424B4 1 v454523_424b4.htm 424B4

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-213736

PROSPECTUS

1,875,000 Shares

[GRAPHIC MISSING]

SenesTech, Inc.

Common Stock

We are offering 1,875,000 shares of our common stock. This is our initial public offering and no public market currently exists for our common stock. The initial public offering price is $8.00 per share. Our common stock has been approved to be listed on the NASDAQ Capital Market under the symbol “SNES.”

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933 and will be subject to reduced public company reporting requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”

Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 12 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

   
  Per Share   Total
Public offering price   $ 8.00     $ 15,000,000  
Underwriting discount(1)   $ 0.56     $ 1,050,000  
Proceeds, before expenses, to us   $ 7.44     $ 13,950,000  
Net proceeds to selling stockholders   $ 7.44     $ 1,860,000  

(1) We refer you to “Underwriting” beginning on page 94 for additional information regarding total underwriting compensation.

We and the two selling stockholders, which include our chair of the board and chief executive officer, and our president and director, have granted the underwriters an option to purchase up to an additional 281,250 shares in the aggregate, at the initial public offering price less the underwriting discount. We will not receive any proceeds from any sale of shares by the selling stockholders.

Delivery of the shares will be made on or about December 13, 2016.

Sole Book-Running Manager

Roth Capital Partners

Co-Managers

 
Craig-Hallum Capital Group   Aegis Capital Corp.

The date of this prospectus is December 8, 2016.


 
 


 
 

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  Page
Prospectus Summary     1  
The Offering     7  
Summary Financial Data     9  
Risk Factors     12  
Special Note Regarding Forward-Looking Statements and Industry Data     27  
Use of Proceeds     28  
Dividend Policy     29  
Capitalization     30  
Dilution     32  
Selected Financial Data     34  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     36  
Business     49  
Management     66  
Executive Compensation     72  
Certain Relationships and Related Party Transactions     80  
Principal and Selling Stockholders     82  
Description of Capital Stock     84  
Shares Eligible for Future Sale     89  
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Common Stock     91  
Underwriting     94  
Legal Matters     99  
Experts     99  
Where You Can Find Additional Information     99  
Index to Financial Statements     F-1  

We and the selling stockholders have not authorized anyone to provide you with any information or to make any representation, other than those contained in this prospectus or any free writing prospectus we have prepared. We and the selling stockholders take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only in circumstances and in jurisdictions where it is lawful to so do. The information contained in this prospectus is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of our common stock.

Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.

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PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, including the Sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and unaudited condensed financial statements and the related notes, before deciding to buy shares of our common stock. Unless the context requires otherwise, references in this prospectus to “SenesTech,” “we,” “us” and “our” refer to SenesTech, Inc.

Overview

We have developed and are seeking to commercialize globally a proprietary technology for managing animal pest populations through fertility control. We believe our innovative non-lethal approach, targeting reproduction, is more humane, less harmful to the environment, and more effective in providing a sustainable solution to pest infestations than traditional lethal pest management methods. Our approach is designed to promote food security and reduce infrastructure damage, disease outbreaks, environmental contamination and other costs associated with rodent infestations. Our first fertility control product candidate, ContraPest, will be marketed for use in controlling rat populations. We are pursuing regulatory approvals for ContraPest in various jurisdictions, including the U.S., India, Argentina and the European Union (EU). We submitted ContraPest for registration with the U.S. Environmental Protection Agency, or the EPA, on August 23, 2015, and the EPA granted registration approval for ContraPest effective August 2, 2016. We believe ContraPest is the first fertility control product approved by the EPA for the management of rodent populations. However, before we can begin selling ContraPest in the U.S., we must obtain registration from the various state regulatory agencies. To date, we have received registration for ContraPest in 14 states and the District of Columbia, with additional applications pending. Other business initiatives include expanding our technology to other species and applications, and developing bio-synthetic sources of triptolide, an active ingredient in ContraPest that also has pharmaceutical applications. This initiative may produce a less expensive source of triptolide for our own use, and provide us with the potential opportunity to earn revenue from the sale of such product to our licensees and other potential consumers of triptolide.

Current Problem

Rodent populations cause significant harm by:

Decreasing worldwide food supply — rodents destroy crops through consumption and contamination, and the Quality Assurance and Food Safety magazine estimated that in 2014, 20% of stored food was lost due to rodent activity.
Damaging public infrastructure — rodents cause significant damage to public infrastructure, estimated by researchers at the National Wildlife Research Center in 2007 at over $27.0 billion in the U.S. alone on an annual basis.
Transmitting disease — rodents transmit disease and deadly pathogens to humans and other species.

Current efforts to control rodent populations include the use of lethal chemical agents, also referred to as rodenticides, the sale of which constituted a $900 million market worldwide in 2013. Rodenticides, however, have a number of serious shortcomings, including:

Not a long-term solution — the initial decline in rodent population exposed to rodenticides is typically followed by a “population rebound” as the surviving rodents quickly reproduce, rodents from surrounding areas migrate in, and many rodent populations return to their original size within six to nine months.
Ineffective delivery method — due to their understanding of cause and effect, rodents will generally not consume food that they have seen adversely affect other rodents nor will they select poor-tasting rodenticides over other food sources.
Unsafe — rodenticides contain lethal chemicals that can be toxic to humans and other animals, which has resulted in the EPA and similar authorities in other jurisdictions placing restrictions on the sale and use of rodenticides.

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Harmful to the environment — the poisons in rodenticides can accumulate in the bodies of rodents, transfer to other animals and contaminate the area where the rodent dies.
Inhumane — lethal chemicals gradually culminate in the death of the rodent exposed to rodenticides over five to ten days, marked by extreme discomfort and pain. This raises moral concerns, particularly in regions such as India.

Our Solution — Fertility Control

Our fertility control product candidate, ContraPest, targets the reproductive capabilities of rodents by inducing the gradual loss of eggs in female rodents and disruption of sperm in male rodents, resulting in contraception that can progress to sterility in both females and males. By targeting rodent fertility, our solution is:

Sustainably effective — ContraPest causes rodent populations to remain at a sustained low level, as demonstrated by studies in which we have observed decreases in wild rodent populations of more than 40% over a 12-week period. We believe this decrease in population will continue and, based on studies conducted by third parties, will stabilize at an approximately 70% reduction in 12 months without rebound (based on an initial population of approximately 10,000 rats). The “population rebound” effect is reduced in a rodent population treated with ContraPest because the non-reproductive rodents continue to defend their territory from invasion by other rodents. Also, we have observed that the contraceptive effect of ContraPest in reducing rat population is present regardless of the amount consumed by any particular rat in that population.
Targeted delivery — our proprietary formulation appears to be attractive to rodents, can be placed in strategic feeding locations in our proprietary bait station, and delivers active ingredients directly to targeted reproductive organs.
Safe — studies of ContraPest have demonstrated that ContraPest is not lethal to rodents or harmful to people or other animals, nor does it accumulate in rodents or pose a risk of secondary exposure to predators of rodents.
Environmentally friendly — ContraPest does not contain poisons, breaks down into inactive ingredients when it comes in contact with soil or water in the environment and utilizes a closed delivery system designed to prevent exposure to non-target species and the environment.
Humane — our solution neither results in rodent death nor causes physical suffering in rodents.

Proprietary Technology

Our intellectual property portfolio supporting ContraPest and other product candidates consists of nine international patent filings addressing the ContraPest compound. Any issued claims would have a patent term extending to 2033 or longer based on patent term determinations in each of the filing countries. We have filed an international patent application covering our novel bait station device to effectively and efficiently deliver our rodent bait at individual bait sites that would, if issued, offer patent term protection through at least 2036. In addition, we utilize proprietary data and trade secrets to further protect our product candidates.

We have an exclusive patent license with the University of Arizona for background intellectual property that we plan to employ for future product development in the domestic animal fertility control market. The patent claims in the United States, Australia and New Zealand cover the use of the 4-vinylcyclohexene diepoxide to deplete ovarian follicles in individual mammals and mammal populations. The license agreement, signed in 2005, will terminate with the last to expire patent claims, which have a term extending to 2026.

Our Strategy

Our goal is to become a leader in fertility control technology designed to promote food security and reduce infrastructure damage, disease outbreaks, environmental contamination and other costs associated with pest infestations and poor animal health. Key elements of our strategy are:

Obtain regulatory approval for our lead product candidate, ContraPest, throughout the U.S., and in Argentina, India, the EU and other parts of the world, and seek additional related regulatory approvals to support product evolution.

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Continue to develop and establish third party relationships with manufacturing, marketing and distribution partners in the U.S. and internationally.
Educate our target markets on the long-term benefits our fertility control solution provides over lethal approaches.
Establish a secure supply of active ingredients, including triptolide, by cultivating a diverse base of traditional agricultural suppliers and developing bio-synthetic sources of triptolide.
Leverage our scientific research and core technologies to develop and commercialize a broad suite of products.

Our Third Party Relationships and Commercialization Plans

To date, we have entered into arrangements with the following manufacturing, marketing and distributions partners:

Neogen — Under our agreement with Neogen Corporation, a developer, manufacturer and marketer of a diverse line of products dedicated to food and animal safety, we granted to Neogen an exclusive license in North America to manufacture, distribute and sell commercial rodent control products, which include ContraPest, for the later of 10 years or the expiration of the patent for ContraPest (if issued).
NeoVenta — Pursuant to our agreement with NeoVenta Solutions, a sales and marketing company, we granted to NeoVenta an exclusive license for 10 years to represent us in the marketing, sales and distribution of ContraPest in India and certain surrounding Southeast Asian countries at such time, if any, that regulatory approval in these countries has been obtained.
Bioceres — Under our agency agreement with INMET, the research and development subsidiary of Bioceres, Inc., a leading agricultural biotechnology company in Argentina, we have authorized INMET, which specializes in bacterial fermentation solutions, to seek regulatory approval for and conduct pre-sales marketing of ContraPest in Argentina. We intend to create a joint venture entity with INMET, which we will control. At such time, if any that regulatory approval in Argentina is obtained, this joint venture will manage all sales and marketing of ContraPest in Argentina. We also have a services agreement with INMET to provide research and development services to develop an efficient production method for a bio-synthetic version of triptolide.

To date, we have not generated any revenue from product sales, but we currently expect to commercialize ContraPest and begin to generate revenue from the sale of products or through the payment of royalties by our strategic partners beginning in the fourth quarter of 2016 or the first quarter of 2017. Specifically, we anticipate that sales of ContraPest will commence in North America in late 2016 or early 2017 through our distribution relationship with Neogen, and that we will begin receiving royalty payments from Neogen thereafter. Subject to obtaining necessary regulatory approvals, we also intend to market ContraPest in international jurisdictions, including India, Argentina and the EU, directly and through our existing and future strategic relationships. Target segments for ContraPest include government (e.g., subways, transit systems and public housing agencies); healthcare; agriculture (e.g., farms, storage facilities and protein production facilities (including cattle, sheep, pig and poultry facilities)); food production (e.g., factories, meat-packing facilities, dairy production plants and vegetable and fruit preparation facilities); and commercial (e.g., major restaurant chains, retail locations, casinos and hotels). Since EPA approval, we have received calls or emails of interest from the following types of potential customers: zoos, animal research facilities, waste and recycling centers, parks, transit agencies, natural resource managers, island conservation groups, botanical gardens, animal sanctuaries, children’s gardens, healthcare providers, property managers, and food production facilities. In addition, we intend to approach large pest management companies to pursue potential partnerships for the distribution and sale of ContraPest.

Regulatory Strategy

While the EPA has granted us exclusive-use status for ContraPest, this approval was granted on a restricted-use basis, including indoor and limited outdoor use, and is based on a liquid formation. We intend to diligently pursue additional related regulatory approvals from the EPA to support our product evolution,

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including seeking approval for full outdoor use, removal of the restricted-use status, alternative formulations and for additional species (utilizing approved active ingredients). In addition, we believe that the EPA will support us in facilitating regulatory reviews outside of the U.S., and we are exploring a relationship with the Danish Environmental Protection Agency to assist us with obtaining regulatory approvals in the EU. See “Business — Government Regulation and Product Approval” for additional information.

Other Potential Products

We have developed a pipeline of potential additional fertility control and animal health products, with diverse applications, as outlined in the following chart:

     
Product Candidate/Area   Development Status   Segment   Primary Target
ContraPest   Environmental Protection Agency (EPA) granted registration approval for ContraPest effective August 2, 2016; to commercialize following approval   Population management   Rodents
Plant-based fertility control   Pilot studies have been completed; additional testing required for the use of this product to manage pest populations in select sites such as schools and hospitals   Population management   Rodents
Feral animal fertility control   Pilot studies are in process to show efficacy of this product candidate; to complete larger pivotal studies and regulatory submission   Population management   Feral dogs and hogs
Non-surgical spay and neutering   Pilot studies completed show encouraging signs of efficacy; to complete additional studies and regulatory submission   Companion animal health   Companion dogs and cats
Boar taint   Additional scientific and field studies and regulatory submission required   Food production and safety   Boars
Animal cancer treatment   Proof of concept study to be performed to determine whether proprietary formulation may provide effective delivery of triptolide to dogs for cancer therapy   Companion animal health   Companion dogs

Risk Factors

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:

We have incurred significant operating losses every quarter since our inception; specifically, for the year ended December 31, 2015, we reported a net loss of approximately $18.2 million, and for the nine months ended September 30, 2016, we reported a net loss of approximately $7.3 million, and we anticipate that we will continue to incur significant operating losses in the future.
The report of our independent registered public accounting firm that accompanies our financial statements for the year ended December 31, 2015 contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern, based on the financial statements at that time.

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We will require additional capital to fund our operations. Failure to obtain this necessary capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.
Our future success is dependent on the regulatory approval and commercialization of ContraPest and any of our other product candidates.
Regulatory approval processes of the EPA and comparable foreign regulatory authorities are lengthy, time-consuming and unpredictable, and if we are ultimately unable to obtain sufficient regulatory approval for ContraPest or our other product candidates, our business may fail.
We do not currently have internal full-scale manufacturing capability and we must rely upon third parties to manufacture our products or develop our own full-scale manufacturing capability.
ContraPest and our other product candidates, if approved, may not achieve adequate market acceptance necessary for commercial success.
We have never marketed a product before, and if we are unable to establish an effective sales force and marketing and distribution infrastructures, or enter into and rely upon acceptable third party relationships, we may be unable to generate any revenue.
We depend on key personnel to operate our business. If we are unable to retain, attract, and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
We are dependent on a key ingredient for ContraPest, triptolide, which has limited sources and must be in a very refined condition.
If we are unable to obtain or protect intellectual property rights, our competitive position could be harmed.

Implications of Being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and therefore we have elected to comply with certain reduced disclosure and regulatory requirements for this prospectus and future filings, including only presenting two years of audited financial statements and related financial information, not having our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and not holding a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these reduced requirements until we are no longer an “emerging growth company.” Under Section 107(b) of the JOBS Act, “emerging growth companies” may take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Corporate and Other Information

We were incorporated in Nevada in July 2004 and reincorporated in Delaware in November 2015. Our principal executive offices are located at 3140 N. Caden Court, Suite 1, Flagstaff, Arizona 86004, and our telephone number is (928) 779-4143. Our corporate website address is www.senestech.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

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

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On December 8, 2016, we effected a reverse stock split to reduce the aggregate number of outstanding shares of common stock from 41,268,045 shares on a pre-reverse split basis to a total of 8,253,586 shares on a post-reverse split basis. As a result of the reverse stock split, every five shares of our common stock, either issued or outstanding were automatically combined and converted (without any further act) into one share of fully paid and nonassessable shares of common stock, with resultant fractional shares rounded to the nearest whole number of shares (and no consideration paid therefor). The reverse stock split had the effect of reducing the percentage of common stock to be held by our existing stockholders on a post-offering basis from 96% to 81% (which assumes that the underwriters do not exercise their over-allotment option to purchase additional common stock from us). In addition, the reverse stock split had the effect of increasing the percentage of common stock to be held by investors in this offering on a post-offering basis from 4% to 19% (assuming that the underwriters do not exercise their over-allotment option to purchase additional common stock).

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The Offering

Common stock offered by us    
    1,875,000 Shares
Common stock to be outstanding immediately after this offering    
    10,128,586 Shares
Over-allotment option to purchase additional shares    
    We and the two selling stockholders, which include our chair of the board and chief executive officer, and our president and director, have granted the underwriters an over-allotment option to purchase up to an additional 281,250 shares in the aggregate. The selling stockholders may sell up to an aggregate of 250,000 shares in connection with the exercise of the underwriters’ option, and the remainder of the 281,250 shares subject to the underwriters’ option, or 31,250 shares, may be sold by the Company.
Use of proceeds    
    The net proceeds from this offering will be approximately $13.3 million, or approximately $13.6 million if the underwriters’ option to purchase additional shares of our common stock is exercised in full, after deducting underwriting discount and commissions and estimated offering expenses payable by us. We will not receive any proceeds from any sale of shares by the selling stockholders.
    We intend to use the net proceeds of this offering as follows:
   

•  

$7.0 million to commercialize and launch our first product candidate, ContraPest, in the United States, and seeking regulatory approval, commercializing and launching ContraPest in other countries;

   

•  

$3.0 million for further development of ContraPest and other product candidates;

   

•  

$2.0 million for capital expenditures associated with manufacturing ContraPest;

   

•  

A cash payment of $175,890 to the holder of all of the shares of our Series A convertible preferred stock for its agreement to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock into common stock immediately prior to the consummation of this offering; and

   

•  

The remainder to fund working capital and general corporate purposes, which may include the development of other product candidates and bio-synthetic sources of one of the active ingredients in ContraPest, and acquisition or licensing of additional product candidates, technologies, complementary businesses or other assets.

Risk factors    
    You should read the “Risk Factors” section of this prospectus for a discussion of certain of the factors to consider carefully before deciding to purchase any shares of our common stock.
Listing    
    Our common stock has been approved to be listed on the NASDAQ Capital Market under the symbol “SNES”.

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The number of shares of our common stock to be outstanding after this offering is based on 8,253,586 shares of common stock outstanding as of November 18, 2016 on a post-reverse split basis, which reflects and assumes the conversion of all outstanding shares of convertible preferred stock and excludes:

1,321,300 shares of common stock issuable upon the exercise of stock options outstanding as of November 18, 2016, at a weighted average exercise price of $0.83 per share, in each case, on a post-reverse split basis;
750,185 shares of common stock issuable upon the exercise of outstanding common stock warrants as of November 18, 2016, at a weighted-average exercise price of $9.60 per share, in each case, on a post-reverse split basis;
Shares issuable upon the exercise of warrants to be issued to the underwriters as compensation in connection with this offering; and
1,674,700 shares of common stock available for future issuance under our 2015 Equity Incentive Plan, or the 2015 Plan, as of November 18, 2016 on a post-reverse split basis.

