10-K

G i

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2015.

◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from            to           

Commission file number: 001-37449

Nivalis Therapeutics, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	20-8969493
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3122 Sterling Circle, Suite 200Boulder, Colorado	80301
(Address of principal executive offices)	(Zip Code)

(720) 945-7700

(Registrant’s telephone number, including area code)

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

Title of each class	Name of each exchange on which registered
Common Stock par value $0.001 per share	The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes   ◻     No   ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes   ◻      No   ☒

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   ☒      No   ◻

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ◻

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 ◻ Accelerated filer  ☒ Non-accelerated filer  ◻ Smaller reporting company  ◻

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

The aggregate market value of the Registrant’s common stock, par value $0.001 per share, held by non-affiliates of the Registrant on June 30, 2015, the last business day of the registrant’s most recently completed second quarter, was $177,549,046 based on the closing price of the registrant’s common stock on the NASDAQ Global Market on that date of $15.15 per share.

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of February 29, 2016 was 15,462,030.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 2016 Annual Meeting of Stockholders, which is to be filed within 120 days after the end of the registrant’s fiscal year ended December 31, 2015, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated therein.

NIVALIS THERAPEUTICS, INC.

FORM 10-K

TABLE OF CONTENTS

PART I
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	34
ITEM 1B.	UNRESOLVED STAFF COMMENTS	69
ITEM 2.	PROPERTIES	70
ITEM 3.	LEGAL PROCEEDINGS	70
ITEM 4.	MINE SAFETY DISCLOSURES	70
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	71
ITEM 6.	SELECTED FINANCIAL DATA	73
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	75
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	86
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	86
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	86
ITEM 9A.	CONTROLS AND PROCEDURES	86
ITEM 9B.	OTHER INFORMATION	87
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	88
ITEM 11.	EXECUTIVE COMPENSATION	88
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	88
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	89
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	89
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	90
	SIGNATURES	91

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PART I.

This Annual Report on Form 10-K and the information incorporated herein by reference includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Annual Report on Form 10-K and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned preclinical studies and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates, the degree of clinical utility of our products, particularly in specific patient populations, expectations regarding clinical trial data, our liquidity and future funding needs, our results of operations, financial condition, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change and depend on economic, financial, regulatory or other factors that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from the forward-looking statements contained herein. You should also read carefully the factors described in the “Risk Factors” section of this Annual Report on Form 10-K to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.

Any forward-looking statements that we make in this Annual Report on Form 10-K speak only as of the date of this report, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events.

ITEM 1.BUSINESS

Overview

We are a clinical stage pharmaceutical company committed to the discovery, development and commercialization of product candidates for patients with cystic fibrosis, or CF. Our lead product candidate, N91115, is a small molecule compound that addresses a defect in the cystic fibrosis transmembrane conductance regulator, or CFTR, resulting from mutations in the CFTR gene, the underlying cause of CF. We believe N91115 is a first‑in‑class CFTR stabilizer that modulates CFTR activity through inhibition of S-nitrosoglutathione reductase, or GSNOR. GSNOR inhibition is a novel mechanism of action that we expect to be complementary to existing and future CFTR modulators. N91115 is the only clinical stage product candidate we know of designed to stabilize CFTR inside the cell and at the cell surface. We have shown in preclinical studies that the stabilizing effect of N91115 significantly increases and prolongs CFTR activity when added to other CFTR modulators. Currently, we are conducting a Phase 2 clinical trial in CF patients who have two copies of the F508del mutation, the most common CFTR mutation. This trial is designed to assess the efficacy and safety of N91115 in a triple therapy with two other CFTR modulators, lumacaftor/ivacaftor, which were developed by Vertex Pharmaceuticals, Inc. and have been approved for use in CF patients in the United States and Europe. We believe this triple therapy will improve patient outcomes and, ultimately, become a new standard of care in CF.

CF is a life‑shortening genetic disease that affects an estimated 70,000 people worldwide, including approximately 65,000 in the United States and Europe. There is no known cure for CF and the predicted median age of survival in the United States is approximately 41 years. CF is caused by mutations in the gene that encodes CFTR, a chloride channel that regulates the movement of salt and water into and out of cells. Defective CFTR results in decreased chloride secretion leading to the buildup of thick mucus in the lungs and other vital organs. Lung disease, the most critical manifestation of CF, is characterized by airway obstruction, infection and inflammation, such that more than 90%

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of all CF patients die of respiratory failure. CF patients typically require lifelong treatment, with multiple daily medications, and frequently require hospitalization and potentially lung transplantation.

The focus of CF treatment has shifted from palliative care to the advancement of disease modifying CFTR modulators that target CFTR mutations. The most prevalent CFTR mutation is F508del, found in approximately 86% of CF patients in the United States and Europe. F508del patients suffer from a severely defective CFTR protein, which is misfolded, unstable and subject to increased degradation. In the United States, approximately 47% of CF patients are homozygous and have two copies of this mutation, and approximately 39% are heterozygous and have one copy. Due to the complexity of defects associated with the F508del mutation, we believe that effective treatment strategies in patients with this mutation will require multiple therapies with distinct mechanisms of action.

In patients with CF, decreased CFTR activity is due in part to reduced levels of S‑nitrosoglutathione, or GSNO, which is regulated by GSNO reductase, or GSNOR. GSNO modifies the function of certain CFTR chaperone proteins, and thereby improves the stability of F508del CFTR. Our preclinical studies have shown that N91115 is a selective and reversible inhibitor of GSNOR, and that GSNOR inhibition increases GSNO levels. The ultimate goal of our CFTR stabilizing therapy is to increase and prolong CFTR activity through GSNOR inhibition when N91115 is administered along with other CFTR modulators, thereby increasing chloride transport.

Our N91115 development program is currently focused on demonstrating the clinical benefit of a triple CFTR modulator therapy for CF patients homozygous for F508del. This triple therapy includes N91115, our CFTR stabilizer, administered with Vertex’s CFTR corrector, lumacaftor, and its CFTR potentiator, ivacaftor. We filed an investigational new drug application, or IND, for the commencement of clinical trials of N91115 with the U.S. Food and Drug Administration, or the FDA, on December 30, 2013. To date, we have completed dose escalation and drug-drug interaction trials in healthy subjects, a pharmacokinetic trial in CF patients, and a Phase 1b clinical trial that assessed safety and tolerability in CF patients who were homozygous for F508del. The goal of our Phase 2 clinical trial is to demonstrate the efficacy and safety of the triple therapy of N91115 along with lumacaftor/ivacaftor in CF patients homozygous for F508del. For this clinical trial, we are enrolling patients who are already being treated with commercially available lumacaftor/ivacaftor, and we expect to report top line results in the second half of 2016. We also intend to assess the efficacy of N91115 in CF patients with other mutations.

We own exclusive rights to N91115 in the United States and all other major markets, including U.S. composition of matter patent protection until at least 2031. We also received orphan drug and fast track designation for N91115 in early 2016, which provides us with certain marketing exclusivity and other benefits. Initially, we plan to pursue regulatory approval for N91115 in the regions where lumacaftor/ivacaftor is commercially available. Given the well‑characterized and clearly identified patient populations with CF, we plan to independently commercialize N91115 upon approval.

Our Strategy

Our primary strategy is to establish N91115 as an essential component of the standard of care in CF. Key elements of our overall strategy include:

· Rapidly advancing N91115 through clinical development to regulatory approval.  We are currently conducting a Phase 2 clinical trial of N91115 and we expect to report top line results in the second half of 2016. This trial is designed to demonstrate the efficacy and safety of N91115 in a triple therapy along with lumacaftor/ivacaftor in CF patients homozygous for F508del. We received orphan drug designation for N91115 in the treatment of CF in January 2016 and fast track designation in February 2016. At the completion of Phase 2, we intend to seek breakthrough designation for N91115 and plan to proceed to a Phase 3 program in order to support regulatory approval of N91115.

· Developing N91115 as an essential component of a new standard of care in CF, agnostic to other CFTR modulators, effective across multiple mutations and in all age groups.  In addition to lumacaftor and ivacaftor, there are other CFTR modulators that target CFTR activity currently under development or that may be developed in the future. We intend to expand the development of N91115 by testing it with other

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CFTR modulators if, and as, they become available. We also intend to expand the development of N91115, which is currently focused on CF patients homozygous for F508del, to address other CF mutations, beginning with CF patients heterozygous for F508del with N91115 added to ivacaftor. Further, we plan to develop N91115 for pediatric patients as part of a therapy with other approved CFTR modulators.

· Independently commercializing N91115.  We own exclusive rights to N91115 in the United States and all other major markets. Initially, we plan to pursue regulatory approval for N91115 in the regions where lumacaftor/ivacaftor is commercially available. Given the well‑characterized and clearly identified patient populations with CF, we plan to independently commercialize N91115. Our commercialization strategy will target key prescribing physicians and advocacy groups, as well as provide patients with support programs, ensure product access and secure reimbursement.

· Utilizing our proprietary GSNOR inhibitor portfolio and know‑how to develop additional product candidates addressing other diseases.  We believe that the characteristics of our GSNOR inhibitor portfolio enable us, independently or with strategic partners, to potentially develop and commercialize a pipeline of GSNOR inhibitors for the treatment of patients with diseases other than CF.

Advantages of N91115

We believe N91115 has the following advantages that support rapid and successful development:

· N91115 is a first‑in‑class CFTR stabilizer that increases and prolongs CFTR activity via a novel mechanism of action, GSNOR inhibition.  The goal of CF therapy is to maximize CFTR activity. We believe this can be best accomplished by employing a combination of CFTR modulators that work together. In patients who are homozygous for F508del, lumacaftor/ivacaftor has shown a statistically significant yet modest clinical benefit. We believe this is because the CFTR protein remains unstable and requires an additional CFTR modulator to stabilize its activity. Our preclinical data demonstrate that the addition of our first‑in‑class CFTR stabilizer, N91115, to non‑formulated lumacaftor and ivacaftor significantly improves CFTR activity. We believe that this effect is due to the restoration of GSNO levels through GSNOR inhibition. GSNOR inhibition modifies CFTR chaperone proteins, resulting in CFTR stabilization inside the cell and at the cell surface. This increases and prolongs CFTR activity thereby increasing chloride transport, which we believe will improve patient outcomes.

· N91115 is well positioned for continued clinical development based on existing data.  We believe that N91115 is positioned for successful clinical development based on its preclinical safety and efficacy, and its clinical safety, tolerability, pharmacokinetic and pharmacodynamic, profiles. Data from the Phase 1b clinical trial showed no dose limiting toxicity and a trend toward a reduction in sweat chloride, a marker of CFTR modulation, at the highest dose tested. This data suggests that a maximum effective dose has not been reached and supports the testing of a higher dose in the ongoing Phase 2 clinical trial. In addition, animal toxicology studies provide safety margins of at least 4 times higher than the highest dose in our Phase 2 clinical trial.

· N91115 is optimized to be administered along with other CFTR modulators and can be dosed orally.  We believe that the treatment of CF requires multiple therapies with distinct mechanisms of action. Therefore, we optimized the structure of N91115 through our discovery screening program to limit off target effects and minimize interaction with drug metabolizing enzymes. In addition, N91115 can be dosed orally, with a dosing frequency that is similar to other CFTR modulator therapies.

· N91115 is protected by a strong intellectual property portfolio.  We believe N91115, a first‑in‑class CFTR stabilizer, increases and prolongs CFTR activity when administered alone and with other CFTR modulators. We own exclusive rights to N91115 in the United States and all other major markets, including U.S. composition of matter patent protection until at least 2031.

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Market Overview

Background on Cystic Fibrosis

CF is a life‑shortening genetic disease that affects an estimated 70,000 people worldwide, including approximately 65,000 in the United States and Europe. There is no known cure for CF and the predicted median age of survival in the United States is approximately 41 years. The prevalence of CF is expected to increase at an average annual rate of 0.8% between now and 2023. The main driver of this growth is increased life expectancy due to the emergence of disease modifying therapies. CF patients typically require lifelong treatment with multiple daily medications, and frequently require hospitalization and potentially lung transplantation.

CF is caused by mutations in the gene that encodes CFTR, a chloride channel that regulates the movement of salt and water into and out of cells in organs such as the lungs, pancreas and gastrointestinal tract. CF occurs only in patients with two defective copies, or alleles, of the CFTR gene. In CF patients, defective CFTR cannot perform its normal function, which results in the buildup of thick mucus in the lungs and other vital organs. Lung disease is the most critical manifestation of CF, characterized by airway obstruction, infection and inflammation that allow bacteria to grow unfettered and impair the lung’s immune system. More than 90% of all CF patients die of respiratory failure. In the pancreas, damage caused by CF leads to diabetes, while the buildup of mucus prevents the release of digestive enzymes that help the body break down food and absorb important nutrients. In the gastrointestinal tract, the thick mucus contributes to further impairment of nutrient absorption.

There are more than 1,800 known mutations in the CFTR gene, including the most prevalent mutation, the F508del mutation, which is found in approximately 86% of all CF patients in the United States and Europe. In the F508del mutation, the deletion of an amino acid results in misfolded CFTR that is unstable and is targeted for degradation, which is facilitated by chaperone proteins. As a result, not enough CFTR reaches, or “traffics” to, the cell surface. F508del is therefore referred to as a trafficking mutation. In the United States, approximately 47% of CF patients are homozygous and have two copies of this mutation, and approximately 39% are heterozygous and have one copy. Other CFTR mutations include gating mutations, such as G551D that is found in approximately 4% of all CF patients. Cells with gating mutations have normal amounts of CFTR at the cell surface, but the channels fail to open, or “gate,” properly.

Current Approaches to Treatment

Historically, palliative therapies were the only treatment options to manage the symptoms of CF, but these do not address the underlying cause of the disease. Palliative therapies primarily include inhaled therapies to manage respiratory complications and to suppress infections, and oral therapies to improve nutrient absorption. The focus of CF therapy has shifted from palliative care to the advancement of disease modifying CFTR modulators to address the underlying cause of CF. Unlike palliative therapies, CFTR modulators are designed to address abnormalities, such as trafficking and gating defects, caused by specific mutations in the CFTR gene. Current views on disease modifying therapies are evolving to consider the need for multiple mechanisms of action to improve the activity of the CFTR channel. New and emerging disease modifying product candidates create the opportunity to address defective CFTR with the ultimate goal of increasing chloride secretion.

Palliative Treatments

Palliative treatments primarily include inhaled therapies to manage mucus accumulation and additional respiratory complications, and to suppress infections. For example, Novartis’ TOBI and Gilead’s Cayston are used to suppress chronic lung infections, and Roche’s inhaled Pulmozyme is used to thin mucus. In addition, the approval of Raptor’s Quinsair™, an inhaled antibiotic, in Europe and Canada, and Pharmaxis’s Bronchitol®, a mucolytic agent, in Europe, are expected to provide new options for chronic bacterial infections and airway clearance. Palliative treatments also include oral therapies such as pancreatic enzyme replacement to address nutrient absorption. We believe that palliative therapies will continue to be used together with disease modifying therapies.

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Disease Modifying Treatments

To date, disease modifying therapies in CF primarily include two types of CFTR modulators, correctors and potentiators, or a combination of both. There are also product candidates in development that seek to address the underlying cause of CF via different mechanisms of action. We summarize the key disease modifying therapies in the following table:

Preclinical	Phase 1	Phase 2	Phase 3	NDA Submitted	Marketed
Stabilizers
		Nivalis
		N91115
Correctors
Galapagos GLPG2851 GLPG2665 GLPG2737 Genzyme undisclosed	Galapagos GLPG2222 Flatley Discovery Labs FDL169 Vertex VX152 & VX440		Vertex VX-661 (with potentiator ivacaftor)		Vertex Lumacaftor (with potentiator ivacaftor)
Potentiators
Galapagos GLPG2451	Concert deuterated ivacaftor Galapagos GLPG1837	Novartis QBW251			Vertex Ivacaftor
Other
Pfizer undisclosed Proteostasis PTI428 Shire mRNA	ProQR QR-010	Bayer riociquat	PTC Therapeutics ataluren

Correctors and Potentiators

Potentiators are designed to keep the chloride channel open, or potentiate, in CFTR mutations called “gating” mutations, such as G551D. Cells with gating mutations have normal amounts of CFTR at the cell surface, but the chloride channels fail to open properly, as illustrated below.

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Correctors are designed to modulate a more severe CFTR mutation, F508del, which is the most common CFTR mutation. With the F508del “trafficking” mutation, the abnormal CFTR protein does not fold correctly and is therefore unstable. The misfolded CFTR protein degrades inside the cell and does not reach, or traffic to, the cell surface. Correctors are designed to improve F508del CFTR folding and trafficking, thereby resulting in increased levels of protein at the cell surface, as illustrated below.

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Ivacaftor (potentiator) for G551D and other gating mutations.  Vertex’s ivacaftor, marketed as Kalydeco™, was the first CFTR modulator to be approved in CF. In 2012, ivacaftor was approved in the United States and Europe for the treatment of the G551D gating mutation, in 2014, approval was expanded to include additional gating mutations, and in 2015 approval was expanded further to include the R117H mutation. Ivacaftor is designed to keep the chloride channel open longer. It has demonstrated significant clinical benefits in CF patients who carry a gating mutation, such as, the G551D mutation, including a 10.6% absolute increase in percent predicted forced expiratory volume in one second, or ppFEV₁, a measure of lung function, and improvement in other secondary endpoints compared to placebo.

Lumacaftor/ivacaftor (corrector/potentiator) for F508del homozygous patients.  Vertex’s lumacaftor was the first CFTR corrector to be developed. It was designed to improve CFTR folding, and thus trafficking, to the cell surface. When lumacaftor was used by itself as a CFTR modulator, it did not improve lung function in CF patients homozygous for the F508del mutation, so Vertex then tested lumacaftor combined with ivacaftor. In June 2014, Vertex announced the results of two Phase 3 trials that combined lumacaftor and ivacaftor in F508del CFTR homozygous patients. While lumacaftor/ivacaftor demonstrated a statistically significant absolute improvement in the primary endpoint of change in lung function as measured by ppFEV₁, it was a modest improvement of 3‑4% compared to the improvement seen with ivacaftor alone in the G551D population. The figure below shows the proposed effect of lumacaftor combined with ivacaftor on F508del CFTR. As illustrated, when lumacaftor binds to F508del CFTR it improves folding and trafficking to the cell surface. When ivacaftor binds to F508del CFTR that has trafficked to the cell surface, the chloride channel opens, but CFTR remains unstable. We have shown in preclinical studies that N91115, when added to non‑formulated lumacaftor and ivacaftor, acts as a stabilizer to significantly increase and prolong CFTR activity.

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Trafficking Defect Treated with Corrector Plus Potentiator

In 2015, Vertex received approval of lumacaftor/ivacaftor in CF patients ages 12 and older who are homozygous for the F508del mutation in the United States, Canada, and Europe. Our Phase 2 clinical trial assessing the efficacy and safety of the triple therapy of N91115 along with lumacaftor/ivacaftor began in November 2015.

Other CFTR modulators.  A number of companies are identifying and developing other CFTR modulators for the treatment of CF including Vertex, Novartis, Galapagos, Concert, Proteostasis, Flatley Discovery Labs, PTC Therapeutics and ProQR Therapeutics. However, to our knowledge, these companies are developing CFTR correctors, potentiators, and amplifiers, not CFTR stabilizers. We believe that N91115 could be complementary to many of these other CFTR modulators, if they are successfully developed.

Other Disease Modifying Therapies

Several companies are identifying and developing disease modifying therapies for the treatment of CF that employ a different approach from CFTR modulation and have different mechanisms of action. For example, ProQR aims to repair the F508del mutation at the mRNA level. Its approach is designed to restore expression of normal CFTR protein that can normalize fluid transport in key organs affected by CF, particularly the lung. PTC Therapeutics is developing Ataluren for the treatment of CF caused by a particular mutation known as a nonsense mutation. Ataluren is intended to interact with the ribosome, which is the component of the cell that decodes mRNA and manufactures proteins, to enable the cell to produce a full‑length, functional protein. Vertex, in collaboration with Parion, is developing ENaC inhibitors, designed to block the epithelial sodium channel in the lung and improve hydration. We believe that N91115 could be added to these and other disease modifying therapies as CFTR protein stability may remain an issue.

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Our Novel Approach

N91115 Triple Therapy in CF Patients Homozygous for F508del

Our development program is initially focused on the triple therapy of N91115 along with lumacaftor/ivacaftor in CF patients homozygous for F508del. We also plan to advance N91115 into other mutation classes, beginning with patients who have one copy of the F508del mutation and one copy of a gating mutation in the second half of 2016. We believe that N91115 is a first‑in‑class CFTR stabilizer, a new type of CFTR modulator that increases and prolongs CFTR activity when added to other CFTR modulators. We have demonstrated this improvement in CFTR activity in preclinical studies when N91115 was added to non‑formulated lumacaftor and ivacaftor, and when N91115 was used as the sole CFTR modulator in preclinical studies. In our Phase 1b clinical trial, N91115 showed a trend toward a reduction in sweat chloride at the highest dose tested which was statistically significant using a within group comparison and may provide evidence of CFTR modulation in CF patients.

N91115 is a GSNOR Inhibitor Designed to Improve F508del CFTR Stability

We have shown in preclinical studies that N91115 is a selective and reversible inhibitor of GSNOR and that GSNOR inhibition increases GSNO levels. By increasing GSNO levels, N91115 increases and prolongs CFTR activity. In patients with CF, decreased CFTR activity is due in part to reduced levels of GSNO, which is regulated by GSNOR. GSNO is the human body’s most abundant low molecular weight S‑nitrosothiol, or SNO. While SNOs are normally present in the human airway, concentrations tend to be reduced in CF patients. In the CF patient’s lung, the depleted GSNO levels adversely affect CFTR activity.

CFTR has been shown to interact with a large number of chaperone proteins, which are believed to play essential roles in CFTR activity, contributing to its folding, trafficking and residence time at the cell surface. The role and involvement of chaperone proteins in the processing of CFTR has been well‑documented. Studies have shown that modulating chaperones by reducing the temperature of the cell or using certain chemical agents can increase F508del CFTR trafficking and extend the half life of CFTR at the cell surface, thereby stabilizing the chloride channel. Some of these chaperones include the Hsp70/90 organizing protein, or HOP, calnexin, the C terminus of Hsp70 interacting protein, or CHIP, and the cysteine string protein, or Csp. GSNO modifies the function of certain CFTR chaperone proteins through a process known as nitrosation. For example, studies have shown that GSNO nitrosates and thus modifies the function of HOP. This modification of HOP reduces the degradation of CFTR, increases the maturation, or function, of CFTR and increases the stability of CFTR inside the cell and at the cell surface. The net result of modifying chaperone proteins is increased and prolonged CFTR activity.

The figure below illustrates how the addition of N91115 inhibits GSNOR restoring GSNO levels thereby leading to the modification of HOP.

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Addition of N91115 Restores GSNO Levels

and Increases Nitrosation of HOP

The expected stabilizing mechanism of action of N91115 when administered with a CFTR corrector and potentiator is illustrated in the figure below. By decreasing degradation of the misfolded CFTR, as illustrated by Steps 1 and 2, N91115 permits more CFTR to bind to a corrector, which is designed to improve folding, as illustrated by Step 3. The folded CFTR then traffics to the cell surface where a potentiator can bind to it, opening the chloride channel, as illustrated by Steps 4 and 5. However, as preclinical data have suggested, CFTR bound to correctors such as lumacaftor or VX-661 and the potentiator, ivacaftor, at the cell surface remains unstable and degrades. The net effect of N91115 is to increase and prolong CFTR activity by increasing its stability at the cell surface, as illustrated by Step 6, and inside the cell, as illustrated by Step 2.

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N91115 Mechanism Of Action

Clinical Development for N91115

Phase 2

We are currently conducting a Phase 2 clinical trial designed to demonstrate the efficacy and safety of a triple therapy of N91115 along with lumacaftor/ivacaftor in 135 adult CF patients homozygous for F508del. We expect to report top line results from this trial in the second half of 2016. This Phase 2 trial will be conducted in patients already being treated with commercially available lumacaftor/ivacaftor as prescribed by their physician and reimbursed accordingly. We are not paying for lumacaftor/ivacaftor in these trials.

The Phase 2 clinical trial is designed to detect whether or not the administration of N91115 with lumacaftor/ivacaftor results in a significant improvement in lung function. The trial will assess two different doses of N91115 when administered for up to 12 weeks. The planned primary efficacy endpoint is absolute change in ppFEV₁. Other secondary efficacy endpoints include the relative change in ppFEV₁ and the concentration of chloride in sweat, among others. This trial is intended to provide proof of concept data showing the efficacy of N91115 added to a corrector/potentiator combination in this patient population.

We also intend to evaluate the effects of N91115 added to ivacaftor in adult CF patients heterozygous for F508del and a gating mutation. This evaluation will begin with a proof of concept Phase 2 clinical trial that is planned to start in the second half of 2016.

At the completion of Phase 2, we intend to seek breakthrough designation for N91115 in either or both CF populations and plan to proceed to a Phase 3 program in order to support regulatory approval of N91115.

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Phase 3

We expect the Phase 3 clinical program to include two randomized, placebo‑controlled clinical trials that will be designed to show a clinically meaningful benefit of N91115 in a triple therapy along with lumacaftor/ivacaftor, and possibly a double therapy along with ivacaftor. We also expect the Phase 3 program to include a larger number of patients than in the Phase 2 trials.

Clinical Development to Date

In 2015, we completed a Phase 1b clinical trial to evaluate the safety and tolerability of N91115 in adult CF patients homozygous for F508del. This trial met its stated objectives by demonstrating no dose-limiting toxicities of N91115 and informing dose selection for our Phase 2 clinical trial. The Phase 1b trial was a randomized, double‑blind, placebo‑controlled, parallel group trial with three doses of N91115, at 50 mg, 100 mg and 200 mg, administered twice daily. These doses and a placebo were administered over 28 days in a total of 51 patients. An independent data safety and monitoring board, or DSMB, reviewed unblinded safety data from the trial and provided us with periodic reports regarding its recommendations relative to continuation criteria. At the completion of the trial, the DSMB concluded that there were no dose limiting toxicities observed with N91115. We reported the top line results from this trial in September 2015 and presented the results at the North American Cystic Fibrosis Conference in October 2015. The data showed a trend toward a reduction in sweat chloride at the highest dose tested which was statistically significant using a within group comparison. The lack of dose limiting toxicity and a potential sweat chloride signal supported the inclusion of a higher dose in the ongoing Phase 2 trial in which doses of 200 and 400 mg administered twice daily are being assessed.

We have completed four Phase 1 trials of N91115 to date, including the Phase 1b trial described above. In these trials, a total of 51 healthy subjects and 45 CF patients have received N91115. Our first clinical trial of N91115 was a multiple ascending dose, safety and pharmacokinetic trial in healthy subjects. N91115 was well tolerated with no dose‑limiting toxicities noted up to 500 mg per day. In this trial, four cohorts each with six healthy subjects received 14‑day dosing at 10 mg, 50 mg, 250 mg and 500 mg per day and two cohorts each with six healthy subjects received single doses of 50 mg and 250 mg.

Our second Phase 1 trial of N91115 was an open‑label trial in CF patients homozygous for the F508del mutation. Six CF patients were dosed with 50 mg of N91115 twice daily for 14 days. The AUC in the CF patients was 97% of that in healthy subjects from our first Phase 1 trial. This trial showed that no dosing adjustments would be required for CF patients.

Our third Phase 1 trial was the trial described above in F508del homozygous patients and our fourth trial was a drug-drug interaction study using Rifampin as a surrogate for lumacaftor/ivacaftor because of its similar drug metabolizing properties. The drug-drug interaction trial was conducted in preparation for dose selection for Phase 2 and no adjustment of the N91115 dose was required on the basis of the results of this trial.

N91115 exhibited linear plasma level exposures with increases in dose resulting in proportional increases in both maximum plasma levels, or C_max, and area under the curve, or AUC, for plasma concentration versus time in healthy subjects and CF patients. There was no significant systemic drug accumulation detected up to 28 days of administration.

To date, there have been no overall human safety issues detected involving either serious or severe adverse events, nor have there been any dose limiting toxicities observed. To date, the accumulated preclinical and clinical data provide a strong basis for the continued study of N91115 in the Phase 2 program.

Preclinical Studies

We have conducted in vitro and in vivo preclinical studies that support the development and therapeutic potential of N91115. These studies showed that N91115 significantly increased CFTR activity in cell and animal models homozygous for F508del CFTR. Important anti‑inflammatory effects relevant to CF were also found in other animal models.

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Ussing Chamber Experiments in Homozygous F508del CFTR HBE Cells

The Ussing Chamber assay is widely used to measure CFTR activity, or chloride transport, over a period of time under variable conditions. In these experiments, chloride transport is reflected by the short‑circuit current, or I_sc. Forskolin is a compound used to activate CFTR, while CFTR₁₇₂ is a compound used to inhibit this stimulated activity. Two different types of Ussing Chamber experiments were used to assess the stabilizing effect of N91115 in F508del CFTR human bronchial epithelial cells, or HBE cells. In the first set of experiments, the administration of N91115 with non‑formulated lumacaftor and ivacaftor resulted in more stable F508del CFTR activity. Representative traces of I_sc are shown in the figure below. In the control cells, there was no increase in I_sc with forskolin stimulation as expected because F508del CFTR was not present at the cell surface. In the cells treated with non‑formulated lumacaftor and ivacaftor, there was an increase in I_sc after forskolin stimulation, but the current decreased rapidly over time as indicated by the steep negative slope in the lumacaftor and ivacaftor curve. In cells treated with non‑formulated lumacaftor and ivacaftor with N91115, there was a similar initial increase in current after forskolin stimulation, but, importantly, there was no rapid decrease in I_sc over time, therefore resulting in a greater AUC compared to lumacaftor and ivacaftor alone.

N91115 Increased and Prolonged CFTR Activity

When Added to Non‑formulated Lumacaftor and Ivacaftor

The figure below illustrates the effect of N91115 on CFTR activity. Chloride transport as measured from forskolin stimulation to inhibition by CFTR₁₇₂ is reported as an AUC measurement. We believe that this AUC measurement is the most representative indication of total stimulated CFTR activity. The addition of N91115 to lumacaftor and ivacaftor resulted in a statistically significant, 1.5 times, or 50%, increase in AUC compared to lumacaftor and ivacaftor alone, with a p value of less than 0.01. Results are considered statistically significant when the probability of the results occurring by chance is sufficiently low. When that probability is less than 5%, or p < 0.05, the result is considered statistically significant. N91115 also decreased the rate of decline in CFTR activity. The rate of decline significantly improved 2.2 times with the addition of N91115 to non‑formulated lumacaftor and ivacaftor, with a p value less than 0.05.

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N91115 Significantly Increased F508del CFTR Activity

When Added to Lumacaftor and Ivacaftor in HBEs

In the second set of experiments, F508del HBE cells were initially treated with just lumacaftor, followed by N91115, ivacaftor and a second potentiator, genistein. Genistein is a chemical compound used exclusively in HBE preclinical studies to potentiate CFTR channels and is not used in the clinic. The administration of N91115 prior to potentiators resulted in a greater degree of chloride secretion compared to lumacaftor and potentiators alone suggesting the availability of more CFTR for potentiation. Representative traces of I_sc are shown in the figure below. In the control cells, there was no increase in I_sc with forskolin stimulation. In the cells treated initially with lumacaftor, there was an increase in I_sc after forskolin stimulation, as well as additional increases after ivacaftor and then another potentiator, genistein, were added. In cells initially treated with lumacaftor and then with N91115, there was a similar initial increase in I_sc after forskolin stimulation. However, there was a greater increase in stimulation by the potentiators ivacaftor and genistein, resulting in a greater AUC compared to lumacaftor alone. Total CFTR activity at the end of the experiment that was inhibited by CFTR₁₇₂ was also greater when N91115 was added to lumacaftor.

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N91115 Added to Lumacaftor Significantly Increased the Effects

of CFTR Potentiators

The figure below illustrates the effect of N91115 on CFTR activity reported as an AUC measurement. The addition of N91115 to lumacaftor prior to the addition of potentiators resulted in a statistically significant, 1.5 times, or 50%, increase in AUC compared to lumacaftor and potentiators alone, with a p value of less than 0.01. N91115 also increased the ability of ivacaftor to potentiate CFTR activity by 1.3 times. Total CFTR activity at the end of experiment that was inhibited by CFTR₁₇₂ was significantly increased by 1.2 times, with a p value of less than 0.01.

N91115 Significantly Increased F508del CFTR Activity

When Added to Lumacaftor in HBEs

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Assessment of Cell Surface Expression of CFTR

The assessment of the expression of CFTR at the cell surface may provide an important indicator of how much CFTR is available to function as a chloride channel and support the functional data demonstrated in Ussing chamber experiments with N91115. To assess this effect of N91115, CFTR plasma membrane or PM expression was evaluated using a cystic fibrosis cell linethat expresses F508del CFTR, or the CFBE41o- cell line. The CFTR correctors lumacaftor and VX-661, and the CFTR potentiator ivacaftor were also used in the experiment. As shown in the figure below, steady state CFTR PM expression was measured using cells treated with DMSO control, ivacaftor,  lumacaftor, VX-661, lumacaftor + ivacaftor, or VX-661 + ivacaftor, with or without the addition of N91115. A statistically significant increase in CFTR PM expression was observed when cells were treated with N91115 alone compared to DMSO control. There was also astatistically significant increase in CFTR PM expression observed when cells were treated with N91115 in addition to lumacaftor, VX-661, or in combination with either CFTR corrector + ivacaftor (triple combination). Importantly, the decrease in PM expression observed when cells were treated with either corrector (lumacaftor or VX-661) plus ivacaftor was reversed back to corrector levels alone with the addition of N91115. CFTR PM densities were determined by cell surface ELISA and are depicted as percentage of DMSO treated controls. These data further support the CFTR stabilizing effects of N91115 both when used as the sole CFTR modulator and when added to a corrector alone or the combination of a corrector and a potentiator.

N91115 Increases Surface Expression of F508delCFTR

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In Vivo Assay of Intestinal Short‑Circuit Current Measurements in F508del CFTR Mice

Intestinal current measurements are used to measure CFTR activity in tissue biopsies from CF patients and can be used in a similar manner in F508del CFTR mice. The presence of functional CFTR in normal humans or mice results in positive I_sc levels. In humans and mice with the F508del mutation, no CFTR is present at the cell surface and the I_sc levels are negative. As illustrated in the figure below, when F508del CFTR mice were treated for seven days with oral N91115 at a dose of 1 mg per kg, the I_sc shifted from a negative average level in the control group to a positive average level in the N91115 group. This significant increase in chloride secretion measured by I_sc, with a p value less than 0.05, demonstrates the ability of N91115 to increase CFTR activity. These studies also showed that N91115 was orally available and helped define a target therapeutic dose for N91115.

N91115 Significantly Increased F508del CFTR Activity in CF Mice

Yellow Fluorescent Protein Assay in Fisher Rat Thyroid Cells

The addition of N91115 significantly increased CFTR activity by 1.6 times compared to an in‑house corrector alone, with a p value less than 0.01, in Fisher rat thyroid cells expressing F508del CFTR and a halide‑sensitive yellow fluorescent protein, or YFP. These cells were treated overnight either with a corrector alone or a corrector followed by the addition of N91115 for two hours. After overnight incubation, CFTR activity was stimulated by forskolin and potentiated by ivacaftor. A dose‑dependent increase in YFP quenching, which is indicative of increased CFTR activity, was seen when increasing concentrations of N91115 were added.

These results are consistent with the Ussing Chamber data and intestinal current measurement data, and provide additional evidence to support the complementary effects of N91115 administered with non‑formulated lumacaftor and ivacaftor. We have also demonstrated this effect with other CFTR correctors.

Anti‑inflammatory Effects of N91115 and Other GSNOR Inhibitors

Lung disease in CF is characterized by neutrophil dominated airway inflammation. In an 11‑day, mouse lung inflammation model, the tobacco smoke‑induced increase in the number of neutrophils in bronchoalveolar lavage fluid was significantly inhibited following oral treatment with our GSNOR inhibitors, with a p value less than 0.001, as illustrated with N91115 in the figure below. The effective dose of N91115 in this model, 1 mg per kg, was the same as in

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the intestinal current measurement model of F508del mice, providing further support for the selection of a target therapeutic dose in CF patients.

N91115 Significantly Decreased Inflammatory Cells in

Mouse Airways Exposed to Tobacco Smoke

Activated neutrophils release elastase, which has been shown to be an early marker of airway damage in CF, in addition to having a negative impact on the structure and activity of CFTR. In an elastase mouse model, GSNOR inhibitor therapy significantly decreased the progression of lung alveolar wall damage, with a p value of less than 0.01, as measured by airspace enlargement, as illustrated below.

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GSNOR Inhibitors Significantly Decreased Elastase‑Induced Lung Damage

Preclinical Safety Studies

We conducted repeat oral‑dose, 28 and 90‑day toxicity studies in mice, rats and dogs. These species are routinely selected for toxicology testing and were deemed appropriate for small molecule inhibitors of GSNOR. All three species exhibited toxicities that were generally mild and occurred at higher exposures than intended in man. For example, in the 90‑day studies, the levels at which adverse effects were noted provide approximately 8 times safety margins in mice, the most sensitive species compared with the highest dose to be tested in humans. The toxicology data generated thus far suggest the kidney, liver and possibly bone marrow may be target organs. These data provide support for human clinical trials with durations up to 12 weeks. Long‑term toxicity studies will be completed prior to initiation of our Phase 3 program.

