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Index to consolidated financial statements

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As filed with the Securities and Exchange Commission on July 14, 2016

Registration No. 333-211949


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

Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Kadmon Holdings, LLC
to be converted as described herein to a corporation named

Kadmon Holdings, Inc.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  27-3576929
(I.R.S. Employer
Identification No.)

450 East 29th Street
New York, NY 10016
Telephone: (212) 308-6000

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



Harlan W. Waksal, M.D.
President and Chief Executive Officer
450 East 29th Street
New York, NY 10016
Telephone: (212) 308-6000

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Christopher C. Paci, Esq.
David C. Schwartz, Esq.
DLA Piper LLP (US)
1251 Avenue of the Americas, 27th Floor
New York, NY 10020
Telephone: (212) 335-4500
Fax: (212) 335-4501

 

Steven N. Gordon, Esq.
Executive Vice President and
General Counsel
450 East 29th Street
New York, NY 10016
Telephone: (212) 308-3900
Fax: (212) 355-7855

 

Peter N. Handrinos, Esq.
Latham & Watkins LLP
John Hancock Tower
200 Clarendon Street
Boston, MA 02116
Telephone: (617) 948-6000
Fax: (617) 948-6001



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



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

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

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

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

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

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



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

   


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EXPLANATORY NOTE

        Kadmon Holdings, LLC, the registrant whose name appears on the cover of this registration statement, is a Delaware limited liability company. Prior to the closing of this offering, Kadmon Holdings, LLC intends to convert into a Delaware corporation pursuant to a statutory conversion and change its name to Kadmon Holdings, Inc. As a result of the corporate conversion, the holders of membership units of Kadmon Holdings, LLC will become holders of shares of common stock of Kadmon Holdings, Inc. Holders of warrants and options to purchase membership units of Kadmon Holdings, LLC will become holders of warrants and options to purchase common stock of Kadmon Holdings, Inc., respectively. Except as disclosed in the accompanying prospectus, the consolidated financial statements and selected historical consolidated financial data and other financial information included in this registration statement are those of Kadmon Holdings, LLC and do not give effect to the corporate conversion.

        This registration statement contains two forms of prospectus, as set forth below.

    Public Offering Prospectus.  A prospectus to be used for the initial public offering by Kadmon Holdings, Inc. of $100.0 million of shares of common stock (and an additional $15.0 million of shares of common stock which may be sold upon exercise of the underwriters' over-allotment option) through the underwriters named on the cover page of the Public Offering Prospectus.

    Selling Stockholder Resale Prospectus.  A prospectus to be used in connection with the potential resale by certain selling stockholders of the shares of our common stock issued, as to $20.0 million in aggregate principal amount of the Senior Convertible Term Loan, upon conversion of 125% of that principal amount at a conversion price equal to the initial public offering price per share in this offering pursuant to an exchange agreement entered into on June 8, 2016, by and among the Company and the holders of the Senior Convertible Term Loan.

        The Public Offering Prospectus and the Selling Stockholder Resale Prospectus will be substantively identical in all respects except for the following principal points:

    they contain different front covers;

    all references in the Public Offering Prospectus to "this offering" or "this initial public offering" will be changed to "the IPO," defined as the underwritten initial public offering of our common stock, in the Selling Stockholders Resale Prospectus;

    all references in the Public Offering Prospectus to "underwriters" will be changed to "underwriters of the IPO" in the Selling Stockholders Resale Prospectus;

    all references in the Public Offering Prospectus to "$18.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus" will be changed to "$18.00 per share, which is the midpoint of the price range set forth on the cover page of the Public Offering Prospectus" in the Selling Stockholders Resale Prospectus;

    they contain different Use of Proceeds sections;

    a Shares Registered for Resale section is included in the Selling Stockholder Resale Prospectus;

    a Selling Stockholders section is included in the Selling Stockholder Resale Prospectus;

    the section "Summary—The Offering" from the Public Offering Prospectus is deleted from the Selling Stockholder Resale Prospectus;

    the section "Shares Eligible For Future Sale—Selling Stockholder Resale Prospectus" from the Public Offering Prospectus is deleted from the Selling Stockholder Resale Prospectus;

    the Underwriting section from the Public Offering Prospectus is deleted from the Selling Stockholder Resale Prospectus and a Plan of Distribution section is inserted in its place;

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    the Legal Matters section in the Selling Stockholder Resale Prospectus deletes the reference to counsel for the underwriters; and

    they contain different back covers.

        We have included in this registration statement, after the financial statements, a set of alternate pages to reflect the foregoing differences between the Public Offering Prospectus and the Selling Stockholder Resale Prospectus.


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

SUBJECT TO COMPLETION, DATED JULY 14, 2016

PRELIMINARY PROSPECTUS

LOGO

5,555,556 Shares

Kadmon Holdings, Inc.

Common Stock
$         per share



        This is an initial public offering of shares of common stock of Kadmon Holdings, Inc. We currently operate as a Delaware limited liability company under the name Kadmon Holdings, LLC. Prior to the closing of this offering, we intend to convert into a Delaware corporation pursuant to a statutory conversion and change our name to Kadmon Holdings, Inc. We are selling shares of our common stock. We currently expect the initial public offering price will be between $16.00 and $20.00 per share of common stock.

        We have been authorized to list our common stock on the New York Stock Exchange (NYSE) under the symbol "KDMN."

        We are an "emerging growth company," as defined in Section 2(a) of the Securities Act of 1933 (Securities Act), and will be subject to reduced public reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company. See "Prospectus Summary—Implications of Being an Emerging Growth Company."



        Investing in our common stock involves risks. See "Risk Factors" beginning on page 13.

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

 
  Per
Share
  Total  
Initial public offering price   $     $    
Underwriting discounts(1)   $     $    
Proceeds to Kadmon (before expenses)   $     $    

(1)
See "Underwriting" on page 225 for additional information regarding underwriting compensation.

        Certain holders of our membership interests have indicated an interest in purchasing an aggregate of $40 million in shares of our common stock in this offering at the initial public offering price per share. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these entities, or any of these entities may determine to purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these entities as they will on any other shares sold to the public in this offering.

        We have granted the underwriters the right to purchase up to 833,333 additional shares of common stock to cover over-allotments, if any. The underwriters can exercise this right at any time within 30 days after the date of this prospectus.

        The underwriters expect to deliver the shares of common stock to investors on or about                        , 2016 through the book-entry facilities of The Depository Trust Company.

Joint Book-Running Managers
Citigroup   Jefferies



Lead Manager

JMP Securities



Manager

H.C. Wainwright & Co.

   

                        , 2016.


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TABLE OF CONTENTS

Basis of Presentation

    ii  

Trademarks

    ii  

Market and Industry Data

    ii  

About this Prospectus

    ii  

Prospectus Summary

    1  

Summary Historical Consolidated Financial and Other Data

    11  

Risk Factors

    13  

Cautionary Note Regarding Forward-Looking Statements

    67  

Use of Proceeds

    69  

Dividend Policy

    71  

Capitalization

    72  

Dilution

    75  

Corporate Conversion

    78  

Selected Consolidated Financial and Other Data

    81  

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

    83  

Business

    107  

Management

    161  

Executive Compensation

    172  

Certain Relationships and Related Party Transactions

    186  

Principal Stockholders

    198  

Pricing Sensitivity Analysis

    206  

Description of Capital Stock

    208  

Shares Eligible for Future Sale

    217  

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

    221  

Underwriting

    225  

Legal Matters

    231  

Experts

    231  

Where You Can Find More Information

    231  

Index to Consolidated Financial Statements

    F-1  

        You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We and the underwriters have not authorized anyone to provide you with different information. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

        For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States. See "Underwriting."



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BASIS OF PRESENTATION

        The consolidated financial statements include the accounts of Kadmon Holdings, LLC and its domestic and international subsidiaries, all of which are wholly owned. Prior to the closing of this offering, we will complete a corporate conversion pursuant to which Kadmon Holdings, Inc. will succeed to the business of Kadmon Holdings, LLC and its consolidated subsidiaries, and the unitholders of Kadmon Holdings, LLC will become stockholders of Kadmon Holdings, Inc., as described under the heading "Corporate Conversion." In this prospectus, we refer to this transaction as the "Corporate Conversion." We expect that our conversion from a Delaware limited liability company to a Delaware corporation will not have a material effect on our consolidated financial statements.


TRADEMARKS

        This prospectus includes our trademarks, trade names and service marks, such as "Kadmon" and GRAPHIC which are protected under applicable intellectual property laws and are the property, prior to the Corporate Conversion discussed herein, of Kadmon Holdings, LLC, or its subsidiaries, and after the Corporate Conversion, of Kadmon Holdings, Inc., or its subsidiaries. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM 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 right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.


MARKET AND INDUSTRY DATA

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets which we believe to be reasonable. Although we believe the data from these third-party sources is reliable, we have not independently verified any third-party information. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.


ABOUT THIS PROSPECTUS

        Except where the context otherwise requires or where otherwise indicated, the terms "Kadmon," "we," "us," "our," "our company" and "our business" refer, prior to the Corporate Conversion discussed herein, to Kadmon Holdings, LLC, and after the Corporate Conversion, to Kadmon Holdings, Inc.

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PROSPECTUS SUMMARY

        This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision.


Overview

        We are a fully integrated biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address disease areas of significant unmet medical need. We are developing product candidates within autoimmune and fibrotic diseases, oncology and genetic diseases. We leverage our multi-disciplinary research and clinical development team members, who prior to joining Kadmon had brought more than 15 drugs to market, to identify and pursue a diverse portfolio of novel product candidates, through in-licensing products and employing our small molecule and biologics platforms. By retaining global commercial rights to our lead product candidates, we believe that we have the ability to progress these candidates ourselves while maintaining flexibility for commercial and licensing arrangements. We expect to continue to progress our clinical candidates and have further clinical trial events to report throughout 2016.

        We utilize our advanced understanding of the molecular mechanisms of disease to establish development paths for disease areas where significant unmet medical needs exist. Below is a brief description of our most clinically advanced product candidates:

    KD025, the most advanced candidate in our rho-associated coiled-coil kinase 2 (ROCK2) platform, is a potential first-in-class, oral, selective ROCK2 inhibitor. ROCK2 is a molecular target in autoimmune, fibrotic and neurodegenerative diseases. We established proof of concept for KD025 in autoimmune disease in a recently completed, open-label, dose-finding Phase 2 clinical trial in moderate to severe psoriasis, with no emergent safety issues. We have an ongoing Phase 2 clinical study of KD025 in idiopathic pulmonary fibrosis (IPF). In 2016, we plan to conduct a placebo-controlled Phase 2 clinical study of KD025 in moderate to severe psoriasis as well as Phase 2 proof of concept trials in other autoimmune diseases, including in chronic graft-versus-host disease (cGVHD), psoriatic arthritis, scleroderma and systemic lupus erythematosus (SLE).

    Tesevatinib in Oncology.  Tesevatinib is an oral tyrosine kinase inhibitor (TKI) designed to block key molecular drivers of tumor growth, metastases and drug resistance. Unlike other TKIs, tesevatinib has been observed in preclinical studies to cross the blood-brain barrier, which separates the circulating blood from the brain, and we believe that our preliminary clinical observations indicate that tesevatinib may penetrate the blood-brain barrier in humans. In preclinical and early clinical studies, we have observed tesevatinib's activity against epidermal growth factor receptor (EGFR), a cell surface receptor, its accumulation in the lungs, leptomeninges (membranes that protect the brain and spinal cord) and kidneys, and in a previously completed Phase 2 clinical trial, its response rate in treatment-naïve non-small cell lung cancer (NSCLC) patients with activating EGFR mutations. EGFR is often overexpressed in lung and other malignancies with epithelial origins, which refer to the layers of cells that line hollow organs and glands. We are conducting an open-label Phase 2 clinical study of tesevatinib in NSCLC with activating EGFR mutations in patients with brain metastases or leptomeningeal disease. Preliminary observations by the study investigators suggest activity of tesevatinib and that six of the seven patients enrolled to date have had a clinically significant improvement of neurological symptoms and/or tumor shrinkage. The observed improvements in neurological symptoms include, for some of the enrolled patients, improved strength and balance and reduced

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      headache and fatigue. Of note, one patient with brain metastases and leptomeningeal disease showed a 57% reduction in a measurable cerebral metastasis in MRI scans at Day 41. Additionally, one patient with brain metastases showed an approximate 50% decrease in brain metastases mass overall, based on the cumulative measured and observed decreases in multiple brain lesions in MRI scans at Day 23. There are no effective approved therapies for NSCLC patients with activating EGFR mutations whose disease has spread to the brain or leptomeninges, making this an area of significant unmet medical need.

    Tesevatinib in Polycystic Kidney Disease (PKD).  Due to tesevatinib's ability to inhibit EGFR and a signaling protein referred to as proto-oncogene tyrosine-protein kinase Src (Src), which are key molecular drivers of PKD, a genetic kidney disorder caused by mutations in one of several genes, and tesevatinib's accumulation in the kidneys, we are developing tesevatinib to treat all forms of PKD. The autosomal dominant form of PKD (ADPKD) is caused by a mutation in the polycystin-1 or polycystin-2 gene. In PKD preclinical models, tesevatinib has demonstrated a statistically significant inhibition of formation and growth of kidney cysts and prevented further loss of kidney function. The autosomal recessive form of PKD (ARPKD) is caused by a mutation in the fibrocystin-1 gene. We have obtained orphan drug designation status in the United States for tesevatinib for the treatment of patients with ARPKD. In our ongoing, 61-patient, open-label, Phase 1b/2a clinical trial in ADPKD, we have selected a dose of tesevatinib for additional clinical development. Following receipt of guidance from the U.S. Food and Drug Administration (FDA) on our planned registration pathway at an FDA End-of-Phase 2 meeting, we plan to initiate a Phase 3 registration-directed trial of tesevatinib in ADPKD in 2017. We plan to initiate a Phase 1 clinical trial of tesevatinib in ARPKD in 2016. There are currently no approved drug therapies for ADPKD or ARPKD in the United States.

    KD034  is our portfolio of enhanced formulations of trientine hydrochloride, a chelating compound for the removal of excess copper from the body, for the treatment of Wilson's disease, a rare genetic disease affecting approximately 10,000 individuals in the United States. We are developing a proprietary formulation and packaging of trientine hydrochloride that we believe have the potential to address major shortcomings of currently available trientine hydrochloride formulations. We also plan to seek approval for a generic of Syprine (trientine hydrochloride).

        Kadmon Pharmaceuticals, LLC (Kadmon Pharmaceuticals), our wholly owned subsidiary, is our specialty-focused commercial organization. Kadmon Pharmaceuticals currently markets and distributes a portfolio of branded generic ribavirin products for chronic hepatitis C virus (HCV) infection. Additionally, Kadmon Pharmaceuticals co-promotes a product for chronic weight management and distributes a product for chorea, an involuntary movement disorder associated with Huntington's disease, and a product for cytomegalovirus (CMV) retinitis, a viral inflammation of the retina of the eye, and for the prevention of CMV disease, a common viral infection complicating solid organ transplants. Product revenues from Kadmon Pharmaceuticals are almost entirely derived from sales of its ribavirin portfolio. Kadmon Pharmaceuticals' sales of these drugs have significantly declined, from $63.5 million for the year ended December 31, 2014 to $29.3 million for the year ended December 31, 2015, as the treatment landscape for chronic HCV infection has rapidly evolved, with multiple ribavirin-free regimens, including novel direct-acting antivirals, having entered the market and becoming the new standard of care. As a result, we expect sales of our ribavirin portfolio of products to significantly decline in 2016 and to contribute insignificantly to revenue in 2017 and beyond.

        During the three months ended March 31, 2016 and the years ended December 31, 2015 and 2014, Kadmon Pharmaceuticals generated enough revenue to support its commercial operations and service our debt requirements. Historically, we have supported our non-commercial operations primarily through private placement financings, licensing agreements and strategic alliances. We do not believe we can currently depend on commercial revenues from Kadmon Pharmaceuticals to support our non-commercial operations, including drug development efforts and debt obligations. Instead, we leverage

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our commercial infrastructure, including the regulatory, quality and chemistry, manufacturing and controls (CMC) teams of Kadmon Pharmaceuticals, to support the development of our clinical-stage product candidates. We believe that our commercial infrastructure will be most advantageous to us in the future, in connection with potential commercial collaborations as well as the anticipated commercialization of our pipeline products and clinical-stage product candidates, if approved.


Our Strategy

        Our goal is to develop first-in-class, innovative therapies for indications with significant unmet medical needs, including in autoimmune and fibrotic diseases, oncology and genetic diseases, and for which we plan, in many cases, to seek breakthrough designation from the FDA. Our key strategies to achieve this goal are listed below:

    Develop KD025 and our ROCK2 inhibitor platform to produce novel treatments for autoimmune, fibrotic and neurodegenerative diseases.  We have synthesized and identified a diverse portfolio of highly selective ROCK2 inhibitors to treat autoimmune, fibrotic and neurodegenerative diseases. We have selected more than 10 of these ROCK2 inhibitors that we believe have the greatest potential based on characteristics including potency, solubility, bioavailability and, in some cases, blood-brain barrier penetrance.


    We plan to develop KD025 for the treatment of autoimmune and fibrotic diseases. We recently completed a Phase 2 clinical study of KD025 in moderate to severe psoriasis and have an ongoing Phase 2 clinical study in IPF. We plan to initiate additional Phase 2 clinical studies in other autoimmune diseases in 2016, including in cGVHD, psoriatic arthritis, scleroderma and SLE, as well as expand our clinical program in moderate to severe psoriasis.

    Rapidly advance tesevatinib in NSCLC with brain metastases or leptomeningeal disease, followed by glioblastoma, earlier-stage NSCLC and other solid tumors.  We are initially developing tesevatinib for NSCLC with activating EGFR mutations in patients with brain metastases or leptomeningeal disease and have an ongoing Phase 2 clinical study in these indications. We believe that these indications are well suited for tesevatinib's mechanism of action and represent the fastest potential path to FDA approval due to the lack of currently approved treatments in these patient populations. We also plan to pursue clinical trials of tesevatinib in additional solid tumors, including glioblastoma and earlier-stage NSCLC.

    Rapidly advance tesevatinib for the treatment of ADPKD and ARPKD.  We are evaluating the safety and tolerability of tesevatinib in ADPKD in an ongoing Phase 1b/2a clinical study and in ARPKD in a planned Phase 1 clinical study. PKD is a disease that requires chronic treatment, and we believe that tesevatinib's tolerability profile makes it an attractive therapeutic product candidate for this indication. To address ARPKD, a pediatric disease closely related to ADPKD, we have developed a proprietary liquid formulation of tesevatinib for administration to children and which is designed to enable titration, the process of gradually adjusting the dose of a medication by body weight to reach the appropriate dose. We plan to pursue registration study programs in both ADPKD and ARPKD in 2016 and 2017.

    Leverage our drug discovery platforms to identify and develop new product candidates for additional diseases with significant unmet medical need.  Our drug discovery platforms are focused on small molecule chemistry and biologics. Our platforms support the future growth of our pipeline and fuel the discovery of new targets and the development of drugs to inhibit these targets. To date, these platforms have produced a strong pipeline of preclinical product candidates. Our most advanced novel preclinical product candidate from our biologics platform, KD033, is an anti-PD-L1/IL-15 fusion protein, which inhibits the PD-L1 pathway to reduce tumor cell immune checkpoint blockade, which is the inhibition of immune system checkpoints effecting

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      immune system function, while simultaneously directing an IL-15-stimulated, specific immune response to the tumor microenvironment.

    Build on and leverage our commercial infrastructure to market therapies for Wilson's disease and support our clinical development programs.  We plan to seek approval for our proprietary formulation and packaging of trientine hydrochloride for the treatment of Wilson's disease under a Section 505(b)(2) New Drug Application (NDA) pathway. In addition, we plan to seek approval under an Abbreviated New Drug Application (ANDA) for a generic of Syprine (trientine hydrochloride). We intend to use Kadmon Pharmaceuticals, our specialty-focused commercial organization, to market these formulations, if approved, and support our development programs and commercialization of our clinical-stage product candidates.


Our Clinical-Stage Pipeline

        We maintain global rights to the following product candidates:

GRAPHIC


Risks Related to Our Business

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

    We have incurred substantial losses since our inception and anticipate that we will continue to incur losses for the foreseeable future and may not achieve or sustain profitability. We expect to continue to incur significant expenses related to the development of our clinical product candidates for at least the next several years, and we anticipate that our expenses will increase substantially as a result of multiple initiatives.

    Our level of indebtedness could adversely affect our business and limit our ability to plan for, or respond to, changes in our business.

    We may not be able to generate sufficient cash to pay our indebtedness.

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    Our senior secured non-convertible term loan matures on June 17, 2018. We may not be able to refinance our debt under this facility before the maturity date, in which event our ability to continue our operations would be materially and adversely impacted.

    Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.

    Clinical development is a lengthy and expensive process with a potentially uncertain outcome. Our long-term success depends upon the successful development and commercialization of our product candidates. To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials are required. The conduct of preclinical studies and clinical trials is subject to numerous risks and results of the studies and trials are highly uncertain.

    Even if we obtain regulatory approval for our product candidates, they may never be successfully launched, achieve market acceptance or become profitable, in which case our business, prospects, operating results and financial condition may be materially harmed.

    We face substantial competition, which may result in others discovering, developing and commercializing products before or more successfully than our products and product candidates.

    The environment in which our regulatory submissions may be reviewed changes over time, which may make it more difficult to obtain regulatory approval of any of our product candidates.

    We cannot be certain how profitable, if at all, the commercialization of our marketed products will be.

    We expect to continue to contract with third-party suppliers for the manufacturing of our commercial product portfolio as well as our developmental product candidates for clinical trial use and, if approved, for commercialization.

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

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


Corporate Conversion

        We currently operate as a Delaware limited liability company under the name Kadmon Holdings, LLC. Prior to the closing of this offering, Kadmon Holdings, LLC will convert into a Delaware corporation pursuant to a statutory conversion and change its name to Kadmon Holdings, Inc. As a result of the Corporate Conversion, the holders of the different classes of units of Kadmon Holdings, LLC will become holders of shares of common stock of Kadmon Holdings, Inc. Holders of warrants and options to purchase units of Kadmon Holdings, LLC will become holders of warrants and options to purchase common stock of Kadmon Holdings, Inc., respectively. The number of shares of common stock of Kadmon Holdings, Inc. that holders of membership units will be entitled to receive in the Corporate Conversion will be determined in accordance with a formula that is set forth in the plan of conversion and varies depending on which class of units a holder owns. The number of shares of common stock of Kadmon Holdings, Inc. that certain warrants will be exercisable for, following the Corporate Conversion, will also vary depending on the initial public offering price set forth on the cover of this prospectus.

        The information in this prospectus regarding the shares of our common stock to be issued or issuable to holders of outstanding membership units and warrants of Kadmon Holdings, LLC and issuable upon conversion of the senior secured convertible credit agreement (Senior Convertible Term Loan) and the second-lien convertible paid-in-kind (PIK) notes (Second-Lien Convert) and the 5%

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Convertible Preferred Stock (convertible preferred stock) is based on an assumed initial public offering price per share of common stock of $18.00, which is the midpoint of the estimated range set forth on the cover of this prospectus and the assumed 1-for-6.5 reverse split. To the extent that the actual initial public offering price per share for this offering is greater or less than $18.00, the actual number of shares of common stock issued in connection with the Corporate Conversion or issuable thereafter upon exercise of options and warrants and conversion of the Senior Convertible Term Loan and the Second-Lien Convert will be adjusted accordingly. See "Pricing Sensitivity Analysis" to see how the number of shares to be issued in the Corporate Conversion or issuable thereafter upon exercise of options and warrants and conversion of the Senior Convertible Term Loan and the Second-Lien Convert would be affected by an initial public offering price per share of common stock at $17, $18 or $19, or if the underwriters' option to purchase additional shares of common stock is exercised in full.

        The purpose of the Corporate Conversion is to reorganize our corporate structure so that the top-tier entity in our corporate structure—the entity that is offering our common stock to the public in this offering—is a corporation rather than a limited liability company and so that our existing investors will own our common stock rather than equity interests in a limited liability company. For further information regarding the Corporate Conversion, see "Corporate Conversion." References in this prospectus to our capitalization and other matters pertaining to our equity and shares prior to the Corporate Conversion relate to the capitalization and equity and shares of Kadmon Holdings, LLC, and after the Corporate Conversion, to Kadmon Holdings, Inc.

        The consolidated financial statements included elsewhere in this prospectus are those of Kadmon Holdings, LLC and its consolidated operations. We expect that our conversion from a Delaware limited liability company to a Delaware corporation will not have a material effect on our consolidated financial statements.


Retirement of Outstanding Debt Through Issuance of Convertible Preferred Stock and Common Stock

        Concurrently with the closing of this offering, we will consummate a series of transactions that will retire all of our outstanding convertible indebtedness, as follows:

    Pursuant to an exchange agreement entered into on June 8, 2016 with the holders of our Senior Convertible Term Loan, in consideration of the payment of a make-whole fee, (i) $30.0 million in aggregate principal amount of the Senior Convertible Term Loan will be exchanged for 30,000 shares of a newly created class of capital stock to be designated as 5% Convertible Preferred Stock, which we refer to as the convertible preferred stock; (ii) as to $25.0 million in aggregate principal amount of our Senior Convertible Term Loan, we will convert 100% of that principal amount into shares of our common stock at a conversion price equal to 80% of the initial public offering price per share in this offering; and (iii) as to $20.0 million in aggregate principal amount of the Senior Convertible Term Loan, we will convert 125% of that principal amount into shares of our common stock at a conversion price equal to the initial public offering price per share in this offering, which shares will be eligible for resale by their holders pursuant to the Selling Stockholder Resale Prospectus. The amount of the make-whole fee will be $7,967,614 plus $11,212 for each day after July 31, 2016 through and including the closing of the exchange agreement (assuming a closing on or before August 31, 2016). In addition, the make-whole fee will be paid through the issuance of shares of our common stock at an issue price equal to 80% of the initial public offering price per share in this offering. As of March 31, 2016, the outstanding balance of the Senior Convertible Term Loan was $74.4 million, which includes all accrued interest as of such date.

    Pursuant to an amendment and restatement of the terms of our Second-Lien Convert dated as of June 8, 2016, 100% of the outstanding balance under our outstanding Second-Lien Convert, which as of March 31, 2016 was $123.1 million, will be mandatorily converted into shares of our

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      common stock at a conversion price equal to 80% of the initial public offering price per share in this offering.

        For additional details on the terms of the convertible preferred stock to be issued pursuant to the exchange agreement with the holders of the Convertible Term Loan, see "Description of Capital Stock—Preferred Stock—5% Convertible Preferred Stock."

        We expect to incur a substantial charge as a result of consummating the above transactions since the conversion price is equal to a discount to the initial public offering price per share in this offering.


Implications of Being an Emerging Growth Company

        We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include:

    being permitted to have only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations disclosure;

    not being required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act);

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB), regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

    exemption from the requirement to submit certain executive compensation matters to stockholder advisory votes, such as "say-on-pay," "say-on-frequency" and "say-on-golden parachutes"; and

    not being required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer's compensation to median employee compensation.

        We may take advantage of these provisions until we are no longer an emerging growth company. We will remain an "emerging growth company" until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these reduced burdens. We have elected to adopt the reduced disclosure with respect to financial statements and the related Management's Discussion and Analysis of Financial Condition and Results of Operations disclosure. As a result of this election, the information that we provide stockholders may be different than you might get from other public companies in which you hold equity.


Corporate Information

        Kadmon Holdings, LLC was established in Delaware in September 2010. Prior to the closing of this offering, we will complete a Corporate Conversion pursuant to which Kadmon Holdings, Inc. will succeed to the business of Kadmon Holdings, LLC and its consolidated subsidiaries, and the equity holders of Kadmon Holdings, LLC will become stockholders of Kadmon Holdings, Inc. See "Corporate Conversion." Our principal executive offices are located at 450 East 29th Street, New York, New York 10016, and our telephone number at that address is (212) 308-6000. Our website is located at www.kadmon.com. Our website, and the information on our website, is neither part of this prospectus nor incorporated by reference herein.

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THE OFFERING

Common stock offered by us

  5,555,556 shares

Underwriters' option to purchase additional shares of common stock from us

  833,333 shares

Common stock to be outstanding after this offering

  34,070,479 shares (or 34,903,812 shares, if the underwriters exercise in full their option to purchase additional shares of common stock).

Use of proceeds

  We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $89.9 million (or approximately $103.9 million if the underwriters exercise in full their option to purchase additional shares of common stock), assuming the shares are offered at $18.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus).

  We intend to use the net proceeds that we receive from the offering to: (i) advance KD025 through Phase 2 clinical studies; (ii) advance planned Phase 2 and Phase 3 clinical studies of tesevatinib; (iii) conduct pharmacokinetic and bioequivalence studies in connection with the development of various formulations of KD034; (iv) conduct various KD025 and tesevatinib toxicology studies, as well as other costs to develop various antibodies; (v) fund chemistry, manufacturing and controls costs (CMCC) to support clinical supply needs, process optimization and reformulation efforts, and ongoing drug stability expenses; (vi) pay research associated costs; (vii) pay clinical infrastructure and data management costs; (viii) repay an outstanding loan provided by Dr. Harlan W. Waksal, our President and Chief Executive Officer; and (ix) fund working capital and for other general corporate purposes. See "Use of Proceeds."

Directed Share Program

  At our request, the underwriters have reserved up to 277,778 shares of common stock, or 5% of the shares being offered by this prospectus (excluding the shares of common stock that may be issued upon the underwriters' exercise of their option to purchase additional shares), for sale at the initial public offering price to holders of our membership units, our directors, officers and vendors, and certain others persons with whom we have a business relationship, as designated by us.

  The number of shares available for sale to the general public will be reduced to the extent that these individuals purchase all or a portion of the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. For further information regarding our directed share program, please see "Underwriting."

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Dividend policy

  We currently intend to retain all available funds and any future earnings for use in the operation of our business, and therefore we do not currently expect to pay any cash dividends on our common stock. Any future determination to pay dividends to holders of shares of common stock will be at the discretion of our board of directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, restrictions in our debt agreements and other factors that our board of directors deems relevant. Our ability to pay dividends may also be restricted by the terms of any future credit agreement or any future debt or preferred equity securities of us or of our subsidiaries. See "Dividend Policy."

Risk factors

  Investing in shares of our common stock involves a high degree of risk. See "Risk Factors" beginning on page 13 of this prospectus for a discussion of factors you should carefully consider before investing in shares of our common stock.

Proposed NYSE symbol

  "KDMN"

        In this prospectus, unless otherwise indicated, the number of shares of our common stock to be outstanding after this offering and the other information based thereon does not reflect:

    1,636,429 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2016 at a weighted-average exercise price of $37.38 per share pursuant to awards under our 2011 Equity Incentive Plan, 417,043 of which are exercisable as of June 30, 2016, including 769,231 shares of common stock issuable upon exercise of outstanding stock options issued to Dr. Harlan W. Waksal, our President and Chief Executive Officer, with an exercise price of $39.00 per share, none of which are exercisable as of June 30, 2016. On July 13, 2016, the compensation committee of the board of managers approved the amendment of all outstanding option awards, effective upon the date of pricing of this offering, to adjust the exercise price (on a post-Corporate Conversion, post-split basis) to the initial public offering price per share in this offering;

    an option award granted to Dr. Harlan W. Waksal on July 13, 2016 increasing the number of shares (on a post-Corporate Conversion, post-split basis) subject to his original option grant received in December 2015. The number of shares subject to this option award shall equal the difference between his original December 2015 option grant and 5% of the company's outstanding common equity determined on a fully diluted basis. The effective date of this July 2016 option award will be the date of this offering. The exercise price per share of common stock subject to the new option award will be equal to the initial public offering price per share of common stock and will be set at the initial public offering price per share of common stock, provided that such price will not be less than fair market value on the date of the grant;

    2,646,083 shares of common stock, representing the maximum number of shares based on the midpoint of the estimated price range set forth on the cover of this prospectus, issuable at our option under our 2014 Long-Term Incentive Plan, as amended (2014 LTIP), as of June 30, 2016;

    3,912,471 shares of common stock that will be available for future issuance, as of the closing of this offering, under our 2016 Equity Incentive Plan, which includes 693,816 shares of common stock previously reserved for issuance under our 2011 Equity Incentive Plan as of June 30, 2016;

    900,000 shares of common stock that will be available for future issuance as of the closing of this offering under our 2016 Employee Stock Purchase Plan;

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    1,122,556 shares issuable upon the exercise of warrants outstanding as of June 30, 2016 at a weighted-average exercise price of $36.74 per share following the Corporate Conversion; and

    2,083,334 shares issuable upon the conversion of 30,000 shares of our convertible preferred stock (at their aggregate original purchase price), which will be issued pursuant to an exchange agreement with holders of our Senior Convertible Term Loan based on the assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of the prospectus) shares of our common stock.