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

The conversion of all our outstanding convertible preferred stock into an aggregate of 883,609 shares of common stock (on a post-reverse split basis) in connection with the closing of this offering;
No exercise by the underwriters of the option to purchase up to an additional 281,250 shares of our common stock;
A five for one reverse stock split of our common stock, to be effective as of December 8, 2016; and
The filing of our amended and restated certificate of incorporation effective as of December 8, 2016.

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Summary Financial Data

You should read this summary financial data below together with our financial statements and related notes, “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The summary financial data included in this section are not intended to replace our financial statements and related notes.

The summary statements of operations data for the years ended December 31, 2014 and 2015 are derived from our audited financial statements appearing elsewhere in this prospectus. The summary statements of operations data for the nine months ended September 30, 2015 and 2016 and the summary balance sheet data as of September 30, 2016 are derived from our unaudited condensed financial statements appearing elsewhere in this prospectus. In our opinion, the unaudited condensed financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of such financial data. Our historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the full year.

       
  Year Ended December 31,   Nine Months Ended September 30,
     2014   2015   2015   2016
               (Unaudited)
     (in thousands, except shares and per share data)
Statements of Operations Data:
                                   
Revenue:
                                   
License revenue   $ 116     $ 186     $ 139     $ 139  
Other revenue     83       55             122  
Total revenue     199       241       139       261  
Operating expenses:
                                   
Research and development(1)     3,196       7,221       5,759       1,964  
General and administrative(1)     2,700       8,665       4,537       5,259  
Total operating expenses     5,896       15,886       10,296       7,223  
Loss from operations     (5,697 )      (15,645 )      (10,157 )      (6,962 ) 
Interest expense     (342 )      (418 )      (441 )      (49 ) 
Interest expense, related parties     (290 )      (437 )      (63 )      (43 ) 
(Loss) gain on extinguishment of notes and convertible notes, related parties     (902 )      569             (90 ) 
Loss on extinguishment of NAU promissory note           (1,530 )             
Loss on extinguishment of other promissory notes           (34 )      (231 )      (81 ) 
Other income (expense)     31       (678 )      (81 )      51  
Total other income (expense)     (1,503 )      (2,528 )      (816 )      (212 ) 
Net loss and comprehensive loss     (7,200 )      (18,173 )      (10,973 )      (7,174 ) 
Accruing Series A convertible preferred stock dividends           17             90  
Net loss attributable to common
stockholders
  $ (7,200 )    $ (18,190 )    $ (10,973 )    $ (7,264 ) 
Loss per share attributable to common stockholders, basic and diluted, on a post-reverse split basis(2)   $ (2.11 )    $ (4.71 )    $ (2.91 )    $ (1.26 ) 
Weighted average post-reverse split common shares outstanding, basic and diluted(2)     3,399,655       3,852,349       3,771,877       5,774,738  

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  Year Ended December 31,   Nine Months Ended September 30,
     2014   2015   2015   2016
               (Unaudited)
     (in thousands, except shares and per share data)
Pro forma data – (Unaudited)
                                   
Loss per share attributable to common stockholders, basic and diluted(2)         $ (2.21 )          $ (1.09 ) 
Weighted average common shares outstanding, basic and diluted(2)           7,130,347             6,658,347  

(1) Includes stock-based compensation as follows:

       
  Year Ended December 31,   Nine Months Ended September 30,
     2014   2015   2015   2016
               (Unaudited)
Research and development   $ 1,622     $ 4,931     $ 4,269     $ 309  
General and administrative     888       6,331       2,492       2,097  
Total stock-based compensation   $ 2,510     $ 11,262     $ 6,761     $ 2,406  
(2) See Note 2 to our audited financial statements and unaudited condensed financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted loss per common share, unaudited pro forma loss per common share, and the weighted average number of shares used in the computation of the per share amounts.

     
  As of September 30, 2016
     Actual   Pro Forma(1)   Pro Forma
As Adjusted(2)
     (Unaudited)
     (In thousands, except shares and per share data)
Balance Sheet Data:
                          
Cash   $ 1,345     $ 1,345     $ 14,489  
Working capital     250       250       13,394  
Total assets     3,035       3,035       15,240  
Notes payable, related parties     416       416       416  
Convertible notes payable, related parties                  
Debt, excluding notes and convertible notes, related parties     193       193       193  
Total liabilities     2,179       2,179       2,179  
Series A convertible preferred stock     4,380              
Series B convertible preferred stock     3,748              
Common stock     7       8       10  
Additional paid-in capital     50,212       58,339       70,718  
Accumulated other comprehensive income, Series A convertible preferred stock dividend     107       107        
Stock subscribed but not issued     23       23       23  
Accumulated deficit     (57,621 )      (57,621 )      (57,690 ) 
Total stockholders’ (deficit) equity     (7,272 )      856       13,061  

(1) The unaudited pro forma balance sheet information assumes (i) the conversion of all outstanding shares of Series A convertible preferred stock into 400,000 shares of our common stock on a post-reverse split basis upon the closing of the initial public offering (“IPO”) as the holder of the Series A convertible preferred stock has agreed to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock in connection with the IPO and (ii) the automatic conversion of all outstanding shares of Series B convertible preferred stock into 483,609 shares of our common stock on a post-reverse split basis upon the closing of the IPO.

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(2) The pro forma as adjusted balance sheet amounts reflect the pro forma adjustments set forth in note (1) above as well as (i) the sale of 1,875,000 shares of our common stock in this offering at the initial public offering price of $8.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) a cash payment by us in the amount of $175,890 to the holder of our Series A convertible preferred stock for its agreement to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock into common stock immediately prior to the consummation of this offering.

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RISK FACTORS

Investing in our common stock involves a number of risks. You should not invest unless you are able to bear the complete loss of your investment. In addition to the risks and investment considerations discussed elsewhere in this prospectus, the following factors should be carefully considered by anyone purchasing the securities offered by this prospectus. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our common stock could decline and investors could lose all or a part of the money paid to buy our common stock.

Risks Related to our Financial Condition and Capital Requirements

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

Investment in product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, or become commercially viable. To date, we have financed our operations primarily through research grants as well as through the sale of equity securities and debt financings. Until August 2, 2016, we did not have any products approved by a regulatory authority for marketing or commercial sale, and we have not generated any revenue from product sales to date. We continue to incur significant research, development, and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in every reporting period since our inception. For the year ended December 31, 2015, we reported a net loss of $18.2 million, and $7.3 million for the nine months ended September 30, 2016. As of September 30, 2016, we had an accumulated deficit since inception of $57.6 million.

Since inception, we have dedicated a majority of our resources to the discovery and development of our proprietary product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future. The size of our losses will depend, in part, on the rate of future expenditures and our ability to generate revenues. In particular, we expect to incur substantial and increased expenses as we:

Continue the research and development of ContraPest and our other product candidates, including engaging in any necessary field studies;
Seek regulatory approvals for ContraPest in various jurisdictions and for our other product candidates;
Scale up manufacturing processes and quantities to prepare for the commercialization of ContraPest and any other product candidates for which we receive regulatory approval;
Establish an infrastructure for the sales, marketing and distribution of ContraPest and any other product candidates for which we may receive regulatory approval;
Attempt to achieve market acceptance for our products;
Expand our research and development activities and advance the discovery and development programs for other product candidates;
Maintain, expand and protect our intellectual property portfolio; and
Add operational, financial and management information systems and personnel, including personnel to support our clinical development and commercialization efforts and operations as a public company.

We may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our financial condition. Our prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If ContraPest or any other product candidate does not gain sufficient regulatory approval, or if approved, fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in

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subsequent periods. Our failure to become and remain profitable would decrease 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 you to lose all or part of your investment.

We will require additional capital to fund our operations. Failure to obtain this necessary capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.

Developing product candidates, including conducting experiments and field studies, obtaining and maintaining regulatory approval and commercializing any products later approved for sale, is a time-consuming, expensive and uncertain process that takes years to complete. We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we advance our commercialization activities.

We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of approximately $13.3 million, or $13.6 million if the underwriters exercise in full their option to purchase additional shares from us, reflecting the initial public offering price of $8.00, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Based upon our current operating plan, we expect that the net proceeds from this offering, together with our cash and cash equivalents of approximately $1.3 million as of September 30, 2016, will be sufficient to fund our current operations for at least the next 12 months. However, we plan to substantially expand our operations, and as a result of many factors, some of which may be currently unknown to us, our expenses may be higher than expected.

Securing additional financing may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates, including ContraPest. 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 our product candidates, including ContraPest;
Seek strategic partners for the manufacturing, sales and distribution of ContraPest or any of our other product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; and
Relinquish, or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.

The occurrence of any of the events described above would have a material adverse effect on our business, operating results and prospects and on our ability to develop our product candidates.

If we are unable to continue as a going concern, our securities will have little or no value.

Although our audited financial statements for the year ended December 31, 2015 were prepared under the assumption that we would continue our operations as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for the year ended December 31, 2015 contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern, based on the financial statements at that time. Specifically, as noted above, we have incurred operating losses since our inception, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. In addition, as noted above, continued operations and our ability to continue as a going concern are dependent on our ability to obtain additional financing in the near future and thereafter, and there are no assurances that such financing will be available to us at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. Although we have raised additional capital since December 31, 2015 through private offerings of our equity securities, if we are unable to generate additional funds in the future through financings, sales of our products, licensing fees, royalty payments, or from other sources or transactions, we will exhaust our resources and will be unable to continue operations. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment in us.

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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 product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs primarily through the sale of equity securities, debt financings, credit facilities and government and foundation grants. We may also seek to raise capital through third-party collaborations, strategic alliances and similar arrangements. We currently do not have any committed external source of funds. Raising funds in the future may present additional challenges and future financing may not be available in sufficient amounts or on terms acceptable to us, if at all. The terms of any financing arrangements we enter into may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible debt securities would dilute all of our stockholders. The incurrence of indebtedness through credit facilities would result in increased fixed payment obligations and, potentially, the imposition of restrictive covenants. Those covenants may include limitations on our ability to incur additional debt, making capital expenditures or 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 raise additional funds through collaborations, strategic alliances, or licensing arrangements or other marketing or distribution arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to 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 through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts, or grant others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Risks Relating to the Development and Regulatory Approval of Our Product Candidates

Our future success is dependent on the regulatory approval and commercialization of ContraPest and any of our other product candidates.

The EPA granted registration approval for ContraPest effective August 2, 2016, but we must still obtain applicable state approval and will also seek regulatory approval in other jurisdictions. As a result, our near-term prospects, including our ability to finance our operations and generate revenue, are substantially dependent on our ability to obtain sufficient regulatory approval for ContraPest, and, if approved, to successfully commercialize ContraPest. We cannot commercialize ContraPest or our other product candidates in the U.S. without first obtaining regulatory approval for each product and each use pattern from the EPA or, if applicable, the Food and Drug Administration, or FDA, and from any related applicable state authorities. Before obtaining regulatory approvals for the commercial sale of any ContraPest or our other product candidates for a target indication, the law requires that applicants demonstrate through laboratory and field studies and related data that the product candidate will perform its intended function without causing unreasonable adverse effects on the environment. The EPA or a comparable foreign regulatory authority may require more information, including additional data to support approval, that may delay or prevent approval.

Regulatory approval processes of the EPA and comparable foreign regulatory authorities are lengthy, time-consuming and unpredictable, and if we are ultimately unable to obtain regulatory approval for ContraPest or our other product candidates, our business may fail.

Although we obtained EPA approval for ContraPest in less than one year, the EPA review process for a product with one or more new active ingredients typically takes approximately two years to complete and approval is never guaranteed. Our other product candidates could fail to receive marketing approval from the EPA or, with respect to ContraPest or our other product candidates, from a comparable foreign regulatory authority for many reasons, including:

Disagreement over the design or implementation of our trials;
Failure to demonstrate a product candidate that is safe;
Failure to demonstrate a product candidate’s benefits outweigh its risks;

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Disagreement over our interpretation of data;
Disagreement over whether to accept efficacy results from trials;
The insufficiency of data collected from trials of ContraPest or our other product candidates to obtain regulatory approval;
Irreparable or critical compliance issues relating to our manufacturing process; or
Changes in the approval policies or regulations that render our data insufficient for approval.

Any of these factors, some of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market ContraPest or any of our other product candidates. Any such setback in our pursuit of regulatory approval would have a material adverse effect on our business and prospects.

Even following receipt of any regulatory approval for ContraPest and our other product candidates, we will continue to face extensive regulatory requirements and our products may face future development and regulatory difficulties.

Even following receipt of any regulatory approval for ContraPest or our product candidates, such products will be subject to ongoing requirements by the EPA and comparable state and foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping, and reporting of safety and other post-market information. The safety profile of any product will continue to be closely monitored by the EPA and comparable foreign regulatory authorities after approval. If the EPA or comparable foreign regulatory authorities become aware of new safety information after approval of ContraPest or any other product candidate, a number of potentially significant negative consequences could result, including:

We may be forced to suspend marketing of such product;
Regulatory authorities may withdraw their approvals of such product after certain procedural requirements have been met;
Regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of such product;
The EPA or other regulatory bodies may issue safety alerts, press releases, or other communications containing warnings about such product;
The EPA may require the establishment or modification of restricted use or a comparable foreign regulatory authority may require the establishment or modification of a similar strategy that may, for instance, restrict distribution of our product and impose burdensome implementation requirements on us;
We may be required to change the way the product is administered or conduct additional trials;
We could be sued and held liable for harm caused;
We may be subject to litigation or product liability claims; 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.

Moreover, existing government regulations may change and additional government regulations may be enacted that could prevent, limit, or delay regulatory approval of ContraPest or any other product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and/or be subject to fines or enhanced government oversight and reporting obligations, which would adversely affect our business, prospects, and ability to achieve or sustain profitability.

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Even following receipt of any regulatory approval for ContraPest and our other product candidates, we will continue to be subject to regulation of our manufacturing processes and advertising practices.

Manufacturers of pest control products are subject to continual government oversight and periodic inspections by the EPA and other regulatory authorities. If we or a regulatory agency discover problems with a facility where the product is manufactured, a regulatory agency may impose restrictions on the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing until certain procedural requirements have been met. The occurrence of any such event or penalty could limit our ability to market ContraPest or any other product candidates and generate revenue.

In addition, the EPA strictly regulates the advertising and promotion of pest control products, and these pest control products may only be marketed or promoted for their EPA approved uses, consistent with the product’s approved labeling. Advertising and promotion of any product candidate that obtains approval in the U.S. will be heavily scrutinized by the EPA, other applicable state regulatory agencies and the public. Violations, including promotion of our products for unapproved or off-label uses, are subject to enforcement actions, inquiries and investigations, and civil, criminal and/or administrative sanctions imposed by the EPA.

Failure to obtain regulatory approval in foreign jurisdictions would prevent ContraPest or any other product candidates from being marketed in those jurisdictions.

To market and sell our products globally, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain EPA approval. Obtaining foreign regulatory approvals and maintaining compliance with foreign regulatory requirements could result in significant delays, difficulties, and cost for us and could delay or prevent the introduction of our products in certain countries. Approval by the EPA does not ensure approval by regulatory authorities in other countries or jurisdictions, but EPA approval may influence decisions by the foreign regulatory authority. If we are unable to obtain approval of ContraPest or for any of our other product candidates by regulatory authorities in the world market, the commercial prospects of that product candidate may be significantly diminished and our business prospects could decline.

Risks Relating to Our Dependence on Third Parties

We do not currently have internal full-scale manufacturing capability and we must rely upon third parties to manufacture our products or develop our own full-scale manufacturing capability.

Our existing internal manufacturing platform is not yet ready for full-scale production, but is adequate for supporting field trials and to meet a surge in production. We would be required to spend significant time and resources to expand these manufacturing facilities to obtain full-scale production capabilities. We have entered into an agreement with Neogen to provide us with full-scale manufacturing capacities within the United States. We intend to develop our own full-scale manufacturing capabilities or enter into additional agreements with third parties to provide full-scale manufacturing capabilities outside the U.S. Our reliance on third parties for the manufacture of our products, investigational new products and, in the future, any approved products, creates a dependency that could severely disrupt our research and development, our product testing, and ultimately our sales and marketing efforts if the source of such supply proves to be unreliable or unavailable. If the contracted manufacturing source is unreliable or unavailable, or if we are unable to develop our own full-scale manufacturing capabilities, we may not be able to manufacture supplies of our products, and our entire business plan could fail. If we are able to commercialize our products in the future, there is no assurance that our manufacturers will be able to meet commercialized scale production requirements in a timely manner or in accordance with applicable standards.

If a current or future strategic partner terminates or fails to perform its obligations under an agreement with us, the development and commercialization of our product candidates could be delayed or terminated.

We are currently party to various production, marketing and distribution arrangements, including strategic partnership agreements with Neogen, Bioceres and NeoVenta. Partnership agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. If our partners

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do not devote sufficient time and resources to their strategic arrangement with us, we may not realize the potential commercial benefits of the arrangement, and our results of operations may be materially adversely affected.

Much of the potential revenue from our strategic partnerships consists of contingent payments, such as payments for achieving regulatory milestones or royalties payable on sales of our products. The milestone and royalty revenue that we may receive under these partnerships will depend upon our partners’ ability and willingness to successfully develop, introduce, market and sell ContraPest and any other product candidates for which we receive regulatory approval. Our partners may fail to develop or effectively commercialize products using our products or technologies because they:

Decide not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite expertise, limited cash resources or specialized equipment limitations, or the belief that other development programs may have a higher likelihood of obtaining marketing approval or may potentially generate a greater return on investment;
Decide to pursue other technologies or develop other product candidates, either on their own or in collaboration with others, including our competitors, to treat the same problems targeted by our own products;
Do not have sufficient resources necessary to carry the product candidate through development, marketing approval and commercialization; or
Cannot obtain the necessary regulatory approvals.

Competition for our products and market forces in general may negatively impact any of our partners’ focus on and commitment to our relationship and, as a result, could delay or otherwise negatively affect the commercialization of our products, which would have a material adverse effect on our operating results and financial condition.

We face a number of challenges in seeking future strategic partnerships. Strategic partnerships 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 future partnership will depend, among other things, upon our assessment of the potential partner’s resources and expertise, the terms and conditions of the proposed partnership, and the proposed partnership’s evaluation of a number of factors, such as the design or results of our field studies, the potential market for our product candidates, the costs and complexities of manufacturing and delivering our product candidates to customers, the potential of competing products, 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 partnerships for our product candidates are necessary and are unable to enter into such partnerships 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 physical resources and systems and expertise ourselves.

Risks Relating to Commercialization of Our Product Candidates

ContraPest and our other product candidates, if approved, may not achieve adequate market acceptance necessary for commercial success.

