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As filed with the Securities and Exchange Commission on June 10, 2019.

Registration No. 333-231747


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



Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933



AKERO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  2836
(Primary Standard Industrial
Classification Code Number)
  81-5266573
(I.R.S. Employer
Identification Number)



170 Harbor Way, 3rd Floor
South San Francisco, CA 94080
(650) 487-6488

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



Andrew Cheng
President and Chief Executive Officer
170 Harbor Way, 3rd Floor
South San Francisco, CA 94080
(650) 487-6488

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



Copies to:

Mitchell Bloom, Esq.
John Mutkoski, Esq.
Laurie Burlingame, Esq.
Goodwin Procter LLP
100 Northern Avenue
Boston, MA 02210
(617) 570-1000
  Jonathan Young
Chief Operating Officer
170 Harbor Way, 3rd Floor
South San Francisco, CA 94080
(650) 487-6488
  Divakar Gupta, Esq.
Richard C. Segal, Esq.
Charles S. Kim, Esq.
Cooley LLP
55 Hudson Yards
New York, NY 10001
(212) 479-6000



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

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

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

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

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

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

Large Accelerated Filer o   Accelerated Filer o   Non-Accelerated Filer ý   Smaller Reporting Company ý

Emerging Growth Company ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. o



CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be Registered(1)
  Proposed Maximum
Offering Price
Per Share(2)

  Proposed Maximum
Aggregate Offering
Price(2)

  Amount of
Registration Fee(3)(4)

 

Common Stock, par value $0.0001 per share

  5,750,000   $16.00   $92,000,000   $11,151

 

(1)    Includes 750,000 shares that the underwriters have an option to purchase.

(2)   Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)   Includes the offering price of shares that the underwriters may purchase pursuant to an option to purchase additional shares.

(4)   Calculated pursuant to Rule 457(a) under the Securities Act of 1933 as amended. $10,454 of this registration fee was previously paid by the Registrant in connection with the filing of its Registration Statement on Form S-1 on May 24, 2019.



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

   


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated June 10, 2019

Preliminary prospectus

5,000,000 shares

LOGO

Common stock

This is an initial public offering of shares of common stock by Akero Therapeutics, Inc. We are offering 5,000,000 shares of our common stock to be sold in the offering. The initial public offering price is expected to be between $14.00 and $16.00 per share.

Prior to this offering, there has been no public market for our common stock. We have applied for listing of our common stock on The Nasdaq Global Market under the symbol "AKRO."

We are an "emerging growth company" as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements.

 
  Per Share
  Total
 

Initial public offering price

  $                  $                 

Underwriting discounts and commissions(1)

  $                  $                 

Proceeds to Akero Therapeutics, Inc., before expenses

  $                  $                 

(1)    See "Underwriting" for a description of the compensation payable to the underwriters.

We have granted the underwriters an option for a period of 30 days to purchase up to 750,000 additional shares of common stock.

Certain of our existing stockholders, including certain affiliates of our directors, and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $30.0 million of shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares of common stock to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares of common stock in this offering. The underwriters will receive the same underwriting discount and commissions on these shares of common stock as they will on any other shares of common stock sold to the public in this offering.

Investing in our common stock involves a high degree of risk. See "Risk factors" beginning on page 9.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about                  , 2019.

J.P. Morgan   Jefferies   Evercore ISI

Roth Capital Partners

                             , 2019


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Table of contents

 
  Page

Prospectus summary

  1

Risk factors

  9

Special note regarding forward-looking statements

  64

Market, industry, and other data

  66

Use of proceeds

  67

Dividend policy

  68

Capitalization

  69

Dilution

  71

Selected consolidated financial data

  74

Management's discussion and analysis of financial condition and results of operations

  76

Business

  94

Management

  149

Executive compensation

  158

Director compensation

  170

Certain relationships and related party transactions

  172

Principal stockholders

  176

Description of capital stock

  179

Shares eligible for future sale

  185

Material U.S. federal income tax considerations for non-U.S. holders of common stock

  188

Underwriting

  192

Legal matters

  205

Experts

  205

Where you can find more information

  205

Index to consolidated financial statements

  F-1

We are responsible for the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with any other information other than in this prospectus, and we take no responsibility for, and the underwriters have not taken responsibility for, any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

Through and including                             , 2019 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: 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 in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

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


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Prospectus summary

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should read the entire prospectus carefully, including our consolidated financial statements and the related notes included elsewhere in this prospectus and the sections entitled "Risk factors" and "Management's discussion and analysis of financial condition and results of operations." Except where the context otherwise requires or where otherwise indicated, the terms "Akero," "we," "us," "our," "our company," "the company," and "our business" refer to Akero Therapeutics, Inc., together with its subsidiary, as appropriate.

Overview

We are a clinical-stage biotechnology company focused on developing and commercializing transformative treatments for serious metabolic diseases with high unmet medical need. Our initial focus is nonalcoholic steatohepatitis, or NASH, a disease without any approved therapies. NASH is a severe form of nonalcoholic fatty liver disease, or NAFLD, characterized by inflammation and fibrosis in the liver that can progress to cirrhosis, liver failure, cancer and death. NASH is a leading cause for liver transplantation. Our lead product candidate, AKR-001, which we are developing as a potential treatment for patients with NASH, is an analog of fibroblast growth factor 21, or FGF21. FGF21 is an endogenously-expressed hormone that regulates metabolism of lipids, carbohydrates and proteins throughout the body. FGF21 also plays a critical role in protecting many types of cells from various forms of stress. FGF21 analogs have shown evidence of therapeutic benefit in clinical trials of patients with NASH, many of whom are dyslipidemic and insulin resistant. In previous clinical trials in patients with type 2 diabetes, or T2D, administration of AKR-001 was associated with substantial improvements in lipid metabolism and insulin sensitivity. On May 24, 2019, the U.S. Food and Drug Administration, or FDA, Division of Gastroenterology and Inborn Errors Products cleared our Investigational New Drug application, or IND, to conduct a Phase 2a clinical trial evaluating AKR-001 in the treatment of NASH patients. We began screening patients for our Phase 2a clinical trial on May 28, 2019. We expect to complete collection of data for the primary endpoint of our Phase 2a clinical trial in the first quarter of 2020, and we expect to complete repeat liver biopsies and all collection of data for the clinical trial in the second quarter of 2020.

NASH is primarily driven by chronic excess caloric intake, which results in people becoming overweight and obese. Nearly half of NASH patients have T2D and nearly three-quarters have metabolic syndrome. The underlying insulin resistance among these patients contributes to accumulation of excess fat in the liver, which leads to stress on hepatocytes. This cellular stress triggers localized inflammation and can ultimately lead to fibrosis and scarring in the liver, or cirrhosis. As NASH progresses, cardiovascular-related morbidity and mortality also increase. The most frequent cause of death in patients with NASH is cardiovascular disease.

According to a study published in Hepatology (2018), the prevalence of NASH in the United States is projected to increase from an estimated 17.3 million in 2016 to 27.0 million by 2030. In particular, the prevalence of patients with advanced fibrosis in the United States is projected to more than double between 2016 and 2030. We believe the unmet medical need will remain high for this population despite investigational NASH therapies currently in late-stage clinical development, as many of these therapies have shown limited efficacy or may be limited by unwanted side effects.

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Our lead product candidate, AKR-001

AKR-001 is an FGF21 analog with unique properties that we believe has the potential to address the core processes underlying NASH pathogenesis, thereby enabling AKR-001 to restore healthy fat metabolism in the liver, reduce hepatocyte stress, mitigate inflammation and resolve fibrosis. FGF21 is an endocrine hormone that acts on the liver, pancreas, muscle and adipose tissue to regulate the metabolism of lipids, carbohydrates and proteins. Acting as a paracrine hormone, FGF21 also plays a critical role in protecting cells against stress. These attributes make FGF21 agonism a compelling therapeutic mechanism, but native FGF21 is limited by its short half-life in the bloodstream. AKR-001 has been engineered to increase human FGF21's half-life sufficiently to enable once-weekly dosing, while retaining the native biological activity of FGF21.

AKR-001 has been administered to a total of 83 patients with T2D in two Phase 1 clinical trials. In a Phase 1b clinical trial, it was observed that AKR-001 substantially improved plasma lipoprotein levels, including reductions of up to 69% in triglycerides and 30% in non-high density lipoprotein cholesterol. In these clinical trials, it was also observed that administration of AKR-001 was associated with substantially improved markers of insulin sensitivity, including reductions of up to 37% in C-peptide and 55% in the homeostatic model assessment of insulin resistance. We believe these results indicate the potential of AKR-001 to redirect calories away from the liver, reduce liver fat, alleviate hepatocyte stress, inhibit inflammation and resolve fibrosis in patients with NASH, as well as reduce susceptibility to cardiovascular disease. This belief is also supported by data from Phase 2 clinical trials of other endocrine FGF analogs in patients with NASH, in which substantial reductions in liver fat content and biomarkers of liver fibrosis were observed.

We therefore believe that AKR-001 has the potential to be a leading endocrine FGF analog, if approved, for treatment of this rapidly-growing patient population that lacks effective treatment options.

In June 2018, we acquired exclusive global development and commercialization rights to AKR-001 from Amgen Inc., which leveraged its deep protein engineering expertise to design and develop AKR-001. As of March 31, 2019, our patent portfolio relating to AKR-001 and other peptides included 111 issued patents and 41 pending patents worldwide, with expected patent exclusivity up to 2034 in the United States, including potential patent term extension. Since AKR-001 is a biologic, marketing approval would also provide twelve years of market exclusivity from the approval date of a Biologics License Application in the United States.

Our strategy

Our goal is to become a leading biotechnology company focused on developing and commercializing transformative treatments for patients with serious metabolic diseases with high unmet medical need. The key components of our strategy are to:

Advance AKR-001 through clinical development in NASH;

Scale our capabilities to support development and commercialization of AKR-001;

Enhance our position as a leading metabolic disease company by leveraging our knowledge of FGF21 biology; and

Develop, acquire or in-license product candidates that enhance our potential to become a leading metabolic disease company.

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Our management team has extensive experience in drug discovery, development and commercialization, and has been involved in the approvals of more than 20 products. Our Chief Executive Officer, Andrew Cheng, MD, PhD, previously Chief Medical Officer at Gilead, was responsible for clinical development for Gilead's HIV program, resulting in 11 FDA/European Medicines Agency, or EMA, approved products. Our Chief Scientific Officer, Tim Rolph, DPhil, formerly Chief Scientific Officer of Pfizer's Cardiovascular & Metabolic Disease Research Unit, oversaw Pfizer's FGF21 program. We are also supported by our board of directors and a group of leading institutional investors. We believe that our team is well positioned to leverage its collective experience in drug development and in-depth knowledge of FGF21 biology and metabolic diseases to develop and commercialize products that will have significant benefits for patients with NASH and other serious metabolic diseases.

Risks associated with our business

Our ability to execute on our business strategy is subject to a number of risks, which are discussed more fully in the section of this prospectus entitled "Risk factors." You should carefully consider these risks before making an investment in our common stock. These risks include, among others, the following:

We have incurred significant losses since our inception and we expect to incur losses for the foreseeable future.

We currently have a limited operating history, have not generated any revenue to date, and may never become profitable.

We currently have no products that are approved for commercial sale and our inability to obtain regulatory approval for AKR-001 or any future product candidate would substantially harm our business.

We are heavily dependent on the success of AKR-001, our only product candidate.

If we breach our license agreement with Amgen related to AKR-001, we could lose the ability to continue development and commercialization of AKR-001.

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

Our success depends, in part, on our ability to obtain, maintain, protect and defend our intellectual property, which is difficult and costly, and we may not be able to ensure that we will be able to do so.

We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development and commercialization of our product candidate or develop any future product candidates.

Our product candidate and any future product candidates must undergo rigorous clinical trials and regulatory approvals, and success in preclinical studies or earlier-stage clinical trials may not be indicative of results in future clinical trials.

We are subject to many manufacturing risks, any of which could substantially increase our costs, delay clinical programs and limit supply of our products.

Corporate information

We were incorporated in January 2017 under the laws of the State of Delaware under the name Pippin Pharmaceuticals, Inc. On May 16, 2018, we changed our name to Akero Therapeutics, Inc. Our principal executive offices are located at 170 Harbor Way, 3rd Floor, South San Francisco, CA 94080, and our

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telephone number is (650)-487-6488. Our website address is www.akerotx.com. The information contained in or accessible from our website is not incorporated into this prospectus, and you should not consider it part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

Implications of being an emerging growth company and a smaller reporting company

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

two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced "Management's discussion and analysis of financial condition and results of operations" disclosure;

reduced disclosure about our executive compensation arrangements;

no non-binding advisory votes on executive compensation or golden parachute arrangements; and

exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the last day of the fiscal year in which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation, providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We have elected to avail ourselves of this exemption and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public emerging growth companies that have not elected to avail themselves of this exemption.

We are also a "smaller reporting company" as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.

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The offering

Common stock offered by us

  5,000,000 shares

Common stock to be outstanding immediately after this offering

 

26,295,122 shares (or 27,045,122 shares if the underwriters exercise their option to purchase additional shares in full)

Option to purchase additional shares

 

We have granted the underwriters an option exercisable for a period of 30 days to purchase up to 750,000 additional shares of our common stock.

Use of proceeds

 

We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of approximately $67.3 million, or $77.7 million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, for development of our product candidate, AKR-001, including completion of our Phase 2a clinical trial and a subsequent Phase 2b clinical trial, for third-party drug substance and drug product manufacturing, as well as potential pipeline expansion and for working capital and general corporate purposes. For a more complete description of our intended use of the proceeds from this offering, see "Use of proceeds."

Directed shares

 

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares offered hereby for certain of our directors, officers, employees, business associates and related persons. See "Underwriting" for more information.

Risk factors

 

You should carefully read the "Risk factors" section of this prospectus for a discussion of factors that you should consider before deciding to invest in our common stock.

The Nasdaq Global Market symbol

 

"AKRO"

The number of shares of our common stock to be outstanding after this offering is based on 21,295,122 shares of our common stock outstanding as of March 31, 2019, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 21,056,136 shares of our common stock immediately prior to the completion of this offering, and excludes:

2,314,740 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2019 under our 2018 Stock Option and Grant Plan, or the 2018 Plan, at a weighted-average exercise price of $1.79 per share (which excludes options to purchase an aggregate of 636,999 shares of common stock, at an exercise price of $7.01 per share, that were granted subsequent to March 31, 2019);

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744,634 shares of common stock reserved for future issuance as of March 31, 2019 under the 2018 Plan, which will cease to be available for issuance at the time that our 2019 Stock Option and Grant Plan, or the 2019 Plan, becomes effective (which includes 636,999 shares of common stock subject to options that were granted subsequent to March 31, 2019);

2,464,822 shares of our common stock that will become available for future issuance under the 2019 Plan, which will become effective in connection with this offering; and

273,869 shares of our common stock reserved for future issuance under our 2019 Employee Stock Purchase Plan which will become effective in connection with this offering.

Unless otherwise indicated, all information in this prospectus assumes or gives effect to the following:

the filing and effectiveness of our fourth amended and restated certificate of incorporation and second amended and restated bylaws prior to the completion of this offering;

a one-for-3.07418 reverse stock split of our common stock effected on June 6, 2019 and a corresponding adjustment in the ratio at which our convertible preferred stock will convert into common stock;

the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 21,056,136 shares of our common stock immediately prior to the completion of this offering;

no exercise of the outstanding options referred to above; and

no exercise by the underwriters of their option to purchase up to 750,000 additional shares of our common stock in this offering.

Indications of interest

Certain of our existing stockholders, including certain affiliates of our directors, and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $30.0 million of shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares of common stock to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares of common stock in this offering. The underwriters will receive the same underwriting discount and commissions on these shares of common stock as they will on any other shares of common stock sold to the public in this offering.

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Summary consolidated financial data

You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the "Selected consolidated financial data" and "Management's discussion and analysis of financial condition and results of operations" sections of this prospectus. We have derived the consolidated statement of operations data for the period January 24, 2017 (inception) through December 31, 2017 and for the year ended December 31, 2018 from our audited consolidated financial statements appearing elsewhere in this prospectus. We have derived the consolidated statement of operations data for the three months ended March 31, 2018 and 2019 and the consolidated balance sheet data as of March 31, 2019 from our unaudited condensed consolidated financial statements appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that should be expected in any future periods, and our results for any interim period are not necessarily indicative of results that should be expected for any full year.

 
  For the period
January 24, 2017
(Inception) through
December 31,
2017

   
  Three months ended
March 31,
 
 
  Year
ended
December 31,
2018

 
(in thousands, except share and per share amounts)
 
  2018
  2019
 

Consolidated Statement of Operation Data:

                         

Operating expenses:

                         

Research and development

  $ 3,486   $ 11,882   $ 226   $ 4,063  

General and administrative

    1,078     1,896     195     1,449  

Total operating expenses

    4,564     13,778     421     5,512  

Loss from operations

    (4,564 )   (13,778 )   (421 )   (5,512 )

Other income (expense), net:

                         

Change in fair value of preferred stock tranche obligation

        (62,150 )        

Change in fair value of anti-dilution right liability

        (5,765 )        

Other income (expense), net

          (21 )       150  

Total other income (expense)

        (67,936 )       150  

Net loss

    (4,564 )   (81,714 )   (421 )   (5,362 )

Accruing dividends on convertible preferred stock

    (213 )            

Accretion of convertible preferred stock to redemption value

          (520 )        

Net loss attributable to common stockholders

  $ (4,777 ) $ (82,234 ) $ (421 ) $ (5,362 )

Net loss per share attributable to common stockholders—basic and diluted(1)

        $ (795.28 ) $ (10.42 ) $ (31.90 )

Weighted average common shares outstanding—basic and diluted(1)

          103,403     40,387     168,071  

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)

        $ (3.12 )       $ (0.25 )

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)

          6,276,741           21,224,207  

(1)    See Note 10 to our audited consolidated financial statements and Note 9 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus for details on the calculation of basic and diluted net loss per share attributable to common stockholders and the calculation of basic and diluted pro forma net loss per share attributable to common stockholders.

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  As of March 31, 2019  
(in thousands)
  Actual
  Pro forma(1)
  Pro forma
as adjusted(2)

 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 69,796   $ 69,796   $ 137,845  

Working capital(3)

    68,295     68,295     136,900  

Total assets(4)

    72,066     72,066     138,788  

Convertible preferred stock

    124,728          

Total stockholders' (deficit) equity

    (55,066 )   69,662     136,940  

(1)    The pro forma consolidated balance sheet data gives effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 21,056,136 shares of common stock prior to the completion of this offering and (ii) the filing and effectiveness of our fourth amended and restated certificate of incorporation.

(2)    The pro forma as adjusted consolidated balance sheet data gives effect to (i) the pro forma adjustments set forth in footnote (1) above and (ii) the issuance and sale of 5,000,000 shares of our common stock in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us (excluding $0.8 million paid as of March 31, 2019). Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total stockholders' (deficit) equity by $4.7 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total stockholders' (deficit) equity by $14.0 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3)    We define working capital as current assets less current liabilities.

(4)   Total assets include deferred initial public offering costs, which upon the closing of this offering, will be reclassified to additional paid-in capital.

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Risk factors

Investment in our common stock involves a high degree of risk and uncertainty. You should carefully consider each of the risks and uncertainties described below before you decide to buy our common stock. You should also refer to the other information in this prospectus, including our consolidated financial statements and related notes. If any of the following risks and uncertainties materialize, our business, financial condition, liquidity and results of operations could be materially and adversely affected. This could cause the trading price of our common stock to decline, and you could lose all or part of your investment.

Risks related to our business, technology and industry

We have incurred significant losses since our inception and we expect to incur losses for the foreseeable future.

We have no products approved for commercial sale and have not generated any revenue to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred significant losses in each period since our inception in January 2017. For the period from our inception through December 31, 2017 and the year ended December 31, 2018, we reported net losses of $4.6 million and $81.7 million, respectively. For the three months ended March 31, 2019, we reported a net loss of $5.4 million. The net loss for the year ended December 31, 2018 included non-cash charges of $62.2 million related to the change in fair value of our preferred stock tranche obligation and $5.8 million related to the change in fair value of our anti-dilution right liability. As of March 31, 2019, we had an accumulated deficit of $91.9 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidate. We anticipate that our expenses will increase substantially if, and as, we:

conduct larger scale clinical trials for our product candidate, AKR-001, and any future product candidates;

discover and develop new product candidates, and conduct nonclinical studies and clinical trials;

manufacture, or have manufactured, clinical and commercial supplies of our product candidates;

seek regulatory approvals for our product candidate or any future product candidates;

commercialize AKR-001 or any future product candidates, if approved;

attempt to transition from a company with a research focus to a company capable of supporting commercial activities, including establishing sales, marketing and distribution infrastructure;

hire additional clinical, scientific, and management personnel;

add operational, financial, and management information systems and personnel;

identify additional compounds or product candidates and acquire rights from third parties to those compounds or product candidates through licenses; and

incur additional costs associated with operating as a public company following the completion of this offering.

Even if we succeed in commercializing AKR-001 or any future product candidates, we may continue to incur substantial research and development and other expenditures to develop and market additional

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product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders' equity and working capital.

We currently have a limited operating history, have not generated any revenue to date, and may never become profitable.

We are a clinical-stage biotechnology company with a limited operating history. Our operations to date have been limited to organizing and staffing our company, acquiring, developing and securing our technology and product candidate, AKR-001, and conducting nonclinical studies of AKR-001. We have not yet demonstrated our ability to conduct or complete clinical trials, obtain regulatory approval, formulate and manufacture a commercial-scale product, or conduct sales and marketing activities necessary for successful product commercialization. Investment in biotechnology product development is highly speculative because it entails substantial upfront expenditures in contract research organizations and contract manufacturing organizations and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. Consequently, any predictions you may make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

Though AKR-001 is ready for Phase 2a clinical development, we do not expect to receive revenue from AKR-001 for a number of years, if ever. To date, we have not generated any revenue and we will not be able to generate product revenue unless and until AKR-001, or any future product candidate, successfully completes clinical trials, receives regulatory approval, and is commercialized. We may seek to obtain revenue from collaboration or licensing agreements with third parties. Our ability to generate future product revenue from AKR-001 or any future product candidates also depends on a number of additional factors, including our, or our current and future collaborators', ability to:

successfully complete nonclinical studies and clinical trials for AKR-001 and any future product candidates;

seek and obtain marketing approvals for any product candidates that complete clinical development;

establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;

launch and commercialize any product candidates for which we obtain marketing approval, and, if launched independently, successfully establish a sales, marketing and distribution infrastructure;

demonstrate the necessary safety data post-approval to ensure continued regulatory approval;

obtain coverage and adequate product reimbursement from third-party payors, including government payors;

achieve market acceptance for any approved products;

address any competing technological and market developments;

maintain our rights under our existing license agreement with Amgen Inc., or Amgen, and any similar agreements we may enter into in the future;

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negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter in the future and performing our obligations in such collaborations;

establish, maintain, protect and enforce our intellectual property rights; and

attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with biotechnology product development, including that our product candidate may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or if or when we will achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we decide, or are required by the U.S. Food and Drug Administration, or FDA, or foreign regulatory authorities, to perform nonclinical studies or clinical trials in addition to those that we currently anticipate. Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing any approved product.

If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development and commercialization of our product candidate or develop any future product candidates.

As a research and development company, our operations have consumed substantial amounts of cash since inception. We expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance AKR-001 into later-stage clinical development.

As of March 31, 2019, we had $69.8 million of cash and cash equivalents. We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will fund our projected operating requirements through 2022. Our forecast of the period of time through which our financial resources will adequately support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this "Risk factors" section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both short and long-term, will depend on many factors, including, but not limited to:

the initiation, progress, timing, costs and results of nonclinical studies and clinical trials for our product candidate or any future product candidates we may develop;

our ability to maintain our license to AKR-001 from Amgen;

the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or change their requirements on studies that had previously been agreed to;

the cost to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we

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    may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights;

the effect of competing technological and market developments;

market acceptance of any approved product candidates, including product pricing, as well as product coverage and the adequacy of reimbursement by third-party payors;

the cost of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;

the cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial-scale manufacturing;

the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval and that we determine to commercialize; and

our need to implement additional internal systems and infrastructure, including financial and reporting systems.

We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and other marketing or distribution arrangements. If we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we could be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. We also could be required to seek collaborators for one or more of our current or any future product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products or product candidates or one or more of our other research and development initiatives. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

We are heavily dependent on the success of AKR-001, our only product candidate.

We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial portion of our efforts and expenditures over the next several years will be devoted to AKR-001, which is currently our only product candidate. Accordingly, our business currently depends heavily on the successful development, regulatory approval, and commercialization of AKR-001. We cannot be certain that AKR-001 will receive regulatory approval or be

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successfully commercialized even if we receive regulatory approval. If we were required to discontinue development of AKR-001 or if AKR-001 does not receive regulatory approval or fails to achieve significant market acceptance, we would be delayed by many years in our ability to achieve profitability, if ever.

The research, testing, manufacturing, safety, efficacy, labeling, approval, sale, marketing, and distribution of AKR-001 is, and will remain, subject to comprehensive regulation by the FDA and foreign regulatory authorities. Failure to obtain regulatory approval for AKR-001 in the United States, Europe, Japan or other jurisdictions will prevent us from commercializing and marketing AKR-001 in such jurisdictions.

Further, all clinical development of AKR-001 to date has been conducted in patients with type 2 diabetes, or T2D. While we believe that the data from clinical trials of AKR-001 in patients with T2D supports development of AKR-001 for the treatment of patients with nonalcoholic steatohepatitis, or NASH, there is currently no available clinical data regarding the safety or efficacy of AKR-001 in patients with NASH. In addition, we did not control the majority of the nonclinical development or any of the clinical development thus far of AKR-001, and we have relied on Amgen to have conducted such research and development in accordance with the applicable protocol, legal, regulatory, and scientific standards, have accurately reported the results of all nonclinical studies and clinical trials conducted prior to our license of AKR-001, and have correctly collected and interpreted the data from these studies and trials. Our future clinical trials may not be able to replicate the results from Amgen's clinical trials. To the extent any of foregoing has not occurred, our expected development time and development costs for AKR-001 may be increased.