        Unless otherwise indicated, this prospectus assumes:

    the completion of our Corporate Conversion, as a result of which all outstanding units of Kadmon Holdings, LLC will be converted into 15,825,287 shares of common stock of Kadmon Holdings, Inc., warrants of Kadmon Holdings, LLC will be converted into the right to purchase shares of common stock of Kadmon Holdings, Inc. and options of Kadmon Holdings, LLC will be converted into options to purchase shares of common stock of Kadmon Holdings, Inc., in each case, based on the assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus) and a reverse split of 6.5 units for one share of common stock;

    an initial public offering price of $18.00 per share, the midpoint of the estimated price range set forth on the cover of this prospectus;

    no exercise of the underwriters' option to purchase up to an additional 833,333 shares of our common stock;

    the consummation of the transactions contemplated under the exchange agreement with the holders of the Senior Convertible Term Loan resulting in the issuance of 30,000 shares of our convertible preferred stock and 3,679,086 shares of our common stock based on the assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of the prospectus); and

    the mandatory conversion of all of our outstanding indebtedness under the Second-Lien Convert, resulting in the issuance of 9,010,550 shares of our common stock based on the assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of the prospectus).

        The number of shares of common stock of Kadmon Holdings, Inc. that holders of membership units will receive in the Corporate Conversion, the information regarding the warrants exercisable following the Corporate Conversion, and the number of shares issuable pursuant to the Senior Convertible Term Loan and the Second-Lien Convert will vary depending on the initial public offering price. See "Corporate Conversion" and "Pricing Sensitivity Analysis" for additional information.

        The number of shares of our common stock that will be outstanding after this offering is based on 28,514,923 shares of common stock outstanding as of June 30, 2016 and gives effect to completion of our Corporate Conversion, the consummation of the transactions contemplated under the exchange agreement with the holders of the Senior Convertible Term Loan, and the mandatory conversion of all of our outstanding indebtedness under the Second-Lien Convert, based on the assumed initial public offering price of $18.00 per share, the midpoint of the estimated price range on the cover of this prospectus.

        Certain holders of our membership interests have indicated an interest in purchasing an aggregate of $40 million in shares of our common stock in this offering at the initial public offering price per share. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these entities, or any of these entities may determine to purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these entities as they will on any other shares sold to the public in this offering.

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

        The following tables set forth, for the periods and at the dates indicated, our summary consolidated financial data and other operating data. Historical results are not indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of results for the entire year. You should read the following information together with the more detailed information contained in "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations", our consolidated financial statements and the accompanying notes thereto appearing elsewhere in this prospectus and "Pricing Sensitivity Analysis".

        The consolidated statements of operations data for the years ended December 31, 2015 and 2014 and the consolidated balance sheet data at December 31, 2015 and 2014, are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statements of operations data for the three months ended March 31, 2016 and March 31, 2015 and the consolidated balance sheet data at March 31, 2016 are derived from our unaudited consolidated financial statements included in this prospectus. The unaudited consolidated financial statements include, in the opinion of management, all adjustments that management considers necessary for the fair presentation of the consolidated financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in any future period.

 
  Three Months Ended
March 31,
  Year ended December 31,  
 
  2016   2015   2015   2014  
 
  (unaudited)
   
   
 
 
  (in thousands, except share and per share amounts)
 

Statements of Operations Data:

                         

Total revenue

  $ 9,663   $ 7,718   $ 35,719   $ 95,018  

Cost of sales

    1,085     959     3,731     6,123  

Write-down of inventory

    135     105     2,274     4,916  

Gross profit

    8,443     6,654     29,714     83,979  

Operating expenses:

                         

Research and development

    7,955     6,872     29,685     29,101  

Selling, general and administrative

    24,486     22,164     108,613     93,167  

Gain on settlement of other milestone payable

    (3,875 )            

Impairment loss on intangible asset

            31,269      

Loss from operations

    (20,123 )   (22,382 )   (139,853 )   (38,289 )

Other expense

    12,407     5,626     7,232     26,096  

Income tax expense (benefit)

    315         (3 )   (29 )

Net loss

  $ (32,845 ) $ (28,008 ) $ (147,082 ) $ (64,356 )

Basic and diluted net loss per share of common stock(1)

 
$

(3.96

)
     
$

(18.10

)
     

Weighted average basic and diluted shares of common stock outstanding(1)

    8,302,635           8,127,781        

Unaudited pro forma net loss(2)

  $ (27,297 )       $ (121,905 )      

Unaudited pro forma basic and diluted net loss per share of common stock(3)

  $ (1.00 )       $ (4.64 )      

Unaudited pro forma weighted average basic and diluted shares of common stock outstanding(3)

    27,287,613           26,273,853        

(1)
Basic and diluted net loss per share of common stock and basic and diluted weighted average shares of common stock outstanding give effect to the conversion of our units into shares of common stock based on an assumed initial public offering price of $18.00 per share, the midpoint of the price range set forth on the cover of this prospectus, and an assumed 1-for-6.5 reverse split. See Note 3 to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the method used to calculate the historical basic and diluted net

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    loss per share of common stock and the number of shares used in the computation of the per share amounts.

(2)
Unaudited pro forma net loss gives effect to the conversion of the Senior Convertible Term Loan and the Second Lien Convert into shares of our common stock, concurrently with the consummation of this offering, based on an assumed initial public offering price of $18.00 per share, the midpoint of the price range set forth on the cover of this prospectus, and an assumed 1-for-6.5 reverse split. See Note 3 to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the pro forma adjustments used to calculate unaudited pro forma net loss.

(3)
Unaudited pro forma basic and diluted net loss per share of common stock and unaudited pro forma basic and diluted weighted average shares of common stock outstanding give effect to the conversion of our Class A, Class B, Class C and Class D units and our Class E redeemable convertible units into shares of common stock as part of the Corporate Conversion and the conversion of the Convertible Term Loan and the Second Lien Convert into shares of our common stock, concurrently with the consummation of this offering, in each case, based on an assumed initial public offering price of $18.00 per share, the midpoint of the price range set forth on the cover of this prospectus, and an assumed 1-for-6.5 reverse split of our units into shares of our common stock. See Note 3 to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the method used to calculate unaudited pro forma basic and diluted net loss per share of common stock and the number of shares used in the computation of the per share amounts.


 
  As of March 31, 2016  
 
  Actual
(unaudited)
  Pro forma(1)
(unaudited)
  Pro forma as
adjusted(2)
(unaudited)
 
 
  (in thousands)
 

Balance Sheet Data:

                   

Cash and cash equivalents

  $ 8,601   $ 8,601   $ 98,501  

Working capital (deficit)

  $ (32,249 ) $ (24,158 ) $ 65,742  

Total assets

  $ 61,967   $ 61,967   $ 151,867  

Total redeemable convertible stock

  $ 60,940   $   $  

Total debt

  $ 218,589   $ 28,862   $ 28,862  

Convertible preferred stock

  $   $ 37,500   $ 37,500  

Total members' (deficit) equity

  $ (302,707 ) $ (43,949 ) $ 45,951  

(1)
The pro forma balance sheet data gives effect to (i) an aggregate of 1,061,741 Class E redeemable convertible membership units issued to Falcon Flight LLC and its affiliate in May 2016; (ii) $5.5 million raised through the issuance of 478,266 Class E redeemable convertible units in June 2016; and (iii) the conversion of all outstanding units of our Class A, B, C and D units, and Class E redeemable convertible units as of March 31, 2016 into an aggregate of 15,825,287 shares of common stock upon the closing of this offering assuming the closing of this offering occurs on August 1, 2016 at an initial public offering price of $18.00 per share. In addition, the pro forma balance sheet data gives effect to (i) the consummation of the transactions contemplated under the exchange agreement with the holders of the Senior Convertible Term Loan resulting in the issuance of 30,000 shares of our convertible preferred stock and 3,679,086 shares of our common stock; and (ii) the mandatory conversion of all of our outstanding indebtedness under the Second-Lien Convert, resulting in the issuance of 9,010,550 shares of our common stock. The unaudited pro forma balance sheet data as of March 31, 2016 also contemplates the recognition of the beneficial conversion feature inherent to the Company's Class E redeemable convertible units, Senior Convertible Term Loan, Second Lien Convert, and certain outstanding warrants.

(2)
In addition to the adjustments to the unaudited pro forma balance sheet data, the pro forma as adjusted balance sheet gives effect to our issuance and sale of 5,555,556 shares of common stock in this offering (assuming no exercise by the underwriters of their option to purchase additional shares) at an assumed initial public offering price of $18.00 per share, the midpoint of the price range listed on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The unaudited pro forma as adjusted balance sheet data also contemplates the recognition of the beneficial conversion feature inherent to the Company's Class E redeemable convertible units, Senior Convertible Term Loan, Second Lien Convert, and certain outstanding warrants.

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RISK FACTORS

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

Risks Related to Our Financial Position

We have incurred substantial losses since our inception, anticipate that we will continue to incur losses for the foreseeable future and may not achieve or sustain profitability. We expect to continue to incur significant expenses related to the development of our clinical product candidates for at least the next several years, and we anticipate that our expenses will increase substantially as a result of multiple initiatives.

        Since inception, we have incurred substantial operating losses. Our consolidated net loss was $32.8 million for the three months ended March 31, 2016 (unaudited), and $147.1 million and $64.4 million for the years ended December 31, 2015 and 2014, respectively. Our accumulated deficit was $676.7 million as of March 31, 2016 (unaudited), and $643.8 million and $496.8 million as of December 31, 2015 and 2014, respectively.

        To date, while our commercial operation is self-sufficient, we have financed our clinical development operations primarily through private placements of our membership units, debt financing and, to a lesser extent, through equipment lease financings. We expect to continue to incur significant expenses related to the development of our clinical product candidates for at least the next several years. We anticipate that our expenses will increase substantially as we:

    initiate or continue our clinical trials related to our three most advanced product candidates (KD025, tesevatinib and KD034);

    continue the research and development of our other product candidates;

    seek to discover additional product candidates;

    seek regulatory approvals for our product candidates that successfully complete clinical trials;

    transition to operating as a public company;

    scale up our sales, marketing and distribution infrastructure and product sourcing capabilities to commercialize additional products we may acquire or license from others or for which we may develop and obtain regulatory approval; and

    scale up our operational, financial and management information systems and personnel, including personnel to support our product development and planned additional commercialization efforts.

        In the absence of substantial revenue from the sale of products in our ribavirin portfolio, Qsymia (phentermine and topiramate extended-release) capsules, which we co-promote with VIVUS, Inc. (VIVUS), tetrabenazine and valganciclovir, which we distribute with Camber Pharmaceuticals, Inc. (Camber), or from other sources (the amount, timing, nature or source of which cannot be predicted), we expect our substantial losses to continue and we may need to discontinue operations. Our ability to generate sufficient revenues from our existing products or from any of our product candidates in development, and to transition to profitability and generate consistent positive cash flow is uncertain. We may continue to incur losses and negative cash flow and may never transition to profitability or positive cash flow.

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Our level of indebtedness could adversely affect our business and limit our ability to plan for, or respond to, changes in our business.

        Since our inception, we have incurred substantial indebtedness in order to fund acquisitions, research and development activities and the operations of our commercial pharmaceutical business. As of March 31, 2016, including repayment obligations such as fees and PIK interest, we had approximately $35.0 million outstanding under our senior secured non-convertible term loan (the 2015 Credit Agreement), which has a maturity date of June 17, 2018. We also had approximately $4.0 million of other funded debt. In addition, we have incurred recurring losses from operations and have deficiencies in working capital and members' capital at March 31, 2016.

        Our level of indebtedness will increase as a result of the PIK interest feature of the Senior Convertible Term Loan. In addition, our level of indebtedness could adversely affect our business by, among other things:

    requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including research and development, investment in our commercial operations and business development efforts;

    limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, thereby placing us at a disadvantage to our competitors that may have less debt;

    limiting our flexibility in consolidating our corporate operations due to certain covenants that require us to maintain minimum liquidity in our business; and

    increasing our vulnerability to adverse economic and industry conditions.

We may not be able to generate sufficient cash to pay our indebtedness, and we may be forced to take other actions to satisfy our payment obligations under our indebtedness, which may not be successful.

        Our ability to make scheduled payments on, or to refinance, our debt obligations depends on our future performance, which will be affected by financial, business and economic conditions and other factors. We will not be able to control many of these factors, such as economic conditions in the industry in which we operate and competitive pressures. Our cash flow may not be sufficient to allow us to pay principal and interest on our debt and to meet our other obligations. If our cash flow and capital resources are insufficient to timely fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In addition, the terms of existing or future debt agreements may restrict our ability to pursue any of these alternatives.

Our 2015 Credit Agreement matures on June 17, 2018. We may not be able to refinance our debt under this facility before the maturity date, in which event our ability to continue our operations would be materially and adversely impacted.

        Our 2015 Credit Agreement matures on June 17, 2018. No assurances can be given that we will be able to refinance this debt on or before the maturity date. Subsequent debt financing, if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to refinance our debt under these facilities or negotiate an extension of such facilities prior to their maturity dates, the lenders thereunder may accelerate our indebtedness and exercise the remedies available to them as secured creditors, including foreclosure on the assets that we have pledged as security. In that event, our ability to continue our operations may be materially and adversely impacted. If we raise additional funds through marketing and distribution arrangements or collaborations, strategic alliances or licensing arrangements with third parties, we may be required to pledge certain

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

We will need additional funding in the future, which may not be available to us, and this may force us to delay, reduce or eliminate our product development programs or commercialization efforts.

        We will need to expend substantial resources for research and development and commercialization of our marketed products, including costs associated with:

    clinical trials for our product candidates;

    discovery of additional product candidates;

    life-cycle management of our marketed products;

    the continued commercialization of our commercial products; and

    preparing for potential commercialization of our late-stage product candidates and, if one or more of those product candidates receive(s) regulatory approval, to fund the launch of that (those) product(s).

        We believe that the net proceeds of this offering, together with the funds generated from the sale of our marketed products for commercial and clinical trial purposes, will enable us to sustain our operations for the next 16 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We do not expect that the net proceeds from this offering and our existing cash, cash equivalents and restricted cash will be sufficient to enable us to fund the completion of development and commercialization of any of our product candidates. We do not have any additional committed external source of funds. Additionally, our revenues may fall short of our projections or be delayed, or our expenses may increase, which could result in our capital being consumed significantly faster than anticipated. Our expenses may increase for many reasons, including:

    clinical trial-related expenses for our product candidates;

    the potential launch and marketing of our late-stage product candidates; and/or

    manufacturing scale-up for commercialization of our late-stage product candidates.

To the extent that we need to raise additional capital through the sale of equity or convertible debt securities, investors in our common stock will be diluted, and the terms of any newly issued securities may include liquidation or other preferences that adversely affect the value of our common stock.

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.

        Based on our recurring losses from operations and the deficiencies in working capital and members' capital, our independent registered public accounting firm has included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, 2015 expressing substantial doubt about our ability to continue as a going concern. We expect to incur further losses over the next several years as we develop our business, and we will require significant additional funding to continue operations. If we are unable to continue as a going concern, we may be unable to meet our debt obligations, which could result in an acceleration of our obligation to repay such amounts, and we may be forced to liquidate our assets. In such a scenario, the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

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We are party to certain litigation, which could adversely affect our business, results of operations and financial condition.

        We are party to various litigation claims and legal proceedings. We believe that the litigations in which we are currently involved have no merit and intend to vigorously defend each action. However, litigation is inherently uncertain, and any adverse outcome(s) could negatively affect our business, results of operations and financial condition. In addition, litigation can involve significant management time and attention and be expensive, regardless of outcome. During the course of litigation, there may be announcements of the results of hearings and motions and other interim developments related to the litigation. If securities analysts or investors regard these announcements as negative, the trading price of our shares of common stock may decline. In addition, we evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from our current assessments and estimates. See "Business—Legal Proceedings" for more information.

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

        We have incurred substantial losses during our history and may never achieve profitability. To the extent that we continue to generate losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. As of December 31, 2015, we had unused federal and state net operating loss (NOL) carry-forwards of approximately $499.6 million and if we experience an ownership change in the future (such as, potentially, in connection with this offering), this could have a material impact on the NOL carry-forwards available for future use. As of December 31, 2015, we have fully reserved the deferred tax asset related to our NOL carry-forwards as reflected in our audited consolidated financial statements. Under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), if a corporation undergoes an "ownership change" (generally defined as a greater than 50% change (by value) in its equity ownership by one or more 5-percent shareholders (with all non-5-percent shareholders being treated as a single 5-percent shareholder for this purpose) over a three-year period), the corporation's ability to use its pre-change NOL carry-forwards and other pre-change tax attributes to offset its post-change income may be limited. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

Risks Related to Our Clinical Development Pipeline

Clinical development is a lengthy and expensive process with a potentially uncertain outcome. Our long-term success depends upon the successful development and commercialization of our product candidates. To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials are required. The conduct of preclinical studies and clinical trials is subject to numerous risks and results of the studies and trials are highly uncertain.

        We currently have no internally clinically-developed products approved for sale and we cannot guarantee that we will ever develop such products. To date, we have invested a significant portion of our efforts and financial resources in the acquisition and development of our product candidates. Our long-term success depends upon the successful development, regulatory approval and commercialization of these product candidates. If we fail to obtain regulatory approval to market and sell our product candidates, or if approval is delayed, we will be unable to generate revenue from the sale of these products, our potential for generating positive cash flow will be diminished and the capital necessary to

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fund our operations will be increased. Two of our product candidates, KD025 and tesevatinib, are in clinical trials and we have additional product candidates in preclinical development. Our business depends significantly on the successful development, regulatory approval and commercialization of our product candidates, which may never occur.

        We cannot be certain as to what type and how many clinical trials the FDA, or equivalent foreign regulatory agencies, will require us to conduct before we may successfully gain approval to market any of our product candidates. Prior to approving a new drug or biologic, the FDA generally requires that the effectiveness of the product candidate (which is not typically fully investigated until Phase 3) be demonstrated in two adequate and well-controlled clinical trials. In some situations, the FDA approves drugs or biologics on the basis of a single well-controlled clinical trial establishing effectiveness. However, if the FDA or the European Medicines Agency (EMA) determines that our Phase 3 clinical trial results do not demonstrate a statistically significant, clinically meaningful benefit with an acceptable safety profile, or if the FDA or EMA requires us to conduct additional Phase 3 clinical trials in order to gain approval, we will incur significant additional development costs and commercialization of these products would be prevented or delayed and our business would be adversely affected.

Our ongoing clinical trials are subject to delays or setbacks for a variety of common and unpredictable reasons.

        We may experience unforeseen delays or setbacks in our ongoing clinical trials, such as trial initiation timing, trial redesign or amendments, timing and availability of patient enrollment or successful trial completion. Such delays and setbacks are common and unpredictable in pharmaceutical drug development. Clinical trials can be delayed for a variety of reasons, including delays related to:

    regulatory objections to commencing a clinical trial, continuing a clinical trial that is underway, or proceeding to the next phase of investigation, including inability to reach agreement with the FDA or non-U.S. regulators regarding the scope or design of our clinical trials or for other reasons such as safety concerns that might be identified through preclinical testing and animal studies or clinical trials, at any stage;

    reaching agreement on acceptable terms with prospective contract research organizations (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);

    failure of CROs or other third-party contractors to comply with contractual and regulatory requirements or to perform their services in a timely or acceptable manner;

    difficulty identifying and engaging qualified clinical investigators;

    obtaining institutional review board (IRB) approval at each site;

    difficulty recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study and competition from other clinical trial programs for the same indication as product candidates we seek to commercialize;

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

    clinical sites deviating from trial protocol or dropping out of a trial;

    inability to retain patients in clinical trials due to the treatment protocol, personal issues, side effects from the therapy or lack of efficacy, particularly for those patients receiving a placebo;

    withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials;

    adding new clinical trial sites;

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    inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication as our product candidates;

    changes in applicable regulatory policies and regulations;

    insufficient data to support regulatory approval;

    difficulty in maintaining contact with subjects during or after treatment, which may result in incomplete data; or

    manufacturing sufficient quantities of the product candidate for use in clinical trials.

        Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Furthermore, we rely on clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance.

        We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including:

    failure by us, CROs or clinical investigators to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

    failed 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 or efficacy issues or any determination that a clinical trial presents unacceptable health risks;

    failure to demonstrate a benefit from using a drug; or

    lack of adequate funding to continue the clinical trial due to unforeseen costs resulting from enrollment delays, requirements to conduct additional trials and studies, increased expenses associated with the services of our CROs and other third parties, changes in governmental regulations or administrative actions, or other reasons.

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

If serious adverse events or other undesirable side effects are identified during the use of product candidates in investigator-sponsored trials, it may adversely affect our development of such product candidates.

        Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt non-clinical studies and clinical trials, or could make it more difficult for us to enroll patients in our clinical trials. If serious adverse events or other undesirable side effects, or unexpected characteristics of our product candidates are observed in investigator-sponsored trials, further clinical development of such product candidate may be delayed or we may not be able to

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continue development of such product candidate at all, and the occurrence of these events could have a material adverse effect on our business. Undesirable side effects caused by our product candidates could also result in the delay or denial of regulatory approval by the FDA or other regulatory authorities or in a more restrictive label than we expect.

The regulatory approval processes of the FDA and similar foreign authorities are lengthy, time consuming, expensive and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

        The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate's safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary among jurisdictions. It is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

        Our product candidates could fail to receive regulatory approval for many reasons, including:

    the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

    we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

    the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

    we may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;

    the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

    the data collected from clinical trials of our product candidates may not be sufficient to support a submission for 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/or

    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.

        This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates KD025, tesevatinib and/or KD034, which would significantly harm our business, results of operations and prospects.

        In addition, even if we were to obtain approval, regulatory authorities may:

    approve any of our product candidates for fewer or more limited indications than we request;

    may not approve the price we intend to charge for our products;

    may grant approval contingent on the performance of costly post-marketing clinical trials; or

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    may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate.

        If we do not achieve our projected development goals in the timeframes we announce and expect, or we face significant competition from other biotechnology and pharmaceutical companies, the commercialization of our products may be delayed, our operating results may be lower that we expect, the credibility of our management may be adversely affected and, as a result, the value of our common stock may decline.

Even if we obtain regulatory approval for our product candidates, they may never be successfully launched or become profitable, in which case our business, prospects, operating results and financial condition may be materially harmed.

        In order to successfully launch our product candidates and have them become profitable, we anticipate that we will have to dedicate substantial time and resources and hire additional personnel to expand and enhance our commercial infrastructure, which will at a minimum include the following:

    ensure the quality of the product candidate manufactured by our suppliers and by us;

    expand our sales and marketing force;

    expand and enhance programs and other procedures to educate physicians and drive physician adoption of our product candidates;

    create additional policies and procedures, and hire additional personnel to carry out those policies and procedures, to ensure customer satisfaction with our products;

    obtain reimbursement for hospitals and physicians; and

    expand and enhance our general and administrative operations to manage our anticipated growth in operations and to support public company activities.

        Because of the numerous risks and uncertainties associated with launch and profitability of our product candidates, we are unable to predict the extent of any future losses, or when we will become profitable, if ever.

Our product candidates may have undesirable side effects that may delay or prevent marketing approval or, if approval is obtained, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.

        Undesirable or unexpected side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

        Additionally, if one or more of our product candidates receives marketing approval and we or others later identify undesirable or unexpected side effects caused by such products, a number of potentially significant negative consequences could result, including:

    we could be sued and held liable for harm caused to patients;

    sales of the product may decrease significantly; and/or

    our reputation may suffer.

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        In addition, a regulatory agency may:

    suspend or withdraw approvals of such product;

    suspend any ongoing clinical trials;

    refuse to approve pending applications or supplements to approved applications filed by us, our collaborators or our potential future collaborators;

    require additional warnings on the label;

    require that we create a medication guide outlining the risks of such side effects for distribution to patients;

    issue warning letters;

    mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;

    require us or our collaborators to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

    impose other civil or criminal penalties;

    impose restrictions on operations, including costly new manufacturing requirements; and/or

    seize or detain products or require a product recall.

        Non-compliance may also result in potential whistleblower lawsuits and the potential for liability under the False Claims Act or other laws and regulations, as discussed above. Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

The results of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory authorities.

        Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of our current and future collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing. In addition, data obtained from tests are susceptible to varying interpretations, and regulators may not interpret data as favorably as we do, which may delay, limit or prevent regulatory approval.

        We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. Success in early clinical trials does not mean that future larger registration clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having progressed through initial clinical trials. Product candidates that have shown promising results in early clinical trials may still suffer significant setbacks in subsequent registration clinical trials. Similarly, the outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and preliminary and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.

        Further, at various points during the course of the preclinical and clinical trial process, companies must assess both the statistical and clinical significance of trial results. In this context, "statistical significance" refers to the likelihood that a result or relationship is caused by something other than random chance or error. Statistical significance is measured by a "p-value," which indicates the probability value that the results observed in a study were due to chance alone. A p-value of < 0.05 is

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generally considered statistically significant, meaning that the probability of the results occurring by chance alone is less than five percent. The lower the p-value, the less likely that the results observed were random. "Clinical significance," on the other hand, is a qualitative assessment of the results observed. Where we use the term "clinically significant," we have not necessarily made a formal statistical assessment of the probability that the change in patient status was attributable to the study drug as opposed to chance alone, nor does such a statement necessarily mean that study endpoints have been met or the protocol has been completed. A clinically significant effect is one that is determined to have practical importance for patients and physicians, and includes benefits that are often defined by peer-reviewed literature as having a meaningful impact on a patient's condition. An effect that is statistically significant may or may not also be clinically significant. When a study fails to result in statistical significance, the FDA may not consider such study to serve as substantial evidence of safety and effectiveness required for approval. Even if a study results in statistical significance, the FDA may also consider clinical significance in evaluating a marketing application. For example, the FDA typically requires more than one pivotal clinical study to support approval of a new drug. However, the FDA has indicated that approval may be based on a single study in limited situations in which a trial has demonstrated a clinically significant effect. In either case, the clinical or statistical significance of a particular study result in no way guarantees that FDA or other regulators will ultimately determine that the drug being investigated is safe and effective.

        In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory approval.

        In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase 1, Phase 2, Phase 3 or other clinical trials we or any of our collaborators may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.

        Further, our product candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or registration trials. The FDA or other non-U.S. regulatory authorities may disagree with our trial design and our interpretation of data from preclinical studies and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial that has the potential to result in the FDA or other agencies' approval. In addition, any of these regulatory authorities may also approve a product candidate for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. The FDA or other non-U.S. regulatory authorities may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our product candidates.

We may not be successful in our efforts to use and expand our drug discovery platforms to build a pipeline of product candidates.

        A key element of our strategy is to leverage our drug discovery platforms to identify and develop new product candidates for additional diseases with significant unmet medical needs. Although our research and development efforts to date have contributed to the development of product candidates directed at autoimmune and fibrotic diseases, oncology and genetic diseases, we may not be able to develop product candidates that are safe and effective. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not continue to successfully develop and begin to commercialize product

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candidates, we will face difficulty in obtaining product revenues in future periods, which could result in significant harm to our financial position and adversely affect the price of our common stock.

Biologics carry particular risks and uncertainties, which could have a negative impact on future results of operations.

        Through our drug discovery platform, we are currently engaged in the development of novel highly active bi-functional proteins for immunotherapy in oncology indications. The successful development, testing, manufacturing and commercialization of biologics is a long, expensive and uncertain process. There are particular risks and uncertainties with biologics, including:

    There may be limited access to and supply of normal and diseased tissue samples, cell lines, pathogens, bacteria, viral strains and other biological materials. In addition, government regulations in multiple jurisdictions, such as the United States and the European Union, could result in restricted access to, or transport or use of, such materials. If we lose access to sufficient sources of such materials, or if tighter restrictions are imposed on the use of such materials, we may not be able to conduct research activities as planned and may incur additional development costs.

    The development, manufacturing and marketing of biologics are subject to regulation by the FDA, the EMA and other regulatory bodies. These regulations are often more complex and extensive than the regulations applicable to other pharmaceutical products. For example, in the United States, a Biologics License Application (BLA) including both preclinical and clinical trial data and extensive data regarding the manufacturing procedures is required for human vaccine candidates and FDA approval is required for the release of each manufactured commercial lot.

    Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies to handle living micro-organisms. Each lot of an approved biologic must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, we may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes.

    Biologics are frequently costly to manufacture because production ingredients are derived from living animal or plant material, and most biologics cannot be made synthetically. In particular, keeping up with the demand for vaccines may be difficult due to the complexity of producing vaccines.

    The use of biologically derived ingredients can lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination.

        Any of these events could result in substantial costs and result in a material adverse effect on our business and results of operations.

We face substantial competition, which may result in others discovering, developing and commercializing products before or more successfully than our products and product candidates.

        The development and commercialization of new therapeutics is highly competitive. We face competition (from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide) with respect to our current product candidates and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future. Several large pharmaceutical, specialty pharmaceutical and biotechnology companies currently market and sell products for the treatment of the solid tumor indications for which we are

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developing our product candidates. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Many of these competitors are attempting to develop therapeutics for our target indications.

        There are products already approved for many of the diseases we are targeting. Many of these approved products are well established therapies and are widely accepted by physicians, patients and third-party payors. This may make it difficult for us to achieve our business strategy of replacing existing therapies with our product candidates. There are also a number of products in late stage clinical development to treat solid tumors, in viral and immunological disorders. Our competitors may develop products that are safer, more effective, more convenient or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.

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

Our product candidates for which we intend to seek approval may face competition sooner than anticipated, and for biologics there is additional uncertainty as the relevant law is relatively new and there is limited precedent.

        Although we plan to pursue all available FDA exclusivities for our product candidates, we may face competition sooner than anticipated. Market and data exclusivity provisions under the Federal Food, Drug and Cosmetic Act (FDCA) can delay the submission or the approval of certain applications for competing products. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity, running from the time of NDA approval. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the five-year exclusivity period for a new chemical entity, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company that references the previously approved drug. However, the FDA may accept an ANDA or 505(b)(2) NDA for review after four years if it contains a certification of patent invalidity or non-infringement.

        The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA, or supplement to an existing NDA or 505(b)(2) NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example (for new indications, dosages, strengths or dosage forms of an existing drug). This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product.

        Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

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        The 2010 Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act (collectively, the PPACA), signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor's own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

        We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

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

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

Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize our products outside of the United States, which would limit our ability to realize their full market potential.

        None of our product candidates are approved for sale in any jurisdiction, including international markets, and we have limited experience in obtaining regulatory approval in international markets. In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could

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result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays.

        In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of our products will be harmed. As described above, such effects include the risks that:

    any current or future product candidates we may seek to develop may not generate preclinical or clinical data that are deemed sufficient by regulators in a given jurisdiction;

    product candidates may not be approved for all indications requested, or any indications at all, in a given jurisdiction which could limit the uses of any future product candidates we may seek to develop and have an adverse effect on product sales and potential royalties; or

    such approval in a given jurisdiction may be subject to limitations on the indicated uses for which the product may be marketed or require costly post-marketing follow-up studies.

        Foreign regulators may have requirements for marketing authorization holders or distributors to have a legal or physical presence in that country. Consideration of and compliance with these requirements may result in additional time and expense before we can pursue or obtain marketing authorization in foreign jurisdictions. If we do receive approval in other countries, we may enter into sales and marketing arrangements with third parties for international sales of any approved products.

The environment in which our regulatory submissions may be reviewed changes over time, which may make it more difficult to obtain regulatory approval of any of our product candidates.

        The environment in which our regulatory submissions are reviewed changes over time. Average review times at the FDA for NDAs and BLAs fluctuate, and we cannot predict the review time for any submission with any regulatory authorities. Review times can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes. Moreover, in light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of Risk Evaluation and Mitigation Strategies (REMS) that may, for instance, restrict distribution of drug or biologic products. The increased attention to drug safety issues may result in a more cautious approach by the FDA to clinical trials. Data from preclinical studies and clinical trials may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additional clinical trials that may result in substantial additional expense, a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

        In addition, data obtained from preclinical studies and clinical trials are subject to different interpretations, which could delay, limit or prevent regulatory review or approval of our product candidates. Changes in FDA personnel responsible for review of our submissions could also impact the manner in which our data are viewed. Further, regulatory attitudes toward the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information (including on other products), policy changes and agency funding, staffing and leadership. We do not know whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects.