Even following receipt of any regulatory approval for ContraPest or any of our other product candidates, such products may not gain market acceptance. Market acceptance of any of our product candidates for which we receive approval depends on a number of factors, including:

The efficacy and safety of such product candidates as demonstrated in trials;
The uses, indications or limitations for which the product candidate is approved;
Acceptance of the product candidate as a safe and effective alternative;
The potential and perceived advantages of product candidates over alternative products;
Product labeling or product insert requirements of the EPA or other regulatory authorities;

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The timing of market introduction of our products as well as future competitive products;
Relative convenience and ease of use;
The effectiveness of our sales and marketing efforts and those of our collaborators; and
Unfavorable publicity relating to the product.

If any of our product candidates are approved but fail to achieve market acceptance, we will not be able to generate significant revenues, which would compromise our ability to become profitable. Furthermore, the commercial success of ContraPest will depend on a number of factors, including the following:

The development of a commercial organization or establishment of a commercial partnership with a commercial infrastructure;
Establishment of a commercially viable pricing;
Our ability to manufacture quantities of ContraPest using commercially acceptable processes and at a scale sufficient to meet anticipated demand and enable us to reduce our cost of manufacturing;
Our success in educating end users about the benefits, administration, and use of ContraPest;
The effectiveness of our own or our potential strategic partners’ marketing, sales and distribution strategy, and operations; and
A continued acceptable safety profile of ContraPest following approval.

Many of these factors are beyond our control. If we are unable to successfully commercialize ContraPest, we may not be able to earn sufficient revenues to continue our business.

We have never marketed a product before, and if we are unable to establish an effective sales force and marketing and distribution infrastructures, or enter into and rely upon acceptable third party relationships, we may be unable to generate any revenue.

We do not currently have an infrastructure for the sales, marketing, and distribution of our products and the cost of establishing and maintaining such an infrastructure may exceed the cost-effectiveness of doing so. In order to market ContraPest and any other products that may be approved by the EPA and comparable foreign regulatory authorities, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services for which we would incur substantial costs. If we are unable to establish adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable. Without an internal commercial organization or the support of a third party to perform sales and marketing functions, we may be unable to compete successfully against more established companies.

Risks Relating to Our Business Operations and Industry

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

As of November 18, 2016, we had 25 full-time and two part-time employees. As our development and commercialization plans and strategies develop, or as a result of any as yet unforeseen acquisitions, we will need additional managerial, operational, sales, marketing, scientific, financial headcount, and other resources. Our management, personnel, and systems currently in place may not be adequate to support this future growth. Future growth would impose significant added responsibilities on members of management, including:

Managing our trials effectively, which we anticipate being conducted at numerous field study sites;
Identifying, recruiting, maintaining, motivating and integrating additional employees with the expertise and experience we will require;
Managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
Managing additional relationships with various strategic partners, suppliers, and other third parties;

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Improving our managerial, development, operational, marketing, production, and finance reporting systems and procedures; and
Expanding our facilities.

Our failure to accomplish any of these tasks could prevent us from successfully growing our business.

We depend on key personnel to operate our business. If we are unable to retain, attract, and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

We believe that our future success is highly dependent on the contributions of our significant employees, as well as our ability to attract and retain highly skilled and experienced sales, research and development, and other personnel in the U.S. and abroad. All of our employees, including our co-founders (one of which is also our chief executive officer), are free to terminate their employment relationship with us at any time, subject to any applicable notice requirements, and their knowledge of our business and industry would be difficult to replace. If one or more of our co-founders, executive officers or significant employees terminates his or her employment or becomes disabled or experiences long-term illness, we may not be able to replace their expertise, fully integrate new personnel or replicate the prior working relationships, and the loss of their services might significantly delay or prevent the achievement of our research, development and business objectives. Qualified individuals with the breadth of skills and experience in our industry that we require are in high demand, and we may incur significant costs to attract them. Many of the other companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Additionally, our facilities are located in Arizona, which may make attracting and retaining qualified scientific and technical personnel from outside of Arizona difficult. Our failure to attract or retain key personnel could impede the achievement of our research, development, and commercialization objectives.

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

We have identified material weaknesses in our internal control over financial reporting as of December 31, 2015. As defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, we had the following material weaknesses in our internal control over financial reporting: (i) a system of internal controls (including policies and procedures) has neither been designed nor implemented; (ii) a formal, internal accounting system has not been implemented to ensure accurate accounting for stock-based compensation, payroll accruals, trade payables, deferred revenue, proper cutoff of revenue and accounts receivable, debt discounts on convertible notes payable and related amortization, fixed asset depreciation, and gain/loss on debt settlement; and (iii) segregation of duties in the handling of cash, cash receipt and cash disbursement has not been formalized.

As noted above, we have not yet designed or implemented effective internal control over financial reporting. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementations could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act or any subsequent testing by our independent registered public accounting firm may reveal additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or significant deficiencies, or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal control over financial reporting could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

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We may be subject to legal proceedings in the ordinary course of our business that could result in significant harm to our business, financial condition and operating results.

We could be subject to legal proceedings and claims from time to time in the ordinary course of our business, including actions arising from tort, contract or other claims. Litigation is expensive, time consuming, and could divert management’s attention away from running our business. The outcome of litigation or other proceedings is subject to significant uncertainty, and it is possible that an adverse resolution of one or more such proceedings could result in reputational harm and/or significant monetary damages, injunctive relief or settlement costs that could adversely affect our results of operations or financial condition as well as our ability to conduct our business as it is presently being conducted. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not be available on terms acceptable to us. In addition, regardless of merit or outcome, claims brought against us that are uninsured or underinsured could result in unanticipated costs, which could harm our business, financial condition and operating results and reduce the trading price of our stock.

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

We face an inherent risk of product liability exposure related to the use of ContraPest and any of our other products. If we cannot successfully defend ourselves against claims from our product users, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

Decreased demand for any product that we may develop;
Termination of field studies or other research and development efforts;
Injury to our reputation and significant negative media attention;
Significant costs to defend the related litigation;
Substantial monetary awards to plaintiffs;
Loss of revenue;
Diversion of management and scientific resources from our business operations; and
The inability to commercialize our product candidates.

We may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. Large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects, including, without limitation, any potential adverse effects of our products on humans or other species. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

Business disruptions, including supply-chain disruptions, could seriously harm our future revenues and financial condition and increase our costs and expenses.

Our operations could be subject to a variety of potential business disruptions, including power shortages, telecommunications failures, water shortages, floods, fires, earthquakes, extreme weather conditions, medical epidemics and other natural or man-made disasters or other interruptions, for which we are predominantly self-insured. We do not carry insurance for all categories of risk that our business may encounter. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Moreover, we rely on various third parties to supply various ingredients and other items which are critical for producing our product candidates. Our ability to produce our product candidates would be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. The ultimate impact on our operations from any business interruption impacting us or any of our significant suppliers is unknown, but our operations and financial condition would likely suffer adverse consequences. Further, any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our business, results of operations, financial condition, and cash flows from future prospects.

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We are dependent on a key ingredient for ContraPest, triptolide, which has limited sources and must be in a very refined condition.

If we are unable to develop additional sources of triptolide, which is one of the key ingredients for ContraPest, the long term ability to produce ContraPest at a cost effective price could be in jeopardy; the limited sources could restrict our production if supplies were reduced; another use of the ingredient could cause the price to increase beyond our ability to market at a competitive price; and increased demand for the ingredient could cause the quality of the refined ingredient to be less than needed for our production.

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

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

Differing regulatory requirements in foreign countries;
Unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;
Economic weakness, including inflation or political instability in particular foreign economies and markets;
Compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
Foreign taxes, including withholding of payroll taxes;
Foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
Difficulties staffing and managing foreign operations;
Workforce uncertainty in countries where labor unrest is more common than in the United States;
Potential liability under the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, or comparable foreign regulations;
Challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;
Production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
Business interruptions resulting from geo-political actions, including war and terrorism.

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

We are subject to anti-corruption and anti-money laundering laws with respect to our operations and non-compliance with such laws can subject us to criminal and/or civil liability and harm our business.

We are subject to the FCPA, which is the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, the USA PATRIOT Act and possibly other anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees and third-party intermediaries from authorizing, offering or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. As we commercialize our product candidates and eventually commence international sales and business, we may engage with collaborators and third-party intermediaries to sell our products abroad and to obtain necessary permits, licenses and other regulatory approvals. We or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can

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be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners and agents, even if we do not explicitly authorize such activities.

Noncompliance with anti-corruption and anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage and other collateral consequences. Responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

Risks Related to Protecting Our Intellectual Property

If we are unable to obtain or protect intellectual property rights, our competitive position could be harmed.

We depend on our ability to protect our proprietary technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing, and other agreements with employees and third parties, all of which offer only limited protection. Our commercial success will depend in part on our ability to obtain and maintain intellectual property protection in the United States and other countries with respect to our proprietary technology and products. Where we deem appropriate, we seek to protect our proprietary position by filing patent applications in the U.S. and abroad related to our novel technologies and products that are important to our business. Patent positions of companies generally are highly uncertain, involve complex legal and factual questions and have, in recent years, been the subject of much litigation. As a result, the issuance, scope, validity, enforceability, and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain.

The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the U.S. The rights already granted under any of our currently issued patents and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we are unable to obtain and maintain protection for our technology and products, or if the scope of the protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected.

With respect to patent rights, we do not know whether any of our pending patent applications for any of our technologies or products will result in the issuance of patents that protect such technologies or products, or if our licensed patent will effectively prevent others from commercializing competitive technologies and products. Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Further, the examination process may require us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our patented technology, trademarks, and other intellectual property rights, is expensive, difficult, and in some cases, may not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

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Intellectual property rights do not necessarily address all potential threats to any competitive advantage we may have.

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 the same as or similar to our future products but that are not covered by the claims of the patents that we own or have exclusively licensed;
We or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions;
Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing on our intellectual property rights;
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 the U.S. and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as 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.

Our technology may be found to infringe third-party intellectual property rights.

Third parties may in the future assert claims or initiate litigation related to their patent, copyright, trademark and other intellectual property rights in technology that is important to us. The asserted claims and/or litigation could include claims against us, our licensors, or our suppliers alleging infringement of intellectual property rights with respect to our product candidates or components of those products. Regardless of the merit of the claims, they could be time consuming, resulting in costly litigation and diversion of technical and management personnel, or require us to develop non-infringing technology or enter into license agreements. We cannot assure you that licenses will be available on acceptable terms, if at all. Furthermore, because of the potential for significant damage awards, which are not necessarily predicable, it is not unusual to find even arguably unmeritorious claims resulting in large settlements. If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially adversely affected.

If our product candidates, methods, processes, and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may have to:

Obtain licenses, which may not be available on commercially reasonable terms, if at all;
Redesign our product candidates or processes to avoid infringement;
Stop using the subject matter claimed in the patents held by others;
Pay damages; or
Defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.

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

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

Risks Related to This Offering and Owning Shares of Our Common Stock

Purchasers in the offering will suffer immediate dilution.

If you purchase common stock in this offering, the value of your shares based on our actual book value will immediately be less than the offering price you paid. This reduction in the value of your equity is known as dilution. At the initial public offering price of $8.00 per share, purchasers of common stock in this offering will experience immediate dilution of approximately $6.47 per share. Based upon the pro forma net tangible book value of our common stock at September 30, 2016, your shares may be worth less per share than the price you paid in the offering. If the options and warrants we previously granted are exercised, additional dilution will occur. As of November 18, 2016, options to purchase 1,321,300 shares of common stock at a weighted-average exercise price of $0.83 per share (in each case, on a post-reverse split basis) were outstanding, and warrants to purchase 750,185 shares of common stock at a weighted-average exercise price of $9.60 per share were outstanding (in each case, on a post-reverse split basis). Furthermore, if the underwriters exercise the warrants to be issued to them as compensation in connection with this offering or if we raise additional funding by issuing additional equity securities, the newly-issued shares will further dilute your percentage ownership of our shares and may also reduce the value of your investment.

Our share price may be volatile, which could subject us to securities class action litigation and prevent you from being able to sell your shares at or above the offering price.

Our stock could be subject to wide fluctuation in response to many risk factors listed in this section, and others beyond our control, including:

Results and timing of our submissions with the EPA and other comparable regulatory authorities;
Failure or discontinuation of any of our development programs;
Regulatory developments or enforcements in the U.S. and non-U.S. countries with respect to our products or our competitors’ products;
Failure to achieve pricing acceptable to the market;
Regulatory actions with respect to our products or our competitors’ products;
Actual or anticipated fluctuations in our financial condition and operating results;
Competition from existing products or new products that may emerge;
Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations, or capital commitments;
Issuance of new or updated research or reports by securities analysts;
Fluctuations in the valuation of companies perceived by investors to be comparable to us;
Share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
Additions or departures of key management or scientific personnel;
Disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies;
Entry by us into any material litigation or other proceedings;

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Announcement or expectation of additional financing efforts;
Sales of our common stock by us, our insiders, or our other stockholders;
Market conditions for stocks in general; and
General economic and market conditions unrelated to our performance.

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, or international currency fluctuations, may negatively impact the market price of shares of our common stock. In addition, such fluctuations could subject us to securities class action litigation, which could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. If the market price of shares of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

There was no public market for our common stock prior to this offering, and an active market in the shares may not develop in which investors can resell our common stock.

Prior to this offering, there was no public market for our common stock. We cannot predict the extent to which an active market for our common stock will develop or be sustained after this offering, or how the development of such a market might affect the market price for our common stock. The initial public offering price of our common stock in this offering was agreed between us and the underwriter based on a number of factors, including market conditions in effect at the time of the offering, which may not be indicative of the price at which our common stock will trade following completion of the offering. Investors may not be able to sell their common stock at or above the initial public offering price.

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

The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. We cannot assure that analysts will cover us or provide favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our share price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

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

We currently intend to allocate the net proceeds that we will receive from this offering as described below in the “Use of Proceeds” section of this prospectus. However, our management will have broad discretion in the actual application of the net proceeds, and we may elect to allocate proceeds differently from that described in the “Use of Proceeds” if we believe it would be in our best interests to do so. Our stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. The failure by our management to apply these funds effectively could have a material adverse effect on our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Future sales, or the possibility of future sales, of a substantial number of our common shares could adversely affect the price of the shares and dilute stockholders.

Future sales of a substantial number of our common shares, or the perception that such sales will occur, could cause a decline in the market price of our common shares. Following the closing of this offering, we will have 10,128,586 common shares outstanding. This includes the common shares sold in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Approximately

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81% of the common shares outstanding after this offering is expected to be held by existing stockholders. Each of our directors and executive officers, the selling stockholders and certain of our other security holders will be subject to the lock-up agreements described in the “Shares Available for Future Sale” section of this prospectus. If, after the end of such lock-up agreements, these stockholders sell substantial amounts of common shares in the public market, or the market perceives that such sales may occur, the market price of our common shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected.

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

We are an “emerging growth company” as that term is used in the JOBS Act, and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in our common stock being less attractive to investors and adversely affect the market price of our common stock or make it more difficult to raise capital as and when we need it.

We are an “emerging growth company” as that term is used in the JOBS Act, and we intend to 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 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved, and exemptions from any rules that the Public Company Accounting Oversight Board may adopt requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements. We currently intend to take advantage of some, but not all, of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an “emerging growth company.” For example, so long as we qualify as an “emerging growth company,” we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would have otherwise been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate us.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which in certain circumstances could be for up to five years. See “Prospectus Summary-Implications of Being an Emerging Growth Company.”

Because of the exemptions from various reporting requirements provided to us as an “emerging growth company,” we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our business, results of operations, financial condition and cash flows, and future prospects may be materially and adversely affected.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

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

The likelihood of regulatory approvals for our product candidates;
The potential market opportunities for commercializing our product candidates;
The anticipated results and effects of our product candidates;
Our expectations regarding the potential market size for our products candidates, if approved for commercial use;
Estimates of our expenses, capital requirements and need for additional financing;
Our ability to enter into strategic partnership agreements and to achieve the expected results from such arrangements;
The initiation, timing, progress and results of future laboratory and field studies and our research and development programs;
Our ability to manufacture our product candidates in a commercially efficient manner;
The scope of protection we are able to obtain and maintain for our intellectual property rights covering our product candidates;
Our use of proceeds from this offering;
Our financial performance;
Developments and projections relating to our competitors and our industry; and
Our ability to sell our products at commercially reasonable values.

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” and elsewhere in this prospectus. You should not rely upon forward-looking statements as predictions of future events. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risks and uncertainties.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, after the date of this prospectus, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise.

We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions we use are appropriate, neither such research nor these definitions have been verified by any independent source.

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USE OF PROCEEDS

We estimate that our net proceeds from the sale of shares of our common stock in this offering will be approximately $13.3 million (or $13.6 million if the underwriters exercise in full their option to purchase additional shares from us), based on the initial public offering price of $8.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds of this offering as follows:

$7.0 million to commercialize and launch our first product candidate, ContraPest, in the United States, and seeking regulatory approval, commercializing and launching ContraPest in other countries;
$3.0 million for further development of ContraPest and other product candidates;
$2.0 million for capital expenditures associated with manufacturing ContraPest;
A cash payment of $175,890 to the holder of all of the shares of our Series A convertible preferred stock for its agreement to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock into common stock immediately prior to the consummation of this offering; and
The remainder to fund working capital and general corporate purposes, which may include the development of other product candidates and bio-synthetic sources of one of the active ingredients in ContraPest, and acquisition or licensing of additional product candidates, technologies, complementary businesses or other assets.

The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures will depend on numerous factors, including the progress of our product development efforts and market acceptance of our products. As a result, our management will have broad discretion in applying the net proceeds from this offering. Pending the use of proceeds described above, we intend to invest the net proceeds from this offering in interest-bearing, investment-grade securities.

We believe that the net proceeds from this offering, together with our existing cash resources, will be sufficient to enable us to fund our operations for at least 12 months following the completion of this offering, including funding the commercial launch of our first product candidate, ContraPest. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect.

To the extent the underwriters exercise their over-allotment option to purchase shares from us and from the two selling stockholders, we will not receive any proceeds from any sale of shares by the selling stockholders. The selling stockholders include Loretta P. Mayer, Ph.D., our chair of the board and chief executive officer, and Cheryl A. Dyer, Ph.D., our president and a director.

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DIVIDEND POLICY

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

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CAPITALIZATION

The following table sets forth our capitalization at September 30, 2016, as follows:

On an actual basis.
On a pro forma basis to assume (i) the conversion of all outstanding shares of Series A convertible preferred stock into 400,000 shares of our common stock on a post-reverse split basis upon the closing of the IPO as the holder of the Series A convertible preferred stock has agreed to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock in connection with the IPO and (ii) the automatic conversion of all outstanding shares of Series B convertible preferred stock into 483,609 shares of our common stock upon the closing of the IPO on a post-reverse split basis.
On a pro forma as adjusted basis to additionally reflect (i) the sale of 1,875,000 shares of our common stock in this offering at the initial public offering price of $8.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and (ii) a cash payment by us in the amount of $175,890 to the holder of our Series A convertible preferred stock for its agreement to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock into common stock immediately prior to the consummation of this offering.