Even if we were to successfully obtain approval from the FDA and foreign regulatory authorities for AKR-001, any approval might contain significant limitations related to use, including limitations on the stage of disease AKR-001 is approved to treat, as well as restrictions for specified age groups, warnings, precautions or contraindications. Furthermore, even if we obtain regulatory approval for AKR-001, we will still need to develop a commercial infrastructure or develop relationships with collaborators to commercialize, establish a commercially viable pricing structure and obtain coverage and adequate reimbursement from third-party payors, including government healthcare programs otherwise. If we, or any future collaborators, are unable to successfully commercialize AKR-001, we may not be able to generate sufficient revenue to continue our business.

We may be required to make significant payments under our license agreement for AKR-001.

We acquired worldwide, exclusive rights to AKR-001 pursuant to our license agreement with Amgen, which we refer to as the Amgen Agreement. Under the Amgen Agreement, in consideration for the license, we made an upfront payment of $5.0 million to Amgen and also issued 2,653,333 shares of our Series A convertible preferred stock to Amgen at the time of the initial closing of our Series A Preferred Stock financing in June 2018, with a subsequent 3,205,128 shares of our Series A convertible preferred stock issued at the time of the second closing of the Series A Preferred Stock financing in November 2018. As additional consideration for the license, we are required to pay Amgen aggregate milestone payments of up to $40.0 million upon the achievement of specified clinical and regulatory milestones and aggregate milestone payments of up to $75.0 million upon the achievement of specified commercial milestones. Commencing on the first commercial sale of licensed products, we are obligated to pay tiered royalties of low to high single-digit percentages on annual net sales of the products covered by the license. If milestone or other non-royalty obligations become due, we may not have sufficient funds available to meet our obligations, which will materially adversely affect our business operations and financial condition.

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If we are not successful in discovering, developing, receiving regulatory approval for and commercializing AKR-001 and any future product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

Although we plan to devote a majority of our resources to the continued nonclinical and clinical testing and potential approval of AKR-001 for the treatment of patients with NASH, another key element of our strategy is to discover, develop and commercialize a portfolio of products. We are seeking to do so through our internal discovery programs, but our resources are limited, and those that we have are geared towards nonclinical and clinical testing and seeking regulatory approval of AKR-001 for the treatment of patients with NASH. We may also explore strategic collaborations for the development or acquisition of new product candidates, but we may not be successful in entering into such relationships. AKR-001 is our only product candidate in clinical stages of development. Research programs to identify product candidates require substantial technical, financial and human resources, regardless of whether any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including:

the research methodology used may not be successful in identifying potential product candidates;

competitors may develop alternatives that render our product candidates obsolete;

product candidates we develop may nevertheless be covered by third parties' patents or other exclusive rights;

a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;

an approved product may not be accepted as safe and effective by trial participants, the medical community or third-party payors; and

intellectual property or other proprietary rights of third parties for product candidates we develop may potentially block our entry into certain markets, or make such entry economically impracticable.

If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing our product candidate.

Our product candidate and any future product candidates must undergo rigorous clinical trials and regulatory approvals, and success in nonclinical studies or earlier-stage clinical trials may not be indicative of results in future clinical trials.

AKR-001 and any future product candidates will be subject to rigorous and extensive clinical trials and extensive regulatory approval processes implemented by the FDA and similar regulatory bodies in other jurisdictions. The approval process is typically lengthy and expensive, and approval is never certain. We have no experience in conducting the clinical trials required to obtain regulatory approval. We may not be able to conduct clinical trials at preferred sites, enlist clinical investigators, enroll sufficient numbers of participants or begin or successfully complete clinical trials in a timely fashion, if at all. Our anticipated clinical trials may be insufficient to demonstrate that our potential products will be active, safe or

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effective. Additional clinical trials may be required if clinical trial results are negative or inconclusive, which will require us to incur additional costs and significant delays.

Success in nonclinical studies and earlier-stage clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the effectiveness and safety of a product candidate. In addition, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Because we have no experience designing clinical trials, we may be unable to design and execute a clinical trial to support regulatory approval. In addition, there is a high failure rate for drugs and products proceeding through clinical trials. In fact, many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in nonclinical studies and earlier-stage clinical trials. Similarly, the outcome of nonclinical studies may not predict the success of clinical trials. Moreover, data obtained from nonclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including due to changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects. Further, these risks may be elevated with respect to AKR-001 since all clinical development to date has been conducted in patients with T2D, rather than NASH.

From time to time, we may publish interim "top-line" or preliminary data from our clinical trials. Preliminary or interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business and financial prospects.

We are subject to many manufacturing risks, any of which could substantially increase our costs, delay clinical programs and limit supply of our products.

To date, we have not manufactured a product candidate as a company. While we received a supply of AKR-001 drug substance from Amgen that we believe will be sufficient for use in our Phase 2a clinical trial, we have contracted with a third party manufacturer to make new drug substance to support future clinical trials and for commercial sale, if approved. Our contract manufacturer may not be able to adopt, adapt or scale up the manufacturing process as practiced by Amgen in a timely manner to support our future clinical trials. The process of manufacturing our product is complex, highly regulated and subject to several risks, including:

the manufacturing process is susceptible to product loss due to contamination by adventitious microorganisms, equipment failure, improper installation or operation of equipment, vendor or operator error and improper storage conditions. Even minor deviations from normal manufacturing processes could result in reduced production yields and quality as well as other supply disruptions. If microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, the manufacturing facilities may need to be closed for an extended period of time to investigate and eliminate the contamination;

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the manufacturing facilities in which our products are made could be adversely affected by equipment failures, labor and raw material shortages, financial difficulties of our contract manufacturers, natural disasters, power failures, local political unrest and numerous other factors; and

any adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the supply of our products. We may also have to record inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more expensive manufacturing alternatives.

The manufacture of our product candidate requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of these products sometimes encounter difficulties in production, especially during scale-up from the manufacturing process used for early clinical trials to a validated process needed for pivotal clinical studies and commercial launch. These problems include failure to meet target production costs and yields, sub-par quality control testing, including stability of the product, quality assurance system failures, operator error and shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. We cannot assure you that any product quality issues relating to the manufacture of our product candidate or any future product candidates will not occur in the future.

We do not have and we do not currently plan to acquire or build the facilities or internal capabilities to manufacture bulk drug substance or filled drug product for use in clinical trials or commercialization. To a large extent, that makes us dependent on the goodwill of our contract manufacturing partners to quickly fix deviations that will inevitably occur during the manufacturing of our product. Any delay or interruption in the supply of clinical trial materials could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials altogether.

In addition, we plan to develop a new drug product formulation for late stage clinical trials and commercialization. Our current drug product is an Amgen early-stage platform formulation, which is stored as a frozen liquid and is therefore not well-suited to larger clinical trials or commercialization. We plan to enter into a contract with a formulation development company to explore both a new refrigerated liquid formulation and a freeze-dried, or lyophilized, formulation. Based on the results of these parallel efforts, we plan to select one approach to progress for use in subsequent Phase 2b clinical development. We also plan to begin development of a pen-type autoinjector for the new drug product formulation. There is no assurance that we will be successful in developing a new drug product formulation or an autoinjector on a timely basis or at all, which could impede our development and commercialization strategy for AKR-001. Further, the FDA or other similar foreign regulatory bodies could require nonclinical studies or clinical trials to support introduction of any new formulation and autoinjector, which could increase our development costs and delay or prevent us from proceeding with future clinical trials or commercialization of AKR-001, if approved.

We may encounter difficulties in managing our growth, which could adversely affect our operations.

As of March 31, 2019, we had 8 full-time employees. As we continue development and pursue the potential commercialization of our product candidate, as well as function as a public company, we will need to expand our financial, development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic collaborators, suppliers and other third parties. Our future financial performance and our ability to develop and commercialize our product

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candidate and to compete effectively will depend, in part, on our ability to manage any future growth effectively.

We may acquire additional technology and complementary businesses in the future. Acquisitions involve many risks, any of which could materially harm our business, including the diversion of management's attention from core business concerns, failure to effectively exploit acquired technologies, failure to successfully integrate the acquired business or realize expected synergies or the loss of key employees from either our business or the acquired businesses.

We expect to incur significant additional costs as a result of being a public company, which may adversely affect our operating results and financial condition.

We expect to incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules implemented by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC and The Nasdaq Global Market. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations are expected to increase our accounting, legal and financial compliance costs and make some activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements and we expect those costs to increase in the future. For example, we will be required to devote significant resources to complete the assessment and documentation of our internal control system and financial process under Section 404 of the Sarbanes-Oxley Act, or Section 404, including an assessment of the design of our information systems associated with our internal controls.

To date, we have never conducted a review of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we fail to remediate our existing material weakness in our internal control over financial reporting or if new material weaknesses are identified or arise in the future, we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we will be required to timely file accurate quarterly and annual reports with the SEC under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The Nasdaq Global Market or other adverse consequences. We will incur significant costs to remediate any material weaknesses we identify through these efforts. The increased costs will increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products or services. We also expect these rules and regulations to make it more expensive for us to maintain directors' and officers' liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as executive officers. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

New laws and regulations, as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act, the Dodd-Frank Act and rules adopted by the SEC and The Nasdaq Global Market, would likely result in increased costs to us as we respond to their requirements, which may adversely affect our operating results and financial condition.

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We have identified a material weakness in our internal control over financial reporting. If we do not remediate the material weakness in our internal control over financial reporting, or if we fail to establish and maintain effective internal control, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our stock.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. In connection with the preparation of our consolidated financial statements for the period January 24, 2017 (inception) through December 31, 2017 and the year ended December 31, 2018, we concluded that there was a material weakness in our internal control over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weakness that we identified related to the lack of segregation of duties. As of March 31, 2019, this material weakness remains unremediated.

While we have established certain procedures and control over our financial reporting processes, we cannot assure you that these efforts will remediate our material weakness and significant deficiencies in a timely manner, or at all, or prevent restatements of our consolidated financial statements in the future. If we are unable to successfully remediate our material weakness, or identify any future significant deficiencies or material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, and the market price of our stock may decline as a result.

We are not currently required to comply with the SEC's rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not yet required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. However, upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report. This assessment will need to include the disclosure of any material weaknesses or significant deficiencies in our internal control over financial reporting identified by our management or our independent registered public accounting firm.

We are implementing measures designed to improve our internal control over financial reporting to remediate this material weakness, including formalizing our processes and internal control documentation and strengthening supervisory reviews by our financial management; hiring additional qualified accounting and finance personnel and engaging financial consultants to enable the implementation of internal control over financial reporting and segregating duties amongst accounting and finance personnel; and planning to implement certain accounting systems to automate manual processes, such as tracking and accounting for stock-based awards.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate consolidated financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. We expect to incur additional costs to remediate these control deficiencies, though there can be no assurance that our efforts will be successful or avoid potential future material weaknesses. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles. If we are unable to successfully remediate our existing or any future material weaknesses in our

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internal control over financial reporting, or if we identify any additional material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our stock price may decline as a result. We also could become subject to investigations by Nasdaq, the Securities and Exchange Commission, or SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. In addition, investors' perceptions that our internal controls are inadequate or that we are unable to produce accurate consolidated financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our products to new and existing customers.

When we lose our status as an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, our independent registered public accounting firm will be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an "emerging growth company" for up to five years from the closing of our initial public offering. An independent assessment of the effectiveness of our internal controls could detect problems that our management's assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

We must attract and retain highly skilled employees in order to succeed. If we are not able to retain our current senior management team and our scientific advisors or continue to attract and retain qualified scientific, technical and business personnel, our business will suffer.

To succeed, we must recruit, retain, manage and motivate qualified clinical, scientific, technical and management personnel and we face significant competition for experienced personnel. If we do not succeed in attracting and retaining qualified personnel, particularly at the management level, it could adversely affect our ability to execute our business plan and harm our operating results. We are dependent on the members of our management team and our scientific advisors for our business success, including our President and Chief Executive Officer, Andrew Cheng, our Executive Vice President, Chief Financial Officer and Head of Corporate Development, William White, our Executive Vice President and Chief Operating Officer, Jonathan Young, our Chief Scientific Officer, Tim Rolph, and our Chief Development Officer, Kitty Yale. We do not maintain "key person" insurance for any of our key personnel. An important element of our strategy is to take advantage of the research and development expertise of our current management and to utilize the expertise of our scientific advisors in the NASH field. We currently have employment agreements with all of our executive officers. Our employment agreements with our executive officers are terminable by them without notice and some provide for severance and change in control benefits. The loss of any one of our executive officers or key scientific consultants could result in a significant loss in the knowledge and experience that we, as an organization, possess and could cause significant delays, or outright failure, in the development and further commercialization of our product candidate or any future product candidates.

There is intense competition for qualified personnel, including management in the technical fields in which we operate, and we may not be able to attract and retain qualified personnel necessary for the successful research, development and commercialization of our product candidate or any future product candidates. In particular, we have experienced a very competitive hiring environment in the San Francisco Bay Area, where we are headquartered, and in Cambridge, Massachusetts, where we have a second office. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may

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provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success with which we can discover and develop product candidates and our business will be limited.

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

We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts committed by our employees, agents, contractors, or collaborators that would violate the law or regulation, including, without limitation, healthcare, employment, foreign corrupt practices, environmental, competition, and patient privacy and other privacy laws and regulations. Such improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties, and could adversely impact our ability to conduct business, operating results, and reputation.

We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to comply with the laws enforced by the FDA and other similar foreign regulatory bodies, fails to provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies, fails to comply with manufacturing standards we have established, fails to comply with healthcare fraud and abuse laws in the United States and similar foreign laws, or fails to report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United States, our potential exposure under these laws will increase significantly, and our costs associated with compliance with these laws are also likely to increase. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, and the curtailment or restructuring of our operations.

We may develop AKR-001, and potentially future product candidates, in combination with other therapies, which exposes us to additional risks.

We may develop AKR-001 and future product candidates in combination with one or more currently approved therapies. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with these existing therapies. This could result in our own products being removed from the market or being less successful commercially.

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We may also evaluate AKR-001 or any other future product candidates in combination with one or more other therapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States. We will not be able to market and sell AKR-001 or any product candidate we develop in combination with any such unapproved therapies that do not ultimately obtain marketing approval. If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing, or supply issues arise with, the drugs we choose to evaluate in combination with AKR-001 or any other product candidate we develop, we may be unable to obtain approval of or market AKR-001 or any other product candidate we develop.

Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control, including difficulties in identifying patients with NASH and significant competition for recruiting such patients in clinical trials.

Identifying and qualifying patients to participate in our clinical trials is critical to our success. We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. In particular, as a result of the inherent difficulties in diagnosing NASH and the significant competition for recruiting patients with NASH in clinical trials, there may be delays in enrolling the patients we need to complete clinical trials on a timely basis, or at all. This risk may be more significant for us than other companies conducting clinical trials for the treatment of patients with NASH because we are enrolling only patients with a biopsy-confirmed diagnosis of NASH in our Phase 2a clinical trial and subsequent clinical trials. We have engaged Summit Research Network, a third party investigator, to assist with patient enrollment for our Phase 2a clinical trial; however, there can be no assurance that we will be able to maintain our relationships with this third party or that this third party will be successful in helping us identify patients.

Factors that may generally affect patient enrollment include:

the size and nature of the patient population;

the number and location of clinical sites we enroll;

competition with other companies for clinical sites or patients;

the eligibility and exclusion criteria for the trial;

the design of the clinical trial;

inability to obtain and maintain patient consents;

risk that enrolled participants will drop out before completion; and

competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

In addition, if any significant adverse events or other side effects are observed in any of our future clinical trials, it may make it more difficult for us to recruit patients to our clinical trials and patients may drop out of our trials, or we may be required to abandon the trials or our development efforts of one or more product candidates altogether. Our inability to enroll a sufficient number of patients for our clinical trials

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would result in significant delays, which would increase our costs and have an adverse effect on our company.

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

The biotechnology industry is intensely competitive and subject to rapid and significant technological change. Our competitors include multinational pharmaceutical companies, specialized biotechnology companies and universities and other research institutions. A number of pharmaceutical companies, including AbbVie, Inc., Allergan plc, AstraZeneca PLC/MedImmune LLC, Bayer AG, Bristol-Myers Squibb Company, Eisai, Inc., Eli Lilly and Company, GlaxoSmithKline plc, Johnson & Johnson, Merck & Co., Inc., Novartis Pharmaceuticals Corporation, Novo Nordisk A/S, Pfizer Inc., Roche Holding AG, Sanofi and Takeda Pharmaceutical Company Limited, as well as large and small biotechnology companies such as Albireo Pharma, Inc., Amgen, Cirius Therapeutics, Inc., Conatus Pharmaceuticals Inc., CymaBay Therapeutics, Inc., Enanta Pharmaceuticals, Inc., Galectin Therapeutics Inc., Galmed Pharmaceuticals Ltd., Genfit SA, Gilead Sciences, Inc., Intercept Pharmaceuticals, Inc., Inventiva Pharma SA, Madrigal Pharmaceuticals, Inc., MannKind Corporation, MediciNova, Inc., Metacrine, Inc., Nalpropion Pharmaceuticals, Inc., NGM Biopharmaceuticals, Inc., Terns Pharmaceuticals, Inc., Viking Therapeutics, Inc., Vivus, Inc. and Zafgen, Inc., are pursuing the development or marketing of pharmaceuticals that target NASH. It is also probable that the number of companies seeking to develop products and therapies for the treatment of serious metabolic diseases, such as NASH, will increase. Many of our competitors have substantially greater financial, technical, human and other resources than we do and may be better equipped to develop, manufacture and market technologically superior products. In addition, many of these competitors have significantly greater experience than we have in undertaking nonclinical studies and human clinical trials of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining FDA approval for superior products. In addition, many competitors have greater name recognition and more extensive collaborative relationships. Smaller and earlier-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.

Our competitors may obtain regulatory approval of their products more rapidly than we do or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidate or any future product candidates. Our competitors may also develop drugs that are more effective, more convenient, more widely used and less costly or have a better safety profile than our products and these competitors may also be more successful than we are in manufacturing and marketing their products. If we are unable to compete effectively against these companies, then we may not be able to commercialize our product candidate or any future product candidates or achieve a competitive position in the market. This would adversely affect our ability to generate revenue. Our competitors also compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our or related parties' cyber security.

Given our limited operating history, we are still in the process of implementing our internal security measures. Our internal computer systems and those of current and future third parties on which we rely may fail and are vulnerable to damage from computer viruses and unauthorized access. Our information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines

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and connection to the Internet, face the risk of systemic failure that could disrupt our operations. While we have not, to our knowledge, experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidate or any future product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidate or any future product candidates could be hindered or delayed.

Comprehensive tax reform legislation could adversely affect our business and financial condition.

The "Tax Cuts and Jobs Act," or the Tax Act, significantly revised the Internal Revenue Code of 1986, as amended, or the Code. The Tax Act, among other things, includes a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, a limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain small businesses), a limitation of the deduction for net operating losses to 80% of current year taxable income and an elimination of net operating loss carrybacks, in each case, for losses generated after December 31, 2017 (though any such net operating losses may be carried forward indefinitely), and modifying or repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as "orphan drugs"). We continue to examine the impact this tax reform legislation may have on our business. We urge investors to consult with their legal and tax advisers regarding the implications of the Tax Act on an investment in our common stock.

We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards.

As of December 31, 2018, we had federal and state net operating loss, or NOL, carryforwards of $10.6 million and $10.6 million, respectively, and federal and state research and development tax credit carryforwards of $0.2 million and $0.1 million, respectively. If not utilized, such NOL carryforwards (other than any federal NOL carryforwards arising in taxable years ending after December 31, 2017) and research and development credits will expire at various dates beginning in 2037 and 2032, respectively. We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we may never achieve profitability. These NOL and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Act, NOL carryforwards generated in tax years ending after December 31, 2017 are not subject to expiration. However, utilization of NOL carryforwards generated in tax years beginning after December 31, 2017 are limited to a maximum of 80% of the taxable income for such year determined without regard to such NOL carryforwards. In addition, under Section 382 of the Code, the amount of benefits from our NOL carryforwards may be impaired or limited if we incur a cumulative ownership change of more than 50%, as interpreted by the U.S. Internal Revenue Service, over a three-year period. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of this offering and subsequent shifts in our stock ownership, some of which are outside our control. As a result, our use of federal NOL carryforwards could be limited. State NOL carryforwards may be similarly limited. Any such disallowances may result in greater tax

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liabilities than we would incur in the absence of such a limitation and any increased liabilities could adversely affect our business, results of operations, financial position and cash flows.

We use and generate materials that may expose us to material liability.

Our research programs involve the use of hazardous materials and chemicals, which are currently only handled by third parties. We are subject to foreign, federal, state and local environmental and health and safety laws and regulations governing, among other matters, the use, manufacture, handling, storage and disposal of hazardous materials and waste products. We may incur significant costs to comply with these current or future environmental and health and safety laws and regulations. In addition, we cannot completely eliminate the risk of contamination or injury from hazardous materials and may incur material liability as a result of such contamination or injury. In the event of an accident, an injured party may seek to hold us liable for any damages that result. Any liability could exceed the limits or fall outside the coverage of our workers' compensation, property and business interruption insurance and we may not be able to maintain insurance on acceptable terms, if at all. We currently carry no insurance specifically covering environmental claims.

Risks related to government regulation

The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable. Our inability to obtain regulatory approval for AKR-001 or any future product candidate would substantially harm our business.

The time required to obtain approval from the FDA and comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of nonclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's development and may vary among jurisdictions. For example, the FDA recently published draft guidance regarding NASH clinical development on which we relied, in part, in designing our Phase 2a clinical trial of AKR-001 in that indication. However, this guidance is not yet final and is subject to change, and the FDA or comparable foreign regulatory authorities may adopt new or contradictory guidance in the future.

AKR-001 or our future product candidates could fail to receive regulatory approval from the FDA or a comparable foreign regulatory authority for many reasons, including:

disagreement with the design or implementation of our clinical trials;

failure to demonstrate that a product candidate is safe and effective for its proposed indication;

failure of clinical trials to meet the level of statistical significance required for approval;

failure to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;

disagreement with our interpretation of data from nonclinical studies or clinical trials;

the insufficiency of data collected from clinical trials of our product candidate or any future product candidates to obtain regulatory approval;

failure to obtain approval of the manufacturing processes or facilities of third-party manufacturers with whom we contract for clinical and commercial supplies; or

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changes in the approval policies or regulations that render our nonclinical and clinical data insufficient for approval.

The FDA or a comparable foreign regulatory authority may require more information, including additional nonclinical or clinical data to support approval, which may delay or prevent approval and our commercialization plans, or we may decide to abandon the development program for other reasons. If we were to obtain approval, regulatory authorities may approve any of our product candidate or any future product candidates for fewer or more limited indications than we request, may require labeling or a Risk Evaluation Mitigation Strategy, or REMS, that includes significant use or distribution restrictions or safety warnings, precautions, or contraindications, may grant approval contingent on the performance of costly post-marketing clinical trials or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate.

Failures or delays in the commencement or completion of, or ambiguous or negative results from, our planned clinical trials of our product candidates could result in increased costs to us and could delay, prevent, or limit our ability to generate revenue and continue our business.

We do not know whether our Phase 2a clinical trial or any of our planned clinical trials will begin or be completed on schedule, if at all, as the commencement and completion of clinical trials can be delayed or prevented for a number of reasons, including, among others:

the FDA or comparable foreign regulatory authorities may not authorize us or our investigators to commence our planned clinical trials or any other clinical trials we may initiate, or may suspend our clinical trials, for example, through imposition of a clinical hold, and may request additional data to permit allowance of our investigational new drug, or IND;

delays in filing or receiving allowance of additional IND applications that may be required;

lack of adequate funding to continue our clinical trials and nonclinical studies;

negative results from our ongoing nonclinical studies;

delays in reaching or failing to reach agreement on acceptable terms with prospective CROs and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and study sites;

inadequate quantity or quality of a product candidate or other materials necessary to conduct clinical trials, for example delays in the manufacturing of sufficient supply of finished drug product;

difficulties obtaining ethics committee or Institutional Review Board, or IRB, approval to conduct a clinical study at a prospective site or sites;

challenges in recruiting and enrolling subjects to participate in clinical trials, the proximity of subjects to study sites, eligibility criteria for the clinical study, the nature of the clinical study protocol, the availability of approved effective treatments for the relevant disease, and competition from other clinical study programs for similar indications;

severe or unexpected drug-related side effects experienced by subjects in a clinical trial;

we may decide, or regulatory authorities may require us, to conduct additional nonclinical or clinical trials or abandon product development programs;

delays in validating, or inability to validate, any endpoints utilized in a clinical trial;

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the FDA or comparable foreign regulatory authorities may disagree with our clinical study design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials; and

difficulties retaining subjects who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the clinical trials, lack of efficacy, side effects, personal issues, or loss of interest.

Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical study may be suspended or terminated by us, the FDA or comparable foreign regulatory authorities, the IRBs at the sites where the IRBs are overseeing a clinical study, a data and safety monitoring board, or DSMB, overseeing the clinical study at issue or other regulatory authorities due to a number of factors, including, among others:

failure to conduct the clinical study in accordance with regulatory requirements or our clinical protocols;

inspection of the clinical study operations or study sites by the FDA or other regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including in response to the imposition of a clinical hold;

unforeseen safety issues or safety signals, including any that could be identified in our ongoing nonclinical studies or clinical trials, adverse side effects or lack of effectiveness;

changes in government regulations or administrative actions;

problems with clinical supply materials; and

lack of adequate funding to continue clinical trials.

Any inability to successfully complete nonclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make changes to a product candidate, such as changes to the formulation, we may need to conduct additional nonclinical studies or clinical trials to bridge or demonstrate the comparability of our modified product candidate to earlier versions, which could delay our clinical development plan or marketing approval for our current product candidate and any future product candidates. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

We have no experience in conducting clinical trials and have never obtained approval for any product candidates, and may be unable to do so successfully.

As a company, we have no experience in designing, conducting or completing clinical trials and have never progressed a product candidate through to regulatory approval. In part because of this lack of experience, our clinical trials may require more time and incur greater costs than we anticipate. We cannot be certain that the planned clinical trials will begin or conclude on time, if at all. Large-scale trials will require significant additional financial and management resources. Any performance failure on the part of such third parties could delay the clinical development of our product candidate or any future product candidates or delay or prevent us from obtaining regulatory approval or commercializing our current or any future product candidates, depriving us of potential product revenue and resulting in additional losses.