Other Development Programs

N91115 Additional CF Opportunities

We also plan to expand the therapeutic potential of N91115 in CF. In addition to lumacaftor and ivacaftor, there are other CFTR modulators currently under development or that may be developed in the future. We intend to expand the development of N91115 by testing it with other modulators if, and as, they become available. We also plan to expand the development of N91115, which is currently focused on CF patients homozygous for F508del, to address the unmet need in CF patients heterozygous for F508del and other mutations. We also plan to develop N91115 for pediatric patients when administered with other approved CFTR modulators.

Other GSNOR Inhibitors

Our operations to date have focused on discovery and development of our portfolio of GSNOR inhibitors, including N91115 and N6022. N6022 was the first product candidate to emerge from our GSNOR inhibitor portfolio, and was optimized for inhaled delivery with low oral bioavailability. We advanced N6022 into the clinic in an intravenous formulation to explore safety, tolerability and pharmacological attributes of this novel class of compounds. N6022 paved the way for N91115 by establishing initial safety of the class in healthy subjects and patients with CF. In order to provide translational evidence of GSNOR’s role in lung disease, we initially explored the effects of N6022 in patients with mild asthma. N6022 demonstrated a significant effect on the airways in these patients, thus confirming the beneficial effects of N6022 observed in our preclinical studies of asthma. Because an oral dosage form is preferable in CF, a systemic disease that is not confined to the lung, we elected to discontinue further development of N6022 in the

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chronic management of CF. We may pursue development of N6022 in an inhaled or intravenous dosage form for other potential indications.

Our GSNOR inhibitor portfolio includes other compounds with differing chemical structures and properties suitable for oral, inhaled, injectable and topical administration. Preclinical evidence supports a potential role for these compounds in indications such as asthma, chronic obstructive pulmonary disease, inflammatory bowel disease and certain cardiovascular disorders. We intend to explore the commercial merits for such applications and pursue those that provide the greatest opportunity either alone or in partnership with another pharmaceutical company.

Non‑GSNOR CFTR Correctors

To date, two product candidates, N1785 and N1861, have emerged from our CFTR corrector portfolio for further optimization. These candidates are designed to target protein folding and have demonstrated the ability to correct CFTR in standard cell‑based, screening assays. These proprietary correctors were used as pharmacologic tools to assess their effects in preclinical studies when administered with GSNOR inhibitors, no further development of these compounds is planned.

Commercialization

We own exclusive rights to N91115 in the United States and all other major markets. Initially, we plan to pursue regulatory approval for N91115 in regions where lumacaftor/ivacaftor is commercially available. Given the well‑characterized and clearly identified patient populations with CF, we plan to independently commercialize N91115. Our commercialization strategy will target key prescribing physicians and advocacy groups, as well as provide patients with support programs, ensure product access and secure reimbursement. Outside of North America and Europe, we may seek a partner to commercialize our products.

Manufacturing and Supply

We do not currently own or operate manufacturing facilities for the production of preclinical or our planned clinical or commercial quantities of any of our product candidates. We currently contract with two drug substance manufacturers and two drug product manufacturers for the production of N91115, and we expect to continue to do so to meet the preclinical and planned clinical requirements of our product candidates. We do not have long-term agreements with any of these contracted third parties. We expect that in the future we will rely on these and other manufacturers for supply of drug substance and product that will be used in clinical trials of our product candidates. When produced on a commercial scale, we expect that manufacturing costs relating to N91115 will generally be in line with that of other small molecule pharmaceutical compounds.

Currently, each of our drug starting materials for our manufacturing activities are supplied by two suppliers that we believe have sufficient capacity to meet our demands. We have identified other sources of supply should those be needed in the future and we believe that adequate alternative sources for these supplies exist. However, there is a risk of material harm to our business if supplies are interrupted. We typically order raw materials and services on a purchase order basis and do not enter into long‑term dedicated capacity or minimum supply arrangements.

The manufacturing process for N91115 is relatively straightforward and generally in line with other small molecule pharmaceutical compounds in terms of cost and complexity. The process is robust and reproducible within our current specifications, does not require dedicated reactors or specialized equipment, uses common synthetic chemistry and readily available materials, including off‑the‑shelf and made‑to‑order starting materials, and is readily transferable.

Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements that govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. The contract manufacturers that we use to manufacture our drug substance and drug product do so under current Good Manufacturing Practices, or cGMP, a regulatory standard for the production of pharmaceuticals. All contract manufacturers used in production have been inspected by the FDA for compliance to cGMP and maintain FDA establishment licenses.

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Competition

The pharmaceutical industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. Key competitive factors affecting the commercial success of our product candidates are likely to be efficacy, safety and tolerability profile, convenience of dosing, price and reimbursement. Many of our potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of competitors. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval for therapies and achieving widespread market acceptance. Our competitors’ products may be more effective, or more effectively marketed and sold, than any product candidate we may commercialize and may render our therapies obsolete or non‑competitive before we can recover development and commercialization expenses.

A number of small and large pharmaceutical companies are identifying and developing disease modifying candidates for the treatment of CF. Vertex’s ivacaftor, marketed as Kalydeco, and lumacaftor/ivacaftor, marketed as Orkambi™, are the only drugs currently approved to treat the underlying cause of CF, rather than the symptoms. If these companies develop technologies or product candidates more rapidly than we do, or their technologies are more effective, our ability to develop and successfully commercialize product candidates may be adversely affected. Conversely, the focus on CF and the introduction of newer therapies will expand awareness and acceptance of CF therapies and foster the adoption, uptake and adherence to these disease modifying medicines in potential competitors. Our competitors may also obtain FDA, EMA or other regulatory approval for their products more rapidly than we may obtain approval for ours. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available.

Intellectual Property

We believe that we have a strong patent portfolio and substantial know‑how relating to N91115 and our other product candidates. Our patent portfolio, described more fully below, includes claims directed to CFTR modulator compounds, pharmaceutical compositions comprising such compounds and methods of making and using the same. As of December 31, 2015, we are the owner of record of 25 issued U.S. patents and 94 issued non‑U.S. patents. We are actively pursuing an additional 14 U.S. patent applications, including three provisional and 11 non‑provisional U.S. applications, one international patent application and 83 non‑U.S. patent applications in over ten foreign countries. We are the licensee of 6 issued U.S. patents and 7 issued non‑U.S. patents.

We strive to protect the proprietary technology that we believe is important to our business, including our product candidates and our processes. We seek patent protection in the United States and internationally for our products, their methods of use and processes of manufacture and any other technology to which we have rights, where available and when appropriate. We also rely on trade secrets that may be important to the development of our business.

Our success will depend on the ability to obtain and maintain patent and other proprietary rights in commercially important technology, inventions and know‑how related to our business, the validity and enforceability of our patents, the continued confidentiality of our trade secrets as well as our ability to operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on continuing technological innovation and in‑licensing opportunities to develop and maintain our proprietary position.

We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may own or license in the future, nor can we be sure that any of our existing patents or any patents we may own or license in the future will be useful in protecting our technology. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors—Risks Relating to Our Intellectual Property.”

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The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the date of filing the non‑provisional priority application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier‑filed patent.

The term of a U.S. patent that covers an FDA‑approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch‑Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of a new drug application, or NDA, we expect to apply for patent term extensions for patents covering our product candidates and their methods of use.

The patent portfolios for our proprietary technology portfolio and our two most advanced product candidates are summarized below.

N91115

The patent portfolio for N91115 includes wholly owned patents and patent applications directed to GSNOR inhibitors including N91115 and other compounds, pharmaceutical compositions comprising such compounds, methods of making such pharmaceutical compositions and methods of using such compounds and pharmaceutical compositions. Specific for our N91115 product candidate, we have three issued U.S. patents, pending U.S. patent applications, and corresponding foreign national or regional counterpart patent applications pending in Europe, Japan and other countries. Our U.S. patents are expected to expire in 2031, excluding any additional term that may be available due to a patent term extension. Patents, if issued, based on these pending U.S. and foreign patent applications are expected to expire in 2031, excluding any additional term that may be available due to patent term adjustments or patent term extensions. We also have a pending international application directed to combination therapies. Patents, if issued, based on this pending international patent application, are expected to expire in 2035, excluding any additional term that may be available due to patent term adjustments or patent term extensions. We also have three pending U.S. provisional patent applications directed to various N91115 related inventions. Patents, if issued, based on future patent applications filed claiming priority to these pending U.S. provisional patent applications, are expected to expire in 2036, excluding any additional term that may be available due to patent term adjustments or patent term extensions.

N6022

The patent portfolio for N6022 includes wholly owned patents and patent applications directed to GSNOR inhibitors including N6022 and other compounds, pharmaceutical compositions comprising such compounds, methods of making such pharmaceutical compositions and methods of using such compounds and pharmaceutical compositions. Specific for our N6022 product candidate, we have five issued U.S. patents, pending U.S. patent applications and corresponding foreign national or regional counterpart patent applications pending in Europe, Japan, and other foreign countries. These five U.S. patents are expected to expire in 2029, excluding any additional term that may be available due to patent term extension. Patents, if issued, based on these pending U.S. and foreign patent applications are expected to expire in 2029 excluding any additional term that may be available due to patent term adjustments or extensions.

Trade Secrets

In addition to patents, we rely on trade secrets and know‑how to develop and maintain our competitive position. For example, significant aspects of our proprietary technology portfolio are based on unpatented trade secrets and know‑how. Trade secrets and know‑how can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These agreements are designed to protect our proprietary

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information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know‑how and inventions.

Regulatory Matters

Government authorities in the United States at the federal, state and local levels, and in other countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record‑keeping, promotion, advertising, distribution, marketing, export and import of products such as those we are developing.

A number of different regulatory agencies may be involved, depending on the product at issue, and the type and stage of activity. These include the FDA, the Drug Enforcement Administration, or DEA, the Centers for Medicare and Medicaid Services, or CMS, other federal agencies, state boards of pharmacy, state controlled substance agencies and more.

U.S. Government Regulation

Drug Development Process

In the United States, the FDA is a primary regulator of drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and implementing regulations. The process of obtaining regulatory approvals and other compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with applicable requirements at any time during the drug development process, approval process, or after approval, may subject us to adverse consequences and administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include refusal to approve pending applications; withdrawal or restriction of an approval; imposition of a clinical hold or other limitation on research; Warning Letters; product seizures; total or partial suspension of development, production, or distribution; or injunctions, fines, disgorgement, or civil or criminal payments or penalties.

The process required before a drug may be marketed in the United States generally involves the following:

· completion of preclinical laboratory tests, animal trials and formulation trials conducted according to Good Laboratory Practices, or GLP, animal welfare laws and other applicable regulations;

· submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical trials, meaning trials in human subjects, in the United States may begin, obtaining similar authorizations in other jurisdictions where clinical research will be conducted and maintaining these authorizations on a continuing basis throughout the time that trials are performed and new data are collected;

· performance of adequate and well‑controlled clinical trials according to Good Clinical Practices, or GCP, to demonstrate whether a proposed drug is safe and effective for its intended use;

· preparation and submission to the FDA of a marketing authorization application, such as a new drug application, or NDA, and submitting similar marketing authorization applications in other jurisdictions where commercialization will be pursued;

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· satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product will be produced to assess compliance with current good manufacturing practices, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity; and

· FDA review and approval of the NDA or other marketing authorization application.

The development, testing and approval process requires substantial time, effort and financial resources, as well as bearing inherent risk that individual products will not exhibit relevant safety, effectiveness, or quality characteristics. We cannot be certain that any approvals for our product candidates will be granted on a timely basis, or with the specific terms that we desire, if at all.

Clinical trials typically are conducted in three sequential phases that may overlap or be combined:

· Phase 1.  The drug initially is introduced into a small number of healthy human volunteers and is tested for safety, dosage tolerance, absorption, metabolism, distribution and elimination.

· Phase 2.  Clinical trials are initiated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the drug candidate for specific targeted diseases, and to determine dosage tolerance and optimal dosage.

· Phase 3.  Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall benefit‑risk profile of the drug candidate and provide an adequate basis for regulatory approval and product labeling.

Progress reports related to clinical trials must be submitted at least annually to the FDA and participating IRBs, and more frequent safety reports must be submitted to the FDA and to investigators for serious and unexpected suspected adverse events, and certain other purposes. Phase 1, Phase 2 and Phase 3 testing may not be completed successfully within a specified period, if at all. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the healthy volunteers or patients are being exposed to an unacceptable health risk or that the investigational product apparently lacks efficacy. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with applicable requirements or if the drug candidate has been associated with unexpected serious harm to healthy volunteers or patients.

We estimate that it generally takes 10 to 15 years, or possibly longer, to discover, develop and bring to market a new pharmaceutical product in the United States. Several years may be needed to complete each phase, including discovery, preclinical, Phase 1, 2 or 3, or marketing authorization.

At times during the development of a new drug product, sponsors are given opportunities to meet with the FDA. This commonly occurs prior to submission of an IND, at the end of Phase 2 testing, and before an NDA is submitted. Meetings at other times may also be requested. These meetings provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. A plan for pediatric assessment also must be discussed at the end of Phase 2 meeting.

Concurrent with clinical trials, companies usually complete additional animal trials and develop additional information about the chemistry and physical characteristics of the drug candidate and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate, and the manufacturer must develop methods for confirming the identity, quality, purity, and potency of the final products. Additionally, appropriate

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packaging must be selected and tested and stability trials must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf‑life and distribution pathway.

Disclosure of Clinical Trial Information

Sponsors of clinical trials (other than Phase 1 trials) of FDA‑regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, comparator, patient population, phase of investigation, trial sites and investigators and other aspects of the clinical trial is made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of certain trials may be delayed until the new product or new indication being studied has been approved. However, there are evolving rules and increasing requirements for publication of trial‑related information, and it is possible that data and other information from trials involving drugs that never garner approval could in the future be required to be disclosed. In addition, publication policies of major medical journals mandate certain registration and disclosures as a pre‑condition for potential publication, even when this is not currently mandated as a matter of law. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

New Drug Application Review and Approval Processes

The results of drug candidate development, preclinical trials and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the drug candidate, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the drug candidate. The submission of an NDA is subject to the payment of a substantial user fee, and the sponsor of an approved NDA is also subject to annual product and establishment user fees; a waiver of fees may be obtained under limited circumstances.

The FDA reviews each NDA to ensure that it is sufficiently complete for substantive review before it accepts it for filing. Once the submission is accepted for filing, the FDA begins an in‑depth review. The FDA reviews an NDA to determine, among other things, whether a drug candidate is safe and effective for its intended use and indication for use and whether its manufacturing is cGMP‑compliant to assure and preserve the drug candidate’s identity, strength, quality and purity. The FDA may refer the NDA to an advisory committee consisting of a panel of external experts for review and recommendation as to whether the NDA should be approved and under what conditions. Before approving an NDA, the FDA will typically inspect the facility or facilities where the active ingredient and the formulated drug candidate are manufactured and tested.

The approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable criteria are not satisfied, or it may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a Complete Response Letter if the agency decides not to approve the NDA in its present form. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the Complete Response Letter may include recommended actions that the applicant might take to place the application in a condition for approval.

If a product receives regulatory approval, the approval may be limited to specific diseases, dosages, or indications for use, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require post‑approval trials, including Phase 4 clinical trials, to further assess a drug’s safety and effectiveness after NDA approval and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Expedited Development and Review Programs

The FDA has various programs, including fast track, priority review, accelerated approval, and breakthrough therapy designation, that are intended to increase agency interactions, expedite or facilitate the process for reviewing

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drug candidates, and/or provide for initial approval on the basis of surrogate endpoints. Generally, drug candidates that may be eligible for these programs are those for serious or life‑threatening conditions, have the potential to address unmet medical needs and offer meaningful benefits over existing treatments. To date, the FDA has granted orphan drug and fast track designations for N91115. However, even if a drug candidate qualifies for one or more of these programs, the FDA may later decide that the drug candidate no longer meets the conditions for qualification. Moreover, the time period for FDA review may not actually be shortened even if a drug candidate has qualified for an expedited development program.

If a drug candidate is approved under certain expedited programs, for example, the FDA’s accelerated approval regulations, the approval may be conditioned upon post‑marketing requirements, including the completion of post‑approval clinical trials, sometimes referred to as Phase 4 trials, to confirm the effect on the desired clinical endpoint. Failure to conduct required post‑approval trials, or the inability to confirm a clinical benefit during post‑marketing trials, may allow the FDA to withdraw the drug from the market on an expedited basis. In addition, all promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.

Post‑approval Requirements

Any products for which we may receive future FDA approval are subject to continuing regulation by the FDA, including, among other things, record‑keeping requirements, reporting and analysis of adverse experiences with the product, providing the FDA with updated safety, efficacy and quality information, product sampling and distribution requirements, maintaining up‑to‑date labels, warnings, and contraindications, and complying with promotion and advertising requirements. Products may be promoted only for the approved indications and in accordance with the approved label; products cannot be promoted for unapproved, or off‑label, uses, although physicians may prescribe drugs for off‑label uses in accordance with the practice of medicine. Manufacturers must continue to comply with cGMP requirements, which are extensive and require considerable time, resources and ongoing investment to ensure compliance. In addition, changes to manufacturing processes often require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post‑marketing programs.

Manufacturers and other entities involved in the manufacturing and distribution of approved products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic inspections for compliance with cGMP and other laws. FDA and state inspections may identify compliance issues at manufacturing that may disrupt production or distribution or may require substantial resources to correct.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market such as adverse events the existence or severity of which was unknown when the product was approved. Later discovery of previously unknown problems with a product may result in restrictions on the product or complete withdrawal from the market. Further, the failure to maintain compliance with regulatory requirements may result in administrative or judicial actions, such as fines, warning letters, holds on clinical trials, product recalls or seizures, product detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions or civil or criminal payments or penalties.

From time to time, new legislation is enacted that changes the statutory provisions governing the approval, manufacturing, and marketing of products regulated by the FDA. In addition, FDA regulations and guidance may be revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative or regulatory or policy changes will occur or be implemented and what the impact of such changes, if any, may be.

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Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration, and specifics of FDA approval of the use of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch‑Waxman Act. The Hatch‑Waxman Act permits a patent term to be extended up to five years as compensation for patent term effectively lost due to the FDA’s pre‑market approval requirements. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one‑half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for the extension. Extensions are not granted as a matter of right and the extension must be applied for prior to expiration of the patent and within a 60-day period from the date the product is first approved for commercial marketing. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. Where a product contains multiple active ingredients, if any one active ingredient has not been previously approved, it can form the basis of an extension of patent term provided the patent claims that ingredient or the combination.

In the future, we may apply for restorations of patent term for some of our currently owned patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA; however, there can be no assurance that any such extension will be granted to us.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The specific scope varies, but fundamentally the FDCA provides a five‑year period of non‑patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity never previously approved by FDA either alone or in combination. For a new chemical entity that was issued orphan drug designation, the FDCA provides marketing exclusivity for the “same drug” and “same indication” for a period of seven years. 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 responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted 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 if new clinical investigations, other than bioavailability trials, 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, or strengths of an existing drug. This three‑year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. 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 pre‑clinical trials and adequate and well‑controlled clinical trials necessary to demonstrate safety and effectiveness.

Pediatric Information and Exclusivity

Under the FDCA, NDAs and certain supplements to NDAs must contain data adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. A sponsor must submit an initial Pediatric Trial Plan, or PSP, within 60-days of an end‑of‑phase 2 meeting or at certain other agreed times. The initial PSP must include an outline of the pediatric trial or trials that the sponsor plans to conduct, including trial objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral or waiver, along with supporting information. The FDA and the sponsor must reach agreement on the PSP, which can be amended over time.

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The FDCA also permits certain drugs to obtain an additional six months of exclusivity (e.g., add‑on to NCE or orphan drug exclusivity) and certain patent protection if the sponsor submits information in response to a written request from FDA, relating to the use of the drug in children. The FDA only issues a written request for pediatric clinical trials prior to approval of an NDA where it determines that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may produce health benefits in that population. Even if FDA makes a written request if may later determine that the studies submitted do not meet the terms of the Written Request.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drug candidates intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that costs of research and development of the drug for the indication can be recovered by sales of the drug in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Although there may be some increased communication opportunities, orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a drug candidate that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in very limited circumstances, such as if the second applicant demonstrates the clinical superiority of its product. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

Orphan drug exclusivity could block the approval of our drug candidates for seven years if a competitor obtains approval of the same product as defined by the FDA or if our drug candidate is determined to be contained within the competitor’s product for the same indication or disease.

As in the United States, we may apply for designation of a drug candidate as an orphan drug for the treatment of a specific indication in the European Union before the application for marketing authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to 10 years of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan designated product.

The FDA and foreign regulators expect holders of exclusivity for orphan drugs to assure the availability of sufficient quantities of their orphan drugs to meet the needs of patients. Failure to do so could result in the withdrawal of marketing exclusivity for the orphan drug.

Pharmaceutical Coverage, Pricing, and Reimbursement

United States

Even if the FDA approves NDAs for our drug candidates, sales of our products will depend, in part, on the availability of coverage and reimbursement by third party payers, such as government health programs, commercial or private insurance, and managed care organizations. The process for determining whether a payer will provide coverage for a drug product may be separate from the process for setting the reimbursement rate that the payer will pay for the drug product. Third party payers may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA‑approved drugs for a particular indication. Moreover, a payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

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The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third party payers fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on cost containment measures in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

European Union

In Europe and many other foreign countries, the success of our drug candidates we may develop, depends largely on obtaining and maintaining government reimbursement, because in many foreign countries patients are unlikely to use prescription pharmaceutical products that are not reimbursed by their governments. Negotiating reimbursement rates in foreign countries can delay the commercialization of a pharmaceutical product and generally results in a reimbursement rate that is lower than the net price that companies can obtain for the same product in the United States.

In some countries, such as Germany, commercial sales of a product can begin while the reimbursement rate that a company will receive in future periods is under discussion. In other countries, a company must complete the reimbursement discussions prior to the commencement of commercial sales of the pharmaceutical product. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of drugs for which their national health insurance systems provide reimbursement and to control the prices of drugs for human use. A member state may approve a specific price for the drug or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug on the market. Recently, many countries in the European Union have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the European Union. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products, if approved in those countries.

Other U.S. Healthcare Laws and Compliance Requirements

Pharmaceutical companies also are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti‑kickback laws and false claims laws, and the reporting of payments to physicians and teaching hospitals. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business.

Anti‑kickback Laws

U.S. federal laws, including the federal Anti‑Kickback Statute, prohibit fraud and abuse involving state and federal healthcare programs, such as Medicare and Medicaid. These laws are interpreted broadly and enforced aggressively by various state and federal agencies, including CMS, the Department of Justice, the Office of Inspector General for HHS, and various state agencies. These anti‑kickback laws prohibit, among other things, knowingly and willfully offering, paying, soliciting, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a federal healthcare program. Remuneration is broadly defined to include anything of value, such as cash payments, gifts or gift certificates, discounts, or the furnishing of services, supplies, or equipment. The anti‑kickback laws are broad and prohibit many arrangements and practices that are lawful in businesses outside of the healthcare industry. A person or entity need not have actual knowledge of the federal Anti‑Kickback Statute or specific intent to violate it in order to have committed a violation.

The penalties for violating the anti‑kickback laws can be severe. The sanctions include criminal and civil penalties, and possible exclusion from the federal healthcare programs. Many states have adopted laws similar to the federal anti‑kickback laws, and some apply to items and services reimbursable by any payer, including third party payers.

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Federal and State Prohibitions on False Claims

The federal False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment under federal programs (including Medicare and Medicaid). Under the False Claims Act, a person acts knowingly if he has actual knowledge of the information or acts in deliberate ignorance or in reckless disregard of the truth or falsity of the information. Although we would not submit claims directly to government payers, manufacturers can be held liable under the False Claims Act if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off‑label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state, and third party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law.

Provisions of the False Claims Act allow a private individual to bring an action on behalf of the federal government and to share in any amounts paid by the defendant to the government in connection with the action. The number of filings under these provisions has increased significantly in recent years. Conduct that violates the False Claims Act may also lead to exclusion from the federal healthcare programs. In addition, various states have enacted similar laws modeled after the False Claims Act that apply to items and services reimbursed under Medicaid and other state healthcare programs, and, in several states, such laws apply to claims submitted to all payers.

Federal Prohibitions on Healthcare Fraud and False Statements Related to Healthcare Matters

There are numerous federal and state laws protecting the privacy and security of protected health information. Additionally, a number of related crimes can be prosecuted related to healthcare fraud, false statements relating to healthcare matters, theft or embezzlement in connection with a health benefit program, and obstruction of criminal investigation of healthcare offenses. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including a private insurer. Violation of any of these laws is a felony and may result in fines or exclusion from the federal healthcare programs.

Physician Payment Sunshine Act

The Physician Payment Sunshine Act requires most pharmaceutical manufacturers to report annually to the Secretary of HHS financial arrangements, payments, or other transfers of value made by that entity to physicians and teaching hospitals. The payment information is made publicly available in a searchable format on a CMS website. Over the next several years, we will need to dedicate significant resources to establish and maintain systems and processes in order to comply with these regulations. Failure to comply with the reporting requirements can result in significant civil monetary penalties. Similar laws have been enacted or are under consideration in foreign jurisdictions, including France, which has adopted the Loi Bertrand, or French Sunshine Act, which became effective in 2013.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing, or making payments to foreign officials for the purpose of obtaining or retaining business abroad. In many countries, the healthcare professionals we regularly interact with may meet the definition of a foreign government official for purposes of the Foreign Corrupt Practices Act.

Other Regulations

In addition to the statutes and regulations described above, we also are subject to regulation in the United States under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other federal, state, local and foreign statutes and regulations, now or hereafter in effect.

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Foreign Regulation

In addition to regulations in the United States, we are subject to a variety of foreign regulations governing clinical trials, distribution, and future commercial sales of our products. Whether or not we obtain FDA approval for a drug candidate, we must obtain approval by the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before we can commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders, or diabetes and optional for those medicines that are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for approval by one or more “concerned” member states based on an assessment of an application performed by one member state, known as the “reference” member state. Under the decentralized approval procedure, an applicant submits an application, or dossier, and related materials to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether or not to approve the assessment report and related materials. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.

Employees

As of March 8, 2016, we had 29 full‑time employees and two part‑time employees. None of our employees is represented by a labor union or covered by a collective bargaining agreements. We consider our relationship with our employees to be good.

Research and Development

We invested approximately $16.1 million, $12.2 million and $13.1 million in research and development in the years ended December 31, 2015, 2014 and 2013, respectively.

About Nivalis

We were incorporated under the laws of the State of Delaware in August 2012 and completed our initial public offering of our common stock in June 2015. Our common stock is listed on the NASDAQ Global Market under the symbol “NVLS”. Our principal executive offices are located at 3122 Sterling Circle, Suite 200, Boulder, Colorado 80301, and our telephone number is (720) 945-7700. Our website address is www.nivalis.com. Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this report.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. 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 billion or more; (ii) December 31, 2020; (iii) the date on which we have issued more than $1 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 Securities and Exchange Commission. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and references herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

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Available Information

As a public company, we file reports and proxy statements with the Securities and Exchange Commission, or the SEC. These filings include our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements on Schedule 14A, as well as any amendments to those reports and proxy statements, and are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC. Once at www.nivalis.com, go to the Investors/SEC Filings section of our website to locate copies of such reports. You may also read and copy materials that we file with SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding us and other issuers that file electronically with the SEC.

ITEM 1A.RISK FACTORS

Our business faces significant risks and uncertainties. Certain factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in or incorporated by reference into this Annual Report on Form 10-K and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

Risks Relating to Our Financial Condition and Need for Additional Capital

We have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future.

We are a clinical stage pharmaceutical company focused primarily on developing our lead product candidate, N91115, for CF. We have incurred significant net losses in each year since our inception, including net losses of $22.8 million, $15.0 million and $16.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we had an accumulated deficit of $148.8 million.

To date, we have financed our operations primarily through sales of our equity securities and convertible debt. We have devoted most of our financial resources to research and development, including our preclinical research and development activities and clinical trials. We have not completed the development of any product candidate. We expect to continue to incur significant and increasing losses and negative cash flows for the foreseeable future. The size of our losses will depend, in part, on the rate of future expenditures and our ability to generate revenue. We expect to incur substantial and increased expenses arising from the clinical development of N91115 or any other potential product candidate, including, in particular, as we:

· prepare for and execute on the Phase 2 and Phase 3 clinical programs for N91115;

· scale up development, including contracted manufacturing processes and quantities to prepare for larger clinical trials and the commercialization of N91115;

· seek to obtain regulatory approvals for N91115;

· prepare for the commercialization of N91115, including establishing an infrastructure for the sales, marketing and distribution of N91115 for any indications for which we receive regulatory approval;

· expand our research and development activities to identify and potentially advance other product candidates;

· maintain, expand and protect our intellectual property portfolio; and

· add operational, financial and management information systems and personnel to support our clinical development, commercialization efforts and operations as a public company.

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Our recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern.

We have had recurring losses from operations and previous reports on our financial statements by our independent registered public accounting firm have included an explanatory paragraph with respect to our ability to continue as a going concern. We will likely not generate meaningful revenue until and unless N91115 or another potential product candidate is approved by the FDA or comparable regulatory agencies in other countries and successfully marketed, either by us or a partner, an outcome which may not occur. We believe that our existing cash, cash equivalents and marketable securities and interest thereon will be sufficient to fund our projected operating requirements to mid‑2017. However, if we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation and dissolution could be significantly lower than the values reflected in our financial statements. The perception that we may not be able to continue as a going concern may have an adverse impact on our business due to concerns about our ability to meet our contractual obligations. If we are unable to continue as a going concern, an investor could lose all or part of their investment in our company.

Our ability to generate future revenue and achieve and maintain profitability is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for and commercialize N91115 or any other potential product candidate.

Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize, a product candidate. We have never obtained approval for or commercialized a product candidate. Our N91115 development program is currently focused on demonstrating the clinical benefit of N91115 for CF patients when added to other CFTR modulators. Initially, this program includes N91115 administered as part of triple therapy with Vertex’s co‑formulated CFTR modulators, lumacaftor with ivacaftor, or lumacaftor/ivacaftor. The evaluation of N91115 in other mutations is also planned. We do not anticipate generating revenue from sales of N91115 or any other potential product candidate for the foreseeable future, if ever. Our ability to generate future revenue depends heavily on:

· obtaining regulatory approval in the United States for N91115 in CF and equivalent foreign regulatory approvals;

· the commercial launch of lumacaftor/ivacaftor in the U.S. and in other geographic regions;

· the continued commercial viability of lumacaftor/ivacaftor as a leading therapy in CF;

· whether N91115 may be combined with other future commercially successful therapies, if any, that could influence the standard of care in CF, and the age groups and geographic regions in which these other therapies are available;

· launching and commercializing N91115, including establishing an infrastructure for the sales, marketing and distribution of N91115;

· achieving broad market acceptance of N91115 in the medical community and with third party payers;

· obtaining favorable results for and continuing to develop N91115, including successfully initiating and completing our planned Phase 2 clinical program, as well as future trials thereafter; and

· generating a pipeline of product candidates other than N91115.

Conducting preclinical testing and clinical trials is a time‑consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data required to obtain regulatory approval and generate revenue. Our anticipated development costs would likely increase if we do not obtain favorable clinical results or if development of N91115 or any other potential product candidate is delayed. In particular, if the commercialization of Vertex’s lumacaftor/ivacaftor is unsuccessful and/or we are required by the U.S. Food and Drug Administration, or FDA, or comparable regulatory authorities in other countries, to perform studies or trials in addition to those that we currently anticipate, we would likely incur higher costs than we currently anticipate. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of any increase in our anticipated development costs.

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In addition, N91115 or any other potential product candidate, if approved, may not achieve commercial success. Our commercial revenue, if any, will be derived from sales of products that we do not expect to be commercially available until at least 2018, if at all. Even if a product candidate is approved for commercial sale, we anticipate incurring significant costs in connection with commercialization. As a result, we cannot assure that we will be able to generate revenue, or that we will achieve or maintain profitability even if we do generate revenue.

Even if N91115 or any other potential product candidate receives regulatory approvals or is commercialized, if it later shows unanticipated properties, or if revenue is insufficient, we will not achieve or maintain profitability and our business may fail. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the value of our company could cause an investor to lose all or part of his, her or its investment.

We will need to raise additional funding to launch and commercialize N91115 or any other potential product candidate, which may not be available on acceptable terms, if at all. If we fail to obtain additional financing, we could be forced to delay, reduce or eliminate development efforts for N91115 and any other potential product candidate, seek corporate partners or relinquish or license on unfavorable terms our rights to technologies or product candidates.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time‑consuming, expensive and uncertain process that takes years to complete. We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our clinical program for N91115.

Based upon our current operating plan, we expect that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements to mid‑2017 when we expect to be enrolling patients in our Phase 3 clinical program for N91115. We will require additional funding prior to the completion of development, approval and commercialization of N91115. However, changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. For example, our clinical trials may encounter technical, enrollment or other difficulties that could increase our development costs more than we expected, or the FDA may require us to perform studies or trials in addition to those that we currently anticipate. We will need to raise additional funds if we choose to initiate clinical trials for a potential product candidate other than N91115 or to administer N91115 with drugs other than lumacaftor/ivacaftor. We will also need to raise additional funds if we need to obtain regulatory approval to expand the label for N91115 in distinct CF populations. In any event, we will require additional capital to obtain regulatory approval for, and the commercialization of, our product candidates.

Securing additional financing may divert our management from our day‑to‑day activities, which may adversely affect our ability to develop and commercialize N91115 or any other potential product candidate. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

· significantly delay, scale back or discontinue the development or commercialization of N91115 or any other potential product candidate;

· seek corporate partners at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or

· relinquish or license on unfavorable terms, our rights to technologies or to N91115 or any other potential product candidate that we otherwise would seek to develop or commercialize ourselves, or sell all of our assets or our entire business.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects, and may cause us to cease operations.

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

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs primarily through public or private equity or convertible debt offerings, partnerships, grants or other nondilutive sources of financing. We currently do not have any committed external source of funds.

To the extent that we raise additional capital through the sale of equity or convertible debt, the ownership interests of our stockholders will be diluted. In addition, the terms of any equity or convertible debt we agree to issue may include liquidation or other preferences that adversely affect the rights of our stockholders. Convertible debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

If we are unable to raise additional funds, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our research and development or commercialization efforts, or grant others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We have a limited operating history, which may make it difficult for investors to evaluate the success of our business to date and to assess our future viability.

We are a clinical stage pharmaceutical company with a limited operating history. Our operations to date have been primarily limited to organizing and staffing our company, acquiring and developing product and technology rights and conducting research and development activities. We have recently initiated Phase 2 clinical development for N91115. We have not obtained regulatory approval for N91115 or any other potential product candidate. Consequently, any predictions about our future success, performance or viability may not be as accurate as they could be if we had a longer operating history, achieved a later stage of clinical development or approved products on the market.

Our inability to utilize our net operating loss carryforwards before they expire may adversely affect our results of operations and financial condition.

As of December 31, 2015 we had federal and state net operating loss carryforwards ofapproximately $54.7 million, which may be utilized against future federal and state income taxes. In general, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre‑change net operating loss carryforwards, or NOLs, to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders, generally stockholders beneficially owning five percent or more of our common stock, applying certain look‑through and aggregation rules, increases by more than 50% over such stockholders’ lowest percentage ownership during the testing period, generally three years. Purchases of our common stock in amounts greater than specified levels, which will be beyond our control, could create a limitation on our ability to utilize our NOLs for tax purposes in the future. Limitations imposed on our ability to utilize NOLs could cause us to pay U.S. federal and state income taxes earlier than we would otherwise be required if such limitations were not in effect and could cause such NOLs to expire unused. Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs before they expire beginning in 2032. In addition, at the state level there may be periods during which the use of NOLs is suspended or otherwise limited, which would accelerate or may permanently increase state taxes owed. If any of these events occur, we may not derive some or all of the expected benefits from our NOLs, and our results of operations and financial condition may be adversely affected as a result. As of December 31, 2015, we have not performed a formal study to determine whether limitations to our NOLs have occurred or whether such limitations could result from the sale of shares in our initial public offering in June 2015. Such limitations could be significant.

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Risks Relating to Clinical Development and Regulatory Approval

We depend almost entirely on the success of our lead product candidate, N91115, which has recently begun Phase 2 clinical testing, and which will need regulatory approval before it can be commercialized. We may not be able to obtain or may be delayed in obtaining regulatory approval for N91115.

We depend almost entirely on the success of our lead product candidate, N91115, which recently began Phase 2 clinical testing. Regulatory agencies, including the FDA, ultimately must approve any product candidate before it can be promoted, marketed or commercially distributed. N91115 and any other potential product candidate we develop will be subject to extensive and rigorous review and regulation by governmental authorities. We have never obtained approval for or commercialized a product candidate. The timing of this process can be unpredictable and may include post‑marketing studies and surveillance, which would require the expenditure of additional resources beyond our existing cash, cash equivalents or marketable securities. Of the large number of drugs in development for approval in the United States, only a small percentage successfully complete the regulatory approval process and are commercialized. The success of N91115 depends on, among other things:

· our ability to complete clinical trials and other product research and development activities;

· whether our clinical trials for N91115 demonstrate statistically significant and clinically meaningful efficacy not outweighed by safety issues;

· meeting FDA and other regulatory agencies’ requirements to obtain approval for a product candidate; and

· ensuring that the manufacturing processes and facilities of the third parties with which we contract to manufacture our product candidates are in compliance with all relevant regulatory requirements, including those of the FDA.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays in our ability to obtain regulatory approval of N91115, including, but not limited to, denial of a new drug application, or NDA. We have never applied for, and have never received, regulatory approval for a drug. If we are unable to successfully complete the clinical development of N91115 and meet other related regulatory requirements, we will be unable to obtain approval of an NDA from the FDA. It is possible that, even if we successfully complete the clinical development of N91115, the FDA may refuse to accept our NDA for substantive review or may conclude after review of our data that our application is insufficient. If the FDA does not accept or approve our NDA, it may require that we conduct additional clinical, nonclinical or manufacturing studies or analyses and submit that data to it before it will reconsider our application. Depending on the extent of these or any other FDA requirements, approval of any NDA or application that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve our NDA.