You should read this information together with our financial statements and related notes, “Summary Financial Data, “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information, all included elsewhere in this prospectus.

     
  As of September 30, 2016
     (Unaudited)
     Actual   Pro Forma   Pro Forma,
As Adjusted
     (In thousands, except shares and per share data)
Long-term debt (including current portion):
                          
Notes payable, related parties   $ 416     $ 416     $ 416  
Convertible notes payable, related parties                  
Long-term debt     193       193       193  
       609       609       609  
Series A Convertible Preferred Stock, $0.001 par value; 2,000,000 shares authorized, actual; 400,000 post-reverse split shares issued and outstanding, actual; liquidation preference of $2,074 at September 30, 2016; none issued and outstanding, for pro forma and pro forma, as adjusted     4,380              
Series B Convertible Preferred Stock, $0.001 par value; 7,515,000 post-reverse split shares authorized, actual; 483,609 post-reverse split shares issued and outstanding, actual; none issued and outstanding, for pro forma and pro forma, as adjusted     3,748              
Stockholders' Equity (Deficit)
                          
Common Stock, $0.001 par value, 100,000,000 shares authorized, actual; 7,010,431 post-reverse split shares issued and outstanding, actual; 7,894,040 shares issued and outstanding, pro forma; 9,769,040 shares issued and outstanding, pro forma as adjusted     7       8       10  
Additional paid-in capital     50,212       58,339       70,718  
Accumulated other comprehensive income, Series A convertible preferred stock dividend     107       107        
Stock subscribed but not issued     23       23       23  
Retained earnings (accumulated deficit)     (57,621 )      (57,621 )      (57,690 ) 
Total stockholders' (deficit) equity     (7,272 )      856       13,061  
Total capitalization   $ 1,465     $ 1,465     $ 13,670  

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The number of shares of common stock in the table above excludes:

1,321,300 shares of common stock issuable upon the exercise of stock options outstanding as of November 18, 2016, at a weighted average exercise price of $0.83 per share, in each case, on a post-reverse split basis;
750,185 shares of common stock issuable upon the exercise of outstanding common stock warrants as of November 18, 2016, at a weighted-average exercise price of $9.60 per share, in each case, on a post-reverse split basis;
Shares issuable upon the exercise of warrants to be issued to the underwriters as compensation in connection with this offering; and
1,674,700 shares of common stock available for future issuance under our 2015 Plan as of November 18, 2016 on a post-reverse split basis.

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DILUTION

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

Our historical net tangible book value (deficit) as of September 30, 2016 was approximately $(7.3) million, or $(1.26) per share of common stock on a post-reverse split basis. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and less our Series A convertible preferred stock and Series B convertible preferred stock, which are not included within stockholders’ deficit. Historical net tangible book value (deficit) per share is our historical net tangible book value (deficit) divided by the number of shares of common stock outstanding as of September 30, 2016.

Our pro forma net tangible book value as of September 30, 2016 was $0.9 million, or $0.13 per share of common stock. Pro forma net tangible book value gives effect to (i) the conversion of all outstanding shares of Series A convertible preferred stock into 400,000 shares of our common stock on a post-reverse split basis upon the closing of the IPO as the holder of the Series A convertible preferred stock has agreed to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock in connection with the IPO and (ii) the automatic conversion of all outstanding shares of Series B convertible preferred stock into 483,609 shares of our common stock on a post-reverse split basis upon the closing of the IPO. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by the number of pro forma shares of common stock outstanding as of September 30, 2016 that gives effect to the common stock issued on the conversion of the Series A convertible preferred stock and Series B convertible preferred stock.

Pro forma as adjusted net tangible book value as of September 30, 2016 is our pro forma net tangible book value, plus the effect of (i) the sale of 1,875,000 shares of our common stock in this offering at the initial public offering price of $8.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) a cash payment by us in the amount of $175,890 to the holder of our Series A convertible preferred stock for their agreement to waive all accrued dividends on the Series A convertible preferred stock and convert all of their shares of Series A convertible preferred stock into common stock immediately prior to the consummation of this offering. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $2.79 per share to our existing stockholders, and an immediate dilution of $6.47 per share to new investors purchasing common stock in this offering.

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

 
Initial public offering price per share   $ 8.00  
Historical net tangible book value (deficit) per share as of September 30, 2016   $ (1.26 ) 
Pro forma increase in net tangible book value per share attributable to the pro forma transactions described in the above paragraph     1.39  
Pro forma net tangible book value per share, before giving effect to this offering     0.13  
Increase in pro forma net tangible book value per share attributable to new investors purchasing shares in this offering     1.40  
Pro forma as adjusted net tangible book value per share, after this offering     1.53  
Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering   $ 6.47  

If the underwriters exercise in full their option to purchase additional shares of our common stock from us, the pro forma net tangible book value per share, as adjusted to give effect to the offering, would be $1.55 per share, and the dilution in pro forma net tangible book value per share to new investors participating in this offering would be $6.45 per share.

The following table presents, on a pro forma as adjusted basis as of September 30, 2016, the differences between the number of common shares purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us by existing shareholders and the new investors

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purchasing common stock in this offering at the initial public offering price of $8.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

         
  Shares Purchased   Total Consideration   Average Price
Per Share
     Number   Percent   Amount   Percent
Existing stockholders           %    $       %    $  
New investors     1,875,000       100.0 %      13,320,148       100.0 %      7.10  
Totals     1,875,000       100.0 %    $ 13,320,148       100.0 %    $ 7.10  

If the underwriters exercise in full their option to purchase additional shares of our common stock from us, our existing stockholders would own 81% and our new investors would own 19% of the total number of shares of our common stock outstanding upon completion of this offering. In this event, the total consideration paid by our existing stockholders would be approximately $0 million, or 0% and the total consideration paid by our new investors would be $13.3 million, or 100%.

The foregoing tables and calculations as of September 30, 2016 exclude the following potentially dilutive shares of common stock:

1,321,300 shares of common stock issuable upon the exercise of stock options outstanding as of November 18, 2016, at a weighted average exercise price of $0.83 per share, in each case, on a post-reverse split basis;
750,185 shares of common stock issuable upon the exercise of outstanding common stock warrants as of November 18, 2016, at a weighted-average exercise price of $9.60 per share, in each case, on a post-reverse split basis;
Shares issuable upon the exercise of warrants to be issued to the underwriters as compensation in connection with this offering; and
1,674,700 shares of common stock available for future issuance under our 2015 Plan as of November 18, 2016 on a post-reverse split basis.

To the extent that any outstanding common stock options and common stock warrants are exercised or there are additional issuances of common stock options, common stock warrants or shares of our common stock in the future, there will be further dilution to investors participating in this offering.

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SELECTED FINANCIAL DATA

You should read this selected financial data below together with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The selected financial data included in this section are not intended to replace our financial statements and related notes.

The statements of operations data for the years ended December 31, 2014 and 2015 and balance sheet data as of December 31, 2014 and 2015 are derived from our audited financial statements appearing elsewhere in this prospectus. The statements of operations data for the nine months ended September 30, 2015 and 2016 and the balance sheet data as of September 30, 2016 are derived from our unaudited condensed financial statements appearing elsewhere in this prospectus. In our opinion, the unaudited condensed financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of such financial data. Our historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the full year.

       
  Year Ended December 31,   Nine Months Ended September 30,
     2014   2015   2015   2016
               (Unaudited)
     (in thousands, except shares and per share data)
Statements of Operations Data:
                                   
Revenue:
                                   
License revenue   $ 116     $ 186     $ 139     $ 139  
Other revenue     83       55             122  
Total revenue     199       241       139       261  
Operating expenses:
                                   
Research and development(1)     3,196       7,221       5,759       1,964  
General and administrative(1)     2,700       8,665       4,537       5,259  
Total operating expenses     5,896       15,886       10,296       7,223  
Loss from operations     (5,697 )      (15,645 )      (10,157 )      (6,962 ) 
Interest expense     (342 )      (418 )      (441 )      (49 ) 
Interest expense, related parties     (290 )      (437 )      (63 )      (43 ) 
(Loss) gain on extinguishment of notes and convertible notes, related parties     (902 )      569             (90 ) 
Loss on extinguishment of NAU promissory note           (1,530 )             
Loss on extinguishment of other promissory notes           (34 )      (231 )      (81 ) 
Other income (expense)     31       (678 )      (81 )      51  
Total other income (expense)     (1,503 )      (2,528 )      (816 )      (212 ) 
Net loss and comprehensive loss   $ (7,200 )    $ (18,173 )    $ (10,973 )    $ (7,174 ) 
Accruing Series A convertible preferred stock dividends           17             90  
Net loss attributable to common stockholders   $ (7,200 )    $ (18,190 )    $ (10,973 )    $ (7,264 ) 
Loss per share attributable to common stockholders, basic and diluted(2)   $ (2.11 )    $ (4.71 )    $ $(2.91 )    $ (1.26 ) 
Weighted average common shares outstanding, basic and diluted(2)     3,399,655       3,852,349       3,771,877       5,774,738  

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  Year Ended December 31,   Nine Months Ended September 30,
     2014   2015   2015   2016
               (Unaudited)
     (in thousands, except shares and per share data)
Pro forma data – (Unaudited)
                                   
Loss per share attributable to common stockholders, basic and diluted(2)         $ (2.21 )          $ (1.09 ) 
Weighted average common shares outstanding, basic and diluted(2)           7,130,347             6,658,347  

(1) Includes stock-based compensation as follows:

       
  Year Ended December 31,   Nine Months Ended September 30,
     2014   2015   2015   2016
               (Unaudited)
Research and development   $ 1,622     $ 4,931     $ 4,269     $ 309  
General and administrative     888       6,331       2,492       2,097  
Total stock-based compensation   $ 2,510     $ 11,262     $ 6,761     $ 2,406  
(2) See Note 2 to our audited financial statements and unaudited condensed financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted loss per common share, unaudited pro forma loss per common share, and the weighted average number of shares used in the computation of the per share amounts.

     
  As of December 31,   As of September 30,
     2014   2015   2016
               (Unaudited)
     (In thousands, except share and per share data)
Balance Sheet Data:
                          
Cash   $ 821     $ 141     $ 1,345  
Working capital     (3,905 )      (2,022 )      250  
Total assets     1,529       941       3,035  
Notes payable, related parties     345       496       416  
Convertible notes payable, related parties     873       200        
Debt, excluding notes and convertible notes, related parties     1,943       477       193  
Total liabilities     7,253       4,787       2,179  
Series A convertible preferred stock           4,380       4,380  
Series B convertible preferred stock           3,096       3,748  
Common stock     4       4       7  
Additional paid-in capital     26,267       39,000       50,212  
Accumulated other comprehensive income, Series A convertible preferred stock dividend           17       107  
Stock subscribed but not issued     158       14       23  
Accumulated deficit     (32,167 )      (50,357 )      (57,621 ) 
Total stockholders’ deficit     (5,724 )      (11,322 )      (7,272 ) 

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

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

Overview

We have developed and are seeking to commercialize globally a proprietary technology for managing animal pest populations through fertility control. We believe our innovative non-lethal approach, targeting reproduction, is more humane, less harmful to the environment, and more effective in providing a sustainable solution to pest infestations than traditional lethal pest management methods. Our approach is designed to promote food security and reduce infrastructure damage, disease outbreaks, environmental contamination and other costs associated with rodent infestations. Our first fertility control product candidate, ContraPest, will be marketed for use in controlling rat populations. We are pursuing regulatory approvals for ContraPest in various jurisdictions, including the U.S., India, Argentina and the EU. We submitted ContraPest for registration with the EPA on August 23, 2015, and the EPA granted registration approval for ContraPest effective August 2, 2016. We believe ContraPest is the first fertility control product approved by the EPA for the management of rodent populations. However, before we can begin selling ContraPest in the U.S., we must obtain registration from the various state regulatory agencies. To date, we have received registration for ContraPest in 14 states and the District of Columbia, with additional applications pending. Other business initiatives include expanding our technology to other species and applications, and developing bio-synthetic sources of triptolide, an active ingredient in ContraPest that also has pharmaceutical applications. This initiative may produce a less expensive source of triptolide for our own use, and provide us with the potential opportunity to earn revenue from the sale of such product to our licensees and other potential consumers of triptolide.

Since our inception in 2004, we have devoted substantially all of our resources to organizing and staffing our company, conducting research and development activities for our product candidates, business planning, raising capital and acquiring and developing product and technology rights. Until August 2016, we did not have any products approved for sale, and we have not generated any revenue from product sales. We have funded our operations to date with proceeds from the sale of common stock and preferred stock, the issuance of convertible and other promissory notes and, to a lesser extent, payments received in connection with research grants and licensing fees. Through September 30, 2016, we had received net proceeds of $28.9 million from our sales of common stock, preferred stock and issuance of convertible and other promissory notes and an aggregate of $1.5 million from research grants and licensing fees. In December 2015, our outstanding convertible and certain other promissory notes and accrued interest thereon, aggregating $2.9 million, were exchanged for shares of Series B convertible preferred stock.

We have incurred significant operating losses every year since our inception. Our net loss was $7.2 million for the year ended December 31, 2014, $18.2 million for the year ended December 31, 2015, and $7.3 million for the nine months ended September 30, 2016. As of September 30, 2016, we had an accumulated deficit of $57.6 million. We expect to continue to incur significant expenses and generate operating losses for at least the next 12 months.

We have historically utilized, and intend to continue to utilize, various forms of stock-based awards in order to hire, retain and motivate talented employees, consultants and directors and encourage them to devote their best efforts to our business and financial success. In addition, we believe that our ability to grant stock-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees, consultants and directors with the financial interests of our stockholders.

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As a result, a significant portion of our operating expenses includes stock-based compensation expense. Stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy. Specifically, our stock-based compensation expense for the year ended December 31, 2015 and the nine months ended September 30, 2016 was $11.3 million and $2.4 million, respectively, which represented 70.9% and 33.0%, respectively, of our total operating expenses for those periods.

We intend to use the net proceeds of this offering as follows:

$7.0 million to commercialize and launch our first product candidate, ContraPest, in the United States, and seeking regulatory approval, commercializing and launching ContraPest in other countries;
$3.0 million for further development of ContraPest and other product candidates;
$2.0 million for capital expenditures associated with manufacturing ContraPest;
A cash payment of $175,890 to the holder of all of the shares of our Series A convertible preferred stock for its agreement to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock into common stock immediately prior to the consummation of this offering; and
The remainder to fund working capital and general corporate purposes, which may include the development of other product candidates and bio-synthetic sources of one of the active ingredients in ContraPest, and acquisition or licensing of additional product candidates, technologies, complementary businesses or other assets.

The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures will depend on numerous factors, including the progress of our product development efforts and market acceptance of our products. As a result, our management will have broad discretion in applying the net proceeds from this offering. Pending the use of proceeds described above, we intend to invest the net proceeds from this offering in interest-bearing, investment-grade securities.

We believe that the net proceeds from this offering, together with our existing cash resources, will be sufficient to enable us to fund our operations for at least 12 months following the completion of this offering, including funding the commercial launch of our first product candidate, ContraPest. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect.

Components of our Results of Operations

Revenue

To date, we have not generated any revenue from product sales, but we currently expect to generate revenue from the sale of products or royalties beginning in the fourth quarter of 2016 or the first quarter of 2017. All of our revenue to date has been derived from payments received in connection with research grants and licensing fees received as a result of our execution of the license agreement with Neogen.

We recognized revenue of $83,000 and $55,000 for the years ended December 31, 2014 and 2015, respectively, and $122,000 for the nine months ended September 30, 2016. In addition, under our license agreement with Neogen, we recognized revenue of $116,000 and $186,000 for the years ended December 31, 2014 and 2015, respectively, and $139,000 for the nine months ended September 30, 2016. We anticipate minimal additional grant revenue under the NIH grants, but will continue to recognize $46,000 in revenue for each remaining quarter in 2016 under our license agreement with Neogen.

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Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates, which include:

Employee-related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions;
Expenses incurred in connection with the development of our product candidates; and
Facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies.

We expense research and development costs as incurred.

At this time, we cannot reasonably estimate the costs for completing the development of ContraPest or the cost associated with the development of any of our other product candidates.

We plan to continue to hire employees to support our research and development efforts and anticipate that we will continue to utilize various forms of stock-based compensation awards in order to attract and retain employees for our research and development efforts. As a result, we anticipate that stock-based compensation expense will continue to represent a significant portion of our research and development expenses for the foreseeable future.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, consulting, accounting and audit services.

We anticipate that our general and administrative expenses may increase in the future as we increase our headcount to support commercialization of any approved products and further development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.

We plan to continue to hire employees to support our commercialization of any approved products and further development of our product candidates, and anticipate that we will continue to utilize various forms of stock-based compensation awards in order to attract and retain qualified employees. As a result, we anticipate that stock-based compensation expense will continue to represent a significant portion of our general and administrative expenses for the foreseeable future.

Other Income (Expense), Net

Interest Income.  Interest income consists primarily of interest income earned on cash and cash equivalents. Our interest income has not been significant due to nominal cash and investment balances and low interest earned on invested balances.

Interest Expense.  Interest expense consists of interest accrued on $2.9 million in convertible and other promissory notes we issued during 2014 and 2015 that were exchanged for Series B convertible preferred stock in December 2015.

Other Income (Expense), Net.  Other income (expense), net, consists primarily of net losses on extinguishment of convertible and non-convertible, secured and unsecured promissory notes.

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Income Taxes

Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2015, we had federal and state net operating loss carryforwards of $28.0 million and $17.0 million, respectively, which begin to expire in 2021 and 2016, respectively, unless previously utilized.

Results of Operations

Comparison of the Nine Months Ended September 30, 2015 and 2016

The following table summarizes our results of operations for the nine months ended September 30, 2015 and 2016:

   
  Nine Months Ended
September 30,
     2015   2016
     (in thousands)
Revenue   $ 139     $ 261  
Operating expenses:
                 
Research and development     5,759       1,964  
General and administrative     4,537       5,259  
Total operating expenses     10,296       7,223  
Loss from operations     (10,157 )      (6,962 ) 
Interest expense     (504 )      (92 ) 
Loss on extinguishment debt     (231 )      (171 ) 
Other income (expense), net     (81 )      51  
Net loss   $ (10,973 )    $ (7,174 ) 

Revenue

Revenue was $139,000 for the nine months ended September 30, 2015 and $261,000 for the nine months ended September 30, 2016. The increase of $122,000 was primarily a result of increased billings for services provided by us under the grant agreements, such as site evaluation, baiting and data collection and analysis.