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The advancement of healthcare reform may negatively impact our ability to profitably sell our product candidate or any future product candidates, if approved.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidate or any future product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product for which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, was enacted, which includes measures that have significantly changed the way health care is financed by both governmental and private insurers. Some of the provisions of the Affordable Care Act have yet to be implemented, and there have been judicial, congressional, and executive branch challenges to certain aspects of the Affordable Care Act. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. One Executive Order directs federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the Affordable Care Act. Several state Attorneys General filed suit to stop the Trump administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12 billion in Affordable Care Act risk corridor payments to third-party payors who argued were owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the Affordable Care Act marketplace, providers, and potentially our business, are not yet known.

Congress has also considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Act included a provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the "individual mandate." On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called "Cadillac" tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the "donut hole." In July 2018, the Centers for Medicare and Medicaid Services, or CMS, published a final rule permitting further collections and payments to and from certain Affordable Care Act qualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. Moreover, CMS issued a final rule in 2018 that will give states greater flexibility, starting in 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may have

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the effect of relaxing the essential health benefits required under the Affordable Care Act for plans sold through such marketplaces. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable Care Act are invalid as well. While the Texas District Court Judge, as well as the Trump Administration and CMS, have stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. In August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction, which triggered the legislation's automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of, on average, 2% per fiscal year through 2025 unless Congress takes additional action. These reductions were extended through 2027 under the BBA. In January 2013, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Recently, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration's budget proposal for fiscal year 2019 contained further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a "Blueprint" to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. On January 31, 2019, the HHS Office of Inspector General, proposed modifications to the federal Anti-Kickback Statute discount safe harbor for the purpose of reducing the cost of drug products to consumers which, among other things, if finalized, will affect discounts paid by manufacturers to Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers working with these organizations. Although a number of these, and other proposed measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or

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administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We expect that the healthcare reform measures that have been adopted and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors.

Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to request access to certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which, if violated, could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare providers, third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research, and if approved, market, sell and distribute our products. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

the federal Anti-Kickback Statute prohibits persons from, among other things, knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, the referral of an individual for the furnishing or arranging for the furnishing, or the purchase, lease or order, or arranging for or recommending purchase, lease or order, of any good or service for which payment may be made under a federal healthcare program, such as Medicare and Medicaid;

federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which can be enforced through civil whistleblower or qui tam actions, prohibit individuals or entities from, among other things knowingly presenting, or causing to be presented, to the federal

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    government or a government contractor, grantee, or other recipient of federal funds, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense or knowingly and willfully making false statements relating to healthcare matters;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their implementing regulations, imposes obligations on certain healthcare providers, health plans and healthcare clearinghouses, known as covered entities, as well as their business associates, which are individuals and entities that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

the federal Open Payments program, created under Section 6002 of the Affordable Care Act and its implementing regulations, requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children's Health Insurance Program (with certain exceptions) to report annually to CMS information related to "payments or other transfers of value" made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians (as defined above) and their immediate family members; and

analogous state, local, and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug prices; state and local laws that require the registration of pharmaceutical sales representatives; and state and foreign laws that govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, that person or entity may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

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Failure to comply with health and data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.

We and any potential collaborators may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act and California Consumer Privacy Act of 2018 ("CCPA")), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. The state of California, for example, recently adopted the CCPA, which will come into effect beginning in January 2020. The CCPA has been characterized as the first "GDPR-like" privacy statute to be enacted in the United States because it mirrors a number of the key provisions of the European Union General Data Protection Regulation ("GDPR") (discussed below in the European Data Collection subsection). The CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended by HITECH. Depending on the facts and circumstances, we could be subject to civil, criminal, and administrative penalties if we knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.

Compliance with U.S. and international data protection laws and regulations, including the EU GDPR and other EU data protection laws could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects, employees and other individuals about whom we or our potential collaborators obtain personal information, as well as the providers who share this information with us, may limit our ability to collect, use and disclose the information. Claims that we have violated individuals' privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenue, if any.

In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations. To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the

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cost-effectiveness of our drug candidate to other available procedures. If reimbursement of our drugs is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

Clinical development is uncertain and our clinical trials for AKR-001 and any future product candidates may experience delays, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.

We cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all. To proceed with our development plans and ultimately commercialization, we may need to conduct and meet regulatory requirements for preclinical and clinical studies. For therapeutic applications, the FDA may require additional extensive preclinical and other studies. We cannot be certain of the timely completion or outcomes of our preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcomes of our preclinical testing and studies will ultimately support the further development of our programs As a result, there is no assurance that we will be able to submit INDs or similar applications on the timelines we expect, if at all, and we cannot be sure that submission of an IND or similar applications will result in the FDA or other regulatory authorities allowing a clinical trial design to begin.

Even if we are able to obtain regulatory approvals for our product candidate or any future product candidates, if they exhibit harmful side effects after approval, our regulatory approvals could be revoked or otherwise negatively impacted, and we could be subject to costly and damaging product liability claims.

Clinical trials are conducted in representative samples of the potential patient population which may have significant variability. Even if we receive regulatory approval for AKR-001 or any of our future product candidates, we will have tested them in only a small number of patients during our clinical trials. Clinical trials are by design based on a limited number of subjects and of limited duration for exposure to the product used to determine whether, on a potentially statistically significant basis, the planned safety and efficacy of any product candidate can be achieved. As with the results of any statistical sampling, we cannot be sure that all side effects of our product candidates may be uncovered, and it may be the case that only with a significantly larger number of patients exposed to the product candidate for a longer duration, may a more complete safety profile be identified. Further, even larger clinical trials may not identify rare serious adverse effects or the duration of such studies may not be sufficient to identify when those events may occur. If our applications for marketing are approved and more patients begin to use our product, new risks and side effects associated with our products may be discovered. There have been other products that have been approved by the regulatory authorities but for which safety concerns have been uncovered following approval. Such safety concerns have led to labelling changes or withdrawal of products from the market, and any of our product candidates may be subject to similar risks. Additionally, we may be required to conduct additional nonclinical and clinical trials, require additional warnings on the label of our product, reformulate our product or make changes, create a medication guide outlining the risks of such side effects for distribution to patients and obtain new approvals for our and our suppliers' manufacturing facilities for AKR-001 and any future product candidates. We might have to withdraw or recall our products from the marketplace. We may also experience a significant drop in the potential sales of our product if and when regulatory approvals for such product are obtained, experience harm to our reputation in the marketplace or become subject to lawsuits, including class actions. Any of these results could decrease or prevent any sales of our approved product or substantially increase the costs and expenses of commercializing and marketing our product.

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Even if our current product candidate or any future product candidates receive regulatory approval, they will remain subject to extensive regulatory scrutiny and may still face future development and regulatory difficulties.

Even if we obtained regulatory approval for a product candidate, regulatory authorities may still impose significant restrictions on our product candidates, including their indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies. For example, if AKR-001 is approved by the FDA based on a surrogate endpoint pursuant to accelerated approval regulations (Subpart E regulations), we will be required to conduct additional confirmatory clinical trials demonstrating the clinical benefit on the ultimate outcome of NASH. Further, even if we obtained regulatory approval for a product candidate, it would be subject to ongoing requirements by the FDA and comparable 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 FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of our product candidate or any future product candidates, they may require labeling changes or establishment of a risk evaluation and mitigation strategy or similar strategy, impose significant restrictions on a product's indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.

In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP, regulations and standards. If we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product candidate or any future product candidates or the manufacturing facilities for our product candidate or any future product candidates fail to comply with applicable regulatory requirements, or undesirable side effects caused by such products are identified, a regulatory agency may:

issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product;

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

require that we conduct post-marketing studies;

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

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

suspend marketing of, withdraw regulatory approval of or recall such product;

suspend any ongoing clinical studies;

refuse to approve pending applications or supplements to applications filed by us;

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

seize or detain products, refuse to permit the import or export of products or require us to initiate a product recall.

The occurrence of any event or penalty described above may inhibit our ability to commercialize our product and generate revenue.

Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Department of Health and Human Services' Office of Inspector General, state attorneys general, members of Congress and the public. Violations, including promotion of our products for unapproved (or off-label) uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the government. Additionally, comparable foreign regulatory authorities will heavily scrutinize advertising and promotion of any product candidate that obtains approval outside of the United States.

In the United States, engaging in the impermissible promotion of our products for off-label uses can also subject us to false claims litigation under federal and state statutes, which can lead to civil and criminal penalties and fines and agreements that materially restrict the manner in which a company promotes or distributes drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlement funds. Since 2004, these federal False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements regarding certain sales practices promoting off-label drug uses involving fines in excess of $1 billion. This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations and be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our approved products, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on our business, financial condition and results of operations.

The FDA's policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidate or any future product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

Healthcare insurance coverage and reimbursement may be limited or unavailable for our product candidate, if approved, which could make it difficult for us to sell our product candidate or other therapies profitably.

The success of our product candidate, if approved, depends on the availability of coverage and adequate reimbursement from third-party payors including governmental healthcare programs, such as Medicare and Medicaid, commercial payors, and health maintenance organizations. We cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from, our product candidates or assure that coverage and reimbursement will be available for any product that we may develop.

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Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Coverage and adequate reimbursement from third-party payors is critical to new product acceptance.

Third-party payors decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor's determination that use of a product is:

a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a product from a third-party payor is a time consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new medicines are typically made by CMS, an agency within HHS, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private third-party payors tend to follow Medicare coverage and reimbursement limitations to a substantial degree, but also have their own methods and approval process apart from Medicare determinations. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high.

Our failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our product candidate or any future product candidates outside the United States.

We intend to market any approved products in the United States, the European Union, Japan and other foreign jurisdictions. Even if our products are approved for marketing in the United States, in order to market and sell our products in other jurisdictions, 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 FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, we must secure product reimbursement approvals before regulatory authorities will approve the product for sale in that country. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others.

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Also, regulatory approval for our product candidate or any future product candidates may be withdrawn if we fail to comply with regulatory requirements, if problems occur after the product candidate reaches the market or for other reasons. If we fail to comply with the regulatory requirements in international markets and fail to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidate or any future product candidates will be harmed and our business will be adversely affected. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions. Approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. If we fail to obtain approval of our product candidate or any future product candidates by regulatory authorities in another country we will be unable to commercialize our product in that country, and the commercial prospects of that product candidate and our business prospects could decline.

Our activities in the United States subject us to various laws relating to foreign investment and the export of certain technologies, and our failure to comply with these laws or adequately monitor the compliance of our suppliers and others we do business with could subject us to substantial fines, penalties and even injunctions, the imposition of which on us could have a material adverse effect on the success of our business.

Because we have a U.S. subsidiary and substantial operations in the United States, we are subject to U.S. laws that regulate foreign investments in U.S. businesses and access by foreign persons to technology developed and produced in the United States. These laws include Section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment Risk Review Modernization Act of 2018, and the regulations at 31 C.F.R. Parts 800 and 801, as amended, administered by the Committee on Foreign Investment in the United States; and the Export Control Reform Act of 2018, which is being implemented in part through Commerce Department rulemakings to impose new export control restrictions on "emerging and foundational technologies" yet to be fully identified. Application of these laws, including as they are implemented through regulations being developed, may negatively impact our business in various ways, including by restricting our access to capital and markets; limiting the collaborations we may pursue; regulating the export our products, services, and technology from the United States and abroad; increasing our costs and the time necessary to obtain required authorizations and to ensure compliance; and threatening monetary fines and other penalties if we do not.

We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations, which can harm our business.

We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties to sell our products sell our products outside the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of

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government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.

Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new or existing product candidates from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, upon completion of this offering and in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

Risks related to our intellectual property

Our success depends upon our ability to obtain and maintain intellectual property protection for our products and technologies. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection.

Our success will depend in significant part on our and our current or future licensors', licensees' or collaborators' ability to establish and maintain adequate protection of our intellectual property covering the product candidates we plan to develop, and the ability to develop these product candidates and commercialize the products resulting therefrom, without infringing the intellectual property rights of others. We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking patents intended to cover our products and compositions, their methods of use, and any other inventions that are important to the development of our business. In addition to taking other steps to protect our intellectual property, we have applied for, and intend to continue to apply for, patents with claims covering our technologies, processes and product candidates when and where we deem it appropriate to do so. Our in-licensed patents and patent applications in both United States and certain foreign jurisdictions relate to AKR-001 and related Fc-fusion polypeptides. There can be no assurance that the claims of our patents or any patent application that issues as a patent, will exclude others from making, using or selling our product candidate or any future product candidates or products that are

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substantially similar to our product candidate or any future product candidates. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. In countries where we have not and do not seek patent protection, third parties may be able to manufacture and sell our product candidate or any future product candidates without our permission, and we may not be able to stop them from doing so.

With respect to patent rights, we do not know whether any of the pending patent applications for our product candidate or any future product candidates will result in the issuance of patents that effectively protect our technologies, processes and product candidates, or if any of our issued patents or our current or future licensors', licensees' or collaborators' issued patents will effectively prevent others from commercializing competitive technologies, processes and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore, we cannot be certain that we or our current or future licensors, licensees or collaborators were the first to make or file on the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our current or future licensors, licensees or collaborators were the first to file for patent protection of such inventions. There is also no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which could be used by a third party to challenge the validity of our patents, should they issue, or prevent a patent from issuing from a pending patent application. Any of the foregoing could harm our competitive position, business, financial condition, results of operations, and prospects.

Any changes we make to our product candidate or any future product candidates, including formulations that may be required for commercialization, or that cause them to have what we view as more advantageous properties may not be covered by our existing patents and patent applications, and we may be required to file new applications and/or seek other forms of protection for any such altered product candidates. The patent landscape surrounding the technology underlying our product candidate or any future product candidates is crowded, and there can be no assurance that we would be able to secure patent protection that would adequately cover an alternative to our product candidate or any future product candidates.

The patent prosecution process is expensive and time-consuming, and we and our current or future licensors, licensees or collaborators may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our current or future licensors, licensees or collaborators will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection for them. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain or enforce the patents, covering technology that we license from or license to third parties and may be reliant on our current or future licensors, licensees or collaborators to perform these activities, which means that these patent applications may not be prosecuted, and these patents enforced, in a manner consistent with the best interests of our business. If our current or future licensors, licensees or collaborators fail to establish, maintain, protect or enforce such patents and other intellectual property rights, such rights may be reduced or eliminated. If our current or future licensors, licensees or collaborators are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.

The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, which in recent years have been the subject of much litigation, and,

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therefore, the issuance, scope, validity, enforceability, and commercial value of any patent claims that we have rights or may obtain cannot be predicted with certainty. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. As a result, the issuance, scope, validity, enforceability and commercial value of our and our current or future licensors', licensees' or collaborators' patent rights are highly uncertain. Our and our current or future licensors', licensees' or collaborators' pending and future patent applications may not result in patents being issued that protect our technology or product candidates, or products resulting therefrom, in whole or in part, or that effectively prevent others from commercializing competitive technologies and products. The patent examination process may require us or our current or future licensors, licensees or collaborators to narrow the scope of the claims of pending and future patent applications, which would limit the scope of patent protection that is obtained, if any. Our and our current or future licensors', licensees' or collaborators' patent applications cannot be enforced against third parties practicing the technology that is currently claimed in such applications unless and until a patent issues from such applications, and then only to the extent the claims that issue are broad enough to cover the technology being practiced by third parties.

Furthermore, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after the resulting products are commercialized. As a result, our owned and in-licensed patents may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. We expect to seek extensions of patent terms for our issued patents, where available. This includes in the United States under the Hatch-Waxman Act, which permits a patent term extension of up to five years beyond the original expiration date of the patent as compensation for regulatory delays. However, such a patent term extension cannot lengthen the remaining term of a patent beyond a total of 14 years from the product's approval date. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent and within 60 days of product approval. During the period of patent term extension, the claims of a patent are not enforceable for their full scope, but are instead limited to the scope of the approved product. In addition, the applicable authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. In addition, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to the expiration of relevant patents or otherwise failing to satisfy applicable requirements. If this occurs, any period during which we have the right to exclusively market our product will be shorter than we would otherwise expect, and our competitors may obtain approval of and launch products earlier than might otherwise be the case.

If we breach our license agreement with Amgen related to AKR-001, we could lose the ability to continue the development and commercialization of AKR-001.

We are dependent on patents, know-how and proprietary technology in-licensed from Amgen. Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidate or any future product candidates and use our and our licensor's proprietary technologies without infringing the proprietary rights of third parties. Amgen may have the right to terminate the license agreement in full in the event we materially breach or default in the performance of any of the obligations

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under the license agreement. A termination of the license agreement with Amgen could result in the loss of significant rights and could harm our ability to commercialize our product candidates.

Disputes may also arise between us and Amgen, as well as any future potential licensors, regarding intellectual property subject to a license agreement, including:

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

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

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

our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidate and what activities satisfy those diligence obligations; and

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

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

In addition, the Amgen Agreement under which we currently license intellectual property is complex, and certain provisions may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property, or increase what we believe to be our financial or other obligations under the Amgen Agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangement on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

We are generally also subject to all of the same risks with respect to protection of intellectual property that we license, as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize products could suffer.

Patent terms may be inadequate to protect our competitive position on our product candidate or any future product candidates for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Currently, our composition of matter patents expire in 2029 in the United States and in 2034, including potential patent term extensions, in other jurisdictions. Even if patents covering our product candidate or any future product candidate are obtained, once the patent life has expired, we may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory

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review of new product candidates, patents protecting our product candidate or any future product candidate might expire before or shortly after we or our partners commercialize those candidates. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

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

The legal protection afforded to inventors and owners of intellectual property in countries outside of the United States may not be as protective or effective as that in the United States and we may, therefore, be unable to acquire and enforce intellectual property rights outside the United States to the same extent as in the United States. Whether filed in the United States or abroad, our patent applications may be challenged or may fail to result in issued patents.

In addition, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing or commercializing competing products. Furthermore, others may independently develop or commercialize similar or alternative technologies or drugs, or design around our patents. Our patents may be challenged, invalidated, circumvented or narrowed, or fail to provide us with any competitive advantages. In many foreign countries, patent applications and/or issued patents, or parts thereof, must be translated into the native language. If our patent applications or issued patents are translated incorrectly, they may not adequately cover our technologies; in some countries, it may not be possible to rectify an incorrect translation, which may result in patent protection that does not adequately cover our technologies in those countries.

Filing, prosecuting, enforcing and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States are less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and certain state laws in the United States. Consequently, we and our licensor may not be able to prevent third parties from practicing our and our licensor's inventions in all countries outside the United States, or from selling or importing products made using our and our licensor's inventions in and into the United States or other jurisdictions. Competitors may use our and our licensor's technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we and our licensor have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidate or any future product candidates and our and our licensor's patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology. This could make it difficult for us and our licensor to stop the infringement of our and our licensor's patents or the marketing of competing products in violation of our and our licensor's proprietary rights, generally. Proceedings to enforce our and our licensor's patent rights in foreign jurisdictions could result in substantial costs and divert our and our licensor's efforts and attention from other aspects of our business, could put our and our licensor's patents at risk of being invalidated or interpreted narrowly, could place our and our licensor's patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensor. We or our licensor may not prevail in any lawsuits that we or our licensor initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.

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The requirements for patentability differ in certain countries, particularly developing countries. For example, China has a heightened requirement for patentability and, specifically, requires a detailed description of medical uses of a claimed drug. In addition, India, certain countries in Europe and certain developing countries, including Thailand, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensor may have limited remedies if patents are infringed or if we or our licensor are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. Accordingly, our and our licensor's efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.

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

Periodic maintenance and annuity fees on issued United States patents and most foreign patent applications and patents must be paid to the U.S. Patent and Trademark Office, or USPTO, and foreign patent agencies, respectively, in order to maintain such patents and patent applications. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application, examination and issuance processes. While an inadvertent lapse can, in some cases, be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensor fail to maintain the patents and patent applications covering our product candidate or any future product candidates, our competitors might be able to enter the market with similar or identical products or technology, which would have a material adverse effect on our business, financial condition and results of operations.

We may be unable to obtain intellectual property rights or technology necessary to develop and commercialize our product candidate or any future product candidates.

Several third parties are actively researching and seeking and obtaining patent protection in the NASH field, and there are issued third-party patents and published third-party patent applications in these fields. However, we may not be aware of all third-party intellectual property rights potentially relating to our product candidate or any future product candidates and technologies.

Depending on what patent claims ultimately issue and how courts construe the issued patent claims, as well as depending on the ultimate formulation and method of use of our product candidate or any future product candidates, we may need to obtain a license under such patents. There can be no assurance that such licenses will be available on commercially reasonable terms, or at all. If a third party does not offer us a necessary license or offers a license only on terms that are unattractive or unacceptable to us, we might be unable to develop and commercialize one or more of our product candidate or any future product candidates, which would have a material adverse effect on our business, financial condition and results of operations. Moreover, even if we obtain licenses to such intellectual property, but subsequently fail to

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meet our obligations under our license agreements, or such license agreements are terminated for any other reasons, we may lose our rights to in-licensed technologies.

The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment, or at all. If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may become involved in lawsuits or other proceedings to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful and have a material adverse effect on the success of our business.

Third parties may infringe our or our licensor's patents or misappropriate or otherwise violate our or our licensor's intellectual property rights. In the future, we or our licensor may initiate legal proceedings to enforce or defend our or our licensor's intellectual property rights, to protect our or our licensor's trade secrets or to determine the validity or scope of intellectual property rights we own or control. Also, third parties may initiate legal proceedings against us or our licensor to challenge the validity or scope of intellectual property rights we own, control or to which we have rights. For example, generic or biosimilar drug manufacturers or other competitors or third parties may challenge the scope, validity or enforceability of our or our licensor's patents, requiring us or our licensor to engage in complex, lengthy and costly litigation or other proceedings. These proceedings can be expensive and time-consuming and many of our or our licensor's adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can. Moreover, the outcome following legal assertions of invalidity and unenforceability is unpredictable. Accordingly, despite our or our licensor's efforts, we or our licensor may not be able to prevent third parties from infringing upon or misappropriating intellectual property rights we own, control or have rights to, particularly in countries where the laws may not protect those rights as fully as in the United States. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, if we or our licensor initiated legal proceedings against a third party to enforce a patent covering a product candidate, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. In an infringement or declaratory judgment proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our or our licensor's patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our or our licensor's patents at risk of being invalidated, narrowed, held unenforceable or interpreted in such a manner that would not preclude third parties from entering the market with competing products.

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Third-party pre-issuance submission of prior art to the USPTO, or opposition, derivation, revocation, reexamination, inter partes review or interference proceedings, or other pre-issuance or post-grant proceedings or other patent office proceedings or litigation in the United States or other jurisdictions provoked by third parties or brought by us or our licensor, may be necessary to determine the inventorship, priority, patentability or validity of inventions with respect to our or our licensor's patents or patent applications. An unfavorable outcome could leave our technology or product candidates without patent protection, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, or could require us or our licensor to obtain license rights from the prevailing party in order to be able to manufacture or commercialize our product candidate or any future product candidates without infringing third-party patent rights. Our business could be harmed if the prevailing party does not offer us or our licensor a license on commercially reasonable terms, or at all. Even if we or our licensor obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensor. In addition, if the breadth or strength of protection provided by our or our licensor's patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or any future product candidates. Even if we successfully defend such litigation or proceeding, we may incur substantial costs and it may distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into collaborations.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, many foreign jurisdictions have rules of discovery that are different than those in the United States and which may make defending or enforcing our or our licensor's patents extremely difficult. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock.

Third parties may initiate legal proceedings against us alleging that we infringe their intellectual property rights or we may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property rights controlled by third parties, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability to develop, manufacture, market and sell any product candidates that we may develop and use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. Third parties may initiate legal proceedings against us or our licensor alleging that we or our licensor infringe their intellectual property rights or we or our licensor may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property rights controlled by third parties, including in oppositions, interferences, revocations, reexaminations, inter partes review or derivation proceedings before the USPTO or its counterparts in other jurisdictions. These proceedings can be expensive and time-consuming and many of our or our licensor's adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensor can.

An unfavorable outcome in any such proceeding could require us or our licensor to cease using the related technology or developing or commercializing our product candidate or any future product candidates, or to

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attempt to license rights to it from the prevailing party, which may not be available on commercially reasonable terms, or at all.

We could be found liable for monetary damages, including treble damages and attorneys' fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidate or any future product candidates or force us to cease some of our business operations, which could materially harm our business.

We perform searches of patent and scientific databases in order to identify documents that may be of potential relevance to the freedom-to-operate and/or patentability of our product candidate or any future product candidates. In general, such searches are conducted based on keywords, sequences, inventors/authors and assignees/entities to capture U.S. and European patents and patent applications, PCT publications and scientific journal articles.

The patent landscape around our AKR-001 product candidate is complex, and we may not be aware of all third-party intellectual property rights potentially relating to our product candidate or any future product candidates and technologies. Moreover, it is possible that we are or may become aware of patents or pending patent applications that we think do not relate to our product candidate or any future product candidates or that we believe are invalid or unenforceable, but that may nevertheless be interpreted to encompass our product candidate or any future product candidates and to be valid and enforceable. As to pending third-party applications, we cannot predict with any certainty which claims will issue, if any, or the scope of such issued claims. If any third party intellectual property claims are asserted against us, even if we believe the claims are without merit, there is no assurance that a court would find in our favor, e.g., on questions of infringement, validity, enforceability or priority. A court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could materially and adversely affect our ability and the ability of our licensor to commercialize any product candidates we may develop and any other product candidates or technologies covered by the asserted third-party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If any such third-party patents (including those that may issue from such applications) were successfully asserted against us or our licensor or other commercialization partners and we were unable to successfully challenge the validity or enforceability of any such asserted patents, then we or our licensor and other commercialization partners may be prevented from commercializing our product candidate or any future product candidates, or may be required to pay significant damages, including treble damages and attorneys' fees if we are found to willfully infringe the asserted patents, or obtain a license to such patents, which may not be available on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects. Any of the foregoing would have a material adverse effect on our business, financial condition and operating results.