In addition, the regulatory agencies may not complete their review processes in a timely manner, or additional delays may result if N91115 is brought before an FDA advisory committee, which could recommend restrictions on approval or recommend non‑approval of the product candidate. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. As a result, we cannot predict when, if at all, we will receive regulatory approval of any product candidate.

Any delay in obtaining, or an inability to obtain, regulatory approvals would prevent us from commercializing N91115, generating revenue and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for N91115, which would have a material adverse effect on our business and could potentially cause us to cease operations. These factors could materially harm our business, and the value of our common stock would likely decline.

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Our lead product candidate, N91115, is initially being developed for a triple therapy of N91115 along with Vertex’s lumacaftor/ivacaftor, and we may be unsuccessful in obtaining regulatory approval for, or commercially launching, N91115 if Vertex decides to withdraw or replace lumacaftor/ivacaftor in some or all geographic regions.

Our initial development plans for N91115 focus on a triple therapy of N91115 along with Vertex’s lumacaftor/ivacaftor, which was approved by the FDA on July 2, 2015, and by the European Union’s Committee for Medicinal Products for Human Use (CHMP) on November20, 2015. Consequently, the development of N91115 depends upon the successful commercialization of lumacaftor/ivacaftor in the U.S. and the commercial launch of lumacaftor/ivacaftor in other geographic regions. If Vertex is unable to, or decides to withdraw or replace lumacaftor/ivacaftor in any geographic region, this could prevent or significantly delay our ability to advance N91115 through clinical development to commercialization.

We have no agreements in place with Vertex, including any agreements to incentivize Vertex to proceed with its commercialization of lumacaftor/ivacaftor or to provide us with clinical supply of lumacaftor/ivacaftor, and our plans to develop N91115 have not been established in conjunction with Vertex. Vertex is not obligated in any way to continue with its currently disclosed plans and could stop the commercialization of lumacaftor/ivacaftor at any time. We have no control over Vertex’s interactions with the FDA or other regulatory authorities and cannot intervene in that process. It is also possible that Vertex may experience a number of unforeseen events during their attempts to commercialize lumacaftor/ivacaftor that prevent it from pursuing commercialization or that impact successful commercialization. Vertex could decide to de‑prioritize commercialization of lumacaftor/ivacaftor in relation to other projects, or deploy insufficient resources to support the commercialization of lumacaftor/ivacaftor. Also, Vertex could merge with a third party that decides to terminate or de‑prioritize the commercialization of lumacaftor/ivacaftor. In any of such events, we may be forced to abandon our development efforts of N91115 or reinitiate our efforts to test administration of N91115 with different therapies. Any of these events would have a material adverse effect on our business and could potentially cause us to cease operations.

The timing of the development of N91115 and its commercial launch may be significantly delayed if there are setbacks or delays in the commercialization of lumacaftor/ivacaftor.

We are dependent on publicly disclosed information with respect to Vertex’s commercialization of lumacaftor/ivacaftor, and this may make it more difficult to evaluate our business and prospects at any given point in time, and could also impair our ability to raise capital on our desired timeline. The commercialization of lumacaftor/ivacaftor could encounter setbacks, which would significantly delay our plans to develop N91115, including the conduct and timely completion of clinical trials, ultimate approval and commercial marketing of N91115.

Even if Vertex commercially launches lumacaftor/ivacaftor on a timely basis, we may be unsuccessful or significantly delayed in the development and commercial launch of N91115 if Vertex fails to comply with ongoing regulatory requirements or does not continue to produce or commercialize lumacaftor/ivacaftor, or we are otherwise unable to obtain lumacaftor/ivacaftor.

The development of N91115 also depends upon Vertex’s continued compliance with regulatory requirements and the continued commercial availability of lumacaftor/ivacaftor for use in our clinical trials and for our commercialization efforts. Vertex’s failure to comply with ongoing regulatory requirements could result in a major delay in, or prevent, the development and approval of N91115.

Vertex has no obligation to continue producing, commercializing or making lumacaftor/ivacaftor available to patients, or to continue producing lumacaftor/ivacaftor in any particular quantity, which could prevent our ability to obtain lumacaftor/ivacaftor for use in our planned clinical trials or impact the number of patients taking lumacaftor/ivacaftor who are available to enroll in our clinical trials. For example, Vertex may encounter manufacturing or other production issues and fail to produce enough lumacaftor/ivacaftor for us to successfully complete our studies and clinical trials, and this could cause our N91115 development program or commercialization efforts to fail or be significantly delayed. This could result in insufficient or no revenue and force us to pursue an alternative plan of business or cease operations entirely.

We may be unsuccessful or significantly delayed in the development and commercial launch of N91115 if there are not enough appropriate patients treated with lumacaftor/ivacaftor to conduct our clinical trials.

If there are not enough available patients treated with lumacaftor/ivacaftor to enroll in our clinical trials, we may be unable to advance N91115 through clinical development or be significantly delayed. Given the small patient

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population with CF and that the number of clinical trials being conducted at any given time is high, and is expected to increase, fewer patients will be available for any given clinical trial. Subjects may also drop out of these clinical trials at a higher rate than we anticipate or we may discover that more patients than anticipated are required to complete our clinical trials.

In addition, if Vertex fails to gain reimbursement for lumacaftor/ivacaftor, there could be insufficient patients treated to conduct our clinical trials or enrollment in our clinical trials could take longer, and we may be forced to pay to obtain the drug for patients enrolling in our clinical trials, which could delay our clinical development, reduce the number of patients enrolling and require us to seek additional sources of funding to complete our development plans.

Patients and their physicians may also conclude lumacaftor/ivacaftor is sufficiently effective on its own, leading to an insufficient number of patients available to enroll in our clinical trials, which would cause our clinical trials to fail or be delayed. Patients and their doctors may decide to wait for longer than we currently anticipate in order to evaluate the effect of lumacaftor/ivacaftor prior to enrolling in our clinical trials, which would significantly delay our N91115 development program. In addition, if physicians or patients do not perceive the benefits of lumacaftor/ivacaftor as clinically meaningful, this may negatively affect uptake and patients may stop taking lumacaftor/ivacaftor. Moreover, if only patients who are unsuccessfully treated on lumacaftor/ivacaftor decide to enroll in our clinical trials for N91115, our clinical trials may not be successful and could fail.

Any of these events would have a material adverse effect on our business and could potentially cause us to cease operations.

We may be unsuccessful or significantly delayed in the development and commercial launch of N91115 if lumacaftor/ivacaftor has unexpected longer term safety or efficacy issues.

Our plans for the development of N91115 depend on our expectation that lumacaftor/ivacaftor will be safe and effective, successfully marketed, physicians will prescribe lumacaftor/ivacaftor and patients will continue treatment. However, lumacaftor/ivacaftor could encounter unexpected results in the future and be associated with adverse outcomes or perceived lack of benefit during long‑term use, forcing Vertex to amend its label or discontinue commercialization. This would have a material adverse effect on our business and could potentially cause us to cease operations.

If we pursue regulatory approval of N91115 for a triple therapy only along with lumacaftor/ivacaftor, and lumacaftor/ivacaftor subsequently becomes obsolete as a standard of care or its use is discontinued, we may be unsuccessful or significantly delayed in the development and commercial launch of N91115, or we may be forced to abandon or reinitiate our development efforts for N91115.

Our initial development plans for N91115 focus on a triple therapy of N91115 along with lumacaftor/ivacaftor. Changes in standard of care or use patterns of lumacaftor/ivacaftor could make our triple therapy obsolete. If N91115 is approved specifically by indication from the FDA to be administered only along with lumacaftor/ivacaftor and use of another therapy becomes more prevalent than lumacaftor/ivacaftor, replaces lumacaftor/ivacaftor or makes a stabilizer obsolete, revenue from sales of N91115 could be negatively impacted and our financial results and stock price would be adversely affected. We may also be forced to abandon our development efforts of N91115 or reinitiate our efforts to test administration of N91115 along with a different drug. This would have a material adverse effect on our business and could potentially cause us to cease operations.

The regulatory approval processes of the FDA, the European Medicines Agency, or EMA, and comparable foreign regulatory authorities are lengthy, time‑consuming and inherently unpredictable.

We are not permitted to market N91115 or any other potential product candidate in the United States or outside the United States until we receive approval of an NDA from the FDA or approval of a marketing application from the comparable regulatory authority in other countries. Prior to submitting an NDA to the FDA for approval of N91115, we will need to complete our ongoing preclinical and toxicology studies in CF, as well as all necessary clinical trials. We are still conducting ongoing preclinical studies and recently initiated a Phase 2 clinical trial. Successfully completing our Phase 2, and initiating and completing our Phase 3 clinical programs and obtaining approval of an NDA is a complex,

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lengthy, expensive and uncertain process, and FDA and other comparable foreign regulatory authorities may delay, limit or deny approval of N91115 or any other potential product candidate for many reasons, including, among others:

· the results of our clinical trials may not meet the level of statistically significant and clinically meaningful efficacy with an acceptable safety profile as required by FDA, or other comparable regulatory authorities in other countries, for marketing approval;

· the FDA or other comparable regulatory authorities in other countries may disagree with the number, design, size, conduct or implementation of our clinical trials;

· the FDA or other comparable regulatory authorities may find the data from preclinical studies and clinical trials insufficient to demonstrate that the potential clinical and other benefits outweigh its safety risks;

· the FDA or other comparable regulatory authorities in other countries may disagree with our interpretation of data from our preclinical studies and clinical trials;

· the FDA or other comparable regulatory authorities in other countries may not accept data generated at one or more of our clinical trial sites;

· if our NDAs or similar applications, if and when submitted, are reviewed by FDA or other comparable regulatory authorities, as applicable, the regulatory authorities may have difficulties scheduling the necessary review meetings in a timely manner, may recommend against approval of our application or may recommend that the FDA or other comparable regulatory authorities, as applicable, require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and restrictions on use;

· the FDA may determine that our NDAs, if and when submitted, must follow a different regulatory pathway than we have attempted, and there may be potentially extended standards, timelines, and/or costs in order to pursue approval;

· the FDA may require development of a Risk Evaluation and Mitigation Strategy as a condition of approval or post‑approval, and other comparable regulatory authorities may grant only conditional approval or impose specific obligations as a condition for marketing authorization, or may require us to conduct post‑authorization safety studies;

· the FDA or other comparable regulatory authorities may determine that the manufacturing processes or facilities of third party manufacturers with which we contract are not in compliance with all relevant regulatory requirements, including current good manufacturing practice, or cGMP, requirements; or

· the FDA or other comparable regulatory authorities may change their approval policies or adopt new regulations.

Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market N91115 or any other potential product candidate. Moreover, because we are almost entirely dependent on N91115, any such setback in our pursuit of regulatory approval would have a material adverse effect on our business and prospects.

We depend on the successful completion of clinical trials for N91115 or any other potential product candidate. The positive clinical results, if any, obtained by us in clinical trials may not be repeated in later‑stage clinical trials.

Before obtaining regulatory approval for the sale of N91115 or any other potential product candidate, we must conduct extensive clinical trials to demonstrate safety and efficacy in humans. We have not completed the clinical trials necessary to support an application for approval to market our lead product candidate, N91115. Successful completion of such clinical trials is a prerequisite to submitting an NDA to the FDA and, consequently, the ultimate approval and commercial marketing of N91115 or any other potential product candidate. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later preclinical testing or clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many

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companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.

To date, we have completed dose escalation and drug-drug interaction trials in healthy subjects and pharmacokinetic and dose-ranging safety trials in CF patients as part of our Phase 1 clinical program. We need to complete our ongoing preclinical and toxicology studies, as well as additional Phase 1, Phase 2 and Phase 3 clinical trials prior to submitting N91115 for regulatory approval. We have conducted limited safety studies in humans to date and only recently commenced our planned Phase 2 trial to assess the efficacy and safety of N91115 in CF patients.  We have not yet commenced our Phase 3 clinical program. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in late stage clinical development, even after seeing promising results in earlier clinical trials.

We may experience a number of unforeseen events during, or as a result of, clinical trials for N91115 or any other potential product candidate that could adversely affect the completion of our clinical trials, including:

· regulators, and/or institutional review boards or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site;

· our clinical trials are subject to review by the Protocol Review Committee, or PRC, of the Therapeutic Development Network of the Cystic Fibrosis Foundation’s Therapeutics Branch. The PRC may not sanction our trial for conduct at prospective trial sites or may provide a ranking that adversely impacts recruitment in our clinical trials compared with other investigational new drugs in CF;

· clinical trials of N91115 or any other potential product candidate may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

· the number of subjects required for clinical trials of N91115 or any other potential product candidate may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, particularly given the small patient population with CF and the number of clinical trials being conducted at any given time is high, and is expected to increase, leading to fewer available patients for any given clinical trial, or subjects may drop out of these clinical trials at a higher rate than we anticipate;

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

· we might have to suspend or terminate clinical trials of N91115 or any other potential product candidate for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;

· regulators, institutional review boards or data monitoring committees may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety signals or noncompliance with regulatory requirements;

· the cost of clinical trials of N91115 or any other potential product candidate may be greater than we anticipate;

· the supply or quality of N91115 or any other potential product candidate or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

· N91115 or any other potential product candidate may have undesirable side effects or other unexpected characteristics.

Negative or inconclusive results of our clinical trials of N91115, or any other clinical trial we conduct, could mandate repeated or additional clinical studies. Despite the safety results reported in earlier clinical trials for N91115, we do not know whether any other clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market N91115 or any other potential product candidate. If later stage clinical trials do not

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produce favorable results, our ability to obtain regulatory approval for N91115 or any other potential product candidate may be adversely impacted.

Delays in clinical trials are common and have many causes, and any delay could have a material adverse effect on our business such as increased costs and delays in our ability to obtain regulatory approval and commence product sales. We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Clinical trials must be conducted in accordance with FDA regulations or other applicable foreign government regulations, and are subject to oversight by the FDA or other foreign regulatory authorities and institutional review boards at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with product candidates produced under current Good Manufacturing Practices, or cGMP, and may require large numbers of test subjects.

We may experience delays in clinical trials at any stage of development and testing of N91115 or any other potential product candidate. We began our Phase 2 clinical trial in November 2015. Our other planned clinical trials may not begin on time, and our Phase 2 and other clinical trials may not have an effective design, enroll a sufficient number of patients or be completed on schedule, if at all.

Events, excluding our current dependence on the commercial launch of lumacaftor/ivacaftor in the U.S. and other geographic regions, which may result in a delay or unsuccessful completion of clinical trials for N91115, include:

· inability to raise funding necessary to initiate or continue a trial;

· delays in obtaining regulatory approval to commence a trial;

· delays in reaching agreement with FDA or regulatory authorities in other countries on final trial design;

· delays in the review of our clinical trials by the PRC of the Therapeutic Development Network of the Cystic Fibrosis Foundation’s Therapeutic branch;

· imposition of a clinical hold based on the submission of results of clinical and preclinical studies or following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

· delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites;

· delays in obtaining required institutional review board approval at each site;

· delays in recruiting and retaining suitable subjects to participate in a trial;

· delays in having subjects complete participation in a trial or return for post‑treatment follow‑up;

· delays caused by subjects dropping out of a trial due to side effects or otherwise;

· clinical sites dropping out of a trial to the detriment of enrollment;

· study personnel may administer the wrong version of N91115 or other potential product candidate or assign study therapy to the wrong treatment group, resulting in disqualification of subjects from data analysis;

· study personnel may not perform in accordance with good clinical practices;

· N91115 or other potential product candidate may have unforeseen adverse side effects;

· time required to add new clinical sites; and

· delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

If initiation or completion of any of our clinical trials, including our Phase 2 clinical trial of N91115, are delayed for any of the above reasons, our development may be arrested, development costs may increase, our approval

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process could be delayed, any periods during which we may have the exclusive right to commercialize N91115 or any other potential product candidate may be reduced and our competitors may have more time to bring products to market before we do or otherwise delay us. Any of these events could impair our ability to generate revenue from product sales and impair our ability to generate regulatory and commercialization milestones and royalties, all of which could have a material adverse effect on our business.

N91115 or any other potential product candidate may cause adverse events or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

Undesirable adverse events caused by N91115 or any other potential product candidate could cause us or regulatory authorities to interrupt, delay, halt or terminate clinical trials and could result in the denial of regulatory approval by the FDA or other comparable foreign regulatory authorities for any or all targeted indications. It is possible that during the course of the clinical development of N91115 or any other potential product candidate, results of our clinical trials could reveal an unacceptable severity and prevalence of adverse events. In addition, our remaining preclinical testing may produce inconclusive or negative safety results, which may require us to conduct additional preclinical testing or to abandon N91115 or other potential product candidate. Also, N91115 or any other potential product candidate may have unfavorable pharmacology or toxicity characteristics, or cause undesirable side effects.

Undesirable adverse events caused by N91115 or any other potential product candidate could affect patient recruitment or the ability of enrolled patients to complete a clinical trial or result in potential product liability claims. In addition, adverse events that occur in our trials as a consequence of the serious disease that is being studied may negatively affect the profile of N91115 or any other potential product candidate. The FDA or other regulatory authorities may determine that additional safety testing is required for N91115 or any other potential product candidate, which would cause a delay in our clinical development of such product candidate.

Additionally if N91115 or any other potential product candidate receives marketing approval, and we or others later identify undesirable adverse events caused by such products, a number of potentially significant negative consequences could result, including:

· regulatory authorities may withdraw approval of N91115 or any other potential product candidate or impose restrictions on their distribution in the form of a modified risk evaluation and mitigation strategy;

· regulatory authorities may require additional labeling, such as warnings or contraindications;

· we may be required to change the way the product is administered or to conduct additional clinical studies;

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

· our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects. Any such events would increase our costs and could delay or prevent our ability to commercialize our product candidates, which could adversely impact our business, financial condition and results of operations.

N91115 and any other potential product candidate based on our GSNOR inhibitor portfolio are based on a novel technology, which may raise development issues we may not anticipate or be able to resolve, and regulatory issues that could delay or prevent approval.

N91115 and any other potential product candidate based on our GSNOR inhibitor technology platform are based on a novel technology, and there can be no assurance that unforeseen development problems related to our novel technology will not arise in the future and cause significant delays. We may be unable to resolve any such unforeseen problems.

Regulatory approval of novel product candidates can be more expensive and take longer than other, more well‑known or extensively studied pharmaceutical product candidates due to our and regulatory agencies’ lack of experience with them. There are no other GSNOR inhibitors that we know of in clinical development and none have been approved to date. The novelty of our platform may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of N91115 or any other potential product candidate

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based on our GSNOR inhibitor technology platform or lead to significant post‑approval limitations or restrictions. For example, the FDA could require additional studies or characterization that may be difficult or impossible to perform.

If we are not able to obtain orphan product status for N91115 in the EU and any other potential product candidate in the US or EU for which we seek this status, we will not be able to claim the tax credits for our clinical trials of such product candidate provided by this status or potentially take advantage of other benefits of orphan drug status.

Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States who have been diagnosed as having the disease or condition at the time of the submission of the request for orphan drug designation. Under Regulation No. (EC) 141/2000 on Orphan Medicinal Products, a medicinal product may be designated as an orphan medicinal product if, among other things, it is intended for the diagnosis, prevention or treatment of a life‑threatening or chronically debilitating condition affecting not more than five in 10,000 people in the European Union when the application is made. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of market exclusivity. This exclusivity precludes the EMA or the FDA, as applicable, from approving another marketing application for the same or, in the European Union, a similar drug for the same indication for that time period, unless, among other things, the later product is clinically superior. The applicable period is seven years in the United States and ten years in the European Union following marketing approval. The EU exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation, for example if the drug is sufficiently profitable so that market exclusivity is no longer justified.

We own exclusive rights to N91115 in the United States and all other major markets, including U.S. composition of matter patent protection until at least 2031. The potential benefits conferred by orphan status are that it may allow us to benefit from an exclusive marketing period should our patents not be enforceable or subject to challenge and it provides for tax credits for certain clinical trial expenses that can be applied against future revenue, if any.

In the United States, orphan drug exclusivity may be lost if the FDA withdraws or revokes the orphan drug designation as permitted by law, we withdraw the marketing application for the drug, we consent to another’s marketing application for approval of the same use or indication as the designated orphan drug, or we fail to assure a sufficient quantity of the drug as required by law. Similarly, in the European Union, exclusivity may be lost if we request the removal of the orphan drug designation or the drug no longer meets any of the criteria that made it eligible for orphan drug status at the outset. Even after an orphan drug is approved, the same or, in the European Union, a similar drug can subsequently be approved for the same condition if the competent regulatory agency concludes that the later drug is clinically superior to the original orphan drug by providing a significant therapeutic advantage over and above that drug.

We were granted orphan drug designation for N91115 by the FDA in January 2016.We intend to seek orphan drug designation in the EU for N91115 and may seek an orphan drug designation for other potential product candidates. If we lose orphan drug exclusivity for N91115 in the United States or are unable to obtain and maintain orphan drug designation in the EU for N91115 or for any other product candidates for which we seek a designation, or if our competitors obtain orphan drug exclusivity for other rare diseases or conditions we are targeting before we do, we may be delayed in obtaining marketing authorization or we may lose out on the potential benefits of market exclusivity associated with the orphan drug designation.

We may not retain fast track designation by the FDA for N91115 or any other potential product candidate for which we seek such designation. If granted, fast track designation may not actually lead to a faster development, regulatory review or approval.

If a drug is intended for the treatment of a serious condition and preclinical or clinical data demonstrate the potential to address an unmet medical need, the sponsor may apply for FDA fast track designation. The FDA has broad discretion whether or not to grant this designation. We were granted fast track designation by the FDA for N91115 in February 2016, and we may seek fast track designation for other potential product candidates in the future.Even with fast track designation, however, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may also withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

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We may not be granted a breakthrough therapy designation by the FDA for N91115 or any other potential product candidate. If granted, a breakthrough therapy designation may not actually lead to a faster development or regulatory review or approval, and it will not increase the likelihood that N91115 or any other potential product candidate will receive regulatory approval.

We intend to seek a breakthrough therapy designation for N91115, and we may do so for other potential product candidates as well. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapies on one or more clinically significant endpoints. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed on ineffective control regimens. Product candidates designated as breakthrough therapies by the FDA are also eligible for accelerated approval.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe N91115 or any other potential product candidate meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. The availability of breakthrough therapy designation was established with the passage of the Food and Drug Administration Safety and Innovation Act of 2012, and while the FDA has released guidance as to the criteria it uses in designating drugs as breakthrough therapies, we cannot be sure that N91115 or any other potential product candidate will meet the FDA’s qualifying criteria for such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if N91115 or any other potential product candidate qualifies as a breakthrough therapy, the FDA may later decide that the products no longer meet the conditions for such qualification or decide that the time period for FDA review or approval will not be shortened.

Even if we obtain regulatory approval for N91115 or any other potential product candidate, we will still face extensive ongoing regulatory requirements.

Even if we obtain regulatory approval in the United States, the FDA may still impose significant future restrictions on the indicated uses or marketing of N91115 or any other potential product candidate, or impose ongoing requirements for potentially costly post‑approval studies or post‑market surveillance, including Phase 4 clinical trials. Should we obtain regulatory approval for N91115 or any other potential product candidate, we will be subject to ongoing FDA requirements governing the labeling, manufacturing, packaging, storage, distribution, safety surveillance, advertising, promotion, record‑keeping and reporting of safety and other post‑market information. The holder of an approved NDA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.

In addition, manufacturers of drug products and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs, and adherence to commitments made in the NDA. If we, or a regulatory agency, discover previously unknown problems with a product, such as quality issues or adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including necessitating recall or withdrawal of the product from the market or suspension of manufacturing.

If we fail to comply with applicable ongoing regulatory requirements following approval of a product candidate, a regulatory agency may:

· issue an untitled or warning letter asserting that we are in violation of the law;

· seek an injunction or impose civil or criminal penalties or monetary fines;

· suspend or withdraw regulatory approval;

· suspend any ongoing clinical trials;

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· refuse to approve a pending NDA or supplements to an NDA submitted by us; or

· demand recall and/or seize product.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize N91115 or any other potential product candidate and inhibit our ability to generate revenue.

The approval of N91115 or any other potential product candidate in any given market does not ensure approval in any other market.

In order to market any product candidate, we must establish and comply with numerous and varying regulatory requirements on a country‑by‑country basis regarding safety and efficacy. Approval in the United States by the FDA or by a regulatory agency in another country does not ensure approval by the regulatory authorities in other countries or jurisdictions or ensure approval for the same conditions of use. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates in those countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our product candidates will be unrealized.

Risks Related to Manufacturing and Reliance on Third Parties

We rely on third party contract manufacturers, including a single source supplier for one of our manufacturing processes, which limits our ability to control the availability of, and manufacturing costs for, N91115 and any other potential product candidate.

We do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage, distribution or testing. We rely, and expect to continue to rely, on third party manufacturers to manufacture and distribute our product candidates for clinical trials. We obtain N91115 to meet our clinical supply needs through a third party manufacturing network. Our supply chain for N91115 includes a sole source supplier for one of our manufacturing processes. A disruption in the clinical supply of N91115 could delay the completion of clinical trials and impact timelines for filing an NDA and comparable foreign regulatory submissions. We cannot be certain that we will be able to establish sufficient sources for manufacturing all of our N91115 supply needs on a timely basis or at all.

We intend to rely on these manufacturers to produce commercial supplies of our product candidates that are approved and commercialized. As a result of our reliance on these third party manufacturers and suppliers, including a sole source supplier of one of our manufacturing processes, we could be subject to significant supply disruptions outside of our control. Our supply chain for sourcing raw materials and manufacturing drug product ready for distribution is a multi‑step international endeavor. Third party contract manufacturers, including some in China, supply us with raw materials, and contract manufacturers in the United States, Canada and China convert these raw materials into drug substance and convert the drug substance into final dosage form. Establishing and managing this supply chain requires a significant financial commitment and the creation and maintenance of numerous third party contractual relationships. Although we attempt to effectively manage the business relationships with companies in our supply chain, we do not have control over their operations.

Supply disruptions may result from a number of factors, including:

· the inability of a supplier to provide raw materials;

· equipment malfunctions or failures at the facilities of any future collaborators or suppliers;

· high process failure rates;

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· inability to meet our product specifications and quality requirements consistently;

· damage to facilities due to natural or man‑made disasters;

· changes in regulatory requirements or standards that require modifications to any future collaborators’ or suppliers’ manufacturing processes;

· action by regulatory authorities or by us that results in the halting or slowdown of production of components or finished product at our facilities or the facilities of future collaborators or suppliers;

· problems that delay or prevent manufacturing technology transfer to another facility, contract manufacturer or future collaborator with subsequent delay or inability to start up a commercial facility;

· a contract manufacturer or supplier going out of business, undergoing a capacity shortfall or otherwise failing to produce product as contractually required;

· employee or contractor misconduct or negligence; and

· shipping delays, losses or interruptions.

Further, if our contract manufacturers are not in compliance with regulatory requirementsat any stage, including post approval, we may be fined, forced to remove a product from the market and/or experience other adverse consequences, including delays, which could materially harm our business.

Difficulties or delays in our contract manufacturers’ production of drug substances could delay our clinical trials, cause delays in the approval of our product candidates, increase our costs, damage our reputation, interrupt or cease commercial supply and cause us to lose revenue and market share if we are unable to timely meet market demand for any products that are approved for sale.

Alternative manufacturers may not exist should we need them. If we utilize alternative manufacturers or alternative materials and processes, we may be subject to additional regulatory requirements, manufacturing delays and increased costs.

Because manufacturing processes are highly complex and are subject to a lengthy regulatory approval process, alternative qualified production capacity and sufficiently trained or qualified personnel may not be available on a timely or cost‑effective basis or at all should we require them. If we utilize an alternative manufacturer or alternative component, we may be required to demonstrate comparability of the products and product candidates before releasing them for clinical use and we may not be able to find an alternative supplier. The loss of any of our current suppliers could result in manufacturing delays for the component substitution, and we may need to accept changes in terms or price from our existing supplier in order to avoid such delays.

We lack experience, and may experience difficulties managing our manufacturing processes.

We are an early stage company and do not have significant experience managing the complex manufacturing processes necessary for the development of our product candidates. We expect to need managerial, operational and other resources to oversee our manufacturing processes and relationships. Our future financial performance and our ability to commercialize N91115 or any other potential product candidate and to compete effectively will depend, in part, on our ability to manage any future growth, including with respect to our manufacturing processes, effectively. We may not be able to accomplish this, and our failure to accomplish any of them could prevent us from successfully growing our company.

Our contract manufacturers may develop independently or jointly with us proprietary processes, which could increase our reliance on such manufacturers or increase our costs should we be required to obtain a license to have the drug manufactured by an alternative manufacturer.

In the course of providing its services, a contract manufacturer may develop process technology related to the manufacture of N91115 or any other potential product candidate that the manufacturer owns, either independently or jointly with us. This would increase our reliance on that manufacturer or require us to obtain a license from that manufacturer in order to have our product candidates manufactured by other suppliers utilizing the same process.

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We rely on third parties to conduct our preclinical studies and some of our clinical trials. These third parties may not perform as contractually required or expected and issues may arise that could delay the completion of clinical trials and impact regulatory approval for N91115.

We sometimes rely on third parties, such as CROs, medical institutions, academic institutions, clinical investigators and contract laboratories, to conduct our preclinical studies and clinical trials. We are responsible for confirming that our preclinical studies are conducted in accordance with applicable regulations and that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. The FDA requires us to comply with Good Laboratory Practices for conducting and recording the results of our preclinical studies and Good Clinical Practices, or GCP, for conducting, monitoring, recording and reporting the results of clinical trials to assure that data and reported results are accurate and that the clinical trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with GCP, do not adhere to our clinical trial protocols or otherwise fail to generate reliable clinical data, we may need to enter into new arrangements with alternative third parties and our clinical trials may be more costly than expected or budgeted, extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.

Our CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is comprised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical studies may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates.

Further, if our contract manufacturers are not in compliance with regulatory requirements at any stage, including post‑marketing approval, we may be fined, forced to remove a product from the market and/or experience other adverse consequences, including delays, which could materially harm our business.

During the course of the product life cycle we will make process changes to scale up manufacturing to commercial quantities or transfer the production to alternate sites or contract manufacturers. Our ability to successfully implement these changes will depend on our ability to demonstrate, to the satisfaction of the FDA and other regulatory agencies, that the product made by the new process or at the new site is comparable to the original product.

In the event that manufacturing process changes are necessary for the further development of a product candidate, we may not be able to reach agreement with regulatory agencies on the criteria for demonstrating comparability to the original product, which would require us to repeat clinical studies performed with the original product. This could result in lengthy delays in implementing the new process or site and substantial lost revenue as a result of our inability to meet commercial demand. If we reach agreement with regulatory agencies on the criteria for establishing comparability, we may not be able to meet these criteria or may suffer lengthy delays in meeting these criteria. This may result in significant lost revenue due to inability to meet commercial demand with the original product. Furthermore, studies to demonstrate comparability, or any other studies on the new process or site such as validation studies, may uncover findings that result in regulatory agencies delaying or refusing to approve the new process or site.

We may explore future collaborations with third parties for the development and commercialization of N91115 or another potential product candidate. If we are unable to form such collaborations or they are not successful, we may not be able to complete the development of these product candidates.

We do not currently have any collaboration agreements for the development of N91115 or any other potential product candidate, but we may seek third party collaborators in the future.

We face a number of challenges in seeking future collaborations. Collaborations are complex and any potential discussions may not result in a definitive agreement for many reasons. For example, whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation of a number of factors, such as the design or results of our clinical trials, the potential market for our product candidates, the costs and complexities of manufacturing and delivering our product candidates to patients, the potential of competing products or

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product candidates, the existence of uncertainty with respect to ownership or the coverage of our intellectual property, and industry and market conditions generally. If we determine that additional collaborations for N91115 or any other potential product candidate are necessary and are unable to enter into such collaborations on acceptable terms, we might elect to delay or scale back the development or commercialization of our product candidates in order to preserve our financial resources or to allow us adequate time to develop the required resources and systems and expertise ourselves.

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. If a future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated.

If any such collaborations are established in the future, we may have limited control over the amount and timing of resources that our collaborators dedicate to the development of N91115 and any other potential product candidate. This is also likely to be true in any future collaborations with third parties once any of our product candidates are commercialized. Our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

Collaborations involving our product candidates pose the following risks to us:

· collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;

· collaborators may not pursue development and commercialization of N91115 or any other potential product candidate, or may elect not to continue development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;

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

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

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

· disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of N91115 or any other potential product candidate, or that result in costly litigation or arbitration that diverts management attention and resources;

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

· collaborators may elect to take over manufacturing rather than retain us as manufacturers and may encounter problems in starting up or gaining approval for their manufacturing operation and so be unable to continue development of N91115 or any other potential product candidate;

· we may be required to undertake the expenditure of substantial operational, financial and managerial resources in connection with any collaboration;

· we may be required to issue equity securities to collaborators that would dilute our existing stockholders’ percentage ownership;

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· we may be required to assume substantial actual or contingent liabilities;

· collaborators may not commit adequate resources to the marketing and distribution of our product candidates, limiting our potential revenue from N91115 or any other potential product candidate; and

· collaborators may experience financial difficulties.

Risks Relating to Commercialization of Our Product Candidates

The market opportunity for N91115 is limited by the age groups and geographic regions in which lumacaftor/ivacaftor is approved and commercialized, and also depends on the longer term success of lumacaftor/ivacaftor.

N91115 is initially being targeted for a triple therapy of N91115 along with lumacaftor/ivacaftor in CF patients homozygous for F508del. Consequently, N91115 will be administered to patients taking lumacaftor/ivacaftor in the patient populations and in the countries for which this therapy has received approval and has been commercialized. For example, we cannot test N91115 for safety and efficacy in a triple therapy along with lumacaftor/ivacaftor in the pediatric population until lumacaftor/ivacaftor has received approval for that population. This limitation could result in a negative impact on the revenue generated from N91115 and our financial results and stock price would be adversely affected. Further, if use of another therapy becomes more prevalent than lumacaftor/ivacaftor or makes lumacaftor/ivacaftor obsolete, revenue could be negatively impacted and our financial results and stock price would be adversely affected.

N91115 or any other potential product candidate in CF may depend, in part, on whether CF therapies other than lumacaftor/ivacaftor are developed and commercially launched, and also depend on the longer term success of these therapies.

In addition to lumacaftor and ivacaftor, there are other CF therapies currently under development or that may be developed in the future, including Vertex’s VX-661/ivacaftor combination and Vertex’s second generation correctors. We may expand the development of N91115 by testing it with additional CF therapies that we deem appropriate if, and as, they become commercially available and we may do the same with any potential product candidate other than N91115. We would, therefore, be dependent on the approval, commercialization and success of these other CF therapies, as well as the patient populations and countries for which such therapies received approval and were commercialized.

In addition, should we administer N91115 or any other potential product candidate with any other CF therapies, we would be subject to numerous additional risks. For example, the other therapies may lead to toxicities that are improperly attributed to our product candidate or the administration of our product candidate with such other therapies may result in toxicities that such other therapies do not produce when used alone. Other therapies with which we may administer our product candidate could be removed from the market and thus be unavailable for testing or commercial use. Testing our product candidate with other therapies may increase the risk of significant adverse effects or test failures. The timing, outcome and cost of developing a product candidate to be used with other therapies is difficult to predict and dependent on a number of factors that are outside our reasonable control. If we experience efficacy, safety or toxicity issues in our clinical trials or with any other therapies, we may not receive approval to market our product candidate, which could prevent us from ever generating revenue or achieving profitability. These limitations could result in a negative impact on our revenue and our financial results and stock price would be adversely affected.

The commercial success of N91115 and any other potential product candidate will depend upon the acceptance of those products, if approved, by the medical community, including physicians, patients and healthcare payers.

Even if N91115 or any other potential product candidate is approved for sale, it may nevertheless fail to achieve sufficient market acceptance by physicians, patients, healthcare payers and others in the medical community. If these product candidates, if approved, do not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not become profitable. The degree of market acceptance of N91115 or any other potential product candidate will depend on a number of factors, including:

· demonstration of safety and efficacy in our clinical trials;

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· the relative convenience, ease of administration and acceptance by physicians, patients and healthcare payers;

· the prevalence and severity of any adverse effects;

· limitations or warnings contained in the FDA‑approved label for the relevant product candidate;

· availability of alternative treatments;

· pricing and cost‑effectiveness;

· the effectiveness of our or any future collaborators’ sales and marketing strategies; and

· our ability to obtain and maintain payer approval, sufficient third party coverage or reimbursement, which may vary from country to country.

If N91115 or any other potential product candidate is approved but does not achieve an adequate level of acceptance by physicians, patients and healthcare payers, we may not generate sufficient revenue and we may not become or remain profitable.

We lack marketing experience, and may be unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market N91115 or any other potential product candidate, and we may not be successful in commercializing N91115 or any other potential product candidate if and when approved.