Revenue earned under our license agreement with Neogen for the achievement of milestones and tasks under such license agreement was $139,000 for each of the nine months ended September 30, 2015 and 2016.

Research and Development Expenses

     
  Nine Months Ended
September 30,
  Increase
(Decrease)
     2015   2016
     (in thousands)
Direct research and development expenses:
                          
Unallocated expenses:
                          
Personnel related (including stock-based compensation)   $ 5,143     $ 1,383     $ 3,760  
Facility related     152       157       (5 ) 
Other     464       424       40  
Total research and development expenses   $ 5,759     $ 1,964     $ 3,795  

Research and development expenses totaled $5.8 million for the nine months ended September 30, 2015, compared to $2.0 million for the nine months ended September 30, 2016. The $3.8 million decrease was driven primarily by decreases in personnel-related costs associated with stock compensation of $4.0 million, lower manufacturing costs of $236,000 primarily due to decreased costs associated with our bait box design, offset by increases in other personnel-related expenses associated with additional headcount of $200,000 and increased animal care and field trial expenses of $200,000.

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While we do not track research and development expenses on a project-by-project basis, the majority of our research and development efforts in 2015 and early 2016 were focused on pursuing regulatory approval of ContraPest. This effort included conducting and analyzing field studies and laboratory tests, and preparing the regulatory filing for ContraPest, which was completed in August 2015. To a lesser extent, we continue to investigate other applications of our core technology for other product candidates, which includes laboratory tests and academic collaborations. Finally, we also continue to develop our supply chain, particularly identifying and improving our sourcing of triptolide, a key active ingredient for our product candidates.

General and Administrative Expenses

General and administrative expenses were $4.5 million for the nine months ended September 30, 2015, compared to $5.3 million for the same period in 2016. The increase of $800,000 in general and administrative expenses was due to an increase in personnel related costs related to headcount of $791,000, an increase in legal, accounting and audit related expenses of $201,000, increased occupancy and related expenses of $150,000 and increased travel expenses of $33,000, offset by lower stock compensation expenses of $391,000.

Interest Expense

We recorded $504,000 of interest expense for the nine months ended September 30, 2015, compared to $92,000 for the same period in 2016. The decrease was the result of interest accrued during the nine months ended September 30, 2015 on the principal amount of our convertible promissory notes issued during 2015, prior to the exchange of these convertible promissory notes and accrued interest thereon into shares of Series B convertible preferred stock in December 2015.

Comparison of the Years December 31, 2014 and 2015

The following table summarizes our results of operations for the years ended December 31, 2014 and 2015:

   
  Year Ended
December 31,
     2014   2015
     (in thousands)
Revenue   $ 199     $ 241  
Operating expenses:
                 
Research and development     3,196       7,221  
General and administrative     2,700       8,665  
Total operating expenses     5,896       15,886  
Loss from operations     (5,697 )      (15,645 ) 
Interest expense     (632 )      (626 ) 
Loss on extinguishment debt     (902 )      (1,224 ) 
Other income (expense), net     31       (678 ) 
Net loss   $ (7,200 )    $ (18,173 ) 

Revenue

Revenue was $199,000 for the year ended December 31, 2014, compared to $241,000 for the year ended December 31, 2015.

We recognized revenue of $83,000 and $55,000 for the years ended December 31, 2014 and 2015, respectively, as a result of the services performed.

Under our license agreement with Neogen, we recognized revenue of $116,000 and $186,000 for the years ended December 31, 2014 and 2015, respectively. The increase in revenue from the licensing agreements was the result of the timing of our execution of such agreement and our related recognition of such revenue.

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Research and Development Expenses

     
  Year Ended
December 31,
  Increase (Decrease)
     2014   2015
     (in thousands)
Direct research and development expenses:
                          
Unallocated expenses:
                          
Personnel related (including stock-based compensation)   $ 2,404     $ 5,965     $ 3,561  
Facility related     157       190       33  
Other     635       1,066       431  
Total research and development expenses   $ 3,196     $ 7,221     $ 4,025  

Research and development expenses were $3.2 million for the year ended December 31, 2014, compared to $7.2 million for the year ended December 31, 2015. The $4.0 million increase in research and development expenses was primarily due to an increase of $3.6 million in personnel-related costs. This increase in personnel-related costs resulted from additional stock-based compensation expense of $3.3 million and increased research and development salaries of $253,000 due to three headcount additions in 2015. Manufacturing costs increased from $91,000 for the year ended December 31, 2014 to $310,000 for the year ended December 31, 2015. This $219,000 increase was primarily associated with increased bait-box design and production costs during 2015. Further, facility-related and other general research and development expenses for activities not directly associated with our principal research and development programs increased by $229,000 during 2015 as a result of a $105,000 increase in depreciation expense for our laboratory equipment, a $64,000 increase in consulting expenses and a $60,000 increase in non-rent occupancy costs and supplies.

While we do not track research and development expenses on a project-by-project basis, the majority of our research and development efforts in 2015 were focused on pursuing regulatory approval of ContraPest. This effort included conducting and analyzing field studies and laboratory tests, and preparing the regulatory filing for ContraPest, which was completed in August 2015. To a lesser extent, we continue to investigate other applications of our core technology to other product candidates, which includes laboratory tests and academic collaborations. Finally, we also continue to develop our supply chain, particularly identifying and improving our sourcing of triptolide, a key active ingredient for our product candidates.

General and Administrative Expenses

General and administrative expenses were $2.7 million for the year ended December 31, 2014, compared to $8.6 million for the year ended December 31, 2015. The increase of $5.9 million in general and administrative expenses was due to an increase of $384,000 in legal, accounting and audit-related fees and an increase of $5.5 million in personnel-related costs, including $270,000 in additional salary costs and $5.2 million in stock-based compensation expense during 2015.

Interest Expense

We recorded $632,000 of interest expense for the year ended December 31, 2014, compared to $626,000 for the year ended December 31, 2015. Interest expense consists primarily of interest accrued on $2.9 million in convertible and other promissory notes we issued during 2014 and 2015 that were exchanged for Series B convertible preferred stock in December 2015.

Other Income (Expense), Net

We recorded $31,000 of other income, net, for the year ended December 31, 2014, compared to $678,000 for the year ended December 31, 2015. The $709,000 net increase in other expense was primarily due to the expense related to the year-over-year fair market value adjustment of our convertible promissory notes.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from research grants and licensing fees received under our license agreement with Neogen. We have not yet commercialized any of our product candidates, which are in various phases of development. We have funded our operations to date primarily with proceeds from the sale of common stock and preferred stock, the issuance of convertible and other promissory notes and, to a lesser extent, payments received under research

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grants and pursuant to our license agreement with Neogen. Through September 30, 2016, we had received net proceeds of $28.9 million from our sales of common stock and preferred stock and issuance of convertible and other promissory notes, and an aggregate of $1.7 million from licensing fees.

In the course of our research and development activities, we have sustained operating losses since our inception and expect such losses to continue for the foreseeable future. Our ultimate success depends upon the outcome of a combination of factors, including our ability to: (i) engage in successful research and development efforts; (ii) obtain regulatory approval of ContraPest and our other product candidates; (iii) achieve market acceptance and commercialization of ContraPest and our other products; (iv) successfully market our products and establish an effective sales force and marketing infrastructure to generate significant revenue; (v) retain and attract key personnel to develop, operate and grow our business; and (vi) successfully obtain additional financing. As of September 30, 2016, we had an accumulated deficit of $57.6 million. We will require additional capital to finance our operations, and we plan to continue to fund our operating losses and research and development activities in the near term by issuing additional debt and equity instruments. However, if such equity or debt financing is not available at adequate levels, we will need to reevaluate our plans.

From time to time in 2014 and 2015, members of our management have provided financing to us in the form of promissory notes totaling $4.0 million, of which $0 remained outstanding as of September 30, 2016. In November 2015, we issued to NAU Ventures 400,000 shares of Series A convertible preferred stock (on a post-reverse split basis), valued at $4.4 million, and a warrant, valued at $330,000, in exchange for full cancellation of the outstanding principal and unpaid accrued interest on a promissory note, totaling $3.2 million. In December 2015, the principal amount under our convertible and other promissory notes and accrued interest (aggregating $2.9 million) were exchanged for shares of Series B convertible preferred stock. As of September 30, 2016, we had cash of $1.3 million.

As of November 18, 2016, we had cash of $440,000. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the fourth quarter of 2016, without giving effect to any anticipated proceeds from this offering. We believe that the anticipated net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months following the completion of this offering. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance field studies of our product candidates in development. In addition, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

In particular, we expect to incur substantial and increased expenses as we:

Continue the research and development of ContraPest and our other product candidates, including engaging in any necessary field studies;
Seek regulatory approvals for ContraPest and our other product candidates;
Scale up manufacturing processes and quantities to prepare for the commercialization of ContraPest and any other product candidates for which we receive regulatory approval;
Establish an infrastructure for the sales, marketing and distribution of ContraPest and any other product candidates for which we may receive regulatory approval;
Attempt to achieve market acceptance for our products;
Expand our research and development activities and advance the discovery and development programs for other product candidates;
Maintain, expand and protect our intellectual property portfolio; and
Add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts and operations as a public company.

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Cash Flows

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

       
  Year Ended
December 31,
  Nine Months Ended
September 30,
     2014   2015   2015   2016
     (in thousands)
Cash used in operating activities   $ (2,527 )    $ (3,666 )    $ (3,010 )    $ (4,240 ) 
Cash used in investing activities     (614 )      (130 )      (129 )      (54 ) 
Cash provided by financing activities     3,820       3,116       2,381       5,498  
Net increase (decrease) in cash and cash equivalents   $ 679     $ (680 )    $ (758 )    $ 1,204  

Operating Activities.

During the nine months ended September 30, 2016, operating activities used $4.2 million of cash, primarily resulting from our net loss of $7.2 million, partially offset by non-cash charges of $3.0 million and by cash provided by changes in our operating assets and liabilities of $62,000. Our net loss was primarily attributed to research and development activities and our general and administrative expenses, as we generated limited research grant and licensing revenue during the period. Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2016 consisted primarily of a $175,000 decrease in deferred revenue related to our license agreement with Neogen and a $202,000 decrease in accrued expenses and accounts payable. The decrease in accrued expenses and accounts payable was due to increased payments as a result of the receipt of cash raised in financing activities.

During the nine months ended September 30, 2015, operating activities used $3.0 million of cash, resulting from our net loss of $11.0 million, partially offset by non-cash charges of $7.3 million and by cash provided by changes in our operating assets and liabilities of $691,000. Our net loss was primarily attributed to research and development activities and our general and administrative expenses, as we generated limited research grant and licensing revenue during the period. Net cash used by changes in our operating assets and liabilities during the nine months ended September 30, 2015 consisted primarily of a $105,000 decrease in deferred revenue related to our license agreement with Neogen offset by a decrease in accounts receivable and prepaid expenses of $45,000 and a $606,000 increase in accounts payable and accrued expenses. The increase in accrued expenses was due primarily to the timing of payments under our research and development programs.

During the year ended December 31, 2015, operating activities used $3.7 million of cash, primarily resulting from our net loss of $18.2 million, partially offset by non-cash charges of $13.9 million and by cash provided by changes in our operating assets and liabilities of $646,000. Our net loss was primarily attributed to research and development activities and our general and administrative expenses, as we generated limited research grant and licensing revenue during the year. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2015 consisted primarily of a $151,000 decrease in deferred revenue related to our license agreement with Neogen offset by a $779,000 increase in accounts payable and accrued expenses and a decrease of accounts receivable of $18,000. The increase in accounts payable and accrued expenses was due to increased spending associated with research and development programs as well as the timing of vendor invoicing and payments.

During the year ended December 31, 2014, operating activities used $2.5 million of cash, primarily resulting from our net loss of $7.2 million, partially offset by non-cash charges of $4.5 million and by cash provided by changes in our operating assets and liabilities of $182,000. Our net loss was primarily attributed to research and development activities and our general and administrative expenses, as we generated limited research grant and licensing revenue during the year. Net cash provided by changes in our operating assets and liabilities during the year ended December 31, 2014 consisted primarily of a $200,000 increase in accounts payable and accrued expenses offset by increases to our accounts receivable and prepaid assets of $64,000. The increase in accounts payable and accrued expenses was due primarily to an increase in spending associated with research and development programs as well as the timing of vendor invoicing and payments.

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Investing Activities.

During the nine months ended September 30, 2016 and September 30, 2015, we used $54,000 and $129,000, respectively, of cash in investing activities, in each case consisting of purchases of property and equipment.

During the year ended December 31, 2015 and December 31, 2014, we used $130,000 and $614,000, respectively, of cash in investing activities, in each case consisting of purchases of property and equipment.

Financing Activities.

During the nine months ended September 30, 2016, net cash provided by financing activities was $5.5 million as a result of $6.2 million of proceeds from the issuance of shares of common stock in our rights offering discussed elsewhere in this prospectus, $326,000 of proceeds received from our issuance of notes payable, $896,000 of proceeds received from the issuance of Series B convertible preferred stock, and $449,000 of proceeds received from the exercise of stock options, all of which were partially offset by payments of $1.6 related to the notes, payable, notes payable related party and convertible notes payable, $16,000 of capital lease repayments and $801,000 of deferred offering cost payments.

During the nine months ended September 30, 2015, net cash provided by financing activities was $2.4 million, primarily as a result of $2.4 million of proceeds received from our issuance of related party convertible promissory notes and convertible notes and proceeds of $79,000 from the exercise of stock options, partially offset by $91,000 of repayments of convertible and non-convertible promissory notes and payments under our capital lease obligations.

During the year ended December 31, 2015, net cash provided by financing activities was $3.2 million as a result of $3.1 million of proceeds received from our issuance of related party convertible and other promissory notes, $155,000 of proceeds received from the issuance of Series B convertible preferred stock, and $56,000 of proceeds received from the exercise of stock options, all of which were partially offset by payments of $132,000 related to the issuance costs for the convertible promissory notes and $100,000 in repayments of notes payable balances.

During the year ended December 31, 2014, net cash provided by financing activities was $3.8 million as a result of $834,000 of proceeds received from our issuance of convertible promissory notes and $3.1 million of proceeds received from the issuance of common stock, all of which were partially offset by $119,000 in repayments of notes payable balances and payments under our capital lease obligations.

Recent Developments

We have identified material weaknesses in our internal control over financial reporting as of December 31, 2015. See “Risk Factors — We have identified material weaknesses in our internal control over financial reporting. If we fail to remedy these material weaknesses and develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common shares. ” While we have not yet designed or implemented effective internal control over financial reporting, we expect to develop and implement on or before March 31, 2017 a plan to address the material weaknesses described in the above referenced Risk Factor, including a fully documented system of internal controls with specific policies and procedures surrounding accurate and timely financial reporting, effective segregation of duties, and the timely and accurate accounting for all transactions of our business that ensures the safeguarding of our assets.

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

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While our significant accounting policies are described in more detail in Note 2 to our audited financial statements included elsewhere in this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

We recognize revenue in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”), Topic 605, Revenue Recognition. Accordingly, we recognize revenue from our licensing agreements and contracts to perform pilot studies when (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

We have generated revenue from a license agreement with a strategic partner pursuant to which we have granted to such partner an exclusive license in North America to manufacture, distribute and sell commercial control products based on our intellectual property, which includes ContraPest, for the later of 10 years or the expiration of the patent for ContraPest (if issued).

When we receive non-refundable, upfront license fee payments for the exclusive rights to licensing our intellectual property, management determines if such license has stand-alone value. Since management determined that the license to our intellectual property did not have stand-alone value, we recognize revenue attributable to that license on a straight-line basis over the estimated related performance period. Any changes in the estimated period of performance will be accounted for prospectively as a change in estimate.

Our licensing agreement also provides for a future fixed amount of contingent milestone payments and contingent sales-based royalties to be received upon the achievement of milestone events. We recognize revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved and the milestone payments are due and collectible. A milestone is considered substantive when the consideration payable to us for such milestone has all of the following characteristics: (1) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; (2) the event can only be achieved based in whole or part on either our performance or a specific outcome resulting from our performance; and (3) if achieved, the event would result in additional payments being due to us. In making this assessment in the future, we will consider all facts and circumstances relevant to the arrangement, including whether any portion of the milestone consideration is related to future performance or deliverables. In addition, we will account for sales-based royalties as revenue upon achievement of certain sales milestones.

Stock-Based Compensation

We recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures, in accordance with ASC Topic 718 — Stock Compensation (“ASC 718”). We estimate the grant date fair value of the awards, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards is expensed on a straight-line basis over the vesting period of the respective award. We account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these stock options is measured using the Black-Scholes option-pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The fair value of the stock options granted to non-employees is re-measured as the stock options vest and is recognized in the statements of operations and comprehensive loss during the period the related services are rendered.

We recorded stock-based compensation expense of approximately $2.5 million and $11.3 million for the years ended December 31, 2014 and 2015, respectively, and $2.4 for the nine months ended September 30, 2016. We expect to continue to grant stock options and other equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

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The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards. If we had made different assumptions, our stock-based compensation expense, net loss and loss per share of common stock could have been significantly different. Our assumptions are as follows:

Fair value of our common stock.  Because our stock was not publicly traded prior to this offering, we estimate the fair value of our common stock. See “— Significant Factors, Assumptions and Methodologies Used in Determining Fair Value of Our Common Stock” below. Upon the completion of this offering, our common stock will be valued by reference to the publicly-traded price of our common stock.
Expected term.  The expected term represents the period that the stock-based awards are expected to be outstanding. Our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore we estimate the expected term by using the simplified method, which calculates the expected term as the average of the time-to-vesting and the contractual life of the options.
Expected volatility.  As our common stock has never been publicly traded, the expected volatility is derived from the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business over a period approximately equal to the expected term. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.
Risk-free interest rate.  The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.
Expected dividend.  The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.
Expected forfeitures.  We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period that the estimates are revised.

Significant Factors, Assumptions and Methodologies Used in Determining Fair Value of Our Common Stock

As noted above, we are required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations using the Black-Scholes option-pricing model. In the absence of an active market for our common stock, we utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of our common stock. In addition, we have conducted periodic assessments of the valuation of our preferred stock and our common stock. Specifically, we obtained a report assessing the fair value of the common stock underlying our Series B convertible preferred stock as of December 31, 2015. This valuation performed a Monte Carlo option model to determine the fair value of the underlying common stock. A Monte Carlo option model is used to calculate the value of an asset with multiple sources of uncertainty or with complicated features. Based on this iterative analysis, and given that the Series B convertible preferred stock was issued at a fair value of $7.75 per share on a post reverse-split basis, the fair value of the common stock was determined to be $7.575 per share on a post reverse-split basis as of December 31, 2015, which valuation was used by us for purposes of our stock-based compensation calculations during 2015. A fair value of our common stock of $15.00 per share on a post reverse-split basis as of December 31, 2014, which valuation was used by us for purposes of our stock-based compensation calculations during 2014, was based on prior sales of common stock during 2013 for $15.00 per share on a post reverse-split basis.