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We may be subject to claims by third parties asserting that our employees or we have misappropriated a third party's intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. We may be subject to claims that we or these employees have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such employee's former employer, or that third parties have an interest in our patents as an inventor or co-inventor. Litigation may be necessary to defend against these claims. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain other damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms, or at all. Even if we successfully prosecute or defend against such claims, litigation could result in substantial costs and distract management.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our inability to protect our confidential information and trade secrets would harm our business and competitive position.

In addition to seeking patents for some of our technology and products, in our activities we also rely substantially on trade secrets, including unpatented know-how, technology and other proprietary materials and information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. However, these steps may be inadequate, we may fail to enter into agreements with all such parties or any of these parties may breach the agreements and disclose our proprietary information and there may be no adequate remedy available for such breach of an agreement. We cannot assure you that our proprietary information will not be disclosed or that we can meaningfully protect our trade secrets. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts both within and outside the United States may be less willing, or unwilling, to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

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Intellectual property rights do not necessarily address all potential threats.

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

others may be able to make products that are similar to any product candidates we may develop or utilize similar technology but that are not covered by the claims of the patents that we license or may own in the future;

we, or our current or future collaborators, might not have been the first to make the inventions covered by the issued patents and pending patent applications that we license or may own in the future;

we, or our current or future collaborators, might not have been the first to file patent applications covering certain of our or their inventions;

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

it is possible that our pending patent applications or those that we may own in the future will not lead to issued patents;

issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors;

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

we may not develop additional proprietary technologies that are patentable;

the patents of others may harm our business; and

we may choose not to file a patent application in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

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

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

If we or our licensing partner initiate legal proceedings against a third party to enforce a patent covering our product candidate or any future product candidates, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. These types of mechanisms include inter partes review, post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). These types of proceedings could result in revocation or amendment to our patents such that they no longer cover our product candidates. The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain

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that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise unable to adequately protect our rights, we would lose at least part, and perhaps all, of the patent protection on our product candidates. A loss of patent protection for our product candidates could have a material adverse impact on our ability to commercialize or license our technology and product candidates and, resultantly, on our business, financial condition, prospects and results of operations.

Likewise, our in-licensed U.S. patents directed to our proprietary technologies and our product candidates are expected to expire in 2034, including potential patent term extensions, without taking into account any possible patent term adjustments or extensions. Our earliest in-licensed patents may expire before, or soon after, our first product achieves marketing approval in the United States or foreign jurisdictions. Upon the expiration of our current patents, we may lose the right to exclude others from practicing these inventions. The expiration of these patents could also have a similar material adverse effect on our business, financial condition, prospects and results of operations. We in-license pending patent applications directed to proprietary technologies or our product candidates that, if issued as patents, are expected to expire from 2034, including potential patent term extensions, through 2036, without taking into account any possible patent term adjustments or extensions. However, we cannot be assured that the USPTO or relevant foreign patent offices will grant any of these patent applications.

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidate or any future product candidates.

As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involves technological and legal complexity, and obtaining and enforcing biotechnology patents is costly, time-consuming and inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances, weakening the rights of patent owners in certain situations or ruling that certain subject matter is not eligible for patent protection. In addition to increasing uncertainty with regard to our and our licensor's ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts, the USPTO and equivalent bodies in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our and our licensor's ability to obtain new patents or to enforce existing patents and patents we and our licensor may obtain in the future.

Patent reform laws, such as the Leahy-Smith America Invents Act, or the Leahy-Smith Act, as well as changes in how patent laws are interpreted, could increase the uncertainties and costs surrounding the prosecution of our and our licensor's patent applications and the enforcement or defense of our or our licensor's issued patents. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the filing and prosecution strategies associated with patent applications, including a change from a "first-to-invent" to a "first-inventor-to-file" patent system, and may also affect patent prosecution and litigation, such as by allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings, including post-grant review, inter partes review and derivation proceedings. The USPTO has developed regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act and, in particular, the "first-inventor-to-file" provisions, became effective in 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith

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Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensor's patent applications and the enforcement or defense of our or our licensor's issued patents, all of which could have a material adverse effect on our business, financial condition and results of operations.

Risks related to our reliance on third parties

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

We will depend upon third parties, including independent investigators, to conduct our clinical trials under agreements with universities, medical institutions, CROs, strategic partners and others. We expect to have to negotiate budgets and contracts with CROs and trial sites, which may result in delays to our development timelines and increased costs.

We will rely heavily on third parties over the course of our clinical trials, and, as a result, will have limited control over the clinical investigators and limited visibility into their day-to-day activities, including with respect to their compliance with the approved clinical protocol. Nevertheless, our reliance on third parties does not relieve us of our regulatory responsibilities and we will be responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards. We and these third parties are required to comply with good clinical practice, or GCP, requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, clinical investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to suspend or terminate these trials or perform additional nonclinical studies or clinical trials before approving our marketing applications. We cannot be certain that, upon inspection, regulatory authorities will determine that any of our clinical trials comply with the GCP requirements. In addition, our clinical trials must be conducted with products produced under current good manufacturing practice, or cGMP, requirements and may require a large number of patients. Our failure or any failure by these third parties to comply with these applicable regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

The third parties who may conduct our future clinical trials will not be our employees and, except for remedies that may be available to us under our agreements with those third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing nonclinical and clinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates in a timely manner or at all. As a result, our financial results and

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the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into arrangements with alternative CROs or other third parties or to do so on commercially reasonable terms. Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised due to the failure (including by clinical sites or investigators) to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenues could be delayed significantly.

We contract with third parties for the manufacture of our product candidate or any future product candidates for nonclinical testing and expect to continue to do so for clinical trials and for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidate or any future product candidates or medicines or that such supply will not be available to us at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not have any manufacturing facilities. We currently rely, and expect to continue to rely, on third-party manufacturers for the manufacture of our product candidate or any future product candidates for nonclinical and clinical testing and for commercial supply of any of these product candidates for which we obtain marketing approval. Reliance on third-party manufacturers may expose us to different risks than if we were to manufacture product candidates ourselves. To the extent any issues arise with our third-party manufacturers, we may be unable to establish any agreements with any other third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

the possible breach of the manufacturing agreement by the third party;

the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; and

reliance on the third party for regulatory compliance, quality assurance and safety and pharmacovigilance reporting.

Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or medicines, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business and results of operations.

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Any medicines that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply for bulk drug substances. If any one of our current contract manufacturers cannot perform as agreed, we may be required to replace that manufacturer. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidate or any future product candidates, we may incur added costs and delays in identifying and qualifying any such replacement.

Our current and anticipated future dependence upon others for the manufacture of our product candidate or any future product candidates or medicines may adversely affect our future profit margins and our ability to commercialize any medicines that receive marketing approval on a timely and competitive basis.

The manufacture of our product candidates is complex and we may encounter difficulties in production. If we or any of our third-party manufacturers encounter such difficulties, or fail to meet rigorously enforced regulatory standards, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.

The processes involved in manufacturing our drug product candidates are complex, expensive, highly-regulated, and subject to multiple risks. Further, as product candidates are developed through nonclinical studies to late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.

In addition, the manufacturing process for any products that we may develop is subject to FDA and other comparable foreign regulatory authority approval processes and continuous oversight, and we will need to contract with manufacturers who can meet all applicable FDA and foreign regulatory authority requirements, including, for example, complying with cGMPs, on an ongoing basis. If we or our third-party manufacturers are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our contract manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging or comparability nonclinical or clinical trials or the repetition of one or more clinical trials, increase clinical study costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations, and growth prospects.

We may seek to establish collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

We may pursue collaborations in order to develop and commercialize AKR-001 and any future product candidates. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the

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collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products and the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborators may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate.

Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we may not be able to further develop our product candidate or any future product candidates or bring them to market and generate product revenue.

Risks related to commercialization

Even if we commercialize our product candidate or any future product candidates, these products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay or limit our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenue we generate from the sale of the product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidate or any future product candidates obtain marketing approval.

Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from third-party payors such as government health administration authorities, private health insurers and other organizations. Third-party payors determine which medications they will cover and establish reimbursement levels. Third-party payors have attempted to control costs by limiting coverage and the amount of

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reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval, if any. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize any product candidate for which marketing approval is obtained, if any.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable reimbursement rates third-party payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any product candidates we may develop, we may not be successful in commercializing those product candidates if and when they are approved.

We do not currently have an infrastructure for the sales, marketing, and distribution of pharmaceutical products. In order to market our product candidates, if approved by the FDA or any other regulatory body, we must build our sales, marketing, managerial, and other non-technical capabilities, or make arrangements with third parties to perform these services. There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force or reimbursement specialists is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our commercialization personnel.

If we enter into arrangements with third parties to perform sales, marketing, commercial support, and distribution services, our product revenue or the profitability of product revenue may be lower than if we were to market and sell any products we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to commercialize our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively and they could expose our company to regulatory enforcement and legal risk in the execution of their sales and commercialization activities. If we do not establish commercialization capabilities successfully,

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either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates if approved.

If we are unable to establish adequate sales, marketing, and distribution capabilities, whether independently or with third parties, or if we are unable to do so on commercially reasonable terms, our business, results of operations, financial condition, and prospects will be materially adversely affected.

Our product candidate or any future product candidates may not achieve adequate market acceptance among physicians, patients, third-party payors and others in the medical community necessary for commercial success.

Even if our product candidate or any future product candidates receive regulatory approval, they may not gain adequate market acceptance among physicians, patients, third-party payors, pharmaceutical companies and others in the medical community. Demonstrating the safety and efficacy of our product candidate or any future product candidates and obtaining regulatory approvals will not guarantee future revenue. Our commercial success also depends on coverage and adequate reimbursement of our product candidate or any future product candidates by third-party payors, including government payors and private insurers, which may be difficult or time-consuming to obtain, may be limited in scope and may not be obtained in all jurisdictions in which we may seek to market our products. Third-party payors closely examine medical products to determine whether they should be covered by reimbursement and, if so, the level of reimbursement that will apply. We cannot be certain that third-party payors will sufficiently reimburse sales of our product, or enable us to sell our product at a profitable price. Similar concerns could also limit the reimbursement amounts that health insurers or government agencies in other countries are prepared to pay for our products. In many regions, including Europe, Japan and Canada, where we may market our products, the pricing of prescription drugs is controlled by the government or regulatory agencies. Regulatory agencies in these countries could determine that the pricing for our products should be based on prices of other commercially available drugs for the same disease, rather than allowing us to market our products at a premium as new drugs. The degree of market acceptance of any of our approved product candidates will depend on a number of factors, including:

the efficacy and safety profile of the product candidate as demonstrated in clinical trials;

the timing of market introduction of the product candidate as well as competitive products;

the clinical indications for which the product candidate is approved;

acceptance of the product candidate as a safe and effective treatment by clinics and patients;

the potential and perceived advantages of the product candidate over alternative treatments, including any similar generic treatments;

the cost of treatment in relation to alternative treatments;

the availability of coverage and adequate reimbursement and pricing by third-party payors;

the relative convenience and ease of administration;

the frequency and severity of adverse events;

the effectiveness of sales and marketing efforts; and

unfavorable publicity relating to our product candidate or any future product candidates.

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Sales of medical products also depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot predict whether physicians, physicians' organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that our product is safe, therapeutically effective and cost effective as compared with competing treatments. If any product candidate is approved but does not achieve an adequate level of acceptance by such parties, we may not generate or derive sufficient revenue from that product candidate and may not become or remain profitable.

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 testing of our product candidate or any future product candidates in human clinical trials and will face an even greater risk if we commercialize any resulting products. Product liability claims may be brought against us by subjects enrolled in our clinical trials, patients, their family members, healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselves against claims that our product candidate or any future product candidates or products that we may develop caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

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

termination of clinical trial sites or entire trial programs;

injury to our reputation and significant negative media attention;

withdrawal of clinical trial participants;

significant costs to defend the related litigation;

substantial monetary awards to trial subjects or patients;

loss of revenue;

diversion of management and scientific resources from our business operations;

the inability to commercialize any products that we may develop; and

a decline in our stock price.

Our clinical trial liability insurance coverage may not adequately cover all liabilities that we may incur. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Our inability to obtain product liability insurance at an acceptable cost or to otherwise protect against potential product liability claims could prevent or delay the commercialization of any products or product candidates that we develop. We intend to expand our insurance coverage for products to include the sale of commercial products if we obtain marketing approval for our product candidate or any future product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. Large judgments have been awarded in lawsuits based on drugs that had unanticipated side effects. If we are sued for any injury caused by our products, product candidates or processes, our liability could exceed our product liability

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insurance coverage and our total assets. Claims against us, regardless of their merit or potential outcome, may also generate negative publicity or hurt our ability to obtain physician adoption of our product or expand our business.

Risks related to this offering and our common stock

We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and, as a result, it may be difficult for you to sell your shares of our common stock and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, no market for shares of our common stock existed and an active trading market for our shares may never develop or be sustained following this offering. We will determine the initial public offering price for our common stock through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of our common stock after this offering. The market value of our common stock may decrease from the initial public offering price. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares and may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic collaborations or acquire companies or products by using shares of our common stock as consideration.

The market price of our stock may be volatile, and you could lose all or part of your investment.

The trading price of our common stock following this offering is likely to be highly volatile and subject to wide fluctuations in response to various factors, some of which we cannot control. In addition to the factors discussed in this "Risk factors" section and elsewhere in this prospectus, these factors include:

developments associated with our license with Amgen, including any termination or other change in our relationship with Amgen;

the success of competitive products or technologies;

regulatory actions with respect to our product candidate or any future product candidates or our competitors' product candidates or products;

results of clinical trials of our product candidate or any future product candidates or those of our competitors;

actual or anticipated changes in our growth rate relative to our competitors;

announcements by us or our competitors or collaborators of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital commitments;

regulatory, legal or payor developments in the United States and other countries;

developments or disputes concerning patent applications, issued patents or other proprietary rights;

the recruitment or departure of key personnel;

the level of expenses related to any of our product candidate or any future product candidates or clinical development programs;

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the results of our efforts to in-license or acquire additional product candidates or products;

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

variations in our financial results or those of companies that are perceived to be similar to us;

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;

announcement or expectation of additional financing efforts;

sales of our common stock by us, our insiders or our other stockholders;

changes in the structure of healthcare payment systems;

market conditions in the pharmaceutical and biotechnology sectors; and

general economic, industry and market conditions.

In addition, the stock market in general, and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this "Risk factors" section, could have a dramatic and material adverse impact on the market price of our common stock.

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

Our management will have broad discretion in the application of the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. You will not have the opportunity, as part of your investment decision, to assess whether we are using the proceeds appropriately. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

Because of potential volatility in our trading price and trading volume, we may incur significant costs from class action securities litigation.

Holders of stock in companies that have a volatile stock price frequently bring securities class action litigation against the company that issued the stock. We may be the target of this type of litigation in the future. If any of our stockholders were to bring a lawsuit of this type against us, even if the lawsuit is without merit, we could incur substantial costs defending the lawsuit. A stockholder lawsuit could also divert the time and attention of our management. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.

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

Prior to this offering, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 91% of our voting stock as of March 31, 2019 and, upon completion of this offering, that same group will hold approximately 73% of our outstanding voting stock (assuming no purchases of shares in this offering by any members of this group), in each case assuming the conversion of all outstanding shares of our convertible preferred stock into shares of our common stock in connection with the completion of this offering. After this offering, this group of stockholders will have the ability to control us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock. Certain of our existing stockholders, including certain affiliates of our directors, and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $30.0 million of shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares of common stock to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares of common stock in this offering. The foregoing discussion does not reflect any potential purchases by these potential purchasers.

We are an "emerging growth company" as defined in the JOBS Act and a "smaller reporting company" as defined in the Exchange Act and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies, which could make our common stock less attractive to investors and adversely affect the market price of our common stock.

For so long as we remain an "emerging growth company" as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements applicable to public companies that are not "emerging growth companies" including:

the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

the "say on pay" provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the "say on golden parachute" provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of our executive officers; and

the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation.

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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. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our common stock less attractive because we may 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 are also a "smaller reporting company" as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.

Although we are still evaluating the JOBS Act, we currently intend to take advantage of some, but not all, of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an "emerging growth company" and "smaller reporting company." We have elected to avail ourselves of this exemption and, therefore, we are not subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or smaller reporting company. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations. In addition, our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an "emerging growth company," which may increase the risk that material weaknesses or significant deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as a "smaller reporting company" or 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 otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. We cannot predict if investors will find our common stock less attractive because we may 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 and may decline.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have 26,295,122 outstanding shares of common stock based on the number of shares outstanding as of March 31, 2019, assuming the conversion of all outstanding shares of our convertible preferred stock into 21,056,136 shares of common stock upon the completion of this offering. This includes the shares that we sell in this offering,

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which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Substantially all of the remaining shares of our common stock outstanding immediately after the completion of this offering will not be able to be sold immediately following this offering as a result of securities laws or lock-up agreements, but will be able to be sold after this offering as described in the section titled "Shares eligible for future sale." Moreover, after this offering, holders of an aggregate of 21,056,136 shares of our common stock will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity compensation plans for resale under the Securities Act. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements.

Certain of our existing stockholders, including certain affiliates of our directors, and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $30.0 million of shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. Any such shares purchased by stockholders who are considered to be our affiliates cannot be resold in the public market immediately following this offering as a result of restrictions under securities laws, but will be able to be sold following the expiration of these restrictions as described in the "Shares eligible for future sale" section of this prospectus. The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus, subject to earlier release of all or a portion of the shares subject to such agreements by J.P. Morgan Securities LLC, Jefferies LLC and Evercore Group L.L.C. in their sole discretion. After the lock-up agreements expire, substantially all of the shares of common stock outstanding prior to the completion of this offering will be eligible for sale in the public market, unless held by our affiliates. Approximately 73% of these additional shares are held by directors, executive officers and other affiliates and will be subject to certain limitations of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

The initial public offering price is substantially higher than the pro forma as adjusted net tangible book value per share of our common stock as of March 31, 2019 after giving effect to this offering. Accordingly, investors purchasing common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $9.79 per share, based on an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Further, investors purchasing common stock in this offering will contribute approximately 45.3% of the total amount invested by stockholders since our inception, but will own only approximately 19.0% of the shares of common stock outstanding after this offering.

As of March 31, 2019, options to purchase 2,314,740 shares of our common stock at a weighted average exercise price of $1.79 per share were outstanding. The exercise of any of these options would result in additional dilution. As a result of the dilution to investors purchasing shares in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of a liquidation.

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

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.

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

Upon completion of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

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

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

a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;

a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;

a requirement that special meetings of the stockholders may be called only by the board of directors acting pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, and special meetings of stockholders may not be called by any other person or persons;

advance notice requirements for stockholder proposals and nominations for election to our board of directors;

a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds (2/3) of all outstanding shares of our voting stock then entitled to vote in the election of directors;

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a requirement of approval of not less than a majority of all outstanding shares of our voting stock to amend any bylaws by stockholder action and not less than two-thirds (2/3) of all outstanding shares of our voting stock to amend specific provisions of our certificate of incorporation; and

the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval, which preferred stock may include rights superior to the rights of the holders of common stock.

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

Our second amended and restated bylaws to be effective upon the effectiveness of this registration statement designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our second amended and restated bylaws that will become effective prior to completion of this offering provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, and employees to us or our stockholders, (iii) any action asserting a claim against us or any of our current or former directors, officers, or other employees or stockholders, arising out of or pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our second amended and restated bylaws or (iv) any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. This exclusive forum provision will not apply to any causes of action arising under the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, our second amended and restated bylaws will provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provisions. Additionally, the forum selection clause in our second amended and restated bylaws may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.

We have chosen the Court of Chancery of the State of Delaware as the exclusive forum for such causes of action because we are incorporated in the State of Delaware and we are familiar with the procedures and rules applicable in such forum.

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

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

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Special note regarding forward-looking statements

This prospectus contains forward-looking statements that are based on management's beliefs and assumptions and on information currently available to management. Some of the statements in the section captioned "Prospectus summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations," "Business" and elsewhere in this prospectus contain forward-looking statements. In some cases, you can identify forward-looking statements by the following words: "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this prospectus include, but are not limited to, statements about:

the success, cost and timing of our product development activities and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

our ability to advance any product candidate into or successfully complete any clinical trial;

our ability or the potential to successfully manufacture our product candidates for clinical trials or for commercial use, if approved;

the potential for our identified research priorities to advance our technologies;

our ability to obtain and maintain regulatory approval, if obtained, of AKR-001 or any future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

the ability to license additional intellectual property relating to any future product candidates and to comply with our existing license agreements;

our ability to commercialize our products in light of the intellectual property rights of others;

the success of competing therapies that are or become available;

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

the commercialization of our product candidates, if approved;

our plans to research, develop and commercialize our product candidates;

our ability to attract collaborators with development, regulatory and commercialization expertise;

future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;

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the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

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

regulatory developments in the United States and foreign countries;

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

our ability to attract and retain key scientific or management personnel;

the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

the impact of laws and regulations; and

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates.

In addition, you should refer to the "Risk factors" section of this prospectus for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, governmental publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this prospectus, and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under the section entitled "Risk factors" and elsewhere in this prospectus. Some data are also based on our good faith estimates.

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Market, industry, and other data

This prospectus contains estimates, projections and other information concerning our industry, our business and the markets for our products, including data regarding the estimated size of those markets, their projected growth rates, the perceptions and preferences of patients and physicians regarding certain therapies and other patient data and reimbursement data, as well as market research, estimates and forecasts prepared by our management. We obtained the industry, market and other data throughout this prospectus from our own internal estimates and research, as well as from publicly available information, industry publications and research, surveys and studies conducted by third-parties, including governmental agencies.

Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information based on various factors, including those discussed in "Risk factors."

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Use of proceeds

We estimate that the net proceeds to us from the sale of the shares of our common stock in this offering will be approximately $67.3 million, or approximately $77.7 million if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $4.7 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $14.0 million, assuming that the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the initial public offering price or the number of shares by these amounts would have a material effect on our uses of the proceeds from this offering, although it may accelerate the time at which we will need to seek additional capital.

We currently expect to use the net proceeds from this offering, together with our existing cash and cash equivalents as of March 31, 2019, as follows:

approximately $65 million to complete our ongoing Phase 2a clinical trial and a subsequent Phase 2b clinical trial of our lead product candidate, AKR-001, in patients with NASH;

approximately $35 million for new AKR-001 drug substance and drug product manufactured by third parties;

approximately $10 million for nonclinical studies, exploration of potential additional indications for AKR-001, internal discovery efforts and potential in-licensing to diversify our pipeline; and

the remainder for working capital and general corporate purposes.

Based on our current plans, we believe our existing cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements through 2022, although there can be no assurance in that regard.

We may also use a portion of our net proceeds to co-develop, acquire or invest in products, technologies or businesses that are complementary to our business. However, we currently have no agreements or commitments to complete any such transaction.

We cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. Due to uncertainties inherent in the product development process, it is difficult to estimate the exact amounts of the net proceeds that will be used for any particular purpose. We may use our existing cash and cash equivalents and the future payments, if any, generated from any future collaboration agreements to fund our operations, either of which may alter the amount of net proceeds used for a particular purpose. In addition, the amount, allocation and timing of our actual expenditures will depend upon numerous factors, including the results of our research and development efforts, the timing and success of clinical trials and the timing of regulatory submissions. Accordingly, we will have broad discretion in using these proceeds.

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

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Dividend policy

We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future. In addition, future debt instruments may materially restrict our ability to pay dividends on our common stock. Payment of future cash dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of then-existing debt instruments and other factors the board of directors deems relevant.

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Capitalization

The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2019:

on an actual basis;

on a pro forma basis to give effect to the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 21,056,136 shares of common stock prior to the completion of this offering and the filing and effectiveness of our fourth amended and restated certificate of incorporation prior to the completion of this offering;

on a pro forma as adjusted basis to give further effect to (i) the issuance and sale of 5,000,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us (excluding $0.8 million paid as of March 31, 2019) and (ii) the reclassification of deferred initial public offering costs from assets to additional paid-in capital.

The pro forma as adjusted information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the information in this table together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the "Selected consolidated financial data" and "Management's discussion and analysis of financial condition and results of operations" sections of this prospectus.

 
  As of March 31, 2019  
(in thousands, except share and per share amounts)
  Actual
  Pro forma
  Pro forma
as adjusted(1)

 

Cash and cash equivalents

  $ 69,796   $ 69,796   $ 137,845  

Redeemable convertible preferred stock (Series A and B), $0.0001 par value; 64,730,410 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    124,728          

Stockholders' (deficit) equity:

                   

Preferred stock, $0.0001 par value; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted

             

Common stock, $0.0001 par value; 75,000,000 shares authorized, 238,986 shares issued and outstanding, actual; 75,000,000 shares authorized, 21,295,122 shares issued and outstanding, pro forma; 150,000,000 shares authorized, 26,295,122 shares issued and outstanding, pro forma as adjusted

        2     3  

Additional paid-in capital

    36,861     161,587     228,864  

Accumulated deficit

    (91,927 )   (91,927 )   (91,927 )

Total stockholders' (deficit) equity

    (55,066 )   69,662     136,940  

Total capitalization

  $ 69,662   $ 69,662   $ 136,940  

(1)   Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total stockholders' (deficit) equity and total capitalization by $4.7 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total stockholders' (deficit) equity and total capitalization by $14.0 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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The number of shares of our common stock issued and outstanding actual, pro forma and pro forma as adjusted in the table above is based on 21,295,122 shares of our common stock outstanding as of March 31, 2019, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 21,056,136 shares of our common stock immediately prior to the completion of this offering, and excludes:

2,314,740 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2019 under our 2018 Stock Option and Grant Plan, or the 2018 Plan, at a weighted-average exercise price of $1.79 per share (which excludes options to purchase an aggregate of 636,999 shares of common stock, at an exercise price of $7.01 per share, that were granted subsequent to March 31, 2019);

744,634 shares of common stock reserved for future issuance as of March 31, 2019 under the 2018 Plan, which will cease to be available for issuance at the time that our 2019 Stock Option and Grant Plan, or the 2019 Plan, becomes effective (which includes 636,999 shares of common stock subject to options granted subsequent to March 31, 2019);

2,464,822 shares of our common stock that will become available for future issuance under the 2019 Plan in connection with the effectiveness of the registration statement of which this prospectus is a part; and

273,869 shares of our common stock reserved for future issuance under our 2019 Employee Stock Purchase Plan which will become effective in connection with this offering.