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We may seek breakthrough therapy designation by the FDA for any of our product candidates but there is no assurance that we will request or receive such designation, and, in any event, even if we do receive such designation, it may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval in the United States.

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

        Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to product candidates without the breakthrough therapy designation and, in any event, does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

We may seek Fast Track, Accelerated Approval and/or Priority Review designation of some of our product candidates. There is no assurance that the FDA will grant such designations and, even if it does grant any such designation for one of our product candidates, that designation may not ultimately lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval in the United States.

        We may seek Fast Track, Accelerated Approval and/or Priority Review designation and review for our product candidates. We have not, at this point, had any specific discussions with the FDA about the potential for any of our product candidates to take advantage of these potential pathways. The FDA has broad discretion whether or not to grant any of these designations, so even if we believe a particular product candidate is eligible for such a designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. In addition, the FDA may withdraw any such designation if it believes that the designation is no longer supported by data from our clinical development program. In addition, any such designation does not have any impact on the likelihood that a product candidate will ultimately be granted marketing approval in the United States.

We plan to seek orphan product designation for certain of our product candidates for certain indications, and we may be unable to obtain orphan product designation, and even if we do, we may be unable to maintain the benefits associated with orphan product designation, including the potential for marketing exclusivity. Moreover, if our competitors are able to obtain orphan product designation and the associated exclusivity for their products that are competitors with our product candidates, the applicable regulatory authority may be prohibited from approving our products for a significant period of time.

        Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as having a prevalence of 200,000 affected individuals in

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the United States or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers.

        Generally, if a product candidate with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same drug for the same indication for that time period, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity. The applicable period is seven years in the United States and 10 years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

        Moreover, even if we obtain orphan designation, we may not be the first to obtain marketing approval of our product candidate for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, while we intend to seek orphan drug designation for our product candidates, we may never receive such designations.

Independent clinical investigators or CROs that we engage may not devote sufficient time or attention to conducting our clinical trials or may not be able to repeat their past success.

        We expect to continue to depend on independent clinical investigators and may depend on CROs to conduct some of our clinical trials. CROs may also assist us in the collection and analysis of data. There is a limited number of third-party service providers that specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. These investigators and CROs, if any, will not be our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote sufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of any product candidates that we develop. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. Further, the FDA requires that we comply with standards, commonly referred to as current Good Clinical Practice (cGCP) for conducting, recording and reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. Failure of clinical investigators or CROs to meet their obligations to us or comply with cGCP procedures could adversely affect the clinical development of our product candidates and harm our business.

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We may not be able to attract collaborators or external funding for the development and commercialization of our product candidates.

        Our product development programs and potential commercialization of our product candidates will require substantial additional capital to fund expenses. As part of our ongoing strategy, we may seek additional collaborative arrangements with pharmaceutical and biotechnology companies or other third parties or external funding for certain of our development programs and/or seek to expand existing collaborations to cover additional commercialization and/or development activities. We have a number of research programs and early-stage clinical development programs. At any time, we may determine that in order to continue development of a product candidate or program or successfully commercialize a drug we need to identify a collaborator or amend or expand an existing collaboration. Potentially, and depending on the circumstances, we may desire that a collaborator either agree to fund portions of a drug development program led by us, or agree to provide all the funding and directly lead the development and commercialization of a program. We face significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. We may also be restricted under existing collaboration agreements from entering into agreements on certain terms with other potential collaborators. No assurance can be given that any efforts we make to seek additional collaborative arrangements will be successfully completed on acceptable terms, a timely basis or at all.

        If we are unable to negotiate favorable collaborations, we may have to curtail the development of a particular product candidate, reduce or delay its development program and its potential commercialization, reduce the scope of our sales or marketing activities, and/or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market and generate product revenue.

Risks Related to Our Marketed Products and Product Candidates

Our current and, in part, our future revenue depends on our ribavirin marketed product portfolio and near-term line extensions.

        Our current and, in part, our future revenue depends upon continued sales of our Ribasphere RibaPak and Ribasphere (ribavirin) tablets and capsules, which has represented the substantial portion of our total revenues to date. Additionally, we co-promote Qsymia for chronic weight management with VIVUS. We distribute tetrabenazine for chorea, an involuntary movement disorder associated with Huntington's disease. We also distribute valganciclovir for the treatment of cytomegalovirus (CMV) retinitis, a viral inflammation of the retina of the eye, in patients with acquired immunodeficiency syndrome (AIDS) and for the prevention of CMV disease, a common viral infection complicating solid organ transplants, in kidney, heart and kidney-pancreas transplant patients. Although we have acquired the rights to co-promote Qsymia, tetrabenazine and valganciclovir, our revenue will likely be dependent on sales from our existing ribavirin product portfolio for the next few years. Based upon current market demand, we expect sales from our existing ribavirin product portfolio to decrease over the next few years. Such decrease will have a negative impact on our sales and profits.

        Any issues relating to any of these products, such as safety or efficacy issues, reimbursement and coverage issues, marketing or promotional issues, the introduction or greater acceptance of competing products, including generics, or adverse regulatory or legislative developments may reduce our revenues and adversely affect our results.

        In addition, our competitors have developed and introduced and are continuing to develop and introduce additional products for chronic HCV infection that may, or may not, require the use of

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ribavirin in combination, or may require lower doses or shorter durations of treatment with ribavirin, which have had and would likely continue to have a negative impact on our sales and profits.

If we fail to maintain our competitive position with RibaPak and Ribasphere versus generics or other high-dose ribavirin product offerings, our business and market position will suffer, and our competitive position may be significantly impacted by the availability of new innovator treatments for chronic HCV infection.

        The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on developing proprietary therapeutics. We face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies, drug delivery companies and academic and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, experience in obtaining regulatory approvals for drug product candidates and other resources than us.

        In particular, RibaPak and Ribasphere face significant direct competition from other generic high-dose ribavirin offerings, as well as competition from lower dose and lower cost generic versions of ribavirin. Additionally, the treatment of chronic HCV infection is rapidly changing as multiple new therapies have entered, such as Viekira Pak (AbbVie Inc.), Harvoni (Gilead Sciences, Inc.), Olysio (Janssen Pharmaceuticals, Inc.) and Zepatier (Merck & Co.), and will continue to enter the market that (either now or in the future) may not require the use of ribavirin as part of the treatment protocol.

        With scrutiny on drug costs, payors may look for ways to reduce their overall cost of treatment by switching from RibaPak and other generic high-dose formulations of ribavirin to a lower dose and lower cost generic version of ribavirin. If healthcare providers receive pressure from patients, or they are encouraged by insurers, to prescribe less expensive generics, or insurers impose additional formulary controls or restrictions on coverage of RibaPak and Ribasphere, our business would be significantly harmed. Additionally, we cannot assure you that other companies will not develop new products that may require a lower dose, shorter duration or complete removal of ribavirin from the treatment combination.

        If RibaPak and Ribasphere are unable to be used successfully in combination with new therapies or if new therapies in development are able to achieve sufficiently high sustained virologic cure rates without ribavirin, we may be unable to compete effectively and our business would be materially and adversely affected. Additionally, generic manufacturers of ribavirin and direct high-dose ribavirin competitors may try to compete with RibaPak and Ribasphere by reducing their prices or adopting other competitive marketing and promotional tactics that could harm our business.

We cannot be certain how profitable, if at all, the commercialization of our marketed products will be.

        To become and remain profitable, we must compete effectively against other therapies with our ribavirin portfolio of products, Qsymia, tetrabenazine, valganciclovir or any of our product candidates for which we obtain marketing approvals, as well as developing and eventually commercializing product candidates with significant market potential. This will require us to be successful in a range of challenging activities, including discovering product candidates, completing preclinical testing and clinical trials for our product candidates and obtaining regulatory approval for these line extensions and product candidates, in addition to the manufacturing, marketing and selling of those products for which we may obtain regulatory approval. We may never succeed in these activities and may never generate revenues that are significant or large enough to achieve profitability.

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        In addition to the risks discussed elsewhere in this section, our ability to continue to generate revenues from our commercialized products will depend on a number of factors, including, but not limited to:

    achievement of broad market acceptance and coverage by third-party payors for our products;

    the effectiveness of our collaborators' efforts in marketing and selling our products;

    our ability to successfully manufacture, or have manufactured, commercial quantities of our products at acceptable cost levels and in compliance with regulatory requirements;

    our ability to maintain a cost-efficient organization and, to the extent we seek to do so, to collaborate successfully with additional third parties;

    our ability to expand and maintain intellectual property protection for our products successfully;

    the efficacy and safety of our products; and/or

    our ability to comply with regulatory requirements, which are subject to change.

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

Our inability to accurately estimate demand for our products, the uptake of new products or the timing of fluctuations in the inventories maintained by customers makes it difficult for us to accurately forecast sales and may cause our financial results to fluctuate.

        We are unable to accurately estimate demand for our products, including uptake from new products, as demand is dependent on a number of factors. We sell products primarily to wholesalers and specialty pharmacies. These customers maintain and control their own inventory levels by making estimates to determine end user demand. Our customers may not be effective in matching their inventory levels to actual end user demand. As a result, changes in inventory levels held by our customers can cause our operating results to fluctuate unexpectedly. Adverse changes in economic conditions or other factors may cause our customers to reduce their inventories of our products, which would reduce their orders from us, even if end user demand has not changed. If our inventory exceeds demand from our customers and exceeds its shelf life, we will be required to destroy unsold inventory and write off its value. As our inventory and distribution channels fluctuate from quarter to quarter, we may continue to see fluctuations in our earnings and a mismatch between prescription demand for our products and our revenues.

        In addition, the non-retail sector in the United States, which includes government institutions, including state drug assistance programs, correctional facilities and large health maintenance organizations, may be inconsistent in terms of buying patterns and may cause quarter over quarter fluctuations that do not necessarily mirror patient demand. Federal and state budget pressure may cause purchasing patterns to not reflect patient demand.

If we discover safety issues with any of our products or if we fail to comply with continuing U.S. and applicable foreign regulations, commercialization efforts for the product could be negatively affected, the approved product could be subject to withdrawal of approval or sales could be suspended, and our business could be materially harmed.

        Our products are subject to continuing regulatory oversight, including the review of additional safety information. Drugs are more widely used by patients once approval has been obtained and

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therefore side effects and other problems may be observed after approval that were not seen or anticipated, or were not as prevalent or severe, during pre-approval clinical trials or nonclinical studies. The subsequent discovery of previously unknown problems with a product, or public speculation about adverse safety events, could negatively affect commercial sales of the product, result in restrictions on the product or lead to the withdrawal of the product from the market.

        If we or our collaborators fail to comply with applicable continuing regulatory requirements, we or our collaborators may be subject to fines, suspension or withdrawal of regulatory approvals for specific products, product recalls and seizures, injunctions, consent decrees or other operating restrictions and/or criminal prosecutions. In addition, the manufacturers we engage to make our products and the manufacturing facilities in which our products are made are subject to periodic review and inspection by the FDA and foreign regulatory authorities. If problems are identified during the review or inspection of these manufacturers or manufacturing facilities, it could result in our inability to use the facility to make our product or a determination that inventories are not safe for commercial sale.

If physicians, nurses, pharmacists, patients, the medical community and/or third-party payors do not accept our drugs or product candidates, we may be unable to generate significant revenue in future periods.

        Our drugs may not gain or maintain market acceptance among physicians, nurses, pharmacists, patients, the medical community and/or third-party payors. Effectively marketing our products and any of our product candidates, if approved, requires substantial efforts and resources, both prior to launch and after approval; and marketing efforts are subject to numerous regulatory restrictions as well as fraud and abuse laws. The demand for our drugs and degree of market acceptance of our product candidates will depend on a number of factors including:

    limitations or warnings contained in the approved labeling for any of our drugs or product candidates;

    changes in the standard of care for the targeted indications for any of our drugs or product candidates;

    lower demonstrated efficacy, safety and/or tolerability compared to other drugs;

    prevalence and severity of adverse side-effects;

    lack of cost-effectiveness;

    limited or lack of reimbursement and coverage from government authorities, managed care plans and other third-party payors;

    a decision to wait for the approval of other therapies in development that have significant perceived advantages over our drug;

    the clinical indications for which the product is approved;

    adverse publicity about any of our drugs or product candidates or favorable publicity about competitive products;

    the timing or market introduction of any approved products as well as competitive products;

    the extent to which our drugs and product candidates are approved for inclusion on formularies of hospitals and manages care organizations;

    whether our drugs and product candidates are designated under physician treatment guidelines as first-line therapies or as a second- or third-line therapies for particular diseases;

    convenience and ease of administration;

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    availability of alternative therapies at similar or lower cost, including generic and over-the-counter products;

    other potential advantages of alternative treatment methods;

    ineffective sales, marketing and/or distribution support; and/or

    potential product liability claims.

        If any of our drugs or product candidates fails to maintain or achieve, as applicable, market acceptance, we will not be able to generate significant revenue in future periods.

Failure to comply with FDA promotional rules may subject us to withdrawal, and correction, of related product promotion, seizure of product and other administrative or enforcement actions as well as the potential for ancillary liability under the False Claims Act (False Claims Act) and/or product liability litigation.

        The FDA regulates the promotion of our products, which may only be promoted within their approved indication for use. Promotional materials and activity must be presented with fair balance of the risks and benefits of any product in a manner which is not otherwise inaccurate or misleading. The FDCA and the FDA's implementing regulations require that manufacturers label, advertise and promote their products with appropriate safety warnings and adequate directions for their FDA-approved use. However, the FDA does not have the legal authority to regulate the practice of medicine. Although physicians are permitted, based on their medical judgment, to prescribe products for indications other than those approved by the FDA, manufacturers are prohibited from promoting their products for such off-label uses. We market RibaPak and Ribasphere in combination with peginterferon alfa-2a for the treatment of adults with chronic hepatitis C virus (HCV) infection who have compensated liver disease and have not been previously treated with interferon alpha. We co-promote Qsymia, which should be used together with a reduced-calorie diet and increased physical activity for chronic weight management in adults with an initial body mass index (BMI) of 30 kg/m2 or greater (obese) or 27 kg/m2 or greater (overweight) in the presence of at least one weight-related medical condition such as high blood pressure, type 2 diabetes or high cholesterol. We also distribute tetrabenazine tablets, which are indicated for the treatment of chorea and valganciclovir tablets, which are indicated for the treatment of CMV retinitis in patients with AIDS and for the prevention of CMV disease in kidney, heart and kidney-pancreas transplant patients.

        Due to the evolving chronic HCV infection treatment landscape, the indication for RibaPak and Ribasphere is inconsistent with the current standard of care. This increases the risk of potential off-label promotional activity, which could result in increased regulatory scrutiny. If the FDA determines that our promotional materials, training or other activities constitute off-label promotion, it could request that we modify our training or promotional materials or other activities or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may also lead to investigations or allegations of violations of federal and state healthcare fraud and abuse laws and state consumer protection laws. The FDA or other regulatory authorities could also request that we enter into a consent decree or a corporate integrity agreement, or seek a permanent injunction against us under which specified promotional conduct is monitored, changed or curtailed.

        Although recent decisions of the United States Supreme Court, the U.S. Court of Appeals for the Second Circuit and the U.S. District Court for the Southern District of New York have clarified that the United States may not, consistent with the First Amendment, restrict or punish a pharmaceutical manufacturer's truthful and non-misleading speech promoting the lawful use of an approved drug, there are still significant risks in this area. It is unclear how these court decisions will impact the FDA's

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enforcement practices, and there is likely to be substantial disagreement and difference of opinion regarding whether any particular statement is truthful and not misleading.

        In the past we have been subject to enforcement action relating to allegations of improper promotion of our products. In March 2011, Kadmon Pharmaceuticals received a warning letter from the FDA's Division of Drug Marketing, Advertising, and Communications (now known as the Office of Prescription Drug Promotion (OPDP)) alleging false or misleading promotional materials for Infergen, a product we then marketed, due to omission of important risk information, broadening of the approved indication, omission of material statements relating to the approved indication, overstatements of efficacy, and unsubstantiated promotional claims. The promotional piece that gave rise to the warning letter was circulated prior to the date on which we acquired the product at issue, through our acquisition of Three Rivers Pharmaceuticals, LLC in 2010, and the matter was closed out with the FDA in August 2011. We subsequently divested the product at issue in 2013.

        Subsequently, in November 2013, we received a warning letter from OPDP regarding a January 2013 RibaPak Intro Letter for RibaPak sent by Kadmon Pharmaceuticals to a select group of healthcare providers. In its warning letter, OPDP stated that Kadmon Pharmaceuticals' letter omitted important risk information for Ribasphere RibaPak, suggested that the drug is useful in a broader range of patients or conditions than has been substantiated, omitted material facts, made unsubstantiated efficacy claims and failed to provide adequate directions for use in violation of the FDCA.

        In response to the 2013 warning letter, we immediately ceased the dissemination of all marketing and promotional materials at issue, and commenced discussions with OPDP. A corrective letter was disseminated and on April 21, 2014, OPDP informed us that the matter was closed. We cannot guarantee that the FDA will not raise issues in the future regarding our promotional materials or promotional practices, and if so, we could be subject to additional enforcement action.

        If we cannot successfully manage the promotion of our currently marketed products, and product candidates, if approved, we could become subject to significant liability which would materially adversely affect our business and financial condition. It is also possible that other federal, state or foreign enforcement authorities, or private parties, might take action if they believe that an alleged improper promotion led to inappropriate use of one of our products and/or the submission and payment of claims for an off-label use, which could result in significant fines or penalties under other statutory provisions, such as the False Claims Act and similar laws. Even if it is later determined that we were not in violation of these laws, we may face negative publicity, incur significant expenses defending our actions and have to divert significant management resources from other matters. In addition, there are a number of specific FDA requirements related to drug labeling and advertising, and failure to adhere to these requirements could result in our products being deemed "misbranded."

The manufacture of pharmaceutical products is a highly exacting and complex process, and if our suppliers encounter problems manufacturing our products, our business could suffer.

        The manufacture of pharmaceutical products is a highly exacting and complex process, due in part to strict regulatory requirements. Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, delays related to the construction of new facilities or the expansion of existing facilities, including those intended to support future demand for our products, changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in the types of products produced, physical limitations that could inhibit continuous supply, man-made or natural disasters and environmental factors. If problems arise during the production of a batch of product, that batch of product may have to be discarded and we may experience product shortages or incur added expenses. This could, among other things, lead to increased costs, lost revenue, damage to

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customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred.

Risks Related to Government and Regulatory Agencies

If we engage in research or commercial activities involving any of our products or pipeline assets in a manner that violates federal or state healthcare laws, including fraud and abuse laws, false claims laws, disclosure laws, government price reporting and healthcare information privacy and security laws or other similar laws, we may be subject to corporate or individual civil, criminal and administrative penalties, damages, 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.

        Our business operations and activities are subject to extensive federal, state and local fraud and abuse and other healthcare laws and regulations, such as the False Claims Act and the federal Anti-Kickback Statute, the Foreign Corrupt Practices Act (FCPA), federal Civil Monetary Penalty statute, the PPACA program integrity requirements, and patient privacy laws and regulation. These laws and regulations constrain, among other things, the business or financial arrangements and relationships through which we may research and develop any product candidate, as well as market, sell and distribute any approved products. The laws that may affect our ability to operate include, but are not limited to:

    The federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully offering, paying, soliciting, receiving or providing remuneration, 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 ordering, purchasing, furnishing, or recommending of, or arranging for, any good, facility, item or service that is reimbursable, in whole or in part, by a federal healthcare program, such as Medicare or Medicaid. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, patients, purchasers and formulary managers on the other hand, and therefore constrains our sales and marketing practices and our various service arrangements with physicians, including physicians who make clinical decisions to use our products. Due to the breadth of, and the narrowness of the statutory exceptions and safe harbors available under, the federal Anti-Kickback Statute, it is possible that some of our business activities, including our patient assistance programs and our relationship with physicians, hospitals, specialty pharmacies, group purchasing organizations and distributors could be subject to challenge under the federal Anti-Kickback Statute. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny or penalty if they do not qualify for an exemption or safe harbor. Our practices may not meet all of the criteria for safe harbor protection from federal Anti-Kickback Statute liability in all cases.

    The False Claims Act and Civil Monetary Penalty statute prohibit any person from knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent or making, or causing to be made, a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. Pharmaceutical companies have been prosecuted under these laws for a variety of alleged

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      promotional and marketing activities, such as allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in promotion for uses that the FDA has not approved, known as "off-label" uses, that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated "best price" information to the Medicaid Drug Rebate Program.

    The federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) and its implementing regulations, which created federal criminal laws 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), willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation.

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), and their respective implementing regulations, imposes requirements, including mandatory contractual terms, 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 creation, use, maintenance or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization.

    The federal Physician Payments Sunshine Act enacted under the PPACA and its implementing regulations requires manufacturers of drugs, devices, biologics 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 government payments or other "transfers of value" made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), nurse practitioners and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the government ownership and investment interests held by the physicians described above and their immediate family members and payments or other "transfers of value" to such physician owners. We were required to begin collecting information regarding such payments starting August 1, 2013 with our first report due March 31, 2014. Manufacturers are required to submit reports to the government by the 90th day of each calendar year. The PPACA also requires the CMS to forward data submitted by manufacturers to Congress and State Attorneys General on a regular basis. We have dedicated significant resources to enhance our systems and processes in order to comply with these regulations. Failure to comply with the reporting requirements would result in significant civil monetary penalties as well as reputational harm, and could draw scrutiny to financial relationships with physicians, which as a general matter could increase anti-kickback statute and False Claims Act enforcement risks.

    Federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.

    Federal government price reporting laws, which require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed drugs. Participation in these

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      programs and compliance with the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs, potential liability for the failure to report such prices in an accurate and timely manner, and potentially limit our ability to offer certain marketplace discounts.

    State law equivalents of each of the above federal laws, such as anti-kickback, false claims which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor, consumer protection and unfair competition laws which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payors, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers; state laws that require drug manufacturers to file reports with states regarding marketing information, such as the tracking and reporting of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities (compliance with such requirements may require investment in infrastructure to ensure that tracking is performed properly, and some of these laws result in the public disclosure of various types of payments and relationships, which could potentially have a negative effect on our business and/or increase enforcement scrutiny of our activities); and state laws governing the privacy and security of health information in certain circumstances and often are not preempted by HIPAA, many of which differ from each other in significant ways, with differing effects, complicating compliance efforts.

        In addition, any sales of our products or product candidates once commercialized outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

        We have entered into consulting agreements, scientific advisory board, and other financial arrangements with physicians, including some who prescribe our products and may prescribe our product candidates, if approved. Compensation for some of these arrangements includes the provision of stock options. While these arrangements were structured to comply with all applicable laws, including state and federal anti-kickback laws, to the extent applicable, regulatory agencies may view these arrangements as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. Moreover, while we do not submit claims and our customers make the ultimate decision on how to submit claims, we may provide reimbursement guidance and support to our customers and patients. If a government authority were to conclude that we provided improper advice to our customers and/or encouraged the submission of false claims for reimbursement, we could face action against by government authorities.

        Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. The sales and marketing practices of our industry are the subject of immense scrutiny from federal and state government agencies. Despite sequestration measures, governmental enforcement funding continues at robust levels and enforcement officials are interpreting fraud and abuse laws broadly. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are subject to a variety of interpretations. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources, divert our management's attention from the operation of the business, and generate negative publicity, which could harm our business. If our past or present operations are found to be in violation of any such laws or any other

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governmental regulations that may apply to us, we may be subject to, without limitation, civil, criminal and administrative penalties, damages, monetary fines, disgorgement, exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and/or the curtailment or restructuring of our operations. If we were to be excluded from federal healthcare programs, it would mean that no federal healthcare program payment could be made for any of our products.

We are planning to pursue the FDA 505(b)(2) pathway for one of our product candidates (KD034), and if we are not able to successfully do so, seeking approval of this product candidate through the 505(b)(1) NDA pathway would require full reports of investigations of safety and effectiveness. Even if we are able to pursue the 505(b)(2) pathway, we could be subject to legal challenges and regulatory changes which might result in extensive delays or result in our 505(b)(2) application being unsuccessful.

        Section 505(b)(2) of the FDCA permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2), if applicable to us, would allow an NDA we submit to the FDA to rely in part on data in the public domain or the FDA's prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the development program for a product candidate by potentially decreasing the amount of clinical data that we would need to generate in order to obtain FDA approval. We plan to pursue this pathway for one of our product candidates: KD034.

        If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we would need to reconsider our plans for this product and might not be able to commercialize it in a cost-efficient manner, or at all. If we were to pursue approval under the 505(b)(1) NDA pathway, would be subject to the full requirements and risks described for our other product candidates.

        In some instances over the last few years, certain brand-name pharmaceutical companies and others have objected to the FDA's interpretation of Section 505(b)(2) and legally challenged decisions by the agency. If an FDA decision or action relative to our product candidate, or the FDA's interpretation of Section 505(b)(2) more generally, is successfully challenged, it could result in delays or even prevent the FDA from approving a 505(b)(2) application for KD034.

        The pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. A claim by the applicant that a patent is invalid or will not be infringed is subject to challenge by the patent holder, requirements may give rise to patent litigation and mandatory delays in approval (i.e., a 30-month stay) of a 505(b)(2) application. It is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition.

        In the Federal Register of February 6, 2015, the FDA published a proposed rule to implement statutes that govern the approval of 505(b)(2) applications and ANDAs. The FDA also requested comment on its proposal to amend certain regulations regarding 505(b)(2) applications and ANDAs to facilitate compliance with and efficient enforcement of the FD&C Act. Comments on the proposed rule will inform the FDA's rulemaking on ANDAs and 505(b)(2) applications, and at this time the implications of these potential regulatory changes is uncertain.

        Even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to accelerated product development or earlier approval.

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        Even if approved pursuant to the Section 505(b)(2) regulatory pathway, a drug may be subject to the same post-approval limitations, conditions and requirements as any other drug.

Our commercial success depends on adequate reimbursement and coverage from third-party commercial and government payors for our products, and changes to coverage or reimbursement policies, as well as healthcare reform measures, may materially harm our sales and potential revenue.

        Our current sales in the United States of Ribasphere (ribavirin) tablets and capsules and RibaPak are dependent on the formulary approval and the extent of reimbursement from third-party payors, including government programs (such as Medicare and Medicaid) and private payor healthcare and insurance programs. Coverage and reimbursement for our products can differ significantly from payor to payor. Even when we obtain coverage and reimbursement for our products, we may not be able to maintain adequate coverage and reimbursement in the future.

        There is significant uncertainty related to the third-party coverage and reimbursement of newly approved products. We intend to seek approval to market our product candidates in the United States, Europe and other selected foreign jurisdictions. Market acceptance and commercial success of our product candidates in both domestic and international markets will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for any of our product candidates.

        Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be obtained or applied consistently. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. Additionally, coverage may be more limited than the purposes for which the product is approved by the FDA or similar regulatory authorities outside of the United States. Assuming that coverage is obtained for a given product, the resulting reimbursement rates might not be adequate or may require co-payments that patients find unacceptably high. Patients, physicians, and other healthcare providers may be less likely to prescribe, dispense or use, as applicable, our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

        Government payors and other third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and the amount of reimbursement. Coverage decisions may depend upon clinical and economic standards that disfavor new drug or biologic products when more established or lower-cost therapeutic alternatives are already available or subsequently become available. Based upon a number of factors, including clinical and economic standards, our products may not qualify for coverage and reimbursement. Coverage and 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 for the specific patient;

    cost-effective;

    neither experimental nor investigational;

    prescribed by a practitioner acting within the scope of license and health plan participation agreements;

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    documented adequately in the patient's medical record;

    dispensed by a participating pharmacy; and/or

    logged and documented appropriately by the dispensing pharmacy.

        The market for our products will depend significantly on access to third-party payors' drug formularies for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. If coverage and reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

        In the United States, our products may be subject to discounts from list price and rebate obligations, and we have experienced increased pricing pressure and restrictions on patient access, such as prior authorizations, due to new and expensive therapies that have entered the hepatitis C market. Third-party payors have from time to time refused to include our products in their formularies, limit the type of patients for whom coverage will be provided, or restrict patient access to our products through formulary control or otherwise, in favor of less-costly generic versions of ribavirin or other treatment alternatives. Any change in formulary coverage, treatment paradigm, reimbursement levels, discounts or rebates offered on our products may impact our anticipated revenues.

        In the United States, governmental and commercial third-party payors are developing increasingly sophisticated methods of controlling healthcare costs. We believe that pricing pressure for our products will continue, and future coverage and reimbursement will likely be subject to increased restrictions. For example, the PPACA, which has already imposed significant healthcare cost containment measures, also encourages the development of comparative effectiveness research and any adverse findings for our products from such research may reduce the extent of coverage and reimbursement for our products. The PPACA created the Patient-Centered Outcomes Research Institute (PCORI) to review the effectiveness of treatments and medications in federally-funded healthcare programs. The PCORI publishes the results of its studies. An adverse finding result may result in a treatment or product being removed from Medicare or Medicare coverage.

        Managed care organizations continue to seek price discounts and in some cases, to impose restrictions on the coverage of particular drugs. Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs, which may result in managed care organizations influencing prescription decisions for a larger segment of the population, which could constrain pricing, formulary position or reimbursement for our products. Economic pressure on state budgets may also have a similar impact on Medicaid coverage and reimbursement. A reduction in the availability or extent of reimbursement or removal from and restrictions in use on formularies from U.S. government programs and other third-party payors could have a material adverse effect on the sales of RibaPak.

        If adequate coverage and reimbursement by third-party payors, including Medicare and Medicaid in the United States, is not available, our ability to continue to successfully market the RibaPak and Ribasphere line of ribavirin products will be materially adversely impacted and it would cause irreversible damage to our financial position, unless we are successful in developing or acquiring rights to promote another product. We can make no assurances that we can do so on a timely basis or on favorable terms, if at all. In certain countries in the European Union and some other international markets, governments provide healthcare at low-cost to consumers and regulate pharmaceutical pricing, patient eligibility or reimbursement levels to control costs for the government-sponsored healthcare system. We expect to see strong efforts to reduce healthcare costs in our international markets,

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including: patient access restrictions; suspensions on price increases; prospective and possibly retroactive price reductions, mandatory discounts and rebates, and other recoupments; recoveries of past price increases; and greater importation of drugs from lower-cost countries to higher-cost countries. In addition, certain countries set prices by reference to the prices in other countries where our products are marketed. Thus, our inability to secure adequate prices in a particular country may not only limit the marketing of our products within that country, but may also adversely affect our ability to obtain acceptable prices in other markets.

Healthcare reform measures could hinder or prevent our product candidates' commercial success and could increase our costs.

        In both the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could impact our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is a significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding individual access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in 2010, the PPACA was enacted, which was intended to expand healthcare coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals, strengthening of program integrity measures and enforcement authority, and expansion of the Medicaid program. The PPACA substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. Several provisions of the new law, which have varying effective dates, may affect us and will likely increase certain of our costs. In this regard, the PPACA includes the following provisions:

    an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs that began in 2011;

    an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;

    an extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

    new methodologies by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and for drugs that are line extensions;

    changes to the Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer's outpatient drugs to be covered under Medicare Part D;

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

    expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers' Medicaid rebate liability;

    a new requirement to annually report drug samples that manufacturers and distributors provide to licensed practitioners or to pharmacies of hospitals or other healthcare entities;

    a licensure framework for follow-on biologic products;

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

    creation of the Independent Payment Advisory Board which has the authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs.

        The reforms imposed by the new law will significantly impact the pharmaceutical industry; however, the full effects of the PPACA cannot be known until these provisions are implemented and the CMS and other federal and state agencies issue and finalize all applicable regulations or guidance. We will continue to evaluate the PPACA, the implementation of regulations or guidance related to various provisions of the PPACA by federal agencies, as well as trends and changes that may be encouraged by the legislation and that may potentially have an impact on our business over time. The cost of implementing more detailed record keeping systems and otherwise complying with these regulations could substantially increase our costs. The changes to the way our products are reimbursed by the CMS could reduce our revenues. Both of these situations could adversely affect our results of operations. There have been judicial and Congressional challenges to certain aspects of the PPACA, and we expect there will be additional challenges and amendments to the PPACA in the future.

        In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. These changes included aggregate reductions to Medicare payments to providers and suppliers of up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers and suppliers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws and future healthcare reform laws may result in additional reductions in Medicare and other healthcare funding.