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The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. If we had made different assumptions than those used, the amount of our stock-based compensation expense, net income and net income per share amounts could have been significantly different. Following the completion of this offering, the fair value per share of our common stock for purposes of determining stock-based compensation expense will be the closing price of our common stock as reported on the applicable grant date. The compensation cost that has been included in the statements of operations and comprehensive loss for all stock-based compensation arrangements is as follows:

       
  Years Ended
December 31,
  Nine Months Ended
September 30,
     2014   2015   2015   2016
     (in thousands)   (in thousands)
General and administrative expenses   $ 888     $ 6,331     $ 2,492     $ 2,097  
Research and development expense     1,622       4,931       4,269       309  
Total stock-based compensation expense   $ 2,510     $ 11,262     $ 6,761     $ 2,406  

Based on the initial public offering price of $8.00 per share, the intrinsic value of stock options outstanding as of December 31, 2015 would be $15.9 million, of which $9.2 million and $6.7 million would have been related to stock options that were vested and unvested, respectively, at that date.

Emerging Growth Company Status

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

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most existing revenue recognition guidance under U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date that defers the effective date of ASU 2014-09 for all public business entities by one year. As a result, this ASU is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are evaluating the impact of the adoption of ASU 2014-09 on our financial statements and related disclosures.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This standard requires management to perform an evaluation in each interim and annual reporting period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued. If such conditions

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or events exist, ASU 2014-14 also requires certain disclosures of management’s plans and evaluation, as well as the plans, if any, that are intended to mitigate those conditions or events that will alleviate the substantial doubt. ASU No. 2014-15 is effective for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not been previously issued. We are evaluating the impact of the adoption of ASU No. 2014-15 on our financial statements and related disclosures.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments —  Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective in the first quarter of 2019. We are evaluating the impact of the adoption of ASU 2016-01 on our financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). This standard amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early adoption is permitted and the new standard must be adopted using a modified retrospective approach, and provides for certain practical expedients. We are evaluating the impact of the adoption of ASU 2016-02 on our financial statements and related disclosures.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). This standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods for public business entities. The method of adoption is dependent on the specific aspect of accounting addressed in this new guidance. Early adoption is permitted in any interim or annual period. We are evaluating the impact of the adoption of ASU 2016-09 on our financial statements.

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BUSINESS

Overview

We have developed and are seeking to commercialize globally a proprietary technology for managing animal pest populations through fertility control. We believe our innovative non-lethal approach, targeting reproduction, is more humane, less harmful to the environment, and more effective in providing a sustainable solution to pest infestations than traditional lethal pest management methods. Our approach is designed to promote food security and reduce infrastructure damage, disease outbreaks, environmental contamination and other costs associated with rodent infestations. Our first fertility control product candidate, ContraPest, will be marketed for use in controlling rat populations. We are pursuing regulatory approvals for ContraPest in various jurisdictions, including the U.S., India, Argentina and the EU. We submitted ContraPest for registration with the EPA on August 23, 2015, and the EPA granted registration approval for ContraPest effective August 2, 2016. We believe ContraPest is the first fertility control product approved by the EPA for the management of rodent populations. However, before we can begin selling ContraPest in the U.S., we must obtain registration from the various state regulatory agencies. To date, we have received registration for ContraPest in 14 states and the District of Columbia, with additional applications pending. Other business initiatives include expanding our technology to other species and applications, and developing bio-synthetic sources of triptolide, an active ingredient in ContraPest that also has pharmaceutical applications. This initiative may produce a less expensive source of triptolide for our own use, and provide us with the potential opportunity to earn revenue from the sale of such product to our licensees and other potential consumers of triptolide.

Current Problem

Rodent populations cause significant harm by:

Decreasing the worldwide food supply.  Rodents destroy crops through consumption and contamination, and the magazine Quality Assurance and Food Safety estimated that in 2014, 20% of stored food was lost due to rodent activity, which is enough to feed 200 million people. A study conducted in 2007 estimated that the cost of destruction to food supply by rats in the U.S. is $27 billion.
Damaging public infrastructure.  Rodents cause significant damage to public infrastructure by gnawing on electrical wiring and insulation, fireproofing systems and electronic and computer equipment.
Transmitting disease.  Rodents transmit disease and deadly pathogens to humans and other species, such as E. coli, salmonella, leptospirosis, infectious jaundice, Weil’s disease, plague, murine typhus and Hantavirus. Rats caught during an independent study in New York City were found to be carrying more than 20 pathogens that cause disease in humans.

Current efforts to control rodent populations include the use of lethal chemical agents, also referred to as rodenticides, the sale of which constituted a $900 million market worldwide in 2013. In the United States, there are currently 193 such products registered by the EPA. Unfortunately, rodenticides have a number of serious shortcomings, as outlined below.

Rodenticides are not a long-term solution

Rodenticides do not target the rapid reproductive rates in rodents. The initial decline in rodent populations exposed to rodenticides is typically followed by a “population rebound” as surviving rodents quickly reproduce and rodents from surrounding areas migrate into the affected area. Studies have indicated that rat population rebounds can occur in as little as four months, while many populations rebound within six to nine months of being exposed to rodenticides. Moreover, even when rodenticides kill all of the rats in a designated area, populations have been observed to recover within 24 months.

Rats are prolific breeders; even a single pair of rats can result in a rapidly rebounding population. For example, a single female rat typically has a litter of eight to nine pups or more every three weeks when food is plentiful. As a result, one pair of rodents can produce over 3.5 million progeny in three years, and four pairs of breeding adult rats and their progeny can produce up to 15 million rats in one year. In addition, rats

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are territorial and will protect their food source from immigrating rats. If a rat population is substantially decreased through poisoning by rodenticides, other rats will migrate to the unguarded food source and establish a new and expanding population.

Due to rebounding rodent populations exposed to rodenticides, property owners and pest management operators must continuously apply rodenticides in an effort to control these populations. This creates an ongoing cycle of rodenticide treatment, with the costs of rodenticides remaining constant. Moreover, rodenticides are often distributed indiscriminately, on a non-targeted basis, which likely decreases their effectiveness in controlling rat infestations. The following chart, which is based on data derived from our population models and current market pricing for rodenticides, demonstrates that the use of rodenticides does not sustainably reduce rat populations in the long term, while the cost of using rodenticides remains relatively constant over that same period.

[GRAPHIC MISSING]

Rodenticides are an ineffective delivery method for rodents

Due to their understanding of cause and effect, studies have shown that rodents will generally not consume food that they have seen adversely affect other rodents. When the adverse effects of rodenticides are displayed by treated rodents, other rodents in the vicinity typically avoid the areas where the rodenticides were located.

Rodenticides are unsafe

Rodenticides contain lethal chemicals that can be toxic to humans and other animals. The EPA has observed that between 1993 and 2008, the American Association of Poison Control Centers logged between 12,000 and 15,000 reports of rat and mouse poison exposures each year in children under the age of six. These numbers and other concerns about pet and non-target wildlife exposures have spurred the EPA and similar authorities to renew its efforts to establish better protections for children and the environment. For example, the EPA and similar authorities in other jurisdictions have established stronger restrictions on the sale and use of ten active ingredients found in various registered rodenticide products. These restrictions prohibit the sale of “loose” rodenticide bait, such as pellets, powders, and liquids and require all such consumer-use baits be sold with protective bait stations. They also prohibited the use of second-generation anticoagulants, or SGARs, in any consumer-use product. In May 2014, the EPA and Reckitt Benckiser Group plc (a large manufacturer of rodenticides, including d-CON) reached an agreement to cancel 12 of their mouse and rat poisons that do not comply with the new EPA safety standards.

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Rodenticides are harmful to the environment

Rodenticides are designed to cause the rodent pest to die over five or more days, permitting the target animal to continue to consume the rodenticide during that period. Since the target animal may consume significantly higher doses than are needed to be lethal, the lethal chemicals can accumulate in the target animal. This process is known as bio-accumulation. If the target animal is consumed by other animals (such as predators), such other animals can become sick or die from the lethal chemicals remaining in the deceased animal. In addition, deceased animals contaminated by rodenticides can spread the lethal chemicals to the surrounding area.

Rodenticides are inhumane

The most common type of rodenticide prevents blood from clotting. Once the rodent has consumed the rodenticide, lethal chemicals cause the rodent to bleed internally and through its eyes, nose and ears, gradually culminating in death over 10 to 14 days from exposure. Therefore, rodenticides result in a long, painful death. This raises moral concerns, particularly in regions such as India, among people who do not want to cause unnecessary pain in animals.

Our Solution — Fertility Control

Our first fertility control product candidate, ContraPest, targets the reproductive capabilities of rodents by inducing the gradual loss of eggs in female rodents and disruption of sperm in male rodents, resulting in contraception that can progress to sterility in both females and males. By targeting rodent fertility, our solution is sustainably effective, directed, safe, environmentally friendly and humane.

Our solution is sustainable over the long term

ContraPest causes rodent populations to remain at a sustained low level. A third-party laboratory study in partnership with the United States Department of Agriculture National Wildlife Research Center, or NWRC, completed in December 2014 observed that 50 wild-caught rats treated with ContraPest resulted in a 95% reduction in litter sizes. A follow-up USDA study completed in June 2015 involving 50 wild-caught rats demonstrated a 96% reduction in litter size in female and male rats treated with ContraPest in an open arena study. We have also conducted open population studies, including in trash rooms in the New York City subway completed August 2013 and with the largest hog producer in the United States completed in March 2015, in which we have observed decreases in wild rodent populations of more than 40% over a 12-week period. We believe this decrease in population will continue and, based on studies conducted by third parties, will stabilize at an approximately 70% reduction in 12 months without rebound (based on an initial population of approximately 10,000 rats). Also, we have observed that the contraceptive effect of ContraPest in reducing rat population is present regardless of the amount consumed by any particular rat in that population.

Consequently, rat populations treated with ContraPest do not experience the same “population rebound” effect as those treated with rodenticides because the non-reproductive rodents continue to defend their territory from invasion by other rodents. As a result, property owners and pest management operators may be able to substantially decrease the amount of ContraPest used over time, thus reducing the total cost of rodent population control in the long term. The following chart, which is based on data derived from our population models and field studies, predicts that as the use of ContraPest sustainably reduces rat populations over time and on an ongoing basis, the cost of ContraPest would be lower in the long term as compared to rodenticides.

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[GRAPHIC MISSING]

Our solution involves a targeted delivery

Our proprietary formulation appears to be attractive to rodents. To maintain proper hydration, rats drink 10% of their body weight in water each day; our product is a liquid bait and comprised mostly of water. Moreover, studies show that rats prefer eating sweet and fatty foods. ContraPest incorporates these elements, and our studies demonstrate that rats prefer ContraPest even when other familiar food and water sources were abundant, such as in indoor garbage collection areas of urban, industrial facilities. Once consumed, our product is designed to avoid first pass through the liver to deliver active ingredients directly to targeted reproductive organs, thus increasing its effectiveness and minimizing harm to the animal.

In addition, our solution utilizes a unique delivery system in the field that not only allows us to evaluate the effectiveness of our fertility control products, but also enables us to observe rodent pest behavior and determine the optimal locations for our proprietary bait stations. We also are able to customize the specific concentration of our product candidate to address the target pest.

Our solution is safe

Studies of ContraPest have demonstrated that doses of ContraPest are not lethal to rodents or harmful to people or other animals. The active ingredients in ContraPest are included at very low concentrations (together totaling less than 0.1% of the formulation) and have short half-lives of less than 20 minutes in the blood of rodents. Therefore, the active ingredients in ContraPest do not accumulate in tissues or organs of the rat (as poisons do) and thus do not sicken or kill predators or scavengers that eat a rat that has consumed ContraPest.

In addition, at the concentrations of active ingredients in our product, there is no potential for reproductive disruption in humans. A human would have to consume impossibly large amounts of the active ingredients in our product to have any effect. Further, the man-made chemical that is one of our active ingredients (4-vinylcyclohexene diepoxide, or VCD) has been used in manufacturing settings, and no toxic effects have been demonstrated in humans. The other active ingredient (triptolide) is a plant-derived ingredient used in traditional Chinese medicine to treat symptoms of rheumatoid arthritis.

Moreover, ContraPest is delivered in a ready-to-use and pre-packaged plastic container which is inserted into a tamper-resistant rodent bait station. As the container is inserted into the station, a spike punctures the foil-covered opening, allowing the liquid bait to flow into a tray within the bait station. The tank is a non-refillable container, which is recapped and disposed of when empty. Thus, as a “closed system,” there is little opportunity for handler exposure and virtually no opportunity for bystander exposure.

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Our solution is environmentally friendly

ContraPest does not contain poisons, and the ingredients in ContraPest target the reproductive organs of the rodent and do not accumulate in other tissues or organs of the rat. As a result, the ingredients in ContraPest do not cause illness or death in other animals that come into contact with or eat the rat that has consumed ContraPest, and there is no risk of secondary exposure expected from the use of ContraPest as a contraceptive. Also, the active ingredients in ContraPest are present in our product in very low concentrations, and break down into inactive, or inert, ingredients when they come into contact with soil or water in the environment. Moreover, ContraPest is packaged in a delivery system that dispenses the liquid bait directly into a tamper-resistant rodent bait station. These bait stations are limited to use only indoors and in the immediate perimeter of structures (no more than one foot from the exterior walls). As a result, ecological exposure of the liquid product will be limited to animals that directly contact or consume the bait, and there is little risk of exposure to non-target species or to the surrounding environment.

Our solution is humane

ContraPest does not cause rodent death and we have not observed any physical suffering in rodents exposed to ContraPest. ContraPest allows rodent pests to live out the course of their natural lives, while defending their territory and keeping out other invading rodents. By reducing rodents’ ability to reproduce, but keeping them alive, our product has the effect of humanely reducing rodent populations in the long-term.

Recent Research Regarding the Effectiveness of ContraPest

The majority of our research efforts have been focused on developing our lead product, ContraPest. We have completed studies regarding the effectiveness of our product, which were funded by and in cooperation with the NIH, the United States Department of Agriculture, or USDA, the NWRC, and the New York Metropolitan Transit Authority, or MTA, and other third parties. The following summarizes the results of these recent studies:

A NWRC study involving approximately 50 rats completed in June 2015 demonstrated a 96% reduction in litter size in female and male rats treated with ContraPest in a laboratory setting;
A January 2015 study in Rose Hill, North Carolina resulted in a 33% reduction in rodent activity over 12 weeks after being exposed to ContraPest, as compared to the use of rodenticide alone;
A NIH-funded study in February 2013 in the subway trash rooms of the MTA in New York City observed that there was a 43% reduction in the rodent population in the trash rooms that were baited with ContraPest; and
Internal laboratory studies involving 32 rats have shown zero pups born to any rat groups provided with ContraPest along with food and water, while rats given the control bait with no active ingredients had on average 11 pups per litter.

In September 2015 we initiated a research study with the Chicago Transit Authority, or CTA, to begin a field trial of our bait station. That study is now complete. While the observations and results are subject to a confidentiality agreement, the performance of the bait stations met expectations. We have additional field trials underway in Hawaii and Massachusetts (Somerville), and are contemplating further research trials in a variety of applications.

We have also begun exploring diverse applications with a variety of collaborators. We have conducted proof of concept studies with feral dogs on the Navajo Reservation in New Mexico with a grant from the USDA, and we have collected rabies and geographic data on stray dogs in the Tibetan refugee camps of Mainpat, India. We are currently collaborating with Texas A&M University to test the potential of our product candidates to manage feral pigs. Studies have also been conducted for proof of concept in Australia with wallaby, rat, and mouse populations and in New Zealand with brushtail possums. We have also conducted early trials with cats in collaboration with the University of Florida. These diverse studies seek to provide evidence of the potential for ContraPest and the continued development of fertility control technology in general.

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Business Strategy

Our goal is to become a leader in fertility control technology designed to promote food security and reduce infrastructure damage, disease outbreaks, environmental contamination and other costs associated with pest infestations and poor animal health. Key elements of our strategy are:

Obtain regulatory approval for our lead product candidate, ContraPest, throughout the U.S. and in Argentina, India, the EU and other parts of the world.
Continue to develop and establish third party relationships with manufacturing, marketing and distribution partners in the U.S. and internationally.
Educate our target markets on the long-term benefits our fertility control solution provides over lethal approaches.
Establish a secure supply of active ingredients, including triptolide, by cultivating a diverse base of traditional agricultural suppliers and developing bio-synthetic sources of triptolide.
Leverage our scientific research and core technologies to develop and commercialize a broad suite of products.

Manufacturing, Marketing and Distribution

Third-Party Relationships

We intend to continue to establish and develop relationships in the U.S. and internationally. To date, we have entered into the following arrangements:

Neogen — In May 2014, we entered into a license agreement and began working with Neogen, a developer, manufacturer and marketer of a diverse line of products dedicated to food and animal safety. Pursuant to the agreement, we granted to Neogen an exclusive license in North America to manufacture, distribute and sell commercial rodent control products, which include ContraPest, for the later of 10 years or the expiration of the patent for ContraPest (if issued). This agreement includes an obligation on Neogen to use commercially reasonable efforts to manufacture and market such “Products” in a manner that is designed to attain maximum market penetration and sales, including using commercially reasonable efforts to satisfy market demands. Under the agreement, we retained rights to perform research and development on rodent control products and for all other scientific and non-commercial purposes. If Neogen fails to meet market demand, we can convert the license to a non-exclusive one. We also granted Neogen first right to license any additional commercial fertility control animal applications in North America other than rodents, and all commercial rodent control products sold outside the U.S., if we seek to license to a non-affiliate.

Under the agreement, Neogen committed to pay us fees upon the achievement of certain milestones. The total aggregate fees to be paid as milestone payments is $650,000, $487,500 of which have been paid to date, $139,000 of which was recognized as revenue for each of the nine months ended September 30, 2015 and 2016. Neogen will also pay us certain fees and royalties, including a license fee payable over three years following EPA approval of ContraPest, which may be as high as $3 million in the aggregate, of which none has been paid to date, and a semi-annual ongoing royalty based on a percentage of net sales, which percentage varies from high single digits to low double digits, depending on the amount and location of net sales pursuant to the agreement. Finally, both parties have agreed to non-competition clauses. Specifically, pursuant to the agreement, Neogen agreed that it will not, directly or indirectly, manufacture, cause to be manufactured, sublicense, use, market, distribute, resale or sell products that compete with or are intended, by applicable marketing and promotional programs directed to such products, to compete with the “Products” in the “Covered Fields” within the “Territory.” These capitalized terms are defined in the agreement as follows:

“Products” include ContraPest and any other products or services that would infringe or use any portion of our “Licensed IP”;
“Licensed IP” includes certain of our pending patent applications related to ContraPest that are listed in the agreement, and the related proprietary information, know-how and intellectual property;
“Covered Fields” means all commercial rodent control application fields of use, including all agricultural, professional pest, government, agency and consumer retail applications; and

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“Territory” means North America and all U.S. territories under the jurisdiction of the EPA.

