent for gastric cancer in Europe. By targeting and treating precursor conditions to colorectal cancer (“CRC”), our product candidates address an important and largely unmet medical need, with a market opportunity that we believe is between $300 and $800 million in the United States and the European Union for FAP (based on internal studies of the U.S. and E.U. market and an external study conducted by Bridgehead International with respect to certain countries in Europe, we conducted an analysis of potential pricing scenarios in which we considered, among other factors, the higher cost to patients for cancer care in the U.S. compared to the E.U., the worldwide prevalence rate reported by several peer reviewed journals, pricing of orphan drugs and of new oncology related therapies, current estimated costs of caring for FAP patients and potential health care system savings due to the elimination and/or reduction of surgical and surveillance procedures, reduced doctor visits and end-stage disease costs) and $1 billion for CAT (based on a modest fraction of the estimated 600,000 prevalence in the United States reported by the American Cancer Society and pricing scenarios similar to FAP). Both of the principal active ingredients in our investigational drug candidates (eflornithine and sulindac) have been previously approved individually but not in combination for other uses by the U.S. Food and Drug Administration (the “FDA”) and have shown limited side effects at the dosages we are studying. Eflornithine, the active ingredient in CPP-1X, has never been approved in oral form, is not on the market in any systemic dosage form, and is not available in any generic form. The combination of eflornithine and sulindac delivered in an oral form, to which we have exclusive license rights to commercialize from the Arizona Board of Regents of the University of Arizona (the “University of Arizona”) and which we refer to as our “Combination Therapy,” showed promising results in an NCI supported randomized, placebo-controlled Phase 2/3 clinical trial to prevent recurrent colon adenomas — particularly high-risk pre-cancerous polyps. It is our understanding that the reduction of adenoma occurrence demonstrated in the eflornithine/sulindac Phase 2/3 clinical trial is the largest seen in any similar prevention trial to date (this understanding is based on peer reviewed journals and neither the FDA nor any other regulatory agency has formally evaluated this conclusion).

We have achieved target enrollment in our 150 patient double-blind randomized Phase 3 clinical trial for the use of CPP-1X/sul in the treatment of FAP. The trial, conducted at 21 sites in North America and Europe, is being partially funded by the proceeds of a co-development and license agreement we entered into with Tillotts Pharma AG (“Tillotts”), a subsidiary of Zeria Pharmaceuticals Company, Ltd. (“Zeria”) and the proceeds of the option and collaboration agreement and securities purchase agreement that we entered into with Sucampo AG, a wholly owned subsidiary of Sucampo Pharmaceuticals, Inc., which is a global biopharmaceutical company (“Sucampo”), on January 9, 2016. The agreement with Tillotts provides Tillotts with European and Japanese rights to develop and commercialize the combination of CPP-1X/sul for the treatment of FAP and other gastrointestinal conditions. The option and collaboration agreement with Sucampo provides Sucampo with an option to enter into an exclusive license to develop and commercialize the combination of CPP-1X/sul in North America for the treatment, prevention and diagnosis of human diseases and conditions.

In addition, we have also sponsored with the NCI a Phase 3 clinical trial for the use of CPP-1X/sul to prevent the recurrence of colon cancer or high-risk adenoma. A grant award made to SWOG funds and supports this Phase 3 clinical trial, which has been initiated and seeks a target enrollment of 1,340 colon cancer patients at SWOG’s large network of clinical sites throughout the United States. SWOG is a NCI sponsored cancer research cooperative group that designs and conducts multidisciplinary clinical trials to

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improve the practice of medicine in preventing, detecting, and treating cancer, and to enhance the quality of life for cancer survivors. SWOG has been awarded this grant by the NCI as a member of the NCI National Clinical Trials Network. We have also supported investigator sponsored trials using CPP-1X for NB and there are several of these clinical studies currently enrolling and treating patients.

According to United States Cancer Statistics published by the American Cancer Society, in the United States in 2015, it is estimated that CRC will be the third most commonly occurring cancer among males and females and the third leading cause of cancer-related deaths. High-risk adenomatous polyps are considered the key risk factor for CRC. In 2015, the disease will be responsible for an estimated 49,700 deaths in the United States. An even higher rate of incidence occurs in the European Union, where approximately 152,000 people per year die from CRC according to the Globocan 2012 Fact Sheets.

Diagnostic Test to Guide Treatment

Our strategy for FAP and CAT aims to integrate pre-treatment screening into the drug label, effectively creating a patient-specific or “precision” treatment into one integrated therapeutic offering with intellectual property protection. We refer to this combination of a therapeutic drug with diagnostic guidance as our “theranostic” approach. In addition to the therapeutic agents described above, we have also developed a rapid blood sample diagnostic test (and intend to develop in the future a saliva diagnostic test) for determining patients with a high probability of efficacy for the use of CPP-1X/sul for the treatment of patients with FAP and patients with CRC. Studies have indicated that patients that have certain genes may have a higher probability of efficacy of CPP-1X/sul. The data from the current Phase 3 trial being performed in FAP is intended to be used to determine the efficacy of the diagnostic test. If a correlation between the test and diagnosis is established, we intend to pursue appropriate FDA clearance to commercialize the test. We believe that through patent protection, and special regulatory data and marketing exclusivity (e.g., “orphan” drug designation and other statutory protections), we will have a significant, defensible market position against competitors.

We are testing the assays referred to in the diagnostic product as secondary endpoints of our clinical trial. The FDA is aware of the secondary endpoint biomarkers (which would be the basis of a future diagnostic kit) and they are included in our Phase 3 FAP study protocol as part of our overall drug development and clinical program. We currently do not intend to pursue the kit as a primary commercialization enterprise or sell it as a standalone product. In addition, we do not plan to seek separate marketing authorization. We do not anticipate any regulatory issues with this approach and, even if the FDA rejects the strategy, we do not expect that it will significantly affect our drug development process.

Recent Developments

Sucampo Transactions

On January 9, 2016, we entered into a strategic alliance with Sucampo for the development and commercialization of CPP-1X/sul combination. Pursuant to the terms of a securities purchase agreement, dated January 9, 2016 (the “Securities Purchase Agreement”), Sucampo purchased from us a note in the aggregate principal amount of $5.0 million (the “Sucampo Note”). The Sucampo Note bears interest at the rate of 5% per annum and matures on January 31, 2019 unless earlier converted or prepaid. The Sucampo Note is automatically convertible into our securities, subject to certain limitations, in the event we consummate a future financing with aggregate proceeds at least $10.0 million (exclusive of any Sucampo investment), whether through a public offering or a private offering (a “Qualified Financing”). If a Qualified Financing occurs before completion of the futility analysis of our ongoing Phase 3 clinical trial for CPP-1X/sul for the treatment of FAP, the Sucampo Note will automatically convert into the same securities issued in the Qualified Financing at price equal to a 10% discount to the lowest issuance price of the securities in the Qualified Financing. If a Qualified Financing occurs after completion of the futility analysis of our ongoing Phase 3 clinical trial for CPP-1X/sul for the treatment of FAP, the Sucampo Note will automatically convert into the same securities issued in the Qualified Financing at a 20% discount to the lowest issuance price of the securities in the Qualified Financing. If a Qualified Financing or a Sale (as defined below) does not occur before the maturity date of the Sucampo Note, at the election of Sucampo, the unpaid principal balance of the Sucampo Note and any accrued and unpaid interest then payable is convertible into our common stock at a price equal to the then most recent §409A per share tax valuation conducted by a third-party appraisal firm. In

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addition, in the event of the sale of all or substantially all of our assets or our consolidation or merger (a “Sale”) prior to the maturity date of the Sucampo Note or the consummation of a Qualified Financing, the Sucampo Note may, at Sucampo’s election, be converted into shares of common stock or preferred stock, whichever is issued in the most recent financing, at a conversion rate equal to the lowest price per share of such securities issued in our most recent financing.

Sucampo has also agreed, at our sole discretion, to (i) purchase up to $5.0 million of our securities (the “Sucampo Additional Investment”) on the same terms and conditions as the other investors in a Qualified Financing, or (ii) if a Qualified Financing has not occurred before the completion of a futility analysis of our ongoing Phase 3 clinical trial for FAP, then an investment would be made by Sucampo, at our election, and subject to certain conditions to be met by us, in the form of an additional convertible promissory note in the aggregate principal amount of $5.0 million under the same terms and conditions as the Sucampo Note, except that the maturity date of the subsequent note will be the third anniversary of the issuance date of such note. The futility analysis is not expected until the second half of 2016, therefore, it is anticipated that the Sucampo Note will convert into shares of our common stock in this offering at a 10% discount to the public offering price per share set forth on the cover page of this prospectus and that the Sucampo Additional Investment will be made by Sucampo purchasing $5 million of shares of common stock in this offering.

In connection with Sucampo’s investment in the Sucampo Note and the Sucampo Additional Investment, and subject to certain government rights and rights of the University of Arizona, we entered into an exclusive option and collaboration agreement (the “Option and Collaboration Agreement”) with Sucampo granting it the right to obtain (the “Option”) an exclusive license (the “License”), with the right to sublicense, develop, make, have made, use, import, offer for sale and sell eflornithine and sulindac as active ingredients, together as sole active ingredients or both together in combination with additional active ingredients (the “Product”) in North America (the “Sucampo Territory”) for the treatment, prevention and diagnosis of human diseases and conditions (the “Field”). Sucampo has agreed to pay us an option fee of $7.5 million for the Option. The first tranche of this option fee, in the amount of $3.0 million, has been paid and Sucampo will be required to pay the remainder of the option fee in the amount of $4.5 million (the “Second Option Fee Tranche”) in order to retain the Option. If Sucampo exercises the Option, Sucampo has the right to negotiate and execute a definitive license agreement (the “License Agreement”) granting Sucampo the License. This Option is exercisable by Sucampo immediately, however, if not exercised will expire 30 days after the acceptance for filing by the FDA of the first New Drug Application (“NDA”) filed for the Product and delivery to Sucampo of certain data.

In addition, the Option expires if (i) Sucampo does not make the Sucampo Additional Investment in accordance with the Securities Purchase Agreement; or (ii) either party terminates the Option and Collaboration Agreement.

The Option and Collaboration Agreement provides that a joint steering committee (the “JSC”) is to be established to plan, administer, evaluate and carry out the development of the Product. Prior to execution of the License Agreement final decision making authority with regard to issues presented to the JSC rests with us and we have the obligation to pay for any expenses incurred by us in the development of the Product and we retain the right to develop the Product for any indication.

We have agreed with Sucampo that the License Agreement will require the JSC to conduct the development and commercialization respectively of CPP-1X/sul with Sucampo having final decision making vote on matters submitted to the JSC related to development of the Product in the Field in the Sucampo Territory and on matters decided by the JSC related to commercialization. Sucampo will be responsible for and control the development, manufacture and commercialization of the Product in the Field and Sucampo Territory at its own expense and Sucampo will be obligated to use commercially reasonable efforts to develop, manufacture and commercialize the Product in the Field in the Sucampo Territory.

We have also agreed that upon the execution of the License Agreement Sucampo will be required to pay a license issue fee of $5.0 million if the License Agreement is entered into prior to completion of the Phase 3 clinical trial for FAP or $10.0 million if the License Agreement is entered into after completion of the Phase 3 clinical trial for FAP. In addition, Sucampo will be obligated under the License Agreement to pay additional consideration of up to an aggregate of $180.0 million upon the achievement of the specified development and

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sales milestones plus 50% of the Adjusted Net Profits generated by Sucampo from the sale of Products. Adjusted Net Profit is defined as 90% of the revenue received by Sucampo from the sale of the Products less costs incurred by Sucampo in the development, manufacture, marketing, sales and distribution of the Products. Ten percent (10%) of net profits is to be distributed between us and Sucampo pro rata of the total development costs borne by each until such costs have been recouped.

In connection with the Sucampo transactions we agreed to pay a financial agency fee of 5% (up to a maximum of $500,000) for any funds received by us from Sucampo, excluding the proceeds from any purchase of shares by Sucampo in this offering. To date, we have paid $400,000 of this financial agency fee.

Bridge Financing

Between January 11, 2016 and January 15, 2016, we entered into a note and warrant purchase agreement with 22 existing stockholders and their affiliates and raised aggregate gross proceeds of $2.255 million (the “Bridge Financing”) through the issuance of convertible notes (the “Bridge Notes”) in the aggregate principal amount of $2.255 million and warrants exercisable for shares of our common stock. The Bridge Notes bear interest at a rate of 8% per annum and mature on the earlier of (i) January 31, 2018 (subject to extension at our discretion for an additional two years at an annual interest rate of 10%); and (ii) the occurrence of an event of default. The principal amount outstanding under the Bridge Notes and all accrued and unpaid interest automatically convert into shares of our common stock at a conversion price equal to the per share price of our common stock in this offering. The Bridge Notes also contain provisions for automatic conversion upon a change of control and an optional conversion in the discretion of the holder if we have not completed an initial public offering or a change of control has not occurred prior to January 31, 2018 at a conversion price of $6.00 per share. Each investor was also issued a warrant (a “Bridge Warrant”) that is exercisable for such number of shares of common stock as equals the quotient obtained by dividing 30% of the principal amount of the investor’s Bridge Note by the per share price of our common stock issued in this offering or $6.00 per share if this offering is not consummated (the “Issue Price”). The exercise price is equal to the Issue Price and the exercise period for the warrants is a five year period commencing on the consummation of this offering or the maturity date of the investor’s Bridge Note. The Bridge Notes and Bridge Warrants contains adjustments in the case of stock splits, stock dividends, reorganizations and other similar transactions.

Strengths and Competitive Advantages

Large Market Opportunity for an Effective Non-Surgical Treatment for Polyps

At this time, there is no oral pharmaceutical treatment approved for the prevention of polyps or polyp recurrence. Current treatment protocols for patients with FAP rely on complex endoscopic or surgical intervention. Patients diagnosed with FAP can expect a high likelihood of major surgeries, endoscopic interventions, lifelong surveillance, a reduced quality of life associated with the disease and shortened life span. By targeting and effectively treating precursor conditions to CRC, we believe that our therapy addresses an important and largely unmet medical need through a non-surgical, non-invasive treatment that has the potential to significantly improve a patient’s quality of life and reduce the sizeable expenses associated with current treatment protocols.

Strong Relationships with the University of Arizona and other Strategic Partners and Collaborators

We are the exclusive licensee to intellectual property developed by the University of Arizona and the University of California, Irvine (the “University of California Irvine”), by core members of our science team, who each have spent over a decade researching the underlying subject matter. Significant portions of the supporting research were also funded under grants from the NCI. The University of Arizona has been designated by the NCI as a comprehensive cancer center, the NCI’s highest designation.

We believe that our relationship with the University of Arizona uniquely positions us to benefit from the breadth of clinical research and expertise developed at the University of Arizona. We intend to continue to leverage this relationship to improve our research and develop additional potential indications for the use of CPP-1X. Our relationship with the University of Arizona also provides us with credibility within the oncology community, and we benefit from this association in our pursuit of additional collaborations with leading

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universities and research institutions. In addition, we have established strategic contract relationships with the NCI and SWOG for clinical trials and Sanofi-Aventis U.S. LLC (“Sanofi-Aventis”) for manufacturing.

We have also entered into an exclusive pharmaceutical product co-development and license relationship with Tillotts, focused on Japan and Europe. This relationship makes use of the regulatory, development, and commercialization expertise of Tillotts and their parent company Zeria in the respective markets of Europe and Japan. The ultimate aim of the relationship is to achieve regulatory approval in Europe and Japan. Additionally, Tillotts has provided funds to initiate and support our ongoing Phase 3 FAP clinical trial. Up front and near-term milestone payments are being used to fund the EU registration program and the relevant operations required by us to support that program. In addition, Tillotts is responsible for 100% of the cost of developing our combination product in Japan. The terms of this agreement include an upfront non-refundable license fee of $8 million that has been paid with potential milestone payments in excess of $100.0 million, which includes clinical and sales-based milestone payments. Tillotts is also obligated to pay royalties ranging from mid-single digits to low double digit percentages of annual net sales. See “Business — Our Co-Development and License Agreement.”

In January 2016, we entered into the Option and Collaboration Agreement with Sucampo pursuant to which Sucampo paid us $3.0 million for the right to enter into the License to develop and commercialize the combination of CPP-1X/sul in North America for the treatment, prevention and diagnosis of human diseases and conditions. The ultimate aim of the relationship is to achieve regulatory approval in North America. Additionally, in January 2016, Sucampo separately invested an additional $5.0 million in our company in the form of the Sucampo Note that, subject to certain limitations, will convert into shares of our capital stock at a 10% discount to the price offered to investors in the offering. Sucampo also has agreed to invest an additional $5.0 million in this offering. The $8.0 million we have received to date from Sucampo will be used to support our ongoing Phase 3 clinical trial for the treatment of FAP. The terms of the License Agreement, if the Option is exercised, include the potential payment of up to $10.0 million in license fees and up to $180.0 million in milestone payments upon the achievement of specified clinical development and sales milestones, and a 50% net profit split. See “Business — Our Strategic Alliance — Option and Collaboration Agreement and Potential License Agreement.”