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Dilution

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

Our historical net tangible book value (deficit) as of March 31, 2019 was $(56.4) million, or $(235.97) per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and the carrying values of our convertible preferred stock, which is not included within stockholders' (deficit) equity. Our historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by the 238,986 shares of our common stock outstanding as March 31, 2019.

Our pro forma net tangible book value as of March 31, 2019 would have been $68.3 million, or $3.21 per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 21,056,136 shares of common stock prior to the completion of this offering and (ii) the filing and effectiveness of our fourth amended and restated certificate of incorporation and second amended and restated bylaws prior to the completion of this offering. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of March 31, 2019, after giving effect to the pro forma adjustments described above.

After giving further effect to our issuance and sale of 5,000,000 shares of our common stock in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2019 would have been $136.9 million, or $5.21 per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value per share of $2.00 to our existing stockholders and immediate dilution of $9.79 in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering.

Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis (without giving effect to any exercise by the underwriters of their option to purchase additional shares):

Assumed initial public offering price per share

        $ 15.00  

Historical net tangible book value (deficit) per share as of March 31, 2019            

  $ (235.97 )      

Increase per share attributable to the pro forma adjustments described above

    239.18        

Pro forma increase in historical net tangible book value per share as of March 31, 2019 attributable to the conversion of convertible preferred stock

    3.21        

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

    2.00        

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

          5.21  

Dilution per share to new investors purchasing common stock in this offering

        $ 9.79  

Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our

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pro forma as adjusted net tangible book value per share after this offering by $0.17 and dilution per share to new investors purchasing common stock in this offering by $0.83, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase our pro forma as adjusted net tangible book value per share after this offering by $0.32 and decrease dilution per share to new investors purchasing common stock in this offering by $0.32, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease our pro forma as adjusted net tangible book value per share after this offering by $0.35 and increase dilution per share to new investors purchasing common stock in this offering by $0.35, assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $5.45, representing an immediate increase in pro forma as adjusted net tangible book value per share of $2.24 to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $9.55 to new investors purchasing common stock in this offering, based on the assumed initial public offering price of $15.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes on the pro forma as adjusted basis described above, the total number of shares of common stock purchased from us on an as converted to common stock basis, the total consideration paid or to be paid, and the average price per share paid or to be paid by existing stockholders and by new investors in this offering at an assumed initial public offering price of $15.00 per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 
  Shares purchased   Total consideration   Average price per share
 
 
  Number
  Percentage
  Amount
  Percentage
 

Existing stockholders

    21,295,122     81.0 % $ 90,499,986     54.7 % $ 4.25  

New investors

    5,000,000     19.0     75,000,000     45.3     15.00  

Total

    26,295,122     100 % $ 165,499,989     100 %      

Certain of our existing stockholders, including certain affiliates of our directors, and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $30.0 million of shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares of common stock to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares of common stock in this offering. The table above does not reflect any potential purchases by these potential purchasers.

The table above assumes no exercise of the underwriters' option to purchase additional shares in this offering. If the underwriters' option to purchase additional shares is exercised in full, the number of shares

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of our common stock held by existing stockholders would be reduced to 78.7% of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to 21.3% of the total number of shares of our common stock outstanding after this offering.

The discussion and tables (other than the historical net tangible book value calculation) above are based on 21,295,122 shares of our common stock outstanding as of March 31, 2019, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 21,056,136 shares of our common stock immediately prior to the completion of this offering, and excludes:

2,314,740 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2019 under our 2018 Stock Option and Grant Plan, or the 2018 Plan, at a weighted-average exercise price of $1.79 per share (which excludes options to purchase an aggregate of 636,999 shares of common stock, at an exercise price of $7.01 per share, that were granted subsequent to March 31, 2019);

744,634 shares of common stock reserved for future issuance as of March 31, 2019 under the 2018 Plan, which will cease to be available for issuance at the time that our 2019 Stock Option and Grant Plan, or the 2019 Plan, becomes effective (which includes 636,999 shares of common stock subject to options granted subsequent to March 31, 2019);

2,464,822 shares of our common stock that will become available for future issuance under the 2019 Plan in connection with the effectiveness of the registration statement of which this prospectus is a part; and

273,869 shares of our common stock reserved for future issuance under our 2019 Employee Stock Purchase Plan which will become effective in connection with this offering.

To the extent that new stock options are issued or any outstanding options are exercised, or we issue additional shares of common stock in the future, there will be further dilution to new investors. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

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Selected consolidated financial data

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the "Management's discussion and analysis of financial condition and results of operations" section of this prospectus. We have derived the consolidated statement of operations data for the period January 24, 2017 (inception) through December 31, 2017 and the year ended December 31, 2018 and the consolidated balance sheet data as of December 31, 2017 and 2018 from our audited consolidated financial statements appearing elsewhere in this prospectus. We have derived the consolidated statement of operations data for the three months ended March 31, 2018 and 2019 and the consolidated balance sheet data as of March 31, 2019 from our unaudited condensed consolidated financial statements appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that should be expected in any future periods, and our results for any interim period are not necessarily indicative of results that should be expected for any full year.

 
  For the period
January 24, 2017
(inception) through
December 31,
2017

   
  Three months ended March 31,  
 
  Year
ended
December 31,
2018

 
(in thousands, except share and per share amounts)
 
  2018
  2019
 

Consolidated Statement of Operation Data:

                         

Operating expenses:

                         

Research and development           

  $ 3,486   $ 11,882   $ 226   $ 4,063  

General and administrative           

    1,078     1,896     195     1,449  

Total operating expenses           

    4,564     13,778     421     5,512  

Loss from operations

    (4,564 )   (13,778 )   (421 )   (5,512 )

Other income (expense), net:

                         

Change in fair value of preferred stock tranche obligation

        (62,150 )        

Change in fair value of anti-dilution right liability

        (5,765 )        

Other income (expense), net           

          (21 )       150  

Total other income (expense)           

        (67,936 )       150  

Net loss

    (4,564 )   (81,714 )   (421 )   (5,362 )

Accruing dividends on convertible preferred stock

    (213 )            

Accretion of convertible preferred stock to redemption value

        (520 )        

Net loss attributable to common stockholders

  $ (4,777 ) $ (82,234 ) $ (421 ) $ (5,362 )

Net loss per share attributable to common stockholders—basic and diluted(1)

        $ (795.28 ) $ (10.42 ) $ (31.90 )

Weighted average common shares outstanding—basic and diluted(1)

          103,403     40,387     168,071  

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)            

        $ (3.12 )       $ (0.25 )

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)

          6,276,741           21,224,207  

(1)    See Note 10 to our audited consolidated financial statements and Note 9 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus for details on the calculation of basic and diluted net loss per share attributable to common stockholders and the calculation of basic and diluted pro forma net loss per share attributable to common stockholders.

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  As of
December 31,
   
 
 
  As of
March 31,
2019

 
(in thousands)
  2017
  2018
 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 598   $ 75,975   $ 69,796  

Working capital(1)

    416     74,789     68,295  

Total assets

    658     77,151     72,066  

Convertible preferred stock

    5,000     124,728     124,728  

Total stockholders' deficit

    (4,564 )   (49,919 )   (55,066 )

(1)    We define working capital as current assets less current liabilities.

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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 "Selected consolidated financial data" section of this prospectus and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Risk factors" section of this prospectus.

Overview

We are a clinical-stage biotechnology company focused on developing and commercializing transformative treatments for serious metabolic diseases with high unmet medical need. Our initial focus is nonalcoholic steatohepatitis, or NASH, a disease without any approved therapies. NASH is a severe form of nonalcoholic fatty liver disease, or NAFLD, characterized by inflammation and fibrosis in the liver that can progress to cirrhosis, liver failure, cancer and death. NASH is a leading cause for liver transplantation. Our lead product candidate, AKR-001, which we are developing as a potential treatment for patients with NASH, is an analog of fibroblast growth factor 21, or FGF21. FGF21 is an endogenously-expressed hormone that regulates metabolism of lipids, carbohydrates and proteins throughout the body. FGF21 also plays a critical role in protecting many types of cells from various forms of stress. FGF21 analogs have shown evidence of therapeutic benefit in clinical trials of patients with NASH, many of whom are dyslipidemic and insulin resistant. In previous clinical trials in patients with type 2 diabetes, or T2D, administration of AKR-001 was associated with substantial improvements in lipid metabolism and insulin sensitivity. We believe these data demonstrate AKR-001's potential to serve as a cornerstone for the treatment of NASH. On May 24, 2019, the U.S. Food and Drug Administration, or FDA, Division of Gastroenterology and Inborn Errors Products cleared our Investigational New Drug application, or IND, to conduct a Phase 2a clinical trial evaluating AKR-001 in the treatment of NASH patients. We began screening patients for our Phase 2a clinical trial on May 28, 2019. We expect to complete collection of data for the primary endpoint of our Phase 2a clinical trial in the first quarter of 2020, and we expect to complete repeat liver biopsies and all collection of data for the clinical trial in the second quarter of 2020.

We were incorporated in January 2017 and received initial seed funding in the amount of $5.0 million from Apple Tree Partners. Since our inception, we have devoted substantially all of our efforts to organizing and staffing our company, business planning, raising capital, in-licensing rights to AKR-001, research and development activities for AKR-001, building our intellectual property portfolio and providing general and administrative support for these operations. To date, we have principally raised capital through the issuance of convertible preferred stock. Through March 31, 2019, we had received gross proceeds of $90.5 million from sales of our convertible preferred stock.

We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of AKR-001 and any future product candidates. Our net losses were $4.6 million and $81.7 million for the period January 24, 2017 (inception) through December 31, 2017 and the year ended December 31, 2018, respectively, and $5.4 million for the three months ended March 31, 2019. The net loss for the year ended December 31, 2018 included non-cash charges of $62.2 million related to the change in

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fair value of our preferred stock tranche obligation and $5.8 million related to the change in fair value of our anti-dilution right liability. As of March 31, 2019, we had an accumulated deficit of $91.9 million. We expect to continue to incur significant expenses for at least the next several years as we advance AKR-001 through later-stage clinical development, develop additional product candidates and seek regulatory approval of any product candidates that complete clinical development. In addition, if we obtain marketing approval for any product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates. Furthermore, upon the completion of this offering, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, compliance and other expenses that we did not incur as a private company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of March 31, 2019, we had cash and cash equivalents of $69.8 million. We believe that the anticipated net proceeds from this offering, together with our existing cash and cash equivalents as of March 31, 2019, will enable us to fund our operating expenses and capital expenditure requirements through 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "Liquidity and capital resources."

Components of our results of operations

Revenue

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts for AKR-001 or additional product candidates that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.

Operating expenses

    Research and development expenses

Research and development expenses consist primarily of costs incurred in connection with the development of AKR-001, as well as unrelated discovery program expenses. We expense research and development costs as incurred. These expenses include:

employee-related expenses, including salaries, related benefits and stock-based compensation expense, for employees engaged in research and development functions;

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expenses incurred under agreements with contract research organizations, or CROs, that are primarily engaged in the oversight and conduct of our clinical trials; contract manufacturing organizations, or CMOs, that are primarily engaged to provide drug substance and product for our clinical trials, research and development programs, as well as investigative sites and consultants that conduct our clinical trials, nonclinical studies and other scientific development services;

the cost of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation batches;

costs related to compliance with quality and regulatory requirements; and

payments made under third-party licensing agreements.

Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

Product candidates in later stages of clinical development, such as AKR-001, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of AKR-001 and any future product candidates.

Our clinical development costs may vary significantly based on factors such as:

per patient trial costs;

the number of trials required for approval;

the number of sites included in the trials;

the countries in which the trials are conducted;

the length of time required to enroll eligible patients;

the number of patients that participate in the trials;

the number of doses that patients receive;

the drop-out or discontinuation rates of patients;

potential additional safety monitoring requested by regulatory agencies;

the duration of patient participation in the trials and follow-up;

the cost and timing of manufacturing our product candidates;

the phase of development of our product candidates; and

the efficacy and safety profile of our product candidates.

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The successful development and commercialization of product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

the timing and progress of nonclinical and clinical development activities;

the number and scope of nonclinical and clinical programs we decide to pursue;

raising necessary additional funds;

the progress of the development efforts of parties with whom we may enter into collaboration arrangements;

our ability to maintain our current development program and to establish new ones;

our ability to establish new licensing or collaboration arrangements;

the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

the receipt and related terms of regulatory approvals from applicable regulatory authorities;

the availability of drug substance and drug product for use in production of our product candidate;

establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidate is approved;

our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United States and internationally;

our ability to protect our rights in our intellectual property portfolio;

the commercialization of our product candidate, if and when approved;

obtaining and maintaining third-party insurance coverage and adequate reimbursement;

the acceptance of our product candidate, if approved, by patients, the medical community and third-party payors;

competition with other product; and

a continued acceptable safety profile of our therapies following approval.

A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.

    General and administrative expenses

General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; marketing expenses and other operating costs.

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We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of AKR-001 and our continued research activities. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company.

Other expense

    Change in fair value of preferred stock tranche obligation

In connection with our June 2018 issuance and sale of Series A preferred stock, we provided for a first tranche closing, a second tranche closing, and a call option to purchase additional shares of Series A preferred stock. We classified the preferred stock tranche obligation for the future purchase and option to purchase Series A preferred stock as a liability on our consolidated balance sheets as the preferred stock tranche obligation is a freestanding financial instrument that will require us to transfer equity instruments upon future closings of the Series A preferred stock. The preferred stock tranche obligation liability was initially recorded at fair value upon the date of issuance and is subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred stock tranche obligation are recognized as a component of other expense in the consolidated statements of operations and comprehensive loss. Changes in the fair value of the preferred stock tranche obligation were recognized until the tranche obligations were fulfilled or otherwise extinguished in the fourth quarter of 2018.

In November 2018, in connection with our issuance and sale of Series A preferred stock, we satisfied our obligation to issue additional shares under the second tranche closing and accordingly reclassified the carrying value of the preferred stock tranche obligation associated with the future purchase obligation, equal to the then current value of $32.8 million, to the carrying value of the Series A preferred stock. In December 2018, in connection with our issuance and sale of Series B preferred stock, we terminated the option to purchase Series A preferred stock provided under the Series A Preferred Stock Purchase Agreement, or 2018 Series A Agreement. We accounted for the termination of the call option associated with the preferred stock tranche obligation as a liability extinguishment between related parties and recognized a gain on extinguishment of $36.8 million, equal to the then current fair value, within additional paid-in capital in the statement of stockholder's equity (deficit).

    Change in fair value of anti-dilution right

We classified the anti-dilution right under our license agreement with Amgen Inc., or the Amgen Agreement, as a derivative liability on our consolidated balance sheets as the anti-dilution right represented a freestanding financial instrument that required us to transfer equity instruments upon future equity closings. The anti-dilution right liability was initially recorded at fair value upon the date of issuance and was subsequently remeasured to fair value at each reporting date. The issuance date fair value of the derivative liability was recognized as a research and development expense upon entering into the agreement with Amgen. Changes in the fair value of the anti-dilution right liability were recognized as a component of other expense in the consolidated statements of operations and comprehensive loss. Changes in the fair value of the anti-dilution right liability were recognized until the anti-dilution rights obligation was satisfied in the fourth quarter of 2018.

In November 2018, in connection with our issuance and sale of Series A preferred stock, we satisfied our anti-dilution rights obligation under the Amgen Agreement by issuing 3,205,128 shares of Series A preferred stock to Amgen for a total value of $7.4 million. We reclassified the carrying value of the anti-dilution right liability, equal to then current fair value of $7.4 million, to the carrying value of the Series A preferred stock.

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Income taxes

Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each period or for our earned research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of December 31, 2018, we had U.S. federal and state net operating loss carryforwards of $10.6 million and $10.6 million, respectively, which may be available to offset future income tax liabilities and expire at various dates beginning in 2037. The federal net operating loss carryforward includes $6.1 million that has a indefinite carryforward period. As of December 31, 2018, we also had U.S. federal and state research and development tax credit carryforwards of $0.2 million and $0.1 million, respectively, which may be available to offset future tax liabilities which expire at various dates beginning in 2032. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

During 2017, we recorded tax charges to reflect the impact of the Tax Cuts and Jobs Act, or the Tax Act, using the current available information and technical guidance on the interpretations of the Tax Act. As permitted by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we recorded provisional estimates and have subsequently finalized our accounting analysis based on the guidance, interpretations, and data available as of December 31, 2018 with no material changes to our initial estimates.

Results of operations

Comparison of three months ended March 31, 2018 and 2019

The following table summarizes our results of operations for the three months ended March 31, 2018 and 2019:

 
  Three months ended March 31,  
(in thousands)
  2018
  2019
 

Operating expenses:

             

Research and development

  $ 226   $ 4,063  

General and administrative

    195     1,449  

Total operating expenses

    421     5,512  

Loss from operations

    (421 )   (5,512 )

Other income, net:

             

Other income, net

        150  

Total other income, net

        150  

Net loss

  $ (421 ) $ (5,362 )

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    Research and development expenses

 
  Three months ended March 31,    
 
(in thousands)
  2018
  2019
  Change
 

Direct program expenses: AKR-001

  $ 78   $ 3,538   $ 3,460  

Personnel related

    148     525     377  

Total research and development expenses

  $ 226   $ 4,063   $ 3,837  

Research and development expenses were $0.2 million for the three months ended March 31, 2018, compared to $4.1 million for the three months ended March 31, 2019. The increase of $3.8 million was primarily due to a $3.5 million increase in direct costs related to our AKR-001 program and an increase of $0.4 million in personnel-related costs. Both increases were primarily a result of increased program activity in 2019 versus limited activities in the three months ended March 31, 2018 when we were in our formative stage. Specifically, the increase in direct costs related to our AKR-001 program was primarily due to increased costs incurred in connection with our external CROs, as well as clinical manufacturing costs, and the increase in personnel costs were a result of hiring additional personnel in our research and development department.

    General and administrative expenses

 
  Three months ended March 31,    
 
(in thousands)
  2018
  2019
  Change
 

Personnel related

  $ 154   $ 783   $ 629  

Legal and professional fees

    39     552     513  

Other

    2     114     112  

Total general and administrative expenses

  $ 195   $ 1,449   $ 1,254  

General and administrative expenses were $0.2 million for the three months ended March 31, 2018 compared to $1.5 million for the three months ended March 31, 2019. The increase in personnel related costs of $0.6 million was primarily due to hiring of additional personnel in our general and administrative functions. The increases in legal and professional fees and other expenses of $0.6 million were primarily due to $0.2 million increase in legal costs and a $0.4 million increase in accounting and tax fees during the three months ended March 31, 2019.

    Other income, net

Other income, net was $0.2 million during the three months ended March 31, 2019. We did not record other income, net for the three months ended March 31, 2018. Other income, net in the three months ended March 31, 2019 was primarily related to interest income associated with our money market mutual fund investment account.

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Comparison of the period January 24, 2017 (Inception) through December 31, 2017 and the year ended December 31, 2018

The following table summarizes our results of operations for the period January 24, 2017 (inception) through December 31, 2017 and the year ended December 31, 2018:

(in thousands)
  For the period
January 24, 2017
(inception) through
December 31,
2017

  Year
ended
December 31,
2018

 

Operating expenses:

             

Research and development

  $ 3,486   $ 11,882  

General and administrative

    1,078     1,896  

Total operating expenses

    4,564     13,778  

Loss from operations

    (4,564 )   (13,778 )

Other expense, net:

             

Change in fair value of preferred stock tranche obligation

        (62,150 )

Change in fair value of anti-dilution right liability

        (5,765 )

Other expense, net

        (21 )

Total other expense, net

        (67,936 )

Net loss

  $ (4,564 ) $ (81,714 )

    Research and development expenses

(in thousands)
  For the period
January 24, 2017
(inception) through
December 31,
2017

  Year
ended
December 31,
2018

  Change
 

Direct program expenses: AKR-001

  $ 241   $ 10,894   $ 10,653  

Personnel related

    951     988     37  

Discovery programs

    2,294         (2,294 )

Total research and development expenses

  $ 3,486   $ 11,882   $ 8,396  

Research and development expenses were $3.5 million for the period ended December 31, 2017, compared to $11.9 million for the year ended December 31, 2018. The increase of $8.4 million was primarily due to a $10.7 million increase in direct costs related to our AKR-001 program, partially offset by a $2.3 million decrease in costs related to our discovery programs. The increase in direct costs related to our AKR-001 program was primarily due to $8.0 million in expenses in connection with the Amgen Agreement. Pursuant to the agreement, we paid Amgen Inc., or Amgen, an upfront cash payment of $5.0 million and issued shares of Series A preferred stock to Amgen with a fair value of $1.4 million. Additionally, we recorded an expense of $1.6 million associated with our obligation to issue equity securities to Amgen in accordance with anti-dilution rights provided in the Amgen license agreement. The remaining increase in direct costs related to our AKR-001 program was primarily due to costs incurred with external CROs as well as toxicology, regulatory, and chemistry, manufacturing and controls, or CMC. The decrease in discovery programs of $2.3 million was primarily due to consulting fees associated with our prior discovery programs that were incurred in the period ended December 31, 2017 that were not repeated in the year ended December 31, 2018.

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    General and administrative expenses

(in thousands)
  For the period
January 24, 2017
(inception) through
December 31,
2017

  Year
ended
December 31,
2018

  Change
 

Personnel related

  $ 491   $ 1,076   $ 585  

Legal and professional fees

    276     707     431  

Consulting fees

    267         (267 )

Other

    44     113     69  

Total general and administrative expenses

  $ 1,078   $ 1,896   $ 818  

General and administrative expenses were $1.1 million for the period ended December 31, 2017 compared to $1.9 million for the year ended December 31, 2018. The increase in personnel related costs of $0.6 million was primarily due to hiring of additional personnel in our general and administrative functions. The increases in legal and professional fees and other expenses of $0.5 million were primarily due to $0.3 million increase in legal costs associated with our financing activities and a $0.2 million increase in accounting and tax fees in the year ended December 31, 2018. These increases were partially offset by a decrease in consulting fees of $0.3 million as a result of costs incurred in the period ending December 31, 2017 associated with Apple Tree Partners for general and administrative activities during the Company's formation that were not repeated in the year ended December 31, 2018.

    Other expense

Other expense was $67.9 million during the year ended December 31, 2018. We did not record other expense for the period ended December 31, 2017. The increase is primarily due to $62.2 million and $5.8 million in losses related to the changes in fair value of the preferred stock tranche obligation and the fair value of the anti-dilution right liability, respectively.

Liquidity and capital resources

Since our inception, we have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from the sale of our convertible preferred stock. Through March 31, 2019, we had received gross proceeds of $90.5 million from sales of our convertible preferred stock. As of March 31, 2019, we had cash and cash equivalents of $69.8 million.

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Cash flows

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

 
  For the period
January 24,
2017
(inception) through
December 31,
2017

   
   
   
 
 
   
  Three months ended March 31,  
 
  Year
ended
December 31,
2018

 
(in thousands)
  2018
  2019
 

Net cash used in operating activities

  $ (4,382 ) $ (4,625 ) $ (338 ) $ (5,444 )

Net cash used in investing activities

        (5,000 )        

Net cash provided by (used in) financing activities

    5,000     85,007         (720 )

Net increase in cash and cash equivalents and restricted cash

  $ 618   $ 75,382   $ (338 ) $ (6,164 )

    Operating activities

During the three months ended March 31, 2019, operating activities used $5.4 million of cash, resulting from our net loss of $5.4 million.

During the three months ended March 31, 2018, operating activities used $0.3 million of cash, resulting primarily from our net loss of $0.4 million.

During the year ended December 31, 2018, operating activities used $4.6 million of cash, resulting from our net loss of $81.7 million, partially offset by non-cash charges of $76.0 million primarily related to our issuance of preferred stock to Amgen, changes in the fair value of preferred stock tranche obligation and anti-dilution right liability and net cash provided by changes in operating assets and liabilities of $1.1 million. Net cash provided by changes in our operating assets and liabilities primarily consisted of a $1.3 million increase in accounts payable due to outstanding invoices to CROs and other vendors in connection with our increased level of operating activities in 2018 and a $0.8 million increase in accrued expenses, which was primarily due to increased costs associated with our AKR-001 program. Increases were partially offset by an increase in prepaid expenses and other assets of $1.1 million primarily attributed to CRO deposits related to our clinical trials for AKR-001.

During the period January 24, 2017 (inception) through December 31, 2017, operating activities used $4.4 million of cash, resulting from our net loss of $4.6 million, partially offset by changes in operating assets and liabilities of $0.2 million. Net cash provided by changes in our operating assets and liabilities primarily consisted of a $0.2 million increase in accrued expenses due to accrued compensation and accounting and tax fees.

    Investing activities

There were no cash flows from investing activities during the three months ended March 31, 2018 and 2019.

During the year ended December 31, 2018, net cash used in investing activities was $5.0 million, consisting of licensing fees related to the acquisition of technology under the Amgen Agreement.

We did not have any investing activities during the period from January 24, 2017 (inception) through December 31, 2017.

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    Financing activities

During the three months ended March 31, 2019, net cash used in financing activities was $0.7 million, which consisted of payments of legal and professional fees incurred in connection with our planned initial public offering.

There were no cash flows from financing activities during the three months ended March 31, 2018.

During the year ended December 31, 2018, net cash provided by financing activities was $85.0 million, primarily consisting of proceeds from our issuances of Series A and Series B preferred stock in June 2018 and November 2018, respectively, net of issuance costs of $0.4 million.

During the period January 24, 2017 (inception) through December 31, 2017, cash provided by financing activities was $5.0 million, consisting of proceeds from our issuance of Series A preferred stock.

Funding requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the later-stage clinical development of our product candidate. In addition, upon the completion of this offering, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:

the initiation, progress, timing, costs and results of nonclinical studies and clinical trials for our product candidate or any future product candidates we may develop;

our ability to maintain our license to AKR-001 from Amgen;

the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or change their requirements on studies that had previously been agreed to;

the cost to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights;

the effect of competing technological and market developments;

market acceptance of any approved product candidates, including product pricing, as well as product coverage and the adequacy of reimbursement by third-party payors;

the cost of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;

the cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial-scale manufacturing;

the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval and that we determine to commercialize; and

our need to implement additional internal systems and infrastructure, including financial and reporting systems.