        There also have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels and elsewhere directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. In addition, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Additional changes could be made to governmental healthcare programs that could significantly impact the success of our products or product candidates. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

    the demand for any products for which we may obtain regulatory approval;

    our ability to set a price that we believe is fair for our products;

    our ability to generate revenues and achieve or maintain profitability;

    the level of taxes that we are required to pay; and/or

    the availability of capital.

Government price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our current and future products.

        International operations are also generally subject to extensive price and market regulations and there are many proposals for additional cost-containment measures, including proposals that would directly or indirectly impose additional price controls or reduce the value of our intellectual property portfolio or may make it economically unsound to launch our products in certain countries. We cannot

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predict the extent to which our business may be affected by these or other potential future legislative or regulatory developments. Future price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our current and future products, which would adversely affect our revenue and results of operations.

        Additionally, in some countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after coverage and reimbursement have been obtained. Reference pricing used by various European Union member states and parallel distribution or arbitrage between low-priced and high-priced member states, can further reduce prices. To obtain reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies, which is time-consuming and costly. If reimbursement of our product candidates is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability of our products in such country.

Guidelines and recommendations published by government agencies, professional societies, and private foundations and organizations can reduce the use of our products and product candidates, if approved.

        Government agencies promulgate regulations and guidelines applicable to certain drug classes which may include our products and product candidates that we are developing. In addition, from time to time, professional societies, practice management groups, private health/science foundations and organizations publish guidelines or recommendations directed to certain healthcare and patient communities. These recommendations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Regulations or guidelines suggesting the reduced use of certain drug classes which may include our products and product candidates that we are developing or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of our product candidates or negatively impact our ability to gain market acceptance and market share.

We could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws.

        We are subject to the FCPA, which generally prohibits companies and their intermediaries from making payments to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage. We are also subject to anti-bribery laws in the jurisdictions in which we operate. Although we have policies and procedures designed to ensure that we, our employees and our agents comply with the FCPA and other anti-bribery laws, there is no assurance that such policies or procedures will protect us against liability under the FCPA or other laws for actions taken by our agents, employees and intermediaries with respect to our business or any businesses that we acquire. We do business in a number of countries in which FCPA violations have recently been enforced. Failure to comply with the FCPA, other anti-bribery laws or other laws governing the conduct of business with foreign government entities, including local laws, could disrupt our business and lead to severe criminal and civil penalties, including imprisonment, criminal and civil fines, loss of our export licenses, suspension of our ability to do business with the federal government, denial of government reimbursement for our products and/or exclusion from participation in government healthcare programs. Other remedial measures could include further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. We could also be adversely affected by any allegation that we violated such laws.

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If our processes and systems are not compliant with regulatory requirements, we could be subject to restrictions on marketing our products or could be delayed in submitting regulatory filings seeking approvals for our product candidates.

        We have a number of regulated processes and systems that are required to obtain and maintain regulatory approval for our drugs and product candidates. These processes and systems are subject to continual review and periodic inspection by the FDA and other regulatory bodies. If compliance issues are identified at any point in the development and approval process, we may experience delays in filing for regulatory approval for our product candidates, or delays in obtaining regulatory approval after filing. Any later discovery of previously unknown problems or safety issues with approved drugs or manufacturing processes, or failure to comply with regulatory requirements, may result in restrictions on such drugs or manufacturing processes, withdrawal of drugs from the market, the imposition of civil or criminal penalties or a refusal by the FDA and/or other regulatory bodies to approve pending applications for marketing approval of new drugs or supplements to approved applications, any of which could have a material adverse effect on our business. Given the number of high profile adverse safety events with certain drug products, regulatory authorities may require, as a condition of approval, costly risk evaluation and mitigation strategies, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, expedited reporting of certain adverse events, pre-approval of promotional materials and restrictions on direct-to-consumer advertising. For example, any labeling approved for any of our product candidates may include a restriction on the term of its use, or it may not include one or more intended indications. Furthermore, any new legislation addressing drug safety issues could result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, as well as increased costs to assure compliance with any new post-approval regulatory requirements. Any of these restrictions or requirements could force us or our collaborators to conduct costly studies.

        In addition, we are a party to agreements that transfer responsibility for complying with specified regulatory requirements, such as packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the product or compliance with manufacturing requirements, to our collaborators and third-party manufacturers. Approved products, manufacturers and manufacturers' facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMP. As such, we and our contract manufacturers, which we are responsible for overseeing and monitoring for compliance, are subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. The FDA may hold us responsible for any deficiencies or noncompliance of our contract manufacturers in relation to our product candidates and commercial products. If our collaborators or third-party manufacturers do not fulfill these regulatory obligations, any drugs we market or for which we or they obtain approval may be deemed adulterated, which carries significant legal implications, and may be subject to later restrictions on manufacturing or sale, which could have a material adverse effect on our business.

Risks Related to Our Intellectual Property Rights

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

        Our commercial success will depend, in part, on our ability to obtain and maintain patent protection in the United States and other countries with respect to our products and product candidates. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our products and product candidates that are important to our business.

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We cannot be certain that patents will be issued or granted with respect to applications that are currently pending or that we apply for in the future with respect to one or more of our products and product candidates, or that issued or granted patents will not later be found to be invalid and/or unenforceable.

        The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, collaboration partners, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection.

        We may license patent rights that are valuable to our business from third parties, in which event we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology or medicines underlying such licenses. We cannot be certain that these patents and applications will be prosecuted and enforced in a manner consistent with the best interests of our business. If any such licensors fail to maintain such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated and our right to develop and commercialize any of our products that are the subject of such licensed rights could be adversely affected. In addition to the foregoing, the risks associated with patent rights that we license from third parties also apply to patent rights we own.

        The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued, and even if issued, the patents may not meaningfully protect our products or product candidates, effectively prevent competitors and third parties from commercializing competitive products or otherwise provide us with any competitive advantage. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative products in a non-infringing manner. Changes in either the patent laws, implementing regulations or interpretation of the patent laws in the United States and other countries may also diminish the value of our patents or narrow the scope of our patent protection.

        The laws of foreign countries may not protect our rights to the same extent as the laws of the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. For those countries where we do not have granted patents, we may not have any ability to prevent the unauthorized use or sale of our proprietary medicines and technology. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore we cannot be certain that we were the first to make the inventions claimed in our owned or any licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

        Assuming the other requirements for patentability are met, prior to March 2013, in the United States, the first to make the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. Beginning in March 2013, the United States transitioned to a first-inventor-to-file system in which, assuming the other requirements for patentability are met, the first-inventor-to-file a patent application will be entitled to the patent. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office (U.S. PTO) or become involved in opposition, derivation, revocation, reexamination, post-grant

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and inter partes review or interference proceedings challenging our patent rights or the patent rights of others. Participation in these proceedings can be very complex, expensive and may divert our management's attention from our core business. Furthermore, an adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize medicines without infringing third-party patent rights.

        The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical products, or limit the duration of the patent protection of our products and product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Patent protection may not be available for some of our products or the processes under which they are used or manufactured. Our Ribasphere (ribavirin) tablets, capsules and the RibaPak products were approved under an ANDA in the United States. Although we hold patents for the RibaPak product, other generic manufacturers may file ANDAs in the United States seeking FDA authorization to manufacture and market additional generic versions of RibaPak, together with Paragraph IV certifications that challenge the scope, validity or enforceability of the RibaPak patents. If we must spend significant time and money protecting or enforcing our intellectual property rights, potentially at great expense, our business and financial condition may be harmed.

Issued patents covering one or more of our products could be found invalid or unenforceable if challenged in court.

        If we or one of our licensing partners initiated 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 is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Although we have conducted due diligence on patents we have exclusively in-licensed, the outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant 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 products and 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 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 would have a material adverse impact on our business.

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Third-party claims of intellectual property infringement may prevent or delay our development and commercialization 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, both within and outside the United States, involving patent and other intellectual property rights in the pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the U.S. PTO, and corresponding foreign patent offices. 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 pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.

        Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product unless we obtained a license under the applicable patents, or until such patents expire.

        Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all. Even if we or our future strategic collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property.

        Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

        Most of our competitors are larger than we are and have substantially greater resources and may be able to sustain the costs of complex patent litigation longer than we could. The uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our internal research programs, in-license needed technology or enter into strategic collaborations that would help us bring our product candidates to market.

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

        Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours

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or our licensors is not valid, is unenforceable and/or is not infringed, 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. Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

        An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

        Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also 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 material adverse effect on the price of our common stock.

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

        In addition to patents, we rely on trade secrets, technical know-how and proprietary information concerning our business strategy in order to protect our competitive position in medical research and development. Trade secrets are difficult to protect, and it is possible that our trade secrets and know-how will over time be disseminated within the industry through independent development and intentional or inadvertent disclosures.

        We seek to protect our trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, collaboration partners, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Our agreements with research and development collaboration partners contain contractual limitations regarding the publication and public disclosure of data and other information generated during the course of research. Despite these efforts, any of these parties may breach the agreements and intentionally or inadvertently disclose or use our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.

        Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets or the equivalent knowledge, methods and know-how were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be harmed. If we do not apply for patent protection prior to such publication or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized.

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Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

        The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business, or permit us to maintain our competitive advantage. For example:

    others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed;

    we or our licensors or collaboration partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

    we or our licensors or collaboration partners might not have been the first to file patent applications covering certain of our inventions;

    others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

    it is possible that our pending patent applications will not lead to issued patents;

    issued patents that we own or have exclusively licensed may not provide us with any competitive advantages or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

    our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

    we may not develop additional proprietary technologies that are patentable; and/or

    the patents of others may have an adverse effect on our business.

        Should any of these events occur, they could significantly harm our business, results of operations and prospects.

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

        As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee's former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

        We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may also have, in the future,

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ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Risks Related to Our Dependence on Third Parties

We expect to continue to contract with third-party suppliers for the production of our commercial product portfolio as well as our developmental product candidates for clinical trial use and, if approved, for commercialization.

        We currently employ third parties for the manufacturing of our commercial products and product candidates. This increases the risk that we will not have sufficient quantities of our products or product candidates within the timeframe and at an acceptable cost which could delay, prevent or impair our development or commercialization efforts. Additionally, we may not be able to quickly respond to changes in customer demand which could harm our business as a result of the inability to supply the market or an excess of inventory that we are unable to sell.

        The facilities used by our contract manufacturers to manufacture our product candidates must adhere to FDA requirements, and are subject to inspections that may be conducted after we submit our marketing applications to the FDA in connection with review of our application, and on an ongoing basis relevant to postmarketing compliance. Although we are subject to regulatory responsibility for the quality of products manufactured by our contract manufacturers and oversight of their activities, we do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements, known as current good manufacturing practices, or cGMPs, for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will be subject to enforcement action, and if substantial noncompliance is identified and not corrected, they may be precluded from manufacturing product for the United States or other markets. In addition, although the FDA will hold us responsible for due diligence in the selection of, and oversight in the operations of, our contract manufacturers, we do not have direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority identified significant compliance concerns with our contract manufacturers, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our products or product candidates, if approved.

        We have agreements with third-party manufacturers for the provision of active pharmaceutical ingredients (API), drug product manufacturing and packaging of our commercial products. Reliance on third-party manufacturers carries additional risks, such as not being able to comply with cGMP or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.

        While we continue to source a second supplier for the components of our commercial products, we still currently rely on one third-party supplier for the ribavirin API. Qsymia is sourced by VIVUS through a single supplier. Additionally, tetrabenazine and valganciclovir are sourced by Camber through

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a single supplier. In the event that any of these third-party manufacturers fail regulatory compliance, fail to meet quality assurance specifications or experience an unavoidable extraordinary event, our business would be materially adversely affected.

        Any products that we may develop may compete with other product candidates and commercialized products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance failure or refusal to supply on the part of our existing or future suppliers could delay clinical development, marketing approval or commercialization of our products. If our current suppliers cannot perform as agreed, we may be required to replace one or more of these suppliers. Although we believe that there are a number of potential long-term replacements to each supplier, we may incur added costs and delays in identifying and qualifying any such replacements.

        We rely on third parties to store and distribute supplies for our clinical trials and for the manufacture of our product candidates. Any performance failure on the part of our existing or future distributors could delay clinical development or regulatory approval or our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

We have acquired or in-licensed many of our products from external sources and may owe milestones or royalties based on the achievement of future successes or penalties if certain diligence requirements are not met.

        In certain cases, our license or acquisition agreements require us to conduct research or clinical trials within a specified time frame, or we may owe a penalty or lose the right to the product for development. If we do not conduct the necessary research or clinical trials within the specified time frame, we may be required to pay cash penalties to extend the time frame during which studies may be conducted or our collaborators may exercise a right to have the product returned.

        On some of the products we have licensed, we may be obligated in future periods to make significant development and commercial milestone payments as well as royalties. As a result, we may have to raise additional capital (which would likely cause our equity holders to experience dilution) to cover the required milestone payments. The milestone payments and royalties we may owe on the sale of our products may reduce the overall profitability of our operations and if we are unable to sell sufficient product to cover the costs of these milestone payments, our operating profitability, business and value of our equity securities may be adversely impacted.

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. Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our product candidates.

        Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including those relating to:

    the scope of rights granted under the license agreement and other interpretation-related issues;

    whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;

    our right to sublicense patent and other rights to third parties under collaborative development relationships;

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    whether we are complying with our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates; or

    the allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and by us and our collaboration partners.

        If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer.

We depend, in part, on our licensors to file, prosecute, maintain, defend and enforce patents and patent applications that are material to our business.

        Patents relating to our product candidates are controlled by certain of our licensors. Each of our licensors generally has rights to file, prosecute, maintain and defend the patents we have licensed from such licensor. We generally have the first right to enforce our patent rights, although our ability to settle such claims often requires the consent of the licensor. If our licensors or any future licensees having rights to file, prosecute, maintain or defend our patent rights fail to conduct these activities for patents or patent applications covering any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using or selling competing products. We cannot be certain that such activities by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. Pursuant to the terms of the license agreements with some of our licensors, the licensors may have the right to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents and, even if we are permitted to pursue such enforcement or defense, we cannot ensure the cooperation of our licensors. We cannot be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of such patents or defense of such claims to protect our interests in the licensed patents. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent us from continuing to license intellectual property that we may need to operate our business. In addition, even when we have the right to control patent prosecution of licensed patents and patent applications, enforcement of licensed patents, or defense of claims asserting the invalidity of those patents, we may still be adversely affected or prejudiced by actions or inactions of our licensors and their counsel that took place prior to or after our assuming control.

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

        We do not independently conduct clinical trials of our product candidates. We rely on third parties, such as medical institutions and clinical investigators, and may in the future rely on other third parties, to perform this function. Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. We remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, we, along with medical institutions and clinical investigators, are required to comply with "good clinical practices" or "GCP," which is an international ethical and scientific quality standard for designating, recording and reporting trials that involve the participation of human subjects, and which is implemented via regulations and guidelines enforced by, among others, the FDA, the EMA, the Competent Authorities of the Member States of the European Economic Area (EEA), and comparable foreign regulatory authorities for all of our products in clinical development.

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GCP is designed to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of patients in clinical trials are protected. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs, study sites, or clinical investigators fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials and create other regulatory and litigation exposure, which would among other things delay the regulatory approval process.

We face risks in connection with existing and future collaborations with respect to the development, manufacture and commercialization of our products and product candidates.

        The risks that we face in connection with our current and any future collaborations include the following:

    Our collaborators may change the focus of their development and commercialization efforts or may have insufficient resources to effectively develop our product candidates. The ability of some of our products and product candidates to reach their potential could be limited if collaborators decrease or fail to increase development or commercialization efforts related to those products or product candidates.

    Any future collaboration agreements may have the effect of limiting the areas of research and development that we may pursue, either alone or in collaboration with third parties.

    Collaborators may develop and commercialize, either alone or with others, drugs that are similar to or competitive with the drugs or product candidates that are the subject of their collaborations with us.

        Our collaboration agreements are subject to termination under various circumstances.

Risks Related to Our Operations

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

        The biopharmaceutical industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel.

        Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities. This may limit their availability to us.

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        In order to induce valuable employees to continue their employment with us, we have provided equity incentives that vest over time. The value to employees of equity incentives that vest over time is significantly affected by the success of our operations and clinical trials for our new product candidates, much of which is beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.

        Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Our employment arrangements, other than those with select persons, provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.

        We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses and institutions. Many of the other companies and institutions that we compete with for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.

Our employees, independent contractors, principal investigators, agents, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

        We are exposed to the risk that our employees, independent contractors, principal investigators, agents, consultants, commercial partners and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent failures to:

    comply with regulations by the FDA and other similar foreign regulatory bodies;

    provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies;

    comply with manufacturing standards;

    comply with federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and similar foreign laws;

    report financial information or data accurately; and/or

    disclose unauthorized activities to us.

        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 and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, including off-label uses of our products, structuring and commission(s), certain customer incentive programs, patient assistance programs, and other business arrangements generally. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and serious harm to our

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reputation. We have adopted a Code of Business Ethics. However, it is not always possible to identify and deter misconduct by employees and other third-parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs or other sanctions, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates and marketed products.

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

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

    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 revenues from product sales; and/or

    the inability to commercialize our product candidates or our marketed products.

        Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry an aggregate of $20.0 million of product liability insurance, which we believe is adequate for our commercial products and our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded

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by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

Our operating results are subject to significant fluctuations.

        Our quarterly revenues, expenses and net income (loss) have fluctuated in the past and are likely to fluctuate significantly in the future due to the timing of charges and expenses that we may encounter. In recent periods, for instance, we have recorded charges that include:

    impairments that we are required to take with respect to investments;

    financing related costs and expenses;

    milestone payments under license and collaboration agreements; and

    payments in connection with acquisitions and other business development activity.

        Our quarterly revenues, expenses and net income (loss) may fluctuate significantly from quarter to quarter and year to year, such that a period to period comparison of our results of operations may not be a good indication of our future performance.

If we are unable to successfully implement our strategic plan, our business may be materially harmed.

        We plan to develop and commercialize novel drugs that will have a significant clinical impact on important unmet medical needs while we continue to market our commercial products to eligible patients to generate revenues. Absent a successful launch of one or more of our product candidates, we expect our total revenues to decline significantly as the HCV treatment landscape continues to evolve. Furthermore, our patent protection for our RibaPak product expires in 2028. In order to maintain a strong financial position, we are focusing our investment on development programs for our most advanced product candidates. In an effort to mitigate our drug development risk and improve our chance of ultimate commercial success, we are developing multiple product candidates in a wide variety of disease indications. There can be no assurance that our development programs will be successful or that our research programs will result in drugs that we can successfully develop and commercialize.

Our business may become subject to economic, political, regulatory and other risks associated with international operations.

        Our business is subject to risks associated with conducting business internationally. Some of our suppliers and collaborative and clinical trial relationships are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:

    economic weakness, including inflation, or political instability in particular foreign economies and markets;

    differing regulatory requirements for drug approvals in foreign countries;

    potentially reduced protection for intellectual property rights;

    difficulties in compliance with non-U.S. laws and regulations;

    changes in non-U.S. regulations and customs, tariffs and trade barriers;

    changes in non-U.S. currency exchange rates and currency controls;

    changes in a specific country's or region's political or economic environment;

    trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;

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    negative consequences from changes in tax laws;

    compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

    workforce uncertainty in countries where labor unrest is more common than in the United States;

    difficulties associated with staffing and managing foreign operations, including differing labor relations;

    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and/or

    business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

If we engage in future acquisitions or strategic collaborations, this may increase our capital requirements, dilute our equity holders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

        We may evaluate various acquisitions and strategic collaborations, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any potential acquisition or strategic collaboration may entail numerous risks, including:

    increased operating expenses and cash requirements;

    the assumption of additional indebtedness or contingent liabilities;

    assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;

    the diversion of our management's attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;

    retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;

    risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals; or

    our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

        In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

If we acquire or license technologies, products or product candidates, we will incur a variety of costs and may never realize benefits from the transaction.

        If appropriate opportunities become available, we might license or acquire technologies, resources, drugs or product candidates. We might never realize the anticipated benefits of such a transaction, and we may later incur impairment charges related to assets acquired in any such transaction. For example, due to a decline in demand for Ribasphere, we incurred an intangible asset impairment charge of $31.3 million during the year ended December 31, 2015 related to Ribasphere product rights, which

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were acquired in conjunction with the 2010 acquisition of Three Rivers Pharmaceuticals, LLC. In particular, due to the risks inherent in drug development, we may not successfully develop or obtain marketing approval for the product candidates we acquire. Future licenses or acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, the creation of contingent liabilities, impairment expenses related to goodwill, and impairment or amortization expenses related to other intangible assets, which could harm our financial condition.

We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

        As of March 31, 2016, we had 138 full-time employees. As our development and commercialization plans and strategies develop, we expect to expand our employee base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations which may result in weaknesses in our infrastructure, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of existing and additional product candidates. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively with others in our industry will depend, in part, on our ability to effectively manage any future growth.

We depend on information technology and a failure of those systems could adversely affect our business.

        We rely on sophisticated information technology systems to operate our business. These systems are potentially vulnerable to malicious intrusion, random attack, loss of data privacy, or breakdown. Although we have invested in the protection of our data and information technology and also monitor our systems on an ongoing basis, there can be no assurance that these efforts will prevent breakdowns or breaches in our information technology systems that could adversely affect our business.

Risks Related to this Offering and Our Common Stock

No active trading market for our common stock exists or may develop, and you may not be able to resell your common stock at or above the initial public offering price.

        Prior to this offering, there has been no public market for our common stock and an active trading market for our shares may never develop or be sustained following this offering. The initial price to public 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. The lack of an active market may impair investors' ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the market value of their shares and may impair our ability to raise capital. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. In addition, because certain holders of our membership interests have indicated an interest in purchasing an aggregate of approximately $40 million in shares of our common stock in this offering at the initial public offering price, the overall trading market for our shares may not be as active as it otherwise would have been had these shares been purchased by other investors.

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We expect that our stock price will fluctuate significantly.

        The trading prices of the securities of pharmaceutical and biotechnology companies have been highly volatile. The trading price of our common stock following this offering may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this prospectus, these factors include:

    adverse results or delays in 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;

    regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products and product candidates, including clinical trial requirements for approvals;

    our inability to obtain or delays in obtaining adequate product supply for any approved product or inability to do so at acceptable prices;

    failure to commercialize our product candidates or if the size and growth of the markets we intend to target fail to meet expectations;

    additions or departures of key scientific or management personnel;

    unanticipated serious safety concerns related to the use of our product candidates;

    introductions or announcements of new products offered by us or significant acquisitions, strategic collaborations, joint ventures or capital commitments by us, our collaborators or our competitors and the timing of such introductions or announcements;

    our ability or inability to effectively manage our growth;

    changes in the structure of healthcare payment systems;

    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;

    market conditions in the pharmaceutical and biotechnology sectors or the economy generally;

    our ability or inability to raise additional capital through the issuance of equity or debt or collaboration arrangements and the terms on which we raise it;

    trading volume of our common stock;

    disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; and/or

    significant lawsuits, including patent or stockholder litigation.

        The stock market in general, and market prices for the securities of pharmaceutical companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In several recent situations when the market price of a

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stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, our stock price and trading volume could decline.

        The trading market for our common stock may be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have, and may never obtain research coverage by securities and industry analysts. If no or few analysts commence research coverage of us, or one or more of the analysts who cover us issues an adverse opinion about our company, our stock price would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Future sales of our common stock or securities convertible into our common stock in the public market could cause our stock price to fall.

        Our stock price could decline as a result of sales of a large number of shares of our common stock or securities convertible into our common stock after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

        Upon completion of this offering, 34,070,479 shares of our common stock will be outstanding (34,903,812 shares of common stock will be outstanding assuming exercise in full of the underwriters' option to purchase additional shares). All shares of common stock expected to be sold in this offering and pursuant to the Selling Stockholder Resale Prospectus will be freely tradable without restriction or further registration under the Securities Act unless held by our "affiliates," as that term is defined in Rule 144 under the Securities Act. The resale of the remaining 27,126,034 shares, or 80% of our outstanding shares after this offering, is currently prohibited or otherwise restricted as a result of securities law provisions, market standoff agreements entered into by our stockholders with us or lock-up agreements entered into by our stockholders with the underwriters; however, subject to applicable securities law restrictions these shares will be able to be sold in the public market beginning 180 days after the date of this prospectus. Shares issued upon the exercise of stock options outstanding under our equity incentive plans or pursuant to future awards granted under those plans will become available for sale in the public market to the extent permitted by the provisions of applicable vesting schedules, any applicable market stand-off and lock-up agreements, and Rule 144 and Rule 701 under the Securities Act. For more information see the section of this prospectus captioned "Shares Eligible for Future Sale."

        Certain holders of our membership interests have indicated an interest in purchasing an aggregate of $40 million in shares of our common stock in this offering at the initial public offering price per share. Any such shares purchased by these holders who are considered to be our affiliates could not be resold in the public market immediately following this offering as a result of restrictions under securities laws, but would be able to be sold following the expiration of these restrictions as described in the "Shares Eligible for Future Sale" section of this prospectus.

        Upon completion of this offering, the holders of approximately 27,240,598 shares, or 80%, of our common stock, will have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register the offer and sale of all shares of common stock that we may issue under our equity compensation plans. Once we register the offer and sale of shares for the holders of registration rights and shares to be issued under our equity incentive

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plans, they can be freely sold in the public market upon issuance or resale (as applicable), subject to the lock-up agreements described in the section of this prospectus captioned "Underwriting."

        In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

        Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. In addition, any future testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.

        In preparing for this offering, we became aware that we had not correctly accounted for a non-recurring complex transaction. These circumstances led us to conclude that we had a material weakness in internal control over financial reporting, in that we did not maintain a sufficient complement of resources with an appropriate level of accounting expertise in accounting for complex transactions. We have implemented a plan during 2015 to remediate this material weakness.

        We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as early as the fiscal year ending December 31, 2017. However, for as long as we are an "emerging growth company" under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management's assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

As a new investor, you will immediately experience substantial dilution as a result of this offering.

        The purchasers of shares of our common stock in this offering will experience immediate and substantial dilution of $16.85 per share, based on the assumed initial public offering price of $18.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. This dilution represents the amount by which the per share purchase price of our common stock offered in this offering exceeds the pro forma net tangible book value per share of our common stock immediately following this offering. This dilution is due in large part to the fact that our history of losses has resulted in an accumulated deficit and thus a stockholders' deficit. In addition, you may also experience additional dilution upon future equity issuances, including upon the conversion of the convertible preferred stock issued pursuant to the exchange agreement concurrently with the closing of this offering, and any other convertible debt or equity securities we may issue in the future, the exercise of stock options to purchase common stock granted to our employees, consultants and directors, including options to purchase common stock granted under our stock option and equity incentive plans,

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or the issuance of common stock in settlement of previously issued awards under the 2014 LTIP that may vest in the future. See "Dilution."

The holders of the convertible preferred stock will be entitled to be paid a liquidation preference, which under some circumstances will include a substantial premium.

        In the event of a liquidation (as defined in the certificate of designations governing our convertible preferred stock), certain bankruptcy events, a material breach by us of the exchange agreement or a failure to make any payment due on our or our subsidiaries' indebtedness after giving effect to any applicable cure period, the holders of the convertible preferred stock will be entitled to payment of a liquidation preference. The liquidation preference for each share of convertible preferred stock will equal the greater of (i) (A) (I) the original purchase price per share of convertible preferred stock plus dividend arrearages thereon in cash plus (II) any dividends accrued and unpaid thereon from the last dividend payment date to the date of the final distribution to such holder plus (B) in the majority of the events identified in the previous sentence, a premium equal to 20.2% (assuming that this offering is consummated on August 1, 2016) of the amount described in clause (i)(A) of this sentence at such time or (ii) an amount per share of convertible preferred stock equal to the amount which would have been payable or distributable if each share of convertible preferred stock been converted into shares of our common stock immediately before the liquidation event.

        Until the holders of the convertible preferred stock have been paid their liquidation preference in full, no payment will be made to any holder of common stock. If our assets, or the proceeds from their sale, distributable among the holders of the convertible preferred stock are not sufficient to pay the liquidation preference in full and the liquidating payments on any parity securities, then those assets or proceeds will be distributed among the holders of the convertible preferred stock and those parity securities on a pro rata basis. In that case, there would be no assets or proceeds remaining to be distributed to holders of our common stock, which would have a material adverse effect on the trading price of our common stock.

The holders of the convertible preferred stock are entitled to have their shares of convertible preferred stock redeemed at a substantial premium in certain events

        Our convertible preferred stock is redeemable if we or our significant subsidiaries are the subject of certain bankruptcy events, upon the occurrence of a material breach by us of the exchange agreement and upon the failure to make payments of amounts due on our or any of our subsidiaries' indebtedness after giving effect to any applicable cure period. Upon the occurrence of any of these events, the holders of our convertible preferred stock shall, in their sole discretion, be entitled to receive an amount equal to the original purchase price per share of convertible preferred stock plus dividend arrearages thereon plus any dividends accrued and unpaid thereon from the last dividend payment date to, but excluding, the date of such redemption plus the premium described under "—The holders of the convertible preferred stock will be entitled to be paid a liquidation preference, which under some circumstances will include a substantial premium." If we were to become obligated to redeem all or a substantial portion of the outstanding convertible preferred stock, that could have a material adverse effect on the trading price of our common stock.

Shares of our convertible preferred stock are convertible into shares of our common stock and, upon conversion, will dilute your percentage of ownership.

        Concurrently with the closing of this offering, we are issuing 30,000 shares of our convertible preferred stock pursuant to an exchange agreement with holders of our Senior Convertible Term Loan. Holders of the convertible preferred stock shall be entitled to receive a cumulative dividend at an annual rate of 5% of the sum of the original purchase price per share of convertible preferred stock plus any dividend arrearages. In addition, holders of the convertible preferred stock shall be entitled to receive dividends paid or payable on our common stock with respect to the number of shares of our

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common stock into which each share of convertible preferred stock is then convertible at the then applicable conversion price. Shares of our convertible preferred stock are convertible at any time at the option of the holder into shares of our common stock at a conversion price equal to their original purchase price plus any accrued but unpaid dividends. Immediately following closing of this offering, after giving effect to the consummation of the transactions contemplated under the exchange agreement with holders of the Senior Convertible Term Loan and based on an assumed initial public offering price of $18.00 per share, the midpoint of the price range on the cover of this prospectus, 2,083,334 shares of our common stock will be issuable upon conversion of our convertible preferred stock. This issuance of common stock upon the conversion will dilute the percentage ownership of holders of our common stock by approximately 6.8%. The dilutive effect of the conversion of these securities may adversely affect our ability to obtain additional equity financing.

Holders of the convertible preferred stock may exert substantial influence over us and may exercise their control in a manner adverse to your interests.

        So long as shares of our convertible preferred stock remain outstanding, without the consent of at least a majority of the then outstanding shares of the convertible preferred stock, we may not (i) authorize or approve the issuance of any convertible preferred stock, senior securities or parity securities (or, in each case, any security convertible into, or convertible or exchangeable therefor or linked thereto) or authorize or create or increase the authorized amount of any convertible preferred stock, senior securities or parity securities (or, in each case, any security convertible into, or convertible or exchangeable therefor or linked thereto); (ii) authorize or approve the purchase or redemption of any parity securities or junior securities; (iii) amend, alter or repeal any of the provisions of the certificate of designations, our certificate of incorporation or our by-laws in a manner that would adversely affect the powers, designations, preferences and rights of the convertible preferred stock; (iv) contract, create, incur, assume or suffer to exist any indebtedness or guarantee any such indebtedness with an aggregate value of more than $5,000,000 (subject to certain exceptions); or (v) agree to take any of the above actions. The holders of convertible preferred stock will have one vote for each share of common stock into which such holders' shares could then be converted at the time, and with respect to such vote, will have voting rights and powers equal to the voting rights and powers of the holders of our common stock.

        The certificate of designations governing the convertible preferred stock also provides that no amendment or waiver of any provision of the certificate of designations or our charter or bylaws shall, without the prior written consent of all holders of the convertible preferred stock who are known to us to hold, together with their affiliates, more than 5% of the convertible preferred stock then outstanding, (i) reduce any amounts payable or that may become payable to holders of the convertible preferred stock, (ii) postpone the payment date of any amount payable to holders of the convertible preferred stock or waive or excuse any payment, (iii) modify or waive the conversion rights of the convertible preferred stock in a manner that would adversely affect any holder of the convertible preferred stock, or (iv) change any of the voting-related provisions or any other provision of the certificate of designations specifying the number or percentage of holders of the convertible preferred stock which are required to waive, amend or modify any rights under the certificate of designations or make any determination or grant any consent under that document.