Known, Well-Tested Agents Have Shown Favorable Results

Both of the principal active ingredients in CPP-1X/sul (eflornithine and sulindac) have been approved individually for other uses by the FDA and have shown limited side effects at the dosages we anticipate using. However, they have not been approved in combination. Consequently we expect to pursue a 505(b)(2) new drug application for U.S. marketing authorization. An NCI-supported study combining the two agents showed promising results and no overt toxicity (there were no statistically significant serious adverse events reported) in a randomized placebo-controlled Phase 2/3 clinical trial treating patients with sporadic adenomas for three years of daily dosing. Not only did the trial show no clinical statistically significant, serious adverse side effects, but to our knowledge, the extent of adenoma reduction demonstrated in the eflornithine/sulindac Phase 2/3 clinical trial is the largest seen in any similar prevention trial to date (this understanding is based on peer reviewed journals and neither the FDA nor any other regulatory agency has formally evaluated this conclusion). The published results from the trial showed there was a 70% difference in efficacy between the treatment and placebo groups for all adenomas (i.e., both standard risk and high-risk). In measurements of occurrence, 12.3% of all patients treated with CPP-1X/sul showed adenoma occurrence compared to 41.1% in the placebo group. In the subgroups of the study that had high-risk adenomas there was a 92 – 95% difference between the treatment and placebo groups. Compared to placebo, the recurrence of risky adenomas was inhibited by over 90%. The p-value for all comparisons in this study was p< 0.001.

Our Substantial Proprietary Estate, Regulatory Designations and Exclusive Supply Agreement Provide Potentially Significant Exclusive Rights and Competitive Advantage

We have pursued a multi-step intellectual property strategy to secure and protect our position in the market. We currently hold an exclusive license to seven issued patents and another 15 pending patent applications, several of which we also have an undivided co-ownership interest in. The issued patents provide us with the ability to exclude potential competitors from practicing the claimed inventions, such as the use, in

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the United States, of CPP-1X/sul for preventing or treating cancer in patients having Ki-ras-dependent cancer. A co-formulation patent application directed to the CPP-1X/sul combined tablet was recently filed.

In addition, we have entered into an exclusive long-term supply relationship with Sanofi-Aventis. CPP-1X/sul and CPP-1X have received orphan drug designation status for FAP in the United States and Europe. In addition, we have received orphan drug designation status for CPP-1X as a single agent for Neuroblastoma in the United States and Europe and for gastric cancer in the United States. We are also pursuing orphan drug designation status for CPP-1X as a single agent for gastric cancer in Europe. This designation can provide seven years of data and non-patent market exclusivity from the date the drug is approved in the United States, and 10 years from the date the drug is approved in the European Union, although competitors may attempt to undercut these protections. Eflornithine, the active ingredient in CPP-1X, has never been approved in oral form, is not on the market in any systemic dosage form, and is not currently available in any generic form. We have exclusive license rights from the University of Arizona to commercialize the combination of eflornithine and sulindac delivered in an oral form.

By leveraging the prior work of universities and their researchers, including their pre-clinical studies and accumulated data, we believe we have developed a significant drug development opportunity. Because of the licensing approach taken to secure intellectual property and our collaborations with the NCI and Sanofi-Aventis, the significant costs that would normally be required to develop therapeutic treatments to the level of a Phase 3 clinical trial, in both time and expense, which often amount to hundreds of millions of dollars, have been reduced. In fact, based upon current information, and depending on what the regulatory authorities might require to secure marketing authorization, we estimate that we will only require approximately $20 million of additional capital to complete our Phase 3 clinical trial of CPP-1X/sul for FAP as currently contemplated and achieve regulatory approval for the use of CPP-1X/sul to treat FAP. Additionally, we believe it would take a potential competitor significant capital and many years of time to replicate the data, to which we have exclusive rights for use in the regulatory approval process.

“Theranostic” Treatment Approach Expands Market Control Opportunity

We believe our drug combination is unique in that it is designed to treat polyps that are hypothesized to lead to cancer and therefore may have the ability to prevent various types of colon cancer. Unlike other therapies used to treat FAP and CAT, CPP-1X/sul is a non-surgical and non-invasive option that has the potential to both improve patient quality of life and reduce higher healthcare system-wide expense burdens. We are pursuing a “theranostic” strategy that aims to integrate pre-treatment screening into the drug label, essentially combining diagnostics and treatment into one integrated therapeutic offering that has combined intellectual property protections. This diagnostic testing approach may be a useful genetic screening tool to predict those most likely to respond to the drug and to have minimal side effects. We expect to further support this theranostic approach in a retrospective analysis of our diagnostic screening test as part of our near-term Phase 3 trial.

Experienced Leadership

Our management, advisors and board of directors have extensive experience in pharmaceutical development, the clinical trial and regulatory approval processes, drug commercialization, financing capital-intensive projects, and developing and sustaining new markets for pharmaceutical agents. Members of our team have previously worked in senior management and senior officer positions, or led significant research initiatives at Systems Medicine, Pfizer, Roche, PDL, AmpliMed, the University of Arizona, the National Cancer Institute, Ilex Oncology (acquired by Genzyme), MD Anderson, Memorial Sloan Kettering, and the FDA.

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Our Strategy

The focus of our business strategy is to advance CPP-1X/sul, our lead investigational new drug candidate, toward regulatory approval for FAP in the United States, the European Union, and then eventually other territories and other indications. We are also evaluating additional eflornithine-based formulations and combinations for a variety of additional indications.

Our goals in executing this strategy are to keep capital requirements to a minimum, expedite product development, gain access to clinical research and manufacturing expertise that will advance product development and eventual market acceptance of our product, and rely on a well-defined and carefully executed intellectual property strategy in order to position CPP-1X/sul with long-term, defensible, competitive advantages.

Our near-term strategy includes:

Evaluating the additional use of our product candidates in other indications.  In addition to FAP and CAT, we are also supporting a number of investigator-sponsored Phase 1 and Phase 2 trials using CPP-1X as a potential treatment for a number of orphan diseases such as gastric cancer, NB and early-onset type 1 diabetes.
Obtaining regulatory approval for our products in the United States as well as Europe and Japan.  We have commenced two Phase 3 clinical trials — one for the treatment of FAP and the other for the treatment of CAT. In addition, we support investigators conducting Phase 1 and Phase 2 clinical trials for NB, a Phase 1 trial for early-onset type 1 diabetes, and a soon to be initiated Phase 2a gastric cancer trial.
Further expanding the use of eflornithine.  We are continuing research for the use of eflornithine in various combination with other agents as well as other oral formulations in addition to CPP-1X.
Continuing to establish strategic relationships.  We continue to enter into investigator-sponsored trials for the use of our CPP-1X in combination with other agents.
Expanding our intellectual property portfolio.  We have made a significant investment in the development of our patent portfolio to protect our technologies and programs, and we intend to continue to do so. We have obtained exclusive rights to seven different patent families directed to therapeutic methods related to our CPP-1X platform. These families include seven issued patents and another 15 pending patent applications. We have obtained issued patents in the United States, China, Hong Kong, Europe and Australia. In addition, we have applications pending in these same as well as several other countries having commercially significant markets. In addition to patents, we intend to continue pursuing regulatory data and market exclusivity (such as orphan drug designation) for certain indications we are supporting through academic collaborations, or intend to initiate within CPP.
Maximizing commercial opportunity for our technology.  Our product candidates target large markets with significant unmet medical need. We have entered into a strategic alliance with Sucampo that has provided us with funding to continue our current Phase 3 clinical trial for the treatment of FAP and the ability to benefit from the economic potential of any future commercialization of resulting products in the United States through a potential profit sharing arrangement. In Europe and Japan, where we have less familiarity with the markets, we have co-partnered our rights with Tillotts to develop and commercialize CPP-1X/sul for the treatment of FAP and other gastrointestinal conditions, which we believe will result in our products being well positioned in Europe and Japan.
Managing our business with efficiency and discipline.  We believe we have efficiently utilized our capital and human resources to develop and acquire our product candidates and programs, and create a broad intellectual property portfolio. We operate cross-functionally and are led by an experienced management team with backgrounds in developing and commercializing product candidates. We use project management techniques to assist us in making disciplined strategic program decisions and to attempt to limit the risk profile of our product pipeline.

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Corporate Information

We were incorporated in Delaware in December 2009. Our principal executive offices are located at 1760 E. River Road, Suite 250, Tucson, Arizona 85718, and our telephone number is (520) 908-7774. Our corporate website address is www.canprevent.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only. We were originally formed as a limited liability company in 2008, and in December 2009 the holders of all of its units contributed all of their units in the limited liability company to us and the limited liability company became our wholly owned subsidiary.

References to Cancer Prevention Pharmaceuticals also include references to our subsidiaries: Cancer Prevention Pharmaceuticals Subsidiary, LLC (formerly Cancer Prevention Pharmaceuticals, LLC), an Arizona limited liability company, and Cancer Prevention Pharma Limited, a U.K. limited company.

This prospectus contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Implications of Being an Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and therefore we intend to take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal controls over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an “emerging growth company.” In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We will remain an “emerging growth company” until the earlier of (1) the last day of the fiscal year: (a) following the fifth anniversary of the completion of this offering; (b) in which we have total annual gross revenue of at least $1.0 billion; or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References herein to “emerging growth company” have the meaning associated with that term in the JOBS Act.

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THE OFFERING

Common stock offered by us    
    1,250,000 shares
Common stock to be outstanding after this offering    
    6,759,443 shares
Option to purchase additional shares    
    We have granted to the underwriters the option, exercisable for 45 days from the date of this prospectus, to purchase up to 187,500 additional shares of common stock to cover over-allotments.
Representative’s warrants    
    We will issue to Aegis Capital Corp., the representative of the underwriters, upon closing of this offering, compensation warrants entitling the representative or its designees to purchase 4% of the aggregate number of the shares of common stock that we issue in this offering (excluding any shares issued upon exercise of the underwriters’ over-allotment option). The representative’s warrants will be exercisable for no more than 5 years from the effective date of this offering and may be exercised commencing 12 months after the date of effectiveness of the Registration Statement on Form S-1 of which this prospectus forms a part. The representative’s warrants may be exercised on a cashless basis.
Use of proceeds    
    We intend to use a minimum of $10.0 million of the net proceeds from this offering to support our Phase 3 clinical trial of CPP-1X/sul for FAP and additional studies necessary for filing a NDA with the FDA. In addition, we intend to use approximately $1.0 million of the net proceeds to support our efforts developing other indications for CPP-1X/sul, and the remainder of the net proceeds to advance any additional product candidates that we select, to expand our internal research and development capabilities to explore new product candidates and to fund working capital and other general corporate purposes, including for costs and expenses associated with being a public company. See “Use of Proceeds.”
Risk factors    
    You should read the “Risk Factors” section of this prospectus for a discussion of certain of the factors to consider carefully before deciding to purchase any shares of our common stock.
Proposed NYSE MKT symbol    
    “CPP”


 

The number of shares of our common stock to be outstanding after this offering set forth above is based on 2,533,336 shares of common stock outstanding as of May 19, 2016, and assumes that (i) all outstanding shares of our preferred stock convert into 2,164,243 shares of common stock upon the closing of this initial public offering; (ii) certain warrants convert into 199,154 shares of common stock upon the closing of this initial public offering (assuming a cashless exercise of the warrants); (iii) all of the Bridge Notes and all accrued interest thereon convert into 178,042 shares of common stock upon the closing of this initial public offering (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus) and which will occur automatically upon the closing of this offering; and (iv) the Sucampo Note and all accrued interest thereon converts into 434,668 shares of common stock upon the closing of this initial public offering (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus, less a 10% discount per the conversion terms of the Sucampo Note) and which will occur automatically upon the closing of this offering, and excludes:

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803,885 shares of common stock issuable upon the exercise of outstanding stock options as of May 19, 2016, at a weighted-average exercise price of $1.46 per share;
124,787 shares of common stock issuable upon the exercise of outstanding warrants, at a weighted-average exercise price of $0.2404 per share;
52,038 shares of common stock issuable upon the exercise of outstanding Bridge Warrants issued, at a weighted-average exercise price of $13.00 per share (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus);
112,954 shares of common stock reserved for future issuance under our 2010 Equity Incentive Plan, as amended (the “2010 Equity Incentive Plan”);
1,200,000 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan, (the “2016 Equity Incentive Plan”) which will become effective upon the execution and delivery of the underwriting agreement for this offering; and
77,000 shares of common stock reserved for future issuance under our 2016 Employee Stock Purchase Plan (the “ESPP”), which will become effective upon the execution and delivery of the underwriting agreement for this offering.

Unless otherwise indicated, all information contained in this prospectus assumes:

the conversion of all our outstanding preferred stock into an aggregate of 2,164,243 shares of common stock in connection with the closing of this offering;
the exercise of certain warrants into an aggregate of 199,154 shares of common stock in connection with the closing of this offering (assuming a cashless exercise of the warrants);
the outstanding Bridge Notes and all accrued interest thereon convert into 178,042 shares of common stock upon the closing of this offering (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus and which will occur automatically upon the closing of this offering);
the Sucampo Note and all accrued interest thereon converts into 434,668 shares of common stock upon the closing of this offering (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus, less a 10% discount per the conversion terms of the Sucampo Note) and which will occur automatically upon the closing of this offering);
no exercise by the underwriters of their option to purchase up to an additional 187,500 shares of our common stock to cover over-allotments;
no exercise of outstanding stock options or the 124,787 warrants or Bridge Warrants described above;
the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering; and
a one-for-five reverse stock split of our common stock and preferred stock effected on February 1, 2016.

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table summarizes certain of our financial data. We derived the summary statement of operations data for the years ended December 31, 2015 and 2014 from our audited financial statements and related notes appearing elsewhere in this prospectus. The summary statement of operations data for the three months ended March 31, 2016 and 2015 and the summary balance sheet data as of March 31, 2016 were derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and include, in our opinion, all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial information in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the entire year. The summary financial data should be read together with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

Summary Financial Data

       
  Year ended December 31,   Three months ended March 31,
     2015   2014   2016   2015
     (in thousands, except share and per share data)          
Statement of Operations:
                                   
Revenue
                                   
Collaboration revenue   $ 3,485     $ 485     $ 1,038     $ 121  
Grant revenue     230                    
Total revenue     3,715       485       1,038       121  
Operating expenses:
                                   
Research and development     5,517       4,207       2,199       1,271  
General and administrative     2,120       2,074       966       356  
Total Operating Expenses     7,637       6,281       3,165       1,627  
Operating loss     (3,922 )      (5,796 )      (2,127 )      (1,506 ) 
Other income (expense)
                                   
Interest income (expense), net     3       6       (172 )      1  
Other expense     (53 )      (28 )      (33 )      (45 ) 
Loss from change in fair value of warrant liability     (1,708 )      (194 )      (992 )      (459 ) 
Other income (expense), net     (1,758 )      (216 )      (1,197 )      (503 ) 
Net loss before income taxes     (5,680 )      (6,012 )      (3,324 )      (2,009 ) 
Income tax expense (benefit)     1       (10 )      (2 )       
Net Loss   $ (5,681 )    $ (6,002 )    $ (3,322 )    $ (2,009 ) 
Basic and diluted net loss per common
share(1)
  $ (2.26 )    $ (2.44 )    $ (1.32 )    $ (0.80 ) 
Shares used to calculate net loss per common share(1)     2,512,937       2,459,322       2,519,161       2,509,165  
Pro forma net loss per common share, basic and diluted (unaudited)(2)   $ (1.37 )             $ (0.44 )          
Shares used to calculate pro forma net loss per common share, basic and diluted (unaudited)(2)     3,468,363                5,495,268           

(1) See Note 3 of our notes to our audited and unaudited financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the basic and diluted net loss per common share and the number of shares used in the computation of the per share amounts.

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(2) We have presented pro forma net loss per common share information for the year ended December 31, 2015 and the three months ended March 31, 2016 to reflect (i) the conversion of all outstanding shares of preferred stock into an aggregate of 2,164,243 shares of common stock, (ii) the automatic exercise of our preferred stock warrants into 199,154 shares of common stock (assuming a cashless exercise of the warrants); (iii) the conversion of all outstanding Bridge Notes and all accrued interest thereon into an aggregate of 178,042 shares of common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus) and which will occur automatically upon the closing of this offering; (iv) the conversion of the outstanding Sucampo Note and all accrued interest thereon into an aggregate of 434,668 shares of common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus, less a 10% discount per the conversion terms of the Sucampo Note) and which will occur automatically upon the closing of this offering; and (v) the sale of 1,250,000 shares of our common stock in this offering (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus) and the application of the net proceeds therefrom after deducting underwriting discounts and commissions and other estimated offering expenses by us; and (vi) the reclassification to stockholders’ (deficit) equity of our preferred stock warrant liability in connection with the automatic exercise of our preferred stock warrants into common stock. The numerator has been adjusted to remove the loss resulting from the remeasurement of the preferred stock warrant liability as these amounts will be reclassified to stockholders’ (deficit) equity upon closing of this offering.

   
  As of March 31, 2016
     Actual   Pro Forma
as adjusted
     (unaudited)
     (in thousands)
Balance Sheet Data:
                 
Cash   $ 8,692     $ 22,917  
Working capital (deficit)     (215 )      14,010  
Total assets     9,189       23,414  
Accrued expenses     581       486  
Warrant liability     3,548       1,302  
Convertible notes     5,603        
Total convertible preferred stock     10,558        
Accumulated deficit     (25,965 )      (25,254 ) 
Total Stockholders’ equity     (22,850 )      9,166  

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RISK FACTORS

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this prospectus, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

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

We are a clinical-stage biopharmaceutical company with a limited operating history. Investments in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in June 2008. As of March 31, 2016, we had an accumulated deficit of $26.0 million. For the three months ended March 31, 2016 and 2015, we reported a net loss of approximately $3.3 million and $2.0 million, respectively. For the years ended December 31, 2015 and 2014, we reported a net loss of approximately $5.7 million and $6.0 million, respectively. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for our lead product CPP-1X/sul and other product candidates.

Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We currently have no product revenues and may not generate significant revenue at any time in the near future, if at all.

We currently have no products for sale and we cannot guarantee that we will ever have any products approved for sale. We and our investigational drug product candidates are subject to extensive regulation by the FDA and comparable regulatory authorities in other countries governing, among other things, research, testing, clinical trials, manufacturing, promotion, marketing, adverse event reporting and recordkeeping of our devices. Until, and unless, we receive approval from the FDA and other regulatory authorities for our products, we cannot commercialize our products and will not have product revenues.