We do not have a sales or marketing infrastructure, and we have limited experience in the sales, marketing or distribution of pharmaceutical products. Our commercialization strategy will target key prescribing physicians and advocacy groups, as well as provide patients with support programs, ensure product access and help secure reimbursement. In the future, we may choose to build a focused sales and marketing infrastructure to market or co‑promote N91115 or any other potential product candidate if and when approved, which would be expensive and time‑consuming. Alternatively, we may elect to outsource these functions to third parties. Either approach carries significant risks. For example, recruiting and training a sales force is expensive and time‑consuming and, if done improperly, could delay a product launch and result in limited sales or failure to satisfy complex legal standards. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. Outside of North America and Europe, we may seek a partner to commercialize our products.

Factors that may inhibit our efforts to commercialize N91115 or any other potential product candidate on our own include:

· inability to recruit, manage and retain adequate numbers of effective sales and marketing personnel;

· the inability of marketing personnel to develop effective marketing strategies;

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

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

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

We may also not be successful in entering into additional arrangements with third parties to sell and market N91115 or any other potential product candidate or doing so on terms that are favorable to us. Even if we do enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability of N91115 or any other potential product candidate is likely to be lower than if we were to market and sell our products ourselves. In addition, we likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

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Competitive products for the treatment of CF may reduce or eliminate the commercial opportunity for N91115 or any other potential product candidate. If our competitors develop technologies or product candidates more rapidly than we do or their technologies, including delivery technologies, are more effective or safer than ours, our ability to develop and successfully commercialize our product may be adversely affected.

The clinical and commercial landscape for CF is highly competitive and subject to rapid and significant technological change. New data from clinical stage products continue to emerge. It is possible that these data may alter the current standard of care, completely precluding us from further developing N91115 or any other potential product candidate for cystic fibrosis. Further, it is possible that we may initiate a clinical trial or trials for N91115 or any other potential product candidate only to find that data from competing products make it impossible for us to complete enrollment in clinical trials, resulting in our inability to file for marketing approval with regulatory agencies. Even if N91115 or any other potential product candidate is approved, it may have limited sales due to particularly intense competition in the CF market.

We are initially developing N91115 for a triple therapy of N91115 along with lumacaftor/ivacaftor for CF patients. Changes in standard of care or use patterns could make our triple therapy obsolete. If N91115 is approved for administration along with lumacaftor/ivacaftor and use of another therapy becomes more prevalent than lumacaftor/ivacaftor, sales of N91115 could be negatively impacted and our financial results and stock price would be adversely affected.

Competitive therapeutic treatments include those that are currently in development and any new treatments that enter the market. We believe that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which we may try to develop product candidates. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. We are aware of several disease modifying CF therapies in development, including those of Vertex Pharmaceuticals, PTC Therapeutics, Novartis, Pfizer, Galapagos, ProQR Therapeutics, Flatley Discovery Labs, Parion Sciences, Concert, Proteostasis, Calista, Shire, Gilead Sciences, AbbVie, AmpliPhi Biosciences and F. Hoffmann‑LaRoche.

Many of our competitors have greater financial, technical, manufacturing, marketing, sales and supply resources, and human resources or experience than us and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval for therapies and achieving widespread market acceptance. Our competitors’ products may be more effective, or more effectively marketed and sold, than any product candidate we may commercialize and may render our therapies obsolete or non‑competitive before we can recover development and commercialization expenses.

If our lead product candidate, N91115, is approved for the indications we are currently pursuing, it could compete with a range of therapeutic treatments that are in development. For example, although N91115 is being developed for a triple therapy of N91115 along with lumacaftor/ivacaftor, Vertex is developing other combinations that may obviate the applicability of N91115.

If we obtain approval for any product candidate, we will face competition based on many different factors, including the efficacy, safety and tolerability of our products, the ease with which our products can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Competing products could present superior treatment alternatives, including being more effective, safer, less expensive or marketed and sold more effectively than any products we may develop. Competitive products may make any products we develop obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of competitors.

We also compete with other clinical stage companies and institutions for clinical trial participants, which could reduce our ability to recruit participants for our clinical trials. Delay in recruiting clinical trial participants could adversely affect our ability to bring a product to market prior to our competitors. Further, research and discoveries by

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others may result in breakthroughs that render our product candidates obsolete even before they begin to generate any revenue.

In addition, our competitors may obtain patent protection, regulatory exclusivities, or FDA approval and commercialize products more rapidly than we do, which may impact future sales of any of our product candidates that receive marketing approval. If the FDA approves the commercial sale of any of our product candidates, we will also be competing with respect to marketing capabilities and manufacturing efficiency, areas in which we have limited or no experience. We expect competition among products will be based on product efficacy and safety, the timing and scope of regulatory approvals, availability of supply, marketing and sales capabilities, product price, reimbursement coverage by government and private third party payers, regulatory exclusivities and patent position. Our profitability and financial position will suffer if our products receive regulatory approval, but cannot compete effectively in the marketplace.

Furthermore, regulatory authorities’ assessment of 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, changing policies and agency funding, staffing and leadership. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects. For example, average review times at the FDA for marketing approval applications can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes.

Payer approval and reimbursement may not be available for N91115 or any other potential product candidate, which could make it difficult for us to sell our product candidates profitably.

Obtaining formulary approval can be a complex and time-consuming process. We cannot be certain if and when we will obtain formulary approval to allow us to sell N91115 or any other potential product candidate into our target markets. Failure to obtain timely formulary approval and appropriate coverage will limit our commercial success.

Furthermore, market acceptance and sales of N91115, or any other potential product candidate that we develop, will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third party payers, such as private health insurers, managed care organizations and pharmacy benefit management organizations, decide which medications they will pay for, at what tier level and establish reimbursement levels. A primary trend in the United States healthcare industry and elsewhere is cost containment. Government authorities and these third party payers have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third party payers are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult because of the higher prices already associated with CFTR modulators in CF, as well as those often associated with products administered under the supervision of a physician in general. Also, reimbursement amounts may reduce the demand for, or the price of, our products. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize N91115 or any other potential product candidate that we develop. We will also be required to establish systems and programs that assist patients in determining the reimbursement level and in some instances establishing patient economic support programs to alleviate the economic burden of co‑pays and/or co‑insurance. These patient support programs are complex, costly and require knowledge and expertise that we currently do not possess.

There have been a number of legislative and regulatory proposals to change the healthcare system in the United States and in some foreign jurisdictions that could affect our ability to sell any future products profitably. These legislative and regulatory changes may negatively impact the reimbursement for any future products, following approval. The availability of generic treatments may also substantially reduce the likelihood of reimbursement for N91115 or any other potential product candidate. The application of user fees to generic drug products will likely expedite the approval of additional generic drug treatments. We expect to experience pricing pressures in connection with the sale of N91115 and any other potential product candidate that we develop, due to the trend toward managed healthcare, the increasing influence of managed care and additional legislative changes.

In addition, there may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a

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rate that covers our costs, including research, development, manufacture, sale and distribution. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed, and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payers and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third party payers often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies.

Our inability to promptly obtain coverage and profitable payment rates from both government funded and private payers for any of N91115 and any other potential product candidate could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

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.

The success of our business depends primarily on our ability to identify, develop and commercialize one or more product candidates. Because we have limited financial and managerial resources, we focus on research programs and product candidates for the indications that take advantage of our team’s deep expertise and knowledge and that we believe are the most scientifically and commercially promising. We are initially developing N91115 for a triple therapy of N91115 along with lumacaftor/ivacaftor for CF patients. Our resource allocation decisions may cause us to fail to capitalize on viable scientific or commercial products or profitable market opportunities. In addition, we may spend valuable time and managerial and financial resources on research programs and product candidates for specific indications that ultimately do not yield any scientifically or commercially viable products. If we do not accurately evaluate the scientific and 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 situations where it would have been more advantageous for us to retain sole rights to development and commercialization or miss out on the commercial opportunity entirely.

Risks Relating to Regulation of Our Industry

The pharmaceutical industry is subject to significant regulation and oversight in the United States, in addition to approval of products for sale and marketing.

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti‑kickback statutes and false claims statutes.

The federal healthcare program anti‑kickback statute prohibits, among other things, knowingly and willfully soliciting, receiving, offering, or paying anything of value, directly or indirectly, in return for the referral of any services or acquisition of any good reimbursable under Medicare, Medicaid or another federal healthcare program. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. 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, purchases or recommendations that implicate federal healthcare programs may be subject to scrutiny if they do not qualify for an exemption or safe harbor. To qualify for a safe harbor, the activity must fit squarely within the safe harbor. Arrangements that do not meet a safe harbor are not necessarily illegal but will be evaluated in a case by case basis. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti‑kickback liability.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of marketing of the product for unapproved, or off‑label, and thus non‑reimbursable, uses. The majority of states also have statutes or regulations similar to the federal anti‑kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer. Sanctions under

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these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines, imprisonment, and other sanctions. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of these laws, which could have a material adverse effect on our business, financial condition and results of operations.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal anti‑kickback statute. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

· the federal healthcare anti‑kickback statute which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid;

· the federal false claims laws and civil monetary penalties, including civil whistleblower or qui tam actions, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent or from knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government;

· the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) which, among other things, imposes criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or to 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 payer (e.g., public or private) and knowingly or willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statement using or making any false or fraudulent document, in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;

· HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH) and its implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to HIPAA, published in January 2013, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, clearinghouses and healthcare providers;

· the federal Food, Drug and Cosmetic Act, or FDCA, which prohibits, among other things, the adulteration or misbranding of drugs and medical devices;

· the federal Physician Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010 (collectively, the Health Care Reform Law), and its implementing regulations, which requires manufacturers of drugs, devices, biologicals and medical supplies to report to the Centers for Medicare and Medicaid Services information related to

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payments and other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and

· analogous state laws and regulations, including: state anti‑kickback and false claims laws, which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by state governmental and non‑governmental third party payers, including private 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; and state laws and regulations that require manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self‑dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent misconduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

Healthcare reform measures could adversely affect our business.

In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs. Most recently, in March 2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA, was enacted, which includes measures to significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA of greatest importance to the pharmaceutical and biotechnology industry are the following:

· an annual, nondeductible 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;

· new requirements to report certain financial arrangements with physicians and others, including reporting any “transfer of value” made or distributed to prescribers and other healthcare providers and reporting any investment interests held by physicians and their immediate family members;

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

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· creation of the Independent Payment Advisory Board which, beginning in 2014, has authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs and those recommendations could have the effect of law even if Congress does not act on the recommendations; and

· establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

At this time, the full effect that the ACA would have on our business remains unclear.

Individual states have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third party payers or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce ultimate demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.

In addition, given recent federal and state government initiatives directed at lowering the total cost of healthcare, Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription drugs and biologics and the reform of the Medicare and Medicaid programs. While we cannot predict the full outcome of any such legislation, it may result in decreased reimbursement for drugs and biologics, which may further exacerbate industry‑wide pressure to reduce prescription drug prices. This could harm our ability to generate revenue. Increases in importation or re‑importation of pharmaceutical products from foreign countries into the United States could put competitive pressure on our ability to profitably price our products, which, in turn, could adversely affect our business, results of operations, financial condition and prospects. We might elect not to seek approval for or market our products in foreign jurisdictions in order to minimize the risk of re‑importation, which could also reduce the revenue we generate from our product sales. It is also possible that other legislative proposals having similar effects will be adopted.

Risks Relating to Protecting Our Intellectual Property

It is difficult and expensive to protect our intellectual property rights and we cannot ensure that they will prevent third parties from competing against us.

Our success will depend, in part, on our ability to obtain and maintain intellectual property rights, both in the United States and other countries, successfully defend this intellectual property against third party challenges and successfully enforce this intellectual property to prevent third party infringement. We rely upon a combination of patents, trade secret protection and confidentiality agreements.

Our ability to protect any of our product candidates and technologies from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable patents in both the United States and other countries. Patent matters in the biotechnology and pharmaceutical industries can be highly uncertain and involve complex legal and factual questions. Changes in either the patent laws, implementing regulations or in interpretations of patent laws may diminish the value of our patent rights.

There can be no assurance that we will discover or develop patentable products or processes or that patents will issue from any pending patent applications owned or licensed by us or any patent applications we may own or license in the future, or if issued, that the breadth of such patent coverage will be sufficient. We cannot guarantee that claims of issued patents owned or licensed to us, either now or in the future, are or will be held valid or enforceable by the courts or, even if unchallenged, will provide us with exclusivity or commercial value for our product candidates or technology or any significant protection against competitive products or prevent others from designing around our claims. Further, if we encounter delays in regulatory approvals, the period of time during which we could market our product candidates under patent protection could be reduced. Our patent rights also depend on our compliance with technology and patent

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licenses upon which our patent rights are based and upon the validity of assignments of patent rights from consultants and other inventors that were, or are, not employed by us.

Patent applications are generally maintained in confidence until publication. In the United States, for example, patent applications are maintained in secrecy for up to 18 months after their filing. Similarly, publication of discoveries in scientific or patent literature often lag behind actual discoveries. Consequently, we cannot be certain that we were the first to invent, or the first to file patent applications on our product candidates. There is also no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which could be used by a third party to challenge validity of our patents or prevent a patent from issuing from a pending patent application.

In addition, even if patents do successfully issue, third parties may challenge any patent we own or license through adversarial proceedings in the issuing offices, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. If a third party asserts a substantial new question of patentability against any claim of a United States patent we own or license, the USPTO may grant a request for reexamination, which may result in a loss of scope of some claims or a loss of the entire patent. The adoption of the America Invents Act has established additional opportunities for third parties to invalidate United States patent claims, including inter partes review and post‑grant review, on the basis of a lower legal standards than reexamination and additional grounds.

We will incur significant ongoing expenses in maintaining our patent portfolio. Should we lack the funds to maintain our patent portfolio or to enforce our rights against infringers, we could be adversely impacted. Even if claims of infringement are without merit, any such action could divert the time and attention of management and impair our ability to access additional capital and/or cost us significant funds to defend.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may manufacture and sell our potential products in those foreign countries where we have not filed for patent protection or where patent protection may be unavailable, not obtainable or ultimately not enforceable. 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 and, further, may be able to export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Our patent portfolio includes patents and patent applications in countries outside of the United States, including Europe, Canada, Japan and Australia. The scope of coverage provided by these patents varies from country to country. Moreover, the laws of some foreign jurisdictions do not provide intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in obtaining such rights in foreign jurisdictions. Outside of the United States, patents we own or license may become subject to patent opposition in the European Patent Office or similar proceedings, which may result in loss of scope of some claims or loss of the entire patent. Participation in adversarial proceedings is very complex, expensive, and may divert our management’s attention from our core business and may result in unfavorable outcomes that could adversely affect our ability to prevent third parties from competing with us.

Many companies have also encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. For example, an April 2014 report from the Office of the United States Trade Representative identified a number of countries, including India and China, where challenges to the procurement and enforcement of patent rights have been reported. Several countries, including India and China, have been listed in the report every year since 1989. If we encounter difficulties in protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed. Proceedings to enforce our patent rights in certain foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

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

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

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

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

· We or our licensors or strategic collaborators 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

· 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.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

On September 16, 2011, the Leahy‑Smith America Invents Act, or the Leahy‑ Smith Act, was signed into law. The Leahy‑Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. Accordingly, it is not clear what, if any, impact the Leahy‑Smith Act will have on the operation of our business, our current and pending patent portfolio and future intellectual property strategy. However, the Leahy‑Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

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

Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office, or USPTO, the European Patent Office, or EPO, and other foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non‑compliance events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on our international patent application, failure to respond to official actions within prescribed time limits, non‑payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business.

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Some of our intellectual property is licensed to us by a third party. If we fail to comply with our obligations in the agreement under which we license intellectual property rights from that third party, or otherwise experience disruptions to our business relationships with our licensor, we could lose license rights that are important to our business.

We have a license under certain patents and/or know‑how to develop and commercialize certain of our potential product candidates. Our existing license agreements impose, and we expect that any future license agreements will impose on us, various obligations. If we fail to comply with our obligations under these agreements, the licensor may have the right to terminate the license. If any of our licenses are terminated and we are not able to negotiate other agreements for use of the intellectual property protections underlying these product candidates, we would not be able to manufacture and market these potential products, which would adversely affect our business prospects and financial condition.

The patent protection and patent prosecution for some of our potential product candidates is dependent or may be dependent in the future on third parties.

While we normally seek and gain the right to fully prosecute the patents relating to our potential product candidates, there may be times when platform technology patents or product‑specific patents that relate to our potential product candidates are controlled by our licensors. In addition, our licensors and/or licensees may have back‑up rights to prosecute patent applications in the event that we do not do so or choose not to do so, and our licensees may have the right to assume patent prosecution rights after certain milestones are reached. If any of our licensing partners fail to appropriately prosecute and maintain patent protection for patents covering any of our potential product candidates, our ability to develop and commercialize those potential product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.

We may be subject to litigation alleging that we are infringing the intellectual property rights of third parties or litigation or other adversarial proceedings seeking to invalidate our patents or other proprietary rights, and we may need to resort to litigation to protect or enforce our patents or other proprietary rights, all of which will be costly to defend or pursue and uncertain in its outcome and may prevent or delay development and commercialization efforts or otherwise affect our business.

Our success also will depend, in part, on our refraining from infringing patents or otherwise violating intellectual property owned or controlled by others. Numerous patents and pending applications are owned by third parties in the fields in which we are or may develop product candidates, both in the United States and elsewhere. It is difficult for industry participants, including us, to identify all third party patent rights that may be relevant to N91115 or any other potential product candidates because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Moreover, because some patent applications are maintained in secrecy until the patents publish, we cannot be certain that third parties have not filed patent applications that cover our potential product candidates and technologies. Pharmaceutical companies, biotechnology companies, universities, research institutions and others may have filed patent applications or have received, or may obtain, issued patents in the United States or elsewhere relating to aspects of our technology, including our potential product candidates, processes for manufacture or methods of use, including combination therapy. It is uncertain whether the issuance of any third party patents will require us to alter our potential product candidates or processes, obtain licenses, or cease certain activities.

If patents issued to third parties contain blocking, dominating or conflicting claims and such claims are ultimately determined to be valid, we may be required to obtain licenses to these patents or to develop or obtain alternative non‑infringing technology and cease practicing those activities, including potentially manufacturing or selling any products deemed to infringe those patents. If any licenses are required, there can be no assurance that we will be able to obtain any such licenses on commercially favorable terms, if at all, and if these licenses are not obtained, we might be prevented from pursuing the development and commercialization of certain of our potential product candidates. Even if a license can be obtained on acceptable terms, the rights may be non‑exclusive, which could give our competitors access to the same technology or intellectual property rights licensed to us. Our failure to obtain a license to any technology that we may require to commercialize our potential product candidates on favorable terms may have a material adverse impact on our business, financial condition and results of operations.

We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our technologies, including our potential product candidates, processes for manufacture or

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methods of use, including combination therapy, or other proprietary technologies infringe their intellectual property rights. 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 potential 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 infringement or other intellectual property claim against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our affected products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Parties making successful 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 potential product candidates. We cannot provide any assurances that third party patents do not exist which might be enforced against our products or potential product candidates, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.

Litigation, which could result in substantial costs to us (even if determined in our favor), may also be necessary to enforce any patents issued or licensed to us. The cost to us in initiating any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our favor, could be substantial, and litigation would divert our management’s attention. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and limit our ability to continue our operations.

If we were to initiate legal proceedings against a third party to enforce a patent covering one of our potential product candidates or our technology, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States and in most European countries, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, 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 USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation 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 or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or certain aspects of our platform technology. Such a loss of patent protection could have a material adverse impact on our business. Patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without legally infringing our patents or other intellectual property rights.

In addition, if a third party has filed patent applications in the United States prior to March 16, 2013 that claim technology also claimed by us, we may have to participate in interference proceedings in the USPTO to determine priority of invention. Such proceedings can be lengthy, are costly to defend and involve complex questions of law and fact the outcomes of which are difficult to predict. Moreover, we may have to participate in adversarial proceedings in the USPTO or foreign patent offices. An adverse decision relating to our patent rights could require us to cease using such technology, any of which could have a material adverse effect on our business, financial condition and results of operations. If initiated, adversarial proceedings could result in substantial costs to us, even if the eventual outcome is favorable to us.

If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.

We also rely on trade secrets to protect technology, especially where patent protection is not believed to be appropriate or obtainable or where patents have not issued. We attempt to protect our proprietary technology and processes, in part, with confidentiality agreements and assignment of invention agreements with our employees and confidentiality agreements with our consultants and certain contractors. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by competitors. We may fail in certain circumstances to obtain the necessary confidentiality agreements, or their scope or term may not be sufficiently broad to protect our interests.

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If our trade secrets or other intellectual property become known to our competitors, it could result in a material adverse effect on our business, financial condition and results of operations. To the extent that we or our consultants or research collaborators use intellectual property owned by others in work for us, disputes may also arise as to the rights to related or resulting know‑how and inventions.

We may be subject to claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets of our employees’ or consultants’ former employers or their clients. These claims may be costly to defend and if we do not successfully do so, we may be required to pay monetary damages and may lose valuable intellectual property rights or personnel.

Many of our employees were previously employed at universities or biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could compromise our ability to commercialize, or prevent us from commercializing, our product candidates, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Risks Relating to Our Business Operations and Industry

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

Because of the specialized scientific nature of our business and the unique properties of our GSNOR inhibitor platform, our success is highly dependent upon our ability to attract and retain qualified scientific and technical personnel, consultants and advisors. We are dependent on the principal members of our management staff, particularly Mr. Jon Congleton and Mr. R. Michael Carruthers, to help us achieve our business objectives. We are also dependent on the principal members of our scientific staff, particularly Ms. Janice Troha and Drs. Steven Shoemaker and Sherif Gabriel, who have extensive knowledge of, and experience developing, GSNOR inhibitors. The loss of their services might significantly delay or prevent the achievement of our research, development and business objectives.

We will need to recruit a significant number of additional personnel in order to achieve our operating goals. In order to pursue our product development and marketing and sales plans, we will need to hire additional qualified scientific personnel to perform research and development, as well as personnel with expertise in clinical testing, government regulation, manufacturing, marketing and sales, which may strain our existing managerial, operational, regulatory compliance, financial and other resources. We also rely on consultants and advisors to assist in formulating our research and development strategy and adhering to complex regulatory requirements. We face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities and other research institutions. There can be no assurance that we will be able to attract and retain such individuals on acceptable terms, if at all. Additionally, our facilities are located in Colorado, which may make attracting and retaining qualified scientific and technical personnel from outside of Colorado difficult. The failure to attract and retain qualified personnel, consultants and advisors could delay or prevent our ability to commercialize our N91115 and other potential product candidate based on our GSNOR inhibitor portfolio, which could have a material adverse effect on our business, financial condition and results of operations.

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

We are an early stage company with 29 full‑time employees and two part‑time employees as of March 8, 2016. As our development and commercialization plans and strategies develop, we expect to need additional research and development, managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including:

· managing our clinical trials effectively;

· preparing for and executing on the commercial launch of N91115 or any other potential product candidate;

· identifying, recruiting, maintaining, motivating and integrating additional employees;

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· managing our internal development efforts effectively while complying with our contractual obligations to other third parties;

· improving our managerial, development, operational and finance systems; and

· developing our compliance infrastructure and processes to ensure compliance with complex regulations and industry standards regarding us and our potential product candidates.

As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical studies and trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

We are exposed to potential product liability or similar claims, and insurance against these claims may not be available to us at a reasonable rate in the future or at all.

Our business exposes us to potential liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. Clinical trials involve the testing of product candidates on human subjects or volunteers under a research plan, and carry a risk of liability for personal injury or death to patients due to unforeseen adverse side effects, improper administration of the product candidate, or other factors. Many of these patients are already seriously ill and are therefore particularly vulnerable to further illness or death.

We currently carry clinical trial liability insurance in the amount of $10.0 million in the aggregate, but there can be no assurance that we will be able to maintain such insurance or that the amount of such insurance will be adequate to cover claims. We could be materially and adversely affected if we were required to pay damages or incur defense costs in connection with a claim outside the scope of indemnity or insurance coverage, if the indemnity is not performed or enforced in accordance with its terms, or if our liability exceeds the amount of applicable insurance. In addition, there can be no assurance that insurance will continue to be available on terms acceptable to us, if at all, or that if obtained, the insurance coverage will be sufficient to cover any potential claims or liabilities. Similar risks would exist upon the commercialization or marketing of any products by us or our collaborators.

Regardless of their merit or eventual outcome, product liability claims may result in:

· decreased demand for our product;

· injury to our reputation and significant negative media attention;

· withdrawal of clinical trial participants;

· costs of litigation;

· distraction of management; and

· substantial monetary awards to plaintiffs.

Should any of these events occur, it could have a material adverse effect on our business and financial condition.

We may become involved in securities class action litigation that could divert management’s attention and adversely affect our business and could subject us to significant liabilities.

The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical companies. These broad market fluctuations as well a broad range of other factors, including the realization of any of the risks described in this “Risk Factors” section of this quarterly report, may cause the market price of our common stock to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies generally experience significant stock price volatility. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business. Any adverse determination in any

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such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

Risks Related to Ownership of Our Common Stock

Our stock price is likely to be volatile and an active, liquid and orderly trading market may not develop for our common stock. As a result, stockholders may not be able to resell shares at or above their purchase price.

Prior to our initial public offering, which was completed in June 2015, there was no public market for shares of our common stock. Although our common stock is listed on The NASDAQ Global Market, an active trading market for our common stock may not develop or, if it develops, may not be sustained. The lack of an active market may impair the ability of our stockholders to sell their shares at the time they wish to sell them or at a price that they consider reasonable, which may reduce the fair market value of their shares. Further, an inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to enter into strategic partnership or acquire future products or licenses by using our common stock as consideration.

The market price of our common stock may fluctuate substantially as a result of many factors, some of which are beyond our control. For example, shares of our common stock have traded as high as $20.43 and as low as $4.15 in the eight month period following the effective date of our IPO. These fluctuations could cause an investor to lose all or part of the value of his, her or its investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include the following:

· the development status of N91115 or any other potential product candidate and when they receive regulatory approval;

· the results of our preclinical studies and clinical trials;

· performance of third parties on whom we rely to manufacture our products, product components and product candidates, including their ability to comply with regulatory requirements;

· the success of, and fluctuation in, the revenue generated from our product candidates, if approved;

· our execution of our sales and marketing, manufacturing and other aspects of our business plan;

· results of operations that vary from those of our competitors and the expectations of securities analysts and investors;

· changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

· our announcement of significant contracts, acquisitions, or capital commitments;

· announcements by our competitors of competing products or other initiatives;

· announcements by third parties of significant claims or proceedings against us;

· regulatory and reimbursement developments in the United States and abroad;

· future sales of our common stock;

· additions or departures of key personnel; and

· general domestic and international economic conditions unrelated to our performance.

In addition, the stock market in general has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to operating performance of individual companies. These broad market factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in significant liabilities and, regardless of the outcome, could result in substantial costs and the diversion of our management’s attention and resources.

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Our principal stockholders will have a controlling influence over our business affairs and may make business decisions with which stockholders disagree and which may adversely affect the value of their investment.

Our principal stockholders, which consist of entities affiliated withDeerfield Management Company, L.P.,Wellington Management Company LLP, the Estate of Arnold H. Snider, III, and BVF Partners L.P., and certain of their affiliates, will beneficially own or control, directly or indirectly, approximately 54% of the outstanding shares of our common stock. As a result, if some of these persons or entities act together, they will have the ability to exercise significant influence over matters submitted to our stockholders for approval, including the election and removal of directors, amendments to our certificate of incorporation and bylaws and the approval of any business combination. These actions may be taken even if they are opposed by other stockholders. This concentration of ownership may also have the effect of delaying or preventing a change of control of our company or discouraging others from making tender offers for our shares, which could prevent our stockholders from receiving a premium for their shares. Some of these persons or entities who make up our principal stockholders may have interests different from other stockholders.

Future sales, or the perception of future sales, of a substantial amount of our common shares could depress the trading price of our common stock.

As of March 8, 2016, we have 200,000,000 shares of common stock authorized and 15,462,030 shares of common stock outstanding. Of these shares, the 6,325,000 shares sold during our IPO are freely tradable and, without giving effect to the purchase of shares by entities affiliated with certain of our existing stockholders, approximately 2.8 million shares will be freely tradable pursuant to Rule 144 under the Securities Act by non‑affiliates and another approximately 6.9 million shares will be eligible for resale pursuant to Rule 144 under the Securities Act, subject to the volume, manner of sale, holding period and other limitations of Rule 144. If we or our stockholders sell substantial amounts of our shares of common stock in the public market or if the market perceives that these sales could occur, the market price of shares of our common stock could decline. These sales may make it more difficult for us to sell equity or equity‑related securities in the future at a time and price that we deem appropriate, or to use equity as consideration for future acquisitions.

The JOBS Act will allow us to postpone the date by which we must comply with certain laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC. We cannot be certain if this reduced disclosure will make our common stock less attractive to investors.

The JOBS Act is intended to reduce the regulatory burden on “emerging growth companies.” As defined in the JOBS Act, we qualify as an “emerging growth company” and could remain an “emerging growth company” until as late as December 31, 2020. For so long as we are an “emerging growth company,” we will, among other things:

· not be required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes‑Oxley;

· not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A(a) of the Exchange Act;

· not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to Section 14A(b) of the Exchange Act;

· be exempt from any rule adopted by the Public Company Accounting Oversight Board, requiring mandatory audit firm rotation or a supplemental auditor discussion and analysis; and

· be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

We have irrevocably elected not to avail ourselves of an extended transition period under the JOBS Act that permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. 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 companies.

Furthermore, if we take advantage of some or all of the reduced disclosure requirements above, investors may find our common stock less attractive, which may result in a less active trading market for our common stock and greater stock price volatility.

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As a public reporting company, we will be subject to rules and regulations established from time to time by the SEC and the Public Company Accounting Oversight Board, or PCAOB, regarding our internal control over financial reporting. We may not complete needed improvements to our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the market price of our common stock and a stockholder’s investment in our stock.

As a public reporting company, we are subject to the rules and regulations established from time to time by the SEC and the PCAOB. These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal controls over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.

In addition, as a public company we are required to document and test our internal controls over financial reporting pursuant to Section 404 of Sarbanes‑Oxley so that our management can certify as to the effectiveness of our internal controls over financial reporting by the time our annual report for the year ending December 31, 2016 is due and thereafter, which will require us to document and make significant changes to our internal controls over financial reporting. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an “emerging growth company,” as defined in the JOBS Act, although, as described in the preceding risk factor, we could potentially qualify as an “emerging growth company” until December 31, 2020. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

If our senior management is unable to conclude that we have effective internal control over financial reporting, or to certify the effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on management’s assessment and the effectiveness of our internal control over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence, which could have a material adverse effect on our business and our stock price. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and adversely affect our results of operations and financial condition.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Our disclosure controls and procedures are designed to reasonably ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures as well as internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are and will be met. These inherent limitations include the realities that judgments in decision‑making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance efforts.

We will incur significant legal, accounting, insurance and other expenses as a result of being a public company. The Dodd‑Frank Act and Sarbanes‑Oxley as well as related rules implemented by the SEC and The NASDAQ Global Market, have required changes in corporate governance practices of public companies. In addition, rules that the SEC is implementing or is required to implement pursuant to the Dodd‑Frank Act are expected to require additional changes. We expect that compliance with these and other similar laws, rules and regulations, including compliance when required with Section 404 of Sarbanes‑Oxley, will substantially increase our expenses, including our legal and accounting costs, and make some activities more time‑consuming and costly. We also expect these laws, rules and regulations to make it 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, which may make it more

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difficult for us to attract and retain qualified persons to serve on our Board of Directors or as officers. Although the JOBS Act may for a limited period of time somewhat lessen the cost of complying with these additional regulatory and other requirements, we nonetheless expect a substantial increase in legal, accounting, insurance and certain other expenses in the future, which will negatively impact our business, results of operations and financial condition.

Anti‑takeover provisions in our charter documents could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

Our corporate documents and the Delaware General Corporation Law, or DGCL, contain provisions that may enable our Board of Directors to resist a change in control of our company even if a change in control were to be considered favorable by our stockholders. These provisions:

· stagger the terms of our Board of Directors and require 662/₃% stockholder voting to remove directors, who may only be removed for cause;

· authorize our Board of Directors to issue “blank check” preferred stock and to determine the rights and preferences of those shares, which may be senior to our common stock, without prior stockholder approval;

· establish advance notice requirements for nominating directors and proposing matters to be voted on by stockholders at stockholders meetings;

· prohibit our stockholders from calling a special meeting and prohibit stockholders from acting by written consent;

· require 662/₃% stockholder voting to effect certain amendments to our certificate of incorporation and bylaws; and

· prohibit cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates.

These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions our stockholders desire.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation provides that we will indemnify our directors to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:

· We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

· We may, in our discretion, indemnify other employees and agents in those circumstances where indemnification is permitted by applicable law.

· We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

· We will not be obligated pursuant to our amended and restated bylaws to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless the proceeding was

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authorized in the specific case by our Board of Directors or such indemnification is required to be made pursuant to our amended and restated bylaws.

· The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

· We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to our directors or officers.

As a result, if we are required to indemnify one or more of our directors or officers, it may reduce our available funds to satisfy successful third party claims against us, may reduce the amount of money available to us and may have a material adverse effect on our business and financial condition.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our amended and restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, any action asserting a claim arising pursuant to any provision of the DGCL our amended and restated certificate of incorporation or our amended and restated bylaws or any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein and the claim not being one which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery or for which the Court of Chancery does not have subject matter jurisdiction. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and restated certificate of incorporation. This choice of forum provision may limit our stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents even though an action, if successful, might benefit our stockholders. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find this provision of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on our business, financial condition or results of operations.

We do not expect to pay any dividends on our common stock for the foreseeable future.

We currently expect to retain all future earnings, if any, for future operations and expansion, and have no current plans to pay any cash dividends to holders of our common stock for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board of Directors may deem relevant. As a result, stockholders may not receive any return on an investment in our common stock unless stockholders sell our common stock for a price greater than that which they paid for it.

ITEM 1B.UNRESOLVED STAFF COMMENTS

Not Applicable.

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ITEM 2.PROPERTIES

Our corporate headquarters are located in Boulder, Colorado, where we lease approximately 15,000 square feet of office and laboratory space pursuant to a lease that expires in March 2018. We have an option to extend our lease for up to three years.

We believe that our existing facilities are adequate for our near term needs. When our lease expires, we may exercise the renewal option or look for alternate space for our operations. We believe that suitable alternative space would be available if required in the future on commercially reasonable terms.

ITEM 3.LEGAL PROCEEDINGS

We are not currently a party to any legal proceedings.

ITEM 4.MINE SAFETY DISCLOSURES

Not Applicable.

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PART II.

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holders

As of June 17, 2015, our common stock began trading on the NASDAQ Global Market under the symbol “NVLS.” The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported on the NASDAQ Global Market:

	HIGH		LOW
Year Ended December 31, 2015
Second Quarter	$	17.84	$	14.07
Third Quarter	$	20.43	$	12.11
Fourth Quarter	$	13.62	$	7.05

Stockholders

As of February 29, 2016, we have approximately 35 stockholders of record of our common stock, which excludes stockholders whose shares were held in nominee or street name by brokers.

Performance Graph (1)

The following graph illustrates a comparison of the total cumulative stockholder return for our common stock since June 17, 2015, which is the date our common stock began trading on the NASDAQ Global Market, to two indices: the NASDAQ Composite Index and the NASDAQ Biotechnology Index. The graph assumes an initial investment of $100 on June 17, 2015, in our common stock, or May 31, 2015 in the stocks comprising the NASDAQ Composite Index, and the stocks comprising the NASDAQ Biotechnology Index. Historical stockholder return is not necessarily indicative of the performance to be expected for any future periods.

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(1)This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed incorporated by reference into any filing of Nivalis Therapeutics, Inc. under the Securities Act of 1933, as amended.

Dividends

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant.

Securities Authorized for Issuance under Equity Compensation Plans

Information relating to our equity compensation plans as of December 31, 2015, under which equity securities were authorized for issuance, is included in Item 12 of Part III of this Annual Report.

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Unregistered Sales of Equity Securities

During the year ended December 31, 2015, we issued and sold the following securities that were not registered under the Securities Act of 1933, as amended.

1. On February 10, 2015 and April 29, 2015, we granted stock options to purchase 1,207,273 and 15,576, respectively, shares of our common stock, at exercise prices of $4.56 per share, to employees and directors under our 2012 Stock Incentive Plan.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The transaction described in paragraph 1 was completed without registration under the Securities Act in reliance on the exemptions afforded by Rule 701 promulgated under the Securities Act. The recipients of securities under compensatory benefit plans and contracts relating to compensation were our employees and directors and received the securities as compensation for services. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.

Use of Proceeds from Initial Public Offering

Our initial public offering, or IPO, of common stock was effected through a Registration Statement on Form S-1 (File No. 333-204127) declared effective by the SEC on June 16, 2015. On June 22, 2015, we sold 6,325,000 shares of common stock, including 825,000 shares sold to the underwriter pursuant to its option to purchase such shares to cover over allotments, at an initial public offering price of $14.00 per share, for aggregate gross proceeds of $88.6 million and net proceeds of $78.8 million after deducting underwriting discounts and commissions and expenses. The underwriters of the offering were Cowen & Company, LLC, Stifel, Nicolaus & Company, Incorporated, Robert W. Baird & Co., Incorporated and H.C. Wainwright & Co., LLC.Following the sale of the shares in connection with the closing of the IPO, the offering terminated.

Through March 8, 2016, we had not used any of our IPO proceeds for working capital or general corporate expenses. There has been no material change in our planned use of the net proceeds from the IPO as described in the final prospectus for the offering filed with the SEC pursuant to Rule 424(b).