        In addition, for so long as affiliates of GoldenTree Asset Management LP collectively own at least 7.5% of our common stock (calculated on an "as if" converted basis and taking into account the exercise of all other options, warrants and other equity-linked securities held by such GoldenTree affiliated entities), GoldenTree Asset Management LP will have the right, at its option, to designate (i) one director to our board of directors and, upon such designation, the Board of Directors shall recommend to the stockholders to vote for the election of GoldenTree Asset Management LP's designee at any meeting of stockholders convened to elect directors of the Company and use commercially reasonable efforts to cause that designee to be elected at that meeting or (ii) one

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observer to our board of directors. As a result of these contractual rights, holders of our convertible preferred stock may exert substantial influence over our company and may exercise their control in a manner that is adverse to the interests of other holders of our common stock.

We may require additional capital in the future, which may not be available to us. Issuances of our equity securities to provide this capital may dilute your ownership in us.

        We may need to raise additional funds through public or private debt or equity financings in order to:

    take advantage of expansion opportunities;

    acquire complementary products, product candidates or technologies;

    develop new products or technologies; or

    respond to competitive pressures.

        Any additional capital raised through the issuance of our equity securities may dilute your percentage ownership interest in us. Furthermore, any additional financing we may need may not be available on terms favorable to us or at all. The unavailability of needed financing could adversely affect our ability to execute our business strategy.

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

        Our executive officers, directors and principal stockholders, together with their respective affiliates, beneficially owned approximately 79.2% of our capital stock as of August 1, 2016, and upon completion of this offering, that same group will beneficially own 66.4% of our capital stock, of which 1.0% will be beneficially owned by our executive officers (assuming no exercise of the underwriters' option to purchase additional shares). Accordingly, after this offering, our executive officers, directors and principal stockholders will be able to determine the composition of the board of directors, retain the voting power to approve all matters requiring stockholder approval, including mergers and other business combinations, and continue to have significant influence over our operations. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us that you may believe are in your best interests as one of our stockholders. This in turn could have a material adverse effect on our stock price and may prevent attempts by our stockholders to replace or remove the board of directors or management.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us difficult, limit attempts by our stockholders to replace or remove our current management and adversely affect our stock price.

        Provisions of our certificate of incorporation and bylaws to be effective upon consummation of this offering may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our stock. Among other things, the certificate of incorporation and bylaws will:

    permit the board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate;

    provide that the authorized number of directors may be changed only by resolution of the board of directors;

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    provide that all vacancies, including newly-created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; and

    require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be taken by written consent.

        In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any stockholder owning in excess of 15% of our outstanding stock for a period of three years following the date on which the stockholder obtained such 15% equity interest in us. See the section of this prospectus captioned "Description of Capital Stock—Anti-takeover effects of provisions of our certificate of incorporation and bylaws and Delaware law" for additional information.

We will incur increased costs by being a public company.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We also anticipate that we will incur costs associated with relatively recently adopted corporate governance requirements, including requirements of the SEC and the NYSE. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

        When we cease to be an "emerging growth company" and when our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

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

        We are an "emerging growth company," as defined in the JOBS Act, and we take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We will take advantage of these reporting exemptions until we are no longer an "emerging growth company." We will remain an "emerging growth company"

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until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Our management has broad discretion in using the net proceeds from this offering.

        We expect to use the net proceeds of this offering to fund the clinical development of our pipeline, repay a related party loan and for general corporate purposes. Our management will have broad discretion in the application of the balance of the net proceeds and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our equity. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, diminish available cash flows available to service our debt, cause the value of our equity to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Our executive officers, directors and principal shareholders will maintain the ability to control or significantly influence all matters submitted to equity holders for approval.

        Upon the closing of this offering, our executive officers, directors and shareholders who beneficially own more than 5.0% of our outstanding common stock before this offering will, in the aggregate, continue to beneficially own a substantial majority of our outstanding common stock. As a result, if these shareholders were to choose to act together, they would be able to control or significantly influence almost all matters submitted to our shareholders for approval. Mr. Steven N. Gordon, our Executive Vice President, General Counsel, Chief Administrative, Compliance and Legal Officer, is currently the sole manager of Kadmon I, LLC, which owns more than 50.0% of the outstanding Class A membership units of Kadmon Holdings, LLC.

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

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

Future sales and issuances of equity securities, convertible securities or other securities could result in additional dilution of the percentage ownership of holders of our common stock.

        We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell equity securities, convertible securities or other securities in one or more transactions at prices and in a manner we determine from time to time. If we sell equity securities, convertible securities or other securities in more than one transaction, investors in this offering may be materially diluted by subsequent sales. Such sales would also likely result in material dilution to our existing equity holders, and new investors could gain rights, preferences and privileges senior to those of holders of our existing equity securities.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding future capital expenditures and debt service obligations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "targets," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions.

        Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these factors include, but are not limited to, the following:

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

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

    our reliance on the success of our product candidates;

    the timing or likelihood of regulatory filings and approvals;

    our ability to expand our sales and marketing capabilities;

    the commercialization of our product candidates, if approved;

    the pricing and reimbursement of our product candidates, if approved;

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

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

    our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;

    cost associated with defending intellectual property infringement, product liability and other claims;

    regulatory development in the United States, Europe and other jurisdictions;

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

    the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

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

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

    developments relating to our competitors and our industry, including competing therapies;

    our ability to effectively manage our anticipated growth;

    our ability to attract and retain qualified employees and key personnel;

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    our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

    statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance;

    our expected use of proceeds from this offering;

    the future trading price of the shares of our common stock and impact of securities analysts' reports on these prices; and

    other risks and uncertainties, including those listed under the caption "Risk Factors."

        The forward-looking statements in this prospectus are only predictions, and we may not actually achieve the plans, intentions or expectations included in our forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

        These forward-looking statements speak only as of the date of this prospectus. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this prospectus after we distribute this prospectus, whether as a result of any new information, future events or otherwise.

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USE OF PROCEEDS

        We estimate that the net proceeds to us from our issuance and sale of shares of our common stock in this offering will be approximately $89.9 million, assuming an initial public offering price of $18.00 per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise in full their option to purchase additional shares, we estimate that the net proceeds from this offering will be approximately $103.9 million.

        Each $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated price range, set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $5.2 million (or $5.9 million if the underwriters exercise their option to purchase additional shares), assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses. Each increase (decrease) of 1.0 million shares in the number of shares of common stock offered by us at the assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $16.7 million, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

        We currently estimate that we will use the net proceeds from this offering as follows:

    approximately $12.6 to 13.9 million through November 2017 to advance KD025 through Phase 2 clinical studies, including:

    $3.0 to 3.3 million for moderate to severe psoriasis;

    $2.2 to 2.4 million for IPF;

    $1.0 to 1.1 million for cGVHD;

    $2.5 to 2.8 million for psoriatic arthritis;

    $2.4 to 2.6 million for scleroderma; and

    $1.5 to 1.7 million for SLE;

    approximately $14.8 to 16.3 million through November 2017 to advance planned Phase 2 and Phase 3 clinical studies of tesevatinib in NSCLC, glioblastoma, PKD and other studies;

    approximately $2.0 to 2.2 million through November 2017 to conduct various KD025 and tesevatinib toxicology studies, as well as other costs to develop various antibodies;

    approximately $3.4 to 3.8 million through November 2017 to fund CMCC to support clinical supply needs, process optimization and reformulation efforts, and ongoing drug stability expenses;

    approximately $16.2 to $17.9 million through November 2017 to pay research associated costs;

    approximately $10.8 to $12.0 million through November 2017 to pay clinical infrastructure and in-house data management costs;

    $3.0 million to repay an outstanding interest-free demand loan provided by Dr. Harlan W. Waksal; and

    the remaining balance for working capital and other general corporate purposes.

        This expected use of the net proceeds from this offering and our existing cash, cash equivalents, restricted cash and current revenue forecasts represents our intentions based upon our current plans

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and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development and commercialization efforts, the status of and results from clinical trials and actual results of operations, as well as any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We have no current agreements, commitments or understandings for any material acquisitions or licenses of any products, business or technologies.

        As of March 31, 2016, we had cash and cash equivalents of $8.6 million and restricted cash of $2.1 million. In June 2016, we raised an additional $5.5 million in gross proceeds, with no transaction costs, through the issuance of 478,266 Class E redeemable convertible units. Based on our planned use of the net proceeds from this offering and our existing cash, cash equivalents and current revenue forecasts, we estimate that such funds will be sufficient to enable us to support research and development needs and to fund our operating expenses and capital requirements for the next 16 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We do not expect that the net proceeds from this offering and our existing cash and cash equivalents will be sufficient to enable us to fund the completion of development and commercialization of any of our product candidates.

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

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DIVIDEND POLICY

        We currently expect to retain all future earnings, if any, for use in the operation and expansion of our business and repayment of debt. We have never declared nor paid any dividends on our common stock and do not anticipate paying cash dividends to holders of our common stock in the foreseeable future. In addition, the 2015 Credit Agreement, as well as any future borrowings, will restrict our ability to pay dividends. See "Risk Factors—Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain." Any determination to pay dividends on our common stock in the future will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and covenants in our existing financing arrangements and any future financing arrangements. Holders of the convertible preferred stock shall be entitled to receive a cumulative dividend at an annual rate of 5% of the original purchase price per share of convertible preferred stock, when and as declared by our board of directors and to the extent of funds legally available for the payment of dividends. Holders of the convertible preferred stock shall also be entitled to participate in all dividends declared and paid to holders of our common stock on an "as if" converted basis.

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CAPITALIZATION

        The following table sets forth our unaudited cash and cash equivalents and capitalization as of March 31, 2016, as follows:

    on an actual basis;

    on a pro forma basis to give effect to (i) an aggregate of 1,061,741 Class E redeemable convertible membership units issued to Falcon Flight LLC and its affiliate in May 2016, (ii) $5.5 million raised through the issuance of 478,266 Class E redeemable convertible units in June 2016, (iii) the consummation of the transactions contemplated under the exchange agreement with the holders of the Senior Convertible Term Loan resulting in the issuance of 30,000 shares of our convertible preferred stock and 3,679,086 shares of our common stock; (iv) the mandatory conversion of all of our outstanding indebtedness under the Second-Lien Convert, resulting in the issuance of 9,010,550 shares of our common stock, and (v) the Corporate Conversion, assuming the closing of this offering occurred on August 1, 2016 at an initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus) and a reverse split of 6.5 units for one share of common stock; and

    on a pro forma as adjusted basis to additionally give effect to the sale of shares of our common stock in this offering, assuming an initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the application of the proceeds therefrom.

        Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at pricing. You should read the information in this "Capitalization" section in conjunction with our financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of

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Financial Condition and Results of Operations," "Corporate Conversion," "Description of Capital Stock" and "Use of Proceeds" sections 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 data)
 

Cash and cash equivalents

  $ 8,601   $ 8,601   $ 98,501  

Indebtedness

                   

Secured term debt—current

  $ 3,040   $ 3,040     3,040  

Secured term debt—net of current portion and discount

    25,822     25,822     25,822  

Convertible debt, net of discount

    189,727          

Total Indebtedness

  $ 218,589   $ 28,862     28,862  

Class E redeemable convertible membership units; 4,969,252 units issued and outstanding, actual; no units issued or outstanding pro forma and pro forma as adjusted

  $ 60,940   $   $  

Class A membership units; 53,977,701 units issued and outstanding, actual; no units issued or outstanding pro forma and pro forma as adjusted

  $   $   $  

Class B membership units; one unit issued and outstanding, actual; no units issued or outstanding pro forma and pro forma as adjusted

             

Class C membership units; one unit issued and outstanding, actual; no units issued or outstanding pro forma and pro forma as adjusted

  $   $   $  

Class D membership units; 4,373,674 units issued and outstanding, actual; no units issued or outstanding pro forma and pro forma as adjusted

             

5% preferred stock, par value $0.001 per share; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, pro forma and pro forma as adjusted; no shares issued and outstanding, pro forma; 30,000 shares issued and outstanding, pro forma as adjusted

        37,500     37,500  

Common stock, par value $0.001 per share; no shares authorized, issued and outstanding, actual; 200,000,000 shares authorized, pro forma and pro forma as adjusted; 28,514,923 shares issued and outstanding pro forma; 34,070,479 shares issued and outstanding pro forma as adjusted

        29     34  

Additional paid-in capital

    373,983     663,804     753,699  

Accumulated deficit

    (676,690 )   (745,282 )   (745,282 )

Total members' (deficit) equity

  $ (302,707 ) $ (43,949 ) $ 45,951  

Total capitalization

  $ (23,178 ) $ (15,087 ) $ 74,813  

(1)
Each $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by approximately

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    $5.2 million, assuming that the number of shares offered by us, as 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. Each increase or decrease of 1.0 million shares we are offering at the assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by approximately $16.7 million.

        The table above does not include:

    1,636,429 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2016 at a weighted-average exercise price of $37.38 per share pursuant to awards under our 2011 Equity Incentive Plan, 417,043 of which are exercisable as of June 30, 2016, including 769,231 shares of common stock issuable upon exercise of outstanding stock options issued to Dr. Harlan W. Waksal, our President and Chief Executive Officer, with an exercise price of $39.00 per share, none of which are exercisable as of June 30, 2016. On July 13, 2016, the compensation committee of the board of managers approved the amendment of all outstanding option awards, effective upon the date of pricing of this offering, to adjust the exercise price (on a post-Corporate Conversion, post-split basis) to the initial public offering price per share in this offering;

    an option award granted to Dr. Harlan W. Waksal on July 13, 2016 increasing the number of shares (on a post-Corporate Conversion, post-split basis) subject to his original option grant received in December 2015. The number of shares subject to this option award shall equal the difference between his original December 2015 option grant and 5% of the company's outstanding common equity determined on a fully diluted basis. The effective date of this July 2016 option award will be the date of this offering. The exercise price per share of common stock subject to the new option award will be equal to the initial public offering price per share of common stock and will be set at the initial public offering price per share of common stock, provided that such price will not be less than fair market value on the date of the grant;

    2,646,083 shares of common stock, representing the maximum number of shares based on the midpoint of the estimated price range set forth on the cover of this prospectus, issuable at our option under our 2014 LTIP as of June 30, 2016;

    3,912,471 shares of common stock that will be available for future issuance, as of the closing of this offering, under our 2016 Equity Incentive Plan, which includes 693,816 shares of common stock previously reserved for issuance under our 2011 Equity Incentive Plan as of June 30, 2016;

    900,000 shares of common stock that will be available for future issuance as of the closing of this offering under our 2016 Employee Stock Purchase Plan;

    1,122,556 shares issuable upon the exercise of warrants outstanding as of June 30, 2016 at a weighted-average exercise price of $36.74 per share following the Corporate Conversion; and

    2,083,334 shares issuable upon the conversion of 30,000 shares of our convertible preferred stock (at their aggregate original purchase price), which will be issued pursuant to an exchange agreement with holders of our Senior Convertible Term Loan based on the assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of the prospectus) shares of our common stock.

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DILUTION

        If you invest in our common stock, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock upon consummation of this offering. Pro forma net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities divided by the number of shares of common stock then issued and outstanding.

        The historical net tangible book value of our book deficit as of March 31, 2016 was $(255.0 million), or $(30.71) per Class A membership unit. Historical net tangible book value per Class A membership unit represents the amount of our total tangible assets less total liabilities, divided by the total number of Class A membership units outstanding as of March 31, 2016.

        After giving effect to (i) an aggregate of 1,061,741 Class E redeemable convertible membership units issued to Falcon Flight LLC and its affiliate in May 2016 (the "May Issuance"), (ii) the $5.5 million raised through the issuance of 478,266 Class E redeemable convertible units in June 2016 (together with the May Issuance, the "Additional Series E"), (iii) the consummation of the transactions contemplated under the exchange agreement, (iv) the mandatory conversion of all our outstanding indebtedness under the Second-Lien Convert, and (v) the Corporate Conversion, pro forma net tangible book deficit as of March 31, 2016 was $(57.2) million, or $(2.01) per share based on the shares of common stock issued and outstanding after the Corporate Conversion assuming the closing of this offering occurred on August 1, 2016 at an initial public offering price of $18.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus). After giving effect to our sale of common stock in this offering at the initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2016 would have been $32.7 million, or $1.15 per share (assuming no exercise of the underwriters' option to purchase additional shares of our common stock). This represents an immediate increase of net tangible book value of $3.15 per share to our existing stockholders and an immediate and substantial dilution of $16.85 per share to new investors purchasing common stock in this offering.

        The following table illustrates this dilution per share:

Assumed initial public offering price per share

        $ 18.00  

Historical net tangible book value per Class A membership unit as of March 31, 2016

  $ (30.71 )      

Pro forma increase in net tangible book value per share attributable to the Additional Series E, the Corporate Conversion and the conversion of our Senior Convertible Term Loan and Second-Lien Convert

    28.70        

Pro forma net tangible book value per share as of March 31, 2016

    (2.01 )      

Increase in pro forma net tangible book value per share attributable to new investors participating in this offering

    3.15        

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

          1.15  

Dilution in pro forma net tangible book value per share to new investors participating in this offering

        $ 16.85  

        Each $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated price range, set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents and working capital, total assets and total stockholders' equity by approximately $5.2 million, assuming that

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the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares offered by us at the assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated price range, set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents and working capital, total assets and total stockholders' equity by approximately $16.7 million. The as adjusted information is illustrative only, and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

        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 cash consideration paid and the average price per share paid by existing stockholders and by the new investors in this offering, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus).

 
   
   
  Total
consideration
   
 
 
  Shares purchased    
 
 
  Average
price per
share
 
 
  Number   Percent   Amount   Percent  
 
  (in millions)
 

Existing investors

    28,514,923     84 % $ 498.5     83 % $ 17.48  

New investors in this offering

    5,555,556     16 % $ 100.0     17 % $ 18.00  

Total

    34,070,479     100 % $ 598.5     100 % $ 17.57  

        See "Pricing Sensitivity Analysis" to see how some of the information presented above would be affected by an initial public offering price per share of common stock at $17, $18 or $19, or if the underwriters' option to purchase additional shares of common stock is exercised in full.

        The foregoing tables and calculations are based on the number of shares of our common stock outstanding as of March 31, 2016 after giving effect to the Corporate Conversion upon the closing of this offering, the consummation of the transactions contemplated under the exchange agreement and the mandatory conversion of all of our outstanding indebtedness under the Second-Lien Convert, assuming the closing of these transactions occurred on March 31, 2016, and excludes:

    1,636,429 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2016 at a weighted-average exercise price of $37.38 per share pursuant to awards under our 2011 Equity Incentive Plan, 417,043 of which are exercisable as of June 30, 2016, including 769,231 shares of common stock issuable upon exercise of outstanding stock options issued to Dr. Harlan W. Waksal, our President and Chief Executive Officer, with an exercise price of $39.00 per share, none of which are exercisable as of June 30, 2016. On July 13, 2016, the compensation committee of the board of managers approved the amendment of all outstanding option awards, effective upon the date of pricing of this offering, to adjust the exercise price (on a post-Corporate Conversion, post-split basis) to the initial public offering price per share in this offering;

    An option award granted to Dr. Harlan W. Waksal on July 13, 2016 increasing the number of shares (on a post-Corporate Conversion, post-split basis) subject to his original option grant received in December 2015. The number of shares subject to this option award shall equal the difference between his original December 2015 option grant and 5% of the company's outstanding common equity determined on a fully diluted basis. The effective date of this July 2016 option award will be the date of this offering. The exercise price per share of common stock subject to the new option award will be equal to the initial public offering price per share of common stock and will be set at the initial public offering price per share of common stock, provided that such price will not be less than fair market value on the date of the grant;

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    2,646,083 shares of common stock, representing the maximum number of shares based on the midpoint of the estimated price range set forth on the cover of this prospectus, issuable at our option under our 2014 LTIP as of June 30, 2016;

    3,912,471 shares of common stock that will be available for future issuance, as of the closing of this offering, under our 2016 Equity Incentive Plan, which includes 693,816 shares of common stock previously reserved for issuance under our 2011 Equity Incentive Plan as of June 30, 2016;

    900,000 shares of common stock that will be available for future issuance as of the closing of this offering under our 2016 Employee Stock Purchase Plan;

    1,122,556 shares issuable upon the exercise of warrants outstanding as of June 30, 2016 at a weighted-average exercise price of $36.74 per share following the Corporate Conversion; and

    2,083,334 shares issuable upon conversion of the 30,000 shares of our convertible preferred stock (at their aggregate original purchase price), that will be issued concurrently with the closing of this offering pursuant to an exchange agreement with holders of our Senior Convertible Term Loan based on the assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of the prospectus) shares of our common stock.

        The shares of our common stock reserved for future issuance under our 2016 Plans will be subject to automatic annual increases in accordance with its terms. To the extent that options are exercised, new options are issued under our 2016 Plan or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

        The number of shares of common stock of Kadmon Holdings, Inc. that holders of membership units will receive in the Corporate Conversion, the information regarding warrants exercisable following the Corporate Conversion, and the number of shares issuable pursuant to the Senior Convertible Term Loan and the Second-Lien Convert will vary depending on the actual initial public offering price per share for this offering. See "Corporate Conversion" and "Pricing Sensitivity Analysis" for additional information.

        Certain holders of our membership interests have indicated an interest in purchasing an aggregate of $40 million in shares of our common stock in this offering at the initial public offering price per share. Based on an assumed initial public offering price of $18.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, these entities would purchase up to an aggregate of 2,222,222 of the 5,555,556 shares in this offering based on these indications of interest. However, because indications of interest are not binding agreements or commitments to purchase, these entities may determine to purchase fewer shares than they indicate an interest in purchasing or not to purchase any shares in this offering. It is also possible that these entities could indicate an interest in purchasing more shares of our common stock. In addition, the underwriters could determine to sell fewer shares to any of these entities than the entities indicate an interest in purchasing or not to sell any shares to these entities. The foregoing discussion and tables do not reflect any of these potential purchases by these entities or their affiliated entities.

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CORPORATE CONVERSION

Overview

        We currently operate as a Delaware limited liability company under the name Kadmon Holdings, LLC. Prior to the closing of this offering, Kadmon Holdings, LLC will convert into a Delaware corporation pursuant to a statutory conversion and change its name to Kadmon Holdings, Inc. In order to consummate the Corporate Conversion, a certificate of conversion will be filed with the Secretary of State of the State of Delaware.

        In connection with the Corporate Conversion, Kadmon Holdings, Inc. will continue to hold all property and assets of Kadmon Holdings, LLC and will assume all of the debts and obligations of Kadmon Holdings, LLC. Kadmon Holdings, Inc. will be governed by a certificate of incorporation filed with the Delaware Secretary of State and bylaws, the material portions of which are described under the heading "Description of Capital Stock." On the effective date of the Corporate Conversion, the members of the board of managers of Kadmon Holdings, LLC will become the members of Kadmon Holdings, Inc.'s board of directors and the officers of Kadmon Holdings, LLC will become the officers of Kadmon Holdings, Inc.

        The purpose of the Corporate Conversion is to reorganize our corporate structure so that the top-tier entity in our corporate structure—the entity that is offering common stock to the public in this offering—is a corporation rather than a limited liability company and so that our existing investors will own our common stock rather than equity interests in a limited liability company.

        Except as otherwise noted herein, the consolidated financial statements included elsewhere in this prospectus are those of Kadmon Holdings, LLC and its combined operations. We expect that our conversion from a Delaware limited liability company to a Delaware corporation will not have a material effect on our consolidated financial statements.

Conversion of Equity Securities

        As part of the Corporate Conversion, based on the assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus) and a reverse split of 6.5 units for one share of common stock, all limited liability company interests of Kadmon Holdings, LLC, which are in the form of units, will be converted into an aggregate of shares of our common stock as follows:

    holders of our Class A membership units will receive an aggregate of 8,304,339 shares of our common stock;

    holders of our Class B membership unit will receive an aggregate of 1,157,408 shares of our common stock;

    holders of our Class C membership unit will receive an aggregate of 1,157,408 shares of our common stock;

    holders of our Class D membership units will receive an aggregate of 231,852 shares of our common stock; and

    holders of our Class E redeemable convertible membership units will receive an aggregate of 4,974,280 shares of our common stock.

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        In addition, based on the assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range set forth on the cover of this prospectus):

    holders of our 2013 and 2015 warrants to purchase units of Kadmon Holdings, LLC, which are in the money, will receive warrants to purchase 114,564 shares of our common stock assuming net exercise; and

    holders of our unvested EARs units under our 2014 LTIP will be converted into cash or equity settled stock appreciation rights with the number of shares, if any, used for payment to be determined on the applicable vesting date.

        The number of shares of common stock and the number of options issuable in connection with the Corporate Conversion will be determined pursuant to the applicable provisions of the plan of conversion, which is based upon terms of the existing Second Amended and Restated Limited Liability Company Agreement of Kadmon Holdings, LLC. Upon conversion, the shares of common stock of Kadmon Holdings, Inc. will be allocated among the various classes of units in accordance with the distribution proportions, orders and priorities set forth in the limited liability company agreement and as summarized below.

Class A membership units

        In the Corporate Conversion, the Class B, C, D and E membership units will automatically convert into Class A membership units as described below and, immediately thereafter, the Class A membership units will automatically convert into shares of our common stock.

Class B and C membership units

        Insofar as the Corporate Conversion is occurring in connection with an initial public offering in which our valuation is greater than $41.7 million, the Class B and C membership units will automatically convert into Class A membership units. The number of Class A membership units into which the entire classes of Class B and C membership units will convert will be equal to the Class B and C membership units' aggregate value of $41.7 million, as determined in accordance with the Second Amended and Restated Limited Liability Company Agreement of Kadmon Holdings, LLC, divided by the price per share of our common stock in this offering.

Class D membership units

        Insofar as the Corporate Conversion is occurring in connection with an initial public offering in which our valuation is greater than $45.8 million, the Class D membership units will automatically convert into Class A membership units. The number of Class A membership units into which the entire class of Class D membership units will convert will be equal to the Class D membership units' aggregate value of $4.2 million, as determined in accordance with the Second Amended and Restated Limited Liability Company Agreement of Kadmon Holdings, LLC, divided by the price per share of our common stock in this offering.

Class E redeemable convertible membership units

        In the Corporate Conversion, all Class E redeemable convertible membership units will automatically convert into Class A membership units. The number of Class A membership units into which each Class E redeemable convertible membership unit may be converted will equal $11.50 divided by the applicable conversion price of the lower of 85% of the price of a share of our common stock in this offering or $11.50 per unit, without giving effect to the reverse split of our membership units to take place as part of our Corporate Conversion immediately prior to the completion of this offering.

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Warrants

Warrants issued in 2011 credit agreement

        In connection with our amended credit agreement in October 2011, we issued warrants exercisable for a total of 2,032,191 Class A membership units as fees to the lenders. The warrants are exercisable as of the date of issuance at a strike price of $11.41 and expire in October 2021. None of these warrants has been exercised as of June 30, 2016.

Three tranches of warrants issued pursuant to 2013 and 2014 credit agreements

        In connection with our second amended credit agreement in June 2013, we issued three tranches of warrants as fees to the lenders which are exercisable for Class A membership units. In the aggregate, the first warrant tranche was originally exercisable for 1,119,618 Class A membership units at a strike price of $10.00 and exercisable as of the date of issuance. In the aggregate, the second warrant tranche was originally exercisable for 559,810 Class A membership units at a strike price of $13.75 and exercisable as of the date of issuance. In the aggregate, the third tranche was originally exercisable for 559,810 Class A membership units at a strike price of $16.50. The third warrant tranche was not exercisable until December 17, 2015, and will vest only if there are outstanding obligations under the second amended credit agreement, and contains a provision whereby the exercise price may decrease based on certain potential future events. All three warrant tranches contain a fixed number of units exercisable as of June 30, 2016.

        In connection with our first amended and restated convertible credit agreement in December 2013, we issued an additional 24,356, 12,177 and 12,177 of the first, second and third tranches of warrants, respectively, as fees to the lenders.

        In connection with the third amended credit agreement in November 2014, the strike price of all three tranches of warrants held by the lenders was amended to be the lower of $9.50 per unit or 85% of a future IPO price. In addition, the third tranche of warrants were vested immediately. None of these warrants has been exercised as of June 30, 2016.

Warrants issued pursuant to 2015 Credit Agreement

        As fees paid to lenders in connection with the 2015 Credit Agreement, we issued warrants with an aggregate purchase price of $6.3 million to purchase our Class A membership units. The strike price of the warrants is 85% of the price per unit in an IPO or, if before an IPO, 85% of the deemed per unit equity value as defined in the 2015 Credit Agreement. The warrants are exercisable as of the consummation of this IPO. None of these warrants has been exercised as of June 30, 2016.

Other warrants

        On April 16, 2013, we issued warrants for the purchase of 300,000 Class A membership units at a strike price of $21.24 as consideration for fundraising efforts performed. None of these warrants have been exercised as of June 30, 2016.

        In certain instances, amounts outstanding under our existing credit facilities will convert into equity interests in Kadmon Holdings, Inc. For further information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financing Arrangements."

        Because the exact number of shares of our common stock to be issued or issuable to holders of outstanding membership units and warrants of Kadmon Holdings, LLC and issuable upon conversion of the Senior Convertible Term Loan and the Second-Lien Convert is based on the initial public offering price, to the extent that the actual initial public offering price per share for this offering is greater or less than $18.00 (the midpoint of the estimated price range set forth on the cover of this prospectus), the actual number of shares of common stock to be issued to holders of membership units and warrants and issuable upon conversion of the Senior Convertible Term Loan and the Second-Lien Convert will be adjusted accordingly. See "Pricing Sensitivity Analysis" to see how the number of shares to be issued in the Corporate Conversion or issuable thereafter upon exercise of options and warrants and conversion of the Senior Convertible Term Loan and the Second-Lien Convert would be affected by an initial public offering price per share of common stock at $17, $18 or $19, or if the underwriters' option to purchase additional shares of common stock is exercised in full.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

        The following tables set forth, for the periods and at the dates indicated, our selected consolidated financial data. Historical results are not indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of results for the entire year. You should read the following selected consolidated financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the accompanying notes thereto appearing elsewhere in this prospectus.

        The consolidated statements of operations data for the year ended December 31, 2015 and 2014 and the consolidated balance sheet data at December 31, 2015 and 2014, are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in any future period. The consolidated statements of operations data for the three months ended March 31, 2016 and the three months ended March 31, 2015 and the consolidated balance sheet data at March 31, 2016 are derived from our unaudited consolidated financial statements included in this prospectus. The unaudited consolidated financial statements include, in the opinion of management, all adjustments that management considers necessary for the fair presentation of the consolidated financial information set forth in those statements.

 
  Three Months
Ended March 31,
  Year ended
December 31,
 
 
  2016   2015   2015   2014  
 
  (unaudited)
   
   
 
 
  (in thousands, except share and per share amounts)
 

Statements of Operations Data:

                         

Total revenue

  $ 9,663   $ 7,718   $ 35,719   $ 95,018  

Cost of sales

    1,085     959     3,731     6,123  

Write-down of inventory

    135     105     2,274     4,916  

Gross profit

    8,443     6,654     29,714     83,979  

Operating expenses:

                         

Research and development

    7,955     6,872     29,685     29,101  

Selling, general and administrative

    24,486     22,164     108,613     93,167  

Gain on settlement of other milestone payable

    (3,875 )            

Impairment loss on intangible asset

            31,269      

Loss from operations

    (20,123 )   (22,382 )   (139,853 )   (38,289 )

Other expense

    12,407     5,626     7,232     26,096  

Income tax expense (benefit)

    315         (3 )   (29 )

Net loss

  $ (32,845 ) $ (28,008 ) $ (147,082 ) $ (64,356 )

Basic and diluted net loss per share of common stock(1)

  $ (3.96 )       $ (18.10 )      

Weighted average basic and diluted shares of common stock outstanding(1)

    8,302,635           8,127,781        

Unaudited pro forma net loss(2)

  $ (27,297 )       $ (121,905 )      

Unaudited pro forma basic and diluted net loss per share of common stock(3)

  $ (1.00 )       $ (4.64 )      

Unaudited pro forma weighted average basic and diluted shares of common stock outstanding(3)

    27,287,613           26,273,853        

(1)
Basic and diluted net loss per share of common stock and basic and diluted weighted average shares of common stock outstanding give effect to the conversion of our units into shares of common stock based on an assumed initial public offering price of $18.00 per share, the midpoint

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    of the price range set forth on the cover of this prospectus, and an assumed 1-for-6.5 reverse split. See Note 3 to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the method used to calculate the historical basic and diluted net loss per share of common stock and the number of shares used in the computation of the per share amounts.