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We believe that the anticipated net proceeds from this offering, together with our existing cash and cash equivalents as of March 31, 2019, will enable us to fund our operating expenses and capital expenditure requirements through 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We expect that we will require additional funding to complete the clinical development of AKR-001, commercialize AKR-001, if we receive regulatory approval, and pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for AKR-001 or other product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize AKR-001 ourselves.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribution or licensing 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 raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual obligations and commitments

The following table summarizes our contractual obligations as of December 31, 2018 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:

 
  Payments due by period
 
(in thousands)
  Total
  Less than 1
year

  1 to 3
years

  3 to 5
years

  More than 5
years

 

Third-party contract research and manufacturing commitments(1)

  $ 553   $ 553   $   $   $  

Operating lease commitments(2)

    26     26              

Total

  $ 579   $ 579   $   $   $  

(1)    Amounts in the table reflect the non-cancelable purchase commitments under agreements with our external CROs, which we have engaged to manufacture clinical development materials and to conduct clinical development activities and clinical trials.

(2)    Amounts in the table reflect minimum payments due under our two leases for office space in Cambridge, Massachusetts and South San Francisco, California at a monthly commitment fee of $1,000 and $5,000, respectively. The leases are both operating leases. The lease in Cambridge expires in May 2019 after which the agreement becomes cancelable by either party upon a 60-day written notice. The lease in South San Francisco expires in April 2019 with the option to renew on a month to month basis thereafter. In March 2019, we amended our lease agreement associated with our office space in South San Francisco, California. The amendment extended the term of the lease to March 2021 and expanded the square footage of the existing leased office space. Minimum payments due under the amendment of $0.2 million due in less than one year and $0.3 million due in 1-3 years are excluded from the table above.

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Apart from the contracts with payment commitments that we have reflected in the table, we have entered into other contracts in the normal course of business with certain CROs, CMOs, and other third parties for nonclinical research studies and testing, clinical trials and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice and, as a result, are not included in the table of contractual obligations and commitments above. Payments due upon cancellation consist only of payments for services provided and expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation.

In addition, under the Amgen Agreement, we are required to make milestone payments and pay royalties based upon specified milestones. We have not included any such contingent payment obligations in the table above as the amount, timing and likelihood of such payments are not known. Such contingent payment obligations are described below.

Under the Amgen Agreement, we are obligated to make aggregate milestone payments of up to $40.0 million upon the achievement of specified clinical and regulatory milestones and aggregate milestone payments of up to $75.0 million upon the achievement of specified commercial milestones for all products licensed under the agreement. Commencing on the first commercial sale of licensed products, we are obligated to pay tiered royalties on escalating tiers of annual net sales of licensed products ranging from low to high single-digit percentages. See "Business—Exclusive license agreement with Amgen Inc."

Critical accounting policies and significant judgments and estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles, or GAAP, in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated 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.

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

Accrued research and development expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make

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adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:

vendors in connection with nonclinical development activities;
CROs and investigative sites in connection with nonclinical studies and clinical trials; and
CMOs in connection with the production of nonclinical and clinical trial materials.

We base the expense recorded related to external research and development on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage nonclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Stock-based compensation

We measure stock-based awards granted to employees, directors, and nonemployees based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. For stock-based awards with service-based vesting conditions, we recognize compensation expense using the straight-line method. For stock-based awards with service-based vesting conditions, we recognize compensation expense using the graded-vesting method over the requisite service period, commencing when achievement of the performance condition becomes probable. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of our common stock on that same date.

    Determination of the fair value of common stock

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant with input from management, considering our most recently available third-party valuations of common stock, and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuation was prepared using the option-pricing method, or OPM, which used a market approach to estimate our enterprise value. The third-party valuation resulted in a valuation of our common stock of $0.46 per share as of June 7, 2018, $1.17 as of September 8, 2018, $6.36 as of December 11, 2018 and $7.01 as of February 1, 2019.

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The assumptions underlying these valuations were highly complex and subjective and represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could be materially different.

Once a public trading market for our common stock has been established in connection with the completion of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

    Options granted

The following table sets forth by grant date the number of shares subject to options granted between January 24, 2017 and the date hereof, the per share exercise price of the options, the fair value of common stock per share on each grant date, and the per share estimated fair value of the options:

Grant date
  Number of
shares subject
options
granted

  Per share
exercise price of
options

  Fair value per
common share on
grant date

  Per share
estimated fair
value of options

 

July 30, 2018

    284,822   $ 0.61   $ 0.46 (1) $ 0.28  

September 8, 2018

    436,430   $ 0.61   $ 1.17 (1) $ 0.89  

September 8, 2018

    19,515   $ 0.61   $ 1.17 (1) $ 0.86  

September 27, 2018

    107,887   $ 0.61   $ 1.17 (1) $ 0.89  

October 18, 2018

    1,034,413   $ 0.61   $ 1.17 (1) $ 0.89  

January 16, 2019

    191,080   $ 6.36   $ 6.36   $ 3.93  

January 16, 2019

    282,121   $ 6.36   $ 6.36   $ 3.97  

January 16, 2019

    1,626   $ 6.36   $ 6.36   $ 3.90  

April 3, 2019

    152,383   $ 7.01   $ 7.01   $ 4.53  

April 5, 2019

    414,029   $ 7.01   $ 7.01   $ 4.53  

April 26, 2019

    70,587   $ 7.01   $ 7.01   $ 4.52  

(1)    For options granted on July 30, 2018 through October 18, 2018, our board of directors initially determined that the fair value of our common stock was $0.61 per share as of each respective grant date. However, as described below, the fair value of our common stock at the date of these grants was adjusted in connection with retrospective fair value assessments for accounting purposes.

In the course of preparing for this offering, in June 2018 and September 2018, we performed retrospective fair value assessments for accounting purposes. We applied the fair values of our common stock from our retrospective fair value assessments to determine the fair value of these awards and calculate stock-based compensation expense for accounting purposes. These reassessed values were based, in part, upon third-party valuations of our common stock prepared as of each grant date on a retrospective basis. The third-party valuations were prepared using the hybrid method and used market approaches to determine our enterprise value.

Valuation of preferred stock tranche obligation

In connection with our issuance of Series A preferred stock in June 2018, we recognized a preferred stock tranche obligation. We classified the preferred stock tranche obligation for the future purchase, and option to purchase, Series A preferred stock as a liability on our consolidated balance sheets as the preferred stock tranche obligation is a freestanding financial instrument that required us to transfer equity instruments upon future closings of the Series A preferred stock. The preferred stock tranche obligation

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was initially recorded at fair value upon the date of issuance and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred stock tranche obligation were recognized as a component of other expense in the consolidated statements of operations and comprehensive loss. Changes in the fair value of the preferred stock tranche obligation were recognized until the tranche obligations were fulfilled or otherwise extinguished in the fourth quarter of 2018.

The fair value of the liability was estimated based on results of a third-party valuation performed in connection with the issuance of Series A preferred stock in June 2018. We determined that this valuation represented the fair value of the liability at the reporting date. The liability includes (i) an obligation to issue shares in a second tranche of Series A preferred stock and (ii) an obligation to issue shares under the call option to purchase Series A preferred stock following the second tranche.

The fair value of the obligation to purchase a second tranche of Series A preferred stock was estimated by utilizing the future value of the underlying Series A preferred stock, the Series A original issue price and the number of shares subject to future purchase. The future value of the Series A preferred stock was determined through a backsolve calculation. The present value of the forward contract was then multiplied by a probability of occurrence for the second tranche closing.

The fair value of the obligation for the call option to purchase Series A preferred stock was estimated using the hybrid method which employed the Black-Scholes option-pricing model adjusted to reflect the timing and probability of closing a second tranche of Series A preferred stock. The hybrid method incorporates assumptions and estimates to value the obligation. Estimates and assumptions impacting the fair value measurement include the fair value per share of the underlying shares of our Series A preferred stock, risk-free interest rate, expected dividend yield, expected volatility of the price of the underlying preferred stock, the remaining years to liquidity, the discount rate and probability (expressed as a percentage) of closing a second Tranche. The most significant assumption in the hybrid model impacting the fair value of the call option is the fair value of our preferred stock as of each remeasurement date. We determine the fair value per share of the underlying preferred stock by taking into consideration our most recent sales of our preferred stock, results obtained from third-party valuations and additional factors that are deemed relevant. We have historically been a private company and lack company-specific historical and implied volatility information of our stock. Therefore, we estimate expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the call option. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining years to liquidity. We have estimated a 0% dividend yield based on the expected dividend yield and the fact that we have never paid or declared dividends.

In November 2018, in connection with our issuance and sale of Series A preferred stock, we satisfied our obligation to issue additional shares under the second tranche closing. In December 2018, in connection with our issuance and sale of Series B preferred stock, we terminated the option to purchase Series A preferred stock provided under the 2018 Series A Agreement.

Valuation of anti-dilution right

We assessed the anti-dilution rights provided to Amgen pursuant to the Amgen Agreement and determined that the rights (i) met the definition of a freestanding financial instrument that was not indexed to our own stock and (ii) did not meet the definition of a derivative. As the rights did not meet the definition of a derivative and did not qualify for equity classification, we determined to classify the anti-dilution rights as a liability on our consolidated balance sheet. The anti-dilution right liability was initially recorded at fair value upon the license agreement and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the anti-dilution right liability were recognized as a component of other

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expense in the consolidated statements of operations and comprehensive loss. Changes in the fair value of the anti-dilution right liability were recognized until the anti-dilution obligation was satisfied in the fourth quarter of 2018.

The fair value of the anti-dilution right was estimated using a probability weighted scenario which considers as inputs the probability of occurrence of events that would trigger the issuance of shares, including a (i) second tranche closing of Series A preferred stock, (ii) initial public offering, and (ii) no future sale of equity securities. The weighted average fair values of each scenario were calculated utilizing the fair value per share of the underlying Series A preferred stock and common stock. Changes in our estimated fair value and the probability of achieving different financing scenarios can have a significant impact on the fair value of the anti-dilution right liability.

In November 2018, in connection with our issuance and sale of Series A preferred stock, we satisfied our anti-dilution rights obligation under the Amgen Agreement.

Emerging growth company status

Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, an "emerging growth company" can delay the adoption of new or revised accounting standards until such time as those standards would apply to private companies. We have elected this exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies. Where allowable we have early adopted certain standards as described in Note 2 of our consolidated financial statements. There are other exemptions and reduced reporting requirements provided by the JOBS Act that we are currently evaluating. For example, as an "emerging growth company," we are exempt from Sections 14A(a) and (b) of the Exchange Act which would otherwise require us to (1) submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay," "say-on-frequency," and "golden parachutes;" and (2) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of our chief executive officer's compensation to our median employee compensation. We also intend to rely on an exemption from the rule requiring us to provide an auditor's attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We will continue to remain an "emerging growth company" until the earliest of the following: (1) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (2) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.07 billion; (3) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Off-balance sheet arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Recently issued accounting pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing at the end of this prospectus.

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Quantitative and qualitative disclosures about market risks

Our primary exposure to market risk relates to changes in interest rates. As of December 31, 2017 and 2018, we had cash of $0.6 million and $76.0 million, respectively. As of March 31, 2019, we had cash and cash equivalents of $69.8 million. As of December 31, 2017 and 2018 and March 31, 2019, we had no debt outstanding and are therefore not exposed to interest rate risk with respect to debt. Our exposure to interest rate sensitivity is affected by changes in the general level of U.S. interest rates. If market interest rates were to increase immediately and uniformly by 100 basis points, or one percentage point, from levels at December 31, 2017 and 2018 and March 31, 2019, the net fair value of our interest sensitive marketable securities would not experience a material change in fair market value.

All of our employees and our operations are currently located in the United States. We have, from time to time, engaged in contracts with contractors or other vendors in a currency other than the U.S. dollar. To date, we have had minimal exposure to fluctuations in foreign currency exchange rates as the time period between the date that transactions are initiated, and the date of payment or receipt of payment is generally of short duration. Accordingly, we believe we do not have a material exposure to foreign currency risk.

Inflation generally affects us by increasing our cost of labor. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the period January 24, 2017 (inception) through December 31, 2017 or the year ended December 31, 2018 or the three months ended March 31, 2019.

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Business

Overview

We are a clinical-stage biotechnology company focused on developing and commercializing transformative treatments for serious metabolic diseases with high unmet medical need. Our initial focus is on nonalcoholic steatohepatitis, or NASH, a disease without any approved therapies. NASH is a severe form of nonalcoholic fatty liver disease, or NAFLD, characterized by inflammation and fibrosis in the liver that can progress to cirrhosis, liver failure, cancer and death. NASH is a leading cause for liver transplantation. Our lead product candidate, AKR-001, which we are developing as a potential treatment for patients with NASH, is an analog of fibroblast growth factor 21, or FGF21. FGF21 is an endogenously-expressed hormone that regulates metabolism of lipids, carbohydrates and proteins throughout the body. FGF21 also plays a critical role in protecting many types of cells from various forms of stress. FGF21 analogs have shown evidence of therapeutic benefit in clinical trials of patients with NASH, many of whom are dyslipidemic and insulin resistant. In previous clinical trials in patients with type 2 diabetes, or T2D, administration of AKR-001 was associated with substantial improvements in lipid metabolism and insulin sensitivity. We believe these data demonstrate AKR-001's potential to serve as a cornerstone for the treatment of NASH. On May 24, 2019, the U.S. Food and Drug Administration, or FDA, Division of Gastroenterology and Inborn Errors Products cleared our Investigational New Drug application, or IND, to conduct a Phase 2a clinical trial evaluating AKR-001 in the treatment of NASH patients. We began screening patients for our Phase 2a clinical trial on May 28, 2019. We expect to complete collection of data for the primary endpoint of our Phase 2a clinical trial in the first quarter of 2020, and we expect to complete repeat liver biopsies and all collection of data for the clinical trial in the second quarter of 2020.

The rapidly-rising prevalence of NAFLD and NASH is driven by the global obesity epidemic. Poor diet and lack of exercise lead to caloric overburdening of the liver and accumulation of excessive liver fat. In patients with NASH, excessive liver fat leads to hepatocyte stress, which triggers localized inflammation and, as disease progresses, can lead to fibrosis and ultimately cirrhosis. According to a study published in Hepatology (2018), the prevalence of NASH in the United States is projected to increase from an estimated 17.3 million in 2016 to 27.0 million by 2030. In particular, the prevalence of patients with advanced fibrosis in the United States is projected to more than double between 2016 and 2030. NASH is the liver manifestation of metabolic syndrome and is frequently associated with insulin resistance and T2D. Additionally, patients with NASH have high rates of cardiovascular-related events, such as stroke and heart attack, with cardiovascular disease being the leading cause of death in patients with NASH. There are currently no approved therapies for NASH, while emerging potential NASH therapies in late-stage clinical development have shown limited efficacy or may be limited by unwanted side effects.

AKR-001 is an FGF21 analog with unique properties that we believe has the potential to address the core processes underlying NASH pathogenesis, thereby enabling it to restore healthy fat metabolism in the liver, reduce hepatocyte stress, mitigate inflammation and resolve fibrosis. FGF21 is an endocrine hormone that acts on the liver, pancreas, muscle and adipose tissue to regulate the metabolism of lipids, carbohydrates and proteins. Acting as a paracrine hormone, FGF21 also plays a critical role in protecting cells against stress. These attributes make FGF21 agonism a compelling therapeutic mechanism, but native FGF21 is limited by its short half-life in the bloodstream. AKR-001 has been engineered to increase human FGF21's half-life sufficiently to enable once-weekly dosing, while retaining the native biological activity of FGF21.

AKR-001 has been administered to a total of 83 patients with T2D in two Phase 1 clinical trials. In a Phase 1b clinical trial, it was observed that AKR-001 substantially improved plasma lipoprotein levels,

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including reductions of up to 69% in triglycerides and 30% in non-high density lipoprotein cholesterol, or non-HDL-C. In these clinical trials, it was also observed that administration of AKR-001 was associated with substantially improved markers of insulin sensitivity, including reductions of up to 37% in C-peptide and 55% in the homeostatic model assessment of insulin resistance, or HOMA-IR. We believe these results indicate the potential of AKR-001 to redirect calories away from the liver, reduce liver fat, alleviate hepatocyte stress, inhibit inflammation and resolve fibrosis in patients with NASH, as well as reduce susceptibility to cardiovascular disease. This belief is also supported by data from Phase 2 clinical trials of other endocrine FGF analogs in patients with NASH, in which substantial reductions in liver fat content and improvements in biomarkers of liver fibrosis were observed.

We therefore believe that AKR-001 has the potential to be a leading endocrine FGF analog, if approved, for treatment of this rapidly-growing patient population that lacks effective treatment options.

In June 2018, we acquired exclusive global development and commercialization rights to AKR-001 from Amgen Inc., or Amgen, which leveraged its deep protein engineering expertise to design and develop AKR-001. As of March 31, 2019, our patent portfolio relating to AKR-001 and other peptides included 111 issued patents and 41 pending patents worldwide, with expected patent exclusivity up to 2034 in the United States, including potential patent term extension. Since AKR-001 is a biologic, marketing approval would also provide twelve years of market exclusivity from the approval date of a Biologics License Application, or BLA, in the United States.

Our management team has extensive experience in drug discovery, development and commercialization, and has been involved in the approvals of more than 20 medicines. Our Chief Executive Officer, Andrew Cheng, MD, PhD, previously Chief Medical Officer at Gilead, was responsible for clinical development for Gilead's HIV program. Our Chief Scientific Officer, Tim Rolph, DPhil, formerly Chief Scientific Officer of Pfizer's Cardiovascular & Metabolic Disease Research Unit, previously oversaw Pfizer's FGF21 program. We are supported by our board of directors and a group of leading institutional investors. We believe that our team is well positioned to leverage its collective experience in drug development and in-depth knowledge of FGF21 biology and metabolic diseases to develop and commercialize products that will have significant benefits for patients with NASH and other serious metabolic diseases with high unmet medical need.

Our strategy

Our goal is to become a leading biotechnology company focused on developing and commercializing transformative treatments for serious metabolic diseases with high unmet medical need. The key components of our strategy are to:

Advance AKR-001 through clinical development in NASH.  We believe that AKR-001's differentiated profile as an FGF21 analog has the potential to result in a leading endocrine FGF analog, if approved, for the treatment of NASH. Our IND application, which included a Phase 2a clinical trial protocol, was cleared by the FDA on May 24, 2019. We began screening patients for our Phase 2a clinical trial on May 28, 2019, which will assess the efficacy and safety of AKR-001 in patients with NASH and inform dose selection for larger, longer-term trials. Consistent with recently-published draft guidance from the FDA on NASH development, we are committed to exploring ways to accelerate development of AKR-001 through innovative clinical trial designs.

Scale our capabilities to support development and commercialization of AKR-001.  We plan to scale our manufacturing and organizational capabilities to capitalize on our exclusive, global rights to market AKR-001 for all indications. We have contracted with a third-party manufacturer to support future

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    clinical trials and the potential commercialization of AKR-001 with commercial-scale manufacturing. When appropriate, we intend to develop the commercial infrastructure required for bringing AKR-001 to patients with NASH in the United States, if approved. We also plan to evaluate options for delivering AKR-001, if approved, to patients in other key markets, such as Europe, Japan and China, which may include strategic collaborations.

Enhance our position as a leading metabolic disease company by leveraging our knowledge of FGF21 biology. Numerous publications have shown that increases in endogenous FGF21 expression occur in response to various types of metabolic and cellular stress arising from obesity, diabetes, mitochondrial diseases and cardiovascular disease, as well as NASH. AKR-001 has been engineered to reproduce the biological activity profile of native FGF21 while also addressing certain therapeutic limitations, such as a short half-life. We plan to explore opportunities to develop AKR-001 for additional indications where there is a compelling scientific rationale, strong clinical tractability and significant unmet medical need. Our strategy also includes evaluating the potential of novel oral therapeutic mechanisms to boost levels of endogenous FGF21, which may have utility in a broad population of NASH patients, including those with early-stage disease.

Develop, acquire or in-license product candidates that enhance our potential to become a leading metabolic disease company. To supplement our own in-house research and development efforts, we are continually evaluating opportunities to build a robust pipeline of potential leading treatments for metabolic diseases. Our initial focus is on NASH, but we plan to evaluate programs outside of NASH that may provide compelling synergies with our development efforts. Additional NASH assets may be selected for their potential as stand-alone monotherapies or for eventual use in combination with other products.

NASH overview

We are developing AKR-001 as a potential treatment for patients with NASH, a disease with high unmet medical need and no approved therapies. NASH is a severe form of NAFLD, which is driven by the global obesity epidemic. Patients with NAFLD have an excessive accumulation of fat in the liver resulting from an excess of caloric intake over energy needs. In patients with NASH, excessive liver fat leads to hepatocyte stress, which triggers localized inflammation and can ultimately lead to fibrosis and scarring in the liver, or cirrhosis.

Patients with NASH are at increased risk of liver-related morbidity and mortality, including liver failure and hepatocellular carcinoma. As NASH progresses, cardiovascular-related morbidity and mortality also increase, such that the most frequent cause of death in patients with NASH is cardiovascular disease. In particular, the prevalence of patients with advanced fibrosis in the United States is projected to more than double between 2016 and 2030. We believe that AKR-001 has the potential to be a leading endocrine FGF analog, if approved, for treatment of this rapidly-growing patient population. This belief is based, in part, on AKR-001's observed effects on lipoproteins and markers of insulin sensitivity, when viewed in the context of similar measurements taken in clinical trials with other endocrine FGF analogs.

Etiology of NASH

NASH is primarily driven by chronic excess caloric intake, or ingesting more energy than the body expends over a sustained period, which results in people becoming overweight and obese. Body fat, also known as adipose tissue, and muscle respond to becoming saturated with energy by reducing sensitivity to insulin, which would otherwise drive uptake of energy by these peripheral tissues. Consequently, the liver becomes the repository for the energy that is unwanted by the rest of the body.

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While there is a lack of scientific consensus on how best to characterize NASH pathogenesis, we believe there are five core processes:

Caloric overburdening of the liver;

Excessive liver fat and fat oxidation;

Hepatocyte cell stress, injury and death;

Localized inflammation triggered by hepatocyte death; and

Fibrosis.

These processes can lead to cirrhosis, liver failure, cancer and death. Figures 1 and 2 below illustrate these five processes. Figure 1 shows how multiple organs of the body contribute to caloric overburdening of the liver, which manifests as excessive accumulation of liver fat, or steatosis, and high rates of fat oxidation within the liver. Figure 2 depicts the cellular-level processes that arise from hepatocyte stress caused by high levels of certain lipid molecules, or lipotoxicity, and oxidative stress. Hepatocyte stress leads to cell death, which in turn activates local inflammatory responses in the liver, potentially leading to fibrosis. Parenthetical references in the text below correspond to sequential labels in Figures 1 and 2.


Figure 1—NASH pathogenesis: Caloric overburdening causes excessive deposition of liver fat and high rates of fat oxidation

GRAPHIC

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Figure 2—NASH pathogenesis: Oxidative stress and lipotoxicity induce hepatocyte death, local inflammation and fibrosis

GRAPHIC

Caloric overburdening of the liver

When intake of energy chronically exceeds demand, the body adapts its metabolism to find alternate locations to store the excess energy. Absorption of dietary fat (A), dietary carbohydrates and protein (B1), and lipids from adipose tissue (D1) all contribute to caloric overburdening of the liver.

Excessive deposition of fat and high rates of fat oxidation in the liver

Healthy individuals typically have liver fat levels of less than 5%. In patients with NASH, liver fat levels typically range from 10% to 30%. Liver fat, and fat oxidation, increase in response to caloric overburdening of the liver.

The largest source of liver fat is from adipose tissue (D1), accounting for approximately 40% to 50%, on average, of liver fat in patients with NASH. Flux of fat from adipose tissue to the liver through lipolysis (D2) is driven by resistance to insulin. This resistance to insulin also means dietary fat transported as chylomicrons (A) and very low density lipoprotein, or VLDL (D3), a form of fat packaged by the liver for delivery to the body's organs, are not taken up by adipose tissue. As a result the level of plasma triglycerides (D4) increases, manifesting as hypertriglyceridemia, which is frequently observed in NASH. The second largest source of fat in liver is from synthesis of new fat, known as de novo lipogenesis, or DNL (B2), which utilizes dietary carbohydrates and protein (B1) to make new fat, and accounts for approximately 30% to 40%, on average, of liver fat in patients with NASH. The final source of liver fat is fat ingested in diet (A), accounting for approximately 10% to 20%, on average, of liver fat in patients with NASH.

The liver responds to increased flow of fat from adipose tissue by increasing the rate at which it burns fat, a process known as fat oxidation (E), which in turn releases substantial amounts of energy. Initially, this surplus energy is consumed by additional DNL. However, if the high rate of DNL continues chronically, hepatocytes become saturated with stores of fat, or fat depots (C), and the rate of DNL slows. In this situation, excess energy from fat oxidation causes oxidative stress, which together with lipotoxicity arising from fat depots, results in hepatocyte stress (G).

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Hepatocyte stress, injury and death

Later-stage NASH pathogenesis is driven by hepatocyte stress and cell death, or apoptosis, which lead to inflammation and fibrosis. In particular, increased fat oxidation in the liver leads to formation of highly-reactive molecules, known as free radicals, which cause oxidative stress. A free radical is an energetically unstable, reactive entity containing an atom of oxygen with an unpaired electron. A free radical is stabilized by pairing this electron with an electron acquired by the oxygen atom from another molecule. Cells have defense mechanisms to neutralize free-radicals by donation of an electron from molecules known as anti-oxidants. When the quantity of free radicals exceeds the capacity of anti-oxidants to neutralize them, free radicals react with other constituents of cells such as DNA, proteins, or lipids to acquire an electron. The attack on these macromolecules leads to mitochondrial stress (G1), DNA damage (G2), formation of lipid peroxides (G3) and synthesis of damaged proteins (G4), all of which disrupt cellular processes and homeostasis, thereby increasing hepatocyte stress. Damaged proteins stress the endoplasmic reticulum, or ER (G5), which is the cell's machinery for making proteins. Accumulation of damaged proteins in the ER impairs assembly of proteins, thereby triggering the unfolded protein response.

Apoptosis of hepatocytes manifests as ballooning of the cells, a characteristic microscopic feature of NASH liver tissue. Hepatocyte stress, injury and death are the bridge between oxidative stress and lipotoxicity arising from excessive delivery of fat and calories to the liver and the downstream sequelae of inflammation and fibrosis.