Issuer Purchases of Equity Securities

None.

ITEM 6.SELECTED FINANCIAL DATA

The following table sets forth certain of our selected historical financial data at the dates and for the periods indicated. The selected historical statement of operations data presented below for the years ended December 31, 2015, 2014 and 2013 and the historical balance sheet data as of December 31, 2015 and 2014 have been derived from our audited financial statements, which are included elsewhere in this Annual Report on Form 10-K. The historical statement of operations data presented below for the year ended December 31, 2012 and the historical balance sheet data as of December 31, 2013and 2012have been derived from our audited financial statements that do not appear in this report.

Our historical results are not necessarily indicative of results expected in any future period.

The selected historical financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto, which are included elsewhere in this Annual Report on Form 10-K. The selected historical financial information in this section is not intended to replace our financial statements and the related notes thereto.

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Statement of Operations Data:
	Years Ended December 31,
	2015 (1)		2014		2013		2012
	(in thousands, except per share data)
Revenue	$	—	$	—	$	—	$	—
Operating expenses:
Research and development		16,054		12,200		13,136		7,100
General and administrative		6,844		2,287		2,141		1,930
Loss from operations		(22,898)		(14,487)		(15,277)		(9,030)
Interest and other income, net		80		296		10		151
Interest expense		—		(845)		(931)		(694)
Net loss		(22,818)		(15,036)		(16,198)		(9,573)
Gain on extinguishment of convertible debt as a capital transaction		—		378		—		—
Net loss attributable to common shareholders	$	(22,818)	$	(14,658)	$	(16,198)	$	(9,573)
Weighted average shares outstanding—basic and diluted		9,371		723		155		137
Net loss per share attributable to common stockholders—basic and diluted	$	(2.43)	$	(20.27)	$	(104.50)	$	(69.88)

Balance Sheet Data:
	As of December 31,
	2015 (1)		2014		2013		2012
	(in thousands)
Cash, cash equivalents and marketable securities	$	87,254	$	27,812	$	1,098	$	4,705
Restricted cash		–		–		2,500		2,500
Working capital		83,267		26,027		(2,209)		5,050
Total assets		87,909		28,543		4,134		8,012
Total liabilities		4,419		2,415		17,629		5,406
Convertible preferred stock		–		41,880		77,793		77,793
Accumulated deficit		(148,837)		(126,019)		(110,983)		(94,785)
Total stockholders' equity (deficit)		83,490		(15,752)		(91,288)		(75,188)

(1) In June 2015, we completed an initial public offering of our common stock with the sale and issuance of 6,325,000 shares of common stock at a price to the public of $14.00 per share.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical stage pharmaceutical company committed to the discovery, development and commercialization of therapeutics for people with cystic fibrosis. In addition to developing innovative solutions intended to extend and improve the lives of people with cystic fibrosis, we plan to utilize our proprietary S-nitrosoglutathione reductase, or GSNOR, inhibitor portfolio to develop therapeutics for other diseases.

Cystic fibrosis, or CF, is a life-shortening genetic disease that affects an estimated 70,000 people worldwide, predominately in the United States and Europe. CF is characterized by a defect in the chloride channel of human cells known as the “cystic fibrosis transmembrane conductance regulator,” or CFTR, which is caused by mutations in the CFTR gene. N91115 works through a novel mechanism of action called GSNOR inhibition to modulate the unstable and defective CFTR protein responsible for CF. GSNOR inhibition restores GSNO levels thereby modifying the chaperones responsible for CFTR protein degradation. This stabilizing effect increases and prolongs the amount of CFTR protein at the cell surface and the function of the CFTR chloride channel which, in turn, leads to an increase in net chloride secretion. Nivalis discovered and owns exclusive rights to N91115 in the United States and all other major markets, including U.S. composition of matter patent protection until at least 2031.

Our Phase 1b clinical trial of N91115 in people having CF and having two copies of the F508del-CFTR mutation was completed in September 2015.The randomized, double-blind, placebo-controlled, parallel group study of orally administered N91115 demonstrated favorable safety, tolerability and pharmacokinetics of various doses of N91115 (50, 100 and 200 mg twice daily) in a total of 51 people with CF. Furthermore, a trend toward a modest reduction in sweat chloride, a marker of CFTR activity, was observed in the highest dose tested. 

During November 2015, we initiated a Phase 2, 12-week, double-blind, randomized, placebo-controlled, parallel group study to investigate the efficacy and safety of N91115 in 135 adult patients with CF who are homozygous for the F508del-CFTR mutation and being treated with Orkambi™(lumacaftor/ivacaftor), which is owned by Vertex Pharmaceuticals, Inc.

Our operations to date have focused on discovery and development of our portfolio of GSNOR inhibitors, including N91115 and N6022. N6022 was the first product candidate to emerge from our GSNOR inhibitor portfolio and was optimized for inhaled delivery with low oral bioavailability. In order to provide translational evidence of GSNOR’s role in lung disease, we initially explored the effects of N6022 in patients with mild asthma using an intravenous formulation. N6022 demonstrated a significant, beneficial effect on the airways in these patients, thus confirming the beneficial effects of N6022 observed in our preclinical studies of asthma. N6022 paved the way for N91115 by establishing initial safety of the class in healthy subjects and patients with CF. Because an oral dosage form is preferable in CF, a systemic disease that is not confined to the lungs, we elected to discontinue further development of N6022 in the chronic management of CF, but we may pursue development of N6022 in an inhaled dosage form for other potential indications.

During June 2015, we completed our initial public offering, or IPO, of an aggregate 6,325,000 shares of common stock at a price to the public of $14.00 per share for aggregate gross proceeds of $88.6 million, before underwriting commission and discounts and offering expenses. Our common stock is listed on the NASDAQ Global Market under the symbol “NVLS”.

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To date, we have not generated any revenue. Based on our current plans, we do not expect to generate any revenue for the foreseeable future. Since inception, we have financed our operations primarily through the proceeds from our IPO, as well as private placements of equity, debt and convertible debt. From our inception in July 2003 to December  31, 2015, we raised $225.0 million in net proceeds from these sources, of which all $5.0 million in debt has been repaid. As of December  31, 2015, we had cash, cash equivalents and marketable securities of $87.3 million and no debt.

We have incurred losses from operations in each year since our inception. Our net losses were $22.8 million for the year ended December 31, 2015 and we had an accumulated deficit of $148.8 million. We expect to continue incurring losses for the foreseeable future as we advance our lead product candidate, N91115, through clinical development, regulatory approval and, if approved, commercialization. We expect that research and development expenses will increase as we continue to develop our product candidates, and general and administrative costs will increase as we operate as a public company. We anticipate that we will need to raise additional capital, in addition to the IPO proceeds raised in June 2015, prior to the commercialization of N91115 or any other potential product candidate. Until such time that we can generate revenue from product sales, which, based on our current development plans, we do not expect to occur until 2018 at the earliest, we expect to finance our operating activities primarily through selling equity, incurring debt, entering into partnerships, and obtaining grants or seeking other nondilutive sources of financing. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, if at all. Our failure to raise capital when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. It could force us to delay, limit, reduce or terminate our research and development programs and commercialization efforts or cause us to cease operations in full.

FinancialOperationsOverview

Revenue

To date, we have not generated any revenue. In the future, we may generate revenue from sales or licensing of N91115 or other potential product candidates. Based on our current development plans, however, we do not expect to generate product revenue until 2018 at the earliest. If we fail to complete the clinical development of an N91115-based therapy, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.

ResearchandDevelopmentExpense

Research and development expense consists of costs incurred for the development of our product candidates, which include:

· employee-related expenses, including salaries, benefits, travel and other compensation expenses;

· expenses incurred for contract research organizations, or CROs, clinical investigators, clinical consultants and clinical sites that will conduct our preclinical studies and clinical trials as well as costs associated with acquiring, developing and manufacturing preclinical and clinical supplies, which we refer to collectively as direct program expenses;

· costs associated with regulatory filings; and

· costs of laboratory supplies, facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other operating costs related to research and development.

Research and development costs are expensed as incurred. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development primarily due to the increased size and duration of later-stage clinical

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trials. We plan to increase our research and development expenses for the foreseeable future as we seek to advance clinical development of our lead product candidate, N91115.

The following table identifies direct program expenses on a program-specific basis for our product candidates. All other research and development costs, including salaries, benefits and stock-based compensation, consulting and outsourced services, facilities and depreciation, and other expenses are not allocated to specific programs as they have historically been deployed across a number of projects under development. Other expenses include travel, lab and office supplies, insurance and other miscellaneous expenses.

	Year Ended December 31,
	2015		2014		2013
Direct program expenses:
N91115 for cystic fibrosis	$	9,254	$	4,248	$	2,674
N6022 for cystic fibrosis		—		1,622		3,412
Total direct program expenses		9,254		5,870		6,086
Personnel and other expenses
Salaries, benefits and stock-based compensation		4,931		4,973		5,235
Consulting and outsourced services		352		418		497
Facilities and depreciation		266		284		446
Other expenses		1,251		655		872
Total research and development expenses	$	16,054	$	12,200	$	13,136

All of our research and development expenses for the years ended December  31, 2015 and 2014 relate to the development of N91115 and, to a lesser extent, N6022. We have expended an aggregate of approximately $16.7 million for direct program expenses related to N91115 from inception through December  31, 2015. The successful development of N91115 or any other potential product candidate is uncertain. We cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when the period in which we receive material net cash inflows may commence, from N91115 or any other potential product candidate. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials which vary significantly over the life of a project as a result of differences arising during clinical development, including:

· thenumberandresultsofourclinicaltrials;

· thenumberofclinicalsitesincludedinthetrials;

· thenumberofpatientsthatultimatelyparticipateinthetrials;

· thelengthoftimerequiredtoenrollsuitablepatients;and

· theabilitytoobtainadrugsupplyforourtrials.

Our expenditures are subject to additional uncertainties, including the commercial uptake and patient compliance of Vertex’s Orkambi(lumacaftor/ivacaftor), our preclinical study and clinical trial expenses, our costs to acquire, develop and manufacture preclinical study and clinical trial materials, the timing of regulatory approval for N91115 and post-commercialization and other incremental research and development costs for N91115 or any other potential product candidate. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Changes in variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the U.S. Food and Drug Administration, or FDA, or other regulatory authorities were to require us to conduct preclinical studies or clinical trials beyond those which we anticipate,

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or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the clinical development of our product candidates.

GeneralandAdministrativeExpense

General and administrative expense consists principally of salaries and related costs not included in research and development expenses, including stock-based compensation, for personnel in executive, finance, business development and information technology functions,  facility costs and professional fees for legal, patent review, consulting and accounting services.

We anticipate that our general and administrative expense will increase during the next two fiscal years due to many factors. The most significant of these factors include:

· increased personnel expenses, other than research and development personnel, to support the clinical development of N91115;

· increased patent filing and prosecution costs related to maintaining our patent portfolio; and

· increased expenses related to becoming and operating as a publicly traded company, including increased legal and accounting services, addition of new headcount to support stock exchange and SEC reporting compliance, public and investor relations and communication needs and increased insurance premiums.

Interest and OtherIncome, Net

Interest and other income, net for the years ended December 31, 2015 and 2013 consists primarily of interest earned on marketable securities and money market funds. For the year ended December 31, 2014, interest and other income, net consists of the gain on the change in the fair value of preferred stock warrant liabilities. On September 23, 2014, all outstanding shares of preferred stock converted into shares of common stock in connection with a recapitalization of the company; when this conversion occurred, warrants exercisable for shares of our preferred stock automatically adjusted to become exercisable for shares of common stock, and therefore changes in the fair value of preferred stock warrant liabilities will no longer impact interest and other income, net.

InterestExpense

Interest expense consists primarily of interest accrued on our previously outstanding convertible debt and interest paid on our previously outstanding Loan and Security Agreement with Horizon Technology Finance dated February 18, 2011, or the Horizon Loan. We repaid all outstanding principal and interest under the Horizon Loan in full in July 2014 and all principal and accrued interest under our convertible debt converted into equity in September 2014. Also included in interest expense is the amortization of the discount on the Horizon Loan and convertible debt during 2014.

Results of Operations

Comparison of the Years Ended December  31, 2015, 2014 and 2013.

ResearchandDevelopmentExpenses.  Researchanddevelopmentexpensesforthe years ended December 31,2015, 2014 and 2013 wereasfollows:

	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Research and development expenses	$	16,054		$	12,200		$	13,136
Increase (decrease) from prior period	$	3,854		$	(936)			—
% change from prior period		31.6	%		(7.1)	%		—

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Fiscal 2015 as compared to Fiscal 2014 – The increase in research and development expenses for the year ended December 31, 2015 compared to prior year was primarily due to an increase in direct program expenses of $3.4 million and increased personnel and other expenses of $470,000, combined. The increase in direct program expenses for N91115 was largely driven by clinical trial expenses increasing by $3.0 million during the comparable periods due to the Phase 1b trial that was initiated during the first quarter of fiscal 2015 and completed in September 2015, the Phase 1adrug-drug interaction trial completed during the third quarter of fiscal 2015 and the Phase 2 triple therapy trial that was initiated during the fourth quarter of fiscal 2015. During fiscal 2014, two smaller Phase 1 safety trials were in process and completed by the end of that year. The remaining increase in direct program expenses for fiscal 2015 for N91115 of approximately $2.0 million was attributed to the production of N91115 for clinical trials and initiation of long-term toxicology studies. Partially offsetting these increases were decreased clinical trial expenses for N6022 of $1.6 million during the comparable periods as the Phase 1b trial of N6022 in people with CF was completed in April 2014. The combined increase in personnel and other expenses during fiscal 2015 compared to the prior year was primarily attributable to increased travel to support the clinical trials and overall increases in insurance.

Fiscal 2014 as compared to Fiscal 2013 – The decrease in research and development expenses for the year ended December 31, 2014 compared to the prior year was primarily attributable to a decrease in headcount as a result of a reduction in force that was implemented in July 2014, along with related decreases in lab supplies and equipment costs. In addition, clinical trial expenses for N6022 decreased by $1.8 million during 2014 as the Phase 1b trial was completed in April 2014. Partially offsetting these decreases was an increase of $1.6 million in clinical trial expenses for the same period related to the N91115 Phase 1a safety trial.

General and Administrative Expenses.Generalandadministrativeexpensesforthe years ended December 31,2015, 2014 and2013wereasfollows:

	Year Ended December 31,
	2015			2014			2013
	(in thousands)
General and administrative expenses	$	6,844		$	2,287		$	2,141
Increase from prior period	$	4,557		$	146			—
% change from prior period		199.3	%		6.8	%		—

Fiscal 2015 as compared to Fiscal 2014 – The increase in general and administrative expenses for the year ended December 31, 2015 compared to the prior year wasprimarily due to increased expenses related to becoming and operating as a publicly-traded company, including increased salary expense, employee benefits and stock-based compensation expense tied to a revised employee incentive plan and the hiring of a new CEO and CFO during the early part of 2015. Additionally, audit fees, legal support costs, patent expenses, travel costs and various marketing and investor relations expenses increased by approximately $2.5 million during fiscal 2015, compared to the prior year.

Fiscal 2014 as compared to Fiscal 2013 – The increase in general and administrative expenses for the year ended December 31, 2014 over the prior year was attributable to increases in recruiting search fees for a replacement CEO and increases in patent expenses and legal support costs. These increases were partially offset by decreases in salary expense and related benefits of $238,000 due to reduced employment levels.

Interest and Other Income, Net.

Fiscal 2015 as compared to Fiscal 2014 – The decrease in interest and other income, net for the year ended December31,2015 compared to the prior year was primarily due to approximately $266,000 recorded as a gain during fiscal 2014 due to the change in the fair value of preferred stock warrant liabilities that were adjusted to fair market value. These preferred stock warrant liabilities were reclassified as a component of equity during September 2014. Therefore no similar mark‑to‑market adjustment was recorded during 2015. During fiscal 2015, approximately $80,000 was earned as interest on marketable securities.

Fiscal 2014 as compared to Fiscal 2013– The increase in interest and other income, net for the year ended December 31, 2014 over the prior year was primarily due to a gain recorded for the change in fair market value of

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preferred stock warrant liabilities that were reclassified to equity subsequent to the completion of the stock conversion on September 23, 2014.

Interest Expense.

Fiscal 2015 as compared to Fiscal 2014 – There was no interest expense for the year ended December 31, 2015 due to repayment of the Horizon Loan in July 2014 and conversion of the convertible debt in September 2014 compared to the prior year in which interest was paid on the outstanding Horizon Loan and interest accrued on the convertible debt outstanding.

Fiscal 2014 as compared to Fiscal 2013 – The decrease in interest expense for the year ended December 31, 2014 over the prior year was due to a lower average balance on the Horizon Loan resulting from principal payments made during the year leading up to the payoff of the loan in July 2014. Slightly offsetting this decrease was the increase in the interest rate on the convertible debt issued during 2014 compared to similar convertible debt issued during 2013. In addition, all remaining deferred financing costs and debt discount related to the Horizon Loan were written off when the loan was repaid.

Liquidity and Capital Resources

We have funded our operations primarily through the proceeds from our IPO in June 2015 as well as private placements of equity and convertible debt and from the Horizon Loan. Since our inception, we received  $78.8 million in net proceeds from the IPO, $88.8 million in net proceeds from the issuance of convertible preferred stock, $52.4 million of net proceeds through the issuance of convertible debt and $5.0 million of gross proceeds from the issuance of the Horizon Loan, which was fully repaid in July 2014.Asof December  31, 2015,wehadcash,cashequivalents and marketable securities of$87.3million.

Thefollowingtablesetsforththeprimarysourcesandusesofcashfor years ended December 31, 2015, 2014 and 2013:

	Year Ended December 31,
	2015		2014		2013
	(in thousands)
Net cash used in operating activities	$	(19,207)	$	(14,448)	$	(14,293)
Net cash used in investing activities		(62,448)		(4)		(125)
Net cash provided by financing activities		78,834		41,166		10,811
Net increase (decrease) in cash and cash equivalents	$	(2,821)	$	26,714	$	(3,607)

Operating Activities

Fiscal 2015 as compared to Fiscal 2014– During the year ended December 31, 2015, our net loss of $22.8 million included noncash charges of $1.4 million, primarily associated with stock‑based compensation. During this same period, our net operating liabilities, excluding cash, cash equivalents and marketable securities, increased by approximately $2.2 million and thus decreased our net cash used in operating activities to $19.2 million. Net operating liabilities increased primarily because of higher accrued employee benefits of $1.5 million, increases in accounts payable and accrued direct program expenses of $376,000, increases in other liabilities of $163,000 and decreases in prepaid expenses of $198,000. Accrued employee benefit costs increased due to implementation of the 2015 employee incentive plan that was initiated at the beginning of the year. Increases in accounts payable and accrued direct program expenses were directly related to research and development costs for our Phase 1b clinical trial that completed in September 2015 along with the initiation of the Phase 2 clinical trial during the fourth quarter of 2015.

During fiscal 2014, our net loss of $15.0 million included noncash charges of $570,000. During the same period, our net operating liabilities, excluding cash, cash equivalents and marketable securities, increased by $18,000, largely the result of increased accounts payable and accrued direct program expenses that were offset by decreased employee benefits and increased prepaid expenses.

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Fiscal 2014 as compared to Fiscal 2013 – Net loss and non-cash charges were similar for the years ended December 31, 2014 and 2013. The similar amount of cash utilized in operating activities is due to a $1.2 million decrease in net loss, which was offset by a similar decrease in cash provided by changes in components of working capital.

Investing Activities

Fiscal 2015 as compared to Fiscal 2014–  Thenetcashusedininvestingactivities of $62.4 million for the year ended December 31, 2015 was primarily related to the net purchase of marketable securities.

Fiscal 2014 as compared to Fiscal 2013  –  Thenetcashusedininvestingactivities for the years ended December 31, 2014 and 2013 was related to the purchase of computer hardware, computer software and laboratory equipment used within our research and development and general and administrative departments.

Financing Activities

Fiscal 2015 as compared to Fiscal 2014–  The cash provided by financing activities for the year ended December 31, 2015 resulted from $78.8 million of net proceeds for the sale of common stock in our IPO that closed during June 2015. The cash provided by financing activities for the year ended December 31, 2014 was primarily driven by the receipt of $29.9 million in net proceeds from the sale of convertible preferred stock, receipt of $11.9 million in net proceeds from the issuance of convertible debt and $2.5 million from the release of restricted cash associated with the full repayment of the Horizon Loan. These sources of cash were partially offset by the full repayment of $3.1 million outstanding on the Horizon Loan.

Fiscal 2014 as compared to Fiscal 2013 – The cash provided by financing activities for the year ended December 31, 2014 was primarily driven by the receipt of $29.9 million in net proceeds from the sale of convertible preferred stock, receipt of $11.9 million in net proceeds from the issuance of convertible debt and $2.5 million from the release of restricted cash associated with the full repayment of the Horizon Loan. These sources of cash were partially offset by the full repayment of $3.1 million outstanding on the Horizon Loan. Cash provided by financing activities for the year ended December 31, 2013 represents the receipt of $12.0 million in proceeds from the sale of convertible debt, which was offset by the repayment of $1.2 million on the Horizon Loan.

FundingRequirements

We believe our existing cash, cash equivalents and marketable securitieswill provide resources to complete our recently initiated Phase 2 clinical trial and to fund our operating expenses and capital expenditure requirements to mid-2017 when we expect to be enrolling patients in our Phase 3 clinical program for N91115. We have based these estimates on assumptions that may prove to be incorrect, and given the risks and uncertainties associated with drug development and commercialization, we could use our capital resources sooner than expected. Our present and future funding requirements will depend on many factors, including but not limited to:

· personnel-related expenses, including salaries, benefits, travel and other compensation expenses;

· our ability to advance the clinical development program for our lead product candidate, N91115;

· the scope, progress, results and costs of preclinical development and clinical trials of N91115 and any other product candidate;

· the costs, timing and outcome of regulatory review of N91115 or any other potential product candidate;

· the revenue, if any, received from commercial sales of N91115 or any other potential product candidate for which we, or any future partner, may receive marketing approval;

· the costs and timing of future commercialization activities, including product manufacturing, marketing,

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sales and distribution, for N91115 or any other potential product candidate for which we receive marketing approval and do not partner for commercialization; and

· the extent to which we acquire, in-license or out-license other products and technologies.

Existing cash, cash equivalents and marketable securities will not be sufficient to fund our operations through successful development and commercialization of N91115 or any other potential product candidate. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay, or eliminate some or all of our planned development and commercialization activities, which could harm our business. For more information as to the risks associated with our future funding requirements, see Item 1A. – “Risk Factors” set forth elsewhere in the Annual Report on Form 10-K.

Critical Accounting Policies and Significant Judgments and Estimates

Our 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, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those described in more detail below. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Webelievethefollowingaccountingpoliciestobemostcriticaltothejudgmentsand estimatesusedinthepreparationofourfinancialstatements.

AccruedDirectProgramExpenses

Substantial portions of our preclinical studies and clinical trials are performed by third parties, such as CROs, laboratories, medical centers and other vendors. As part of the process of preparing our financial statements, we are required to estimate our accrued direct program expenses. This process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our direct program expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us. Examples of direct program expenses include:

· feesowedtocontractresearchorganizationsinconnectionwithpreclinicalandtoxicology studiesandclinicaltrials;

· feesowedtoinvestigativesitesinconnectionwithclinicaltrials;

· feesowedtocontractmanufacturersinconnectionwiththeproductionofdrugsupply materials; and

· otherfeesowedinrelationtodirectprograms.

Wehavenothadanymaterialadjustmentstoestimatedamountsrecordedinpreviousperiods. At December  31, 2015 and 2014,wehadaccrueddirectprogramexpensesof $1.6 million and $1.2million,respectively.

Income Taxes

We are subject to corporate taxes in the United States. Significant judgment is required in determining the use of net operating loss carryforwards for corporate tax purposes. There are many transactions and calculations for which

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the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred corporate tax assets and liabilities in the period in which such determination is made.

We have not recognized any taxes or income since the conversion of our company to a Delaware corporation in 2012. As of December 31, 2015, the total amount of tax losses carried forward wasapproximately $54.7 million. The utilization of these tax loss carryforwards may be subject to limitations as described further in the section titled “Tax Loss Carryforwards” below in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We have a history of tax losses, and therefore recognize deferred tax assets arising from unused tax losses or tax credits only to the extent that we have sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilized. We believe that other sufficient evidence is not currently available and therefore we have recorded a full valuation allowance against our net deferred tax assets.

Stock-Based Compensation

Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date. Compensation expense is recognized over the vesting period of the award. Calculating the fair value of stock-based awards requires that we make highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards.

The fair value of stock options for the years ended December 31, 2015, 2014 and 2013 was estimated at the grant date using the following weighted average assumptions for the respective periods:

	2015			2014	2013
Estimated dividend yield		–		*		–
Weighted-average expected stock price volatility		75.7	%	*		120.8	%
Weighted-average risk-free interest rate		1.8	%	*		1.2	%
Weighted-average expected life of option (in years)		6.22		*		6.25
Weighted-average fair value per option	$	5.09		*	$	2.95

*There were no options granted during 2014

Expected dividend yield.  The expected dividend yield for all of our stock option grants is 0%, as we have not declared a cash dividend since inception, and do not expect to do so in the foreseeable future.

Expected stock price volatility.The expected volatility was estimated using peer data of companies in the biopharmaceutical industry with similar equity plans.

Risk free interest rate.  We use the average yield on current U.S. Treasury instruments with terms that approximate the expected term of the stock options being valued.

Expected life of option in years.  The expected term of a stock option is the period of time for which the option is expected to be outstanding. We used a simplified method of determining expected term by selecting the midpoint between the average vesting date and the contractual terms, which is in accordance with the simplified method.

Forfeitures.  The stock-based compensation expense recognized has been reduced for estimated forfeitures. The estimated forfeiture rate is based on historical experience of our option plan, which we expect to continue at the current level, and any adjustments in the forfeiture rate in the future will result in a cumulative adjustment in the period that this estimate is changed. Ultimately, the total compensation expense recognized for any given stock based award over its vesting period will only be for those shares that actually vest.

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We recognized stock-based compensation expense of approximately $1.3 million, $70,000 and $98,000 for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we had $7.1 million in total unrecognized stock-based compensation expense, net of related forfeiture estimates, which is expected to be recognized over a weighted-average remaining vesting period of 3.3 years. We expect our stock-based compensation to grow in future periods due to the potential increase in employee headcount and additional stock option grants to existing employees and directors.

Contractual Obligations and Commitments

Thefollowingtablesummarizesourcontractualobligationsat December31,2015:

	Payments due by period
	(in thousands)
			Less than 1						More than
	Total		year		1-3 years		3-5 years		5 years
Purchase obligations	$	9,195	$	8,642	$	553	$	—	$	—
Operating leases		664		292		372		—		—
Total obligations	$	9,859	$	8,934	$	925	$	—	$	—

We have entered into contracts with third parties to provide future services, which include research and development, clinical development support and testing services. These purchase obligations include both cancellable and non-cancellable amounts.We also have an operating lease obligation for office and laboratory space, which will expire on March 31, 2018. We have the option to renew the lease for an additional three-year term and the option to terminate the lease at any time after March 31, 2017, for a termination fee of $25,000.

RelatedPartyTransactions

Atvariouspointsduring2014,weissuedanaggregateof$12.0millionofconvertibledebtto certainexistinginvestors.Interestaccruedontheseloansuntiltheloansandallaccruedinterest wereconvertedinfullonSeptember23,2014toSeries1convertiblepreferredstock.

Off-BalanceSheetArrangements

Wedidnothaveduringtheperiodspresented,andwedonotcurrentlyhave,anyoff-balance sheetactivities,asdefinedinItem303(a)(4)ofRegulationS-K.

Tax Loss Carryforwards

As of December 31, 2015, we had federal and state income loss carryforwards and research and development credits of $54.7 million and $1.8 million, respectively that begin to expire in 2032 for both federal and state purposes. The utilization of the federal net operating loss carryforwards and credits may be subject to limitations under the rules regarding a change in stock ownership as determined by the Internal Revenue Code and state laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization of net operating loss, or NOL, carryforwards, other tax carryforwards, tax credits, and certain built-in losses upon an ownership change as defined by that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain stockholders in Nivalis stock by more than 50 percentage points over a three year testing period, or a Section 382 Ownership Change. If Nivalis has undergone a Section 382 Ownership Change, an annual limitation would be imposed on certain tax attributes of Nivalis, including NOL and capital loss carryforwards, and certain other losses and credits. As of December 31, 2015, we have not performed a formal study to determine whether there are Section 382 limitations that apply and such limitations could be significant.

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JOBS Act

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may 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(b) of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, reduced disclosure obligations relating to the presentation of financial statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation. We have availed ourselves of the reduced reporting obligations and executive compensation disclosure in this Annual Report on Form 10-K, and expect to continue to avail ourselves of the reduced reporting obligations available to emerging growth companies in future filings.

In addition, an emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period, and as a result, we plan to comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

RecentAccounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and to provide disclosures when certain criteria are met. The guidance is effective for annual periods beginning in 2016 and interim reporting periods starting in the first quarter of 2017. Early application is permitted. We do not expect the standard will have a material impact on our disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The new standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual report period. The amendments in this standard may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. We adopted this standard as of December 31, 2015 with prospective application. As a result, we reclassified our deferred tax assets classified as current to noncurrent and our deferred tax liabilities classified as current to noncurrent as of December 31, 2015. Prior year balances were not retrospectively adjusted.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. We are currently evaluating the impact of the new pronouncement on our financial statements. 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

85

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act, which allows us to delay adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we irrevocably chose to “opt out” of such extended transition period, and as a result, we plan to comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk related to changes in interest rates. As of December  31, 2015, we had cash, cash equivalents and marketable securities of $87.3 million, consisting of deposits with commercial banks in checking, interest-bearing and demand money market accounts, corporate debt securities, U.S. treasury securities and obligations of U.S. government agencies. The primary objectives of our investment policy are to preserve principal and maintain proper liquidity to meet operating needs.

Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this Item are included in Item 15 of this report and presented beginning on page F-1.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a−15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. In connection with the filing of this Annual Report on Form 10-K, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December  31, 2015.

Management’s Assessment of Internal Control over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

86

Changes in Internal Control over Financial Reporting

This Annual Report on Form 10-K does not include a report on changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter due to a transition period established by the Exchange Act for newly public companies. 

ITEM 9B.OTHER INFORMATION

None.

87

PART III

As permitted by General Instruction G(3) of Form 10-K, certain information required by Part III is omitted from this Annual Report on Form 10-K and is incorporated herein by reference from our definitive proxy statement relating to our 2015 annual meeting of stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, also referred to in this Form 10-K as our 2015 Proxy Statement, which we expect to file with the SEC no later than April 30, 2016.

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item regarding our directors, executive officers and corporate governance matters, including the audit committee and audit committee financial experts and compliance with Section 16(a) of the Exchange Act will be included in our 2015 Proxy Statement and is incorporated herein by reference.

We have adopted a Code of Business Ethics for all of our directors, officers and employees as required by NASDAQ governance rules and as defined by applicable SEC rules. Stockholders may locate a copy of our Code of Business Ethics on our website at www.nivalis.com, or request a copy without charge from:

Nivalis Therapeutics, Inc.

Attention: Investor Relations

3122 Sterling Circle, Suite 200

Boulder, CO 80301

We will post to our website any amendments to the Code of Business Ethics and any waivers that are required to be disclosed by the rules of either the SEC or NASDAQ.

ITEM 11.EXECUTIVE COMPENSATION

The information required by this item regarding executive compensation will be included in our 2015 Proxy Statement and is incorporated herein by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item regarding security ownership of certain beneficial owners and management will be included in the 2015 Proxy Statement and is incorporated herein by reference.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2015, about the shares of common stock that may be issued upon the exercise of options under our existing equity compensation plans, which include theN30 Pharmaceuticals, Inc. 2012 Stock Incentive Plan (the “2012 Plan”), the Nivalis Therapeutics, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) and the Nivalis Therapeutics, Inc. Employee Stock Purchase Plan (the “ESPP”).  Nivalis has no equity compensation plans that have not been approved by our stockholders.

	Number of securities to be issued upon exercise of outstanding options and rights		Weighted-average exercise price of outstanding options and rights	Number of securities remaining available for issuance under equity compensation plans excluding securities reflected in column (a)
Plan Category	(a)		(b)	(c)
2012 Plan and 2015 Plan (1)	1,787,864	$	$ 7.54	580,725
ESPP	—		—	222,876
Total	1,787,864			803,601

88

(1)The 2015 Plan provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2015 Plan on January 1 of each calendar year, from January 1, 2016 through January 1, 2025. The shares available for issuance under the 2015 Plan are increased automatically each year by an amount equal to (a) 5% of the total number of shares of Common Stock issued and outstanding on December 31 of the preceding calendar year; or (b) such lesser number of shares of Common Stock approved by the Board of Directors on or prior to such immediately preceding December 31. However, in no event shall the number of additional authorized shares determined pursuant to this formula exceed, when added to the number of shares of common stock outstanding and reserved for issuance under the 2012 Plan, the 2015 Plan other than pursuant to this formula, under the ESPP and upon conversion or exercise of outstanding warrants, the total number of shares of common stock authorized for issuance under Nivalis’ Amended and Restated Certificate of Incorporation.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item regarding certain relationships and related transactions and director independence will be included in the 2015 Proxy Statement and is incorporated herein by reference.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item regarding principal accounting fees and services will be included in the 2015 Proxy Statement and is incorporated herein by reference.

89

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)The following documents are being filed as part of this report:

(1) Financial Statements.

Reference is made to the Index to Financial Statements of Nivalis Therapeutics, Inc. appearing on page F-1 of this report.

(2) Financial Statement Schedules.

All financial statement schedules have been omitted because they are not applicable or not required or because the information is included elsewhere in the Financial Statements or the Notes thereto.

(3) Exhibits.

Reference is made to the Index to Exhibits filed as a part of this Annual Report on Form 10-K.

90

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NIVALIS THERAPEUTICS, INC.
	By:	/S/ JON CONGLETON
		Jon Congleton
Date: March8, 2016		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Name	Title	Date
/S/ JON CONGLETON
Jon Congleton	President and Chief Executive Officer; Director	March 8, 2016
	(Principal Executive Officer)
/S/ R. MICHAEL CARRUTHERS
R. Michael Carruthers	Executive Vice President and Chief Financial Officer	March 8, 2016
	(Principal Financial Officer and Principal AccountingOfficer)
/S/ ROBERT CONWAY
Robert Conway	Director	March 8, 2016
/S/ HOWARD FURST
Howard Furst	Director	March 8, 2016
/S/ JONATHAN LEFF
Jonathan Leff	Director	March 8, 2016
/S/ EVAN LOH
Evan Loh	Director	March 8, 2016
/S/ JOHN MOORE
John Moore	Director	March 8, 2016
/S/ PAUL SEKHRI
Paul Sekhri	Director	March 8, 2016

91

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets	F-3
Statements of Operations and Comprehensive Loss	F-4
Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	F-5
Statements of Cash Flows	F-7
Notes to Financial Statements	F-8

F-1

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors

Nivalis Therapeutics, Inc.

We have audited the accompanying balance sheets of Nivalis Therapeutics, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nivalis Therapeutics, Inc., at December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Denver, Colorado

March 8, 2016

F-2

Nivalis Therapeutics, Inc.

Balance Sheets

(In thousands, except for share amounts)

	December 31,		December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	24,991	$	27,812
Marketable securities		62,263		—
Prepaid expenses and other current assets		432		630
Total current assets		87,686		28,442
Property and equipment and other assets, net		223		101
Total assets	$	87,909	$	28,543
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	994	$	929
Accrued direct program expenses		1,555		1,244
Accrued employee benefits		1,675		210
Accrued other liabilities		195		32
Total current liabilities		4,419		2,415
Commitments and contingencies
Convertible preferred stock with liquidation preference; $0.001 par value; zero and 23,228,986 shares authorized, respectively; zero and 19,978,986 shares issued and outstanding, respectively		—		41,880
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value; 10,000,000 and zero shares authorized, respectively; no shares issued and outstanding		—		—
Common stock, $0.001 par value; 200,000,000 and 35,000,000 shares authorized, respectively; 15,462,030 and 2,211,158 shares issued and outstanding, respectively		15		2
Additional paid-in capital		232,309		110,265
Accumulated other comprehensive income		3		—
Accumulated deficit		(148,837)		(126,019)
Total stockholders’ equity (deficit)		83,490		(15,752)
Total liabilities and stockholders’ equity (deficit)	$	87,909	$	28,543

The accompanying notes are an integral part of these financial statements.

F-3

Nivalis Therapeutics, Inc.

Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

	Years Ended December 31,
	2015		2014		2013
Revenue	$	—	$	—	$	—
Operating expenses:
Research and development		16,054		12,200		13,136
General and administrative		6,844		2,287		2,141
Loss from operations		(22,898)		(14,487)		(15,277)
Interest and other income, net		80		296		10
Interest expense		—		(845)		(931)
Net loss		(22,818)		(15,036)		(16,198)
Gain on extinguishment of convertible debt as a capital transaction		—		378		—
Net loss attributable to common stockholders	$	(22,818)	$	(14,658)	$	(16,198)
Change in unrealized gains on marketable securities, net		3		—		—
Comprehensive loss	$	(22,815)	$	(14,658)	$	(16,198)
Weighted average shares outstanding - basic and diluted		9,371		723		155
Net loss per share attributable to common stockholders - basic and diluted	$	(2.43)	$	(20.27)	$	(104.50)

The accompanying notes are an integral part of these financial statements.

F-4

Nivalis Therapeutics, Inc.