(2)
Unaudited pro forma net loss gives effect to the conversion of the Senior Convertible Term Loan and the Second Lien Convert into shares of our common stock, concurrently with the consummation of this offering, based on an assumed initial public offering price of $18.00 per share, the midpoint of the price range set forth on the cover of this prospectus, and an assumed 1-for-6.5 reverse split. See Note 3 to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the pro forma adjustments used to calculate unaudited pro forma net loss.

(3)
Unaudited pro forma basic and diluted net loss per share of common stock and unaudited pro forma basic and diluted weighted average shares of common stock outstanding give effect to the conversion of our Class A, Class B, Class C and Class D units and our Class E redeemable convertible units into shares of common stock as part of the Corporate Conversion and the conversion of the Senior Convertible Term Loan and the Second Lien Convert into shares of our common stock, concurrently with the consummation of this offering, in each case, based on an assumed initial public offering price of $18.00 per share, the midpoint of the price range set forth on the cover of this prospectus, and an assumed 1-for-6.5 reverse split. See Note 3 to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the method used to calculate unaudited pro forma basic and diluted net loss per share of common stock and the number of shares used in the computation of the per share amounts.

 
  As of
March 31,
2016
  As of
December 31,
2015
  As of
December 31,
2014
 
 
  (in thousands)
  (in thousands)
 
 
  (unaudited)
   
   
 

Balance Sheet Data:

                   

Cash and cash equivalents

  $ 8,601   $ 21,498   $ 20,991  

Working capital deficit

  $ (32,249 ) $ (16,945 ) $ (19,573 )

Total assets

  $ 61,967   $ 84,137   $ 122,968  

Total redeemable convertible stock

  $ 60,940   $ 58,856   $ 37,052  

Total debt

  $ 218,589   $ 211,621   $ 161,406  

Total members' deficit

  $ (302,707 ) $ (270,909 ) $ (155,420 )

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

        You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this prospectus, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. See "Cautionary Note Regarding Forward-Looking Statements."

Overview

        We are a fully integrated biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address disease areas of significant unmet medical need. We are developing product candidates within autoimmune and fibrotic diseases, oncology and genetic diseases. We leverage our multi-disciplinary research and clinical development team members, who prior to joining Kadmon had brought more than 15 drugs to market, to identify and pursue a diverse portfolio of novel product candidates, through in-licensing products and employing our small molecule and biologics platforms. By retaining global commercial rights to our lead product candidates, we believe that we have the ability to progress these candidates ourselves while maintaining flexibility for commercial and licensing arrangements. We expect to continue to progress our clinical candidates and have further clinical trial events to report throughout 2016.

        Our operations to date have been focused on developing first-in-class innovative therapies for indications with significant unmet medical needs while leveraging our commercial infrastructure. We have never been profitable and had an accumulated deficit of $676.7 million at March 31, 2016, of which approximately $224.9 million relates to amortization and impairment losses on our Infergen and Ribasphere product rights that were acquired through our purchase of Three Rivers Pharmaceuticals, LLC in October 2010. Our net losses were $32.8 million and $28.0 million for the three months ended March 31, 2016 and 2015, respectively, and $147.1 million and $64.4 million for the years ended December 31, 2015 and 2014, respectively. Although our commercial business generates revenue, we expect to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our additional product candidates, hire additional personnel and initiate commercialization of approved products. We anticipate that our expenses will increase substantially if, and as, we:

    invest significantly to further develop our most advanced product candidates, including KD025, tesevatinib and KD034;

    initiate additional clinical trials and preclinical studies for our other product candidates;

    seek regulatory approval for our product candidates that successfully complete clinical trials;

    continue to invest in our ROCK2 inhibitor and other research platforms;

    seek to identify additional product candidates;

    scale up our sales, marketing and distribution infrastructure and product sourcing capabilities;

    acquire or in-license other product candidates and technologies;

    scale up our operational, financial and management information systems and personnel, including personnel to support our product development;

    make milestone or other payments under any in-license agreements;

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    maintain, expand and protect our intellectual property portfolio; and

    operate as a public company.

        We are currently a Delaware limited liability company. Prior to the closing of this offering, we will complete transactions pursuant to which we will convert into a Delaware corporation and change our name to Kadmon Holdings, Inc. As required by the Second Amended and Restated Limited Liability Company Agreement of Kadmon Holdings, LLC, the Corporate Conversion has been approved by the board of managers of Kadmon Holdings, LLC. In connection with the Corporate Conversion, holders of our outstanding membership units will receive one share of common stock for every 6.5 membership units held immediately prior to the Corporate Conversion, and holders of options and warrants to purchase units will become options and warrants to purchase one share of common stock for each unit underlying such options or warrants immediately prior to the Corporate Conversion, at the same aggregate exercise price in effect prior to the Corporate Conversion. See "Corporate Conversion."

Sales and Marketing

        Through our wholly-owned subsidiary, Kadmon Pharmaceuticals, we have a marketing and sales organization focused on specialty pharmaceuticals. Kadmon Pharmaceuticals currently markets and distributes a portfolio of branded and generic ribavirin products for chronic hepatitis C virus (HCV) infection. Additionally, Kadmon Pharmaceuticals co-promotes a product for chronic weight management and distributes a product for chorea, an involuntary movement disorder associated with Huntington's disease, and a product for CMV retinitis, a viral inflammation of the retina of the eye, and for the prevention of CMV disease, a common viral infection complicating solid organ transplants. Sales from our ribavirin portfolio have significantly declined, from $63.5 million for the year ended December 31, 2014 to $29.3 million for the year ended December 31, 2015, as the treatment landscape for chronic HCV infection has rapidly evolved, with multiple ribavirin-free treatment regimens, including novel direct-acting antivirals, having entered the market and becoming the new standard of care. As a result, we expect sales of our ribavirin portfolio of products to significantly decline in 2016 and to contribute insignificantly to revenue in 2017 and beyond. We market these ribavirin products to physicians in private practice or at hospitals and major medical centers in the United States that offer specialized patient management. We offer patient education and financial assistance through our own branded program for eligible patients. We distribute our HCV products principally through specialty pharmacies and government agencies.

        Kadmon Pharmaceuticals is led by a management team with a broad set of capabilities and disease expertise across multiple therapeutic areas. Our multi-disciplinary team includes managed care and specialty pharmacy account directors, experienced regulatory, quality and CMC teams, marketing experts and sales specialists. We have extensive experience and expertise in the specialty pharmacy distribution channel, which represents a competitive advantage and positively serves healthcare providers and patients. Specialty pharmacies dispense medications for complex or chronic conditions that require a high level of patient education and ongoing counseling. The specialty pharmacies through which we distribute our products are fully independent of Kadmon. We do not have any ownership interest in, consolidated financial results of or have affiliations with any specialty pharmacy.

        Kadmon Pharmaceuticals collaborates with Kadmon's clinical development team, focusing on building competitive differentiated value for our pipeline products, product launch and promotional activities and professional education. We leverage healthcare provider relationships to understand market dynamics and unmet needs. In addition, our commercial operation supports our clinical product development by providing quality assurance, compliance, regulatory and pharmacovigilance among other capabilities. These capabilities are integral to our ability to quickly advance product candidates through development.

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Components of Statement of Operations

Revenue

        Our revenue is substantially derived from sales of our portfolio of products, including RibaPak and Ribasphere tablets and capsules. Sales from our ribavirin portfolio have significantly declined, from $63.5 million for the year ended December 31, 2014 to $29.3 million for the year ended December 31, 2015, as the treatment landscape for chronic HCV infection has rapidly evolved, with multiple ribavirin-free treatment regimens, including novel direct-acting antivirals, having entered the market and becoming the new standard of care. As a result, we expect sales of our ribavirin portfolio of products to significantly decline in 2016 and to contribute insignificantly to revenue in 2017 and beyond. Revenue also includes the recognition of upfront licensing fees and milestone payments received primarily from our license agreement with AbbVie. We have an agreement with VIVUS to co-promote Qsymia for the treatment of chronic weight management in the United States. Revenue will be recognized as earned based upon sales of the co-promoted products; however, to date we have not generated any significant revenue from these agreements. In February 2016, we entered into a supply and distribution agreement with Camber for the purposes of marketing, selling and distributing tetrabenazine, a medicine that is used to treat the involuntary movements (chorea) of Huntington's disease. In May 2016, we amended our agreement with Camber to include the marketing, selling and distributing of valganciclovir, a medicine that is used for the treatment of cytomegalovirus (CMV) retinitis, a viral inflammation of the retina of the eye, in patients with acquired immunodeficiency syndrome (AIDS) and for the prevention of CMV disease, a common viral infection complicating solid organ transplants, in kidney, heart and kidney-pancreas transplant patients. We had an agreement with Valeant, which was terminated in February 2016, to co-promote Syprine (trientine hydrochloride) for the treatment of Wilson's disease.

Foreign Revenue

        Foreign product sales represented approximately 37% and 18% of total product sales for the three months ended March 31, 2016 and 2015, respectively, and 10% of total product sales for each of the years ended December 31, 2015 and 2014, the majority of which were to Germany and Ireland.

Cost of Sales

        Cost of sales consists of product costs, including ingredient costs and costs of contract manufacturers for production, and shipping and handling of the products. Also included are costs related to quality release testing and stability testing of the products. Other costs included in cost of sales are packaging costs, warehousing costs and certain allocated costs related to management, facilities, and other expenses associated with supply chain logistics. The cost of sales reported for the three months ended March 31, 2016 and 2015 and for the years ended December 31, 2015 and 2014 reflects costs incurred related to shipments to customers of RibaPak and Ribasphere in these periods.

Research and development expenses

        Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

    license fees related to the license and collaboration agreements;

    research and development-based employee-related expenses, including salaries, benefits, travel and other compensation expenses;

    expenses incurred under our agreements with contract research organizations, that conduct nonclinical and preclinical studies, and clinical sites and consultants that conduct our clinical trials;

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    costs associated with regulatory filings; and

    costs of laboratory supplies and the acquisition, development and manufacture of preclinical and clinical study materials and study drugs.

        From inception through March 31, 2016, we incurred $154.4 million in research and development expenses. We plan to increase our research and development expenses for the foreseeable future as we continue development of our product candidates. The costs of clinical trials may vary significantly over the life of a program owing to the following:

    per-patient trial costs;

    the number of sites included in the trials;

    the countries in which the trials are conducted;

    the use of third-party service providers, such as preclinical and clinical CROs;

    the length of time required to enroll eligible patients;

    the number of patients that participate in the trials;

    the number of doses that patients receive;

    the drop-out or discontinuation rates of patients;

    potential additional safety monitoring or other studies requested by regulatory agencies;

    the duration of patient follow-up;

    the phase of development of the product candidate; and

    the efficacy and safety profile of the product candidate.

        Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, including due to timing of initiation of clinical trials and enrollment of patients in clinical trials. We do not allocate personnel-related costs, including stock-based compensation, costs associated with broad technology platform improvements and other indirect costs to specific product candidates. We do not allocate these costs to specific product candidates because they are deployed across multiple overlapping projects under development, making it difficult to specifically and accurately allocate such costs to a particular product candidate.

        For the three months ended March 31, 2016 and 2015, we recognized $8.0 million and $6.9 million in research and development expenses, respectively, of which $4.5 million and $4.4 million, respectively, was related to unallocated internal and external costs of developing our product candidates across multiple projects. For the years ended December 31, 2015 and 2014, we recognized $29.7 million and $29.1 million, respectively, in research and development expenses, of which $18.6 million and $19.7 million, respectively, was related to unallocated internal and external costs of developing our product candidates across multiple projects. Unallocated internal and external research and development costs include salaries and personnel-related costs, including non-cash stock-based compensation, for our personnel in research, clinical development, process development and manufacturing, regulatory and other research and development functions, lab supplies and other research and development costs not specific to a project.

        For the three months ended March 31, 2016 and 2015, we recognized $1.2 million and $1.6 million, respectively, in development expenses for tesevatinib; $0.4 million and $0.3 million, respectively, for KD025; $0.3 million and $0.2 million, respectively, for the KD034 program; and $1.5 million and $0.5 million, respectively, for other product candidates. For the years ended December 31, 2015 and 2014, we recognized $4.6 million and $4.8 million, respectively, in development expenses for tesevatinib;

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$3.0 million and $2.9 million, respectively, for KD025; $1.0 million and $0.2 million, respectively, for the KD034 program; and $2.5 million and $1.6 million, respectively, for other product candidates.

        The successful development of our product candidates is highly uncertain and subject to numerous risks including, but not limited to:

    the scope, rate of progress and expense of our research and development activities;

    clinical trial results;

    the scope, terms and timing of regulatory approvals;

    the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;

    the cost, timing and our ability to acquire sufficient clinical and commercial supplies for any product candidates and products that we may develop; and

    the risks disclosed in the section entitled "Risk Factors" in this prospectus.

        A change in the outcome of any of these variables could mean a significant change in the expenses and timing associated with the development of any product candidate.

Selling, general and administrative expenses

        Selling, general and administrative expenses consist primarily of salaries and related costs for non-research personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance, legal, commercial, regulatory, pharmacovigilance and human resource functions. Other selling, general and administrative expenses include facility-related costs, commercial royalty expense and director compensation, accounting and legal services, consulting costs and programs and marketing costs to support the commercial business.

        In June 2008, we entered into an asset purchase agreement with Zydus Pharmaceuticals USA, Inc. and Cadila Healthcare Limited d/b/a Zydus-Cadila (Zydus) in connection with an outstanding dispute, where we purchased all of Zydus' rights, title and interest to high dosages of ribavirin. Under this agreement we are required to make royalty payments to Zydus based on net sales of products in the mid-teen percents until August 11, 2025.

        We anticipate that our selling, general and administrative expenses will increase in the future as we expand headcount to support both our continued research and development and the planned commercialization of our product candidates. Additionally, we expect future increases in audit, legal, regulatory and tax-related expenses required to operate as a public company.

Other income (expense)

        Other income (expense) is comprised of interest income earned on cash and cash equivalents and restricted cash and interest expense on our outstanding indebtedness, including paid-in-kind interest on our convertible debt and non-cash interest related to the write-off and amortization of debt discount and deferred financing costs associated with our indebtedness. Gains and losses arising from changes in fair value of our financial instruments are recognized in other income (expense) in the consolidated statements of operations. Such financial instruments include a success fee and warrant liabilities for which the exercise price is contingent on our company's per share price in a qualified public offering. The change in fair value is based upon the fair value of the underlying security at the end of each reporting period, as calculated using the Black-Scholes option pricing model, in the case of the success fee, and a binomial model, in the case of the warrant liabilities.

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        In addition, we operate in currencies other than the U.S. dollar to fund research and development and commercial activities performed by various third-party vendors. The translation of these currencies into U.S. dollars results in foreign currency gains or losses, depending on the change in value of these currencies against the U.S. dollar. These gains and losses are included in other income (expense).

Income taxes

        We are a limited liability company but taxed as a C corporation for federal and state tax purposes. Prior to the closing of this offering, we intend to convert from a limited liability company to a Delaware corporation pursuant to a statutory conversion. At March 31, 2016 and December 31, 2015, we had a deferred tax liability of $1.3 million and a full valuation allowance for our deferred tax assets.

Critical Accounting Policies and Significant Judgments and Estimates

        Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reporting amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to intangible assets and goodwill, derivative liabilities, unit-based compensation and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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

Revenue recognition

        We recognize sales when the risk of loss has been transferred to the customer. As is typical in the pharmaceutical industry, gross product sales are subject to a variety of deductions, primarily representing rebates, chargebacks, returns and discounts to government payors, wholesalers and managed care organizations. These deductions represent management's best estimates of the related reserves and, as such, judgment is required when estimating the impact of these sales deductions on gross sales for a reporting period. If estimates are not representative of the actual future settlement, results could be materially affected.

        We account for revenue that we recognize under our license agreement with AbbVie in accordance with Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC), Topic 605-25, "Revenue Recognition for Arrangements with Multiple Elements", which addresses the determination of whether an arrangement involving multiple deliverables contains more than one unit of accounting. A delivered item within an arrangement is considered a separate unit of accounting only if both of the following criteria are met:

    the delivered item has value to the customer on a stand-alone basis; and

    if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in control of the vendor.

        In accordance with FASB ASC Topic 605-25, if both of the criteria above are not met, then separate accounting for the individual deliverables is not appropriate. Revenue recognition for arrangements with multiple deliverables constituting a single unit of accounting is recognized generally over the greater of the term of the arrangement or the expected period of performance, either on a straight-line basis or on a modified proportional performance method.

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        Non-refundable license fees that we receive under our license agreement with AbbVie are recognized as revenue when we have a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the receivable is reasonably assured and we have no future performance obligations under the license agreement.

        We will account for milestones related to research and development activities in accordance with FASB ASC Topic 605-28, "Milestone Method of Revenue Recognition". FASB ASC Topic 605-28 allows for the recognition of consideration which is contingent on the achievement of a substantive milestone, in its entirety, in the period the milestone is achieved. A milestone is considered to be substantive if all of the following criteria are met: the milestone is commensurate with either (1) the performance required to achieve the milestone or (2) the enhancement of the value of the delivered items resulting from the performance required to achieve the milestone, the milestone relates solely to past performance, and the milestone payment is reasonable relative to all of the deliverables and payment terms within the agreement.

        We have not entered into any collaboration agreements that are subject to FASB ASC Topic 808 "Collaborative Agreements".

        Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on our balance sheet. Amounts expected to be recognized as revenue in the next twelve months following the balance sheet date are classified as current liabilities.

        We reassess the period of performance over which we recognize deferred upfront license fees and make adjustments as appropriate in the period in which a change in the estimated period of performance is identified. In the event a licensee elects to discontinue development of a specific product candidate under a single target license, but retains its right to use our technology to develop an alternative product candidate to the same target or a target substitute, we would cease amortization of any remaining portion of the upfront fee until there is substantial pre-clinical activity on another product candidate and its remaining period of substantial involvement can be estimated. In the event that a single target license were to be terminated, we would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination or through the remaining substantial involvement in the wind down of the agreement.

Research and development costs and expenses

        In accordance with FASB ASC Topic 730-10-55, "Research and Development", expenditures for research and development, including upfront licensing fees and milestone payments associated with products that have not yet been approved by the FDA, are charged to research and development expense as incurred. Future contract milestone payments will be recognized as expense when achievement of the milestone is determined to be probable. When contracts for outside research products or testing require advance payment, they are recorded on the balance sheet as prepaid items and expensed when the service is provided or reaches a specific milestone outlined in the contract.

Unit-based compensation expense

        We recognize unit-based compensation expense in accordance with FASB ASC Topic 718, "Stock Compensation" (ASC 718), for all unit-based awards made to employees and board members based on estimated fair values. ASC 718 requires companies to measure the cost of employee services incurred in exchange for the award of equity instruments based on the estimated fair value of the unit-based award on the grant date. The expense is recognized over the requisite service period.

        All unit-based awards to non-employees are accounted for in accordance with FASB ASC Topic 505-50, "Equity Based Payments to Non-Employees," where the value of unit compensation is

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based on the measurement date, as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete.

        We use a Black-Scholes option-pricing model to value our unit options for each unit option award. Using this option-pricing model, the fair value of each employee and board member award is estimated on the grant date. The fair value is expensed on a straight-line basis over the vesting period, net of forfeitures. The unit option awards generally vest pro-rata annually. The expected volatility assumption is based on the volatility of the stock price of comparable public companies. As a privately held company with a limited operating history, we use comparable public companies to estimate our expected unit price volatility. We select companies from the biopharmaceutical industry with similar characteristics to ours including technology, enterprise value, risk profile and position within the industry, and with historical price information sufficient to meet the expected life of our unit-based awards. We intend to continue to consistently apply this process using comparable companies until a sufficient amount of historical information regarding the volatility of our own unit price becomes available. The expected life is determined using the "simplified method" permitted by Staff Accounting Bulletin Numbers 107 and 110 (the midpoint between the term of the agreement and the weighted average vesting term). The risk-free interest rate is based on the implied yield on a U.S. Treasury security at a constant maturity with a remaining term equal to the expected term of the option granted. The dividend yield is zero, as we have never declared a cash dividend. We issue unit-based awards to employees, board members and non-employees, generally in the form of options and restricted units at exercise prices not less than the fair value of our Class A membership units at the time of grant.

        A change in any of the terms or conditions of the awards is accounted for as a modification of the award. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified, measured based on the fair value of the awards and other pertinent factors at the modification date. For vested awards, we recognize incremental compensation cost in the period the modification occurs. For unvested awards, we recognize the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date over the remaining requisite service period. If the fair value of the modified award is lower than the fair value of the original award immediately before modification, the minimum compensation cost we recognize is the cost of the original award.

        Prior to this offering, we are a privately held company with no active public market for our Class A membership units. Therefore, our management has estimated the fair value of our Class A membership units at various dates considering our most recently available third-party valuations of Class A membership units and management's assessment of additional objective and highly subjective factors that it believed were relevant. After the Corporate Conversion is completed and once a public trading market for shares of our common stock has been established in connection with the closing of this offering, it will no longer be necessary for management to estimate the fair value of our equity in connection with our accounting for granted stock options. In the absence of a public trading market for shares of our common stock, we apply the fair value recognition provisions of FASB ASC Topic 718, "Compensation—Stock Compensation." ASC 718 requires all unit-based payments to employees and directors, including unit option grants and modifications to existing unit options, to be recognized in the statements of operations based on their fair values. We recognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services using the straight-line, single option method.

        As there has been no public market for our Class A membership units to date, the estimated fair value of our Class A membership units has been determined contemporaneously by our board of managers utilizing independent third-party valuations prepared in accordance with the guidance outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of

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Privately-Held Company Equity Securities Issued as Compensation, also known as the Practice Aid for financial reporting purposes. We performed contemporaneous valuations of our Class A membership units concurrently with the achievement of significant milestones or with major financing events as of October 31, 2013 ($11.25), May 31, 2014 ($7.00), October 31, 2014 ($6.00) and September 30, 2015 ($5.00). In conducting these valuation analyses, we considered all objective and subjective factors that we believed to be relevant for each valuation conducted, including:

    recent equity financings and the related valuations;

    industry information such as market size and growth;

    market capitalization of comparable companies and the estimated value of transactions such companies have engaged in; and

    macroeconomic conditions.

        No options were granted during the first three months of 2016. The assumptions relating to the valuation of our unit options granted for the years ended December 31, 2015 and 2014 are shown below.

Assumptions
  2015   2014

Weighted average fair value of grants

  $3.18   $4.33

Volatility

  77.23% - 93.85%   58.70% - 93.94%

Risk-free interest rate

  1.54% - 1.93%   1.73% - 1.81%

Expected life

  5.2 - 6.0 years   5.5 - 6.0 years

Expected dividend yield

  0%   0%

        The following table summarizes by grant date the number of units subject to options granted since January 1, 2014, the per share exercise price of the options, the fair value of common stock underlying the options on date of grant and the per unit estimated fair value of the options:

Grant Date
  Number of Units
Subject to
Options Granted
  Per Unit
Exercise Price
of Options
  Fair Value of
Class A Units
per Unit on
Date of
Option Grant
  Per Unit
Estimated
Fair Value
of Options
 

October 10, 2014

    484,000   $ 6.00 (1) $ 7.00   $ 3.88  

December 31, 2014

    1,045,000   $ 6.00   $ 6.00   $ 4.54  

January 5, 2015

    56,500   $ 6.00   $ 6.00   $ 4.46  

January 12, 2015

    1,250   $ 6.00   $ 6.00   $ 4.56  

August 1, 2015

    113,333   $ 6.00   $ 6.00   $ 4.32  

December 31, 2015

    5,000,000   $ 6.00 (2) $ 5.00   $ 3.05  

December 31, 2015

    2,335,500   $ 5.00 (3) $ 5.00   $ 3.37  

(1)
At the time of the option grants on October 10, 2014, management determined that the fair value of our Class A membership units of $7.00 per unit calculated in the valuation as of May 31, 2014 reasonably reflected the per unit fair value of Class A membership units as of the grant date. However, as described below, the exercise price of these grants was adjusted to $6.00 per unit.

(2)
In December 2014, the board of managers approved an option grant to the chief executive officer when the fair value of our Class A membership units was $6.00. The option grant was not issued until December 31, 2015, however, management determined that the exercise price should be the fair value of our Class A membership units when the grant was approved by the board of managers in December 2014 of $6.00 per unit.

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(3)
At the time of the option grants on December 31, 2015, management determined that the fair value of our Class A membership units of $5.00 per unit calculated in the valuation as of September 30, 2015 reasonably reflected the per unit fair value of Class A membership units as of the grant date.

        In January 2015, the compensation committee of our board of managers approved the amendment of all outstanding option awards under the 2011 Equity Incentive Plan that have an exercise price per unit above $6.00 to adjust the exercise price to $6.00 per unit, the estimated fair value of our Class A membership units as of October 31, 2014. The amended options have the same vesting schedule as the original award. The amendment to the option awards resulted in a modification charge of $1.1 million, of which $668,000 was expensed immediately during the first quarter of 2015 and the remaining amount is being recognized over the vesting periods of each award. These vesting periods range from one to two years.

        A total of 9,750, 9,750 and 8,500 units were granted under the LTIP at March 31, 2016, December 31, 2015 and December 31, 2014, respectively. The liability and associated compensation expense for this award will not be recognized until an IPO or change of control is consummated. No compensation expense has been recorded under the LTIP through March 31, 2016.

Intangible assets

        Intangible assets are stated at cost, less accumulated amortization. These assets are tested for impairment at least once annually, if determined to have an indefinite life, or whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable. If any of our intangible or long-lived assets are considered to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value. Applicable long-lived assets, including intangible assets with definitive lives, are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management's judgment.

Fair value

        We follow the provisions of FASB ASC Topic 820, "Fair Value Measurements and Disclosures" (ASC 820). This pronouncement defines fair value, establishes a framework for measuring fair value under GAAP and requires expanded disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and defines fair value as the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 utilizes a fair value hierarchy that prioritizes inputs to fair value measurement techniques into three broad levels. The following is a brief description of those three levels:

            Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

            Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

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            Level 3: Unobservable inputs that reflect the reporting entity's own assumptions.

        The fair value of cash, accounts receivable, accounts payable and other milestone payable approximate their carrying amounts due to their short-term nature.

JOBS Act

        As an "emerging growth company" (EGC), under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

        We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC, we intend to rely on certain of these exemptions, including without limitation (i) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB), regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; and (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

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Results of Operations

Three months ended March 31, 2016 and 2015

 
  Three months ended
March 31,
 
 
  2016   2015  
 
  (unaudited)
 
 
  (in thousands)
 

Revenues

             

Net sales

  $ 6,192   $ 6,470  

License and other revenue

    3,471     1,248  

Total revenue

    9,663     7,718  

Cost of sales

    1,085     959  

Write-down of inventory

    135     105  

Gross profit

    8,443     6,654  

Operating expenses:

             

Research and development

    7,955     6,872  

Selling, general and administrative

    24,486     22,164  

Gain on settlement of other milestone payable

    (3,875 )    

Total operating expenses

    28,566     29,036  

Loss from operations

    (20,123 )   (22,382 )

Other expense

    12,407     5,626  

Income tax expense

    315      

Net loss

  $ (32,845 ) $ (28,008 )

Revenues

        Total revenue increased by 25%, or approximately $1.9 million, to $9.7 million for the three months ended March 31, 2016 from $7.7 million for the three months ended March 31, 2015. The increase was mostly attributable to the $2.0 million milestone payment earned pursuant to a license agreement entered into with Jinghua Pharmaceutical Group Co., Ltd. to develop products using human monoclonal antibodies. We recognized previously deferred revenue from our license and collaboration agreements amounting to $1.1 million for each of the three months ended March 31, 2016 and 2015, and service revenue from our affiliate MeiraGTx Limited (MeiraGTx) of $0.3 million for the three months ended March 31, 2016, while no such service revenue was recognized in the three months ended March 31, 2015.

        Sales from our ribavirin portfolio have significantly declined, from $63.5 million for the year ended December 31, 2014 to $29.3 million for the year ended December 31, 2015, as the treatment landscape for chronic HCV infection has rapidly evolved, with multiple ribavirin-free treatment regimens, including novel direct-acting antivirals, having entered the market and becoming the new standard of care. As a result, we expect sales of our ribavirin portfolio of products to significantly decline in 2016 and to contribute insignificantly to revenue in 2017 and beyond. Sales from our ribavirin portfolio of products are not adequate to fund our operations. As a result, we will need additional capital to fund our operations, which may be raised through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances, and licensing arrangements.

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Cost of sales

        Cost of sales was $1.1 million and $1.0 million for the three months ended March 31, 2016 and 2015, respectively, which relates primarily to sales of our ribavirin portfolio of products.

Write-down of inventory

        We recognized $0.1 million of inventory write-downs during each of the three months ended March 31, 2016 and 2015 of our Ribasphere inventory based on our expectation that such inventory will not be sold prior to reaching its product expiration date.

Research and development expenses

        Research and development expenses increased by 16%, or approximately $1.1 million, to $8.0 million for the three months ended March 31, 2016 from $6.9 million for the three months ended March 31, 2015, primarily related to the advancement of our clinical product candidates.

Selling, general and administrative expenses

        Selling, general and administrative expenses increased by 10%, or approximately $2.3 million, to $24.5 million for the three months ended March 31, 2016 from $22.2 million for the three months ended March 31, 2015. The increase was primarily related to higher employee-related expense of $2.1 million related to severance agreements and unit-based compensation and an increase of $2.3 million in advisory and consulting fees resulting from an advisory agreement entered into in April 2015, both of which were non-cash. The increase was partially offset by lower amortization expense related to our Ribasphere intangible asset of $1.8 million.

Gain on settlement of other milestone payable

        Gain on settlement of other milestone payable consists of a gain of $3.9 million resulting from the mutual termination agreement entered into with Valeant.

Other expense

        Other expense consisted primarily of interest expense and other costs related to our debt of $7.9 million and $6.7 million for the three months ended March 31, 2016 and 2015, respectively. The following table provides components of other expense:

 
  March 31,  
 
  2016   2015  
 
  (unaudited)
 
 
  (in thousands)
 

Interest expense

  $ 941   $ 3,832  

Interest paid-in-kind

    5,572     1,622  

Amortization of deferred financing costs and debt discount

    1,396     1,236  

Other expense (income)

    4,498     (1,064 )

Other expense

  $ 12,407   $ 5,626  

        Other expense consisted primarily of a loss on equity method investment of $4.7 million, partially offset by a change in the fair value of financial instruments of $0.2 million for three months ended March 31, 2016. Other income consisted primarily of a change in the fair value of financial instruments of $0.8 million and a $0.3 million foreign exchange gain for three months ended March 31, 2015.

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Years ended December 31, 2015 and 2014

 
  Year ended
December 31,
 
 
  2015   2014  
 
  (in thousands)
 

Revenues

             

Net sales

  $ 29,299   $ 63,530  

License and other revenue

    6,420     31,488  

Total revenue

    35,719     95,018  

Cost of sales

    3,731     6,123  

Write-down of inventory

    2,274     4,916  

Gross profit

    29,714     83,979  

Operating expenses:

             

Research and development

    29,685     29,101  

Selling, general and administrative

    108,613     93,167  

Impairment loss on intangible asset

    31,269      

Total operating expenses

    169,567     122,268  

Loss from operations

    (139,853 )   (38,289 )

Other expense

    7,232     26,096  

Income tax benefit

    (3 )   (29 )

Net loss

  $ (147,082 ) $ (64,356 )

Revenues

        Total revenue decreased by 62%, or approximately $59.3 million, to $35.7 million for the year ended December 31, 2015 from $95.0 million for the year ended December 31, 2014. The decrease was mostly attributable to the 2014 launches of novel direct-acting antivirals by other pharmaceutical companies. As a result of these launches, we expect sales of our ribavirin portfolio of products to continue to decrease.

        We recognized milestone revenue from our license agreement with AbbVie amounting to $27.0 million for the year ended December 31, 2014, while no such milestone revenue was recognized in 2015. We also recognized previously deferred revenue from our license and collaboration agreements amounting to $5.4 million and $4.4 million for the years ended December 31, 2015 and 2014, respectively, and service revenue of $1.0 million for the year ended December 31, 2015, while no such service revenue was recognized in 2014.

Cost of sales

        Cost of sales decreased by 39%, or approximately $2.4 million, to $3.7 million for the year ended December 31, 2015 from $6.1 million for the year ended December 31, 2014. The decrease was a direct result of lower sales of our ribavirin portfolio of products.