Inflammatory response to hepatocyte stress and death

Hepatocytes undergoing apoptosis release danger signal molecules known as damage-associated molecular patterns, or DAMPs (J1). DAMPs activate a population of specialist immune-effector cells resident within the liver, known as Kupffer cells (J2), which typically clear debris from dying liver cells and defend against microbial infections. Once activated, Kupffer cells release various pro-inflammatory molecules, including cytokines (such as TNFa, TGF-b, IL-1, and IL-6), chemokines (such as MCP-1/CCL2), prostanoids and nitric oxide (J3). Cytokines and chemokines serve to attract other immune system cells stored in the bone marrow, known as monocytes, which in turn become pro-inflammatory macrophages and amplify inflammation within the liver. Among the cytokines released, TNFa and TGF-b also act to induce apoptosis of neighboring hepatocytes (J4), thereby creating a cycle of hepatocyte death that stimulates more inflammation and results in extensive loss of hepatocytes and metabolic capacity. This, in turn, places more stress on the remaining hepatocytes.

Fibrosis and cirrhosis

High local levels of cytokines, particularly TGF-b, activate another group of liver-resident cells known as hepatic stellate cells, or HSC, (K1). HSCs are normally dormant. However, when activated, they produce large amounts of collagen. At first, in a process known as fibrogenesis (K2), the extracellular collagen forms isolated fibrotic structures largely surrounded by healthy cells. As collagen continues to be deposited, the fibrotic structures interconnect, a process known as bridging fibrosis (K3). When hepatic stellate cells are chronically activated, collagen deposition becomes excessive and ultimately leads to scarring, or cirrhosis. If a liver progresses to cirrhosis, blood flow through the liver is greatly reduced, causing inadequate delivery of oxygen and nutrients, which in extreme cases results in acute liver failure and death.

Disease diagnosis and disease burden

NASH is currently diagnosed only through liver biopsy and its severity is measured using scoring systems that assess the extent and severity of steatosis, lobular inflammation, hepatocellular ballooning and

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fibrosis. Some patients may be diagnosed with NASH after presenting with symptoms such as general fatigue and nondescript abdominal discomfort. However, NASH diagnosis more commonly follows detection of elevated liver enzymes on routine lab tests or detection of an enlarged steatotic liver by abdominal imaging. Although non-invasive methods, including a combination of imaging such as MRI-PDFF and plasma biomarkers of fibrosis, such as PRO-C3, are being evaluated as potential diagnostic tools, none have yet been validated for use in formal NASH diagnosis.

Two different scoring systems are most commonly used in the United States to measure the severity of NASH: the NAFLD activity score, or NAS, and fibrosis stage. The NAS, which was developed for, and generally only used in, clinical trials, is a measure of liver histology that grades disease activity in patients with NAFLD and NASH. A patient may receive a composite NAS score of zero to eight, which is comprised of three individual scores: (1) steatosis, scored zero to three according to the percentage of a microscopic field showing steatosis, (2) lobular inflammation, scored zero to three according to the number of immune cell foci per 20x optical field in a microscope, and (3) hepatocellular ballooning, scored zero to two according to the number of ballooning cells in a microscopic field. In addition, fibrosis staging is used to classify the extent and severity of fibrosis. A scoring system based on a scale from zero to four (F0-F4) is used. Early, discrete fibrosis is classified as F1 or F2, whereas bridging fibrosis is classified as F3. As more hepatocytes die and scarring becomes extensive, the liver becomes cirrhotic, which is classified as stage F4. F0 corresponds to steatohepatitis with no evidence of fibrosis.

Patients with NASH are at increased risk of liver damage and other complications. Fibrosis is generally reversible in its early-to-mid stages. However, late-stage fibrosis can be irreversible and prevents the liver from performing its natural functions.

As shown in Figure 3 below, NASH is commonly associated with metabolic comorbidities, including obesity, T2D, dyslipidemia and metabolic syndrome, and with hypertension.


Figure 3—Prevalence of comorbidities among NASH patients

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Liver-related mortality increases with fibrosis stage, as shown in Figure 4 below. As compared to healthy individuals, patients with NASH also experience higher all-cause morbidity and mortality resulting from major adverse cardiovascular events, or MACE, and non-liver cancers. The most common cause of death in NASH patients is cardiovascular disease. As with liver-related mortality, all-cause mortality also increases with fibrosis stage.

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Figure 4—All-cause NASH mortality

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Market size and trends

According to studies published in Hepatology (2018) and F1000Research (2018), more than one billion people worldwide were estimated to have NAFLD in 2016, including an estimated 85 million individuals in the United States. Approximately 10-20% of patients with NAFLD progress to NASH, including an estimated 17.3 million individuals in the United States and 16.4 million aggregate individuals in France, Germany, Italy, Spain, the United Kingdom, and Japan in 2016. As the population ages, the prevalence of NASH is projected to increase approximately 50% by 2030 to a total of 27.0 million individuals in the United States and 22.5 million aggregate individuals in France, Germany, Italy, Spain, the United Kingdom and Japan. However, NASH afflicts all age groups, including teenagers and young adults, for whom the loss of quality-adjusted life years will be very substantial unless progression to late-stage diseases can be halted or reversed. According to a study published in Hepatology (2016), in the absence of approved therapies, direct healthcare costs associated with NAFLD and NASH in the United States were estimated to be approximately $100 billion in 2016.

As shown in Figure 5 below, growth in prevalence of NASH in the United States from 2015 to 2030 is projected to be greatest, at approximately 140%, in patients with stage F3-F4 fibrosis. By 2030, there are projected to be eight million individuals in the United States and six million aggregate individuals in France, Germany, Italy, Spain, the United Kingdom, and Japan with stage F3-F4 NASH. This rapid growth in advanced fibrosis reflects the time required for the late 20th century obesity epidemic to result in patients progressing through NAFLD to advanced NASH.

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Figure 5—United States NASH prevalence by fibrosis stage

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Emerging therapies in development

There are no therapies currently approved for the treatment of NASH. The current standard of care is diet and exercise. Although diet and exercise are effective in the treatment of NASH when maintained, adherence to this treatment regimen is generally poor.

The multistep progression of NASH pathogenesis offers multiple potential approaches for therapeutic intervention. Some of the most advanced therapeutic candidates in development have targeted inflammation and fibrosis, but not the early stages of NASH pathogenesis. The mechanisms of these therapies are generally labeled as "anti-fibrotic." Early indications from long-term clinical trials suggest that focusing on suppressing inflammation and fibrosis may not deliver sustained reversal or resolution of NASH, because the processes underlying NASH pathogenesis are not being addressed.

Therapeutic mechanisms that target earlier-stages of NASH pathogenesis, including excessive liver fat accumulation, are generally characterized as "metabolic." Two relevant precedents indicate that targeting the processes underlying inflammation and fibrosis of the liver can lead to reversal of fibrosis, even without a directly anti-fibrotic intervention. First, anti-viral treatment of hepatitis C has been shown to reverse fibrosis when viral load is suppressed, even though the treatment does not act directly on fibrosis. This is attributable to the capacity of liver to regenerate, or heal itself once the chronic underlying driver of inflammation and fibrosis has been addressed. Second, the current standard of care for NASH treatment, diet and exercise, has also been shown to reverse fibrosis. For example, a sustained weight loss of 10% or more through diet and exercise has been shown to reverse NASH fibrosis, including advanced fibrosis, without any direct pharmacological anti-fibrotic effect.

Early indications from Phase 2 clinical trials of third-party agents suggest that metabolic mechanisms may have robust effects on certain measures of NASH disease progression, including reductions in fibrosis. However, some of these metabolic therapeutic mechanisms have unwanted side effects that may limit their ability to be used as treatment for patients with NASH. For instance, some NASH candidates have been shown to increase plasma levels of low-density lipoprotein cholesterol, or LDL-C, or triglycerides, each of which is an independent causal risk factor for cardiovascular disease. We believe interventions that may increase cardiovascular risk will be carefully scrutinized by prescribing physicians, as patients with NASH are already at increased risk for cardiovascular events.

Figure 6 provides some examples of therapeutic approaches to NASH and potential limitations of these therapeutic targets.

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Figure 6—Selected NASH interventions under development

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Some NASH candidates are being evaluated for use in combination with one or more other candidates that intervene in different processes underlying NASH pathogenesis. In other cases, combination approaches are being evaluated to mitigate unwanted side effects, such as using statins in combination with FXR and FGFR4 agonists to reduce LDL-C. However, combining multiple interventions, particularly multiple small molecules, places an additional burden of drug metabolism and clearance upon already stressed hepatocytes.

Some individual interventions, including PPAR, FGF19 and FGF21 analogs, target multiple processes underlying NASH pathogenesis. Of these, we believe AKR-001 has unique properties with the potential to address each of the five core processes underlying NASH pathogenesis, thereby reducing liver fat, hepatocytes stress and reversing fibrosis in patients with NASH.

Our approach to NASH: harnessing FGF21's natural potential for therapeutic effect

FGF21 is an endogenous hormone that has both local, or paracrine, effects on cells and systemic, or endocrine, effects on metabolic organs. FGF21's natural recruitment to alleviate many forms of cellular stress, and to regulate whole-body metabolism, make it a compelling therapeutic target. However, native FGF21 has several limitations that prevent it from being used effectively as a therapy, including a half-life estimated to be less than two hours, as found in published studies such as the American Journal of Physiology, Endocrinology and Metabolism (2009) and Endocrinology (2007). AKR-001 is a recombinantly-engineered version of FGF21 designed to retain the native biological activity of FGF21 while enhancing its therapeutic utility. Specifically, AKR-001 features Fc-mediated half-life extension and substitution of specific amino acids within the protein sequence of FGF21. AKR-001 has a resulting half-life of three to four days in humans, which enables once-weekly subcutaneous administration. Pharmacology studies have shown AKR-001 reproduces the balanced potency of native FGF21, acting specifically on three cell-surface receptors. AKR-001 also reproduces native FGF21's weak potency as an agonist of another cell-surface receptor known to be associated with higher plasma LDL-C.

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We believe that AKR-001, with its activity on both liver and adipose tissue, has the potential to intervene in the five core processes relevant to NASH pathogenesis. Specifically, we believe that AKR-001 can:

Redirect calories away from the liver;
Restore healthy fat metabolism in the liver;
Reduce hepatocyte stress;
Mitigate inflammation; and
Resolve fibrosis.

Overview of FGF21 biology

Fibroblast growth factors, or FGFs, are a large family of cell-signaling proteins involved in the regulation of many processes within the body. A sub-family of FGFs, known as endocrine FGFs, which include FGF21 and FGF19, are unique among FGFs because they initiate their biological effects by binding tightly to a cell surface receptor known as Beta Klotho, or bKlotho.

After this initial binding, FGF21 and FGF19 trigger signaling pathways within cells, such as hepatocytes and adipocytes, by binding to a second class of cell-surface receptor, known as the FGF receptors, or FGFRs. Both FGF21 and FGF19 bind to three specific FGFRs, known as FGFR1c, FGFR2c, and FGFR3c, which, based on nonclinical studies and clinical trials, appear to be responsible for mediating the desired therapeutic actions of FGF21 and FGF19 in NASH. However, unlike FGF21, FGF19 also binds specifically to another FGFR known as FGFR4. We believe, based on published nonclinical studies and clinical trials, that activation of FGFR4 does not ameliorate the underlying steatosis and insulin resistance and is instead associated with undesirable biological effects such as elevating LDL-C and potentially increasing the risk of developing hepatocellular carcinoma.

As illustrated in Figure 7, the C-terminus of FGF21 initially binds to bKlotho (A). This enables the N-terminus to form an expanded complex with one of the FGFRs (B). Once the co-receptor complex has formed with bKlotho and one of the FGFRs, a series of intracellular signaling cascades is initiated (C). These signaling cascades enable FGF21 to exert its biological functions, which include regulation of energy homeostasis, glucose-lipid-protein metabolism and insulin sensitivity, and modulation of pathways that mitigate against intracellular stress. FGF21 cannot signal through cell membranes without both an intact C-terminus and an intact N-terminus to bind, respectively, to bKlotho and FGFR.

Figure 7—FGF21's two-step receptor binding with bKlotho and FGFRs

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Overcoming the limitations of native FGF21 as a therapeutic by rational engineering of a recombinant protein

FGF21's role in regulating whole-body metabolism and alleviating cellular stress makes it an attractive candidate with potential to treat metabolic diseases. Numerous nonclinical studies show that elevated levels of FGF21 protect against development of NASH histopathology and fibrosis resulting from a range of insults, including excess intake of fat and fructose, excess alcohol, a diet deficient in methionine and choline, and chemical toxins, such as carbon tetrachloride and nitrosamine.

However, there are several inherent limitations that mean using an unmodified form of human FGF21 would not be effective:

FGF21 is rapidly broken down in the bloodstream and cleared through the kidneys. The half-life of FGF21 is estimated to be less than two hours based on nonclinical studies in rodents and non-human primates. Extending the half-life of FGF21 requires reducing renal clearance and protecting both ends of the protein from proteolysis, the body's natural process for breaking-down a protein by cleaving it at specific sites. If the C-terminus of FGF21 protein is not intact, FGF21 is unable to bind to bKlotho, and if the N-terminus is not intact, FGF21 is unable to signal through one of the FGFRs.

Recombinantly-expressed human FGF21, or rhFGF21, molecules are susceptible to aggregation when formulated into a solution suitable for injection into humans. Aggregation can disrupt binding of rhFGF21 to its receptors, thereby causing it to lose its biological activity. Aggregates of rhFGF21 can become so large they are insoluble and fall out of solution, or precipitate, leading to loss of biological activity in storage.

FGF21's cell signaling depends on binding affinity to a co-receptor complex of bKlotho and FGFR1c/2c/3c, which have tissue-dependent expression. Reproducing native FGF21's biology depends on retaining both binding affinity to bKlotho and balanced signaling through FGFR1c, FGFR2c and FGFR3c. For example, in adipose tissue FGFR1c appears to be the major signaling co-receptor, while in the liver FGFR2c and FGFR3c appear to be more important as signaling receptors. Thus, balanced in vivo FGFR agonism is necessary to ensure effective activation of FGFR1c, 2c and 3c throughout the body.

AKR-001 has been engineered to: (1) protect against proteolysis and reduce renal clearance, (2) provide a half-life of three to four days in humans by protecting against proteolysis, (3) minimize potential for aggregation in solution and (4) improve binding affinity for bKlotho, while (5) retaining balanced agonism across FGFR1c, FGFR2c and FGFR3c. Figure 8 below illustrates the structural engineering of AKR-001, which is also further described in the text that follows. We believe AKR-001's differentiated profile has the potential to result in a leading endocrine FGF analog, if approved, for treatment of NASH. This belief is based, in part, on AKR-001's observed effects on lipoproteins and markers of insulin sensitivity, when viewed in the context of similar measurements taken in clinical trials with other endocrine FGF analogs.

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Figure 8—Protein engineering of AKR-001

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Fc-fusion (A).  AKR-001 is an Fc-fusion protein, whereby a modified FGF21 is fused to the fragment crystallizable, or Fc, region of human immunoglobulin, or Ig, sub-type G1 antibody. Fusion with Fc is an established approach for increasing a biological molecule's half-life, enabling a longer dosing interval during which therapeutic concentrations can be maintained. Fc-fusion technology has been leveraged to produce multiple highly successful therapeutics approved by the FDA and the European Medicines Agency, or EMA, including Enbrel and Trulicity. These and other Fc-fusion protein products elicit minimal immune reactions in humans. AKR-001 is manufactured as a dimer, with two Fc-FGF21 molecules linked by two disulfide bridges to form a single molecule. The N-terminus of the FGF21 moiety is connected to the Fc portion of AKR-001 through a polyglycine linker. Our patents include claims directed to Fc fusion with a recombinantly modified FGF21.

FGF21 mutation at position 98 (B).  rhFGF21 is susceptible to aggregation, which can disrupt binding of rhFGF21 to its receptors, thereby reducing its biological activity, and cause instability of FGF21 during storage in solution. Substitution of a hydrophilic arginine residue for the hydrophobic leucine residue at position 98, labeled as L98R, was found to yield the lowest rate of aggregation of any FGF21 modification tested during AKR-001's development. We expect that AKR-001's resistance to aggregation will be consistent across large manufacturing lots and confer adequate stability in formulation for injection. Our patents include claims directed to an FGF21 polypeptide comprising this point mutation at position 98 in combination with other advantageous amino acid substitutions.

FGF21 mutation at position 171 (C).  FGF21 is cleaved between amino acid positions 171 and 172 near the C-terminus of FGF21 by the proteolytic endopeptidase enzyme fibroblast activation protein, or FAP. FAP's action on FGF21 prevents binding to bKlotho. Therefore, FGF21 loses its biological activity when cleaved by FAP. AKR-001 remedies this limitation through a point mutation that substitutes a glycine for the proline residue at position 171, which is labeled as P171G. An FGF21 analog without protection against FAP is likely to remain susceptible to FAP-induced degradation, thus losing its biological activity even if the N-terminus remains intact. Protecting against FAP appears to be particularly critical to using FGF21 as a therapeutic agent in patients with NASH because FAP is the most over-expressed protein in liver of patients with NASH relative to protein expression by healthy livers. Our patents include claims directed to an FGF21 polypeptide comprising this point mutation at position 171 in combination with other advantageous amino acid substitutions.

FGF21 mutation at position 180 (D).  Stabilization of FGF21 at position 171 was found to increase FGF21's susceptibility to degradation at position 180. Subsequent empirical studies led to the discovery that substituting glutamic acid for alanine at position 180, labeled as A180E, confers further resistance to proteolysis and increases affinity for bKlotho. Our patents include claims directed to an FGF polypeptide

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    comprising this point mutation at position 180 in combination with other advantageous amino acid substitutions.

We believe these modifications result in the improved half-life and adequate stability that have been observed with AKR-001, while preserving FGF21's balanced potency.

Demonstrating AKR-001's reproduction of FGF21's balanced potency

The engineering of AKR-001 was an empirical discovery process that incorporated in vitro and in vivo measurements of receptor agonism to assess which of many tested discovery candidates yielded the most attractive drug properties. AKR-001 was selected for clinical evaluation over earlier discovery candidates, which included a proprietary PEGylated FGF21 analog, identified as AMG-PEG21, and two versions of a two-point mutation Fc-fusion protein known as RG (with mutations at positions 98 and 171, but not 180), one of which had the Fc fused to the C-terminus (FGF21-Fc(RG)) while the other had it fused to the N-terminus of the modified FGF21 (Fc-FGF21(RG)). In comparative receptor agonism assays, as shown in Figure 9 below, AKR-001 exhibited the greatest potency for each of FGFR1c, FGFR2c, and FGFR3c among the candidates tested. Furthermore, as shown in Figure 10 below, the potency of AKR-001 for FGFR1c, FGFR2c and FGFR3c was comparable to that of recombinantly-expressed human FGF19, or rhFGF19, and rhFGF21. However, neither rhFGF21 nor AKR-001 are agonists of FGFR4, in contrast to rhFGF19's potent agonism of FGFR4.

Figure 11 shows the EC50 for each of the six compounds referenced above for each of FGFR1c, FGFR2c, FGFR3c, and FGFR4. EC50 refers to the half-maximal effective concentration, or the concentration at which one half of the maximal FGF receptor agonist effect is observed. Non-linear regression is used to model an agonist concentration-response curve, allowing interpolation of the EC50 from the observed data. For very low-potency agonists, such as FGF21's interaction with FGFR4, the agonist effect appears to be partial at the highest dose tested, so the EC50 cannot be calculated precisely.

Figure 9—Comparison of AKR-001's agonism of FGF receptors with three FGF21 discovery candidates identified prior to selecting AKR-001 for clinical evaluation

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Figure 10—Comparison of AKR-001's agonism of FGF receptors with unmodified rhFGF19 and rhFGF21

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Figure 11—Relative potency of rhFGF21, AKR-001, rhFGF19 and other discovery candidates
against FGF receptors

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Clinical validation of endocrine FGF receptor agonism

Data from clinical trials evaluating three different FGF compounds acting on FGFR1c, FGFR2c and/or FGFR3c further validate the potential of FGF21 agonism as a NASH treatment. One compound is an FGF19 analog, which has been observed to substantially reduce liver fat and to reverse liver inflammation and fibrosis in patients with NASH, but also appears to increase LDL-C. Published nonclinical and clinical data suggest that

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activation of FGFR4 increases LDL-C but does not meaningfully contribute to the pharmacodynamic effects of FGF19 on lipid metabolism in the liver. Consequently, we believe the optimal NASH therapeutic profile for an endocrine FGF analog is to have high, balanced potency for FGFR1c, 2c and 3c with minimal activity at FGFR4.

A second compound is a PEGylated FGF21 analog, which has been observed to extend FGF21 half-life to approximately 24 hours but does not have any modifications to FGF21's amino acid sequence. Although the effects do not appear to be as substantial as those seen with FGF19 agonism, clinical data suggest that the PEGylated FGF21 analog reduced liver fat and had positive effects on markers of liver injury and fibrosis in NASH patients. PEGylation of other compounds has been shown to result in increased concentrations in liver relative to exposure in other organs, which may lead to greater activity on FGF receptors in the liver (FGFR2c and FGFR3c) than in adipose tissue (FGFR1c). Such an effect could account for the apparently smaller effects on adipose tissue lipolysis than those effects observed with FGF19 agonism.

A third compound is a monoclonal antibody, or mAb, designed to target only FGFR1c and its co-receptor, bKlotho. Consistent with nonclinical data, preliminary clinical data in patients with NASH suggest that administration of this FGFR1c-specific agonist was associated with substantial reductions in liver fat and improvements in lipoproteins, which may be attributable to lower rates of adipose tissue lipolysis.

Taken together, clinical trials of these three compounds provide important evidence that activation of FGFR1c, FGFR2c, and FGFR3c has significant potential to treat patients with NASH.

AKR-001 has potential to address the five core processes underlying NASH pathogenesis

We believe intervening in the core processes underlying NASH pathogenesis is the most effective way to restore health to the liver of patients with NASH and reduce risk of cardiovascular disease, which is the leading contributor to mortality and morbidity among these patients. Figures 12 and 13 below illustrate how, by mimicking FGF21, AKR-001 has the potential to intervene in each of the five core processes underlying NASH pathogenesis. Figure 12 illustrates how AKR-001 acts to leverage whole-body metabolism to redirect calories away from the liver to peripheral adipose tissue, thereby reducing fat deposited in the liver and decreasing the rate of fat oxidation by the liver. Figure 13 depicts how AKR-001 acts to alleviate hepatocyte stress and to reduce inflammation and fibrosis of the liver. In nonclinical studies, it has been observed that FGF21 agonism protects hepatocytes and other cell types against cellular stress by modulating multiple specialized intracellular proteins called transcription factors, or TFs. As master regulators of gene expression, TFs ensure proteins appropriate to the needs of cells are produced at the right time and in the right amounts.

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Figure 12—AKR-001's redirection of calories away from liver leads to lower fat deposition
and reduced rate of oxidation of fat

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Figure 13—AKR-001's suppression of pathways leading to cell death reduces
downstream liver inflammation and fibrosis

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FGF21 leverages whole-body metabolism to redirect calories away from liver to peripheral adipose tissue

We believe AKR-001 intervenes in the first step of NASH pathogenesis by redirecting calories, including calories derived from dietary fat (A1), carbohydrates and protein (B1) in the GI tract, away from the liver. This effect of AKR-001 appears to be mediated by enhancing insulin's action (A2 and B4) on adipose tissue to increase uptake of energy, which is stored as fat within adipose tissue (D1). Enhancing insulin's action also suppresses release of fat from adipose tissue, or lipolysis, back to the liver (D2). At the same time, it promotes greater uptake by adipose tissue of two forms of triglyceride transported by blood: VLDL secreted by liver (D3) and chylomicrons secreted by the GI tract (A2), thereby reducing plasma triglycerides (D4). The net effect of a sustained redirection of energy away from liver is to reduce both the amount of fat in liver and the rate of fat oxidation.

The beneficial impact of enhancing adipose tissue's sensitivity to insulin is clinically precedented by the observed ability of pioglitazone to reduce liver fat in patients with NASH. Likewise, FGF21 agonism has also been shown to improve insulin sensitivity in nonclinical studies. Translation of this effect to humans has been observed clinically with AKR-001. However, in contrast with pioglitazone, no weight gain was observed in clinical trials with AKR-001. FGF21 agonism also reduced plasma triglyceride levels in nonclinical studies. Again, the reduction in plasma triglyceride has been observed clinically with AKR-001, and with a third party's FGFR1c-specific FGF21 analog that likely acts primarily on adipose tissue.

Reducing fat deposited in liver and rates of fat oxidation by liver

Redirecting calories away from the liver to peripheral adipose tissue helps reduce accumulation of fat in the liver and decreases the rate of fat oxidation by the liver in patients with NASH. Specifically, AKR-001 is expected to act on all three sources of increased liver fat by:

reducing flow of fat from adipose tissue to liver by activating the FGFR1c receptor expressed in adipose tissue (D2), which leads to lower rates of fat oxidation (E);

redirecting carbohydrates and protein absorbed from the GI tract away from the liver to adipose tissue (B1), thereby reducing DNL-dependent deposition of fat in the liver (B2 and C); and

redirecting fat absorbed from the GI tract (A1) away from liver to adipose tissue (A2), which also reduces the amount of fat deposited in liver (C).

Nonclinical studies provide evidence that FGF21 agonism is associated with reduced steatosis. Mice with five-fold increases in FGF21 plasma levels due to overexpression of FGF21, as well as mice treated with rhFGF21, were observed to have less fat in the liver when fed a high-fat diet than appropriate controls. On the other hand, FGF21 knockout mice had higher liver fat, resulting in liver inflammation and fibrosis.

FGF21 agonism directly suppresses DNL in liver by suppressing a TF known as SREBP1c. Suppression of SREBP1c reduces the amount of lipid droplets, comprised of triglyceride and phospholipid species, deposited within hepatocytes, and lowers the amount of triglyceride secreted as VLDL into the circulation. FGF21's inhibition of SREBP1c is believed to be mediated through FGFRs expressed in the liver, predominantly FGFR2c and 3c (B3). High levels of plasma triglyceride increase susceptibility of NASH patients to cardiovascular disease. Substantial reduction of plasma triglyceride by FGF21 would therefore be predicted to reduce risk of cardiovascular disease.