We will need to raise additional capital.

We will need to secure additional financing in order to support our operations, including to complete our Phase 3 clinical trial of CPP-1X/sul for FAP. We can provide no assurances that any additional sources of financing will be available to us on favorable terms, if at all. Although we will receive additional funds from Sucampo if the Data Monitoring Committee (the “DMC”) completes its futility analysis and does not determine that the Phase 3 clinical trial for the treatment of FAP is futile and we will receive additional funds from Sucampo if it exercises the Option with respect to the exclusive License, there can be no guarantee that the Option will be exercised by Sucampo or that the DMC will not determine that continuing the Phase 3 clinical trial for the treatment of FAP is futile. Our forecast of the period of time through which our current financial resources will be adequate to support our operations and the costs to support our general and administrative, selling and marketing and research and development activities are forward-looking statements and involve risks and uncertainties.

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We will also need to raise additional capital to expand our business to meet our long-term business objectives. Additional financing, which is not in place at this time, may be from the sale of equity or convertible or other debt securities in a public or private offering, from an additional credit facility or strategic partnership coupled with an investment in us or a combination of both. We may be unable to raise sufficient additional financing on terms that are acceptable to us, if at all. Our failure to raise additional capital and in sufficient amounts may significantly impact our ability to expand our business. For further discussion of our liquidity requirements as they relate to our long-term plans, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Our consolidated financial statements have been prepared assuming that we will continue as a going concern.

Our operating losses, negative cash flows from operations and limited alternative sources of revenue raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements for the year ended December 31, 2015 and the three months ended March 31, 2016 do not include any adjustments that might result from the outcome of this uncertainty. If we cannot raise adequate capital on acceptable terms we will need to revise our business plans.

Our revenue recognition policies can result in deferred revenue being recognized as current revenue in current periods despite there being no new cash influx.

In certain instances, we receive non-refundable, up-front payments when licensing our intellectual property to others, which often occurs in conjunction with a research and development agreement. When management believes that the license to our intellectual property does not have stand-alone value, we recognize revenue attributed to the license on a straight-line basis over the contractual or estimated performance period. This can result in the recognition of current revenue at times when no new revenue has been received and the revenue being recognized is no longer available for use by us.

If we fail to develop additional product candidates, our commercial opportunity will be limited.

We expect to initially develop our lead product candidate, CPP-1X/sul, working together with our strategic partners Tillotts and Sucampo. However, one of our strategies is to pursue clinical development of additional product candidates. Developing, obtaining regulatory approval for and commercializing additional product candidates, including additional eflornithine-based product candidates, will require substantial additional funding beyond the net proceeds of this offering and is prone to the risks of failure inherent in medical product development. We cannot provide you any assurance that we will be able to successfully advance any of these additional product candidates through the development process.

Even if we receive FDA approval to market additional product candidates for the treatment of FAP, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize additional product candidates, our commercial opportunity will be limited. Moreover, a failure in obtaining regulatory approval of additional product candidates may have a negative effect on the approval process of any other, or result in losing approval of any approved, product candidate.

Treating diseases that are precursors to cancer creates significant challenges for us.

Treating diseases that are precursors to cancer (such as FAP) involves new regulatory pathways, surrogate endpoints, and clinical approaches that are alternatives to the conventional surgical approach. Advancing this therapy creates significant challenges for us, including:

educating medical personnel regarding a new approach to treating FAP such as the delaying or eliminating of existing “FAP-related procedures”, including the surgical removal of all or a portion of the colon (a colectomy) or rectum (a protectomy) and other currently practiced procedures to treat the aggressive polyposis associated with the disease;
sourcing clinical and, if approved, commercial supplies for the materials used to manufacture our CPP-1X/sul lead product;

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convincing patients and physicians that pharmacoprevention therapy, which is a new approach that uses drugs to treat pre-disease and disease risk factors, will be beneficial to them in conjunction with surveillance and a healthy lifestyle;
obtaining regulatory approval, due to the fact that the FDA and other regulatory authorities have limited experience with clinical development of pharmacoprevention therapies relative to conventional therapies; and
establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of an alternative therapy.

Our business is highly dependent on the success of our lead product candidate, CPP-1X/sul. In addition, CPP-1X/sul and our other product candidates will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales.

Our business and future success depends on our ability to obtain regulatory approval of and then successfully commercialize our lead product candidate, CPP-1X/sul, working together with our strategic partners Tillotts and Sucampo. CPP-1X/sul is in clinical stage development. Even though we are pursuing a registration pathway based on specific FDA and European Medicines Agency (the “EMA”) input, there are many uncertainties known and unknown that may affect the outcome of the trial. These include the event rates associated with the natural history of FAP patient subgroups and the translation of previous polyp regression and prevention data into endpoints based on “FAP-related events” such as FAP-related surgeries, duodenal disease staging scores, cancer, and death. Although it is well accepted that polyposis is the basis for management of FAP and subsequent FAP-related events, the exact event rates are not well established and vary for pre-colectomy patients and post-colectomy patients with rectal/pouch polyposis or duodenal disease. All of our product candidates, including CPP-1X/sul, will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. In addition, because CPP-1X/sul is our most advanced product candidate and there is limited natural history information associated with FAP in the context of prevention, there is always a chance of developmental delays or regulatory issues or other problems arising, with our development plans and depending on their magnitude, our business could be significantly harmed.

We have limited experience as a company conducting clinical trials.

Prior to initiating our current Phase 3 clinical trials, all of the preclinical and clinical trials relating to our product candidates had been conducted by third parties. Although we have recruited a team that has significant experience with managing clinical trials, we have limited experience as a company in conducting our own clinical trials. In part because of this lack of experience, we cannot guarantee that planned clinical trials will be completed on time, if at all. Large-scale trials require significant additional financial and management resources, monitoring and oversight, and reliance on third-party clinical investigators, contract research organizations (“CROs”), or consultants. Relying on third-party clinical investigators or CROs, which are also subject to governmental oversight and regulations, may also force us to encounter delays that are outside of our control.

Our clinical trials may fail to demonstrate adequately the safety and efficacy of any of our product candidates, which would likely prevent or delay regulatory approval and commercialization.

Before obtaining regulatory approvals for the commercial sale of our product candidates, including CPP-1X/sul, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. 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. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile 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

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or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products.

In addition, even if the trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

Clinical trials are expensive, time-consuming and difficult to design and implement.

Human clinical trials are expensive, difficult to design and to implement, in part because they are subject to multiple stages of rigorous regulatory approval requirements. Because our product candidates are based on pharmacoprevention approaches, we expect that they will continue to require extensive research and have substantial research and development costs. Accordingly, our clinical trial costs are likely to be significantly higher than for more conventional therapeutic technologies or drug products. In addition, our proposed personalized product candidates involve costly contract manufacturing, the costs of which will be borne by us.

The clinical trial process itself is also time-consuming. We estimate that the clinical trials for our product candidates should take a minimum of several years to complete. Failure might occur at any stage of the trials. At any time we may encounter problems that cause us to abandon or repeat our work. The commencement and completion of clinical trials may also be impacted by several factors including, but not limited to:

obtaining regulatory approval to commence and continue a clinical trial;
reaching agreements with prospective CROs, and trial sites, both of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
manufacturing sufficient quantities and quality of product candidate(s) for use in clinical trials;
obtaining institutional review board approval to conduct a clinical trial at a prospective site;
recruiting and enrolling patients to participate in clinical trials;
patients withdrawal from the study due to side effects from the investigational product and or other therapy, lack of efficacy and or disease progression;
Data Safety Monitoring Committee review of safety, event rate analysis, and futility analysis;
ensuring compliance by the CROs and trial sites of their regulatory requirements; and
patients who are otherwise lost to further follow-up.

Clinical trials may also be delayed or discontinued as a result of ambiguous or negative interim results, be suspended or terminated at any time by us, an institutional review board overseeing the clinical trial at a clinical trial site (with respect to that site), the FDA, or other regulatory authorities. Factors that might lead to a suspension or termination of a clinical trial include, but are not limited to:

failure to conduct the clinical trial in accordance with U.S., international and or local regulatory requirements;
failure of medical investigators to follow clinical trial protocols;
unforeseen safety issues; and/or
lack of adequate funding to continue the clinical trial.

Changes in regulatory requirements and guidance may occur, and we may need to amend clinical trial protocols or our development plan to reflect these changes. Amendments may require resubmitting clinical trial protocols to institutional review boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate any clinical trials, the commercial prospects for product candidates may be harmed, and the ability to generate

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product revenues will be delayed. 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 product candidates.

Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.

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 regulatory authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects or other unexpected characteristics.

If unacceptable toxicities arise in the development of our product candidates, our clinical trials could be suspended or terminated or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Inadequate training in recognizing or managing the potential side effects of CPP-1X/sul could result in patient deaths. Any of these occurrences may harm our business, financial condition and prospects significantly.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

FAP is an orphan disease with a limited number of patients eligible for clinical trials. We may experience difficulties in patient enrollment in our clinical trials for this and a variety of other reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients and successful completion of the trial depends on many factors, including, but not limited to:

the patient eligibility criteria defined in the protocol;
the size of the patient population required for analysis of the trial’s primary endpoints;
the proximity of patients to study sites;
the design of the trial including our assumptions related to event rates for pre-colectomy and post-colectomy patients;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
our ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will drop out of the trials before completion.

In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. Moreover, because our product candidates represent a departure from more commonly used methods for FAP treatment, potential patients and their doctors may be inclined to use conventional therapies, such as surgery, rather than enroll patients in any future clinical trial.

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We currently have no marketing, sales or distribution organization and have no experience in marketing products as a company. If we or our collaborators 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 generate product revenue.

As a company, we currently have no marketing, sales or distribution capabilities and have no experience in marketing products. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.

If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products, such as we have with Tillotts and Sucampo; however, there can be no assurance that we will be able to establish or maintain such additional collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.

There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.

If we or our collaborators are unable to obtain adequate coverage and reimbursement for our products, it is unlikely that our products will gain widespread acceptance.

The success of our commercialization efforts and those of our collaborators depends on the availability of adequate coverage and reimbursement for our products from third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed care programs. Patients generally expect that products such as ours are covered and reimbursed by third-party payors for all or part of the costs and fees associated with their use. If such products are not covered and reimbursed then patients may be responsible for the entire cost of the product, which can be substantial. Therefore, health care providers generally do not prescribe products that are not covered and reimbursed by third-party payors in order to avoid subjecting their patients to such financial liability. The existence of adequate coverage and reimbursement for the products by government and private insurance plans is central to the acceptance of CPP-1X and/or CPP-1x/sul and any future products we provide. In fact, failure to obtain reimbursement, is an extraordinary event under our agreement with Tillotts that allows Tillotts to terminate its agreement with us and could result in us being required to pay Tillotts various fees which could be substantial in amount.

During the past several years, third-party payors have undertaken cost-containment initiatives including different payment methods, monitoring health care expenditures, and anti-fraud initiatives. For some governmental programs, such as Medicaid, coverage and reimbursement differ from state to state, and some state Medicaid programs may not pay an adequate amount for CPP-1X and/or CPP-1x/sul or may make no payment at all. Furthermore, the health care industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control health care costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Therefore, we cannot be certain that our services will be reimbursed at a level that is sufficient to meet our costs.

If oncologists, gastroenterologists, and colorectal surgeons decide not to prescribe our products, we may be unable to generate sufficient revenue to sustain our business.

To increase awareness and adoption of our products, we and our collaborators will need to educate oncologists, gastroenterologists and colorectal surgeons on the benefits and value of our products through published papers, presentations at scientific conferences and one-on-one education sessions by members of our sales force. In addition, we and our collaborators will need to assure oncologists, gastroenterologists and colorectal surgeons of our ability to obtain and maintain adequate reimbursement coverage from third-party payors. We and our collaborators may need to hire additional commercial, scientific, technical, selling and

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marketing and other personnel to support this process. If our educational efforts fail and medical practitioners do not decide to prescribe our products in sufficient volume, we may be unable to generate sufficient revenue to sustain our business. Our clinical studies to date have demonstrated that our CPP-1X/sul reduces polyps although neither the FDA nor any other regulatory agency has formally evaluated this conclusion. However, since our approach is a different approach, patients and physicians may be hesitant to use our products. In addition, factors outside of our control, such as insurance reimbursement are expected to influence market acceptance of our products. Accordingly, even if we receive regulatory approval for the use of our products, we may not be successful in generating revenue from the sale of our products.

A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business.

We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:

differing regulatory and reimbursement requirements in foreign countries;
unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
difficulties staffing and managing foreign operations;
workforce uncertainty in countries where labor unrest is more common than in the United States;
potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;
challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
business interruptions resulting from geo-political actions, including war and terrorism; and
potential difficulties that may arise with pharmaceutical company partners under license or other agreement to jointly develop, seek regulatory approval, and commercialize our products.

These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.

We face significant competition from other biotechnology and pharmaceutical companies, our operating results will suffer if we fail to compete effectively.

The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. We believe that four companies are currently developing treatments for FAP: Marina Biotech, Inc. (“Marina”), SLA Pharma AG, StemSynergy Therapeutics, Inc. (“StemSynergy”) and Thetis Pharmaceuticals LLC. Marina and StemSynergy each has received “orphan” drug designation for its respective product

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designed to treat FAP. Many of our competitors have greater market presence and substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. 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, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement.

Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances. For additional information regarding our competition, see “Business — Competition.”

Competitors could develop and/or gain FDA approval of our product candidates for a different indication.

Since we do not have composition of matter patent claims for eflornithine or sulindac, others may obtain approvals for other uses of eflornithine products that are not covered by our licensed, issued or pending patents. For example, eflornithine has been approved for marketing in the United States for different uses and different dosage forms. Other companies, licensees or collaborators may seek to develop eflornithine for other uses in the United States or any country where we are seeking approval. We cannot provide any assurances that any other company or individual may not obtain FDA approval for products that contain eflornithine in various formulations or delivery systems that might adversely affect our ability to develop and market these products in the United States. We cannot provide any assurances that our products will be FDA-approved prior to our competitors’ and, if those products have patent or exclusivity protection of their own, this could significantly delay approval of our product.

If a product containing our active ingredients is already marketed or if the FDA approves other products containing our active ingredients in the future to treat indications, even if not our approved indication, physicians may elect to prescribe and substitute a competitor’s products to treat the diseases for which we are intending to commercialize; this is commonly referred to as “off-label” use. While under FDA regulations a competitor is not allowed to promote off-label uses of its product, the FDA does not regulate the practice of medicine and, as a result, cannot direct physicians to select certain products for their patients. Although the ability of the FDA to restrict off-label promotion was successfully challenged in one recent federal court case, it is too early to determine whether this conclusion will be affirmed on appeal or result in a change in the FDA’s policy. Consequently, we may not have the ability to prevent off-label use of a competitor’s product to treat the diseases we are intending to commercialize, even if we have issued method of use patent claims for that indication. If we are not able to obtain and/or enforce our patents or otherwise receive orphan drug protection, a competitor could develop and commercialize similar products for the same indications that we are pursuing. We cannot provide any assurances that a competitor will not obtain FDA approval for a product that contains the same active ingredients as our products, which could negate any exclusivity protections we might anticipate.

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are

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highly dependent on our management, scientific and medical personnel, including our President and Chief Executive Officer, our Chief Scientific Officer and our Chief Financial Officer. The loss of the services of any of our executive officers, other key employees, and other scientific and medical advisors, and our inability to find suitable replacements could result in delays in product development and harm our business.

In addition to full time staff, to control costs, to supplement the expertise of our management and technical personnel, or to retain experts who may otherwise have fulltime employment with institutions or non-competing companies, we have routinely relied on the services of specialized consultants. These consultants are obligated to us under contracts that may limit or specify the scope of the work product they will provide, and or limit or specify the time period the consultant is engaged by us. In some cases, these consultants may receive equity interests in our company as incentive and in other cases they may not. These consultants also work at other clients and have discretion to decide what time they devote to our activities, which may result in a lack of availability when needed due to responsibilities at other clients. There can be no assurance that these consultants will have the time available to honor the obligations they currently have to us within the time period that we require, or be available for future engagements not currently contracted for. Loss of the services of, or failure to recruit replacements for, such key consulting advisors could disrupt our product development, strategic partner relationships or otherwise materially and adversely affect our financial condition and results of operations.

Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be 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. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. 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.

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

As of May 19, 2016, we had ten full-time employees and four part-time employees. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

identifying, recruiting, integrating, maintaining and motivating additional employees;
managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and
improving our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to and the ability of our collaborators to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of regulatory approval, clinical management, and manufacturing. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is

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compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.

We may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In fact, the issuance of securities to Sucampo in connection with our strategic alliance with Sucampo, some of which convert at a discount to the price to be paid by investors in this offering, will result in dilution to existing stockholders. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.

If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the clinical development of our product candidates, including our planned clinical trials for CPP-1X/sul. If approved, we will require significant additional amounts in order to launch and commercialize our product candidates.

We estimate that our net proceeds from this offering will be approximately $14.2 million, based on an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We estimate that we will require approximately $20.0 million of additional capital to complete our Phase 3 clinical trial of CPP-1X/sul for FAP. We expect to use a portion of the net proceeds from this offering (as well as funding available, if any, from current agreements with Tillotts and Sucampo) to support our Phase 3 clinical trial of CPP-1X/sul for FAP and additional studies necessary for filing a NDA with the FDA. The net proceeds may also be used to support our efforts developing other indications for CPP-1X/sul, to advance any additional product candidates that we select, to expand our internal research and development capabilities to explore new product candidates and to fund working capital, including general operating expenses. There can be no assurance that we will obtain additional funding, including funding from Tillotts or Sucampo and therefore there can be no assurance that our funding will be sufficient to complete our current Phase 3 trial of CPP-1X/sul for FAP. In addition, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may require additional

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capital for the further development and commercialization of our product candidates and may 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. We have no committed source of additional capital other than from Sucampo if and only if the DMC does not determine that continuing the Phase 3 clinical trial for the treatment of FAP is futile. 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 our product candidates or other research and development initiatives. Our license agreements may also be terminated if we are unable to meet the payment obligations under the agreements. We could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

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

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, such as we recently did in our Bridge Financing and our strategic alliance with Sucampo, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates such as a percentage of profits as will be required under the potential License with Sucampo, or grant licenses on terms unfavorable to us.

Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: (i) comply with the laws of the FDA and other similar foreign regulatory bodies, (ii) provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies, (iii) comply with manufacturing standards we have established, (iv) comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws, or (v) report financial information or data accurately or to disclose unauthorized activities to us. Any such misconduct or noncompliance could negatively affect the FDA’s review of our regulatory submission, including delaying approval or disallowance of certain information to support the submission, and/or delay a federal or state healthcare program’s or a commercial insurer’s determination regarding the availability of future reimbursement for our product candidates. If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed 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, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. The laws that may affect our ability to operate or may require us to modify certain programs include, but are not limited to:

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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, 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 or approval from Medicare, Medicaid, or other third-party payors (both governmental and private) that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to a federal or state healthcare program or private payor;
the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which, among other things, created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their respective implementing regulations, which, among other things, impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of such individually identifiable health information;
the federal Physician Payment Sunshine Act, created under the Healthcare Reform Act (as defined herein), and its implementing regulations, which require certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services (“HHS”), information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and
the Foreign Corrupt Practices and similar laws in other countries that, for example, prevent improper payments to gain commercial advantage or to enhance clinical trials.

Additionally, we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and may apply regardless of the payor.

While we have adopted a code of business conduct and ethics, it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct 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. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and 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, including the imposition of civil, criminal and administrative penalties,

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damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

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 our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical 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 or 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. 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;
injury to our reputation;
withdrawal of clinical trial participants;
initiation of investigations by regulators;
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 revenue;
exhaustion of any available insurance and our capital resources;
the inability to commercialize any product candidate; and
a decline in our share price.

Our inability to obtain 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, alone or with corporate collaborators. We currently carry $5.0 million per occurrence and $5.0 million in the aggregate for product and clinical trial liability insurance for our product candidates. It is our belief that this amount of coverage is typical for similar companies in our industry conducting clinical trials; however, it may not be sufficient. Although we intend to obtain clinical trial insurance prior to the commencement of any clinical trials, we may not be able to obtain sufficient insurance at a reasonable cost, if at all. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may 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. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

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Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems and those of our future CROs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While we have not experienced any such material system failure 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 development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for research and development of our product candidates and for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. 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 and commercialization of our product candidates could be delayed.

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

Our operations, and those of our CROs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. In addition, we are reliant on third parties for conducting research and development of our product candidates, and these third parties may be affected by government shutdowns or withdrawn funding. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.

Fluctuations in insurance cost and availability could adversely affect our profitability or our risk management profile.

We hold a number of insurance policies, including product liability insurance, property insurance, directors’ and officers’ liability insurance, and workers’ compensation insurance. If the costs of maintaining adequate insurance coverage increase significantly in the future, our operating results and cash flow could be materially adversely affected. Likewise, if any of our current insurance coverage should become unavailable to us or become economically impractical, we would be required to operate our business without indemnity from commercial insurance providers. If we operate our business without insurance, we could be responsible for paying claims or judgments against us that would have otherwise been covered by insurance, which could adversely affect our results of operations or financial condition.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, 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. As a result of our most recent private placements and other transactions that have occurred over the past three years, we may have experienced, and, upon completion of this offering, may experience, an “ownership change.” We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. At December 31, 2015 the Company has estimated federal and state net operating loss carryforwards of $10.9 million and $11.0 million for federal and state income tax purposes, respectively, which could be limited if we experience an “ownership change.”

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

As widely reported, global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, declines in

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consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

Risks Related to Our Reliance on Third Parties

We are dependent on technologies we license for the development of all of our products, and if we lose the right to license such technologies our ability to develop our products would be harmed.

We currently are dependent on our license with the University of Arizona for the development and commercialization of all of our products. Our current licenses imposes, and any future licenses we enter into are likely to impose, various development, funding, royalty, diligence, sublicensing, insurance and other obligations on us. If our license with respect to any of these technologies is terminated for any reason, the development of the products contemplated would be delayed, or suspended altogether, while we seek to license similar technology or develop new non-infringing technology. If our existing license is terminated, the development of the products contemplated by the licenses could be delayed or terminated and we may not be able to negotiate additional licenses on acceptable terms, if at all, which would have a material adverse effect on our business.

We have entered into an exclusive co-development and licensing agreement with Tillotts for European and Japanese rights to develop and commercialize CPP-1X/sul for the treatment of FAP and other gastrointestinal conditions, which agreement may have a material impact on our business.

We entered into an exclusive pharmaceutical product co-development and license agreement with Tillotts for European and Japanese rights to develop and commercialize the combination of CPP-1X/sul for the treatment of FAP and other gastrointestinal conditions. Under the terms of this agreement, Tillotts provided us with an upfront payment and will provide milestone payments for European and Japanese development programs under a co-development framework. We may also receive payments of over $100 million, including upfront and milestone payments for development and for reaching certain sales levels as well as royalties ranging from mid-single digits to low double-digit percentages of product sales. Upon certain extraordinary events, Tillotts is entitled to terminate the license agreement in which case we would be required to repay Tillotts certain earned fees, including for development milestones, royalties, and sales milestones, which amounts may be significant. See “Business — Our Co-Development and License Agreement” for additional information regarding our license agreement with Tillotts.

We have entered into a strategic alliance with Sucampo for North American rights to develop and commercialize CPP-1X/sul for the treatment of FAP and other conditions, which agreement may have a material impact on our business and result in dilution to our stockholders.

Sucampo has agreed, under certain conditions, to make the Sucampo Additional Investment, which is an additional $5.0 million of invested capital in our next Qualified Offering at our request and may, under certain conditions and upon payment of a minimum of $5.0 million, exercise its Option to enter into the exclusive License Agreement, with the right to sublicense, develop, make, use, import, offer for sale and sell CPP-1X/sul in North America for the treatment, prevention and diagnosis of human diseases and conditions. No assurance can be given if or when the Sucampo Additional Investment may be received from Sucampo, if or when the Option to acquire an exclusive License for CPP-1X/sul may be exercised by it or whether the strategic alliance contemplated by the License will be successful or that we will otherwise realize the intended benefits of this proposed strategic alliance. In addition, after the License is granted to Sucampo, we will be dependent on a JSC to be established to plan, administer, evaluate and carry out the development of the

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Product at Sucampo’s expense and Sucampo will have ultimate decision making authority with respect to the JSC. Any delays in the development and commercialization of our product candidates as a result of the JSC’s or Sucampo’s inactions or actions thereafter, or the inability or refusal by Sucampo to fund commercialization activities, would likely materially harm our business prospects, financial condition and results of operations. In addition, our profit split is reduced by expenses incurred by Sucampo, of which we have no control. Under the terms of the of the Option and Collaboration Agreement, Sucampo is obligated to provide us with an additional $4.5 million if the DMC does not determine that continuing the Phase 3 clinical trial for the treatment of FAP is futile. In addition, if the License Agreement is entered into Sucampo will be obligated to pay additional consideration of up to $10.0 million in a license fee and up to $180.0 million in milestone payments upon the achievement of specified clinical development and sales milestones, as well as a profit share, subject to a right of termination of the License Agreement under certain circumstances. There can be no assurance that, such determination will be made, the Option will be exercised or the milestones will be met.

The Sucampo Note in the principal amount of $5.0 million that Sucampo purchased from us on January 9, 2016, subject to certain limitations, is automatically convertible into our securities in the event we conclude a future financing with aggregate proceeds at least $10.0 million (exclusive of any Sucampo investment), whether through a public offering or a private offering. If the financing occurs before completion of the futility analysis of our ongoing Phase 3 clinical trial for CPP-1X/sul for the treatment of FAP, the Sucampo Note will convert into the same securities issued in the Qualified Financing at price equal to 10% discount to the issuance price of the securities in the Qualified Financing. If a Qualified Financing occurs after completion of the futility analysis of our ongoing Phase 3 clinical trial for CPP-1X/sul for the treatment of FAP, the Sucampo Note will convert into the same securities issued in the Qualified Financing at a 20% discount to the issuance price of the securities in the Qualified Financing.

Our development program depends upon third-party researchers who are outside our control.

We are dependent upon independent investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical trials under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs. In addition, we cannot guarantee their ability to follow proper protocol. These investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our development programs, or if their performance is substandard or not in compliance with the FDA’s Good Clinical Practice requirements, the approval of our FDA applications, if any, and our introduction of new product candidates, if any, will be delayed and may not be obtained at all. These collaborators may also have relationships with other commercial entities, some of whom may compete with us. If our collaborators assist our competitors at our expense, our competitive position would be harmed. These collaborators may also take undue risks with our agents or conduct studies against our wishes or outside our control.

We also support investigator-sponsored clinical trials, which are conducted by parties other than us. If there are adverse events or complaints with those trials, it could potentially adversely affect our clinical development program.

We rely and will rely on third parties to conduct certain aspects of our clinical trials. If these third parties do not successfully carry out their contractual duties, regulatory obligations, or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

We depend and will depend upon independent investigators and collaborators, such as universities, medical institutions, CROs and strategic partners to conduct certain aspects of our preclinical and clinical trials under agreements with us, including without limitation the NCI. We expect to have to negotiate budgets and contracts with CROs and study sites, which may result in delays to our development timelines and increased costs. We will rely heavily on these third parties over the course of our clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with current good clinical practices (“cGCPs”), which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical

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development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. In addition, our clinical trials must be conducted with products produced under current good manufacturing practices (“cGMPs”), regulations and will require a large number of test patients. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Any third parties retained to perform services in connection with our clinical trials will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could affect their performance on our behalf. If these third parties 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 or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

Switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.

Our substantial dependence on third-party manufacturers, such as Sanofi-Aventis, to manufacture our product candidates could materially affect our ability to manufacture the products used in our current clinical trials.

We do not own any manufacturing facilities and rely exclusively on third-party manufacturers to produce, package and store our product candidates. Currently, we have a manufacturing and supply agreement with Sanofi-Aventis, under which it is our exclusive supplier to manufacture the DFMO products used in our current clinical trials or that we commercialize using DFMO for the treatment and/or prevention of cancer. If we were, for any reason, to seek or be required to change manufacturers, we would need to re-seek FDA approval of the new manufacturer and manufacturing facility, the timing and resultant delay of which we would not be able to control. Pursuant to our agreement, during a defined exclusivity period, Sanofi-Aventis has agreed not to manufacture DFMO products for any third party that uses DFMO for the treatment and/or prevention of cancer. In order to maintain this exclusivity, we must also work exclusively with Sanofi-Aventis for the supply of the products used in our trials and future commercial supply. The agreement contains provisions that require commercial minimum purchase amounts to be determined in the future (based on “Commercial Demand Forecasts” and minimum batch size projections; this is subject to adjustment upon mutual agreement of both parties). The minimum commercial supply commitment is also contingent on the first Regulatory Approval of our product and then based on rolling forecasts. Forecasts such as these are inherently difficult to make with definitive accuracy. While we believe the future agreed-to minimum commercial supply purchase amounts based on the forecasts are reasonable taking into account the information currently available to us, they involve significant elements of subjective judgment and analysis and no assurance can be given as to their attainability. If we fail to meet our minimums, Sanofi-Aventis has the right to terminate its exclusivity obligations, which will in turn eliminate our obligation to use Sanofi

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exclusively. Only if there is a termination due to a breach by Sanofi-Aventis is Sanofi-Aventis conditionally obligated to license to us rights to use certain of its intellectual property in order to allow us to continue to manufacture with a third party.

We are also dependent on other contracted manufacturers for supply, packaging, analytics, regulatory compliance, scale up, manufacturing-process, and other elements that may be necessary to supply the products to clinical trial sites, and eventually if products receive regulatory approval, to the marketplace. If these contracted suppliers do not perform as agreed, are unable to meet volume requirements, fail to satisfy regulatory requirements to which they must comply, fail regulatory inspections, or otherwise fail to meet our needs and expectations, our clinical trials and product development plans could be delayed or significantly more expensive to implement. Our strategy for the research, development and commercialization of our products may require us to enter into other arrangements with third party manufacturers, corporate collaborators, licensors, licensees and others, the outcome of such relationships that we cannot fully control.

CPP-1X/sul therapies rely on the availability of specialty raw materials, which may not be available to us or our third-party suppliers on acceptable terms or at all.

CPP-1X/sul requires many specialty raw materials, some of which are manufactured by small companies with limited resources and experience to support a commercial product. The suppliers may be ill-equipped to support our needs, especially in non-routine circumstances like an FDA inspection or medical crisis, such as widespread contamination. We also do not have contracts with many of these suppliers, and may not be able to contract with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key raw materials to support clinical or commercial manufacturing.

In addition, some raw materials are currently available from a single supplier, or a small number of suppliers. We cannot be sure that these suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose.

If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States and internationally governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state, federal or international authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.

Risk Related to Government Regulation

The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates.

We have not previously submitted a NDA to the FDA, or similar approval filings to comparable foreign authorities. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. We also intend to obtain regulatory approval of future CPP-1X-based product candidates regardless of cancer type or origin, which the FDA may have difficulty accepting if our clinical trials only involved cancers of certain origins. The FDA may change their position on these various aspects of our development program and may even put our efforts on clinical hold for a variety of reasons. Accordingly, the regulatory approval pathway for

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our product candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained. We rely heavily on data previously generated by others such as the NCI, Sanofi-Aventis (and predecessor companies), Ilex Oncology, and others.

We may also experience delays in completing planned clinical trials for a variety of reasons, including delays related to:

the availability of financial resources to commence and complete the planned trials;
reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
obtaining approval at each clinical trial site by an independent institutional review board (“IRB”);
recruiting suitable patients to participate in a trial;
having patients complete a trial or return for post-treatment follow-up;
having non-compliance issues with the CROs or clinical sites such as failure to comply with good clinical practice;
clinical trial sites deviating from trial protocol or dropping out of a trial;
adding new clinical trial sites; or
manufacturing sufficient quantities of qualified materials under current Good Manufacturing Practices (“cGMPs”) and applying them on a subject by subject basis for use in clinical trials.

Further, a clinical trial may be suspended or terminated by us, IRBs for the institutions in which such trials are being conducted, the Data Monitoring Committee for such trial, or by the FDA or other regulatory authorities due to a number of factors, many of which are outside of our control, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical 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 product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If the DMC for our current Phase 3 clinical trial for the treatment of FAP should determine that continuing the trial is futile, not only will we experience potential delays of the trial but Sucampo will no longer be obligated to pay us an additional $4.5 million or make the Additional Sucampo Investment. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue.

The FDA may disagree with our regulatory plan and we may fail to obtain regulatory approval of our product candidates.

We are currently conducting a Phase 3 clinical trial of CPP-1X/sul for FAP and are jointly conducting a Phase 3 colorectal cancer trial with our collaborators. Additionally, our collaborators are conducting Phase 1 and Phase 2 clinical trials for Neuroblastoma. If the results are sufficiently compelling, we intend to discuss with the FDA filing a NDA for approval of CPP-1X/sul as an ancillary to standard-of-care treatment for FAP and colorectal cancer based on only one Phase 3 clinical trial. However, the general approach for FDA approval of a new drug is dispositive data from two well-controlled, Phase 3 clinical studies of the relevant biologic or drug in the relevant patient population. Phase 3 clinical studies typically involve hundreds of patients, have significant costs and take years to complete and previous clinical trial and animal study results may also not support approval. In addition, 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;

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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and effective for any of their proposed indications;
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 our product candidates’ clinical and other benefits outweigh their 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 the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of an NDA or other comparable submission in foreign jurisdictions 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; 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.

Separate from the issues described above, while we might ultimately obtain approval, a competitor could obtain approval first, thereby potentially delaying our approval, particularly if the company has its own patent or market exclusivity protection.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, and a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials, as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a Risk Evaluation and Mitigation Strategy (“REMS”) program in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as

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restricted distribution methods, patient registries and other risk minimization tools. The FDA could also require a Black Box Warning on the product label to identify a particular safety risk, which could affect commercial efforts to promote and sell the product. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates 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 current cGMPs and cGCPs for any clinical trials that we conduct post-approval. We are also subject to certain user fees imposed by the FDA. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

restrictions on the marketing or manufacturing of our product candidates, 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 license approvals;
product seizure or detention, or refusal to permit the import or export of our product candidates; and
injunctions or the imposition of civil or criminal penalties.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

In addition, if we were able to obtain fast track or accelerated approval designations by the FDA of CPP-1X/sul, the FDA would require us to conduct a confirmatory study to verify the predicted clinical benefit and additional safety studies. The results from the confirmatory study may not support the clinical benefit, which would result in the approval being withdrawn.

Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centers and others in the medical community.

Even if the FDA or other regulatory authorities approve our product candidates they may not become broadly accepted by physicians, patients, hospitals, cancer treatment centers and others in the medical community. Acceptance and use of our product candidates will depend upon a number of factors, including:

the clinical indications for which our product candidates are approved;
physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe and effective treatment;
the potential and perceived advantages of our product candidates over alternative treatments;
the prevalence and severity of any side effects;
product labeling or product insert requirements of the FDA or other regulatory authorities;
limitations or warnings contained in the labeling approved by the FDA, including, but not limited to, a REMS program or a Black Box Warning;
the timing of market introduction of our product candidates as well as competitive products;
the cost of treatment in relation to alternative treatments;

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the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;
the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors and government authorities;
relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and
the effectiveness of our sales and marketing efforts.