Write-down of inventory

        We recognized $2.3 million and $4.9 million of inventory write-downs during the years ended December 31, 2015 and 2014, respectively, of our Ribasphere inventory based on our expectation that such inventory will not be sold prior to reaching its product expiration date.

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Research and development expenses

        Research and development expenses increased by 2%, or approximately $0.6 million, to $29.7 million for the year ended December 31, 2015 from $29.1 million for the year ended December 31, 2014, primarily related to the advancement of our clinical product candidates.

Selling, general and administrative expenses

        Selling, general and administrative expenses increased by 17%, or approximately $15.4 million, to $108.6 million for the year ended December 31, 2015 from $93.2 million for the year ended December 31, 2014. The increase was primarily related to higher amortization expense related to our Ribasphere intangible asset of $5.6 million, additional rent expense of $1.0 million and an increase of $24.4 million in advisory and consulting fees and legal settlements, $24.0 million of which were non-cash. The increase was partially offset by lower employee costs of $6.6 million as a result of headcount reductions, lower royalty and other sales related expenses of $3.8 million in connection with revenue declines and lower travel, entertainment and other general and administrative expenses of $2.3 million in connection with cost-savings initiatives.

Impairment loss on intangible asset

        In September 2015, we reviewed the estimated useful life of the Ribasphere product rights and determined that the actual life of the Ribasphere product rights intangible asset was shorter than the estimated useful life used for amortization purposes in our financial statements due to hepatitis C market conditions. As a result, effective September 30, 2015, we changed the estimate of the useful life of our Ribasphere product rights intangible asset to 1.25 years to better reflect the estimated period during which the asset will generate cash flows. We also determined that the estimated fair value of the Ribasphere product rights was impaired and recorded an impairment loss of $31.3 million in September 2015.

Other expense

        Other expense consisted primarily of interest expense and other costs related to our debt of $27.2 million and $28.9 million for the years ended December 31, 2015 and 2014, respectively. The following table provides components of other expense:

 
  December 31,  
 
  2015   2014  
 
  (in thousands)
 

Interest expense

  $ 7,817   $ 12,204  

Interest paid-in-kind

    11,434     13,374  

Write-off of deferred financing costs and debt discount

    2,752      

Amortization of deferred financing costs and debt discount

    5,157     3,333  

Other income

    (19,928 )   (2,815 )

Other expense

  $ 7,232   $ 26,096  

        Other income for the year ended December 31, 2015 consisted primarily of a $24.0 million gain recognized upon the deconsolidation of MeiraGTx and a change in the fair value of financial instruments of $1.5 million, partially offset by a loss on equity method investment of $2.8 million and a $2.9 million loss on extinguishment of debt related to the repayment of existing debt with the proceeds of the secured term loan in the amount of $35.0 million entered into in August 2015 ("2015 Credit Agreement"). Other income for the year ended December 31, 2014 consisted primarily of a change in the fair value of financial instruments of $5.0 million and a gain on settlement of obligations of $2.3 million, partially offset by a $4.6 million loss on extinguishment of debt.

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Liquidity and Capital Resources

Overview

        Since inception, we have incurred operating losses and anticipate that we will continue to incur operating losses for the next several years. We expect that our research and development and selling, general and administrative expenses will continue to increase as we develop our product candidates. As a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. As of March 31, 2016, we had $8.6 million in cash and cash equivalents and $2.1 million in restricted cash pursuant to our lease for our headquarters. In June 2016, we raised an additional $5.5 million in gross proceeds, with no transaction costs, through the issuance of 478,266 Class E redeemable convertible units. To date, we have financed our operations through borrowings under credit facilities and private placements of equity and convertible debt securities, as well as revenue generated from the sale of our commercial products.

        The report of our independent registered public accounting firm on our financial statements for the years ended December 31, 2015 and 2014 appearing at the end of this prospectus contains an explanatory paragraph stating that our recurring losses from operations, deficiencies in working capital and members' capital raise substantial doubt about our ability to continue as a going concern. See "Risk Factors—Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern."

Sources of Liquidity

        Since our inception through March 31, 2016, we have raised net proceeds from the issuance of Class A membership units of approximately $272.9 million and proceeds from the issuance of Class E redeemable convertible units of $49.7 million. In June 2016, we raised an additional $5.5 million in gross proceeds, with no transaction costs, through the issuance of 478,266 Class E redeemable convertible units.

        As of March 31, 2016, we had $35.0 million outstanding under the 2015 Credit Agreement, $74.4 million outstanding under the Senior Convertible Term Loan and $123.1 million of Second-Lien Convert. Lenders in the Senior Convertible Term Loan may elect to convert any portion of principal in increments of $1.0 million to Class A membership units at any time at a conversion price of $12.00 per Class A membership unit (without giving effect to the reverse split of our membership units to take place as part of our Corporate Conversion immediately prior to the completion of this offering), subject to adjustment at the time of an initial public offering. In the event of any qualified underwritten public offering of common equity shares, the conversion price of the Senior Convertible Term Loan will be adjusted to the lesser of $12.00 (without giving effect to the reverse split of our membership units to take place as part of our Corporate Conversion immediately prior to the completion of this offering) or 84.75% of the per share offering price. Pursuant to an amendment and restatement of the terms of our Second-Lien Convert dated as of June 8, 2016, concurrently with the closing of this offering 100% of the outstanding balance under our outstanding Second-Lien Convert, which includes the amount of the Second-Lien Convert held by the GoldenTree 2015 Convert Lenders, will be mandatorily converted into shares of our common stock at a conversion price equal to 80% of the initial public offering price per share in this offering. See "Summary—Retirement of Indebtedness Through Issuance of Convertible Preferred Stock and Common Stock."

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        The following table sets forth the primary sources and uses of cash and cash equivalents for each period set forth below:

 
  Three months ended
March 31,
  Year ended
December 31,
 
 
  2016   2015   2015   2014  
 
  (unaudited)
   
   
 
 
  (in thousands)
 

Net cash provided by (used in):

                         

Operating activities

  $ (12,568 ) $ (12,109 ) $ (61,422 ) $ (8,493 )

Investing activities

    (366 )   (37 )   (161 )   (2,062 )

Financing activities

    37     (2,452 )   62,090     (1,241 )

Net (decrease) increase in cash and cash equivalents

  $ (12,897 ) $ (14,598 ) $ 507   $ (11,796 )

Operating activities

        The net cash used in operating activities was $12.6 million for the three months ended March 31, 2016, and consisted primarily of a net loss of $32.8 million adjusted for non-cash items, including the amortization of intangible assets of $5.6 million, depreciation and amortization of fixed assets of $0.6 million, amortization of deferred financing costs and debt discount of $1.4 million, fair value of units issued to third parties to settle obligations of $2.3 million, gain on settlement of other milestone payable of $3.9 million, paid-in-kind interest expense of $5.6 million, loss on equity method investment of $4.7 million and unit-based compensation expense of $3.0 million, as well as, a net increase in operating assets and liabilities of $1.2 million. The significant items in the change in operating assets and liabilities include an increase of $6.7 million in accounts payable, accrued expenses, other liabilities and deferred rent primarily resulting from delaying payment of outstanding payables to our vendors to preserve liquidity and a $0.5 million decrease in inventory related to lower sales of our ribavirin portfolio of products, partially offset by an increase in accounts receivable of $2.6 million due to timing of collections from our customers and a decrease in deferred revenue of $1.1 million related to the recognition of the $44.0 million upfront payment from the license agreement with AbbVie. The net loss, adjusted for non-cash items, was primarily driven by selling, general and administrative expenses of $24.5 million, research and development expense related to the advancement of our clinical product candidates of $8.0 million and interest paid on our debt of $0.9 million partially offset by the net sales (less cost of sales) of our ribavirin portfolio of products of $5.1 million and milestone revenue from our license agreement with Jinghua Pharmaceutical Group Co., Ltd amounting to $2.0 million.

        The net cash used in operating activities was $12.1 million for the three months ended March 31, 2015, and consisted primarily of a net loss of $28.0 million adjusted for non-cash items, including the amortization of intangible assets of $7.4 million, depreciation of $0.6 million, amortization of deferred financing costs and debt discount of $1.2 million, paid-in-kind interest expense of $1.6 million and unit-based compensation expense of $2.3 million, as well as, a net increase in operating assets and liabilities of $2.6 million. The significant items in the change in operating assets and liabilities include an increase of $9.9 million in accounts payable, accrued expenses, other liabilities and deferred rent primarily resulting from escrowed subscription agreements for our affiliate MeiraGTx totaling $6.6 million and a $0.5 million decrease in inventory related to lower sales of our ribavirin portfolio of products, partially offset by an increase in restricted cash of $6.6 million related to escrowed subscription agreements for our affiliate MeiraGTx, an increase in accounts receivable of $0.3 million due to due to timing of collections from our customers and a decrease in deferred revenue of $1.2 million related to the recognition of the $44.0 million upfront payment from the license agreement with AbbVie. The net loss, adjusted for non-cash items, was primarily driven by selling, general and administrative expenses of $22.2 million and research and development expense related to the

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advancement of our clinical product candidates of $6.9 million, partially offset by the net sales (less cost of sales) of our ribavirin portfolio of products of $5.5 million.

        The net cash used in operating activities was $61.4 million for the year ended December 31, 2015, and consisted primarily of a net loss of $147.1 million adjusted for non-cash items, including the amortization and impairment loss of intangible assets of $58.7 million, depreciation of $2.3 million, amortization of deferred financing costs and debt discount of $5.2 million, gain on deconsolidation of subsidiary of $24.0 million, fair value of units issued to third parties to settle obligations of $13.6 million, accrued legal settlement of $10.4 million, a loss on extinguishment of debt of $2.9 million, paid-in-kind interest expense of $11.4 million and unit-based compensation expense of $10.3 million, as well as a net decrease in operating assets and liabilities of $11.0 million. The significant items in the change in operating assets and liabilities include a decrease in deferred revenue of $4.4 million related to the recognition of the $44.0 million upfront payment from the license agreement with AbbVie, a decrease in deferred revenue of $5.9 million related to the portion of the prepaid royalty from AbbVie that we expect to refund, a decrease of $1.4 million in accounts payable, accrued expenses, other liabilities and deferred rent primarily resulting from settlement of outstanding payables to our vendors and an increase in accounts receivable of $1.3 million due to timing of collections from our customers, partially offset by a $1.9 million decrease in inventory related to lower sales of our ribavirin portfolio of products. The net loss, adjusted for non-cash items, was primarily driven by selling, general and administrative expenses of $42.2 million, research and development expense related to the advancement of our clinical product candidates of $29.7 million and interest paid on our debt of $8.0 million partially offset by the net sales (less cost of sales) of our ribavirin portfolio of products of $25.6 million.

        The net cash used in operating activities was $8.5 million for the year ended December 31, 2014, and consisted primarily of a net loss of $64.4 million adjusted for non-cash items, including the amortization of intangible assets of $21.8 million, depreciation of $2.6 million, amortization of deferred financing costs and debt discount of $3.3 million, a loss on extinguishment of debt of $4.6 million, paid-in-kind interest expense of $13.4 million and unit-based compensation expense of $7.6 million, as well as a net increase in operating assets and liabilities of $3.5 million. The significant items in the change in operating assets and liabilities include an increase in deferred revenue of $6.0 million related to prepaid royalties received from AbbVie, an increase in restricted cash of $7.5 million related to our license agreement with AbbVie and a decrease in accounts receivable of $5.8 million due to successful collections from our customers, partially offset by a decrease in deferred revenue of $4.4 million related to the recognition of the $44.0 million upfront payment from the license agreement with AbbVie, a decrease of $13.0 million in accounts payable, accrued expenses, other liabilities and deferred rent primarily resulting from settlement of outstanding payables to our vendors. The net loss, adjusted for non-cash items, was primarily driven by selling, general and administrative expenses of $54.8 million, research and development expense related to the advancement of our clinical product candidates of $29.1 million and interest paid on our debt of $11.5 million partially offset by the net sales (less cost of sales) of our ribavirin portfolio of products of $57.4 million and milestone revenue from our license agreement with AbbVie amounting to $27.0 million.

Investing activities

        Net cash used in investing activities was $0.4 million consisting of costs related to leasehold improvements at our clinical office in Cambridge, MA for the three months ended March 31, 2016. Net cash used in investing activities was $37,000 for the three months ended March 31, 2015 consisting of costs related to the purchase of property and equipment, primarily related to in-house software purchased to support our internal clinical data management group.

        Net cash used in investing activities was $0.2 million and $2.1 million for the years ended December 31, 2015 and 2014, respectively, consisting of costs related to the purchase of property and

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equipment, primarily related to in-house software purchased to support our internal clinical data management group.

Financing activities

        Net cash provided by financing activities for the three months ended March 31, 2016 was $37,000, consisting of net proceeds from the exercise of stock options.

        Net cash used in financing activities for the three months ended March 31, 2015 was $2.5 million, consisting of the repayment of senior secured term debt of $3.0 million, partially offset by net proceeds from the issuance of Class E redeemable convertible units of $0.5 million.

        Net cash provided by financing activities for the year ended December 31, 2015 was $62.1 million, consisting of net proceeds from the 2015 Credit Agreement of $35.0 million, net proceeds from the Second-Lien Convert of $112.5 million, net proceeds from the issuance of Class A membership units of $15.0 million and net proceeds from the issuance of Class E redeemable convertible units of $10.8 million, partially offset by the repayment of senior secured term debt of $107.2 million and financing costs of $4.1 million.

        Net cash used in financing activities for the year ended December 31, 2014 was $1.2 million, consisting of the repayment of senior secured term debt of $43.6 million, partially offset by net proceeds from the issuance of Class E redeemable convertible units of $38.8 million and net proceeds from related party loans of $3.5 million.

Future Funding Requirements

        We expect our expenses to increase compared to prior periods in connection with our ongoing activities, particularly as we continue research and development, continue and initiate clinical trials and seek regulatory approvals for our product candidates. In anticipation of regulatory approval for any of our product candidates, we expect to incur significant pre-commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

        The expected use of our cash and cash equivalents, including the net proceeds from this offering, represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of, and results from, clinical trials, the potential need to conduct additional clinical trials to obtain approval of our product candidates for all intended indications, as well as any additional collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of our existing cash and cash equivalents and the net proceeds from this offering.

        Based on our planned use of the net proceeds from this offering and our existing cash and cash equivalents, we estimate that such funds will be sufficient to enable us to complete our planned Phase 2 clinical studies for KD025, advance our planned clinical studies for tesevatinib and KD034 and advance certain of our other pipeline product candidates and fund our operating expenses and capital expenditure requirements for the next 16 months.

Financing Arrangements

August 2015 Secured Term Debt

        In August 2015, we entered into the 2015 Credit Agreement in the amount of $35.0 million with two lenders. The borrowings were partially used to repay our previous senior secured non-convertible

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term loan and to provide additional working capital in support of our growth. The interest rate on the loan is LIBOR plus 9.375% with a 1% floor. If this offering has not been completed before June 30, 2016, the interest rate on the loan will increase 1.50% per annum. We incurred a $0.8 million commitment fee in connection with the loan that will be amortized to interest expense over the term of the agreement. Beginning in August 2016, we will be required to make monthly principal payments in the amount of $0.4 million. Any outstanding balance of the loan and accrued interest is to be repaid on June 17, 2018.

        The 2015 Credit Agreement is unconditionally guaranteed by all of our existing and future domestic subsidiaries, subject to certain exceptions, and is secured, subject to permitted liens and other exceptions, by a first-priority lien on substantially all of our present and future assets and those of our subsidiaries. The 2015 Credit Agreement requires us to satisfy certain developmental milestones, such as (a) not later than September 30, 2016, at least one patient shall have enrolled in a Phase 3 clinical trial for tesevatinib for the treatment of ADPKD, (b) not later than December 31, 2016, at least one patient shall have enrolled in a Phase 2b clinical trial for KD025 for the treatment of psoriasis and (c) not later than December 31, 2016, the FDA shall have accepted an NDA for trientine hydrochloride for the treatment of Wilson's disease. In addition, the 2015 Credit Agreement requires us to satisfy certain financial covenants, including maintaining in excess of $5.0 million in liquidity at all times and, as of the last day of each calendar month occurring between and including June 30, 2016 and the first date on which a Qualified IPO (defined as a public offering resulting in gross cash proceeds of at least $50.0 million) has occurred, revenue equal to or in excess of $20.0 million annually. The 2015 Credit Agreement also contains events of default that are usual and customary for comparable facilities, including a change of control. In addition, it will be considered an event of default if Dr. Harlan W. Waksal ceases to devote substantially all of his time to our business and operations, whether due to death, disability, incapacity or otherwise.

        In conjunction with 2015 Credit Agreement, warrants with an aggregate purchase price of $6.3 million to acquire Class A membership units were issued to two lenders, of which $5.4 million was recorded as a debt discount and $0.9 million was recorded as loss on extinguishment of debt in our consolidated financial statements.

        Deferred financing costs of $1.3 million were recognized in recording the 2015 Credit Agreement and will be amortized to interest expense over the three year term of the agreement. Additionally, fees paid to one existing lender, inclusive of financial instruments issued of $0.1 million, were charged to loss on extinguishment of debt. There was also $1.5 million of debt discount and $0.4 million of deferred financing cost write-offs charged to loss on extinguishment of debt in connection with this transaction.

        At March 31, 2016, the outstanding balance of the 2015 Credit Agreement was $35.0 million and the interest rate was LIBOR plus 9.375% with a 1% floor. We were in compliance with all covenants under the 2015 Credit Agreement as of March 31, 2016 and December 31, 2015.

August 2015 Third Amended Convertible Debt

        In June 2013, we entered into the Senior Convertible Term Loan. The Senior Convertible Term Loan has a five year term under which the total borrowings were $35.0 million. Interest is calculated at a rate of 10% and payable-in-kind quarterly as an increase of principal. The Senior Convertible Term Loan is unconditionally guaranteed by all of our existing and future domestic subsidiaries, subject to certain exceptions, and is secured, subject to permitted liens and other exceptions, by a first-priority lien on substantially all of our present and future assets and those of our subsidiaries.

        Lenders in the Senior Convertible Term Loan may elect to convert any portion of principal in increments of $1.0 million to Class A membership units at any time. The initial conversion price was $18.00 per Class A membership unit (without giving effect to the reverse split of our membership units

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to take place as part of our Corporate Conversion immediately prior to the completion of this offering). The lenders may additionally receive a premium on their conversion option should certain events involving our capital structure occur.

        Deferred financing costs of $1.6 million were recognized in recording the Senior Convertible Term Loan and will be amortized to interest expense over the five year term of the agreement. In connection with this transaction, fees paid to existing creditors of $1.7 million were charged to loss on extinguishment of debt. We incurred $0.2 million in debt issuance costs to new creditors, which were recorded as a debt discount being amortized to interest expense over the five year term.

        In December 2013, we amended and restated the Senior Convertible Term Loan. The balance related to the Senior Convertible Term Loan was increased by $13.5 million with identical interest and conversion provisions as the Senior Convertible Term Loan. The amendment adjusted certain required covenant levels to allow for the additional debt.

        In November 2014, we further amended the Senior Convertible Term Loan and we incurred a $10.0 million fee payable to the lenders through an increase to the principal balance by the same amount. No changes were made to the interest rate or term of the loan. The conversion price of this loan was amended to be the lesser of $12.00 per unit (without giving effect to the reverse split of our membership units to take place as part of our Corporate Conversion immediately prior to the completion of this offering) or discounted at 84.75% of the Class A membership unit price (converted into common stock) at the time of an initial public offering (IPO).

        As a result of this amendment, $3.5 million was recorded as a debt discount and is being amortized to interest expense over the remaining term of the agreement as the amendment was deemed a modification for two creditors. Additionally, fees paid to one other creditor, inclusive of financial instruments issued of $0.2 million, were charged to loss on extinguishment of debt.

        In November 2014, we further amended the Senior Convertible Term Loan permitting us to enter into the 2015 Credit Agreement and Second-Lien Convert.

        The Senior Convertible Term Loan requires us to satisfy certain developmental milestones, such as (a) not later than September 30, 2016, at least one patient shall have enrolled in a Phase 3 clinical trial for tesevatinib for the treatment of ADPKD, (b) not later than December 31, 2016, at least one patient shall have enrolled in a Phase 2b clinical trial for KD025 for the treatment of psoriasis and (c) not later than December 31, 2016, the FDA shall have accepted an NDA for trientine hydrochloride for the treatment of Wilson's disease. In addition, the Senior Convertible Term Loan requires us to satisfy certain financial covenants, including maintaining in excess of $5.0 million in liquidity at all times and, as of the last day of each calendar month occurring between and including June 30, 2016 and the first date on which a Qualified IPO (defined as a public offering at an implied aggregate equity valuation of at least $1.0 billion) has occurred, revenue equal to or in excess of $20.0 million annually. The Senior Convertible Term Loan also contains events of default that are usual and customary for comparable facilities, including a change of control. In addition, it will be considered an event of default if Dr. Harlan W. Waksal ceases to devote substantially all of his time to our business and operations, whether due to death, disability, incapacity or otherwise.

        On August 28, 2015, we further amended the terms of the Senior Convertible Term Loan to provide for, among other things, the 2015 Credit Agreement. As consideration for the amendment, if a qualified IPO has not been completed on or prior to March 31, 2016, we agreed to pay an amendment fee equal to $1.3 million to be allocated among the lenders. This fee was paid in April 2016, as we did not complete a qualified IPO by this date.

        The Senior Convertible Term Loan provides that if the proceeds from an initial public offering equal or exceed $75 million in the aggregate and shares of our common stock are listed on the NYSE, we shall take all steps necessary to approve for listing all of the Class A membership units issuable

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under the Senior Convertible Term Loan and grant customary piggyback registration rights to the lenders on substantially the same terms as those granted to our members under our Second Amended and Restated Limited Liability Company Agreement. See "Shares Eligible for Future Sale—Registration Rights Agreements" for additional information.

        At March 31, 2016, the outstanding balance of the Senior Convertible Term Loan was $74.4 million, which included all accrued interest. We were in compliance with all covenants under the Senior Convertible Term Loan as of March 31, 2016 and December 31, 2015.

        Pursuant to an exchange agreement entered into on June 8, 2016 with the holders of our Senior Convertible Term Loan, in consideration of the payment of a make-whole fee, (i) $30.0 million in aggregate principal amount of the Senior Convertible Term Loan will be exchanged for 30,000 shares of a newly created class of capital stock to be designated as 5% Convertible Preferred Stock, which we refer to as the convertible preferred stock; (ii) as to $25.0 million in aggregate principal amount of our Senior Convertible Term Loan, we will convert 100% of that principal amount into shares of our common stock at a conversion price equal to 80% of the initial public offering price per share in this offering; and (iii) as to $20.0 million in aggregate principal amount of the Senior Convertible Term Loan, we will convert 125% of that principal amount into shares of our common stock at a conversion price equal to the initial public offering price per share in this offering, which shares will be eligible for resale by their holders pursuant to the Selling Stockholder Resale Prospectus. The amount of the make-whole fee will be $7,967,614 plus $11,212 for each day after July 31, 2016 through and including the closing of the exchange agreement (assuming a closing on or before August 31, 2016). The make-whole fee will be paid through the issuance of shares of our common stock at an issue price equal to 80% of the initial public offering price per share in this offering. We expect to incur a substantial charge as a result of consummating the above transactions since the conversion price is equal to a discount to the initial public offering price per share in this offering.

August 2015 Second-Lien Convertible Debt

        In August 2015, we incurred indebtedness in the aggregate principal amount of $92.0 million pursuant to our offering of Second-Lien Convert. We issued $1.6 million and $0.6 million in aggregate principal amount of Second-Lien Convert related to the third party fees in September 2015 and November 2015, respectively.

        In October 2015 and November 2015, we borrowed an additional $5.5 million and $15.0 million, respectively, and incurred $0.4 million in transaction costs under the Second-Lien Convert with three additional lenders bringing the total borrowings under the Second-Lien Convert to $114.8 million, including $2.3 million in third-party fees.

        Interest on the Second-Lien Convert initially was calculated at a rate of 13.0% and payable semi-annually on October 1 and April 1 of each year. We may, at our option, elect to pay interest due on the Second-Lien Convert: (i) entirely in cash; (ii) entirely as compounded interest, added to the aggregate principal amount of the Second-Lien Convert; or (iii) partially in cash and partially as compounded interest, added to the aggregate principal amount of the Second-Lien Convert. Since we have not consummated an initial public offering of not less than $50.0 million and listed on a national stock exchange (Qualified IPO) on or before March 31, 2016, the interest rate automatically increased on April 1, 2016 by an additional 3.0% and the interest rate will subsequently increase by an additional 3.0% on each October 1 and April 1 until the interest rate equals 21.0% per annum, which will remain the applicable interest rate so long as the Second-Lien Convert remains outstanding. The Second-Lien Convert requires us to satisfy certain developmental milestones and to maintain at all times liquidity in excess of $3.0 million. The Second-Lien Convert also contains customary events of default.

        The Second-Lien Convert is unconditionally guaranteed by all of our existing and future domestic subsidiaries, subject to certain exceptions and secured by a second-lien security interest in the assets

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securing the 2015 Credit Agreement and the Senior Convertible Term Loan. We and certain of our subsidiaries entered into an Intercreditor Agreement, dated as of August 28, 2015, which sets forth the priorities of the security interest in the collateral securing the 2015 Credit Agreement, the Senior Convertible Term Loan and the Second-Lien Convert, the priorities of payment with respect to such obligations and certain other matters.

        In connection with the issuance of the Second-Lien Convert, we entered into registration rights agreements with the investors thereunder granting them customary piggyback registration rights subject to the terms and conditions set forth therein. See "Shares Eligible for Future Sale—Registration Rights Agreements" for additional information.

        We incurred $2.3 million in third-party fees that were settled through the issuance of additional Second-Lien Convert. Deferred financing costs of $4.2 million were recognized in recording the Second-Lien Convert and will be amortized to interest expense over the four-year term of the agreement. We incurred $0.1 million in debt issuance costs to new creditors, which were recorded as a debt discount and is being amortized to interest expense over the four-year term.

        On October 27, 2015, we entered into amendments to the 2015 Credit Agreement, the Senior Convertible Term Loan and the Second-Lien Convert permitting us to issue additional Second-Lien Convert until December 26, 2015.

        As of March 31, 2016, the $123.1 million balance under the Second-Lien Convert includes principal and all accrued interest through that date. We were in compliance with all covenants of the Second-Lien Convert as of March 31, 2016 and December 31, 2015.

        Pursuant to an amendment and restatement of the terms of our Second-Lien Convert dated as of June 8, 2016, concurrently with the closing of this offering 100% of the outstanding balance under our outstanding Second-Lien Convert will be mandatorily converted into shares of our common stock at a conversion price equal to 80% of the initial public offering price per share in this offering. We expect to incur a substantial charge as a result of this mandatory conversion since the conversion price is equal to a discount to the initial public offering price per share in this offering.

Contractual Obligations and Commitments

        The following table summarizes our contractual obligations as of March 31, 2016:

 
  Payments due by period (in thousands)  
 
  Total   Less than
1 year
  1 - 3 years   3 - 5 years   More than
5 years
 

Secured term debt

  $ 35,047   $ 3,040   $ 32,007   $   $  

Interest expense(1)

  $ 7,391   $ 3,634   $ 3,757   $   $  

Convertible debt(2)

  $ 300,872   $   $ 92,627   $ 208,245   $  

Operating leases(3)

  $ 49,105   $ 5,708   $ 11,688   $ 11,140   $ 20,569  

License agreements(4)

  $ 910   $ 110   $ 320   $ 320   $ 160  

Total(5)

  $ 393,325   $ 12,492   $ 140,399   $ 219,705   $ 20,729  

(1)
Interest expense reflects our obligation to make cash interest payments in connection with our 2015 Credit Agreement at a rate of 10.375% through maturity. Assuming an initial public offering at August 1, 2016, we will incur PIK interest from July 1, 2016 to August 1, 2016 of 1.5%.

(2)
Convertible debt includes principal and PIK interest through maturity assuming an initial public offering prior to August 1, 2016.

(3)
Operating lease obligations primarily reflect our obligation to make payments in connection with leases for our corporate headquarters and commercial headquarters distribution center.

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(4)
We also had commitments totaling $2.0 million annually until the date of the first sale of the drug PH906, licensed from Yale University, which is not included in the table above. This agreement was terminated in April 2016.

(5)
This table does not include: (a) milestone payments totaling $1.1 billion which may become payable to third parties under license agreements as the timing and likelihood of such payments are not known with certainty; (b) any royalty payments to third parties as the amounts, timing and likelihood of such payments are not known with certainty; (c) contracts that are entered into in the ordinary course of business which are not material in the aggregate in any period presented above, (d) payments totaling $2.5 million due upon consummation of this offering under settlement agreements, and (e) potential penalties in connection with the timing of our consummation of a qualified IPO.

Off-balance Sheet Arrangements

        During the periods presented we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under the SEC rules.

Quantitative and Qualitative Disclosures about Market Risk

        We are exposed to market risk and changes in interest rates. As of March 31, 2016, we had cash and cash equivalents of $8.6 million, consisting of cash and money market accounts. Due to the short-term duration of our investment portfolio, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.

        Based on our variable-rate debt outstanding as of March 31, 2016, a 100 basis point change versus the market interest rates available on March 31, 2016 would result in an additional $0.4 million of interest expense annually.

Concentrations

Major Customers

        Sales to AbbVie accounted for approximately 35% and 19% of our aggregate net sales for the three months ended March 31, 2016 and 2015, respectively. Sales to Richmond Pharmaceuticals, Inc. accounted for approximately 12% and 19% of our aggregate net sales for the three months ended March 31, 2016 and 2015, respectively. Net accounts receivable from these customers totaled $1.9 million and $0.6 million at March 31, 2016 and December 31, 2015, respectively.

        Sales to AbbVie and Richmond Pharmaceuticals, Inc., accounted for approximately 11% and 20%, respectively, of our aggregate net sales for the year ended December 31, 2015. Net accounts receivable from AbbVie and Richmond Pharmaceuticals, Inc. totaled $0.5 million and $42,000, respectively, at December 31, 2015. Sales to AbbVie accounted for approximately 20% of our aggregate net sales for the year ended December 31, 2014. Net accounts receivable from AbbVie totaled $0.4 million at December 31, 2014.

Major Suppliers

        Due to requirements of the U.S. Food and Drug Administration and other factors, we are generally unable to make immediate changes to our supplier arrangements. Manufacturing services related to each of our pharmaceutical products are primarily provided by a single source. Our raw materials are also provided by a single source for each product. Management attempts to mitigate this risk through long-term contracts and inventory safety stock.

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BUSINESS

Overview

        We are a fully integrated biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address disease areas of significant unmet medical need. We are developing product candidates within autoimmune and fibrotic diseases, oncology and genetic diseases. We leverage our multi-disciplinary research and clinical development team members, who prior to joining Kadmon had brought more than 15 drugs to market, to identify and pursue a diverse portfolio of novel product candidates, through in-licensing products and employing our small molecule and biologics platforms. By retaining global commercial rights to our lead product candidates, we believe that we have the ability to progress these candidates ourselves while maintaining flexibility for commercial and licensing arrangements. We expect to continue to progress our clinical candidates and have further clinical trial events to report throughout 2016.

        We utilize our advanced understanding of the molecular mechanisms of disease to establish development paths for disease areas where significant unmet medical needs exist. Below is a brief description of our most clinically advanced product candidates:

    KD025, the most advanced candidate in our rho-associated coiled-coil kinase 2 (ROCK2) platform, is a potential first-in-class, oral, selective ROCK2 inhibitor. ROCK2 is a molecular target in autoimmune, fibrotic and neurodegenerative diseases. We established proof of concept for KD025 in autoimmune disease in a recently completed, open-label, dose-finding Phase 2 clinical trial in moderate to severe psoriasis, a chronic, immune-mediated, inflammatory skin disease affecting approximately 7.5 million people in the United States. In this study conducted in the United States, KD025 showed proof of clinical activity after 12 weeks for the treatment of relapsing moderate to severe psoriasis, with no emergent safety issues. We have an ongoing Phase 2 clinical study of KD025 in idiopathic pulmonary fibrosis (IPF). In 2016, we plan to conduct a placebo-controlled Phase 2 clinical study of KD025 in moderate to severe psoriasis as well as Phase 2 proof of concept trials in other autoimmune diseases, including in chronic graft-versus-host disease (cGVHD), psoriatic arthritis, scleroderma and systemic lupus erythematosus (SLE).