We and Neogen are currently engaged in ongoing discussions regarding manufacturing and commercialization plans, as well as the appropriate interpretation of the agreement, including the non-competition provisions set forth therein.

NeoVenta — In September 2015, we entered into a sales and marketing agreement with NeoVenta Solutions, a sales and marketing company, for the sales of ContraPest in India and certain surrounding Southeast Asian countries. Under the agreement, NeoVenta will be responsible for seeking applicable regulatory approval to market ContraPest in these countries on our behalf. After such regulatory approval has been obtained, we have granted NeoVenta an exclusive license for 10 years to represent us in marketing, sales and distribution of ContraPest in these countries. We have retained all manufacturing responsibilities for ContraPest in these markets. NeoVenta has agreed to minimum sales commitments of rodent control products in the countries covered by the agreement, which total $23 million over the first five years. However, we believe that this understates the market potential for a non-lethal, effective and humane product in these countries.

Bioceres — In January 2016, we signed an agency agreement with INMET, the research and development subsidiary of Bioceres, Inc., a leading agricultural biotechnology company in Argentina, to seek regulatory approval for and conduct pre-sales marketing of ContraPest in Argentina. Under the agreement, INMET, which specializes in bacterial fermentation solutions, will act as our exclusive agent to obtain necessary governmental approvals to sell and market ContraPest in agricultural, residential and public transport applications throughout the country of Argentina. The parties intend to create a joint venture entity which we will control. Sales in Argentina will occur only after regulatory approval is obtained and the joint venture entity is formed. Depending on the timing of governmental approvals, it is possible that Argentina will be the first country worldwide in which ContraPest will be commercially marketed. We have also entered into a services agreement with Bioceres and INMET to provide research and development services to develop an efficient production method for a bio-synthetic version of triptolide, one of the two active ingredients in ContraPest that also has pharmaceutical applications. The parties intend to create a second legal entity to pursue this triptolide research and development.

Subject to obtaining necessary regulatory approvals, we plan to market ContraPest in additional international jurisdictions. The expectation is that we will stage these market launches based on the length of time required to complete each country’s regulatory process, the market potential, identification and agreements with appropriate parties and the safety of our intellectual property.

We are currently exploring a potential relationship in Europe for the registration of ContraPest with EU regulatory agencies, the development of manufacturing in the EU, research and development of new products using our fertility control technology, and the granting of distribution rights in the EU. However, we have not yet entered into any binding agreements related to these matters.

Commercialization Plans

To date, we have not generated any revenue from product sales, but we currently expect to commercialize ContraPest and begin to generate revenue from the sale of products or through the payment of royalties by our strategic partners beginning in the fourth quarter of 2016 or the first quarter of 2017. Specifically, we anticipate that sales of ContraPest will commence in North America in late 2016 or early 2017 through our distribution relationship with Neogen, and that we will begin receiving royalty payments from Neogen thereafter. Subject to obtaining necessary regulatory approvals, we also intend to market ContraPest in international jurisdictions, including India, Argentina and the EU, directly and through our existing and future strategic relationships. Target segments for ContraPest include government (e.g., subways, transit systems and public housing agencies); healthcare; agriculture (e.g., farms, storage facilities and protein production facilities (including cattle, sheep, pig and poultry facilities)); food production (e.g., factories, meat-packing facilities, dairy production plants and vegetable and fruit preparation facilities); and commercial (e.g., major restaurant chains, retail locations, casinos and hotels). Since EPA approval, we have received calls or emails of interest from the following types of potential customers: zoos, animal research facilities, waste and recycling centers, parks, transit agencies, natural resource managers, island conservation groups, botanical gardens, animal

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sanctuaries, children’s gardens, healthcare providers, property managers, and food production facilities. In addition, we intend to approach large pest management companies to pursue potential partnerships for the distribution and sale of ContraPest.

Pricing and Value

We intend to value price our product candidate, ContraPest, such that our pricing strategy will take into account not only the cost of goods sold, but an understanding of the cost of competitive products and the value of our product candidate to the end user. We believe ContraPest will be perceived as a significant improvement over current products for managing rat infestations and, as such, should command a premium price. Our experience is that potential customers immediately understand the advantages of ContraPest and become enthusiastic about its use. We plan to use promotional efforts to support the value message and to justify our product candidate’s increased value and premium price, built around the following proposed advantages:

ContraPest is sustainably effective;
ContraPest involves targeted delivery;
ContraPest is safe;
ContraPest is environmentally friendly; and
ContraPest is humane.

Also, we will focus on specific advantages for the individual customer and expect to position our product candidate as having the following additional general advantages:

Savings in personnel costs to clean up dead rodents;
Savings in eliminating the use of rodenticides during ContraPest baiting;
Public relations advantages (sustainably effective, safe, environmentally friendly and humane);
Savings by reducing loss or contamination of food inventories; and
Savings by reducing damage to infrastructure.

We believe that the addressable markets for ContraPest will evolve from first adopters to those potential customers that have zero tolerance for poisons, to those potential customers that focus on efficacy and value pricing, to those potential customers and regulators that prefer an alternative to poisons, and finally to bulk agricultural and retail markets. We believe that the expansion into these markets will be aided by a progression of potential cost and pricing reductions, starting with raw material costs, packaging costs, scale economies, and finally delivery and distribution improvements.

Sales Approach

Because of the unique nature of our technology and the market demand for a non-lethal approach to rodent pest control, large pest management companies who we have approached about our product candidate have expressed interest in learning more about ContraPest. Consequently, we plan to continue to foster these discussions, to exchange data, and may negotiate agreements with carefully selected partners to maximize their appropriate deployment of our product candidate, when approved. The advantages to selling through a third party sales and service force include:

Immediate availability of a field sales force experienced in selling rodent control products;
Familiarity with our target customers and the challenges they face;
Our field personnel, customer service, account receivable, and shipping and handling teams would be smaller, thus reducing start-up costs; and
No need for more than one field sales person per region; and
Less need to substantially expand the sales force as our product candidate gains traction with new customers.

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We plan to be deeply involved in the initial product launch and assist with in-depth product training, business development, co-travel with sales representatives and the creation of sales and marketing tools.

Raw Materials and Manufacturing Process

ContraPest contains two active ingredients, VCD, a manufacturing chemical, and triptolide, a plant derived chemical from the Thunder God Vine, Tripterygium wilfordii. ContraPest also contains several other inactive ingredients. Currently, we source VCD from a standard chemical supply provider. However, in the near future we will be qualifying additional suppliers for VCD. Triptolide is derived from the Thunder God Vine, which is commonly cultivated in southeastern China and other Asian countries, and is available from a variety of sources. Currently, we have one qualified source of purified triptolide, and are qualifying a second source. However, the process to purify triptolide for use in ContraPest is expensive, and we are seeking other, less costly methods of triptolide production, including bio-synthetic methods. See the discussion under the heading “Manufacturing, Marketing and Distribution” for more information about our agreement with Bioceres and INMET to provide research and development services to develop an efficient production method for a bio-synthetic version of triptolide. This initiative may produce a less expensive source of triptolide for our own use, and provide us with the potential opportunity to earn revenue from the sale of such product to our licensees and other potential consumers of triptolide. The inactive ingredients in ContraPest are sourced from standard chemical supply providers.

Our manufacturing process involves the incorporation of our two active ingredients, in low concentrations, into several inert ingredients. Once incorporated, the entire product goes through a micro-encapsulation process in order to stabilize the final formulation. Stabilizing the product in this manner allows it to be delivered to rodents in a safe and effective manner. After production, the manufacturing line is cleaned using environmentally safe methods and products.

Currently, we have production scale capability in our facilities in Arizona to manufacture and launch ContraPest. Our internal production capabilities allow us to meet our field research needs, while also having the ability to meet a surge in production. Having an internal manufacturing line allows us to scale up or scale down quickly based upon demand without involving a third-party contract manufacturer. Our manufacturing process has been designed in a modular, scalable and transportable fashion. This allows us to quickly respond to production requirements anywhere in the world.

In addition to our internal manufacturing facility, we have also entered into agreements with certain third parties to expand our manufacturing capacity, and intend to enter into additional manufacturing agreements in the future on an opportunistic basis.

Scientific Background Regarding our Product

ContraPest is a liquid bait containing the active ingredients VCD and triptolide. When consumed, ContraPest causes contraception that can progress to sterility in male and female rats beginning with the first breeding cycle following consumption.

The female rat is born with a finite number of eggs, also called oocytes, and she remains fertile and will reproduce until the day she dies. Within the ovary, eggs are contained in structures called follicles. The non-regenerating and most immature stage of follicles is called primordial. The primordial follicles mature through several stages from primary to secondary to antral follicles and ultimately ovulate. Once the primordial follicles have become depleted, ovarian failure occurs, which terminates reproductive capability.

VCD has been well studied and causes specific loss of ovarian small follicles (both primordial and primary); because oocytes do not regenerate, loss of these follicles leads to ovarian failure. Following repeated dosing, VCD causes ovarian failure in rats. However, daily dosing of mice and rats with VCD does not produce generalized toxicity nor does it affect other tissues. A VCD-dosed rat will continue to reproduce until the pool of secondary and antral follicles are depleted through ovulation or atresia, which is the natural death of the follicle, which can take up to three months.

The second active ingredient, triptolide, targets growing follicles and exerts a significant suppression of male fertility by disrupting sperm maturation and stopping the movement of sperm. Female rats treated

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with triptolide ovulate fewer eggs because the follicles stop growing. Triptolide does not affect primordial follicles, but when used in combination with VCD, the result is contraception that can progress to sterility in female rats.

Both VCD and triptolide are supported by evidence regarding their safety and mechanism of action. Additionally, recent studies, both in the lab and in the field, have documented their effect in fertility reduction and therefore reduction in rat populations. The graph below displays the total numbers of pups after two breeding rounds in one study.

[GRAPHIC MISSING]

Figure:  Total number of rat pups born after consumption of ContraPest. Sixteen female rats (n=8 control and n=8 treatment) were provided ContraPest or inactive bait for 15 days and bred with proven male breeders. After two breeding rounds, the number of pups was totaled. The bar on the left shows the number of pups born to control females while the bar on the right shows the number of pups born to females that consumed ContraPest.

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Other Potential Products

We have developed a pipeline of potential additional fertility control and animal health products, with diverse applications, as outlined in the following chart and in more detail below.

     
Product Candidate/Area   Development Status   Segment   Primary Target
ContraPest   Environmental Protection Agency (EPA) granted registration approval for ContraPest effective August 2, 2016; to commercialize following approval   Population management   Rodents
Plant-based fertility control   Pilot studies have been completed; additional testing required for the use of this product to manage pest populations in select sites such as schools and hospitals   Population management   Rodents
Feral animal fertility control   Pilot studies are in process to show efficacy of this product candidate; to complete larger pivotal studies and regulatory submission   Population management   Feral dogs and hogs
Non-surgical spay and neutering   Pilot studies completed show encouraging signs of efficacy; to complete additional studies and regulatory submission   Companion animal health   Companion dogs and cats
Boar taint   Additional scientific and field studies and regulatory submission required   Food production and safety   Boars
Animal cancer treatment   Proof of concept study to be performed to determine whether proprietary formulation may provide effective delivery of triptolide to dogs for cancer therapy   Companion animal health   Companion dogs

Plant-based Fertility Control Product Candidate

While ContraPest is a liquid bait containing two active ingredients, we are also developing a fertility control product with only one of those two ingredients, botanically-derived triptolide. We anticipate this product candidate may be an option for customers who prefer a completely plant-derived product. We anticipate that we may need changes to the delivery format for deployment. However, the general mechanism of action for triptolide should suppress reproduction and control rodent pest populations, especially given the relatively short life span of rats and mice. As a follow-on product, with active ingredients that are already approved by the EPA, we would expect the EPA approval process to be rapid compared to the approval of ContraPest, which was approved in twelve months.

Boar Taint Product Candidate

Boar taint is the offensive odor or taste that can be evident during the cooking or eating of pork or pork products caused by hormones, called pheromones, present in non-castrated boars once they reach puberty. Castration without anesthesia shortly after birth is currently the standard procedure used to eliminate boar taint, but it results in lower meat production due to decreased weight gain, which is an effect of castration. This process also introduces a surgical risk of infection and can raise safety issues for workers.

If we are successful at developing a boar taint product candidate, we expect that it will target testosterone production and will be easily administered to feedlots and will have none of the safety issues associated with castration. The next step will be continued scientific and field studies followed by submission to and approval by the appropriate regulatory agencies. This process is expected to take approximately two years.

Feral Animal Fertility Control Product Candidate

Feral dogs and hogs present problems both in the United States and internationally. The negative impacts of feral dogs include threats to human health and safety, agriculture, natural resources and property. A 2005 study estimated monetary losses by feral dogs within the U.S. at $620 million annually. Feral pigs are can also be

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aggressive and are known for damaging crops and transmitting diseases to humans, livestock and other wildlife. Feral pigs are present across more than three quarters of the U.S. and are responsible for an estimated $1.5 billion in damages each year.

Current strategies for controlling feral animal populations are often ineffective, difficult to conduct and costly. Studies have shown that our fertility control technology is effective in both these species. Accordingly, we are currently conducting pilot studies to show efficacy of our approach prior to proceeding to larger pivotal studies and regulatory submission. We are currently completing specific development plans for this product candidate.

Companion Animal Product Candidates

We plan to develop the following products for use in companion animals such as domestic dogs and cats. However, applications for companion animals require FDA approval, which is a much longer and more expensive regulatory process. Our expectation is that we will pursue these technologies or through research and development partnerships with larger companies.

Non-Surgical Spay and Neutering Product Candidate.  Based on a low average of $100 for each spay or neuter procedure, the spay and neutering of companion animals constitutes a $1.9 billion market in the United States alone, with few effective non-surgical alternatives. We are developing a product that can be easily administered to the companion animal orally or by injection in combination with vaccinations. No surgery is required and the surgical risks of infection and pain could be eliminated. This product candidate targets the ovaries and testes and is delivered through a proprietary drug delivery methodology. Early field studies with feral dogs showed encouraging signs of efficacy.
Animal Cancer Treatment Product Candidate.  Cancer therapy for companion animals is often not a viable option since chemotherapy can be a long, painful and expensive process. However, we have developed a manufacturing technology that allows the chemotherapeutics to be encapsulated and delivered directly to the affected tissues without causing the side effects to the immune, hypothalamic systems or neuro pathways.

Competition

Currently, there are no fertility control products that target rodents. Products that are used for managing rodent infestations include rodenticides and traps.

Rodenticides

Rodenticides are poisons that use anticoagulants or phosphides to cause rodent death.

Anticoagulants can be single dose (i.e., second generation) or multiple dose (i.e., first generation) rodenticides. Generally, death occurs within one to two weeks after ingestion of lethal amounts. These poisons work by blocking the rodent’s blood clotting ability. In addition, they include chemicals that cause damage to tiny blood vessels, or capillaries, resulting in diffuse internal bleeding. These effects are gradual, developing over several days. In the end, the animal dies calmly, but leading up to death the rodent is likely to experience discomfort and pain. As a result, we believe that the use of anticoagulants is inhumane.

First generation anticoagulants are generally less toxic than second generation products, so they have shorter elimination half-lives, but they also require higher concentrations and consecutive intake over days to be lethal. First generation anticoagulants are marketed under a variety of brands such as Ramik, Rodex, Tomcat and Rozol and contain active ingredients such as warfarin, chlorophacinone, diphacinone or coumatetralyl. Second generation anticoagulant rodenticides, or SGARs, known as “superwarfarins,” are far more toxic than first generation rodenticides so they are applied in lower concentrations. Most are lethal after a single ingestion of bait. SGARs are also available under a variety of different brand names, including d-CON, Havoc, Di-Kill, Jaguar, Hawk, Boot Hill and Hombre. These products contain active ingredients such as difenacoum, brodifacoum, difethialone, flocoumafen, and bromadiolone. Companies that manufacture anticoagulants include Reckitt Benckiser Group plc, Syngenta, Bayer CropScience, BASF, Neogen and Liphatech.

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Metal phosphides are considered single-dose fast acting rodenticides; death occurs commonly within one to three days after single bait ingestion. Death is caused by an acid in the digestive system of the rodent that reacts with the phosphide to generate the toxic phosphine gas. Metal phosphides have possible use in places where rodents are resistant to some of the anticoagulants. Zinc phosphide baits are also cheaper than most second-generation anticoagulants. They are marketed under brands that include Prozap, Eraze, and Ridall-Zinc by Neogen, MotomCo and Liphatech, respectively.

Rodenticide manufacturers compete by introducing new products to meet the changing demand of consumers, expansions and investments, acquisitions, and entering into strategic alliances with distributors and companies that have expertise in the rodenticide market. As a result, we believe the degree of competition in the rodenticide market is high. The market is highly concentrated among a few large rodenticide manufacturers, such as Syngenta, Bayer CropScience, BASF, Neogen and Liphatech. Also, there are high barriers to entry into the rodenticide market due to extensive capital investment and regulatory approval requirements.

Traps

Trapping is an option for those looking for a non-lethal way to manage a rodent infestation. There are several types of traps including spring, or snap, traps, cage traps, glue traps and electronic traps. Often traps merely injure and trap the rodent still alive. Trapped rodents will do anything to free itself, including chewing off its limbs. Also, rats are relatively intelligent animals and can learn to avoid traps. Further, the use of traps is less popular in urban centers and among pest control companies. Therefore, traps are a less common alternative to rodenticides as a form of rodent control. Companies that manufacture traps include Victor, Havahart, Rat Zapper, Real-Kill, J.T. Eaton and others.

Animal Fertility Control

Animal fertility control has been in research and development for almost 30 years. GonaCon(GnRH) is the current product for fertility control approved by the USDA. GonaCon is injected into an animal and the animal must receive a booster after two years to maintain efficacy. The formula is typically provided through a dart gun and the animals should be marked so that the booster can be given at a later date. This is an extremely challenging delivery method for any wild animal in a natural environment. ZonaStat-H (PZP), a fertility product used since the late 1980’s for wild horses and burros, is delivered in the same manner as Gonacon. The only oral fertility product on the market is an avian product, developed by Innolytics, LLC in collaboration with the USDA Animal and Plant Health Inspection Service, and is made specifically for pigeons.