If our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, cancer treatment centers or others in the medical community, we will not be able to generate significant revenue. Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.

Successful sales of our product candidates, if approved, may depend on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our product candidates represent new approaches to the treatment of cancer, we cannot accurately estimate the potential revenue from our product candidates.

Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance.

Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, 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 and medically necessary for the specific patient;
cost-effective; and
neither experimental nor investigational.

Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates.

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in

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the European Union, the pricing of drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our product candidates and may be affected by existing and future health care reform measures.

Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, in 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “Healthcare Reform Act”), was enacted. The Healthcare Reform Act and its implementing regulations, among other things, revised the methodology by which rebates owed by manufacturers to the state and federal government for covered outpatient drugs, including our product candidates, under the Medicaid Drug Rebate Program are calculated, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription drugs, and provided incentives to programs that increase the federal government’s comparative effectiveness research.

Other legislative changes have been proposed and adopted in the United States since the Healthcare Reform Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the “ATRA”) which delayed for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. In March 2013, the President signed an executive order implementing sequestration, and in April 2013, the 2% Medicare payment reductions went into effect. The ATRA also, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, 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 and/or impose price controls may adversely affect:

the demand for our product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our products;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.

Any reduction in reimbursement from Medicare, Medicaid or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

Risks Related to Our Intellectual Property

CPP-1X/sul has received orphan drug status designation for certain indications, and may be granted other statutory protections, but we may be unable to maintain the benefits associated with orphan drug status or other statutory protections, including market exclusivity.

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition or for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for a disease or condition will be recovered from

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sales in the United States for that drug or biologic. It is noteworthy that the FDA may decide not to grant designation if certain conditions apply. If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, to market the same drug for the same use or indication for seven years, except in limited circumstances, such as a showing of clinical superiority by the competitor product to the product with orphan drug exclusivity.

We have received orphan drug designation status for combination CPP-1X/sul and single agent CPP-1X for the treatment of FAP. We’ve also received orphan drug designation status for CPP-1X as a single agent for both Neuroblastoma and gastric cancer, but we might not obtain orphan drug exclusive marketing rights in the United States if we seek approval for an indication broader than the orphan designated indication. In addition, designation does not guarantee product approval. Orphan drug exclusivity may be lost if, for example, the FDA later determines that the request for designation was materially defective, should not have been initially granted, or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. In addition, while we intend to seek orphan drug designation for other product candidates, we may never receive such designations.

In addition, a competitor might obtain orphan drug exclusivity first, thereby delaying our approval and potentially negating any orphan drug exclusivity we might otherwise have obtained. Moreover, even if we receive orphan drug exclusivity, a competitor might find ways to undercut the exclusivity by seeking non-orphan use approval and hoping doctors will prescribe their product for the off-label orphan indication.

In addition, two of our competitors, Marina and StemSynergy, have each received “orphan” drug designation status for their respective products being developed to treat FAP. Therefore, we are not the only company that has received “orphan” drug designation status for drug products that are being developed to treat FAP. As such, if these competitor products are approved before our product, this could potentially delay significantly our approval.

Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act also provides for differing periods of statutory protection for new drugs approved under an NDA. Among the types of exclusivity are those for a “new chemical entity” and those for a new formulation or indication for a previously-approved drug. If granted, marketing exclusivity for the types of products that we are developing, which include only drugs with innovative changes to previously-approved products using the same active ingredient, would prohibit the FDA from approving an abbreviated new drug application (“ANDA”) or 505(b)(2) NDA relying on our safety and efficacy data for three years similar to “orphan” drug exclusivity. There is no guarantee the FDA will grant such exclusivity and competitors can try to seek approval of competitive products, notwithstanding the exclusivity. This three-year exclusivity, however, covers only the innovation associated with the original NDA. It does not prohibit the FDA from approving applications for drugs with the same active ingredient but without our new, exclusively protected innovative change. These marketing exclusivity protections do not prohibit the FDA from approving a full NDA, even if it contains the innovative change.

An important patent relating to the therapeutic use of CPP-1X/sul expires in 2019.

U.S. Patent 6,258,845 (the “845 Patent”), which is directed to subject matter related to our clinical trials, expires in 2019. Once the patent expires, we will no longer have the right to exclude others from using the claimed methods of treatment, at least to the extent they are not also protected by the claims of our newer patents. We have been able to develop additional intellectual property however, our options to successfully extend the patent protection currently provided by the 845 Patent beyond 2019 are limited to at most six months, and only if Pediatric Exclusivity Under Section 505A of the Federal Food, Drug, and Cosmetic Act can be obtained. The protection provided by our newer theranostic patents, which have begun to issue, depends in part on successfully incorporating the test recited in the patent claims into the drug label. In addition, it requires that the FDA deem the patent eligible for listing in the Orange Book, which lists drugs approved by the FDA on the basis of safety and effectiveness. Moreover, these patents claim subject matter in an area that has undergone and continues to undergo intense scrutiny by the Courts and the U.S. Patent and Trademark Office (“USPTO”). As such, the theranostic patent may be at risk for invalidity challenges.

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Patents are subject to changing legal interpretation by the USPTO and the Courts.

If the U.S. Supreme Court, other federal courts, or the USPTO were to change the standards of patentability such changes could have a negative impact on our business. Recent court cases have made it more difficult to protect certain types of inventions. For instance, on October 30, 2008, the Court of Appeals for the Federal Circuit issued a decision that methods or processes cannot be patented unless they are tied to a machine or involve a physical transformation. On March 20, 2012, in the case Mayo v. Prometheus, the U.S. Supreme Court invalidated a patent focused on a diagnostic process because the patent claim embodied a law of nature. On July 3, 2012, the USPTO issued its Interim Guidelines for Subject Matter Eligibility Analysis of Process Claims Involving Laws of Nature in view of the Prometheus decision. It remains to be seen how these guidelines will play out in the actual prosecution of diagnostic claims. Similarly, it remains to be seen how lower courts will interpret the Prometheus decision. Some aspects of our technology involve processes that may be subject to this evolving standard and we cannot guarantee that any of our pending process claims will be patentable as a result of such evolving standards.

More recently, the United States Supreme Court unanimously ruled in the case of American Civil Liberties Union, against Myriad Genetics, Inc. that the isolated form of naturally occurring DNA molecules does not rise to the level of patent-eligible subject matter. But the Court also held that claims directed to complementary DNA (“cDNA”) molecules are patent-eligible because cDNA is not naturally occurring. In overruling the Federal Circuit, and finding Myriad’s claims to the isolated form of naturally occurring DNA molecules invalid as a product of nature, the Supreme Court focused on the informational content of the isolated DNA. The Court found that the information contained in the isolated DNA molecule was not markedly different from that naturally found in the human chromosome. Yet, in holding isolated cDNA molecules patent-eligible, the Court recognized the differences between human chromosomal DNA and the corresponding cDNA. Because the non-coding regions of naturally occurring chromosomal DNA have been removed in cDNA, the Court accepted that cDNA is not a product of nature and, therefore, is patent-eligible subject matter.

It does not appear that the Supreme Court’s ruling in Myriad will adversely affect our current patent portfolio; however, we cannot predict any future court decisions and their impact on our patent portfolio.

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

We are dependent on patents, know-how and proprietary technology, both our own and licensed from others. Our commercial success will depend in part on our ability, and the ability of our licensors, to obtain and maintain patent protection on products and technologies and successfully defend these patents against third-party challenges. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. Accordingly, the patents available to us under exclusive license from the University of Arizona (and the University of California, Irvine under their Inter-Institutional Agreement with the University of Arizona), may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative products or technologies or design around our patented drug product and technologies. In addition, others may be successful in attempting to invalidate these patents or render them unenforceable.

Essential to our product development strategy are patents that are licensed and not owned. The license, which is granted under agreement with the University of Arizona, provides us with exclusive rights to commercialize the technology contained therein, including sublicense rights, in all jurisdictions in which patent rights have been granted, but the license does not provide us with complete and total control over the intellectual property. Under certain conditions relating to the potential financial hardship encountered by us, the University of Arizona has the right to terminate the agreement under certain circumstances. Should we lose the rights to commercialize these patents due to a termination of the license agreement, our business opportunity would be materially and adversely affected.

In addition to termination rights, under the license agreement the University of Arizona also retains rights to use the technology in its academic environments for education and research. The results of such research may be published by the University of Arizona at its discretion. Publication of academic research relating to

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our products, if it were to inadvertently reveal information otherwise deemed confidential by us, could negatively impact our intellectual property strategy, or potentially disclose trade secrets to competitors.

In the future, changes in patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. In September 2011, the Leahy-Smith America Invents Act (the “AIA”) was signed into law, resulting in a number of significant changes to U.S. patent law. These changes include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. As the USPTO continues to implement the AIA, and as the federal courts have the opportunity to interpret the AIA, the laws and regulations governing patents, and the rules regarding patent procurement, could change in unpredictable ways that may weaken our ability to obtain new patents or to enforce existing patents.

Because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that others have not filed or maintained patent applications for potentially competing applications. If third parties filed patent applications or obtained patents on technologies, compositions and methods of use that are related to our business and that conflict with our owned or licensed patent applications, we may be required to challenge such protection, terminate or modify our programs impacted by such protection, or obtain licenses from such third parties, which might not be available on acceptable terms, if at all.

Our success will also depend upon the skills, knowledge, and experience of our scientific and technical personnel, consultants and advisors. To help protect intellectual property for which patents may be unavailable or strategically undesirable, we rely on trade secrets and know-how. Trade secrets are difficult to protect. While employees, licensees, collaborators and consultants are generally required to enter into confidentiality agreements, this may not be sufficient to adequately protect trade secrets or other proprietary information. If we cannot maintain the confidentiality of this information, our ability to receive patent protection or protect trade secrets or other proprietary information will be at risk and our financial condition may be adversely affected.

Third-party claims of intellectual property infringement may prevent or delay our product 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 patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Recently, under the AIA, new procedures including inter partes review and post grant review have been implemented. These procedures are relatively new and the manner in which they are being implemented continues to evolve, which brings additional uncertainty to our patents and pending applications. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our 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. If and when a CPP-1X/sul-based product candidate is approved by the FDA, a certain third party may then seek to enforce its patent by filing a patent infringement lawsuit against us. While we do not believe that any such patent that could otherwise materially adversely affect commercialization of our product candidates exists, we may be incorrect in this belief. In this regard, patents issued in the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standard of proof. 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

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manufacturing process of our product candidates, constructs or molecules used in or 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 the 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 such patent may be able to block our ability to develop and commercialize the product candidate unless we obtained a license 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. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.

Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize 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, pay royalties or redesign our infringing products, 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. 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 our product candidates, which could harm our business significantly.

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 one or more of our patents 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. 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, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure.

Interference proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to some of our patents or patent applications subject to pre-AIA or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and 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 result in a decision adverse to our interests and, even if we are 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.

A derivation proceeding is a trial proceeding conducted at the Patent Trial and Appeal Board to determine whether (i) an inventor named in an earlier application derived the claimed invention from an inventor named in the petitioner’s application, and (ii) the earlier application claiming such invention was filed without authorization. An applicant subject to the first-inventor-to-file provisions may file a petition to institute a

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derivation proceeding only within one year of the first publication of a claim to an invention that is the same or substantially the same as the earlier application’s claim to the invention. The petition must be supported by substantial evidence that the claimed invention was derived from an inventor named in the petitioner’s application. Derivation proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees.

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 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.

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

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

Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or the USPTO.

If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, derivation proceedings, inter partes review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.

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Risks Related to This Offering and Ownership of our Common Stock

Upon the sale of the shares offered in this prospectus, our preferred stock, certain of our warrants and our outstanding Bridge Notes and the Sucampo Note will convert into shares of common stock.

Holders of our preferred stock have several rights that our common stockholders do not have such as preference on payment of dividends and liquidation distributions, and the right to adjustment in the event that securities are issued at a price per share less than that paid by the holders of the preferred stock. Our Amended and Restated Certificate of Incorporation provides that our preferred stock automatically converts to common stock upon a closing of a firmly underwritten public offering with a nationally recognized full-service investment bank pursuant to an effective registration statement under the Securities Act, in which the per share offering price is at least $19.50 per share of common stock pursuant to the terms of the Series A-1 Preferred Stock and $20.00 per share of common stock pursuant to the terms of Series A-2 Preferred Stock, and the gross cash proceeds (before underwriting fees, commissions or discounts) are at least $20.0 million. In addition, certain of our warrants provide that upon the closing of this offering, such warrants will automatically be exercised on a cashless basis into shares of common stock if the price per share in this offering exceeds the exercise price of the warrant. Our outstanding Bridge Notes automatically convert into common stock upon a closing of a firmly underwritten public offering and our outstanding Sucampo Note provides that, subject to certain limitations, it automatically converts into common stock upon a closing of an underwritten public offering in which the gross cash proceeds to us (before underwriting fees, commissions or discounts) are at least $10.0 million (exclusive of any Sucampo investment) at a 10% discount to the per share price of our common stock if such closing occurs prior to the futility analysis of our Phase 3 clinical trial for the treatment of FAP or a 20% discount to the per share price of our common stock if such closing occurs after the futility analysis of our FAP Phase 3 clinical trial. The futility analysis is not expected until the second half of 2016, therefore, it is anticipated that the Sucampo Note will convert into shares of our common stock in this offering at a 10% discount to the public offering price per share set forth on the cover page of this prospectus. Upon the conversion of the preferred stock, Bridge Notes and Sucampo Note and the exercise of the warrants the holders of common stock will experience additional dilution.

The put right of certain warrant holders could result in significant cash payments by us, which cannot be estimated with any certainty.

The put right that the University of Arizona has with respect to its warrant exercisable for 124,787 shares of common stock at $0.2404 per share could result in the payment by us of a significant amount of money to the University of Arizona, which amount will increase proportionally as and when our stock price increases. Because we are required to pay the University of Arizona the difference between the fair market value of the shares of common stock into which the warrant is exercisable and the exercise price of the warrant, we cannot estimate the amount of this future cash obligation with any certainty. The University of Arizona has the right to exercises its put right during the 60 days prior to the May 2019 expiration date of the warrant.

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 public market for shares of our common stock. Although our common stock has been approved for listing on the NYSE MKT there can be no assurance that an active trading market for our shares will develop or be sustained following this offering. You may not be able to sell your shares quickly or at the market price if trading in shares of our common stock is not active. 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 the 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.

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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, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors include:

the commencement, enrollment or results of the planned clinical trials of our product candidates or any future clinical trials we may conduct, or changes in the development status of our product candidates;
any delay in our regulatory filings for our product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings, including without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information;
adverse results or delays in clinical trials;
our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
adverse regulatory decisions, including failure to receive regulatory approval of our product candidates;
changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;
adverse developments concerning our manufacturers;
our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices;
our inability to establish collaborations if needed;
our failure to commercialize our product candidates;
additions or departures of key scientific or management personnel;
unanticipated serious safety concerns related to the use of our product candidates;
introduction of new products or services offered by us or our competitors;
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
our ability to effectively manage our growth;
the size and growth of our initial cancer target markets;
our ability to successfully treat additional types of cancers or at different stages;
actual or anticipated variations in quarterly operating results;
our cash position;
our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;
publication of research reports about us or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;
changes in the market valuations of similar companies;
overall performance of the equity markets;
sales of our common stock by us or our stockholders in the future;

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trading volume of our common stock;
changes in accounting practices;
ineffectiveness of our internal controls;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
significant lawsuits, including patent or stockholder litigation;
general political and economic conditions; and
other events or factors, many of which are beyond our control.

In addition, the stock market in general, and the NYSE MKT and biopharmaceutical 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. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would harm our business, operating results or financial condition.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their 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, and 5% stockholders beneficially owned approximately 71% of our voting stock as of May 19, 2016 (assuming conversion of all shares of preferred stock to common stock, conversion of the Bridge Notes to common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus), conversion of the Sucampo Note (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus, less a 10% discount per the conversion terms of the Sucampo Note), and the exercise of all preferred warrants that are automatically exercised upon the closing of this offering), and, upon the closing of this offering, that same group will hold approximately 64% of our outstanding voting stock (assuming no exercise of the underwriters’ option to purchase additional shares). Certain of our directors, executive officers, 5% stockholders and their affiliated entities may purchase shares of our common stock in this offering at the initial public offering price. See “Underwriting” for additional information. In addition, upon the closing of this offering Sucampo will own approximately 12% of our outstanding voting stock (assuming no exercise of the underwriters’ option to purchase additional shares and a 10% discount to the initial public offering price for the conversion of the Sucampo Note as per the conversion terms of the Sucampo Note) based on the assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover page of this prospectus). The previously discussed ownership percentage upon the completion of this offering does not reflect the potential purchase of any shares in this offering by such persons other than the Sucampo Additional Investment. 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.

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Our failure to meet the continued listing requirements of the NYSE MKT could result in a de-listing of our common stock.

If after listing we fail to satisfy the continued listing requirements of the NYSE MKT such as the corporate governance requirements or the minimum closing bid price requirement, the NYSE MKT may take steps to de-list our common stock. Such a de-listing would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a de-listing, we would take actions to restore our compliance with the NYSE MKT’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NYSE MKT minimum bid price requirement or prevent future non-compliance with the NYSE MKT’s listing requirements.

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 $11.54 per share, based on the assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover page of this prospectus). Further, investors purchasing common stock in this offering will contribute approximately 47% of the total amount invested by stockholders since our inception, but will own only approximately 18% of the shares of common stock outstanding after giving effect to this offering.