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands)

	Series 1			Series 2			Series A-2			Series C-1			Series C-2			Series D			Series E
	Convertible			Convertible			Convertible			Convertible			Convertible			Convertible			Convertible
	Preferred Stock			Preferred Stock			Preferred Stock			Preferred Stock			Preferred Stock			Preferred Stock			Preferred Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance as of January 1, 2013	—	$	—	—	$	—	1,393	$	9,000	2,811	$	18,155	2,379	$	19,980	7,203	$	15,675	4,266	$	14,983
Employee stock-based compensation expense	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Net loss	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Balance as of December 31, 2013	—	$	—	—	$	—	1,393	$	9,000	2,811	$	18,155	2,379	$	19,980	7,203	$	15,675	4,266	$	14,983
Conversion of 2013 notes payable, net of issuance costs	—		—	—		—	—		—	—		—	—		—	—		—	3,528		12,326
Recapitalization	—		—	—		—	(1,393)		(9,000)	(2,811)		(18,155)	(2,379)		(19,980)	(7,203)		(15,675)	(7,794)		(27,309)
Conversion of 2014 notes payable, net of issuance costs	8,813		12,329	—		—	—		—	—		—	—		—	—		—	—		—
Gain on extinguishment of convertible debt	—		(384)	—		—	—		—	—		—	—		—	—		—	—		—
Sale of convertible preferred stock, net of issuance costs	—		—	11,166		29,935	—		—	—		—	—		—	—		—	—		—
Restricted stock units forfeited	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Exercise of incentive stock options	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Reclass of preferred stock warrant liabilities to equity	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Employee stock-based compensation expense	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Net loss	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Balance as of December 31, 2014	8,813	$	11,945	11,166	$	29,935	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Conversion of convertible preferred stock to common stock	(8,813)		(11,945)	(11,166)		(29,935)	—		—	—		—	—		—	—		—	—		—
Issuance of common stock, net of $9.8 million of offering costs	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Issuance of common stock under the employee stock purchase plan	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Exercise of incentive stock options	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Employee stock-based compensation expense	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Change in unrealized gains on marketable securities, net	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Net loss	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Balance as of December 31, 2015	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—

The accompanying notes are an integral part of these financial statements.

F-5

Nivalis Therapeutics, Inc.

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Continued)

(In thousands)

	Series A-1
	Convertible						Additional		Accumulated Other				Total
	Preferred Stock			Common Stock			Paid-‑in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity (Deficit)
Balance as of January 1, 2013	1,992	$	2	171	$	—	$	19,595	$	—	$	(94,785)	$	(75,188)
Employee stock-based compensation expense	—		—	—		—		98		—		—		98
Net loss	—		—	—		—		—		—		(16,198)		(16,198)
Balance as of December 31, 2013	1,992	$	2	171	$	—	$	19,693	$	—	$	(110,983)	$	(91,288)
Conversion of 2013 notes payable, net of issuance costs	—		—	—		—		—		—		—		—
Recapitalization	(1,992)		(2)	2,040		2		90,120		—		—		90,120
Conversion of 2014 notes payable, net of issuance costs	—		—	—		—		—		—		—		—
Gain on extinguishment of convertible debt	—		—	—		—		378		—		—		378
Sale of convertible preferred stock, net of issuance costs	—		—	—		—		—		—		—		—
Restricted stock units forfeited	—		—	(1)		—		—		—		—		—
Exercise of incentive stock options	—		—	1		—		2		—		—		2
Reclass of preferred stock warrant liabilities to equity	—		—	—		—		2		—		—		2
Employee stock-based compensation expense	—		—	—		—		70		—		—		70
Net loss	—		—	—		—		—		—		(15,036)		(15,036)
Balance as of December 31, 2014	—	$	—	2,211	$	2	$	110,265	$	—	$	(126,019)	$	(15,752)
Conversion of convertible preferred stock to common stock	—		—	6,916		7		41,873		—		—		41,880
Issuance of common stock, net of $9.8 million of offering costs	—		—	6,325		6		78,765		—		—		78,771
Issuance of common stock under the employee stock purchase plan	—		—	9		—		59		—		—		59
Exercise of incentive stock options	—		—	1		—		4		—		—		4
Employee stock-based compensation expense	—		—	—		—		1,343		—		—		1,343
Change in unrealized gains on marketable securities, net	—		—	—		—		—		3		—		3
Net loss	—		—	—		—		—		—		(22,818)		(22,818)
Balance as of December 31, 2015	—	$	—	15,462	$	15	$	232,309	$	3	$	(148,837)	$	83,490

The accompanying notes are an integral part of these financial statements.

F-6

Nivalis Therapeutics, Inc.

Statements of Cash Flows

(In thousands)

	Years Ended December 31,
	2015		2014		2013
Operating activities
Net loss	$	(22,818)	$	(15,036)	$	(16,198)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and loss on disposal of assets		66		88		219
Stock-based compensation expense		1,343		70		98
Change in value of preferred stock warrant liabilities and derivative		—		(296)		(9)
Amortization of deferred financing costs and noncash interest		—		708		521
Changes in operating assets and liabilities:
Prepaid expenses and other		198		(380)		107
Accounts payable		65		258		400
Accrued direct program expenses		311		355		540
Accrued employee benefits		1,465		(183)		55
Accrued other liabilities		163		(32)		(26)
Net cash used in operating activities		(19,207)		(14,448)		(14,293)
Investing activities
Purchases of property and equipment		(188)		(4)		(125)
Purchases of marketable securities		(76,260)		—		—
Proceeds from sales and maturities of marketable securities		14,000		—		—
Net cash used in investing activities		(62,448)		(4)		(125)
Financing activities
Proceeds from issuance of common stock, net of offering costs		78,771		—		—
Proceeds from employee stock purchases and stock options exercised		63		2		—
Proceeds from issuance of convertible preferred stock, net		—		29,935		—
Decrease in restricted cash		—		2,500		—
Proceeds from notes payable, net		—		11,868		12,000
Principal payment on debt		—		(3,139)		(1,189)
Net cash provided by financing activities		78,834		41,166		10,811
Net increase (decrease) in cash and cash equivalents		(2,821)		26,714		(3,607)
Cash and cash equivalents, beginning of period		27,812		1,098		4,705
Cash and cash equivalents, end of period	$	24,991	$	27,812	$	1,098
Supplemental disclosures of cash flow information
Cash paid for interest	$	—	$	165	$	124
Conversion of convertible preferred stock to common stock	$	41,880	$	—	$	—
Conversion of convertible debt and accrued interest to convertible preferred stock, net	$	—	$	24,655	$	12,365

The accompanying notes are an integral part of these financial statements.

F-7

NIVALIS THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS

1. Organization and Description of Business

Nivalis Therapeutics, Inc. (the “Company” or “Nivalis”) is a clinical stage pharmaceutical company committed to the discovery, development and commercialization of therapeutics for people with cystic fibrosis. In addition to developing innovative solutions intended to extend and improve the lives of people with cystic fibrosis, Nivalis plans to utilize its proprietary S-nitrosoglutathione reductase (GSNOR) inhibitor portfolio to develop therapeutics for other diseases.

The Company was incorporated on August 1, 2012, under the laws of the State of Delaware, upon the conversion of its predecessor entity N30 Pharmaceuticals, LLC from a Delaware limited liability company to a Delaware corporation (the “Company Conversion”). On February 11, 2015, the Company changed its name from N30 Pharmaceuticals, Inc. to Nivalis Therapeutics, Inc.

2. Liquidity Risks

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing research and development spending. As of December  31,  2015, the Company had an accumulated deficit of $148.8million. Net losses and net cash used in operating activities for the year ended December31, 2015 were $22.8 million and $19.2million, respectively. The Company anticipates that operating losses and net cash used in operating activities will continue and substantially increase over the next several years as it expands development activities for its N91115 product candidate.

The Company has historically financed its operations primarily through the sale of its equity securities and debt offerings. The Company will continue to be dependent upon such sources of funds until it is able to generate positive cash flows from its operations. Management has determined that the Company’s existing cash, cash equivalents and marketable securities as of December  31, 2015 will be sufficient to fund operations at least through the next twelve months.  

The Company expects to fund future operations through the sale of its equity securities, incurring debt, entering into partnerships, or obtaining grants or other nondilutive sources of financing. There can be no assurance that sufficient funds from these sources will be available to the Company when needed or at all or on terms that are favorable to the Company. If the Company is unable to obtain additional funding from these or other sources when needed, or to the extent needed,it would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. It could force the Company to delay, limit, reduce or terminate research and development programs and commercialization efforts or cause the Company to cease operations in full.

3. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include all adjustments necessary for the presentation of the Company’s financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes, including accrued liabilities and the fair value-based measurement of equity instruments. Actual results could differ materially from those estimates. The Company evaluates its estimates and assumptions as facts and circumstances dictate.

F-8

2014 Stock Conversion and Reverse Stock Split

Effective September 23, 2014, all outstanding shares of the Company’s preferred stock were converted on an 11.556-for-1 basis into shares of common stock (the “Stock Conversion”). Concurrent with this Stock Conversion, the Company effected a reverse stock split of its common stock, par value $0.001 per share. Every four shares of common stock were reclassified and combined into one share of common stock. Fractional shares were issued as a result of the reverse stock split. The total number of authorized shares of common stock was also proportionally decreased on a 4-for-1basis and the par value per share of the common stock continued to be $0.001. 

2015 Stock Conversion and Reverse Stock Split

On May 26, 2015, the Company’s Board of Directors approved a 1-for-2.889 reverse stock split of its common stock, which became effective on June 1, 2015. Upon the effectiveness of the reverse stock split, (i) every 2.889 shares of outstanding common stock were decreased to one share of common stock, (ii) the number of shares of common stock into which each outstanding option, right and warrant to purchase common stock is exercisable was proportionally decreased on a 1-for-2.889 basis and the exercise price of each outstanding option, right and warrant to purchase common stock was proportionately increased on a 1-for-2.889 basis, and (iii) the conversion ratio for each share of the Company’s convertible preferred stock which was convertible into common stock was proportionally decreased on a corresponding basis in connection with the 1-for-2.889 reverse split. No fractional shares were issued as a result of the reverse stock split. The total number of authorized shares of common stock and the par value per share of common stock did not change as a result of the reverse stock split.

Effective June 22, 2015, all outstanding shares of convertible preferred stock were converted on a 2.889-for-1 basis into shares of common stock in connection with the closing of our initial public offering.

All of the share numbers, share prices, exercise prices and other per share information throughout these financial statements for all periods presented have been adjusted, on a retroactive basis, to reflect the 1-for-4 reverse stock split and the 1-for-2.889 reverse stock split and the conversion of all convertible preferred stock on the closing of our initial public offering.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest- bearing and demand money market accounts.

Marketable Securities

The Company has designated marketable securities as available-for-sale securities and accounts for them at their respective fair values. Marketable securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Securities that are classified as available-for-sale are carried at fair value, including accrued interest, with temporary unrealized gains and losses reported as a component of stockholders' equity (deficit) until their disposition. The Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale based on the Company’s then current intent and ability to sell the security if it is required to do so. The cost of securities sold is based on the specific identification method. All marketable securities are subject to a periodic impairment review. The Company will recognize an impairment charge when a decline in the fair value of the investments below the cost basis is judged to be other-than-temporary.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company has established guidelines to limit its exposure to credit risk by placing investments with high credit quality financial institutions, diversifying its investment portfolio and making investments with maturities that maintain safety and liquidity. At December 31, 2015 and 2014, the Company’s cash

F-9

equivalents were with money market funds that invest in securities issued by the U.S. Treasury. At December 31, 2015, the Company’s marketable securities were in U.S. Treasury securities, obligations of U.S. government agencies and high-grade corporate debt securities.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Lab equipment, computer equipment and software are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the lease term. Maintenance and repairs are expensed as incurred.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for an amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company has not yet generated consistent positive cash flows on an annual basis, and such positive cash flows may not materialize for a significant period in the future. As a result, it is reasonably possible that future evaluations of long-lived assets may result in a conclusion that such assets have been impaired.

Accrued Direct Program Expenses

Substantial portions of the Company’s preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively CROs). These CROs generally bill monthly or quarterly for services performed or upon achieving certain milestones. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the CROs or within software tracking systems, correspondence with the CROs and clinical site visits. Company estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. The Company periodically evaluates these estimates to determine if adjustments are necessary or appropriate based on information received. No vendor comprised more than 10% of all external costs in 2015, 2014, and 2013.

Research and Development

The Company expenses costs associated with research and development as incurred. These costs include direct program expenses, which are payments made to third parties that specifically relate to the Company’s research and development, such as payments to clinical research organizations, clinical investigators, manufacturing of clinical material, pre-clinical testing and consultants. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees contributing to research and development activities are classified as research and development costs.

Stock-Based Compensation

The Company measures employee and director stock-based compensation expense for all stock and purchase awards at the grant date based on the fair value measurement of the award. The expense is recorded over the related service period, generally the vesting period, net of estimated forfeitures. Any changes to the estimated forfeiture rates are accounted for prospectively. The Company calculates the fair value measurement of stock options using the Black-Scholes valuation model and the single-option method and recognizes expense using the straight-line attribution approach.

F-10

Income Taxes

The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for tax and financial reporting purposes measured by applying enacted tax rates and laws that will be in effect when the differences are expected to reverse, net operating loss and tax credit carryforwards. Tax benefits are recorded when the benefit is more likely than not to be sustained upon audit. The Company accrues interest and penalties related to uncertain tax positions in income tax expense. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.

Segment Information

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on discovering and developing potential drugs. No revenue has been generated since inception, and all tangible assets are held in the United States.

Comprehensive Loss

Comprehensive loss is comprised of net loss and adjustments for the change in unrealized gains and losses on the Company’s investments in available-for-sale marketable securities. The Company presents comprehensive loss and its components in the statements of operations and comprehensive loss for the year ended December 31, 2015.

Net Loss per Share

The Company reports net loss per share in accordance with the standard codification of ASC “Earnings per Share” (“ASC 260”). Under ASC 260, basic earnings per share, which excludes dilution, is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could be exercised or converted into common shares, and is computed by dividing net loss available to common stockholders by the weighted average of common shares outstanding plus the dilutive potential common shares. Diluted earnings per share excludes the impact of convertible preferred stock, employee stock options, restricted stock and stock purchase rights, as the effect would be anti-dilutive. During a loss period, the assumed exercise of in-the-money stock options and other potentially diluted instruments has an anti-dilutive effect and therefore, these instruments are excluded from the computation of dilutive earnings per share.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and to provide disclosures when certain criteria are met. The guidance is effective for annual periods beginning in 2016 and interim reporting periods starting in the first quarter of 2017. Early application is permitted. The Company does not expect the standard will have a material impact on its disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The new standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual report period. The amendments in this standard may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company adopted this standard as of December 31, 2015 with prospective application. As a result, the Company reclassified its deferred tax assets classified as current to noncurrent and its deferred tax liabilities classified as current to noncurrent as of December 31, 2015. Prior year balances were not retrospectively adjusted.

F-11

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements. 

Fair Value of Financial Instruments

The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts payable, accrued direct program expenses, and accrued employee benefits, and other financial instruments included within current assets or current liabilities.

The Company accounted for warrants to purchase its redeemable preferred stock pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, and classified them as liabilities. The fair value of the outstanding preferred stock warrant liabilities at December 31, 2013 was $267,750. Subsequent to the completion of the Stock Conversion on September 23, 2014, whereby all outstanding shares of preferred stock were converted into shares of common stock, and the warrants became exercisable for shares of common stock pursuant to the adjustment provisions of the warrants, the fair value of the preferred stock warrant liabilities was remeasured and reclassified into equity. During the year ended December 31, 2014 a remeasurement gain of $265,750 was recognized in interest and other income, net in the statement of operations and comprehensive loss. Upon the Stock Conversion, the remaining balance of $2,000 was reclassified from liabilities to equity.

Fair Value Measurements

In general, asset and liability fair values are determined using the following categories:

Level 1 – inputs utilize quoted prices in active markets for identical assets or liabilities.

Level 2 – inputs include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

Level 3 – inputs are unobservable inputs and include situations where there is little, if any, market activity for the balance sheet items at period end. Pricing inputs are unobservable for the terms and are based on the Company’s own estimates about the assumptions that a market participant would use in pricing as asset.

The Company’s financial instruments, including money market investments, corporate debt securities, U.S. Treasury securities and obligations of U.S. government agencies, are measured at fair value on a recurring basis. There were no transfers between levels for the year ended December 31, 2015.

F-12

Assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of December 31, 2015 and 2014 (in thousands):

			Quoted prices		Quoted prices				Quoted prices
			in active		for similar assets				in active
			markets for		observable in the				markets for
	December 31,		identical assets		marketplace		December 31,		identical assets
Description	2015		(Level 1)		(Level 2)		2014		(Level 1)
Assets measured at fair value:
Money market investments	$	12,131	$	12,131	$	—	$	26,926	$	26,926
U.S. Treasury securities, obligations of U.S. government agencies, corporate debt securities and reverse repurchase agreements		73,261		—		73,261		—		—

4. Cash, Cash Equivalents and Marketable Securities

The following is a summary of cash, cash equivalents and marketable securities as of December 31, 2015 and 2014 (in thousands):

			Gross unrealized		Gross unrealized		Fair market
	Amortized Cost		gains		losses		value
December 31, 2015
Cash	$	1,862	$	–	$	–	$	1,862
Money market funds		12,131		–		–		12,131
Reverse repurchase agreements		6,000		–		–		6,000
U.S. Treasury securities and obligations of U.S. government agencies		28,982		4		(7)		28,979
Corporate debt securities		38,276		22		(16)		38,282
Total for December 31, 2015	$	87,251	$	26	$	(23)	$	87,254
December 31, 2014
Cash	$	886	$	–	$	–	$	886
Money market funds		26,926		–		–		26,926
Total for December 31, 2014	$	27,812	$	–	$	–	$	27,812

5. Property and Equipment

Property and equipment consist of the following as of December 31, 2015 and 2014 (in thousands):

	Estimated
	Useful Life		December 31,
	(in years)		2015		2014
Lab equipment		5	$	1,146	$	1,099
Computer equipment and software		3		421		291
Leasehold improvements		2		102		102
Total				1,669		1,492
Less accumulated depreciation				(1,456)		(1,401)
Property and equipment, net			$	213	$	91

Depreciation expenses were approximately $66,000, $86,000 and $219,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

F-13

6. Notes Payable

As of December  31, 2015, the Company hadno debt outstanding.

Loan and Security Agreement

During February 2011, the Company entered into a $5.0million loan and security agreement (“Loan Agreement”) with Horizon Technology Finance (“Horizon”). The interest rate for these loans was 11.25%.  The Loan Agreement required that the Company maintain $2.5million in an account that was subject to an Account Control Agreement and restricted the Company from withdrawing the funds from this account without Horizon’s prior written consent. During July 2014, the entire outstanding balance under the Loan Agreement was paid in full and the remaining restricted cash held by the Company was fully released. The payment also released all previously pledged assets held as collateral under the loan.

Convertible Debt

During February 2014 through September 2014, the Company issued subordinated secured convertible promissory notes (the “2014 Notes”), to tworelated party investors totaling $12.0million at an interest rate of 8.0% per annum. The outstanding principal and accrued and unpaid interest was convertible at the option of the investor into preferred shares in the Company. 

The 2014 Notes included a change in control redemption which was deemed an embedded derivative. This redemption right and the right to convert at 75% of the price at which a new series of preferred stock was issued required the Company to bifurcate and separately account for the embedded derivatives, however the amount recorded and the impact on net loss was not material.

As part of the Stock Conversion on September 23, 2014, the holders of the 2014 Notes agreed to the issuance of shares of a newly created Series 1 convertible preferred stock in settlement of the 2014 Notes. The Company issued 8,813,203 Series 1 convertible preferred shares at a price of $1.40 per share through the settlement of $12,373,741 of convertible debt and related interest held by two separate investors. This transaction resulted in a gain on extinguishment of $378,251, which was recognized through equity during theyear ended December  31, 2014, as this was a transaction with stockholders.

7. Commitments and Contingencies

Operating Lease

The Company has a lease obligation for office and laboratory space, which will expire on March 31, 2018. The Company has the option to renew the lease for an additional three-year term and has the option to terminate the lease at any time after March 31, 2017, for a termination fee of $25,000.  

The approximate future minimum payments under these lease arrangements as of December 31, 2015, are as follows (in thousands):

2016	$	292
2017		293
2018		79
Total	$	664

During 2015, 2014 and 2013, the Company incurred approximately $267,000,  $225,000 and $257,000 for rent expense, respectively.

F-14

Purchase Commitments

The Company has entered into contracts with external parties to provide the Company future services, which include research and development, clinical development support and testing services. As of December 31, 2015, the Company’s obligation for future services under these contracts approximated $9,194,000 with approximately $8,642,000 payable within one year. These purchase obligations include both cancellable and non-cancellable amounts.

8. Stockholders’ Equity

During February 2014, the Company increased its authorized number of shares of convertible preferred stock to 30,233,694 shares. During March 2014, the Company increased its authorized number of shares of convertible preferred stock to 60,503,445 shares and increased its authorized number of shares of common stock to 25,000,000 shares.

Immediately following the Stock Conversion and the one-for-four reverse stock split effected in September 2014, the Company reestablished its authorized number of shares of convertible preferred stock to 8,866,753 shares and its authorized number of shares of common stock to 15,742,382 shares.

During November 2014, the Company increased its authorized number of shares of convertible preferred stock to 23,228,986 shares and increased its authorized number of shares of common stock to 35,000,000 shares.

Concurrent with the Company’s initial public offering completed in June 2015 (the “IPO”), the Company increased its authorized number of shares of common stock to 200,000,000 shares, eliminated its authorized shares of convertiblepreferred stock and authorized10,000,000 shares of preferred stock for future issuance.

Convertible Preferred Stock

Immediately prior to the Stock Conversion, the Company had six series of outstanding convertible preferred stock: Series A-1 convertible preferred stock, Series A-2 convertible preferred stock, Series C-1 convertible preferred stock, Series C-2 convertible preferred stock, Series D convertible preferred stock and Series E convertible preferred stock. The convertible preferred stock was initially recorded at the issuance price on the date of issuance, net of issuance costs. As a result of the Stock Conversion on September 23, 2014, all outstanding preferred stock was converted into shares of common stock on an 11.556-for-1 basis. Concurrent with the Stock Conversion, a newly created Series 1 convertible preferred stock was issued in the settlement of the 2014 Notes. In November and December 2014, the Company raised $31.0 million gross proceeds in a private placement of Series 2 convertible preferred stock.

On June 22, 2015, prior to the closing of the Company’s IPO, all outstanding shares of convertible preferred stock, amounting to 19,978,986 shares, were automatically converted into 6,915,525 shares of common stock in accordance with the terms of the Company’s amended and restated certificate of incorporation then in existence.

As of December 31, 2015, the Company had no preferred stock or convertible preferred stock outstanding.

Common Stock

On June 22, 2015, the Company completed its IPO of 6,325,000 shares of its common stock, including 875,000 shares from the exercise of the underwriters’ over-allotment option, at a price to the public of $14.00 per share for aggregate gross proceeds of $88.6 million. The Company received proceeds of $78.8 million from its IPO, net of $3.6 million in expenses and $6.2 million in underwriters’ discounts and commissions relating to the issuance and distribution of the securities.

F-15

At December 31, 2015, shares of common stock have been reserved for issuance as follows:

Options to purchase common stock - issued	1,810,155
Options to purchase common stock - unissued	580,725
Employee stock purchase plan	222,876
Common stock warrants - issued	18,534
Total	2,632,290

Stock-Based Compensation

Restricted Stock

Prior to the Company Conversion on August 1, 2012, the Company issued Class B units to employees, which were considered profits interest. The fair value of these units was recorded as stock-based compensation expense on a straight-line basis over the requisite service period of each award, generally four years. As a result of the Company Conversion on August 1, 2012, the Company converted the vested and unvested Class B units into 171,415 shares of common stock subject to stock restriction agreements. These shares vest over the same vesting period of the original Class B unit grants and any unvested shares would be forfeited upon the termination of the employee.

Stock Options

In August 2012, the Company adopted the 2012 Stock Incentive Plan (the “2012 Plan”). A total of 147,109 shares of common stock were originally reserved for issuance under the 2012 Plan. On November 17, 2014, and December 12, 2014, the Company’s Board of Directors approved an increase of 623,052 and 519,210 shares, respectively, to the total number of shares that may be issued under the 2012 Plan, which after these increases totaled 1,289,371 shares. As of December 31, 2015, 1,288,174accumulated shares had been granted under the 2012 Plan to employees and directors, while 685 shares had been exercised and 512 shares were terminated upon the termination of the 2012 Plan effective with the closing of the Company’s IPO.

In May 2015, the Company’s Board of Directors and its stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”). Effective with the Company’s IPO closing, a total of 1,081,700 shares of common stock were originally reserved for issuance under the 2015 Plan. The 2015 Plan provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2015 Plan on January 1 of each calendar year, from January 1, 2016 through January 1, 2025. The number of shares added each year will be equal to: (a) 5% of the total number of shares of Common Stock issued and outstanding on December 31 of the preceding calendar year; or (b) such lesser number of shares of Common Stock approved by the Board of Directors on or prior to such immediately preceding December 31.

The 2015 Plan provides for the granting of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based awards and other share-based awards to its employees, directors and consultants. Stock options granted vest over either a one-year period or three-year period for Board of Director grants or over a four-year period for employee grants and expire 10 years from the date of grant.

The fair value of each option grant for the year ended December 31, 2015, 2014 and 2013, was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	2015			2014	2013
Estimated dividend yield		–		*		–
Weighted-average expected stock price volatility		75.7	%	*		120.8	%
Weighted-average risk-free interest rate		1.8	%	*		1.2	%
Weighted-average expected life of option (in years)		6.22		*		6.25
Weighted-average fair value per option	$	5.09		*	$	2.95

*There were no options granted during 2014

F-16

Due to limited historical data, the Company estimates stock price volatility based on the actual volatility of comparable publicly traded companies over the expected life of the option. The expected term represents the average time that options that vest are expected to be outstanding. The Company does not have sufficient history of exercise of stock options to estimate the expected term for employee stock options and, thus, continues to calculate expected life based on the midpoint between the average vesting date and the contractual term, which is in accordance with the simplified method. The risk-free rate is based on the United States Treasury yield curve for the expected life of the option. The fair value of the common stock utilized in the fair value estimation of option and restricted stock arrangements prior to the Company’s IPO of June 2015 has been determined utilizing contemporaneous valuations primarily based on an option pricing methodology.

The tables below summarize the stock option activity for the year ended December 31, 2015:

			Weighted
	Available for	Options	Average
	Grant	Outstanding	Exercise Price
Balance as of January 1, 2015	1,222,631	66,055	$	3.36
Additional authorized	1,081,700	–
Granted	(1,723,824)	1,723,824		7.69
Exercised	–	(1,285)		3.36
Cancelled	730	(730)		3.36
Shares terminated from the 2012 Plan	(512)	–
Balance as of December 31, 2015	580,725	1,787,864	$	7.54

				Weighted-
				Average
				Remaining
		Weighted-		Contractual	Aggregate
	Number of	Average		Life	Intrinsic
	Options	Exercise Price		(In Years)	Value
As of December 31, 2015:
Options outstanding	1,787,864	$	7.54	9.2	$	4,168,473
Options expected to vest, net of estimated forfeitures	1,696,002	$	7.51	9.2	$	3,968,169
Options exercisable	72,609	$	6.28	7.7	$	240,175

During 2015, 2014 and 2013, the Company recorded approximately $1.3 million, $66,000 and $91,000, respectively, in employee stock-based compensation expense for the vesting of stock options. No stock options have been granted to consultants. As of December 31, 2015, there was approximately $7.1 million of total unrecognized stock-based compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 3.3 years.

The Company did not recognize a tax benefit related to share-based compensation expense during the years ended December 31, 2015, 2014 and 2013 as the Company maintains net operating loss carryforwards and has established a valuation allowance against the entire net deferred tax asset as of December 31, 2015.

Employee Stock Purchase Plan

In May 2015, the Company’s Board of Directors and its stockholders approved the Nivalis Therapeutics, Inc. Employee Stock Purchase Plan (the “Purchase Plan”). Effective on the closing of the Company’s IPO, a total of 231,800 shares of common stock were made available for sale under the Purchase Plan. The Purchase Plan may be amended, suspended or terminated at any time by the Board of Directors, however stockholder approval is required to increase the number of common stock available under the Purchase Plan or to change the employees eligible to participate in the Purchase Plan.

F-17

The Purchase Plan provides for a series of successive six-month offering periods, from January to June and July to December of each calendar year during which participating employees may elect to have up to 15% of their compensation withheld and applied to the purchase of common stock at the end of each offering period. The purchase price of the common stock is 85% of the lower of the fair value of a share of common stock on the first trading date of each offering period or the fair value of a share of common stock on the last trading day of the offering period. The Company sold 8,924 shares to employees on December 31, 2015. There were 222,876 shares available for sale under the Purchase Plan as of December 31, 2015. The weighted-average estimated grant date fair value of purchase awards under the Purchase Plan during the year ended December 31, 2015 was $5.18. The total share-based compensation expense recorded as a result of the Purchase Plan was approximately $22,000 during the year ended December 31, 2015.

The fair value of purchase awards granted to our employees during the year ended December 31, 2015 was estimated using the Black-Scholes option pricing model using the weighted-average assumptions provided in the following table:

Estimated dividend yield	–
Expected stock price volatility	62.5	%
Risk-free interest rate	0.1	%
Expected life of option (in years)	0.5

Due to limited historical data, the Company estimates stock price volatility based on the actual volatility of comparable publicly traded companies over the expected life of the purchase right. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant with terms similar to the contractual term of the purchase right. The expected term represents the six-month offering period for the Purchase Plan.

9. Income Taxes

No provision for federal or state income tax expense has been recorded for the years ended December 31, 2015, 2014 and 2013, since the Company generated net operating losses in all years.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2015 and 2014 are as follows(in thousands):

	2015		2014
Deferred tax assets:
Net operating loss carryforwards	$	20,280	$	12,822
Research credit carryforwards		1,813		1,215
Accrued benefits and other		643		71
Intangible assets		125		144
Valuation allowance		(22,858)		(14,242)
Net deferred tax assets		3		10
Deferred tax liabilities:
Property and equipment		(3)		(10)
	$	–	$	–

The Company records a full valuation allowance against its net deferred tax assets since the Company cannot conclude that it was more likely than not that its deferred tax assets would be realized.

At December 31, 2015, the Company had federal and state income loss carryforwards of $54.7 million that begin to expire in 2032 for both federal and state purposes. Additionally, The Company has research and development credits of approximately $1.8 million available for federal purposes, which begin to expire in 2032. The utilization of the federal net

F-18

operating loss and credit carryforwards to reduce future income taxes will depend on the Company’s ability to generate sufficient taxable income prior to the expiration of the carryforwards. In addition, the utilization of the federal net operating loss and credit carryforwards may be subject to limitations under the rules regarding a change in stock ownership as determined by the Internal Revenue Code and state laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization of net operating loss (“NOL”) carryforwards, other tax carryforwards and certain built-in losses upon an ownership change as defined by that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain stockholders in the Company stock by more than 50 percentage points over a three year testing period (“Section 382 Ownership Change”). If the Company has undergone a Section 382 Ownership change, an annual limitation would be imposed on certain tax attributes of the Company, including NOL and capital loss carryforwards and certain other losses and credits. As of December 31, 2015, the Company has not performed a formal study to determine whether there are Section 382 limitations that apply and such limitations could be significant.

The difference between actual income tax rate for the years ended December 31, 2015, 2014 and 2013, and the statutory federal income tax rate are as follows:

	2015		2014		2013
	% of Pretax		% of Pretax		% of Pretax
	Earnings		Earnings		Earnings
Income tax benefit at statutory rate	34.0	%	34.0	%	34.0	%
State income taxes, net of federal tax benefit	3.1	%	3.1	%	3.1	%
Research and development credits	2.6	%	3.5	%	4.3	%
Nondeductible expenses	(1.9)	%	(1.0)	%	(1.3)	%
Change in valuation allowance	(37.8)	%	(39.6)	%	(40.1)	%
Income tax expense (benefit)	0.0	%	0.0	%	0.0	%

As of December 31, 2015 and 2014, the Company had no unrecognized tax benefits. The Company has analyzed its filing positions in all significant federal and state jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations by taxing authorities for years before 2012. No income tax returns are currently under examination by taxing authorities.

10. Employment Benefit Plan

The Company outsources its payroll, benefits and human resource administration functions to a Professional Employer Organization (PEO). The Company’s employees are eligible to participate in the PEO’s Multiple Employer Retirement Savings Plan (401(k) plan). The 401(k) plan allows immediate participation by U.S. employees that are 20 years of age or older. Participants may defer up to 75% of their gross pay, up to a maximum limit determined by U.S. federal law. The Company provides all active employees with a safe harbor contribution equal to 3% of compensation (regardless of participation in the 401(k) plan) up to maximum U.S. federal law limits. These safe harbor contributions vest immediately. During 2015, 2014 and 2013, the Company paid approximately $115,000,  $129,000 and $142,000, respectively, for employer contributions and plan expenses.

11. Net Loss per Share

The Company excluded the following common stock equivalents, outstanding as of the years ended December  31, 2015, 2014 and 2013, from the computation of diluted net loss per share for these same periods because they had an anti-dilutive impact on the computation:

F-19

	December 31,
	2015	2014	2013
Options to purchase common stock - issued	1,810,155	88,346	144,290
Unvested restricted common stock	318	3,342	11,950
Convertible preferred stock	—	6,915,525	1,734,517
Warrants to purchase convertible preferred and common stock	18,534	18,534	18,534
Total	1,829,007	7,025,747	1,909,291

12. Quarterly Financial Data (Unaudited)

The results of operations on a quarterly basis for the years ended December 31, 2015 and 2014 were as follows (in thousands, except per share data):

	March 31,		June 30,		September 30,		December 31,		March 31,		June 30,		September 30,		December 31,
	2015		2015		2015		2015		2014		2014		2014		2014
Revenue	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Operating expenses:
Research and development		3,017		4,465		4,279		4,293		3,851		3,363		2,164		2,822
General and administrative		1,298		1,387		1,822		2,337		539		594		490		664
Loss from operations		(4,315)		(5,852)		(6,101)		(6,630)		(4,390)		(3,957)		(2,654)		(3,486)
Interest and other income, net		1		—		12		67		252		9		35		—
Interest expense		—		—		—		—		(212)		(241)		(392)		—
Net loss		(4,314)		(5,852)		(6,089)		(6,563)		(4,350)		(4,189)		(3,011)		(3,486)
Gain on extinguishment of convertible debt as a capital transaction		—		—		—		—		—		—		378		—
Net loss attributable to common stockholders	$	(4,314)	$	(5,852)	$	(6,089)	$	(6,563)	$	(4,350)	$	(4,189)	$	(2,633)	$	(3,486)
Weighted average shares outstanding - basic and diluted		2,209		4,159		15,451		15,452		161		163		343		2,207
Net loss per share attributable to common stockholders - basic and diluted	$	(1.95)	$	(1.41)	$	(0.39)	$	(0.42)	$	(27.02)	$	(25.70)	$	(7.68)	$	(1.58)

13. Subsequent Events

The Company evaluated events after the balance sheet date of December 31, 2015 and up to the date the Company filed this Annual Report and determined that no subsequent activity required disclosure.

F-20

INDEX TO EXHIBITS

3.1	Amended and Restated Certificate of Incorporation of the Registrant (1)
3.2	Amended and Restated Bylaws of the Registrant (2)
4.1	Form of Common Stock Certificate of the Registrant (2)
4.2	Second Amended and Restated Warrant to Purchase Common Stock, dated February 18, 2011, issued to Horizon Credit I, LLC (2)
4.3	Second Amended and Restated Warrant to Purchase Common Stock, dated February 18, 2011, issued to Horizon Credit II, LLC (2)
10.1	Nivalis Therapeutics, Inc. 2015 Equity Incentive Plan (2)*
10.2	Form of Notice of Stock Option Grant and Stock Option Agreement for Employees under the Nivalis Therapeutics, Inc. 2015 Equity Incentive Plan (1)*
10.3	Form of Notice of Stock Option Grant and Stock Option Agreement for Non-Employee Directors under the Nivalis Therapeutics, Inc. 2015 Equity Incentive Plan (1)*
10.4	N30 Pharmaceuticals, Inc. 2012 Stock Incentive Plan (2)*
10.5	Form of Stock Option Agreement pursuant to N30 Pharmaceuticals, Inc. 2012 Stock Incentive Plan (2)*
10.6	Nivalis Therapeutics, Inc. Employee Stock Purchase Plan (2)*
10.7	Employment Agreement, dated as of January 1, 2015, by and between the Registrant and Jon Congleton (2)*
10.8	Amendment to Employment Agreement, dated as of March 6, 2015, by and between the Registrant and Jon Congleton (2)*
10.9	Employment Agreement, dated as of November 1, 2012, by and between the Registrant and Janice Troha (2)*
10.10	Amendment to Employment Agreement, dated as of December 15, 2014, by and between the Registrant and Janice Troha (2)*
10.11	Amendment to Employment Agreement, dated as of March 6, 2015, by and between the Registrant and Janice Troha (2)*
10.12	Employment Agreement, dated as of January 21, 2015, by and between the Registrant and R. Michael Carruthers (2)*
10.13	Form of Indemnification Agreement entered into by and between the Registrant and its directors and officers (2)
10.14	Lease, dated March 11, 2010, by and between the Registrant and Aweida Properties, Inc. (2)
10.15	1st Amendment to Lease, dated December 5, 2014, by and between the Registrant and Aweida Properties, Inc. (2)
10.16	2nd Amendment to Lease, dated February 11, 2015, by and between the Registrant and Aweida Properties, Inc. (2)
10.17	3rd Amendment to Lease, dated December 15, 2015, by and between the Registrant and Aweida Properties, Inc.
10.18	Outside Director Compensation Guidelines (3)
23.1	Consent of Independent Registered Public Accounting Firm
31.1	Certification of the Registrant’s Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Registrant’s Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document

F-21

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

(1)Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-205220) filed on June 25, 2015.