Government Regulation and Product Approval

Federal, state and local government authorities in the United States regulate, among other things, the testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, distribution and marketing of the products we develop. Our wildlife and pest fertility control products must be approved by the EPA Office of Pesticide Programs, or OPP, before they can be legally marketed and sold in the United States. The process for obtaining regulatory approval and compliance with appropriate federal, state and local regulations is rigorous and requires the expenditure of substantial time and financial resources.

Additional product candidates in our pipeline may require approval from other government agencies, namely the USDA and FDA. In 2015, the FDA and EPA entered into a “data sharing” agreement to streamline data review and speed the regulatory process avoiding redundancy where possible.

United States Review and Approval Processes

In the United States, the EPA regulates the sale, distribution and use of any pesticide under the Federal Insecticide, Fungicide and Rodenticide Act, or FIFRA. The EPA defines a pesticide as “any substance or mixture of substances intended for preventing, destroying, repelling, or mitigating any pest.” FIFRA defines a pest as “any insect, rodent, nematode, fungus, or weed.” To register a new product, all active ingredients within the product must be registered with the EPA.

On August 23, 2015, we submitted a set of registration applications for two active ingredients and ContraPest for EPA review and approval. Our application for ContraPest was submitted as a restricted use, indoor only, application. A restricted use product can only be handled by a certified pest control operator. The requirements

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for an application are specified in detail by EPA regulations. These include requirements for data on which the EPA can evaluate the environmental effects, health effects, and safety of the product. The environmental effects data is reviewed by the Environmental Fate and Effects Division, or EFED. The health effects data is reviewed by the Health Effects Division, or HED.

Prior to submission, our active ingredients and product information was reviewed by the Hazard and Science Policy Council, or HASPOC, which includes HED members, and data waiver requests were granted for all of the required toxicology studies. EFED also reviewed the applications, and provided certain recommendations for testing, which were incorporated into our filing.

Upon filing an application with the OPP Registration Division (RD), there was a preliminary screen, where the application was initially reviewed for all required sections regarding chemistry, toxicity and environmental fate. Following this preliminary screen, the review period begins. Under the timelines set forth by the Pesticide Registration Improvement Extension Act (PRIA 3), RD has 20 months to review the application and reach a registration decision. Once the review period begins, RD will disperse the application to all the applicable science departments for an in depth review. For an application with an official review period greater than six months, OPP has 90 days in which it may identify any substantive science omissions and may reject the application unless the applicant can correct the omissions within 10 business days. This technical screening review period passed without EPA raising any issue. After completing the science reviews, each department will make its recommendations to RD. Based on these science recommendations, RD may decide it needs additional data and will contact the applicant with options for proceeding, which may include extending the review period until requisite data or other information can be developed and submitted for review. If RD has sufficient information, it will develop its initial risk and registration decisions, which it will articulate and publish in a document for public comment. RD decided that it had sufficient data from our application and published the document for public comment on June 24, 2016. After the 30-day public comment period, OPP reviewed the public comments to address any additional concerns. This is considered one of the final steps prior to approval of a registration.

The EPA also requires that the following be submitted for review, in addition to data: a complete copy of the label proposed for the product, instructions for use and any claims that will be made by us, as well as, the complete formulation. We are also required to submit documentation describing the chemistry, manufacturing process and quality control parameters. This is done to ensure the product can be produced consistently. The entire submission must be reviewed and approved prior to any legal sales and distribution of the product. The EPA granted registration approval for ContraPest effective August 2, 2016. This EPA approval was granted on a restricted-use basis, including indoor and limited outdoor use, and is based on a liquid formation. We intend to diligently pursue additional related regulatory approvals from the EPA to support our product evolution, including seeking approval for full outdoor use, removal of the restricted-use status, alternative formulations and for additional species (utilizing approved active ingredients). In addition, we believe that the EPA will support us in facilitating regulatory reviews outside of the U.S., and we are exploring a relationship with the Danish Environmental Protection Agency to assist us with obtaining regulatory approvals in the EU.

We expect to pursue registration in each state, since product registration is required for every state in which the product will be distributed or sold. Each state has its own registration filing requirements. These registration programs are managed by state agricultural and/or environmental regulatory agencies. For some state registration applications, all that is required is the EPA stamped-approved label, a completed application form, and a fee payment. Other states, notably California, New York, and several others, require more robust registration applications and may require data not required by EPA. ContraPest has received registration from the regulatory agencies of Arizona, the District of Columbia, Georgia, Hawaii, Illinois, Louisiana, Maryland, Minnesota, New Jersey, North Carolina, Oregon, Virginia, Washington, West Virginia and Utah. Registrations in additional states are currently pending. States vary in the expected timing of approval, from a few weeks to several months or more.

International Review and Approval Processes

Canada — Canada also has a product registration program similar to the U.S. program. Canada has entered into a data and review agreement with EPA intended to expedite the approval process.

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European Union — The European Chemicals Agency (ECHA) is a decentralized agency of the European Union, or EU. The agency is responsible for the scientific evaluation of chemicals intended for use in human health and the environment developed by companies for use in the EU. The agency has a biocidal product committee that is responsible for the review of any biocidal product and active substances. A biocidal product is used to control unwanted organisms that are harmful to human or animal health, or that cause damage to human activities. These harmful organisms include pests (e.g. insects, rats or mice) and microorganisms (e.g. molds or bacteria). Biocidal products include: insecticides, insect repellents, disinfectants, preservatives for materials, and anti-fouling paints. The biocidal product committee has similar requirements to those in the United States, requiring that evidence of purity, safety, efficacy, and consistency of manufacturing processes all be demonstrated.

The member state where the biocidal product will be placed on the market is responsible for authorizing the product. This is referred to as the ‘National authorization’. The process of national authorization relies however on the process of mutual recognition. Once a biocidal product is authorized by a first EU country (the ‘Reference Member State’), the other EU countries must, if requested to do so, authorize the biocidal products under the same terms and conditions. Some products can also be authorized at EU level, allowing the companies to place these on the entire EU market. In these cases, it is the European Commission that authorizes the products. This is referred to as the ‘Union authorization’.

In March 2016, ECHA decided to move toward a comparative assessment for rodenticides registered as a biocide. A comparative assessment will evaluate the risks and benefits of each rodenticide and a standard will be set for rodenticides based on this information. When a new rodenticide files for registration, it must meet this standard or best this standard to be accepted. This comparative assessment will be carried out by the Reference Member State. Representatives from various member states met in Helsinki the second week of June 2016 to determine which products or active ingredients will be used to set the standard for rodenticides. ECHA has moved to support the 5-year renewal, not the traditional 10-year renewal, of eight anticoagulant rodenticides.

On July 4, 2016, we met with the Danish Environmental Protection Agency (DEPA) for a pre-meeting to discuss the registration of ContraPest in the EU. This meeting was to determine if DEPA was willing and capable to review and support a ContraPest dossier. DEPA agreed they would have the capacity to support a ContraPest dossier and they have executed their commitment as the competent authority to carry our EU registration application forward. We are engaged in ongoing discussions with DEPA to establish the application content.

United Kingdom — In addition to registration routes listed above, the UK has a data sharing agreement with the United States, Australia, and New Zealand for any wildlife fertility management product, allowing for a potentially expedited registration process.

Australia — The Australian Pesticides and Veterinary Medicines Authority, or APVMA, is an Australian government statutory authority established in 1993 to centralize the registration of all agricultural and veterinary products into the Australian marketplace. Previously each State and Territory government had its own system of registration. The APVMA assesses applications from companies and individuals seeking registration so they can supply their product to the marketplace. Applications undergo rigorous assessment using the expertise of the APVMA’s scientific staff and drawing on the technical knowledge of other relevant scientific organizations, Commonwealth government departments and state agriculture departments. If the product works as intended and the scientific data confirms that when used as directed on the product label it will have no harmful or unintended effects on people, animals, the environment or international trade, the APVMA will register the product. As well as registering new agricultural and veterinary products, the APVMA reviews older products that have been on the market for a substantial period of time to ensure they still do the job users expect and are safe to use. The APVMA also reviews registered products when particular concerns are raised about their safety and effectiveness. The review of a product may result in confirmation of its registration, or it may see registration continue with some changes to the way the product can be used. In some cases the review may result in the registration of a product being cancelled and the product taken off the market.

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Rest of the World — Country-specific regulatory laws have provisions that include requirements for certain labeling, safety, efficacy and manufacturers’ quality control procedures to assure the consistency of the products, as well as company records and reports. With the exception of the EU, most other countries’ regulatory agencies will generally defer to the EPA in establishing standards and regulations for pest management products.

Import Permits — Field and laboratory proof of principle studies have been conducted in other countries. In each country, import regulations have been met for the shipment of active ingredients. To date we have received import permits from Australia, New Zealand, Indonesia, Laos, and the Philippines. We expect that additional import permits will be obtained for various field trials in countries prior to registration.

Intellectual Property and License Agreements

Maintaining a strong position in the rodenticide market requires constant innovation along with a healthy research program to evolve product lines to remain competitive and relevant to the needs of the changing global marketplace. We protect the intellectual property resulting from these efforts with the broadest international patent protections available. Our proprietary data and trade secrets are protected with vigilance and attention to data exchanges among employees, consultants, collaborators and research and trade partners. We further strengthen our market position employing international regulatory expertise.

Patent Filings

Our intellectual property portfolio supporting ContraPest consists of nine international patent filings (in the United States, Europe, Canada, Brazil, Russia, Japan, Mexico, South Korea, and Australia) addressing the ContraPest compound. Claims directed toward the compound include composition-of-matter involving a diterpenoid epoxide or salts thereof in combination with an organic diepoxide, use claims for inducing follicle depletion and for reducing the reproductive capability of a mammalian animal or non-human mammalian population. Issued claims will have a patent term extending to 2033 or longer based on patent term determinations in each of the filing countries. The novelty of ContraPest extends to its method of field distribution and has required innovation to perfect the dosing of our product candidate to rodents. We have filed an international patent application covering our novel bait station device to effectively and efficiently deliver our rodent bait at individual bait sites that would, if issued, offer patent term protection through at least 2036.

License Agreements

We have an exclusive patent license with the University of Arizona for background intellectual property that we plan to employ for future product development in the domestic animal fertility control market. The patent claims in the United States, Australia and New Zealand cover the use of 4-vinylcyclohexene diepoxide to deplete ovarian follicles in individual mammals and mammal populations. The license agreement, signed in 2005, will terminate with the last-to-expire patent claims, which have a term extending to 2026.

Trade Secrets and Trademarks

Beyond our patent right holdings, we broaden our intellectual property position with trademark, trade secret, know-how and continuous scientific discovery to accompany our product development efforts. We protect these proprietary assets with a combination of confidentially terms in all partnership agreements or as stand-alone agreements along with rights-ownership agreements and structured information transfer understandings prior to beginning any collaborative projects. We maintain the ContraPest trademark and are registering new trademarks for products from our evolving rodenticide product line and for products for mammalian species beyond rodentia.

Data Sets

We have exclusive use status with the EPA for the data sets we have developed and submitted to the EPA as part of our application for ContraPest. The exclusive use status applies to new active ingredients and the final formulation of the ContraPest product for a period of 10 years. For five years after the 10-year period of exclusivity, if another applicant or the EPA Administrator chooses to rely on one or more data sets that we submitted in support of an application submitted by another applicant, the new applicant must make a binding offer to compensate us and certify to EPA that it has done so. If we and the offeror cannot reach agreement on

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the terms of the compensation for the use of such data sets, FIFRA requires resolution by binding arbitration. The EPA rules do not describe how the compensation should be determined, and there is publicly available information about some, but not all, binding arbitration decisions.

Employees

As of September 30, 2016, we had 25 full-time, and two part-time employees including a total of two with Ph.D. degrees. Within our workforce, 15 employees are engaged in research and development and 12 in business development, finance, legal, human resources, facilities, information technology and general management and administration. None of our employees are represented by labor unions or covered by collective bargaining agreements.

Facilities

Our corporate headquarters are located in Flagstaff, Arizona, where we lease and occupy 17,797 square feet of office and industrial space pursuant to a lease that commenced on December 20, 2011 and expires on December 31, 2019. Our manufacturing facility is located within our corporate headquarters, occupying 4,865 square feet of the total space. We believe that our existing facilities are adequate and meet our current needs for business, manufacturing and research and development.

Legal Proceedings

In July 2016, we entered into an agreement with Tom Ziemba, our former chief executive officer, in recognition of his continued support and cooperation, and to resolve a dispute regarding whether his options appropriately expired in the first quarter of 2016. As consideration for Mr. Ziemba’s full and final settlement of his dispute with us, we agreed to issue to Mr. Ziemba 600,000 shares of our common stock on a post-reverse split basis.

Other than discussed above, we are not currently subject to any material legal proceedings, however we could be subject to legal proceedings and claims from time to time in the ordinary course of our business. Regardless of the outcome, litigation can, among other things, be time consuming and expensive to resolve, and divert management resources.

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MANAGEMENT

Executive Officers and Directors

The following is a brief description of the principal occupation and recent business experience of each of our executive officers and directors and their ages as of November 18, 2016:

   
Name   Age   Position
Loretta P. Mayer, Ph.D.   67   Chair of the Board, Chief Executive Officer and Chief Scientific Officer
Cheryl A. Dyer, Ph.D.   64   President, Chief Research Officer and Director
Thomas C. Chesterman   57   Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
Kim Wolin   61   Executive Vice President, Operations, and Secretary
Grover Wickersham(1)(3)   67   Vice-Chair of the Board, Chair of Nominating and Corporate Governance Committee
Marc Dumont(1)(3)   73   Director
Bob Ramsey(2)(3)   72   Director
Matthew Szot(1)(2)   42   Director; Chair of Audit and Compensation Committees
Julia Williams, M.D.(2)   56   Director

(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the nominating and corporate governance committee.

Our executive officers are each appointed by the board and serve at the board’s discretion.

Executive Officers and Employee Directors

Loretta P. Mayer, Ph.D. is one of our co-founders, and has served as our chair of the board since our inception in July 2004. Since June 2009, Dr. Mayer has served as our chief scientific officer. In December 2015, she assumed the title of chief executive officer, a position she previously held from June 2011 to January 2015. She is a co-inventor on the patent licensed from the University of Arizona that formed the basis for the launch of our research and development efforts and continues to contribute as co-inventor on additional patent improvements and new technology. Prior to her career in medicine and science, from 1978 to 1991 Dr. Mayer served as CEO of Binnacle Development, Inc., a California-based Real Estate Development company, where she established the first Senior Citizen Housing project in the city of San Diego, developed $45 million in product and managed an annual budget of $10 million. Dr. Mayer also served as Vice President of Soroptimist International of the Americas from 1990 to 1991, where she was responsible for NGO representation at United Nations and international board meetings, Cambridge, UK 1990 – 1991. She also served Soroptimist International of the Americas as a federation board member from 1988 to 1990 and as regional governor from 1984 to 1986. She earned a master’s degree in 1997 and a Ph.D. in 2000 in Biology from Northern Arizona University. Dr. Mayer earned a bachelors degree in Sociology from University of California, San Diego in 1971. She accepted a post-doctoral appointment with the College of Medicine at the University of Arizona in 2000. We believe that Dr. Mayer is qualified to serve as a member of our board of directors because of her scientific experience, business background and her role as our co-founder.

Cheryl A. Dyer, Ph.D. is one of our co-founders and has served as our president and a member of our board of directors since our inception in July 2004. She has served as our chief research officer since 2004, where she oversees all of our research activities for relevance to our business goals, adherence to scientific standards and assurance of regulatory, legal and contractual compliance. From June 1990 to September 2010, Dr. Dyer served as a NIH-funded Principal Investigator at The Scripps Research Institute, La Jolla, California and Northern Arizona University, Flagstaff, Arizona where she maintained an independently-funded research program and laboratory. She was the first Research Professor in the Department of Biology at Northern

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Arizona University in 1995 and the first Established Investigator for the American Heart Association in the State of Arizona. Dr. Dyer earned a Bachelor’s degree in Biology from the University of California at San Diego in 1974 and a Ph.D. in Physiology and Pharmacology in 1986 in the School of Medicine at University of California at San Diego. Dr. Dyer was appointed as an Adjunct Member of the Graduate Faculty at Texas A&M University in 2015. We believe that Dr. Dyer is qualified to serve as a member of our board of directors because of her unique scientific background and her role as our co-founder.

Tom Chesterman joined our company in September 2015, and has served as our chief financial officer and treasurer since November 2015. He has over 20 years of experience as the chief financial officer of a public company in the life science, tech and telecommunications industries. Most recently, he was the vice president and treasurer of General Communication Inc., a telecommunications company in Alaska, from 2013 to 2015. Previously, he was the chief financial officer of life science companies Bionovo Inc. from 2007 to 2012, Aradigm Corp. from 2002 to 2007 and Bio-Rad Laboratories, Inc. from 1996 to 2002. Mr. Chesterman is adept at a variety of capital market access techniques, and has significant experience in developing the operational and financial infrastructures in companies to help support successful and rapid growth. Mr. Chesterman earned a bachelor’s degree from Harvard University and an MBA from the University of California at Davis.

Kim Wolin joined our company as a marketing technologist in May 2013, and in May 2014 was appointed executive vice president of operations. From January 2009 to May 2013, she was a vice president, branch sales and service manager of Sunwest Bank, a community bank located in Flagstaff, Arizona. From November 1996 to December 2009, Ms. Wolin held the positions of assistant vice president, branch manager and Licensed Financial Advisor at Wells Fargo Bank. She has owned and operated Creative Net Solutions, a website design and hosting business, since 1994. From 1984 to 1992, Ms. Wolin owned and operated Kodas Produce Market, a health food and organic produce store in Oakland, CA. Ms. Wolin earned a bachelor’s degree in Psychology from the State University of New York/Buffalo in 1977.

Non-Employee Directors

Marc Dumont was elected to our board of directors in January 2016. Mr. Dumont is chairman and chief executive officer of Chateau de Messey Wineries, Meursault, France, a position he has held since March 1995. Mr. Dumont served as the president of PSA International SA (a PSA Peugeot Citroen Group company) from January 1981 to March 1995. He is an international financial consultant and advisor for clients in Europe and Asia, as well as the United States. He has served as the chairman of Sanderling Ventures (a European affiliate of a U.S. venture capital firm) since 1996. In the past, Mr. Dumont has served as director of Finter Bank Zurich, Novalog/Winslow Corporation, NUKO Information Systems Inc. in San Jose, CA, and Banque Internationale in Luxembourg, all of which were public companies. Mr. Dumont holds a Degree in Electrical Engineering and Applied Economics from the University of Louvain, Belgium and an MBA from the University of Chicago. We believe Mr. Dumont is qualified to serve as a member of our board of directors because of his experience and knowledge of corporate finance, international business development and operations, and his experience as a past director of other public and private companies.

Bob Ramsey was elected to our board of directors in January 2016. Since 1978, Mr. Ramsey has served as chief executive officer of Starwest Associates, which develops and implements new busines