This dilution is due to our investors who purchased shares prior to this offering having paid substantially less when they purchased their shares than the price offered to the public in this offering and the exercise of stock options granted to our employees. To the extent outstanding options or warrants are exercised, including the Bridge Warrants, there will be further dilution to new investors. 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. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.”

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. We are also continuing to improve our internal control over financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, including increased complexity resulting from our international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure

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to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our common stock.

We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K. Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.

Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results, and cause a decline in the market price of our common stock.

We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including: not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year: (a) following the fifth anniversary of the completion of this offering; (b) in which we have total annual gross revenue of at least $1.0 billion; or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices we make to avail ourselves of these exemptions, there may be a less active trading market for our common stock and the market price of our common stock may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

As a result of our being a public company, we are subject to additional reporting and corporate governance requirements that require additional management time, resources and expense.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE MKT and other applicable securities rules and regulations impose various requirements on public companies, including the obligation to file with the SEC annual and quarterly information and other reports that are specified in the Exchange Act and to establish and maintain effective

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disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

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

Sales of a substantial number of shares of our common stock by our existing stockholders 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. Based on shares of common stock outstanding as of May 19, 2016, upon the closing of this offering we will have outstanding a total of 6,759,443 shares of common stock. Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering. The representative of the underwriters, however, may, in its 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. In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our 2010 Equity Incentive Plan and our 2016 Equity Incentive Plan 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.

The holders of shares of our Series A-1 Preferred Stock and Series A-2 Preferred Stock are entitled to piggyback rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above. See “Description of Our Capital Stock — Registration Rights.” 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 held by affiliates, as defined in Rule 144 under the Securities Act. 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, and ESPP 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 may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. 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, 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 the holders of our common stock, including shares of common stock sold in this offering. Pursuant to our 2010 Equity Incentive Plan and to our 2016 Equity Incentive Plan, which became effective on the business day prior to the public trading date of our common stock, our management is authorized to grant stock options to our employees, directors and consultants.

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Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under our 2010 Equity Incentive Plan and 2016 Equity Incentive Plan is 1,200,000 shares. The number of shares available for future grant under the 2016 Equity Incentive Plan will automatically increase on January 1 of each year by 5% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of the increase in any given year. Pursuant to the ESPP following this offering 77,000 shares of our common stock will be authorized for issuance pursuant to purchase rights granted to our employees or to employees of any of our designated affiliates. The number of shares of our common stock reserved for issuance under the ESPP will automatically increase on January 1 of each calendar year by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year or (ii) a number determined by our board of directors that is less than (1). Currently, we plan to register the increased number of shares available for issuance under the 2016 Equity Incentive Plan and ESPP each year. Increases in the number of shares available for future grant or purchase may result in additional dilution, which could cause our stock price to decline.

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, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use a portion of the net proceeds from this offering to support our Phase 3 clinical trial of CPP-1X/sul for FAP and additional studies necessary for filing an NDA with the FDA. The net proceeds may also be used to support our efforts developing other indications for CPP-1X/sul, to advance any additional product candidates that we select, to expand our internal research and development capabilities to explore new product candidates and to fund working capital, including general operating expenses. The failure by our management to apply these funds effectively could harm our business. 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.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control, which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws, which are to become effective at or prior to the closing of this offering, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;
a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;
a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the board of directors, or the president;
advance notice requirements for stockholder proposals and nominations for election to our board of directors; and
the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

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In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

If we issue shares of preferred stock with superior rights than the common stock offered hereby, it could result in a decrease in the value of our common stock and delay or prevent a change in control of us.

Our board of directors is authorized to issue shares of preferred stock. Our board of directors has the power to establish the dividend rates, liquidation preferences, voting rights, redemption and conversion terms and privileges with respect to any series of preferred stock. The issuance of any shares of preferred stock having rights superior to those of the common stock may result in a decrease in the value or market price of the common stock. Holders of preferred stock may have the right to receive dividends, certain preferences in liquidation and conversion rights. The issuance of preferred stock could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of us without further vote or action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.

The application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

If our common stock becomes traded on a securities market or exchange, as long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1.0 million or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include: (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.

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

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

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

our ability to implement our business plan;
our ability to raise additional capital to meet our liquidity needs;
our ability to generate product revenues;
our ability to achieve profitability;
our ability to satisfy U.S. (including FDA) and international regulatory requirements;
our ability to obtain market acceptance of our products;
our ability to compete in the market;
our ability to advance our clinical trials;
our ability to fund, design and implement clinical trials;
our ability to demonstrate that our product candidates are safe for human use and effective for indicated uses;
our ability to gain acceptance of physicians and patients for use of our products;
our dependency on third-party researchers and manufacturers and licensors;
our ability to establish and maintain strategic partnerships, including for the distribution of products;
our ability to meet all of the conditions for receipt of future funding from Sucampo;
our ability to attract and retain a sufficient qualified personnel;
our ability to obtain or maintain patents or other appropriate protection for the intellectual property;
our dependency on the intellectual property licensed to us or possessed by third parties;
our ability to adequately support future growth; and
potential product liability or intellectual property infringement claims.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. We discuss many of these risks in greater detail under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. 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.

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You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $14.2 million (or approximately $16.5 million if the underwriters’ exercise their over-allotment option in full) from the sale of the shares of common stock offered by us in this offering, based on an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share would increase (decrease) the net proceeds to us from this offering by approximately $1.2 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a 250,000 share increase (decrease) in the number of shares offered by us, as set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us by $3.0 million, assuming the assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover of this prospectus) remains the same, 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, to create a public market for our common stock and to facilitate our future access to the public equity markets. We anticipate that we will use the net proceeds from this offering for the following purposes:

up to $10.0 million (or possibly more, depending on the extent of funding available from current agreements with Tillotts and Sucampo) to support our Phase 3 clinical trial of CPP-1X/sul for FAP as currently contemplated and additional studies necessary for filing an NDA with the FDA; provided that, the completion of this Phase 3 clinical trial will depend on the extent of funding available from additional sources, including current agreements with Tillotts and Sucampo (see “Risk Factors — If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates”);
up to $1.0 million (or possibly more, depending on the extent of funding available from current agreements with Tillotts and Sucampo) to support our efforts developing other indications for CPP-1X/sul, to advance any additional product candidates that we select, to expand our internal research and development capabilities to explore new product candidates. We currently intend to use a portion of such proceeds to continue to support the following research and development initiatives: (i) a Phase 1 investigator-sponsored clinical trial for early onset of type 1 diabetes, which we expect to support through completion of Phase 1 by contributing drug supply and scientific and regulatory support; (ii) Phase 1 NANT study in relapsed refractory neuroblastoma, which we expect to support through completion of Phase 1 by contributing drug supply, scientific and regulatory support and bioanalytical testing support; and (iii) a gastric cancer prevention study with Vanderbilt University, which we expect to support through completion of Phase 2a by contributing drug supply, scientific and regulatory support and bioanalytical testing support; and
the remainder to fund working capital and for other general corporate purposes, including for costs and expenses associated with being a public company.

We may also use a portion of the net proceeds from this offering to in-license, acquire, or invest in complementary businesses, technologies, products or assets.

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. Our primary use of proceeds is for completion of our Phase 3 clinical trial of CPP-1X/sul for FAP and if it should require additional funding beyond the estimates above, we will likely terminate our support of the other research and development referred to above. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts that we will actually spend on the uses set forth above. We may find it necessary or advisable to reallocate the net proceeds of this offering; however any such reallocation would be substantially limited to the categories set forth above as we do not intend to use the net proceeds for other purposes. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the factors described under the heading “Risk Factors.” As a result,

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our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds from this offering.

Pending their use, we plan to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

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 capitalization as of March 31, 2016:

on an actual basis;
on a pro forma basis, giving effect to (i) the conversion of all our outstanding preferred stock into an aggregate of 2,164,243 shares of common stock upon the closing of this offering; (ii) the exercise of our preferred stock warrants into an aggregate of 199,154 shares of our common stock upon the closing of this offering (assuming a cashless exercise of the warrants); (iii) the conversion of all outstanding Bridge Notes and all accrued interest thereon into an aggregate of 178,042 shares of common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus) and which will occur automatically upon the closing of this offering; and (iv) the conversion of the outstanding Sucampo Note and all accrued interest thereon into an aggregate of 434,668 shares of common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus, less a 10% discount per the conversion terms of the Sucampo Note), and which will occur automatically upon the closing of this offering; and
on a pro forma as adjusted basis, reflecting the pro forma adjustments discussed above and giving further effect to the sale by us of 1,250,000 shares of our common stock at an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma information below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with our audited financial statements and the related notes appearing at the end of this prospectus, the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained in this prospectus.

     
  As of March 31, 2016
     Actual   Pro Forma   Pro Forma
As Adjusted(1)
     (unaudited)
     (in thousands, except share and
per share amounts)
Convertible notes   $ 5,603     $     $  
Series A-1 Preferred Stock, $.001 par value: 7,300,000 shares authorized, 1,113,743 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted     5,407              
Series A-2 Preferred Stock, $.001 par value: 6,000,000 shares authorized, 1,050,500 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted     5,152              
Common stock and additional paid-in capital, $.001 par value: 35,000,000 shares authorized, 2,533,336 shares issued and 2,519,994 outstanding, actual; 35,000,000 shares authorized, 5,509,443 shares issued and 5,496,103 shares outstanding, pro forma; 35,000,000 shares authorized, 7,432,519 shares issued and 7,419,179 shares outstanding, pro forma as adjusted     3       5       7  
Additional paid-in capital     3,112       21,516       35,740  
Accumulated deficit     (25,965 )      (25,965 )      (25,965 ) 
Total stockholders’ equity (deficit)     (22,850 )      (4,444 )      9,782  
Total capitalization   $ (6,688 )    $ (4,444 )    $ 9,782  

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Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share would increase or decrease, respectively, total stockholders’ (deficit) equity and total capitalization by approximately $1.2 million, 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 number of common shares in the table is based on the number of shares of our common stock outstanding as of March 31, 2016, and excludes:

803,885 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2016 at a weighted average exercise price of $1.46 per share;
124,787 shares of common stock issuable upon the exercise of outstanding warrants issued to the University of Arizona as of March 31, 2016, at a weighted-average exercise price of $0.2404 per share;
52,038 shares of common stock issuable upon the exercise of the Bridge Warrants at a weighted-average exercise price of $13.00 per share (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus);
112,954 shares of common stock reserved for future issuance under our 2010 Equity Incentive Plan;
1,200,000 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan, which will become effective upon the execution and delivery of the underwriting agreement for this offering; and
77,000 shares of common stock reserved for future issuance under the ESPP, which will become effective upon the execution and delivery of the underwriting agreement for this offering.

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DILUTION

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

Our historical net tangible book value (deficit) as of March 31, 2016 was approximately $(22.8) million, or $(9.02) per share of common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our liabilities and preferred stock which is not included within equity. Net historical tangible book value (deficit) per share is our historical net tangible book value (deficit) divided by the number of shares of common stock outstanding as of March 31, 2016.

Our pro forma net tangible book value (deficit) as of March 31, 2016 was $(4.3) million, or $(0.79) per share of common stock. Pro forma net tangible book value (deficit) gives effect to (i) the conversion of all of our outstanding preferred stock into an aggregate of 2,164,243 shares of our common stock; (ii) the exercise of preferred warrants into 199,154 shares of our common stock (assuming a cashless exercise of the warrants); (iii) the conversion of all outstanding Bridge Notes and all accrued interest thereon into an aggregate of 178,042 shares of common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus) and which will occur automatically upon the closing of this offering; and (iv) the conversion of the outstanding Sucampo Note and all accrued interest thereon into an aggregate of 434,668 shares of common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus, less 10% per the conversion terms of the Sucampo Note) and which will occur automatically upon the closing of this offering.

Our pro forma as adjusted net tangible book value as of March 31, 2016 was $9.9 million, or $1.46 per share of common stock. Pro forma as adjusted net tangible book value is our pro forma net tangible book value (deficit), plus the effect of the sale of shares of our common stock in this offering at an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $2.25 per share to our existing stockholders, and an immediate dilution of $11.54 per share to new investors participating in this offering.

The following table illustrates this dilution on a per share basis:

   
Assumed initial public offering price per share            $ 13.00  
Historical net tangible book value (deficit) per share as of March 31, 2016   $ (9.02 )          
Pro forma increase in net tangible book value per share as of March 31, 2016 attributable to the conversion of preferred stock, Bridge Notes, Sucampo Note, and the exercise of the warrants     8.23        
Pro forma net tangible book value per share as of March 31, 2016, before giving effect to this offering     (0.79 )       
Increase in pro forma net tangible book value per share attributable to new investors participating in this offering     2.25        
Pro forma as adjusted net tangible book value per share after this offering           1.46  
Dilution per share to new investors participating in this offering         $ 11.54  

A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value (deficit) by $1.2 million after this offering, and the increase (decrease) dilution to investors participating in this offering, by approximately $0.17 per share.

Similarly, a 250,000 share increase (decrease) in the number of shares offering by us, as set forth on the cover of prospectus, would increase (decrease) the pro forma as adjusted net tangible book value (deficit) by $3.0 million after this offering, and the increase (decrease) in dilution to investors participating in this offering, by approximately $0.37 (0.40) per share.

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If the underwriters exercise their over-allotment option in full to purchase 187,500 additional shares of our common stock in this offering, the pro forma as adjusted net tangible book value will increase to $12.1 million, or $1.75 per share of common stock, representing an immediate increase to existing stockholders of $2.54 per share and an immediate dilution of $11.25 per share to new investors participating in this offering.

The following table summarizes, on a pro forma as adjusted basis as of March 31, 2016, the differences between the number of shares of common stock purchased from us, the total consideration and the average price per share paid by existing stockholders and by investors participating in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses, at an assumed initial public offering price of $13.00 per share, the midpoint of the estimated price range shown on the cover page of this prospectus.

         
  Shares Purchased   Total Consideration   Average Price
Per Share
     Number   %   Amount   %
Existing stockholders     5,509,443       82 %    $ 18,566,145       53 %    $ 3.37  
New investors     1,250,000       18 %      16,250,000       47 %    $ 13.00  
Total     6,759,443       100 %    $ 34,816,145       100 %       

The foregoing discussion is based on 5,509,443 shares of common stock outstanding as of March 31, 2016, after giving effect to the conversion of our preferred stock into an aggregate of 2,164,243 shares of common stock, the exercise of our preferred stock warrants into 199,154 shares of common stock (assuming a cashless exercise of the warrants), the conversion of all outstanding Bridge Notes and all accrued interest thereon into an aggregate of 178,042 shares of common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus and which will occur automatically upon the closing of this offering), and the conversion of the outstanding Sucampo Note and all accrued interest thereon into an aggregate of 434,668 shares of common stock (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus, less a 10% discount per the conversion terms of the Sucampo Note, and which will occur automatically upon the closing of this offering), and excludes:

803,885 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2016, at a weighted average exercise price of $1.46 per share;
124,787 shares of common stock issuable upon the exercise of outstanding warrants issued as of March 31, 2016, at a weighted-average exercise price of $0.2404 per share;
52,038 shares of common stock issuable upon the exercise of outstanding Bridge Warrants issued at a weighted-average exercise price of $13.00 per share (assuming an initial offering price of $13.00 per share which is the mid-point of the range set forth on the cover page of this prospectus);
112,954 shares of common stock reserved for future issuance under our 2010 Equity Incentive Plan;
1,200,000 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan, which will become effective upon the execution and delivery of the underwriting agreement for this offering; and
77,000 shares of common stock reserved for future issuance under the ESPP, which will become effective upon the execution and delivery of the underwriting agreement for this offering.

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

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

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a clinical-stage biopharmaceutical company formed primarily to develop and commercialize therapeutic agents for the treatment and prevention of certain pre-cancerous conditions, orphan diseases (i.e., rare diseases) and gastrointestinal conditions. We have achieved target enrollment in our Phase 3 clinical trial for the treatment of FAP, a rare inherited condition that can cause the growth of thousands of colorectal adenomas (i.e., adenomatous polyps), which are recognized as a key risk factor for colon cancer, and we are a regulatory and commercial collaborator in a Phase 3 clinical trial funded by the NCI for the study of colon cancer risk reduction and CAT, a preventative treatment approach for survivors of colorectal cancer or those who have high-risk colon polyps. In addition, our therapeutic agent has been used in several investigator-sponsored trials and company-sponsored preclinical trials including: (1) Phase 1 and Phase 2 clinical trials for the treatment of Neuroblastoma, a particularly deadly cancer affecting children, funded by nonprofit organizations; (2) Phase 1 clinical trial for the treatment of early-onset type 1 diabetes funded by the Juvenile Diabetes Research Foundation; (3) Phase 2a clinical trial expected to be initiated this year for treatment of gastric cancer funded by the NCI; and (4) preclinical studies that we have sponsored in the orphan disease and cancer fields.

Our lead investigational new drug product, CPP-1X/sul, is a combination of the polyamine synthesis inhibitor CPP-1X (also known as DFMO) and the non-steroidal anti-inflammatory drug sulindac. We believe our investigational drug is unique in that it is designed to treat the risk factors (e.g., polyps) that are hypothesized to lead to colon cancer and therefore may have the ability to prevent various types of colon cancer. Unlike other therapies used to treat FAP and for use with CAT, CPP-1X/sul is an oral, non-surgical and non-invasive option that, we believe, has the potential to both improve patients’ quality of life and reduce the sizeable expenses associated with current treatment protocols.

We have devoted substantially all of our resources to development efforts relating to CPP-1X/sul and CPP-1X, including conducting clinical trials, providing general and administrative support for these operations and protecting our intellectual property. We currently do not have any products approved for sale and we have not generated any significant revenue from product sales since our inception. From our inception through March 31, 2016, we have funded our operations primarily through the private placement of preferred stock, common stock, convertible notes and a licensing arrangement.