(2)Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13, 2015.

(3)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No.001-37449), filed August 4, 2015.

*Indicates a management contract or a compensatory plan, contract or arrangement.

F-22

EX-10.17

Exhibit 10.17

THIRDAMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE (this “Amendment”),dated as of the 15th day of December, 2015,  is entered into by and between AWEIDA PROPERTIES, INC., a Colorado corporation (“Landlord”), and NIVALIS THERAPEUTICS, INC, a Delaware Corporation (“Tenant”),to that certain lease dated March 11, 2010 by and between Landlord and Tenant (the “Lease”), as amended by that certain First Amendment to Lease dated December  5, 2014 and by that cetain certain Second Amendment to Lease dated February 11, 2015, for the lease of Premises located at 3122 Sterling Circle,  Suite 200, Boulder, Colorado 80301.  Capitalized terms used herein which are defined in the Lease shall have the meanings therein stated.

RECITAL

The Tenant desires to add certain space located in the Building to the Premises.

AMENDMENT

NOW, THEREFORE, the parties agree to amend the Lease as follows:

1.   Section 2, PREMISES, is hereby amended byadding the following language:

“In addition, Landlord leases to Tenant and Tenant leases from Landlord that certain space located in the loading dock area of the first floor of the Building (the “Space”) commencing January 1, 2016.  The Lease Term for the Space shall be coterminous with the Lease Term for the Lease, provided, however that Tenant shall have the option to terminate the lease on the Space at any time after June 30, 2016 by written notice to the Landlord given at least thirty (30) days prior to the requested termination date.The rent for the Space shall be $250.00 per month payable in advance.”

2.   Except as expressly amended hereby, the Lease remains unmodified and in full force and effect.  In the event of a conflict between the terms of this Amendment and the Lease, the terms of this Amendment shall control.

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the day and year first above written.

TENANT:		LANDLORD:
NIVALIS THERAPEUTICS, INC.		AWEIDA PROPERTIES, INC.
By:	/s/ Tom Sokolowski	By	/s/ Daniel Aweida
	Tom Sokolowski, VP Finance		Daniel J. Aweida, President

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-205220) pertaining to the Nivalis Therapeutics, Inc. 2012 Stock Incentive Plan, 2015 Equity Incentive Plan and 2015 Employee Stock Purchase Plan of our report dated March 8, 2016, with respect to the financial statements of Nivalis Therapeutics, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2015.

/s/ Ernst & Young, LLP

Denver, Colorado

March 8, 2016

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jon Congleton,  President and Chief Executive Officer of Nivalis Therapeutics, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Nivalis Therapeutics, Inc. for the year ended December 31, 2015;

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

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

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

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

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

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

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

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

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

Date: March8, 2016

/s/ JON CONGLETON

Jon Congleton

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, R. Michael Carruthers,  Chief Financial Officer of Nivalis Therapeutics, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Nivalis Therapeutics, Inc. for the year ended December  31, 2015;

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

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

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

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

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

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

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

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

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

Date: March8, 2016

/s/ R. MICHAEL CARRUTHERS

R. Michael Carruthers

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Annual Report of Nivalis Therapeutics, Inc., a Delaware corporation (the “Company”), on Form 10-K for the year ended December  31, 2015, as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on the date indicated below, hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:

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

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

Date: March8, 2016

/s/ JON CONGLETON

Jon Congleton

President and Chief Executive Officer

/s/ R. MICHAEL CARRUTHERS

R. Michael Carruthers

Chief Financial Officer

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2015	Feb. 29, 2016	Jun. 30, 2015
Document and Entity Information
Entity Registrant Name	Nivalis Therapeutics, Inc.
Entity Central Index Key	0001626199
Document Type	10-K
Document Period End Date	Dec. 31, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 177,549,046
Entity Common Stock, Shares Outstanding		15,462,030
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY

XML

Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 24,991	$ 27,812
Marketable securities	62,263
Prepaid expenses and other current assets	432	630
Total current assets	87,686	28,442
Property and equipment and other assets, net	223	101
Total assets	87,909	28,543
Current liabilities:
Accounts payable	994	929
Accrued direct program expenses	1,555	1,244
Accrued employee benefits	1,675	210
Accrued other liabilities	195	32
Total current liabilities	$ 4,419	$ 2,415
Commitments and contingencies
Convertible preferred stock with liquidation preference; $0.001 par value; zero and 23,228,986 shares authorized, respectively; zero and 19,978,986 shares issued and outstanding, respectively		$ 41,880
Preferred stock, $0.001 par value; 10,000,000 and zero shares authorized, respectively; no shares issued and outstanding
Common stock, $0.001 par value; 200,000,000 and 35,000,000 shares authorized, respectively; 15,462,030 and 2,211,158 shares issued and outstanding, respectively	$ 15	$ 2
Additional paid-in capital	232,309	110,265
Accumulated other comprehensive income	3
Accumulated deficit	(148,837)	(126,019)
Total stockholders' equity (deficit)	83,490	(15,752)
Total liabilities and stockholders' equity (deficit)	$ 87,909	$ 28,543

XML

Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2015	Dec. 31, 2014
Balance Sheets
Convertible preferred stock with liquidation preference, par value (in dollars per share)	$ 0.001	$ 0.001
Convertible preferred stock with liquidation preference, shares authorized	0	23,228,986
Convertible preferred stock with liquidation preference, shares issued	0	19,978,986
Convertible preferred stock with liquidation preference, shares outstanding	0	19,978,986
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	0
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	200,000,000	35,000,000
Common stock, shares issued	15,462,030	2,211,158
Common stock, shares outstanding	15,462,030	2,211,158

XML

Statements of Operations and Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Statements of Operations and Comprehensive Loss
Revenue									$ 0
Operating expenses:
Research and development	$ 4,293	$ 4,279	$ 4,465	$ 3,017	$ 2,822	$ 2,164	$ 3,363	$ 3,851	16,054	$ 12,200	$ 13,136
General and administrative	2,337	1,822	1,387	1,298	664	490	594	539	6,844	2,287	2,141
Loss from operations	(6,630)	(6,101)	(5,852)	(4,315)	(3,486)	(2,654)	(3,957)	(4,390)	(22,898)	(14,487)	(15,277)
Interest and other income, net	67	12		1		35	9	252	80	296	10
Interest expense						(392)	(241)	(212)		(845)	(931)
Net loss	(6,563)	(6,089)	(5,852)	(4,314)	(3,486)	(3,011)	(4,189)	(4,350)	(22,818)	(15,036)	(16,198)
Gain on extinguishment of convertible debt as a capital transaction						378				378
Net loss attributable to common stockholders	$ (6,563)	$ (6,089)	$ (5,852)	$ (4,314)	$ (3,486)	$ (2,633)	$ (4,189)	$ (4,350)	(22,818)	(14,658)	(16,198)
Change in unrealized gains on marketable securities, net									3
Comprehensive loss									$ (22,815)	$ (14,658)	$ (16,198)
Weighted average shares outstanding - basic and diluted (in shares)	15,452	15,451	4,159	2,209	2,207	343	163	161	9,371	723	155
Net loss per share attributable to common stockholders - basic and diluted (in dollars per share)	$ (0.42)	$ (0.39)	$ (1.41)	$ (1.95)	$ (1.58)	$ (7.68)	$ (25.70)	$ (27.02)	$ (2.43)	$ (20.27)	$ (104.50)

XML

Statement of Convertible Preferred Stock and Stockholders' Equity (Deficit) - USD ($) shares in Thousands, $ in Thousands	2013 Notes Series E Convertible Preferred Stock	2014 Notes Series 1 Convertible Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income	Accumulated Deficit	Series 1 Convertible Preferred Stock	Series 2 Convertible Preferred Stock	Series A-2 Convertible Preferred Stock	Series C-1 Convertible Preferred Stock	Series C-2 Convertible Preferred Stock	Series D Convertible Preferred Stock	Series E Convertible Preferred Stock	Series A-1 Convertible Preferred Stock	Total
Balance, beginning at Dec. 31, 2012				$ 19,595		$ (94,785)			$ 9,000	$ 18,155	$ 19,980	$ 15,675	$ 14,983	$ 2	$ (75,188)
Balance, beginning (in shares) at Dec. 31, 2012			171						1,393	2,811	2,379	7,203	4,266	1,992
Conversion of notes payable, net of issuance costs															12,365
Employee stock-based compensation expense				98			$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0		98
Net loss			$ 0	0	$ 0	(16,198)								$ 0	(16,198)
Balance, ending at Dec. 31, 2013				19,693		(110,983)			$ 9,000	$ 18,155	$ 19,980	$ 15,675	$ 14,983	$ 2	(91,288)
Balance, ending (in shares) at Dec. 31, 2013			171						1,393	2,811	2,379	7,203	4,266	1,992
Conversion of convertible preferred stock to common stock								$ 29,935
Conversion of convertible preferred stock to common stock (in shares)								11,166
Conversion of notes payable, net of issuance costs	$ 12,326	$ 12,329													24,655
Conversion of notes payable, net of issuance costs (in shares)	3,528	8,813
Recapitalization			$ 2	90,120					$ (9,000)	$ (18,155)	$ (19,980)	$ (15,675)	$ (27,309)	$ (2)	90,120
Recapitalization (in shares)			2,040						(1,393)	(2,811)	(2,379)	(7,203)	(7,794)	(1,992)
Gain on extinguishment of convertible debt				378			(384)								378
Restricted stock units forfeited (in shares)			(1)
Exercise of incentive stock options				2											2
Exercise of incentive stock options (in shares)			1
Reclass of preferred stock warrant liabilities to equity				2											2
Employee stock-based compensation expense				70											70
Net loss						(15,036)									(15,036)
Balance, ending at Dec. 31, 2014			$ 2	110,265		(126,019)	$ 11,945	$ 29,935							(15,752)
Balance, ending (in shares) at Dec. 31, 2014			2,211				8,813	11,166
Conversion of convertible preferred stock to common stock			$ 7	41,873			$ (11,945)	$ (29,935)							41,880
Conversion of convertible preferred stock to common stock (in shares)			6,916				(8,813)	(11,166)
Issuance of common stock, net of offering costs			$ 6	78,765											78,771
Issuance of common stock, net of offering costs (in shares)			6,325
Issuance of common stock under the employee stock purchase plan				59											59
Issuance of common stock under the employee stock purchase plan (in shares)			9
Exercise of incentive stock options				4											4
Exercise of incentive stock options (in shares)			1
Employee stock-based compensation expense				1,343											1,343
Change in unrealized gains on marketable securities, net					3										3
Net loss						(22,818)									(22,818)
Balance, ending at Dec. 31, 2015			$ 15	$ 232,309	$ 3	$ (148,837)									$ 83,490
Balance, ending (in shares) at Dec. 31, 2015			15,462

XML

Statement of Convertible Preferred Stock and Stockholders' Equity (Deficit) (Parenthetical) - USD ($) $ in Millions		12 Months Ended
	Jun. 22, 2015	Dec. 31, 2015
Statement of Convertible Preferred Stock and Stockholders' Equity (Deficit)
Issuance of common stock, offering costs	$ 3.6	$ 9.8

XML

Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Operating activities
Net loss	$ (22,818)	$ (15,036)	$ (16,198)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and loss on disposal of assets	66	88	219
Stock-based compensation expense	1,343	70	98
Change in value of preferred stock warrant liabilities and derivative		(296)	(9)
Amortization of deferred financing costs and noncash interest		708	521
Changes in operating assets and liabilities:
Prepaid expenses and other	198	(380)	107
Accounts payable	65	258	400
Accrued direct program expenses	311	355	540
Accrued employee benefits	1,465	(183)	55
Accrued other liabilities	163	(32)	(26)
Net cash used in operating activities	(19,207)	(14,448)	(14,293)
Investing activities
Purchases of property and equipment	(188)	(4)	(125)
Purchases of marketable securities	(76,260)
Proceeds from sales and maturities of marketable securities	14,000
Net cash used in investing activities	(62,448)	(4)	(125)
Financing activities
Proceeds from issuance of common stock, net of offering costs	78,771
Proceeds from employee stock purchases and stock options exercised	63	2
Proceeds from issuance of convertible preferred stock, net		29,935
Decrease in restricted cash		2,500
Proceeds from notes payable, net		11,868	12,000
Principal payment on debt		(3,139)	(1,189)
Net cash provided by financing activities	78,834	41,166	10,811
Net increase (decrease) in cash and cash equivalents	(2,821)	26,714	(3,607)
Cash and cash equivalents, beginning of period	27,812	1,098	4,705
Cash and cash equivalents, end of period	24,991	27,812	1,098
Supplemental disclosures of cash flow information
Cash paid for interest		165	124
Conversion of convertible preferred stock to common stock	$ 41,880
Conversion of convertible debt and accrued interest to convertible preferred stock, net		$ 24,655	$ 12,365

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Organization and Description of Business

12 Months Ended

Dec. 31, 2015

Organization and Description of Business

Organization and Description of Business

1. Organization and Description of Business

Nivalis Therapeutics, Inc. (the “Company” or “Nivalis”) is a clinical stage pharmaceutical company committed to the discovery, development and commercialization of therapeutics for people with cystic fibrosis. In addition to developing innovative solutions intended to extend and improve the lives of people with cystic fibrosis, Nivalis plans to utilize its proprietary S-nitrosoglutathione reductase (GSNOR) inhibitor portfolio to develop therapeutics for other diseases.

The Company was incorporated on August 1, 2012, under the laws of the State of Delaware, upon the conversion of its predecessor entity N30 Pharmaceuticals, LLC from a Delaware limited liability company to a Delaware corporation (the “Company Conversion”). On February 11, 2015, the Company changed its name from N30 Pharmaceuticals, Inc. to Nivalis Therapeutics, Inc.

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Liquidity Risks

12 Months Ended

Dec. 31, 2015

Liquidity Risks

Liquidity Risks

2. Liquidity Risks

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing research and development spending. As of December 31, 2015, the Company had an accumulated deficit of $148.8 million. Net losses and net cash used in operating activities for the year ended December 31, 2015 were $22.8 million and $19.2 million, respectively. The Company anticipates that operating losses and net cash used in operating activities will continue and substantially increase over the next several years as it expands development activities for its N91115 product candidate.

The Company has historically financed its operations primarily through the sale of its equity securities and debt offerings. The Company will continue to be dependent upon such sources of funds until it is able to generate positive cash flows from its operations. Management has determined that the Company’s existing cash, cash equivalents and marketable securities as of December 31, 2015 will be sufficient to fund operations at least through the next twelve months.

The Company expects to fund future operations through the sale of its equity securities, incurring debt, entering into partnerships, or obtaining grants or other nondilutive sources of financing. There can be no assurance that sufficient funds from these sources will be available to the Company when needed or at all or on terms that are favorable to the Company. If the Company is unable to obtain additional funding from these or other sources when needed, or to the extent needed, it would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. It could force the Company to delay, limit, reduce or terminate research and development programs and commercialization efforts or cause the Company to cease operations in full.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include all adjustments necessary for the presentation of the Company’s financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes, including accrued liabilities and the fair value-based measurement of equity instruments. Actual results could differ materially from those estimates. The Company evaluates its estimates and assumptions as facts and circumstances dictate.

2014 Stock Conversion and Reverse Stock Split

Effective September 23, 2014, all outstanding shares of the Company’s preferred stock were converted on an 11.556-for-1 basis into shares of common stock (the “Stock Conversion”). Concurrent with this Stock Conversion, the Company effected a reverse stock split of its common stock, par value $0.001 per share. Every four shares of common stock were reclassified and combined into one share of common stock. Fractional shares were issued as a result of the reverse stock split. The total number of authorized shares of common stock was also proportionally decreased on a 4-for-1basis and the par value per share of the common stock continued to be $0.001.

2015 Stock Conversion and Reverse Stock Split

On May 26, 2015, the Company’s Board of Directors approved a 1-for-2.889 reverse stock split of its common stock, which became effective on June 1, 2015. Upon the effectiveness of the reverse stock split, (i) every 2.889 shares of outstanding common stock were decreased to one share of common stock, (ii) the number of shares of common stock into which each outstanding option, right and warrant to purchase common stock is exercisable was proportionally decreased on a 1-for-2.889 basis and the exercise price of each outstanding option, right and warrant to purchase common stock was proportionately increased on a 1-for-2.889 basis, and (iii) the conversion ratio for each share of the Company’s convertible preferred stock which was convertible into common stock was proportionally decreased on a corresponding basis in connection with the 1-for-2.889 reverse split. No fractional shares were issued as a result of the reverse stock split. The total number of authorized shares of common stock and the par value per share of common stock did not change as a result of the reverse stock split.

Effective June 22, 2015, all outstanding shares of convertible preferred stock were converted on a 2.889-for-1 basis into shares of common stock in connection with the closing of our initial public offering.

All of the share numbers, share prices, exercise prices and other per share information throughout these financial statements for all periods presented have been adjusted, on a retroactive basis, to reflect the 1-for-4 reverse stock split and the 1-for-2.889 reverse stock split and the conversion of all convertible preferred stock on the closing of our initial public offering.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest- bearing and demand money market accounts.

Marketable Securities

The Company has designated marketable securities as available-for-sale securities and accounts for them at their respective fair values. Marketable securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Securities that are classified as available-for-sale are carried at fair value, including accrued interest, with temporary unrealized gains and losses reported as a component of stockholders' equity (deficit) until their disposition. The Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale based on the Company’s then current intent and ability to sell the security if it is required to do so. The cost of securities sold is based on the specific identification method. All marketable securities are subject to a periodic impairment review. The Company will recognize an impairment charge when a decline in the fair value of the investments below the cost basis is judged to be other-than-temporary.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company has established guidelines to limit its exposure to credit risk by placing investments with high credit quality financial institutions, diversifying its investment portfolio and making investments with maturities that maintain safety and liquidity. At December 31, 2015 and 2014, the Company’s cash equivalents were with money market funds that invest in securities issued by the U.S. Treasury. At December 31, 2015, the Company’s marketable securities were in U.S. Treasury securities, obligations of U.S. government agencies and high-grade corporate debt securities.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Lab equipment, computer equipment and software are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the lease term. Maintenance and repairs are expensed as incurred.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for an amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company has not yet generated consistent positive cash flows on an annual basis, and such positive cash flows may not materialize for a significant period in the future. As a result, it is reasonably possible that future evaluations of long-lived assets may result in a conclusion that such assets have been impaired.

Accrued Direct Program Expenses

Substantial portions of the Company’s preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively CROs). These CROs generally bill monthly or quarterly for services performed or upon achieving certain milestones. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the CROs or within software tracking systems, correspondence with the CROs and clinical site visits. Company estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. The Company periodically evaluates these estimates to determine if adjustments are necessary or appropriate based on information received. No vendor comprised more than 10% of all external costs in 2015, 2014, and 2013.

Research and Development

The Company expenses costs associated with research and development as incurred. These costs include direct program expenses, which are payments made to third parties that specifically relate to the Company’s research and development, such as payments to clinical research organizations, clinical investigators, manufacturing of clinical material, pre-clinical testing and consultants. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees contributing to research and development activities are classified as research and development costs.

Stock-Based Compensation

The Company measures employee and director stock-based compensation expense for all stock and purchase awards at the grant date based on the fair value measurement of the award. The expense is recorded over the related service period, generally the vesting period, net of estimated forfeitures. Any changes to the estimated forfeiture rates are accounted for prospectively. The Company calculates the fair value measurement of stock options using the Black-Scholes valuation model and the single-option method and recognizes expense using the straight-line attribution approach.

Income Taxes

The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for tax and financial reporting purposes measured by applying enacted tax rates and laws that will be in effect when the differences are expected to reverse, net operating loss and tax credit carryforwards. Tax benefits are recorded when the benefit is more likely than not to be sustained upon audit. The Company accrues interest and penalties related to uncertain tax positions in income tax expense. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.

Segment Information

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on discovering and developing potential drugs. No revenue has been generated since inception, and all tangible assets are held in the United States.

Comprehensive Loss

Comprehensive loss is comprised of net loss and adjustments for the change in unrealized gains and losses on the Company’s investments in available-for-sale marketable securities. The Company presents comprehensive loss and its components in the statements of operations and comprehensive loss for the year ended December 31, 2015.

Net Loss per Share

The Company reports net loss per share in accordance with the standard codification of ASC “Earnings per Share” (“ASC 260”). Under ASC 260, basic earnings per share, which excludes dilution, is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could be exercised or converted into common shares, and is computed by dividing net loss available to common stockholders by the weighted average of common shares outstanding plus the dilutive potential common shares. Diluted earnings per share excludes the impact of convertible preferred stock, employee stock options, restricted stock and stock purchase rights, as the effect would be anti-dilutive. During a loss period, the assumed exercise of in-the-money stock options and other potentially diluted instruments has an anti-dilutive effect and therefore, these instruments are excluded from the computation of dilutive earnings per share.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and to provide disclosures when certain criteria are met. The guidance is effective for annual periods beginning in 2016 and interim reporting periods starting in the first quarter of 2017. Early application is permitted. The Company does not expect the standard will have a material impact on its disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The new standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual report period. The amendments in this standard may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company adopted this standard as of December 31, 2015 with prospective application. As a result, the Company reclassified its deferred tax assets classified as current to noncurrent and its deferred tax liabilities classified as current to noncurrent as of December 31, 2015. Prior year balances were not retrospectively adjusted.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements. 

Fair Value of Financial Instruments

The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts payable, accrued direct program expenses, and accrued employee benefits, and other financial instruments included within current assets or current liabilities.

The Company accounted for warrants to purchase its redeemable preferred stock pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, and classified them as liabilities. The fair value of the outstanding preferred stock warrant liabilities at December 31, 2013 was $267,750.  Subsequent to the completion of the Stock Conversion on September 23, 2014, whereby all outstanding shares of preferred stock were converted into shares of common stock, and the warrants became exercisable for shares of common stock pursuant to the adjustment provisions of the warrants, the fair value of the preferred stock warrant liabilities was remeasured and reclassified into equity. During the year ended December 31, 2014 a remeasurement gain of $265,750 was recognized in interest and other income, net in the statement of operations and comprehensive loss. Upon the Stock Conversion, the remaining balance of $2,000 was reclassified from liabilities to equity.

Fair Value Measurements

In general, asset and liability fair values are determined using the following categories:

Level 1 – inputs utilize quoted prices in active markets for identical assets or liabilities.

Level 2 – inputs include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

Level 3 – inputs are unobservable inputs and include situations where there is little, if any, market activity for the balance sheet items at period end. Pricing inputs are unobservable for the terms and are based on the Company’s own estimates about the assumptions that a market participant would use in pricing as asset.

The Company’s financial instruments, including money market investments, corporate debt securities, U.S. Treasury securities and obligations of U.S. government agencies, are measured at fair value on a recurring basis. There were no transfers between levels for the year ended December 31, 2015.

Assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of December 31, 2015 and 2014 (in thousands):

			Quoted prices		Quoted prices				Quoted prices
			in active		for similar assets				in active
			markets for		observable in the				markets for
	December 31,		identical assets		marketplace		December 31,		identical assets
Description	2015		(Level 1)		(Level 2)		2014		(Level 1)
Assets measured at fair value:
Money market investments	$	12,131	$	12,131	$	—	$	26,926	$	26,926
U.S. Treasury securities, obligations of U.S. government agencies, corporate debt securities and reverse repurchase agreements		73,261		—		73,261		—		—

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Cash, Cash Equivalents and Marketable Securities

12 Months Ended

Dec. 31, 2015

Cash, Cash Equivalents and Marketable Securities

Cash, Cash Equivalents and Marketable Securities

4. Cash, Cash Equivalents and Marketable Securities

The following is a summary of cash, cash equivalents and marketable securities as of December 31, 2015 and 2014 (in thousands):

			Gross unrealized		Gross unrealized		Fair market
	Amortized Cost		gains		losses		value
December 31, 2015
Cash	$	1,862	$	–	$	–	$	1,862
Money market funds		12,131		–		–		12,131
Reverse repurchase agreements		6,000		–		–		6,000
U.S. Treasury securities and obligations of U.S. government agencies		28,982		4		(7)		28,979
Corporate debt securities		38,276		22		(16)		38,282
Total for December 31, 2015	$	87,251	$	26	$	(23)	$	87,254
December 31, 2014
Cash	$	886	$	–	$	–	$	886
Money market funds		26,926		–		–		26,926
Total for December 31, 2014	$	27,812	$	–	$	–	$	27,812

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Property and Equipment

12 Months Ended

Dec. 31, 2015

Property and Equipment

Property and Equipment

5. Property and Equipment

Property and equipment consist of the following as of December 31, 2015 and 2014 (in thousands):

	Estimated
	Useful Life		December 31,
	(in years)		2015		2014
Lab equipment		5	$	1,146	$	1,099
Computer equipment and software		3		421		291
Leasehold improvements		2		102		102
Total				1,669		1,492
Less accumulated depreciation				(1,456)		(1,401)
Property and equipment, net			$	213	$	91

Depreciation expenses were approximately $66,000,  $86,000 and $219,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

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Notes Payable

12 Months Ended

Dec. 31, 2015

Notes Payable

Notes Payable

6. Notes Payable

As of December 31, 2015, the Company had no debt outstanding.

Loan and Security Agreement

During February 2011, the Company entered into a $5.0 million loan and security agreement (“Loan Agreement”) with Horizon Technology Finance (“Horizon”). The interest rate for these loans was 11.25%. The Loan Agreement required that the Company maintain $2.5 million in an account that was subject to an Account Control Agreement and restricted the Company from withdrawing the funds from this account without Horizon’s prior written consent. During July 2014, the entire outstanding balance under the Loan Agreement was paid in full and the remaining restricted cash held by the Company was fully released. The payment also released all previously pledged assets held as collateral under the loan.

Convertible Debt

During February 2014 through September 2014, the Company issued subordinated secured convertible promissory notes (the “2014 Notes”), to tworelated party investors totaling $12.0 million at an interest rate of 8.0% per annum. The outstanding principal and accrued and unpaid interest was convertible at the option of the investor into preferred shares in the Company. 

The 2014 Notes included a change in control redemption which was deemed an embedded derivative. This redemption right and the right to convert at 75% of the price at which a new series of preferred stock was issued required the Company to bifurcate and separately account for the embedded derivatives, however the amount recorded and the impact on net loss was not material.

As part of the Stock Conversion on September 23, 2014, the holders of the 2014 Notes agreed to the issuance of shares of a newly created Series 1 convertible preferred stock in settlement of the 2014 Notes. The Company issued 8,813,203 Series 1 convertible preferred shares at a price of $1.40 per share through the settlement of $12,373,741 of convertible debt and related interest held by two separate investors. This transaction resulted in a gain on extinguishment of $378,251, which was recognized through equity during the year ended December 31, 2014, as this was a transaction with stockholders.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies

Commitments and Contingencies

7. Commitments and Contingencies

Operating Lease

The Company has a lease obligation for office and laboratory space, which will expire on March 31, 2018. The Company has the option to renew the lease for an additional three-year term and has the option to terminate the lease at any time after March 31, 2017, for a termination fee of $25,000.  

The approximate future minimum payments under these lease arrangements as of December 31, 2015, are as follows (in thousands):

2016	$	292
2017		293
2018		79
Total	$	664

During 2015, 2014 and 2013, the Company incurred approximately $267,000,  $225,000 and $257,000 for rent expense, respectively.

Purchase Commitments

The Company has entered into contracts with external parties to provide the Company future services, which include research and development, clinical development support and testing services. As of December 31, 2015, the Company’s obligation for future services under these contracts approximated $9,194,000 with approximately $8,642,000 payable within one year. These purchase obligations include both cancellable and non-cancellable amounts.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2015

Stockholders' Equity

Stockholders' Equity

8. Stockholders’ Equity

During February 2014, the Company increased its authorized number of shares of convertible preferred stock to 30,233,694 shares. During March 2014, the Company increased its authorized number of shares of convertible preferred stock to 60,503,445 shares and increased its authorized number of shares of common stock to 25,000,000 shares.

Immediately following the Stock Conversion and the one-for-four reverse stock split effected in September 2014, the Company reestablished its authorized number of shares of convertible preferred stock to 8,866,753 shares and its authorized number of shares of common stock to 15,742,382 shares.

During November 2014, the Company increased its authorized number of shares of convertible preferred stock to 23,228,986 shares and increased its authorized number of shares of common stock to 35,000,000 shares.

Concurrent with the Company’s initial public offering completed in June 2015 (the “IPO”), the Company increased its authorized number of shares of common stock to 200,000,000 shares, eliminated its authorized shares of convertiblepreferred stock and authorized10,000,000 shares of preferred stock for future issuance.

Convertible Preferred Stock

Immediately prior to the Stock Conversion, the Company had six series of outstanding convertible preferred stock: Series A-1 convertible preferred stock, Series A-2 convertible preferred stock, Series C-1 convertible preferred stock, Series C-2 convertible preferred stock, Series D convertible preferred stock and Series E convertible preferred stock. The convertible preferred stock was initially recorded at the issuance price on the date of issuance, net of issuance costs. As a result of the Stock Conversion on September 23, 2014, all outstanding preferred stock was converted into shares of common stock on an 11.556-for-1 basis. Concurrent with the Stock Conversion, a newly created Series 1 convertible preferred stock was issued in the settlement of the 2014 Notes. In November and December 2014, the Company raised $31.0 million gross proceeds in a private placement of Series 2 convertible preferred stock.

On June 22, 2015, prior to the closing of the Company’s IPO, all outstanding shares of convertible preferred stock, amounting to 19,978,986 shares, were automatically converted into 6,915,525 shares of common stock in accordance with the terms of the Company’s amended and restated certificate of incorporation then in existence.

As of December 31, 2015, the Company had no preferred stock or convertible preferred stock outstanding.

Common Stock

On June 22, 2015, the Company completed its IPO of 6,325,000 shares of its common stock, including 875,000 shares from the exercise of the underwriters’ over-allotment option, at a price to the public of $14.00 per share for aggregate gross proceeds of $88.6 million. The Company received proceeds of $78.8 million from its IPO, net of $3.6 million in expenses and $6.2 million in underwriters’ discounts and commissions relating to the issuance and distribution of the securities.

At December 31, 2015, shares of common stock have been reserved for issuance as follows:

Options to purchase common stock - issued	1,810,155
Options to purchase common stock - unissued	580,725
Employee stock purchase plan	222,876
Common stock warrants - issued	18,534
Total	2,632,290

Stock-Based Compensation

Restricted Stock

Prior to the Company Conversion on August 1, 2012, the Company issued Class B units to employees, which were considered profits interest. The fair value of these units was recorded as stock-based compensation expense on a straight-line basis over the requisite service period of each award, generally four years. As a result of the Company Conversion on August 1, 2012, the Company converted the vested and unvested Class B units into 171,415 shares of common stock subject to stock restriction agreements. These shares vest over the same vesting period of the original Class B unit grants and any unvested shares would be forfeited upon the termination of the employee.

Stock Options

In August 2012, the Company adopted the 2012 Stock Incentive Plan (the “2012 Plan”). A total of 147,109 shares of common stock were originally reserved for issuance under the 2012 Plan. On November 17, 2014, and December 12, 2014, the Company’s Board of Directors approved an increase of 623,052 and 519,210 shares, respectively, to the total number of shares that may be issued under the 2012 Plan, which after these increases totaled1,289,371 shares. As of December 31, 2015, 1,288,174accumulated shares had been granted under the 2012 Plan to employees and directors, while 685 shares had been exercised and 512 shares were terminated upon the termination of the 2012 Plan effective with the closing of the Company’s IPO.

In May 2015, the Company’s Board of Directors and its stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”). Effective with the Company’s IPO closing, a total of 1,081,700 shares of common stock were originally reserved for issuance under the 2015 Plan. The 2015 Plan provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2015 Plan on January 1 of each calendar year, from January 1, 2016 through January 1, 2025. The number of shares added each year will be equal to: (a) 5% of the total number of shares of Common Stock issued and outstanding on December 31 of the preceding calendar year; or (b) such lesser number of shares of Common Stock approved by the Board of Directors on or prior to such immediately preceding December 31.

The 2015 Plan provides for the granting of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based awards and other share-based awards to its employees, directors and consultants. Stock options granted vest over either a one-year period or three-year period for Board of Director grants or over a four-year period for employee grants and expire 10 years from the date of grant.

The fair value of each option grant for the year ended December 31, 2015, 2014 and 2013, was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	2015			2014	2013
Estimated dividend yield		–		*		–
Weighted-average expected stock price volatility		75.7	%	*		120.8	%
Weighted-average risk-free interest rate		1.8	%	*		1.2	%
Weighted-average expected life of option (in years)		6.22		*		6.25
Weighted-average fair value per option	$	5.09		*	$	2.95

*There were no options granted during 2014

Due to limited historical data, the Company estimates stock price volatility based on the actual volatility of comparable publicly traded companies over the expected life of the option. The expected term represents the average time that options that vest are expected to be outstanding. The Company does not have sufficient history of exercise of stock options to estimate the expected term for employee stock options and, thus, continues to calculate expected life based on the midpoint between the average vesting date and the contractual term, which is in accordance with the simplified method. The risk-free rate is based on the United States Treasury yield curve for the expected life of the option. The fair value of the common stock utilized in the fair value estimation of option and restricted stock arrangements prior to the Company’s IPO of June 2015 has been determined utilizing contemporaneous valuations primarily based on an option pricing methodology.

The tables below summarize the stock option activity for the year ended December 31, 2015:

			Weighted
	Available for	Options	Average
	Grant	Outstanding	Exercise Price
Balance as of January 1, 2015	1,222,631	66,055	$	3.36
Additional authorized	1,081,700	–
Granted	(1,723,824)	1,723,824		7.69
Exercised	–	(1,285)		3.36
Cancelled	730	(730)		3.36
Shares terminated from the 2012 Plan	(512)	–
Balance as of December 31, 2015	580,725	1,787,864	$	7.54

				Weighted-
				Average
				Remaining
		Weighted-		Contractual	Aggregate
	Number of	Average		Life	Intrinsic
	Options	Exercise Price		(In Years)	Value
As of December 31, 2015:
Options outstanding	1,787,864	$	7.54	9.2	$	4,168,473
Options expected to vest, net of estimated forfeitures	1,696,002	$	7.51	9.2	$	3,968,169
Options exercisable	72,609	$	6.28	7.7	$	240,175

During 2015, 2014 and 2013, the Company recorded approximately $1.3 million, $66,000 and $91,000, respectively, in employee stock-based compensation expense for the vesting of stock options. No stock options have been granted to consultants. As of December 31, 2015, there was approximately $7.1 million of total unrecognized stock-based compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 3.3 years.

The Company did not recognize a tax benefit related to share-based compensation expense during the years ended December 31, 2015, 2014 and 2013 as the Company maintains net operating loss carryforwards and has established a valuation allowance against the entire net deferred tax asset as of December 31, 2015.

Employee Stock Purchase Plan

In May 2015, the Company’s Board of Directors and its stockholders approved the Nivalis Therapeutics, Inc. Employee Stock Purchase Plan (the “Purchase Plan”). Effective on the closing of the Company’s IPO, a total of 231,800 shares of common stock were made available for sale under the Purchase Plan. The Purchase Plan may be amended, suspended or terminated at any time by the Board of Directors, however stockholder approval is required to increase the number of common stock available under the Purchase Plan or to change the employees eligible to participate in the Purchase Plan.

The Purchase Plan provides for a series of successive six-month offering periods, from January to June and July to December of each calendar year during which participating employees may elect to have up to 15% of their compensation withheld and applied to the purchase of common stock at the end of each offering period. The purchase price of the common stock is 85% of the lower of the fair value of a share of common stock on the first trading date of each offering period or the fair value of a share of common stock on the last trading day of the offering period. The Company sold 8,924 shares to employees on December 31, 2015. There were 222,876 shares available for sale under the Purchase Plan as of December 31, 2015. The weighted-average estimated grant date fair value of purchase awards under the Purchase Plan during the year ended December 31, 2015 was $5.18. The total share-based compensation expense recorded as a result of the Purchase Plan was approximately $22,000 during the year ended December 31, 2015.

The fair value of purchase awards granted to our employees during the year ended December 31, 2015 was estimated using the Black-Scholes option pricing model using the weighted-average assumptions provided in the following table:

Estimated dividend yield	–
Expected stock price volatility	62.5	%
Risk-free interest rate	0.1	%
Expected life of option (in years)	0.5

Due to limited historical data, the Company estimates stock price volatility based on the actual volatility of comparable publicly traded companies over the expected life of the purchase right. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant with terms similar to the contractual term of the purchase right. The expected term represents the six-month offering period for the Purchase Plan.

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Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes

Income Taxes

9. Income Taxes

No provision for federal or state income tax expense has been recorded for the years ended December 31, 2015, 2014 and 2013, since the Company generated net operating losses in all years.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2015 and 2014 are as follows(in thousands):

	2015		2014
Deferred tax assets:
Net operating loss carryforwards	$	20,280	$	12,822
Research credit carryforwards		1,813		1,215
Accrued benefits and other		643		71
Intangible assets		125		144
Valuation allowance		(22,858)		(14,242)
Net deferred tax assets		3		10
Deferred tax liabilities:
Property and equipment		(3)		(10)
	$	–	$	–

The Company records a full valuation allowance against its net deferred tax assets since the Company cannot conclude that it was more likely than not that its deferred tax assets would be realized.