    Tesevatinib in Oncology.  Tesevatinib is an oral tyrosine kinase inhibitor (TKI) designed to block key molecular drivers of tumor growth, metastases and drug resistance. Unlike other TKIs, tesevatinib has been observed in preclinical studies to cross the blood-brain barrier, which separates the circulating blood from the brain, and we believe that our preliminary clinical observations indicate that tesevatinib may penetrate the blood-brain barrier in humans. In preclinical and early clinical studies, we have observed tesevatinib's activity against epidermal growth factor receptor (EGFR), a cell surface receptor, and its accumulation in the lungs, leptomeninges (membranes that protect the brain and spinal cord) and kidneys, and in a previously completed Phase 2 clinical trial, its response rate in treatment-naïve non-small cell lung cancer (NSCLC) patients with activating EGFR mutations. EGFR is often overexpressed in lung and other malignancies with epithelial origins, which refer to the layers of cells that line hollow organs and glands. We are conducting an open-label Phase 2 clinical study of tesevatinib in NSCLC with activating EGFR mutations in patients with brain metastases or leptomeningeal disease. The trial is being conducted at U.S. sites, with planned expansion to locations outside of the United States. Preliminary observations by the study investigators suggest activity of tesevatinib and that six of the seven patients enrolled to date have had a clinically significant improvement of neurological symptoms and/or tumor shrinkage. The observed improvements in neurological symptoms include, for some of the enrolled patients, improved strength and balance and reduced headache and fatigue. Of note, one patient with brain metastases and leptomeningeal disease showed a 57% reduction in a measurable cerebral metastasis in MRI scans at Day 41. Additionally, one patient with brain metastases showed an approximate 50%

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      decrease in brain metastases mass overall, based on the cumulative measured and observed decreases in multiple brain lesions in MRI scans at Day 23. Lung cancer kills approximately 1.4 million people globally each year and NSCLC is the most common form of lung cancer, accounting for approximately 85% of all cases. Activating EGFR mutations occur in approximately 15% of NSCLC patients. Approximately 25% to 30% of these NSCLC patients develop brain metastases or leptomeningeal disease. There are no effective approved therapies for NSCLC patients with activating EGFR mutations whose disease has spread to the brain or leptomeninges, making this an area of significant unmet medical need.

    Tesevatinib in Polycystic Kidney Disease (PKD).  Due to tesevatinib's ability to inhibit EGFR and a signaling protein referred to as proto-oncogene tyrosine-protein kinase Src (Src), which are key molecular drivers of PKD, a genetic kidney disorder caused by mutations in one of several genes, and tesevatinib's accumulation in the kidneys, we are developing tesevatinib to treat all forms of PKD. The autosomal dominant form of PKD (ADPKD) is caused by a mutation in the polycystin-1 or polycystin-2 gene. The autosomal recessive form of PKD (ARPKD) is caused by a mutation in the fibrocystin-1 gene. In PKD preclinical models, tesevatinib has demonstrated a statistically significant inhibition of formation and growth of kidney cysts and prevented further loss of kidney function. We have obtained orphan drug designation status in the United States for tesevatinib for the treatment of patients with ARPKD. In our ongoing, 61-patient, open-label, Phase 1b/2a clinical trial in autosomal dominant PKD (ADPKD) conducted in the United States, we have selected a dose of tesevatinib for additional clinical development. Following receipt of guidance from the FDA on our planned registration pathway at an FDA End-of-Phase 2 meeting, we plan to initiate a Phase 3 registration-directed trial of tesevatinib in ADPKD in 2017. We plan to initiate a Phase 1 clinical trial of tesevatinib in ARPKD in 2016. ADPKD is among the most prevalent monogenic diseases and afflicts approximately 600,000 individuals in the United States and 12.5 million individuals worldwide. ARPKD is less common, occurring in one in approximately 20,000 newborns in the United States, and is significantly more severe. ARPKD often leads to death in infancy, while approximately 50% of children surviving the neonatal period progress to end-stage renal disease within the first decade of life. Statistical significance is an estimate of the probability that an observed event represents a true causal relationship and not a chance occurrence. In the context of clinical studies, a probability value (p-value) of <0.05 is generally considered statistically significant, and means that there is a less than 5% chance that the observed results would have occurred in the absence of the intervention being investigated (i.e., by chance alone). The lower the p-value, the less likely that the results observed were due to chance. There are currently no approved drug therapies for ADPKD or ARPKD in the United States.

    KD034 is our portfolio of enhanced formulations of trientine hydrochloride, a chelating compound for the removal of excess copper from the body, for the treatment of Wilson's disease, a rare autosomal recessive genetic disease of copper metabolism affecting approximately 10,000 individuals in the United States. We are developing a proprietary formulation and packaging of trientine hydrochloride that we believe have the potential to address major shortcomings of currently available trientine hydrochloride formulations. In addition, we plan to seek approval for a generic of Syprine (trientine hydrochloride). We intend to use Kadmon Pharmaceuticals, our specialty-focused commercial organization, to market these formulations, if approved.

        Kadmon Pharmaceuticals, our wholly-owned subsidiary, is our specialty-focused commercial organization. Kadmon Pharmaceuticals currently markets and distributes a portfolio of branded generic ribavirin products for chronic hepatitis C virus (HCV) infection. Additionally, Kadmon Pharmaceuticals co-promotes a product for chronic weight management and distributes a product for chorea, an involuntary movement disorder associated with Huntington's disease, and a product for cytomegalovirus (CMV) retinitis, a viral inflammation of the retina of the eye, and for the prevention of CMV disease,

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a common viral infection complicating solid organ transplants. Product revenues from Kadmon Pharmaceuticals are almost entirely derived from sales of its ribavirin portfolio. Kadmon Pharmaceuticals' sales of these drugs have significantly declined, from $63.5 million for the year ended December 31, 2014 to $29.3 million for the year ended December 31, 2015, as the treatment landscape for chronic HCV infection has rapidly evolved, with multiple ribavirin-free regimens, including novel direct-acting antivirals, having entered the market and becoming the new standard of care.

        During the three months ended March 31, 2016 and the years ended December 31, 2015 and 2014, Kadmon Pharmaceuticals generated enough revenue to support its commercial operations and service our debt requirements. Historically, we have supported our non-commercial operations primarily through private placement financings, licensing agreements and strategic alliances. We do not believe we can currently depend on commercial revenues from Kadmon Pharmaceuticals to support our non-commercial operations, including drug development efforts and debt obligations. Instead, we leverage our commercial infrastructure, including the regulatory, quality and chemistry, manufacturing and controls (CMC) teams of Kadmon Pharmaceuticals, to support the development of our clinical-stage product candidates. We believe that our commercial infrastructure will be most advantageous to us in the future, in connection with potential commercial collaborations as well as the anticipated commercialization of our pipeline products and clinical-stage product candidates, if approved.

Our Strategy

        Our goal is to develop first-in-class, innovative therapies for indications with significant unmet medical needs, including in autoimmune and fibrotic diseases, oncology and genetic diseases, and for which we plan, in many cases, to seek breakthrough designation from the FDA. Our key strategies to achieve this goal are listed below:

    Develop KD025 and our ROCK2 inhibitor platform to produce novel treatments for autoimmune, fibrotic and neurodegenerative diseases.  We have synthesized and identified a diverse portfolio of highly selective ROCK2 inhibitors to treat autoimmune, fibrotic and neurodegenerative diseases. We have selected more than 10 of these ROCK2 inhibitors that we believe have the greatest potential based on characteristics including potency, solubility, bioavailability and, in some cases, blood-brain barrier penetrance.


    We plan to develop KD025 for the treatment of autoimmune and fibrotic diseases. We recently completed a Phase 2 clinical study of KD025 in moderate to severe psoriasis and have an ongoing Phase 2 clinical study in IPF. We plan to initiate additional Phase 2 clinical studies in other autoimmune diseases in 2016, including in cGVHD, psoriatic arthritis, scleroderma and SLE, as well as expand our clinical program in moderate to severe psoriasis.

    Rapidly advance tesevatinib in NSCLC with brain metastases or leptomeningeal disease, followed by glioblastoma, earlier-stage NSCLC and other solid tumors.  We are initially developing tesevatinib for NSCLC with activating EGFR mutations in patients with brain metastases or leptomeningeal disease and have an ongoing Phase 2 clinical study in these indications. We believe tesevatinib is ideally suited to treat these patient populations due to the molecule's inhibition of EGFR, blood-brain barrier penetrance and specific tissue distribution. In preclinical studies, tesevatinib has been observed to penetrate the blood-brain barrier, with equal concentration in the brain as in the blood, and accumulate greater than 15-fold in the leptomeninges and 30-fold in the lungs compared to blood. While the observations from our ongoing study are preliminary and based on a limited number of study subjects, these observations suggest that tesevatinib may penetrate the blood-brain barrier in humans. We believe that these indications represent the fastest potential path to FDA approval due to the lack of currently approved treatments in these patient populations. We also plan to pursue clinical trials of tesevatinib in additional solid tumors, including glioblastoma and earlier-stage NSCLC.

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    Rapidly advance tesevatinib for the treatment of ADPKD and ARPKD.  We are evaluating the safety and tolerability of tesevatinib in ADPKD in an ongoing Phase 1b/2a clinical study and in ARPKD in a planned Phase 1 clinical study. We believe tesevatinib's anti-EGFR activity and 15-fold greater accumulation in the kidneys than in blood make it an ideal candidate to address this monogenic disease in which EGFR is strongly implicated as playing an important role in kidney cyst formation. As a result, we are investigating treatment at a significantly lower dosage compared to oncology indications, with the goal of minimizing dose-dependent side effects. PKD is a disease that requires chronic treatment, and we believe that tesevatinib's tolerability profile makes it an attractive therapeutic product candidate for this indication. To address ARPKD, a pediatric disease closely related to ADPKD, we have developed a proprietary liquid formulation of tesevatinib for administration to children and which is designed to enable titration, the process of gradually adjusting the dose of medication by body weight to reach the appropriate dose. We plan to pursue registration study programs in both ADPKD and ARPKD in 2016 and 2017.

    Leverage our drug discovery platforms to identify and develop new product candidates for additional diseases with significant unmet medical need.  Our drug discovery platforms are focused on small molecule chemistry and biologics. Our platforms support the future growth of our pipeline and fuel the discovery of new targets and the development of drugs to inhibit these targets. To date, these platforms have produced a strong pipeline of preclinical product candidates. Our most advanced novel preclinical product candidate from our biologics platform, KD033, is an anti-PD-L1/IL-15 fusion protein, which combines a master regulator (PD-L1) and a stimulator (IL-15) of immune response targeted to the tumor site. KD033 inhibits the PD-L1 pathway to reduce tumor cell immune checkpoint blockade, which is the inhibition of immune system checkpoints effecting immune system function, while simultaneously directing an IL-15-stimulated, specific immune response to the tumor microenvironment.

    Build on and leverage our commercial infrastructure to market therapies for Wilson's disease and support our clinical development programs.  We plan to seek approval for our proprietary formulation and packaging of trientine hydrochloride for the treatment of Wilson's disease under a Section 505(b)(2) New Drug Application (NDA) pathway. In addition, we plan to seek approval under an Abbreviated New Drug Application (ANDA) for a generic of Syprine (trientine hydrochloride). We intend to use Kadmon Pharmaceuticals, our specialty-focused commercial organization, to market these formulations, if approved, and support our development programs and commercialization of our clinical-stage product candidates.

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Our Clinical-Stage Pipeline

        We maintain global rights to the following product candidates:

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ROCK2 Inhibitor Platform (Lead Compound: KD025)

        A central goal in the study of autoimmune disease is to develop therapies that down-regulate pro-inflammatory immune responses while potentially preserving the immune system's ability to fight infections and tumors. Through our studies of the role of ROCK2 in immune cells, we have demonstrated that selective ROCK2 inhibition affects key cellular functions that control and restore balance to the immune system. ROCK2 inhibition with KD025 reduces the production of pro-inflammatory cytokines, which are small proteins that stimulate and regulate the immune response, IL-17, IL-21 and IL-22 by T helper 17 (Th17) cells through the down-regulation of STAT3, a key transcription factor and regulator of the inflammatory pathway. ROCK2 inhibition concurrently increases the suppressive function of regulatory T cells (Tregs) through activation of STAT5, a

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controller of regulatory cell function, helping to resolve inflammation with a minimal effect on the rest of the immune response.

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        In fibrotic diseases, ROCK2 signaling is up-regulated throughout the fibrotic process, effecting macrophage infiltration, endothelial cell activation and myofibroblast differentiation. These processes result in the deposition of excess collagen and creation of scar tissue. We believe that ROCK2 inhibition with KD025 has the potential to halt and reverse these processes to successfully treat fibrotic diseases.

        It is now well understood that neurodegenerative diseases have a neuroinflammatory component. These observations, coupled with the effects of ROCK2 on neuronal cell behavior, indicate that ROCK2 inhibition may play an important role in the treatment of neurodegenerative diseases, including, among many others, multiple sclerosis, Alzheimer's disease and Huntington's disease.

        To establish proof of concept in autoimmune disease, our current focus is on the treatment of moderate to severe psoriasis, for which we recently completed a Phase 2 clinical study. Additional Phase 2 clinical studies of KD025 in immune disorders are planned in cGVHD, psoriatic arthritis, scleroderma and SLE. In fibrotic disease, we recently initiated a Phase 2 clinical study in IPF, with additional studies planned in myelofibrosis, kidney fibrosis and liver fibrosis. In addition, we plan to study our ROCK2 inhibitors for the treatment of neurodegenerative diseases, including, among others, multiple sclerosis, Alzheimer's disease and Huntington's disease. KD025 has already demonstrated promising results in our preclinical studies in many of these indications.

Proof of Concept in Autoimmune Disease—Psoriasis

        Psoriasis is a chronic, immune-mediated, inflammatory skin condition affecting approximately 2% to 3% of the global population. According to the National Psoriasis Foundation, psoriasis is among the most prevalent autoimmune diseases in the United States, affecting as many as 7.5 million people. Psoriasis commonly presents before the age of 35 years and has no known cure. The disease decreases a patient's quality of life and can lead to a higher risk of multiple comorbidities, including metabolic diseases, liver disease and certain cancers.

        Most psoriasis patients (approximately 80% to 90%) have chronic plaque psoriasis (also known as psoriasis vulgaris), characterized by recurrent exacerbations and remissions of thickened, erythematous, scaly patches of skin that can occur anywhere on the body. Approximately 15% to 25% of these patients have moderate to severe disease requiring systemic therapy as outlined in various international and regional treatment guidelines. This subset of patients is our targeted patient population.

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        The costs associated with psoriasis are substantial. Total direct and indirect healthcare costs of psoriasis patients are calculated at $11.25 billion annually in the United States, with work loss accounting for 40% of the cost burden. Approximately 60% of psoriasis patients miss an average of 26 days of work a year due to their illness.

Current Treatment Options and Limitations of Therapy

        Many approved therapies target the immune system to treat psoriasis, including recently introduced biologic agents. All of these therapies have significant limitations, including increased risk of serious infections and malignancies, such as tuberculosis, lymphoma, immunogenicity and neurological disorders. In addition, these therapies require regular injections, which is a deterrent to patients and prescribers. More recently, Otezla (apremilast), an oral inhibitor of phosphodiesterase-4 (PDE-4), an enzyme which promotes inflammation, was approved by the FDA to treat patients with moderate to severe plaque psoriasis.

Key Differentiating Attributes of KD025

        We believe that KD025 represents a new potential treatment paradigm for moderate to severe psoriasis and other autoimmune diseases. Our identification of ROCK2, the therapeutic target of KD025, as a central regulator of the immune response is an important scientific finding published by Kadmon in the November 25, 2014 issue of the peer-reviewed journal Proceedings of the National Academy of Sciences. This publication was written by our employees, former employees, consultants and former consultants including Alexandra Zanin-Zhorov, Jonathan M. Weiss, Melanie S. Nyuydzefe, Wei Chen, Jose U. Scher, Rigen Mo, David Depoil, Nishta Rao, Ben Liu, Jianlu Wei, Sarah Lucas, Matthew Koslow, Maria Roche, Olivier Schueller, Sara Weiss, Masha V. Poyurovsky, James Tonra, Keli L. Hippen, Michael L. Dustin, Bruce R. Blazar, Chuan-ju Liu, and Samuel D. Waksal, and reports findings from a clinical study sponsored by us. The report was peer-reviewed by Charles A. Dinarello, University of Colorado Denver, Aurora. In preclinical and clinical studies, targeted ROCK2 inhibition with KD025 resulted in the down-regulation of pro-inflammatory response with no evidence of any deleterious impact on the rest of the immune system. We believe this effect may potentially avoid toxicities and increased susceptibility to lymphomas and opportunistic infections associated with currently available biologic therapies. KD025 is orally administered, whereas most current therapies are formulated as infused or injectable biologics. In a recently completed Phase 2 clinical study in patients with moderate to severe psoriasis, KD025 treatment resulted in Psoriasis Area and Severity Index (PASI) score reductions in 85% of patients completing the study, with minimal side effects. PASI is a widely used tool for the measurement of the severity of psoriasis which combines the assessment of the severity of lesions caused by and the area affected by psoriasis into a single score. We believe that KD025 is an ideal treatment candidate for a chronic inflammatory condition because it is orally delivered and lacks side effects such as headache, nausea and diarrhea.

KD025 Clinical Program

Ongoing Study

    Ongoing Phase 2 Clinical Study of KD025 in Idiopathic Pulmonary Fibrosis

        We have an ongoing, randomized, open-label, Phase 2 clinical study (KD025-207) to examine the safety, tolerability and activity of KD025 in IPF patients who have received or been offered anti-fibrotic drugs pirfenidone and/or nintedanib. The planned enrollment is 36 IPF patients randomized into two cohorts: one cohort of 24 patients treated with KD025 at 400 mg once daily (QD), versus another cohort of 12 patients treated with standard of care. The primary efficacy endpoint is the percent change in forced vital capacity (FVC) over the dosing period, from baseline to 24 weeks. The study is being conducted in the United States.

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Planned Studies

    Planned Phase 2 Clinical Study of KD025 in Moderate to Severe Psoriasis

        Based on clinical data from our recently completed Phase 2 clinical study of KD025, we plan to enroll a randomized, double-blind placebo-controlled Phase 2 clinical study of KD025 in moderate to severe psoriasis in the United States in 2016. We plan to initiate a dose-finding study to evaluate the safety, tolerability and efficacy of KD025 in approximately 150 patients with moderate to severe psoriasis who are candidates for systemic therapy or phototherapy. The 16-week study will consist of five cohorts of thirty patients each: KD025 200 mg QD, KD025 200 mg twice daily (BID), KD025 400 mg QD, KD025 600 mg QD (administered as 400 mg in the morning and 200 mg in the evening) and matching placebo BID. The primary efficacy endpoint will be the number of patients achieving a 75.0% reduction in PASI score.

        The FDA has also advised that we evaluate the potential of KD025 to induce carcinogenicity in two species, as recommended by current FDA guidelines for drug development. Carcinogenicity assessment planning will initiate in 2016 as KD025 progresses through development, and we will discuss the plan with the FDA Carcinogenicity Assessment Committee prior to initiating the studies, as recommended by the FDA.

    Planned Phase 2 Clinical Study of KD025 in Chronic Graft-Versus-Host Disease

        On January 8, 2016, our IND application was accepted for an open-label, dose-finding multicenter Phase 2 clinical study to evaluate the safety, tolerability and activity of KD025 in patients with steroid-dependent cGVHD and active disease. We plan to enroll 48 cGVHD patients into three cohorts of KD025 200 mg QD, KD025 200 mg BID and KD025 400 mg QD for 24 weeks. The primary efficacy endpoint will be the percentage of patients who meet the overall response criteria (complete response and partial response) at 24 weeks. We expect to begin enrolling this study in the United States in 2016.

    Planned Phase 2 Clinical Study of KD025 in Patients with Psoriatic Arthritis

        Based on clinical data from our recently completed Phase 2 clinical study of KD025 in patients with dermatologic lesions of moderate to severe psoriasis, we plan to initiate a Phase 2, randomized, double-blind, 24-week study to evaluate the safety, tolerability and activity of KD025 in approximately 60 patients with psoriatic arthritis who have failed at least one disease-modifying antirheumatic drug. The primary efficacy endpoint will be the percentage of patients achieving a 20% reduction in the composite measure referred to as ACR20 (American College of Rheumatology 20% improvement criteria). We expect to begin enrolling this study in the United States in 2016.

    Planned Phase 2 Clinical Study of KD025 in Scleroderma

        We plan to conduct a Phase 2 clinical study of KD025 in patients with scleroderma who have pulmonary fibrosis and who have previously been treated with immunosuppressing drugs cyclophosphamide or mycophenolate mofetil. Scleroderma, also known as systemic sclerosis, is an autoimmune disease that affects not only the skin, but internal organs, including the kidneys, heart and lungs. This randomized, double-blind, placebo-controlled Phase 2 clinical study intends to evaluate the safety, tolerability and activity of KD025 in approximately 64 patients for 24 weeks. The primary efficacy endpoint will be mean percent change in FVC from baseline to 24 weeks. We expect to begin enrolling this study in the United States in 2016.

    Planned Phase 2 Clinical Study of KD025 in SLE

        We plan to initiate a double-blind, placebo-controlled Phase 2 clinical study to evaluate the safety and tolerability of KD025 and its ability to treat and influence biomarker expression in SLE. The

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24-week study will enroll approximately 60 patients. We expect to begin enrolling this study in the United States in 2016.

Completed Clinical Studies of KD025

        To date, eight clinical studies of KD025 have been completed. In these studies, 183 patients have received KD025 in doses ranging from 20 mg to 1,000 mg in single- and/or multiple-day dose regimens. As described below, we recently completed a Phase 2 open-label study in 38 adult patients with moderate to severe psoriasis who relapsed following a course of systemic therapy. We also completed a Phase 2a open-label study in eight adult patients with moderate to severe psoriasis who failed first-line therapy. In addition, six Phase 1 clinical studies of KD025 have been completed in healthy human volunteers: a single-ascending dose (SAD) study; a combined single- and multiple-ascending dose (MAD) study; a MAD study with QD and BID dosing; a safety and pharmacokinetics (PK) study; a food effect study; and a crossover study to determine the PK of a tablet formulation of KD025.

        We observed a transient increase in liver enzymes in 17 patients out of the 183 treated in completed clinical trials to date, with 13 judged to be possibly related to KD025. No serious adverse events related to KD025 were reported. These treatment-emergent adverse events (TEAEs) all returned to within normal levels after discontinuation of study drug. All patients were asymptomatic.

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        The following table presents an overview of these studies.


Completed Clinical Studies of KD025

Study Number
  Phase   Study Design
(including
primary endpoints)
  Study Population
Characteristics
  KD025 Doses   Number of
Patients Dosed
KD025-206     2   Open-label, dose-finding (safety, tolerability, activity and pharmacokinetics (PK))   Patients with moderate to severe psoriasis who have failed at least one line of systemic therapy   KD025 400 mg QD × 12 weeks

KD025 200 mg BID × 12 weeks

KD025 400 mg BID × 12 weeks

  KD025: 38

KD025-205

 

 

2a

 

Open-label, single-arm (safety, tolerability, activity, PK and exploratory pharmacodynamics (PD))

 

Patients with moderate to severe psoriasis who have failed at least one line of systemic therapy

 

KD025: 200 mg QD × 4 weeks

 

KD025: 8

KD025-105

 

 

1

 

Single-dose, two-period, crossover study (food effect)

 

Healthy male patients

 

KD025: 500 mg QD

 

KD025: 12

KD025-103

 

 

1

 

Single-center, placebo-controlled, double-blind, randomized (6:2) study (safety, tolerability, PK and exploratory PD)

 

Healthy male and post-menopausal female patients

 

KD025: 500 mg BID × 4 weeks (6 patients)

Placebo BID × 4 weeks (2 patients)


 

KD025: 6 Placebo: 2

KD025-102

 

 

1

 

Single-center, placebo-controlled, double-blind, randomized (6:2) (safety, tolerability and PK)

 

Healthy male and post-menopausal female patients

 

KD025: 500 mg QD, 800 mg QD, 500 mg BID, and 1,000 mg QD × 7 days (n= 6 patients/ cohort)

Placebo (n= 2 patients/cohort)


 

KD025: 24 Placebo: 8

KD025-101

 

 

1

 

Single-center, placebo-controlled, randomized (6:2) (safety, tolerability and PK)

 

Healthy male patients

 

KD025: 40, 80, 120, 160, 240, 320, 400, and 500 mg QD (n= 6 patients/ cohort)

Placebo (n= 2 patients/cohort)

A single dose of KD025 or placebo was administered on Study Day 1 and then followed by 7 days of multiple dosing beginning on Study Day 8.


 

KD025: 48 Placebo: 16

SLx-2119-09-01

 

 

1

 

Single-center, randomized, double-blind, placebo-controlled, single-dose, dose-finding (safety, tolerability, and PK)

 

Healthy male patients

 

Single doses of KD025 (n= 8 subjects/ cohort:

KD025: 20, 40, 80, and 160 mg QD (n=6 subjects/cohort)

Placebo (n= 2 subjects/cohort)


 

KD025: 24

Placebo: 8


KD025-106

 

 

1

 

Single-dose, three-period, crossover study to assess the PK of a tablet formulation

 

Healthy male subjects

 

KD025 200 mg QD

 

23

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    Completed Phase 2 Clinical Study of KD025 in Moderate to Severe Psoriasis (KD025-206)

        We recently completed a Phase 2 clinical study of KD025 in the United States in patients with moderate to severe psoriasis who relapsed following a course of systemic therapy. The FDA issued a "Study May Proceed" letter dated February 12, 2014, authorizing us to initiate clinical testing under an IND for KD025 in moderate to severe psoriasis. KD025-206 was a twelve-week, dose-finding clinical study that consisted of three cohorts: 400 mg QD, 200 mg BID and 400 mg BID. Of the 38 patients dosed, 26 completed the study, including 12 in the 400 mg QD cohort, seven in the 200 mg BID cohort and seven in the 400 mg BID cohort. In the study, 85% of patients who completed the trial demonstrated a clinical benefit in moderate to severe psoriasis, which is defined as any decrease in PASI score, and 46% of patients achieved at least a 50% decrease in PASI score (PASI 50). In the 400 mg QD cohort, 42% of patients (5 out of 12) achieved PASI 50. In the 200 mg BID cohort, 71% of patients (5 out of 7) achieved PASI 50 (see figure below). In the 400 mg BID cohort, 29% of patients (2 out of 7) achieved PASI 50. Of the 38 patients in the trial, 12 discontinued, seven of whom had Grade 2-3 elevations in liver transaminases and were taken off therapy by the Kadmon medical monitor. Four patients voluntarily withdrew from the study and one patient was lost to follow-up.

        In this study, liver-related laboratory abnormalities, specifically elevations in transaminases (alanine aminotransferase (ALT) and aspartate aminotransferase (AST)), alkaline phosphatase, gamma-glutamyl transferase (GGT) and bilirubin, were graded on a 0-4 scale based on the patient's laboratory results compared to the upper limit of normal (ULN) range, with Grade 4 reflecting the greatest elevation.

        The grading of these liver-related laboratory abnormalities is distinct from the grading of other laboratory adverse events, which were graded on the Toxicity Grading Scale for Healthy Adult and Adolescent Volunteers Enrolled in Preventive Vaccine Clinical Trials, and the grading of clinical adverse events, which were graded on the Common Terminology Criteria for Adverse Events (CTCAE) Scale.

        The majority of liver-related laboratory abnormalities reported in the study were Grade 1-3 elevations in liver transaminases (ALT and AST), enzymes that help metabolize amino acids and may be indicators of liver cell injury. In the 400 mg QD cohort, no patients were discontinued for transaminase elevations. In the 200 mg BID cohort, two patients were discontinued for Grade 2 elevations in transaminases, and one patient was discontinued for a Grade 3 elevation in transaminases. In the 400 mg BID cohort, four patients were discontinued, one for a Grade 2 elevation in transaminases and three for Grade 3 elevations in transaminases. All transaminase elevations returned to normal when drug was stopped and in three cases, transaminase elevations resolved while KD025 treatment was continued to end of therapy. One patient had elevated bilirubin levels at screening, prior to receiving study drug, which increased and then returned to the patient's baseline levels while on study drug. This bilirubin elevation was considered by the investigator to be unlikely related to study drug. There was one Grade 4 transaminase elevation that was observed nearly two months after the patient ended treatment. Approximately three months after the patient's end-of-treatment visit, this transaminase elevation was documented as resolved and was considered by the investigator to be unlikely related to study drug. No serious adverse events were reported in any of the three cohorts, whether based on laboratory abnormalities or clinical events. Liver abnormality grades (e.g., Grade 4) alone do not connote the same CTCAE adverse event grades. In addition to the laboratory adverse events noted, there were CTCAE Grade 1-2 clinical adverse events observed that did not result in any discontinuation of therapy. Due to the transaminase elevations observed in the 400 mg BID group, we will not study this dose or higher doses in our planned Phase 2 placebo-controlled study of KD025 in moderate to severe psoriasis.

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        Of patients who completed the study and for whom IL-17 measurements were available, 84% (21 out of 25) showed reduced levels of pro-inflammatory cytokine IL-17, the key driver in psoriasis, and a minimal effect on the rest of the immune system.

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    Completed Phase 2a Clinical Study (KD025-205)

        KD025-205 was a Phase 2a safety and tolerability study of KD025 in eight patients with moderate to severe psoriasis who have failed at least one line of systemic therapy. The clinical study was conducted in the United States pursuant to an IND. The FDA issued a "Study May Proceed" letter dated February 12, 2014 authorizing us to initiate clinical testing. Patients were dosed with KD025 at 200 mg QD for 28 days. In this study, we observed encouraging pharmacodynamic activity and a reduction of PASI scores in three of eight psoriasis patients after only four weeks of treatment. However, this reduction was neither statistically nor clinically significant. KD025 was well tolerated with no study drug-related serious adverse events reported. Two patients withdrew from the study due to treatment emergent adverse events, one due to transaminitis and the other due to anastomotic ulcer. After discontinuation of study drug, the patients' ALT and AST levels returned to within normal levels. In an ex vivo analysis, blood samples were taken from seven of eight patients pre-treatment and after 28 days of treatment and the levels of secreted pro-inflammatory and regulatory cytokines were determined. The analysis showed reduced secretion of pro-inflammatory cytokine IL-17, the key driver in psoriasis, as well as IL-21 and IL-22, which along with IL-17 are important in the pathogenesis of

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other autoimmune diseases. KD025 had a minimal effect on the rest of the immune system as evidenced by minimal impact on IL-2, IFN-g and IL-10. See figure below.


KD025 at 200 mg QD Demonstrated Specific Inhibition of Th17 Cytokines in Moderate to
Severe Psoriasis Patients

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    Completed Phase 1 Clinical Studies

        We evaluated KD025 in five Phase 1 clinical studies conducted in the United States. On September 14, 2009, we received communications from the FDA authorizing us to initiate clinical testing and an IND for KD025. KD025 was well tolerated at doses of up to 1,000 mg QD and, in these studies, a maximum tolerated dose was not reached. We conducted a Phase 1 food effect study (KD025-105), which showed increased KD025 exposure with food. An ex vivo analysis of peripheral blood mononuclear cells (PBMCs) from healthy volunteers treated with KD025 in these studies showed that IL-17 and IL-21 production was decreased in a dose-dependent manner.

KD025 Preclinical Studies

        In our preclinical studies, we found evidence that KD025 is a specific and potent inhibitor of ROCK2. Dependent upon assay conditions, KD025 exhibited at least 20-fold more potency at inhibiting ROCK2 than ROCK1. In these studies, KD025 showed greater ROCK2 inhibition potency than certain currently available pan-ROCK inhibitors such as fasudil. KD025 showed high selectivity for ROCK2 when tested against panels of 300 ATP-dependent kinases, cell surface receptors and channels.

        In our in vitro studies conducted in activated human T-cells, we found that KD025 down-regulated the secretion of IL-17, IL-21 and IL-22, with little effect on the secretion of IL-2, IFN-g and IL-10. Our studies have suggested that this response is mediated by the modulation of key transcription factors affecting the immune system. Based on these findings and the important role these cytokines play in autoimmune diseases, we believe KD025 may have efficacy across a broad range of autoimmune diseases.

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KD025 Selectively Inhibits Th17 Cell Response In Vitro

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Proof of Concept of KD025 in Fibrotic Disease

        In addition to ROCK2's potential role in autoimmunity, we believe ROCK2 plays an important role in the development of fibrotic disease. In our preclinical studies, inhibiting ROCK2 with KD025 reduced Type 1 collagen secretion and stellate cell formation associated with scar tissue formation, improving organ function in models of fibrosis. Data from these preliminary studies suggest that treatment with KD