We have incurred net losses in each year since our inception, including net losses of $3.3 million and $2.0 million for the three months ended March 31, 2016 and 2015, respectively, and $5.7 million and $6.0 million for the years ended December 31, 2015 and 2014, respectively. We had an accumulated deficit of $26.0 million as of March 31, 2016. Substantially all our operating losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We expect to continue to incur significant expenses and to incur increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:

complete the ongoing Phase 3 trials of our lead product candidate, CPP-1X/sul for the treatment of FAP

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develop a new dosage form of our combination therapy based on formulation of DFMO and sulindac into a single tablet;
hire internal research and development staff to coordinate and manage the overall drug development process;
complete clinical pharmacology commitments including possible ADME, PK and additional safety studies as may be required;
maintain, expand and protect our intellectual property portfolio;
seek to obtain regulatory approvals for CPP-1X/sul;
continue our research and development efforts;
add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts; and
operate as a public company.

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital in addition to the net proceeds of this offering prior to the commercialization of our product candidates. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.

Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Sucampo Transactions

On January 9, 2016, we entered into a strategic alliance with Sucampo for the development and commercialization of CPP-1X/sul combination. Pursuant to the terms of the Securities Purchase Agreement, Sucampo purchased from us the Sucampo Note in the aggregate principal amount of $5.0 million. The Sucampo Note bears interest at the rate of 5% per annum and matures on January 31, 2019 unless earlier converted or prepaid. The Sucampo Note is automatically convertible into our securities, subject to certain limitations, in the event we consummate a Qualified Financing. If a Qualified Financing occurs before completion of the futility analysis of our ongoing Phase 3 clinical trial for the treatment of FAP, the Sucampo Note will automatically convert into the same securities issued in the Qualified Financing at price equal to a 10% discount to the lowest issuance price of the securities in the Qualified Financing. If a Qualified Financing occurs after completion of the futility analysis of our ongoing Phase 3 clinical trial for the treatment of FAP, the Sucampo Note will automatically convert into the same securities issued in the Qualified Financing at a 20% discount to the lowest issuance price of the securities in the Qualified Financing. If a Qualified Financing or a Sale does not occur before the maturity date of the Sucampo Note, at the election of Sucampo the unpaid principal balance of the Sucampo Note and any accrued and unpaid interest then payable is convertible into our common stock at a price equal to the then most recent §409A per share tax valuation conducted by a third-party appraisal firm. In addition, in the event of a Sale prior to the maturity date of the Sucampo Note or the consummation of a Qualified Financing, the Sucampo Note may, at Sucampo’s election, be converted into shares of common stock or preferred stock, whichever is issued in the most recent financing, at a conversion rate equal to the lowest price per share of such securities issued in our most recent financing.

Sucampo has also agreed, at our sole discretion, to (i) make the Sucampo Additional Investment on the same terms and conditions as the other investors in a Qualified Financing, or (ii) if a Qualified Financing has not occurred before the completion of futility analysis of our ongoing Phase 3 clinical trial for the treatment

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of FAP, then an investment would be made by Sucampo, at our election, and subject to certain conditions to be met by us, in the form of an additional convertible promissory note in the aggregate principal note of $5.0 million under the same terms and conditions as the Sucampo Note, except that the maturity date of the subsequent note will be the third anniversary of the issuance date of such note.

In connection with Sucampo’s investment in the Sucampo Note and the Sucampo Additional Investment, and subject to certain government rights and rights of the University of Arizona, we entered into the Option and Collaboration Agreement with Sucampo granting it the Option to enter into the Sucampo License Agreement, with the right to sublicense, develop, use, import, offer for sale and sell the Product in the Sucampo Territory in the Field. Sucampo paid us $3.0 million upon execution of the Option and Collaboration Agreement and, under certain conditions relating to the clinical development of the Product, will be required to pay an additional option fee of $4.5 million in order to retain the Option. If the Option is exercised by Sucampo, Sucampo has the right to enter into the License Agreement for the exclusive license to develop, use, import, offer for sale and sell the Product for use in the Field in the Sucampo Territory. This option is exercisable by Sucampo immediately, however if not exercised it will expire 30 days after the acceptance for filing by the FDA of the first NDA filed for the Product.

In addition, the Option expires if (i) Sucampo does not make the Sucampo Additional Investment in accordance with the Securities Purchase Agreement; or (ii) either party terminates the Option and Collaboration Agreement.

We have also agreed that upon the execution of the License Agreement, Sucampo will be required to pay a license issue fee of $5.0 million if the License Agreement is entered into prior to completion of the FAP trial or $10.0 million if the License Agreement is entered into after completion of the FAP trial. In addition, Sucampo will be obligated under the License Agreement to pay additional consideration of up to an aggregate of $180.0 million upon the achievement of the specified development and sales milestones plus 50% of the Adjusted Net Profits generated by Sucampo from the sale of Products, where Adjusted Net Profit is defined as 90% of the revenue received by Sucampo from the sale of the Products less costs incurred by Sucampo in the development, manufacture, marketing, sales and distribution of the Products. Ten percent (10%) of net profits is to be distributed between us and Sucampo pro rata of the total development costs borne by each until such costs have been recouped.

In connection with the Sucampo transactions we agreed to pay a financial agency fee of 5% (up to a maximum fee of $500,000) for any funds received by us from Sucampo, excluding the proceeds from any purchase of shares by Sucampo in this offering or any public offering of our shares. To date, we have paid $400,000 of this financial agency fee.

Bridge Financing

Between January 11, 2016 and January 15, 2016, we entered into a note and warrant purchase agreement with existing stockholders and raised aggregate gross proceeds of $2.255 million through the issuance of the Bridge Notes and warrants exercisable for shares of our common stock. The Bridge Notes bear interest at a rate of 8% per annum and mature on the earlier of (i) January 31, 2018 (subject to extension at our discretion for an additional two years at an annual interest rate of 10%); and (ii) the occurrence of an event of default. The principal amount outstanding under the Bridge Notes and all accrued and unpaid interest automatically convert into shares of our common stock at a conversion price equal to the per share price of our common stock in this offering. The Bridge Notes also contain provision for automatic conversion upon a change of control and an optional conversion at the discretion of the holder if we have not completed an initial public offering or a change of control has not occurred prior to January 31, 2018 at a conversion price of $6.00 per share. Each investor was also issued a Bridge Warrant that is exercisable for such number of shares of common stock as equals the quotient obtained by dividing 30% of the principal amount of a note by the per share price of our common stock issued in this offering or $6.00 per share if this offering is not consummated (the “Issue Price”). The exercise price is equal to the Issue Price and the exercise period for the warrants is a five-year period commencing on the consummation of this offering or the maturity date of the note. The Bridge Notes and Bridge Warrants contain adjustments in the case of stock splits, stock dividends, reorganizations and other similar transactions.

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Financial Overview

Revenue

We derive revenues primarily from collaborative arrangements.

On December 27, 2013, we entered into a co-development and licensing agreement (the “Tillotts Agreement”) with Tillotts, a subsidiary of Zeria, whereby we licensed to Tillotts exclusive European and Japanese rights to co-develop and commercialize the combination of CPP-1X/sulindac for the treatment of FAP and other gastrointestinal conditions. Under the terms of the Tillotts Agreement, Tillotts was obligated to pay us an $8 million upfront payment as well as milestone payments for European and Japanese development programs under a co-development framework. The potential milestone payments, in excess of $100 million, include drug development milestone payments and one-time sales milestone payments upon attainment of annual net sales levels. The drug development milestones include: (i) the dates that total patient enrollment reaches certain percentages of the target enrollment, and (ii) upon receipt of European Union and Japanese regulatory approvals. Tillotts is also obligated to pay us royalties ranging from mid-single digits to low double digit percentages of annual net sales (subject to reduction in any country where there is not a valid patent claim or regulatory exclusivity or where there are competing products). Upon certain extraordinary events, Tillotts is entitled to terminate the license agreement in which case we would be required to repay Tillotts certain earned fees, including for development milestones, royalties, and sales milestones. The amount that may be subject to repayment is calculated based on a formula that subtracts 50% of actual development costs as well as certain post-termination wind-down expenses. We recalculate the amount subject to repayment each reporting period to determine if recognition of any revenues received from Tillotts should be deferred.

Under the Tillotts Agreement, we are responsible for managing product development activities, including our ongoing FAP Phase 3 clinical trial, as well as regulatory approval activities, which are currently estimated to cost an additional $20 million. Tillotts agreed to assume regulatory activities and marketing in Europe and Japan if it elects to continue with the arrangement after an interim data analysis of the FAP Phase 3 clinical trial data, at which point an additional non-refundable, non-creditable continued development fee would be due to us.

We are accounting for the agreement as a multiple element arrangement. Certain elements are recognized under the milestone method, whereby revenue related to those elements is recognized as substantive milestones are achieved. Revenue related to the upfront license fee is recognized on a straight-line basis over the license period, which expires on the later of (a) the date of expiration of all licensed patents, or (b) the date of expiration of data or market exclusivity of products being sold under the license. Currently the license period is estimated to expire in December 2031.

On January 24, 2014, we received the upfront non-refundable license fee of $8 million, and for the year ended December 31, 2015 we recognized $3.5 in collaboration revenue which included $0.5 million in revenue from the license fee and $3.0 million from two substantive milestones of $1.5 million each related to patient enrollment targets achieved during the period. As of December 31, 2015, $7.0 million was recorded as deferred revenue on the balance sheet. For the three months ended March 31, 2016, we recognized $0.1 million in collaboration revenue from the license fee with the remaining $6.9 million recorded as deferred collaboration revenue on the balance sheet.

In connection with the Sucampo transaction, we received an upfront license option fee of $3.0 million in January 2016. For the three months ended March 31, 2016, the Company recognized $0.9 million in collaboration revenue from this agreement. As of March 31, 2016, $2.1 million was included in deferred revenue on the condensed consolidated balance sheet.

Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities, including conducting nonclinical studies and clinical trials, and manufacturing development efforts for our product candidates. Our research and development expenses consist primarily of:

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fees paid to consultants and CROs, including in connection with our nonclinical and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis;
costs related to acquiring and manufacturing clinical trial materials;
costs related to compliance with regulatory requirements; and
overhead expenses for personnel in research and development functions.

From inception through March 31, 2016, we have incurred $18.9 million in research and development expenses. We plan to increase our research and development expenses for the foreseeable future as we continue the development of CPP-1X/sul for the treatment of FAP, CAT for survivors of colorectal cancer or certain high-risk colorectal adenomas, and for treatment of Neuroblastoma and potentially other indications, subject to the availability of additional funding.

Set forth below is a break-down of the costs we have incurred for each of our research and development programs for the years ended December 31, 2015 and 2014, the three months ended March 31, 2016 and 2015 and from inception through March 31, 2016.

                 
                 
Program   Year Ended   Change 2015 vs. 2014   Three Months Ended
March 31,
  Change 2016 vs. 2015
(Three Months
Ended March 31)
  Inception to
03/31/16
  2015   2014   $   %   2016   2015   $   %
FAP   $ 5,321,798     $ 4,023,522     $ 1,298,276       32 %    $ 2,143,741     $ 1,226,910     $ 916,831       75 %    $ 14,298,801  
Neuroblastoma     89,790       89,617       173       0 %      26,876       21,396       5,480       26 %      2,058,163  
NCI/SWOG Trial     51,513       41,288       10,225       25 %      12,718       9,631       3,087       32 %      2,377,496  
Other R&D     53,874       50,801       3,073       6 %      16,126       12,837       3,289       26 %      120,801  
Total   $ 5,516,975     $ 4,205,228     $ 1,311,747       31 %    $ 2,199,461     $ 1,270,774     $ 928,687       73 %    $ 18,855,261  

The successful development of our clinical and preclinical product candidates is highly uncertain. For our lead disease target, FAP, we still need to complete clinical and preclinical studies in order to satisfy the requirements of the regulatory authorities in Canada, Europe and the United States and in order to obtain approval for commercialization of our drug product, the costs of which are difficult to determine. Based upon our current demands and commitments we expect that the proceeds from this offering will be sufficient in order to enable us to complete the studies in the United States and obtain approval for commercialization in the United States. However, if costs exceed expectations we may need to raise additional capital though either the sale of securities or strategic development and/or marketing arrangements with potential collaborators. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;
future clinical trial results; and
the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

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CPP-1X/sul

The majority of our research and development resources are focused on the Phase 3 trials and our other planned clinical and nonclinical studies and other work needed to submit CPP-1X/sul for regulatory approval in the United States and Europe. We have incurred and expect to continue to incur expenses in connection with these efforts, including:

conduct our ongoing Phase 3 clinical trials;
plan and complete additional Phase 3 trials as may be required for regulatory approval;
develop a new dosage form of our combination therapy based on formulation of DFMO and sulindac into a single tablet; and
complete clinical pharmacology commitments including possible ADME, PK and additional safety studies as may be required for regulatory approval.

General and Administrative Expenses

General and administrative expenses include allocation of facilities costs, salaries, benefits, and stock-based compensation for employees, and fees for independent contractors, accounting, and legal services.

We expect that our general and administrative expenses will increase as we operate as a public company and due to the potential commercialization of our product candidates. We believe that these increases will likely include increased costs for director and officer liability insurance, and increased fees for outside consultants, lawyers and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls and similar requirements applicable to public companies.

Change in Fair Value of Warrant Liability

Warrants for shares that are mandatorily redeemable and contingently redeemable are classified as liabilities on the accompanying balance sheets and carried at their estimated fair value, determined through use of an option pricing model. At the end of each reporting period, any changes in fair value are recorded as a component of total other income (expense).

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 3 to our financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

We generate revenue from collaboration agreements for the development and commercialization of our products. Collaboration agreements may include non-refundable upfront fees, partial or complete reimbursement of research and development costs, contingent consideration payments based on the achievement of defined collaboration objectives, and royalties on sales of commercialized products. Our performance obligations under our collaborations include obligations to provide research and development services and supply related research and development materials. Amounts related to research and development funding are recognized as the related services or activities are performed, in accordance with the contract terms. Payments may be made to us based on the number of full-time equivalent researchers assigned to the

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collaboration project and the related research and development expense incurred. Amounts from the sale of research and development materials are recognized when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price to the buyer is fixed and determinable, and (iv) collectability is reasonably assured.

The terms of our collaborative research, development, and commercialization agreements often contain multiple elements, or deliverables, which may include (i) grants of licenses, or options to obtain licenses, to our intellectual property, (ii) research and development services, and/or (iii) drug product manufacturing.

To determine the units of accounting under a multiple-element arrangement, management evaluates certain separation criteria, including whether the deliverables have stand-alone value, based on the relevant facts and circumstances for each arrangement. Management then estimates the selling price for each unit of accounting and allocates the arrangement consideration to each unit utilizing the relative selling price method. The allocated consideration for each unit of accounting is recognized over the related obligation period in accordance with the applicable revenue recognition criteria.

In certain instances, we receive non-refundable, up-front payments when licensing our intellectual property, or when providing exclusive rights to licensing our intellectual property, which often occurs in conjunction with a research and development agreement. When management believes that the license to our intellectual property has stand-alone value, we recognize revenue attributed to the license upon delivery provided there are no future performance requirements for use of the license. When management believes that the license to our intellectual property does not have stand-alone value, we recognize revenue attributed to the license on a straight-line basis over the contractual or estimated performance period. When the performance period is not specifically identifiable from the agreement, we estimate the performance period based upon provisions contained within the agreement, such as the duration of the research or development term.

Our agreements may provide for non-refundable milestone payments. We recognize revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to us for such milestone (i) is consistent with our performance necessary to achieve the milestone or the increase in value to the collaboration resulting from our performance, (ii) relates solely to our past performance and (iii) is reasonable relative to all of the other deliverables and payments within the arrangement. In making this assessment, we consider all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to future performance or deliverables.

Research and Development Expenses

Research and development expenses include those related to the development of our lead compounds, including purchase and manufacturing of drug product, services of contract and clinical research organizations, consulting services, salaries and benefits and travel-related expenses and milestone payments made under collaboration agreements. Research and development expenses also consist of fees for clinical trials, insurance, information technology, drug transportation and facilities costs, analytical services, basic research, and investigator-sponsored trials. Research and development costs are expensed as incurred. In certain instances, we enter into agreements with third parties for research and development activities, where they may prepay fees for services at initiation of the contract. Such payments are recorded as prepaid assets and charged to research and development expense over the period of time the contracted research and development activities are performed. Other types of arrangements with third parties may be fixed-fee or fee-for-service, and may include monthly payments or payments upon the completion of milestones or receipt of deliverables.

The successful development of CPP-1X/sul and our other product candidates is uncertain. At this time, other than as discussed below, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of our products or the period, if any, in which material net cash inflows from the sale of our products may commence. This is due to the numerous risks and uncertainties associated with developing product candidates, including those described in “Risk Factors” in this prospectus. Development timelines, probability of success and development costs vary widely. As a result

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of these risks and uncertainties, we cannot currently estimate with any degree of certainty the amount of time or money that will be required to expend in the future on the research and development of CPP-1X/sul.

Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures (“FASB ASC 820”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. The estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.

FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models consider various assumptions, including volatility factors, current market prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

The carrying amounts reported in the balance sheet for cash and cash equivalents, prepaid expenses and other current assets, accounts receivable, deferred financing costs, accounts payable, accrued expenses, and the notes payable approximate the fair values due to the short-term nature of the instruments.

Stock-Based Compensation

We recognize expense for employee stock-based payments based on the fair value of awards on the date of grant. The fair value of each employee stock option is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based payment awards utilizing the Black-Scholes option pricing model is affected by the fair value of our stock price and a number of assumptions, including volatility, expected term, risk-free interest rate, and dividend yield. We recognize compensation cost for stock-based payment awards with service conditions that have a graded vesting schedule based on the accelerated recognition method under ASC 718, over the requisite service period as if the award was, in substance, a multiple award. If the actual forfeitures differ from our estimates, compensation expense is adjusted.