At December 31, 2015, the Company had federal and state income loss carryforwards of $54.7 million that begin to expire in 2032 for both federal and state purposes. Additionally, The Company has research and development credits of approximately $1.8 million available for federal purposes, which begin to expire in 2032. The utilization of the federal net operating loss and credit carryforwards to reduce future income taxes will depend on the Company’s ability to generate sufficient taxable income prior to the expiration of the carryforwards. In addition, the utilization of the federal net operating loss and credit carryforwards may be subject to limitations under the rules regarding a change in stock ownership as determined by the Internal Revenue Code and state laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization of net operating loss (“NOL”) carryforwards, other tax carryforwards and certain built-in losses upon an ownership change as defined by that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain stockholders in the Company stock by more than 50 percentage points over a three year testing period (“Section 382 Ownership Change”). If the Company has undergone a Section 382 Ownership change, an annual limitation would be imposed on certain tax attributes of the Company, including NOL and capital loss carryforwards and certain other losses and credits. As of December 31, 2015, the Company has not performed a formal study to determine whether there are Section 382 limitations that apply and such limitations could be significant.

The difference between actual income tax rate for the years ended December 31, 2015, 2014 and 2013, and the statutory federal income tax rate are as follows:

	2015		2014		2013
	% of Pretax		% of Pretax		% of Pretax
	Earnings		Earnings		Earnings
Income tax benefit at statutory rate	34.0	%	34.0	%	34.0	%
State income taxes, net of federal tax benefit	3.1	%	3.1	%	3.1	%
Research and development credits	2.6	%	3.5	%	4.3	%
Nondeductible expenses	(1.9)	%	(1.0)	%	(1.3)	%
Change in valuation allowance	(37.8)	%	(39.6)	%	(40.1)	%
Income tax expense (benefit)	0.0	%	0.0	%	0.0	%

As of December 31, 2015 and 2014, the Company had no unrecognized tax benefits. The Company has analyzed its filing positions in all significant federal and state jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations by taxing authorities for years before 2012. No income tax returns are currently under examination by taxing authorities.

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Employment Benefit Plan

12 Months Ended

Dec. 31, 2015

Employment Benefit Plan

Employment Benefit Plan

10. Employment Benefit Plan

The Company outsources its payroll, benefits and human resource administration functions to a Professional Employer Organization (PEO). The Company’s employees are eligible to participate in the PEO’s Multiple Employer Retirement Savings Plan (401(k) plan). The 401(k) plan allows immediate participation by U.S. employees that are 20 years of age or older. Participants may defer up to 75% of their gross pay, up to a maximum limit determined by U.S. federal law. The Company provides all active employees with a safe harbor contribution equal to 3% of compensation (regardless of participation in the 401(k) plan) up to maximum U.S. federal law limits. These safe harbor contributions vest immediately. During 2015, 2014 and 2013, the Company paid approximately $115,000,  $129,000 and $142,000, respectively, for employer contributions and plan expenses.

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Net Loss per Share

12 Months Ended

Dec. 31, 2015

Net Loss per Share

Net Loss per Share

11. Net Loss per Share

The Company excluded the following common stock equivalents, outstanding as of the years ended December 31, 2015, 2014 and 2013, from the computation of diluted net loss per share for these same periods because they had an anti-dilutive impact on the computation:

	December 31,
	2015	2014	2013
Options to purchase common stock - issued	1,810,155	88,346	144,290
Unvested restricted common stock	318	3,342	11,950
Convertible preferred stock	—	6,915,525	1,734,517
Warrants to purchase convertible preferred and common stock	18,534	18,534	18,534
Total	1,829,007	7,025,747	1,909,291

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Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2015

Quarterly Financial Data

Quarterly Financial Data

12. Quarterly Financial Data (Unaudited)

The results of operations on a quarterly basis for the years ended December 31, 2015 and 2014 were as follows (in thousands, except per share data):

	March 31,		June 30,		September 30,		December 31,		March 31,		June 30,		September 30,		December 31,
	2015		2015		2015		2015		2014		2014		2014		2014
Revenue	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Operating expenses:
Research and development		3,017		4,465		4,279		4,293		3,851		3,363		2,164		2,822
General and administrative		1,298		1,387		1,822		2,337		539		594		490		664
Loss from operations		(4,315)		(5,852)		(6,101)		(6,630)		(4,390)		(3,957)		(2,654)		(3,486)
Interest and other income, net		1		—		12		67		252		9		35		—
Interest expense		—		—		—		—		(212)		(241)		(392)		—
Net loss		(4,314)		(5,852)		(6,089)		(6,563)		(4,350)		(4,189)		(3,011)		(3,486)
Gain on extinguishment of convertible debt as a capital transaction		—		—		—		—		—		—		378		—
Net loss attributable to common stockholders	$	(4,314)	$	(5,852)	$	(6,089)	$	(6,563)	$	(4,350)	$	(4,189)	$	(2,633)	$	(3,486)
Weighted average shares outstanding - basic and diluted		2,209		4,159		15,451		15,452		161		163		343		2,207
Net loss per share attributable to common stockholders - basic and diluted	$	(1.95)	$	(1.41)	$	(0.39)	$	(0.42)	$	(27.02)	$	(25.70)	$	(7.68)	$	(1.58)

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Subsequent Events

12 Months Ended

Dec. 31, 2015

Subsequent Events

Subsequent Events

13. Subsequent Events

The Company evaluated events after the balance sheet date of December 31, 2015 and up to the date the Company filed this Annual Report and determined that no subsequent activity required disclosure.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

Basis of Presentation and Use of Estimates

The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include all adjustments necessary for the presentation of the Company’s financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes, including accrued liabilities and the fair value-based measurement of equity instruments. Actual results could differ materially from those estimates. The Company evaluates its estimates and assumptions as facts and circumstances dictate.

Stock Conversion and Reverse Stock Split

2014 Stock Conversion and Reverse Stock Split

Effective September 23, 2014, all outstanding shares of the Company’s preferred stock were converted on an 11.556-for-1 basis into shares of common stock (the “Stock Conversion”). Concurrent with this Stock Conversion, the Company effected a reverse stock split of its common stock, par value $0.001 per share. Every four shares of common stock were reclassified and combined into one share of common stock. Fractional shares were issued as a result of the reverse stock split. The total number of authorized shares of common stock was also proportionally decreased on a 4-for-1basis and the par value per share of the common stock continued to be $0.001.

2015 Stock Conversion and Reverse Stock Split

On May 26, 2015, the Company’s Board of Directors approved a 1-for-2.889 reverse stock split of its common stock, which became effective on June 1, 2015. Upon the effectiveness of the reverse stock split, (i) every 2.889 shares of outstanding common stock were decreased to one share of common stock, (ii) the number of shares of common stock into which each outstanding option, right and warrant to purchase common stock is exercisable was proportionally decreased on a 1-for-2.889 basis and the exercise price of each outstanding option, right and warrant to purchase common stock was proportionately increased on a 1-for-2.889 basis, and (iii) the conversion ratio for each share of the Company’s convertible preferred stock which was convertible into common stock was proportionally decreased on a corresponding basis in connection with the 1-for-2.889 reverse split. No fractional shares were issued as a result of the reverse stock split. The total number of authorized shares of common stock and the par value per share of common stock did not change as a result of the reverse stock split.

Effective June 22, 2015, all outstanding shares of convertible preferred stock were converted on a 2.889-for-1 basis into shares of common stock in connection with the closing of our initial public offering.

All of the share numbers, share prices, exercise prices and other per share information throughout these financial statements for all periods presented have been adjusted, on a retroactive basis, to reflect the 1-for-4 reverse stock split and the 1-for-2.889 reverse stock split and the conversion of all convertible preferred stock on the closing of our initial public offering.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest- bearing and demand money market accounts.

Marketable Securities

Marketable Securities

The Company has designated marketable securities as available-for-sale securities and accounts for them at their respective fair values. Marketable securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Securities that are classified as available-for-sale are carried at fair value, including accrued interest, with temporary unrealized gains and losses reported as a component of stockholders' equity (deficit) until their disposition. The Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale based on the Company’s then current intent and ability to sell the security if it is required to do so. The cost of securities sold is based on the specific identification method. All marketable securities are subject to a periodic impairment review. The Company will recognize an impairment charge when a decline in the fair value of the investments below the cost basis is judged to be other-than-temporary.

Concentrations of Credit Risk

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company has established guidelines to limit its exposure to credit risk by placing investments with high credit quality financial institutions, diversifying its investment portfolio and making investments with maturities that maintain safety and liquidity. At December 31, 2015 and 2014, the Company’s cash equivalents were with money market funds that invest in securities issued by the U.S. Treasury. At December 31, 2015, the Company’s marketable securities were in U.S. Treasury securities, obligations of U.S. government agencies and high-grade corporate debt securities.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Lab equipment, computer equipment and software are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the lease term. Maintenance and repairs are expensed as incurred.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for an amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company has not yet generated consistent positive cash flows on an annual basis, and such positive cash flows may not materialize for a significant period in the future. As a result, it is reasonably possible that future evaluations of long-lived assets may result in a conclusion that such assets have been impaired.

Accrued Direct Program Expenses

Accrued Direct Program Expenses

Substantial portions of the Company’s preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively CROs). These CROs generally bill monthly or quarterly for services performed or upon achieving certain milestones. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the CROs or within software tracking systems, correspondence with the CROs and clinical site visits. Company estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. The Company periodically evaluates these estimates to determine if adjustments are necessary or appropriate based on information received. No vendor comprised more than 10% of all external costs in 2015, 2014, and 2013.

Research and Development

Research and Development

The Company expenses costs associated with research and development as incurred. These costs include direct program expenses, which are payments made to third parties that specifically relate to the Company’s research and development, such as payments to clinical research organizations, clinical investigators, manufacturing of clinical material, pre-clinical testing and consultants. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees contributing to research and development activities are classified as research and development costs.

Stock-Based Compensation

Stock-Based Compensation

The Company measures employee and director stock-based compensation expense for all stock and purchase awards at the grant date based on the fair value measurement of the award. The expense is recorded over the related service period, generally the vesting period, net of estimated forfeitures. Any changes to the estimated forfeiture rates are accounted for prospectively. The Company calculates the fair value measurement of stock options using the Black-Scholes valuation model and the single-option method and recognizes expense using the straight-line attribution approach.

Income Taxes

Income Taxes

The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for tax and financial reporting purposes measured by applying enacted tax rates and laws that will be in effect when the differences are expected to reverse, net operating loss and tax credit carryforwards. Tax benefits are recorded when the benefit is more likely than not to be sustained upon audit. The Company accrues interest and penalties related to uncertain tax positions in income tax expense. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.

Segment Information

Segment Information

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on discovering and developing potential drugs. No revenue has been generated since inception, and all tangible assets are held in the United States.

Comprehensive Loss

Comprehensive Loss

Comprehensive loss is comprised of net loss and adjustments for the change in unrealized gains and losses on the Company’s investments in available-for-sale marketable securities. The Company presents comprehensive loss and its components in the statements of operations and comprehensive loss for the year ended December 31, 2015.

Net Loss per Share

Net Loss per Share

The Company reports net loss per share in accordance with the standard codification of ASC “Earnings per Share” (“ASC 260”). Under ASC 260, basic earnings per share, which excludes dilution, is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could be exercised or converted into common shares, and is computed by dividing net loss available to common stockholders by the weighted average of common shares outstanding plus the dilutive potential common shares. Diluted earnings per share excludes the impact of convertible preferred stock, employee stock options, restricted stock and stock purchase rights, as the effect would be anti-dilutive. During a loss period, the assumed exercise of in-the-money stock options and other potentially diluted instruments has an anti-dilutive effect and therefore, these instruments are excluded from the computation of dilutive earnings per share.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and to provide disclosures when certain criteria are met. The guidance is effective for annual periods beginning in 2016 and interim reporting periods starting in the first quarter of 2017. Early application is permitted. The Company does not expect the standard will have a material impact on its disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The new standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual report period. The amendments in this standard may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company adopted this standard as of December 31, 2015 with prospective application. As a result, the Company reclassified its deferred tax assets classified as current to noncurrent and its deferred tax liabilities classified as current to noncurrent as of December 31, 2015. Prior year balances were not retrospectively adjusted.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements. 

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts payable, accrued direct program expenses, and accrued employee benefits, and other financial instruments included within current assets or current liabilities.

The Company accounted for warrants to purchase its redeemable preferred stock pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, and classified them as liabilities. The fair value of the outstanding preferred stock warrant liabilities at December 31, 2013 was $267,750.  Subsequent to the completion of the Stock Conversion on September 23, 2014, whereby all outstanding shares of preferred stock were converted into shares of common stock, and the warrants became exercisable for shares of common stock pursuant to the adjustment provisions of the warrants, the fair value of the preferred stock warrant liabilities was remeasured and reclassified into equity. During the year ended December 31, 2014 a remeasurement gain of $265,750 was recognized in interest and other income, net in the statement of operations and comprehensive loss. Upon the Stock Conversion, the remaining balance of $2,000 was reclassified from liabilities to equity.

Fair Value Measurements

Fair Value Measurements

In general, asset and liability fair values are determined using the following categories:

Level 1 – inputs utilize quoted prices in active markets for identical assets or liabilities.

Level 2 – inputs include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

Level 3 – inputs are unobservable inputs and include situations where there is little, if any, market activity for the balance sheet items at period end. Pricing inputs are unobservable for the terms and are based on the Company’s own estimates about the assumptions that a market participant would use in pricing as asset.

The Company’s financial instruments, including money market investments, corporate debt securities, U.S. Treasury securities and obligations of U.S. government agencies, are measured at fair value on a recurring basis. There were no transfers between levels for the year ended December 31, 2015.

Assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of December 31, 2015 and 2014 (in thousands):

			Quoted prices		Quoted prices				Quoted prices
			in active		for similar assets				in active
			markets for		observable in the				markets for
	December 31,		identical assets		marketplace		December 31,		identical assets
Description	2015		(Level 1)		(Level 2)		2014		(Level 1)
Assets measured at fair value:
Money market investments	$	12,131	$	12,131	$	—	$	26,926	$	26,926
U.S. Treasury securities, obligations of U.S. government agencies, corporate debt securities and reverse repurchase agreements		73,261		—		73,261		—		—

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies

Schedule of assets measured at fair value on a recurring basis (in thousands)

			Quoted prices		Quoted prices				Quoted prices
			in active		for similar assets				in active
			markets for		observable in the				markets for
	December 31,		identical assets		marketplace		December 31,		identical assets
Description	2015		(Level 1)		(Level 2)		2014		(Level 1)
Assets measured at fair value:
Money market investments	$	12,131	$	12,131	$	—	$	26,926	$	26,926
U.S. Treasury securities, obligations of U.S. government agencies, corporate debt securities and reverse repurchase agreements		73,261		—		73,261		—		—

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Cash, Cash Equivalents and Marketable Securities (Tables)

12 Months Ended

Dec. 31, 2015

Cash, Cash Equivalents and Marketable Securities

Schedule of cash, cash equivalents and marketable securities (in thousands)

			Gross unrealized		Gross unrealized		Fair market
	Amortized Cost		gains		losses		value
December 31, 2015
Cash	$	1,862	$	–	$	–	$	1,862
Money market funds		12,131		–		–		12,131
Reverse repurchase agreements		6,000		–		–		6,000
U.S. Treasury securities and obligations of U.S. government agencies		28,982		4		(7)		28,979
Corporate debt securities		38,276		22		(16)		38,282
Total for December 31, 2015	$	87,251	$	26	$	(23)	$	87,254
December 31, 2014
Cash	$	886	$	–	$	–	$	886
Money market funds		26,926		–		–		26,926
Total for December 31, 2014	$	27,812	$	–	$	–	$	27,812

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2015

Property and Equipment

Schedule of property and equipment (in thousands)

	Estimated
	Useful Life		December 31,
	(in years)		2015		2014
Lab equipment		5	$	1,146	$	1,099
Computer equipment and software		3		421		291
Leasehold improvements		2		102		102
Total				1,669		1,492
Less accumulated depreciation				(1,456)		(1,401)
Property and equipment, net			$	213	$	91

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies

Schedule of future minimum payments under lease arrangements (in thousands)

The approximate future minimum payments under these lease arrangements as of December 31, 2015, are as follows (in thousands):

2016	$	292
2017		293
2018		79
Total	$	664

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Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2015

Stockholders' Equity

Schedule of common stock reserved for issuance

Options to purchase common stock - issued	1,810,155
Options to purchase common stock - unissued	580,725
Employee stock purchase plan	222,876
Common stock warrants - issued	18,534
Total	2,632,290

Schedule of options valuation assumptions

	2015			2014	2013
Estimated dividend yield		–		*		–
Weighted-average expected stock price volatility		75.7	%	*		120.8	%
Weighted-average risk-free interest rate		1.8	%	*		1.2	%
Weighted-average expected life of option (in years)		6.22		*		6.25
Weighted-average fair value per option	$	5.09		*	$	2.95

*There were no options granted during 2014

Schedule of stock option activity

The tables below summarize the stock option activity for the year ended December 31, 2015:

			Weighted
	Available for	Options	Average
	Grant	Outstanding	Exercise Price
Balance as of January 1, 2015	1,222,631	66,055	$	3.36
Additional authorized	1,081,700	–
Granted	(1,723,824)	1,723,824		7.69
Exercised	–	(1,285)		3.36
Cancelled	730	(730)		3.36
Shares terminated from the 2012 Plan	(512)	–
Balance as of December 31, 2015	580,725	1,787,864	$	7.54

				Weighted-
				Average
				Remaining
		Weighted-		Contractual	Aggregate
	Number of	Average		Life	Intrinsic
	Options	Exercise Price		(In Years)	Value
As of December 31, 2015:
Options outstanding	1,787,864	$	7.54	9.2	$	4,168,473
Options expected to vest, net of estimated forfeitures	1,696,002	$	7.51	9.2	$	3,968,169
Options exercisable	72,609	$	6.28	7.7	$	240,175

Schedule of Purchase Plan valuation assumptions

Estimated dividend yield	–
Expected stock price volatility	62.5	%
Risk-free interest rate	0.1	%
Expected life of option (in years)	0.5

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Income Taxes

Schedule of significant components of deferred tax assets and liabilities (in thousands)

	2015		2014
Deferred tax assets:
Net operating loss carryforwards	$	20,280	$	12,822
Research credit carryforwards		1,813		1,215
Accrued benefits and other		643		71
Intangible assets		125		144
Valuation allowance		(22,858)		(14,242)
Net deferred tax assets		3		10
Deferred tax liabilities:
Property and equipment		(3)		(10)
	$	–	$	–

Schedule of difference between actual income tax rates and the statutory federal income tax rate

	2015		2014		2013
	% of Pretax		% of Pretax		% of Pretax
	Earnings		Earnings		Earnings
Income tax benefit at statutory rate	34.0	%	34.0	%	34.0	%
State income taxes, net of federal tax benefit	3.1	%	3.1	%	3.1	%
Research and development credits	2.6	%	3.5	%	4.3	%
Nondeductible expenses	(1.9)	%	(1.0)	%	(1.3)	%
Change in valuation allowance	(37.8)	%	(39.6)	%	(40.1)	%
Income tax expense (benefit)	0.0	%	0.0	%	0.0	%

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Net Loss per Share (Tables)

12 Months Ended

Dec. 31, 2015

Net Loss per Share

Schedule of anti-dilutive common stock equivalents

	December 31,
	2015	2014	2013
Options to purchase common stock - issued	1,810,155	88,346	144,290
Unvested restricted common stock	318	3,342	11,950
Convertible preferred stock	—	6,915,525	1,734,517
Warrants to purchase convertible preferred and common stock	18,534	18,534	18,534
Total	1,829,007	7,025,747	1,909,291

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Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2015

Quarterly Financial Data

Schedule of results of operations on a quarterly basis (in thousands, except share and per share amounts)

The results of operations on a quarterly basis for the years ended December 31, 2015 and 2014 were as follows (in thousands, except per share data):

	March 31,		June 30,		September 30,		December 31,		March 31,		June 30,		September 30,		December 31,
	2015		2015		2015		2015		2014		2014		2014		2014
Revenue	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Operating expenses:
Research and development		3,017		4,465		4,279		4,293		3,851		3,363		2,164		2,822
General and administrative		1,298		1,387		1,822		2,337		539		594		490		664
Loss from operations		(4,315)		(5,852)		(6,101)		(6,630)		(4,390)		(3,957)		(2,654)		(3,486)
Interest and other income, net		1		—		12		67		252		9		35		—
Interest expense		—		—		—		—		(212)		(241)		(392)		—
Net loss		(4,314)		(5,852)		(6,089)		(6,563)		(4,350)		(4,189)		(3,011)		(3,486)
Gain on extinguishment of convertible debt as a capital transaction		—		—		—		—		—		—		378		—
Net loss attributable to common stockholders	$	(4,314)	$	(5,852)	$	(6,089)	$	(6,563)	$	(4,350)	$	(4,189)	$	(2,633)	$	(3,486)
Weighted average shares outstanding - basic and diluted		2,209		4,159		15,451		15,452		161		163		343		2,207
Net loss per share attributable to common stockholders - basic and diluted	$	(1.95)	$	(1.41)	$	(0.39)	$	(0.42)	$	(27.02)	$	(25.70)	$	(7.68)	$	(1.58)

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Liquidity Risks (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Liquidity Risks
Accumulated deficit	$ 148,837	$ 126,019
Net loss	22,815	14,658	$ 16,198
Cash used in operating activities	19,207	$ 14,448	$ 14,293
Revenues	$ 0

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Summary of Significant Accounting Policies (Details)			36 Months Ended
	May. 26, 2015	Sep. 23, 2014 $ / shares	Dec. 31, 2015 $ / shares	Dec. 31, 2014 $ / shares
Significant Accounting Policies
Preferred stock conversion ratio		11.556
Common stock, par value (in dollars per share)		$ 0.001	$ 0.001	$ 0.001
Stock split conversion ratio	0.3461	0.25
Maximum | Vendor concentration risk
Significant Accounting Policies
Concentration risk (as a percent)			10.00%

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Summary of Significant Accounting Policies (FV) (Details) - USD ($)		12 Months Ended
	Sep. 23, 2014	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2013
Assets measured at fair value:
Fair market value		$ 27,812,000	$ 87,254,000
Preferred stock warrant liabilities
Fair Value Measurements
Warrant fair value				$ 267,750
Remeasurement gain		265,750
Reclass from liability to equity	$ 2,000
Money market funds
Assets measured at fair value:
Fair market value		26,926,000	12,131,000
Money market funds | Recurring
Assets measured at fair value:
Fair market value		26,926,000	12,131,000
Money market funds | Recurring | Level 1
Assets measured at fair value:
Fair market value		$ 26,926,000	12,131,000
U.S. Treasury securities, obligations of U.S. government agencies, corporate debt securities and reverse repurchase agreements | Recurring
Assets measured at fair value:
Fair market value			73,261,000
U.S. Treasury securities, obligations of U.S. government agencies, corporate debt securities and reverse repurchase agreements | Recurring | Level 2
Assets measured at fair value:
Fair market value			$ 73,261,000

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Cash, Cash Equivalents and Marketable Securities (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Summary of cash, cash equivalents and marketable securities
Amortized Cost	$ 87,251	$ 27,812
Gross unrealized gains	26
Gross unrealized losses	(23)
Fair market value	87,254	27,812
Cash
Summary of cash, cash equivalents and marketable securities
Amortized Cost	1,862	886
Fair market value	1,862	886
Money market funds
Summary of cash, cash equivalents and marketable securities
Amortized Cost	12,131	26,926
Fair market value	12,131	$ 26,926
Reverse repurchase agreements
Summary of cash, cash equivalents and marketable securities
Amortized Cost	6,000
Fair market value	6,000
U.S. Treasury securities and obligations of U.S. government agencies
Summary of cash, cash equivalents and marketable securities
Amortized Cost	28,982
Gross unrealized gains	4
Gross unrealized losses	(7)
Fair market value	28,979
Corporate debt securities
Summary of cash, cash equivalents and marketable securities
Amortized Cost	38,276
Gross unrealized gains	22
Gross unrealized losses	(16)
Fair market value	$ 38,282

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Property and Equipment (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Property and Equipment
Property and equipment, gross	$ 1,669	$ 1,492
Less accumulated depreciation	(1,456)	(1,401)
Property and equipment, net	213	91
Depreciation expense	$ 66	88	$ 219
Lab equipment
Property and Equipment
Estimated Useful Life (in years)	5 years
Property and equipment, gross	$ 1,146	1,099
Computer equipment and software
Property and Equipment
Estimated Useful Life (in years)	3 years
Property and equipment, gross	$ 421	291
Leasehold improvements
Property and Equipment
Estimated Useful Life (in years)	2 years
Property and equipment, gross	$ 102	$ 102

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Notes Payable (Details)			8 Months Ended	12 Months Ended
	May. 26, 2015	Sep. 23, 2014 USD ($) security $ / shares	Sep. 30, 2014 USD ($) item	Dec. 31, 2014 USD ($)	Dec. 31, 2015 USD ($)	Feb. 28, 2011 USD ($)
Notes Payable
Debt outstanding					$ 0
Access to restricted cash				$ 2,500,000
Stock split conversion ratio	0.3461	0.25
Security Agreement
Notes Payable
Debt issued						$ 5,000,000
Interest rate (as a percent)						11.25%
Restricted proceeds						$ 2,500,000
2014 Notes
Notes Payable
Debt issued			$ 12,000,000
Interest rate (as a percent)			8.00%
Number of investors | item			2
Percentage of new series conversion price			75.00%
Debt and related interest		$ 12,373,741
Gain on extinguishment recognized through equity		$ 378,251
2014 Notes | Preferred Stock | Series 1 Convertible Preferred Stock
Notes Payable
Conversion price (in dollars per share) | $ / shares		$ 1.40
Conversion of debt to preferred stock (in shares) | security		8,813,203

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Commitments and Contingencies (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Operating lease
2016	$ 292,000
2017	293,000
2018	79,000
Total	664,000
Rent expense	267,000	$ 225,000	$ 257,000
Purchase commitment obligation	9,194,000
Purchase commitment obligation payable within one year	$ 8,642,000
Office and laboratory space
Operating lease
Operating lease renewal term (in years)	3 years
Termination fees	$ 25,000

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Stockholders' Equity (Details) $ / shares in Units, $ in Thousands				2 Months Ended	12 Months Ended
	Jun. 22, 2015 USD ($) $ / shares shares	May. 26, 2015	Sep. 23, 2014 shares	Dec. 31, 2014 USD ($) shares	Dec. 31, 2015 USD ($) shares	Dec. 31, 2014 USD ($) shares	Dec. 31, 2013 item	Jun. 30, 2015 shares	Nov. 30, 2014 shares	Mar. 31, 2014 shares	Feb. 28, 2014 shares
Stockholders' Equity
Authorized convertible preferred stock (in shares)				23,228,986	0	23,228,986
Common stock, shares authorized			15,742,382	35,000,000	200,000,000	35,000,000		200,000,000	35,000,000	25,000,000
Stock split conversion ratio		0.3461	0.25
Authorized preferred stock (in shares)				0	10,000,000	0		10,000,000
Preferred stock conversion ratio			11.556
Proceeds from issuance of convertible preferred stock | $						$ 29,935
Convertible preferred stock outstanding (in shares)				19,978,986	0	19,978,986
Stock issued upon conversion (in shares)	6,915,525
Preferred stock outstanding (in shares)				0	0	0
Aggregate gross proceeds from issuance of common stock, net of offering costs | $	$ 88,600
Proceeds from issuance of common stock, net of offering costs | $	78,800
Issuance of common stock, offering costs | $	3,600				$ 9,800
Underwriters’ discounts and commissions | $	$ 6,200
IPO
Stockholders' Equity
Issuance of common stock, net of offering costs (in shares)	6,325,000
Price per share (in dollars per share) | $ / shares	$ 14.00
Underwriters' Over-Allotment Option
Stockholders' Equity
Issuance of common stock, net of offering costs (in shares)	875,000
Convertible preferred stock
Stockholders' Equity
Authorized convertible preferred stock (in shares)			8,866,753						23,228,986	60,503,445	30,233,694
Stock split conversion ratio			0.25
Number of series of outstanding stock | item							6
Preferred stock conversion ratio			11.556
Convertible preferred stock outstanding (in shares)	19,978,986
Series 2 Convertible Preferred Stock
Stockholders' Equity
Proceeds from issuance of convertible preferred stock | $				$ 31,000

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Stockholders' Equity (Reserved) (Details)	Dec. 31, 2015 shares
Stockholders' Equity
Common stock reserved for issuance	2,632,290
Options to purchase common stock - issued
Stockholders' Equity
Common stock reserved for issuance	1,810,155
Options to purchase common stock - unissued
Stockholders' Equity
Common stock reserved for issuance	580,725
Employee stock purchase plan
Stockholders' Equity
Common stock reserved for issuance	222,876
Common stock warrants - issued
Stockholders' Equity
Common stock reserved for issuance	18,534

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Stockholders' Equity (Options and ESPP) (Details) - USD ($)				1 Months Ended		12 Months Ended
	Dec. 12, 2014	Nov. 17, 2014	Aug. 01, 2012	May. 31, 2015	Jul. 31, 2012	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Aug. 31, 2012
Share-based compensation
Recognized tax benefit						$ 0	$ 0	$ 0
2012 Plan
Share-based compensation
Number of shares authorized (in shares)	1,289,371								147,109
Additional number of shares authorized (in shares)	519,210	623,052
2015 Plan
Share-based compensation
Number of shares authorized (in shares)				1,081,700
Annual percentage increase, authorized shares (as a percent)				5.00%
The Purchase Plan
Share-based compensation
Number of shares authorized (in shares)				231,800		222,876
Employee stock-based compensation expense						$ 22,000
Offering period				6 months
Highest percentage of compensation employees may utilize for purchase of common stock (as a percent)				15.00%
Purchase price relative to fair value (as a percent)				85.00%
Shares sold to employees (in shares)						8,924
Weighted-average grant date fair value (in dollars per share)						$ 5.18
Share-based compensation expense						$ 22,000
Options to purchase common stock
Share-based compensation
Additional number of shares authorized (in shares)						1,081,700
Options granted (in shares)						1,723,824	0
Options exercised (in shares)						1,285
Shares terminated (in shares)						512
Employee stock-based compensation expense						$ 1,300,000	$ 66,000	91,000
Unrecognized compensation cost related to nonvested stock options						$ 7,100,000
Weighted-average period of recognition (in years)						3 years 3 months 18 days
Share-based compensation expense						$ 1,300,000	$ 66,000	$ 91,000
Options to purchase common stock | 2012 Plan
Share-based compensation
Options granted (in shares)						1,288,174
Options exercised (in shares)						685
Shares terminated (in shares)						512
Options to purchase common stock | 2015 Plan
Share-based compensation
Term (in years)						10 years
Options to purchase common stock | 2015 Plan | Director | Minimum
Share-based compensation
Vesting period (in years)						1 year
Options to purchase common stock | 2015 Plan | Director | Maximum
Share-based compensation
Vesting period (in years)						3 years
Options to purchase common stock | 2015 Plan | Employee
Share-based compensation
Vesting period (in years)						4 years
Common Stock
Share-based compensation
Options exercised (in shares)						1,000	1,000
Common Stock | Restricted stock
Share-based compensation
Units converted to shares, stock issued (in shares)			171,415
Class B units
Share-based compensation
Requisite service period (in years)					4 years

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Stockholders' Equity (Assumptions) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Options to purchase common stock
Fair value assumptions
Weighted-average expected stock price volatility (as a percent)	75.70%		120.80%
Weighted-average risk-free interest rate (as a percent)	1.80%		1.20%
Weighted-average expected life of option	6 years 2 months 19 days		6 years 3 months
Weighted-average fair value per option (in dollars per share)	$ 5.09		$ 2.95
Options granted (in shares)	1,723,824	0
The Purchase Plan
Fair value assumptions
Estimated dividend yield (as a percent)	0.00%
Weighted-average expected stock price volatility (as a percent)	62.50%
Weighted-average risk-free interest rate (as a percent)	0.10%
Weighted-average expected life of option	6 months

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Stockholders' Equity (OptionActivity) (Details) - Options to purchase common stock - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Available for Grant
Balance (in shares)	1,222,631
Additional authorized (in shares)	1,081,700
Granted (in shares)	(1,723,824)	0
Cancelled (in shares)	730
Shares terminated from the 2012 Plan (in shares)	(512)
Balance (in shares)	580,725	1,222,631
Options Outstanding
Balance (in shares)	66,055
Granted (in shares)	1,723,824	0
Exercised (in shares)	(1,285)
Cancelled (in shares)	(730)
Balance (in shares)	1,787,864	66,055
Expected to vest, net of estimated forfeitures (in shares)	1,696,002
Exercisable (in shares)	72,609
Weighted Average Exercise Price
Balance (in dollars per share)	$ 3.36
Granted (in dollars per share)	7.69
Exercised (in dollars per share)	3.36
Cancelled (in dollars per share)	3.36
Balance (in dollars per share)	7.54	$ 3.36
Expected to vest, net of estimated forfeitures (in dollars per share)	7.51
Exercisable (in dollars per share)	$ 6.28
Weighted-Average Remaining Contractual Life (In Years)
Outstanding (in years)	9 years 2 months 12 days
Expected to vest, net of estimated forfeitures (in years)	9 years 2 months 12 days
Exercisable (in years)	7 years 8 months 12 days
Aggregate Intrinsic Value
Outstanding	$ 4,168,473
Expected to vest, net of estimated forfeitures	3,968,169
Exercisable	$ 240,175

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Income Taxes (DTA and DTL) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Deferred tax assets:
Net operating loss carryforwards	$ 20,280	$ 12,822
Research credit carryforwards	1,813	1,215
Accrued benefits and other	643	71
Intangible assets	125	144
Valuation allowance	(22,858)	(14,242)
Net deferred tax assets	3	10
Deferred tax liabilities:
Property and equipment	(3)	(10)
Federal
Deferred tax assets:
Provision for income tax	0	0	$ 0
State
Deferred tax assets:
Provision for income tax	$ 0	$ 0	$ 0

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Income Taxes (NOL) (Details) $ in Millions	Dec. 31, 2015 USD ($)
Income Taxes
Operating loss carryforwards	$ 54.7

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Income Taxes (Credit) (Details) $ in Millions	Dec. 31, 2015 USD ($)
Federal | Research and development credits
Tax credit carryforward
Tax credit carryforwards	$ 1.8

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Income Taxes (Rates) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
% of Pretax Earnings
Income tax benefit at statutory rate (as a percent)	34.00%	34.00%	34.00%
State income taxes, net of federal tax benefit (as a percent)	3.10%	3.10%	3.10%
Research and development credits (as a percent)	2.60%	3.50%	4.30%
Nondeductible expenses (as a percent)	(1.90%)	(1.00%)	(1.30%)
Change in valuation allowance (as a percent)	(37.80%)	(39.60%)	(40.10%)
Income tax expense (benefit) (as a percent)	0.00%	0.00%	0.00%
Unrecognized tax benefits	$ 0	$ 0

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Employment Benefit Plan (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Employment Benefit Plan
Gross pay contribution maximum (as a percent)	75.00%
Company contributions during the period	$ 115,000	$ 129,000	$ 142,000

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Net Loss per Share (Details) - shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Net Loss per Share
Antidilutive common stock equivalents	1,829,007	7,025,747	1,909,291
Options to purchase common stock
Net Loss per Share
Antidilutive common stock equivalents	1,810,155	88,346	144,290
Restricted stock
Net Loss per Share
Antidilutive common stock equivalents	318	3,342	11,950
Convertible preferred stock
Net Loss per Share
Antidilutive common stock equivalents		6,915,525	1,734,517
Common stock warrants - issued
Net Loss per Share
Antidilutive common stock equivalents	18,534	18,534	18,534

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Quarterly Financial Data (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Quarterly Financial Data
Revenue									$ 0
Operating expenses:
Research and development	$ 4,293	$ 4,279	$ 4,465	$ 3,017	$ 2,822	$ 2,164	$ 3,363	$ 3,851	16,054	$ 12,200	$ 13,136
General and administrative	2,337	1,822	1,387	1,298	664	490	594	539	6,844	2,287	2,141
Loss from operations	(6,630)	(6,101)	(5,852)	(4,315)	(3,486)	(2,654)	(3,957)	(4,390)	(22,898)	(14,487)	(15,277)
Interest and other income, net	67	12		1		35	9	252	80	296	10
Interest expense						(392)	(241)	(212)		(845)	(931)
Net loss	(6,563)	(6,089)	(5,852)	(4,314)	(3,486)	(3,011)	(4,189)	(4,350)	(22,818)	(15,036)	(16,198)
Gain on extinguishment of convertible debt as a capital transaction						378				378
Net loss attributable to common stockholders	$ (6,563)	$ (6,089)	$ (5,852)	$ (4,314)	$ (3,486)	$ (2,633)	$ (4,189)	$ (4,350)	$ (22,818)	$ (14,658)	$ (16,198)
Weighted average shares outstanding - basic and diluted (in shares)	15,452	15,451	4,159	2,209	2,207	343	163	161	9,371	723	155
Net loss per share attributable to common stockholders - basic and diluted (in dollars per share)	$ (0.42)	$ (0.39)	$ (1.41)	$ (1.95)	$ (1.58)	$ (7.68)	$ (25.70)	$ (27.02)	$ (2.43)	$ (20.27)	$ (104.50)