For stock-based payments to non-employee consultants, the fair value of the stock-based consideration issued is recognized at fair value over the service period, which is generally the vesting period. In such cases, the amount recognized is revalued for each reporting period as the awards vest. If the award contains performance conditions, the measurement date of the award is the earlier of the date at which a commitment for performance by the non-employee is reached or the date at which performance is reached. A performance commitment is reached when performance by the non-employee is probable because of sufficiently large disincentives for non-performance.

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The 2010 Equity Incentive Plan permits us to grant non-statutory stock options, incentive stock options, stock appreciation rights, and restricted stock to our employees, outside directors and consultants; however, incentive stock options may only be granted to our employees. As of March 31, 2016, the maximum aggregate number of shares of common stock that may be issued pursuant to the 2010 Equity Incentive Plan is 1,100,000 shares.

Significant factors, assumptions and methodologies used in determining the estimated fair value of our common stock

We are also required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations using the Black-Scholes option-pricing model. Our board of directors, with the assistance of management, determined the fair value of our common stock on each grant date. Option grants are based on the estimated fair value of our common stock on the date of grant, which is determined by taking into account several factors, including the following:

contemporaneous valuations of our common stock performed by independent third-party valuation specialists;
our stage of development and business strategy, including the status of research and development efforts or our product candidates, and the material risks related to our business;
the prices at which we sold our preferred stock and the rights, preferences, and privileges of the preferred stock relative to those of our common stock, including the liquidation preferences of the preferred stock;
the lack of marketability of our common stock as a private company;
our actual operating results and financial performance, including our levels of available capital resources;
the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;
external market conditions affecting the life sciences and biotechnology industry sectors;
trends and developments in our industry;
conditions in our industry and the economy in general;
stock price performance of comparable public companies;
the composition of, and changes to, our management team and board of directors; and
the estimated likelihood of achieving a liquidity event, such as an initial public offering or an acquisition, given prevailing market conditions.

The table below presents the prices received from sales to third parties of our common stock and various classes of our preferred stock from inception to date:

   
Year   Share Class   Price per Share
2008 – 2009     Common Stock (a)    $ 0.2404  
2012     Series A-1 Preferred Stock (b)(c)    $ 4.8422  
2012 – 2013     Series A-2 Preferred Stock (c)    $ 5.0000  

(a) After giving effect to our conversion from an LLC to a corporation.
(b) Shares issued upon conversion of convertible bridge notes in September 2012.
(c) Each share of preferred stock is convertible into shares of our common stock on a 1-for-1 basis.

Stock Options and Restricted Stock Issued to Employees, Directors, and Non-employees

We recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. We estimate the grant date fair

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value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards to employees is expensed based on the accelerated recognition method under ASC 718 over the vesting period of the respective award. Performance-based awards vest and are expensed over the performance period when the related performance goal is probable of being achieved.

We account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these options is measured using the Black-Scholes option-pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The fair value of these arrangements is marked to market over the vesting terms as earned. The exercise price and fair value of restricted stock grants is determined by our board of directors based on valuation analyses by an outside independent valuation firm (see Common Stock Valuation, below).

In general, equity grants made under the 2010 Equity Incentive Plan vest ratably on a monthly basis over 36 months. A summary of stock option activity pursuant to the 2010 Equity Incentive Plan during 2016 and 2015 is summarized in the following table:

   
  Shares
Underlying
Options
Granted
  Weighted
Average
Exercise
Price
Outstanding at December 31, 2014     605,735     $ 0.60  
Granted     204,150     $ 4.00  
Forfeited     (6,000 )    $ 1.75  
Outstanding at December 31, 2015     803,885     $ 1.46  
Granted         $  
Forfeited         $  
Outstanding at March 31, 2016     803,885     $ 1.46  

A summary of restricted stock activity pursuant to the 2010 Equity Incentive Plan during 2016 and 2015 is summarized in the following table:

 
  Restricted
Stock(1)
Outstanding at December 31, 2014     182,761  
Granted      
Outstanding at December 31, 2015     182,761  
Granted      
Outstanding at March 31, 2016     182,761  

(1) Excludes 187,182 shares granted prior to inception of the 2010 Equity Incentive Plan.

As of March 31, 2016, there were 13,340 shares of restricted common stock that are unvested.

Total stock compensation expense related to stock options during the three months ended and year ended March 31, 2016 and December 31, 2015 was $0.2 million and $0.4 million, respectively. Total stock compensation expense related to restricted stock during the three months ended and year ended March 31, 2016 and December 31, 2015 was $13,013 and $47,644, respectively. Total stock compensation expense for both stock options and restricted stock for the three months ended and year ended March 31, 2016 and December 31, 2015 was $0.2 and $0.4 million, respectively.

As of March 31, 2016, there was $0.4 million of unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 0.71 years.

We expect to continue to grant stock options and other equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

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Common Stock Valuation

For use in calculating our stock-based compensation, estimates of the fair value of our common stock were calculated at the time points described below, and summarized in this table:

 
Valuation Date   Fair Value of
Common Stock
December 31, 2011   $ 0.25  
September 27, 2012   $ 1.10  
December 31, 2013   $ 1.30  
December 31, 2014   $ 1.95  
June 30, 2015   $ 4.00  
September 30, 2015   $ 6.60  
December 31, 2015   $ 8.35  
March 31, 2016   $ 10.65  

Valuation Date of December 31, 2011

In determining the estimated fair value of our common stock for the valuation date of December 31, 2011, our board of directors, with the assistance of management, used the Market Approach to estimate the enterprise value of our company in accordance with the American Institute of Certified Public Accountants (“AICPA”) Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation (the “AICPA Guide”). The Market Approach is one of the three fundamental valuation approaches (along with the Income Approach and Cost Approach) used to estimate the value of an enterprise. The Market approach employs analysis using comparable companies in determining the value of the entity. Both public and private companies, if there is transparent available information, are considered in the Market approach. There are a number of different methods within the Market Approach that may be used: the three main methods utilized are: the Guideline Public Company Method, the Guideline Transaction Method, and the Precedent Transaction or Backsolve Method.

Given the early stage of our company, the Guideline Transaction Method (return on invested capital) was used to derive the fair value of our entity and the underlying securities. This method derives an implied market value of invested capital (“MVIC”) from the valuation multiples of transactions involving acquired target companies with similar characteristics. In addition, each value is discounted to the present value using an appropriate discount rate and an estimated time to exit.

We arrived at an MVIC range of $3,988,000 to $4,984,000. We then used the Option-Pricing-Method (“OPM”) to allocate the total estimated net asset value of the company across the various securities outstanding to ultimately arrive at a fair value of our common stock. We chose the OPM over other acceptable allocation methods due to our multi-class capital structure and the uncertainty related to the timing and type of exit event. After application of a discount for lack of marketability we arrived at a concluded common stock value of $0.25 per share.

OPM:  The OPM treats common, preferred stock, and any debt outstanding as call options on the total value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeds the value of the liquidation preferences at the time of a liquidity event, such as a strategic sale, merger, or public offering exit. The common stock is modeled as a call option on the underlying company value at a predetermined exercise price. In the model, the exercise price is based on a comparison with the total company value rather than, as in the case of a regular call option, a comparison with a per share stock price. Thus, common stock is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the debt holders and preferred stock liquidation preferences are paid back. The OPM uses the Black-Scholes option-pricing model to price the call options. This model defines the securities' fair values as functions of the current fair value of a company and uses assumptions, such as the anticipated timing of a potential liquidity event and the estimated volatility of the securities.

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Valuation Date of September 27, 2012

In determining the estimated fair value of our common stock for the valuation date of September 27, 2012, our board of directors, with the assistance of management, used the Market Approach — Precedent Transaction or Backsolve Method to estimate the enterprise value of our company in accordance with the AICPA Guide for the valuation date of September 27, 2012.

Given the early stage of our company and that we had commenced our offering of A-2 Preferred Stock, the Backsolve Method was used to estimate the fair value of our outstanding securities. This method derives an implied overall market value of invested capital for the company as implied by a transaction involving a company’s own securities. Per the AICPA Valuation Guide, the application of the Backsolve Method may be reasonable for a company in a similar stage of development as us when a valuation is conducted in close proximity to the date of an arm’s-length financing transaction.

We estimated the total equity value of our company by backsolving for the value that equates the aggregate invested capital for the Series A-2 Preferred Stock to the investment of $1,881,000 million using the option-pricing method of allocation. The application of the Backsolve method considering the company’s capital structure yielded an MVIC of $13,677,196, of which $4,681,106 was allocated as the total value of common stock, before fair value adjustments. After application of a discount for lack of marketability we arrived at a concluded common stock value of $1.10 per share.

Valuation Date of December 31, 2013

In determining the estimated fair value of our common stock for the valuation date of December 31, 2013, our board of directors, with the assistance of management, used the Market and Income Approaches to estimate enterprise value of our company in accordance with the AICPA Guide for the valuation date of December 31, 2013.

We elected to use two methods to determine the fair value of our enterprise, the Precedent Transaction or Backsolve Method and the Decision Tree Discounted Cash Flow Method and gave equal weighting to both methodologies, arriving at our total enterprise value of $14,860,000. After adjustments for cash, non-operating items, and debt we concluded to a company equity value of $16,690,000.

We then used the Option-Pricing-Method to allocate the total estimated equity value to the various equity classes comprising our capitalization structure. This method allocated $5,255,004 to common stock, before fair value adjustments. After application of a discount for lack of marketability we arrived at a concluded common stock value of $1.30 per share.

Valuation Date of December 31, 2014

In determining the estimated fair value of our common stock for the valuation date of December 31, 2014, our board of directors, with the assistance of management, used the Market and Income Approaches to estimate the enterprise value of our company in accordance with the AICPA Guide for the valuation date of December 31, 2014.

We elected to use two methods to determine the fair value of our securities, the Adjusted Enterprise Value Method and the Decision Tree Discounted Cash Flow Method and gave equal weighting to both methodologies, arriving at our total enterprise value of $19,350,000. After adjustments for cash, non-operating items, and debt we concluded to a company equity value of $24,010,000.

We then used the Option-Pricing-Method to allocate the total estimated equity value to the various equity classes comprising our capitalization structure. This method allocated $7,819,513 to common stock, before fair value adjustments. After application of a discount for lack of marketability we arrived at a concluded per share common stock value of $1.95 per share.

Valuation Date of June 30, 2015

In determining the estimated fair value of our common stock for the valuation date of June 30, 2015, given our distinct possible exit scenario of an initial public offering, we used a hybrid of the probability weighted expected return method (“PWERM”) and an OPM in a single framework to estimate the fair value of our common equity.

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Hybrid Method:  The above referenced methodology, referred to as the Hybrid Method, utilizes one IPO scenario and one Alternative Exit scenario which is captured by the OPM. According to the AICPA Guide, the Hybrid Method is appropriate for a company that anticipates a high probability of a near-term IPO; however, if the IPO falls through due to market or other factors, the chances for a liquidity event are much more uncertain, and the company is expected to remain private for a relatively long time period. The value of the share classes under the IPO scenario would be based on the expected pricing and timing of the anticipated IPO, as described under a PWERM. Then, an OPM with an appropriate time to liquidity would be used to estimate the value of the share classes assuming the IPO does not occur, with the resulting share values under each scenario weighted by their respective probabilities.

Our management determined the probability weighting of potential liquidity events to be 30% for an initial public offering and 70% for an alternative exit path, which represents all other likely outcomes for our company including possible dissolution.

We considered two indicators of value for the IPO scenario, the Invested Capital Multiple Method and the Step-up Multiple Method. In the Invested Capital Multiple Method we estimated our invested capital deployed as of the anticipated IPO date and then applied an expected return on capital multiple range as displayed by recent market transactions. In the second of the two market-based methods we considered the increase in value, or step-up, from the most recent preferred stock financing to the IPO pre-money value for a group of similar oncology pharmaceutical companies which recently completed IPOs in the years preceding the effective date. Enterprise value in the Alternative Exit scenario was captured by use of the Decision Tree Discounted Cash Flow Method.

The application of the Hybrid Method determined a total fair value of our stock under two scenarios, one in which we complete an initial public offering of our stock, and one where there was an alternate exit event. Those values were then weighted based on management’s estimate of the probability of each potential outcome. This resulted in a probability weighted common equity value, after discounts, of $4.00 per share as of the valuation date of June 30, 2015.

Valuation Date of September 30, 2015

In determining the estimated fair value of our common stock for the valuation date of September 30, 2015, given our distinct possible exit scenario of an initial public offering, we used a hybrid of the PWERM and an OPM in a single framework to estimate the fair value of our common equity.

Hybrid Method:  The above referenced methodology, referred to as the Hybrid Method, utilizes one IPO scenario and one Alternative Exit scenario which is captured by the OPM. According to the AICPA Guide, the Hybrid Method is appropriate for a company that anticipates a high probability of a near-term IPO; however, if the IPO falls through due to market or other factors, the chances for a liquidity event are much more uncertain, and the company is expected to remain private for a relatively long time period. The value of the share classes under the IPO scenario would be based on the expected pricing and timing of the anticipated IPO, as described under a PWERM. Then, an OPM with an appropriate time to liquidity would be used to estimate the value of the share classes assuming the IPO does not occur, with the resulting share values under each scenario weighted by their respective probabilities.

Our management determined the probability weighting of potential liquidity events to be 70% for an initial public offering and 30% for an alternative exit path, which represents all other likely outcomes for our company including possible dissolution.

We considered two indicators of value for the IPO scenario, the Invested Capital Multiple Method and the Step-up Multiple Method. In the Invested Capital Multiple Method we estimated the company’s invested capital deployed as of the anticipated IPO date and then applied an expected return on capital multiple range as displayed by recent market transactions. In the second of the two market-based methods we considered the increase in value, or step-up, from the most recent preferred stock financing to the IPO pre-money value for a group of similar oncology pharmaceutical companies which recently completed IPOs in the years preceding the effective date. Enterprise value in the Alternative Exit scenario was captured by use of the Decision Tree Discounted Cash Flow Method.

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The application of the Hybrid Method determined a total fair value of our stock under two scenarios, one in which we complete an initial public offering of our stock, and one where there would be an alternate exit event. Those values were then weighted based on management’s estimate of the probability of each potential outcome. This resulted in a probability weighted common equity value, after discounts, of $6.60 per share as of the valuation date of September 30, 2015.

Valuation Date of December 31, 2015

In determining the estimated fair value of our common stock for the valuation date of December 31, 2015, given our distinct possible exit scenario of an initial public offering, we used a hybrid of the PWERM and an OPM in a single framework to estimate the fair value of our common equity.

Hybrid Method:  The above referenced methodology, referred to as the Hybrid Method, utilizes one IPO scenario and one Alternative Exit scenario which is captured by the OPM. According to the AICPA Guide, the Hybrid Method is appropriate for a company that anticipates a high probability of a near-term IPO; however, if the IPO falls through due to market or other factors, the chances for a liquidity event are much more uncertain, and the company is expected to remain private for a relatively long time period. The value of the share classes under the IPO scenario would be based on the expected pricing and timing of the anticipated IPO, as described under a PWERM. Then, an OPM with an appropriate time to liquidity would be used to estimate the value of the share classes assuming the IPO does not occur, with the resulting share values under each scenario weighted by their respective probabilities.

Our management determined the probability weighting of potential liquidity events to be 80% for an initial public offering and 20% for an alternative exit path, which represents all other likely outcomes for our company including possible dissolution.

We considered two indicators of value for the IPO scenario, the Invested Capital Multiple Method and the Step-up Multiple Method. In the Invested Capital Multiple Method we estimated the company’s invested capital deployed as of the anticipated IPO date and then applied an expected return on capital multiple range as displayed by recent market transactions. In the second of the two market-based methods we considered the increase in value, or step-up, from the most recent preferred stock financing to the IPO pre-money value for a group of similar oncology pharmaceutical companies which recently completed IPOs in the years preceding the effective date. Enterprise value in the Alternative Exit scenario was captured by use of the Decision Tree Discounted Cash Flow Method.

The application of the Hybrid Method determined a total fair value of our stock under two scenarios, one in which we complete an initial public offering of our stock, and one where there would be an alternate exit event. Those values were then weighted based on management’s estimate of the probability of each potential outcome. This resulted in a probability weighted common equity value, after discounts, of $8.35 per share as of the valuation date of December 31, 2015.

Valuation Date of March 31, 2016

In determining the estimated fair value of our common stock for the valuation date of March 31, 2016, given our distinct possible exit scenario of an initial public offering, we used a hybrid of the PWERM and an OPM in a single framework to estimate the fair value of our common equity.

Hybrid Method:  The above referenced methodology, referred to as the Hybrid Method, utilizes one IPO scenario and one Alternative Exit scenario which is captured by the OPM. According to the AICPA Guide, the Hybrid Method is appropriate for a company that anticipates a high probability of a near-term IPO; however, if the IPO falls through due to market or other factors, the chances for a liquidity event are much more uncertain, and the company is expected to remain private for a relatively long time period. The value of the share classes under the IPO scenario would be based on the expected pricing and timing of the anticipated IPO, as described under a PWERM. Then, an OPM with an appropriate time to liquidity would be used to estimate the value of the share classes assuming the IPO does not occur, with the resulting share values under each scenario weighted by their respective probabilities.

Our management determined the probability weighting of potential liquidity events to be 80% for an initial public offering and 20% for an alternative exit path, which represents all other likely outcomes for our company including possible dissolution.

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We considered two indicators of value for the IPO scenario, the Invested Capital Multiple Method and the Step-up Multiple Method. In the Invested Capital Multiple Method we estimated the company’s invested capital deployed as of the anticipated IPO date and then applied an expected retur