Reducing liver cell stress, injury and death

A key driver of NASH progression is hepatocyte stress (G), which is triggered by increased oxidative stress as well as stress caused by lipotoxicity, or excessive amounts of certain lipids, in the liver (F). FGF21

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inhibits oxidative stress and lipotoxicity in two ways. First, as described above, FGF21 leverages multiple body systems to reduce the flux of fat through the liver, which limits fat oxidation and thus oxidative stress, and reduces levels of lipotoxic species e.g. saturated long-chain fatty acids. Second, FGF21 directly alleviates oxidative stress through induction of TFs known as PGC1a and NRF2, which induce expression of anti-oxidant enzymes that protect against oxidative stress by neutralizing free radicals. PGC1a also improves mitochondrial function, which reduces oxidative stress.

Alleviating oxidative stress and lipotoxicity reduces hepatocyte stress in the forms of less mitochondrial stress (G1), less DNA damage (G2), fewer lipid peroxides (G3), and less damaged proteins (G4). FGF21 agonism also directly limits stress caused by damaged proteins, through induction of a TF known as TFEB, which increases the capacity of lysosomes to break-down misfolded and damaged proteins arising from oxidative stress (H). This both reduces the UPR and allows cells to synthesize new proteins, such as the anti-oxidant enzymes necessary to protect against oxidative stress.

By reducing hepatocyte stress, FGF21 agonism mitigates progression from hepatocyte stress to apoptosis (I). FGF21 agonism also directly inhibits apoptosis by suppressing expression of a TF known as ATF4, which triggers apoptosis, particularly in response to ER stress.

Reducing inflammation and fibrosis

Inhibiting apoptosis helps mitigate the amount of danger signaling through DAMPs that trigger inflammation. In addition, data from nonclinical studies suggest that FGF21 agonism directly suppresses activation of macrophages, and by inference Kupffer cells (J2), thereby reducing release of pro-inflammatory cytokines (J3), and promoting a pro-repair macrophage phenotype. By inhibiting hepatocyte apoptosis and suppressing release of pro-apoptotic TNFa and TGFb from Kupffer cells, FGF21 agonism interrupts the pathological cycle of increased hepatocyte apoptosis and inflammation (J4). Further, in nonclinical studies in human-derived and rodent-derived hepatic stellate cell lines, FGF21 agonism was observed to directly inhibit collagen-producing myofibroblasts (K1), thereby reducing fibrogenesis (K2) and fibrosis (K3).

In sum, as shown in Figure 14 below, we believe FGF21 acts on both liver and adipose tissue to reduce the caloric burden on the liver, thereby lowering both the level of fat and rate of fat oxidation in hepatocytes; and acts directly and indirectly on the liver to reduce hepatocyte stress, inflammation and fibrosis.

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Figure 14—Potential Benefits of AKR-001 on NASH Pathogenesis

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AKR-001 clinical development

AKR-001 has been administered to a total of 83 patients with T2D in two Phase 1 clinical trials. In a Phase 1b clinical trial, it was observed that AKR-001 substantially improved plasma lipoprotein levels, including reductions of up to 69% in triglycerides and 30% in non-HDL-C. In these clinical trials, it was also observed that administration of AKR-001 was associated with substantially improved markers of insulin sensitivity, including reductions of up to 37% in C-peptide and 55% in HOMA-IR. No changes in body weight were observed, except for isolated significant reductions at the highest dose tested. AKR-001's effects were observed to be rapid, sustained and durable for at least two to three weeks after cessation of dosing.

These results are consistent with effects that would be expected for balanced agonism of FGFR1c, FGFR2c, and FGFR3c, without activating FGFR4, and suggest that AKR-001 has substantial potential as a treatment for NASH. The observed magnitude and significance of AKR-001's biological effects on lipoprotein parameters and markers of insulin sensitivity are more robust and substantial than those reported to date in clinical trials of any other endocrine FGF analog.

On May 24, 2019, the FDA's Division of Gastroenterology and Inborn Errors Products cleared our IND to conduct a Phase 2a clinical trial evaluating AKR-001 in the treatment of NASH patients. We began screening patients for our Phase 2a clinical trial on May 28, 2019. This trial will assess the efficacy and safety of AKR-001 in patients with NASH, which will help inform dose selection for larger, longer-term trials.

Phase 1b clinical trial of AKR-001 in patients with T2D for 28 days

A Phase 1b clinical trial was conducted to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of AKR-001 in patients with T2D. This trial was a multicenter, randomized, double-blind, placebo-controlled, ascending multiple-dose clinical trial. Sixty-nine patients enrolled into one of eight cohorts were randomized to receive AKR-001 or placebo. Fifty-two patients received AKR-001 and 17

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received placebo. Doses of 7mg, 21mg, 70mg and 140mg were administered subcutaneously either once every two weeks, or Q2W, or once weekly, or QW, over a 28-day treatment period. Patients in Q2W cohorts received doses of AKR-001 on Days 1 and 15, while subjects in QW cohorts received doses of AKR-001 on Days 1, 8, 15 and 22.

AKR-001 exhibited linear, dose-proportional pharmacokinetics

Linear, dose-proportional pharmacokinetics were observed across the range of AKR-001 doses tested. The observed median time of maximum serum concentration, or Tmax, ranged from two to 3.5 days. The observed half-life of the intact C-terminus of AKR-001 ranged from three to four days. By contrast, half-life of the intact C-terminus of other FGF21 analogs evaluated clinically has ranged from six to 24 hours.

As shown in Figure 15 below, there was an approximately two-fold accumulation of AKR-001 observed in serum following repeated QW administration, with steady state achieved by the third or fourth dose. No meaningful accumulation was observed following administration of two Q2W doses. QW dosing was also associated with a four-fold smaller peak-to-trough ratio than observed with Q2W dosing, suggesting that serum concentrations of AKR-001 are maintained more effectively with QW than Q2W dosing.


Figure 15: Pharmacokinetics of AKR-001 administered weekly and every other week

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AKR-001 effects on pharmacodynamic measures of lipoproteins and insulin sensitivity following once-weekly or every-other-week dosing

Figures 16 and 17 below show effects on pharmacodynamic measures for patients treated with AKR-001 either QW or Q2W, respectively. Fasting levels of plasma glucose, insulin, C-peptide, plasma triglyceride, HDL-C, LDL-C and calculated HOMA-IR, as well as post-meal levels of free fatty acids, or FFA, and body weight were analyzed in accordance with the pre-specified statistical analysis plan. Fasting levels of plasma non-HDL-C, adiponectin and apolipoprotein B, or ApoB, have been derived from post-hoc analyses using a statistical methodology similar to that used for all pre-specified endpoints.

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As shown in Figure 16 below, dose-related effects on pharmacodynamic measures were observed for the QW cohorts, with maximal or near-maximal effects achieved with the 70mg QW dose of AKR-001. Significant decreases in triglycerides and increases in HDL-C were observed for all dose groups, with additional significant decreases in non-HDL-C observed at doses greater than or equal to 70mg QW. Multiple markers of insulin sensitivity were also observed to be improved following treatment at a dose of 70mg QW. Significant decreases in C-peptide observed following the fourth dose of 21mg QW suggests that insulin sensitivity may be improved by longer-term treatment with doses lower than 70mg QW.

As discussed above, AKR-001 acts to redirect calories away from the liver to peripheral tissues, such as adipose tissue. Importantly, though, AKR-001 was observed to be weight-neutral in the four-week Phase 1b clinical trial, consistent with reports from earlier clinical studies with third-party FGF21 analogs. With AKR-001, there was a trend toward slight weight loss of up to 3% at 140mg QW and up to 2% at 70mg QW, which we do not believe contributed to the substantial improvement of lipoproteins and markers of insulin sensitivity observed at 70mg QW.

As shown in Figure 17 below, dose-related changes in fasting lipoprotein markers were also observed following Q2W dosing of AKR-001, with significant increases in HDL-C and adiponectin following treatment at doses greater than or equal to 21mg Q2W, and significant decreases in triglycerides at doses greater than or equal to 70mg Q2W, illustrating the biological impact of AKR-001's half-life extension of three to four days even with an inter-dose interval equivalent to four half-lives.

A comparison of the magnitude of pharmacodynamic changes between the 70mg QW and 140mg Q2W cohorts underscores the additional benefit likely to be gained from weekly dosing. These two doses yielded approximately equivalent total drug exposure (7-day exposure of 31,900 day*ng/mL for 70mg QW vs. 14-day exposure of 55,600 day*ng/mL for 140mg Q2W). However, the magnitude and level of significance for effects at 70mg QW were much higher than at 140mg Q2W. On most measures, the effects observed at 70mg QW were two-fold or more higher than the corresponding changes at 140mg Q2W.

In Figures 16 and 17 below, N represents the number of patients in a particular group. P or p-values are commonly interpreted as the probability that random chance caused the result (e.g., a p-value = 0.001 suggests there is a 0.1% probability that the difference between placebo and treatment groups is due to random chance). A p-value of 0.05 or less is a commonly-used threshold for statistical significance and may be supportive of a finding of efficacy by regulatory authorities. However, regulatory authorities, including the FDA and EMA, do not set strict statistical significance thresholds as a criteria for marketing approval, instead maintaining flexibility to evaluate the overall risks and benefits of a treatment.

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Figure 16: Pharmacodynamic effects of AKR-001 administered once-weekly (QW)

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Figure 17: Pharmacodynamic effects of AKR-001 administered every other week (Q2W)

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AKR-001 dose-related effects within target dose range of 21mg to 70mg QW

We have identified AKR-001 doses in the range of 21mg to 70mg QW as the target dose range for evaluation in future clinical trials in patients with NASH. In the Phase 1b clinical trial in patients with T2D, decreases in triglycerides and increases in HDL-C were observed even at the 7mg QW dose; however, improvements in insulin sensitivity, which we believe will have a therapeutic effect on NASH pathogenesis, appear to require at least a 21mg QW dose. Among all doses tested to date, 70mg QW appears to offer the greatest potential for the treatment of patients with NASH. The 140mg QW dose level did not appear to confer any meaningful benefit beyond the 70mg QW dose.

Figures 18 and 19 below illustrate the dose-related changes from baseline for lipoproteins and markers of insulin sensitivity, respectively, observed following administration of 21mg and 70mg QW doses of AKR-001, compared to placebo. Significant improvements for each marker of insulin sensitivity were observed at the 70mg QW dose, consistent with agonism of FGFR1c in adipose tissue. At 21mg QW, there were also indications of improved sensitivity to insulin, with a significantly lower level of C-peptide observed after the fourth dose, and a trend toward lower levels of insulin and lower calculated value of HOMA-IR. These data are consistent with the results of our pharmacokinetic and pharmacodynamic modeling, which suggests that a dose between 21mg and 70mg QW could provide roughly 60% to 75% or more of the beneficial effects observed at 70mg QW. Although liver fat was not measured in this trial, we believe the magnitude and robustness of effects on lipoproteins at 21mg and 70mg QW will likely translate into substantial reductions in liver fat with longer-term treatment.

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Figure 18: AKR-001 effects (percent change from baseline) on lipoproteins and free fatty acids: placebo, 21mg QW, and 70mg QW

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Figure 19: AKR-001 effects (percent change from baseline) on markers of insulin sensitivity: placebo, 21mg QW, and 70mg QW

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Figure 20 below provides the data underlying Figures 18 and 19, shown in units of mg/dL.


Figure 20: Absolute change in metabolic and lipoprotein parameters
at target dose range of 21mg-70mg QW

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AKR-001 70mg QW showed rapid, durable effects

AKR-001's effects on lipoproteins and markers of insulin sensitivity were observed to be rapid, consistent, and durable at the 70mg QW dose, with significant effects persisting after the fourth and final dose (on Day 22) for up to five weeks (on Day 57). Figure 21 below shows the observed effect of AKR-001 administered at the 70mg QW dose on HDL-C, non-HDL-C, and triglycerides at all time points from baseline through Day 57, plotted against serum AKR-001 concentration. Figure 22 below similarly provides an integrated-time course plot for markers of insulin sensitivity: glucose, insulin, C-peptide, and HOMA-IR. Data is shown in both figures as placebo-corrected percent change from baseline, which makes it possible to compare the magnitude of effects on multiple endpoints in the context of exposure to AKR-001. The red arrows indicate dosing on Days 1, 8, 15 and 22.

As shown in Figures 21 and 22, maximal or near maximal effects were observed by the third dose of 70mg QW for lipoproteins, and by the fourth dose for markers of insulin sensitivity. Reductions in triglyceride and increases in HDL-C were significant at all time points from Day 4 through Day 57, while non-HDL-C was significantly lower from Day 15 through Day 57. Taken together with published clinical data for third-party FGF21 analogs, the time-course and magnitude of changes in lipoproteins observed at the 70mg QW dose suggest that AKR-001 has the potential to rapidly and durably reduce liver fat in patients with NASH. Notably, AKR-001's effects appear to be sustained for three weeks after the final dose, including significant increases of 39% in HDL-C and significant reductions of 28% and 67% in non-HDL-C and triglycerides, respectively, observed on Day 43.

Figure 23 below shows time-course plots for apolipoprotein-B, or ApoB, and adiponectin. These endpoints were measured only on Days 4, 15, 29 and 57. Significant improvements on both measures were observed by Day 15 at the 70mg QW dose of AKR-001. On both measures, a greater effect was observed on Day 29 than Day 15. No results for ApoB were available on day 57 for 70mg QW AKR-001.

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Figure 21: Time-course plots of AKR-001 70mg QW lipoprotein effects

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Figure 22: Time-course plots of AKR-001 70mg QW effects on markers of insulin sensitivity

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Figure 23: Time-course plots of AKR-001 70mg QW effects on apolipoprotein B and adiponectin

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AKR-001 safety and tolerability in Phase 1b clinical trial

AKR-001 was reported to be well-tolerated among 52 patients with T2D in a Phase 1b clinical trial conducted by Amgen. There were no patient deaths and no serious adverse events. The most common adverse events were gastrointestinal disorders, such as mild diarrhea and nausea, consistent with the experience following treatment with other FGF21 investigational drug products.

Withdrawals from investigational product due to adverse events, or AEs, were reported for six subjects in the Phase 1b clinical trial (AKR-001, N=5; placebo, N=1). Four of the patients to withdraw were in the 140mg QW group. We do not plan to investigate this dose level further. The reasons for withdrawal by each of the four subjects dosed at 140mg QW were reported to be diarrhea; vomiting; tremor; and tremor/nausea. The remaining two withdrawals (one following treatment with 7mg QW; one on placebo) were attributed by the investigator to hyperglycemia and were considered unrelated to investigational product. Subjects were washed off anti-diabetic medications two weeks prior to the first dose and remained so until end of study. Figure 24 below provides a summary of investigational product-related treatment-emergent adverse events and withdrawals.

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Figure 24: Investigational product (IP)-related, treatment-emergent adverse events with two or more observations, and IP-related withdrawals from treatment

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The most common treatment-related, treatment-emergent AEs at doses from 7mg to 70mg QW were nausea, diarrhea and increased appetite. All of these treatment-related AEs were assessed as mild in severity, except for one instance of injection site rash in the 21mg QW cohort assessed as of moderate severity. All of these treatment-related AEs were transient.

Seven of 52 subjects were observed to be positive for anti-AKR-001 antibodies post-baseline. Antibodies from the 7 subjects were non-neutralizing and did not appear to affect the pharmacokinetics or safety profile of AKR-001. Three of seven patients in the Phase 1b clinical trial who developed anti-AKR-001 antibodies returned for follow-up approximately two months after receiving the final dose of AKR-001. In all three of these patients, anti-AKR-001 antibodies could no longer be detected.

Phase 1a clinical trial in type 2 diabetic patients

An earlier Phase 1a, randomized, double-blind, placebo-controlled, ascending single-dose clinical trial was conducted by Amgen in patients with T2D to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of AKR-001. A total of 42 patients received a single-dose of either placebo (N=11) or AKR-001 (N=31) and completed the trial. Single subcutaneous, or SC, AKR-001 doses of 2.1mg, 7mg, 21mg, 70mg, or 210mg (N=6 per cohort) were administered. In addition, one patient received a single 70mg IV dose of AKR-001.

At doses of 21mg SC and higher, significant increases were observed in HDL (up to 50% increase on Day 14 after a single 70mg SC dose, p<0.001) along with significant reductions in triglycerides (up to 50% reduction on Day 11 after a single 70mg SC dose, p<0.001), compared to placebo. No changes were noted in metabolic parameters of glucose, insulin, glucagon and free fatty acids under fasted conditions at doses of 70mg SC or less. A significant reduction in body weight was observed by Day 5 in all dose groups at or above 21mg SC, with significant decreases in body weight following a single dose of 70mg SC observed on days 5 through 22, up to a maximum of a 2% decrease in weight.

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Doses of 70mg SC or less were reported to be well tolerated. Following administration of a 210mg dose, three of six subjects reported diarrhea and four of six subjects reported increased appetite. Neither diarrhea nor increased appetite were reported for subjects receiving any other dose of AKR-001. No other adverse events were reported by more than one subject. All adverse events were reported as either mild or moderate, with the exception of two adverse events graded as severe but considered unrelated to the investigational product by the investigator.

One subject experienced a severe adverse event of vasovagal syncope secondary to blood draw following randomization to the 2.1mg cohort, but prior to receiving any investigational product. This event was not considered related to investigational product by the investigator. The one subject who received AKR-001 70mg IV had a serious adverse event of cholecystitis initially reported as abdominal pain beginning on Day 11. The subject thereafter reported having experienced intermittent abdominal pain for many years. Findings from a subsequent cholecystectomy were consistent with chronic cholecystitis. This event was considered unrelated to investigational product by the investigator.

There were no trends indicative of clinically important treatment-related laboratory abnormalities or clinically significant changes in vital signs or ECGs in subjects treated with AKR-001.

Anti-AKR-001 binding antibodies were detected in four of 31 subjects. In all instances the antibodies were non-neutralizing and did not appear to affect the tolerability profile profile or pharmacokinetics of AKR-001.

Phase 2a clinical trial design

We submitted a Phase 2a clinical trial synopsis to the FDA in conjunction with a pre-IND meeting request and received comments from the FDA on January 23, 2019. The FDA supported the overall trial design and recommended several trial design elements, which were incorporated into our draft protocol. We submitted our IND application to the FDA on April 24, 2019, which included a Phase 2a clinical trial protocol, audited draft reports for our 120-day toxicology studies in non-human primates and rodents, and stability data on drug product for use in the Phase 2a clinical trial. The FDA recommended additional trial design elements, which have been incorporated into our final Phase 2a clinical trial protocol. The FDA cleared our IND on May 24, 2019 and we began screening patients for our Phase 2a clinical trial on May 28, 2019.

Our Phase 2a clinical trial is a multicenter, randomized, double-blind, placebo-controlled, dose-ranging trial in biopsy-confirmed patients with NASH. Up to approximately 80 total patients randomized will receive weekly subcutaneous dosing of AKR-001 or placebo for up to 16 weeks. The three active treatment arms are doses of 28mg, 50mg and 70mg QW, all within the target dose range of 21mg to 70mg QW based on observed results from the Phase 1b clinical trial. The 70mg dose represents the highest tolerated dose in the Phase 1b clinical trial in T2D patients. Evaluating the highest tolerated dose from Phase 1 clinical trials and testing multiple doses is consistent with FDA guidance. We have engaged Summit Research Network, a leading third-party investigator with broad expertise in NASH patient enrollment, to assist with patient enrollment for our Phase 2a clinical trial.

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Figure 25: Phase 2A Clinical Trial Design

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The primary objective of our Phase 2a clinical trial is to evaluate absolute change from baseline in hepatic fat fraction assessed by Magnetic Resonance Imaging—Proton Density Fat Fraction, or MRI-PDFF, at Week 12.

The secondary objectives of our Phase 2a clinical trial are to:

Evaluate percent change from baseline in hepatic fat fraction assessed by MRI-PDFF at Week 12;

Evaluate the proportion of patients who achieve a clinically-meaningful reduction of at least 30% in relative liver fat content as measured by MRI-PDFF at Week 12; and

Assess the safety and tolerability of AKR-001 in subjects with NASH, including analyses of treatment-emergent adverse events, clinical chemistry and hematology, vital signs, electrocardiogram, body weight, and incidence of anti-AKR-001 antibodies.

Exploratory objectives include:

Change from baseline in markers of liver injury and liver function;

Changes in biomarkers of liver fibrosis;

Changes in histological parameters on biopsies; and

Changes in markers of lipid metabolism, insulin sensitivity and glycemic control.

Potential improvement of cardiovascular risk factors

We believe the effects observed following treatment with AKR-001 in clinical trials to date, particularly the 70mg QW dose level, indicate that AKR-001 has potential to have cardiovascular benefits when tested in patients with NASH, for whom cardiovascular disease is the leading cause of death. Figure 26 below

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describes the extent of reduction in cardiovascular risk associated with improvement in individual lipoproteins, which are believed to be causal of cardiovascular disease. We believe these help to provide context for the changes in lipoproteins observed in the Phase 1b clinical trial of AKR-001. If the magnitude of improvement in lipoprotein profiles is reproduced in patients with NASH in larger, longer-term trials, AKR-001 could have the potential to improve cardiovascular outcomes.


Figure 26: Rationale for AKR-001's potential cardiovascular benefits

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Additional clinical data supporting FGF21 in treatment of NASH

Other endocrine FGF analogs in development have shown encouraging signs of liver fat reduction, improved lipid profiles and reduced fibrosis in clinical trials in patients with NASH. Daily injections of an FGF19 analog were reported to be associated with a 67% relative reduction in liver fat as measured by MRI-PDFF on Day 85, as well as improvements in fibrosis as measured by liver biopsy. Daily and weekly injections of a PEGylated FGF21 analog were reported to be associated with 38% and 26% relative reductions in liver fat, respectively, compared with 6% for placebo, along with positive changes in Pro-C3, a marker of liver fibrosis. A single injection of a mAb developed to mimic FGF21's effects on FGFR1c and bKlotho, but with no activity on FGFR2c and 3c, was reported to be associated with a 37% relative reduction of liver fat as measured by MRI-PDFF on Day 36. The pattern and magnitude of changes in plasma lipoproteins varied across these three analogs. The FGF19 analog and FGF21 mAb both substantially reduced plasma triglyceride and increased HDL-C in comparison to the PEGylated FGF21 analog. Treatment with the FGF19 analog was associated with a placebo-corrected increase in LDL-C of 46 mg/dL, corresponding to about a 50% increase in fasting LDL-C. This increase in LDL-C is consistent with FGF19's potent agonism of FGFR4. Neither the FGF19 analog nor the PEGylated FGF21 analog were reported to result in significant reductions in insulin, glucose or C-peptide when evaluated in patients with T2D in earlier clinical trials.

Exclusive license agreement with Amgen Inc.

In June 2018, we entered into an exclusive license agreement with Amgen Inc., or Amgen, pursuant to which we have been granted an exclusive, royalty-bearing license to certain intellectual property rights owned or controlled by Amgen, to commercially develop, manufacture, use, distribute and sell therapeutic products, or Products. In particular, we have been granted licenses under patents filed in both the United States and foreign jurisdictions that are owned or controlled by Amgen, including an exclusive license

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under certain patents claiming polypeptides comprised of an FGF21 portion with certain point mutations, a linker, and an Fc domain. Our exclusively licensed patents include, but are not limited to, the composition of AKR-001 and methods of using the same. In connection with the license, Amgen also licensed and transferred to us certain know-how related to the manufacture of AKR-001 as well as certain quantities of AKR-001 drug substance manufactured to GMP for clinical use, master cell bank, not-for-human use AKR-001 drug product suitable for nonclinical studies and critical reagents.

Pursuant to the terms of the license agreement, we must use commercially reasonable efforts to develop and commercialize a Product in each of several major market territories. In addition, Amgen provided us, at its expense, consulting support in connection with the transfer of the licensed materials and the exploitation of the Products. We are also entitled to sublicense the rights granted to us under the license agreement.

As initial consideration for the license, we paid Amgen an upfront payment of $5.0 million and also issued 2,653,333 shares of our Series A preferred stock to Amgen at the time of the initial closing in June 2018 with a subsequent 3,205,128 shares of our Series A preferred stock issued at the time of the second closing in November 2018, representing 10% of total shares outstanding at such times. As additional consideration for the license, we are required to pay Amgen up to $40.0 million upon the achievement of specified clinical and regulatory milestones and aggregate milestone payments of up to $75.0 million upon the achievement of specific commercial milestones. No development or commercial milestones have been achieved to date under the license agreement. We are also required to pay tiered royalties of low to high single-digit percentages on annual net sales of the products covered by the license. The royalty rate with respect to the net sales is subject to customary reductions, including in the event that the exploitation of a Product is not covered by a valid claim with the licensed patent rights. The royalty term will terminate on a country-by-country basis on the later of (i) the expiration date of the last valid claim within the licensed patent rights, (ii) the loss of regulatory exclusivity in such country, and (iii) the tenth anniversary of the first commercial sale of such product in such country.

The license agreement shall expire upon the expiration of the last-to-expire royalty term for the Products in the territory. Upon expiration of the license agreement, the licenses granted to us shall be considered fully paid-up, irrevocable and non-exclusive. Either we or Amgen may terminate the license agreement if the other party commits a material breach of the agreement or defaults in the performance thereunder and fails to cure that breach within 90 days (or 30 days in the case of failure to make any payment as and when due under the agreement) after written notice is provided or in the event of bankruptcy, insolvency, dissolution or winding up. Amgen shall have the right to terminate the license agreement in full upon written notice to us in the event we, our affiliates or sublicensees, directly challenge the patentability, enforceability or validity of any licensed patents, unless, in the event of a sublicensee challenge, we terminate the sublicense within 60 days notice. We shall have the right to terminate the license agreement within 90 days written notice to Amgen if we conclude, due to scientific, technical, regulatory or commercial reasons, that the exploitation of the Products is no longer commercially practicable.

In connection with the license agreement, Amgen entered into certain stockholder agreements related to this investment. See "Certain relationship and related party transactions."

Intellectual property

Our success depends in part upon our ability to protect our core technology and intellectual property. To protect our intellectual property rights, we rely on patents, trademarks, copyrights and trade secret laws, confidentiality procedures, and employee disclosure and invention assignment agreements. Our intellectual

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property is critical to our business and we strive to protect it through a variety of approaches, including by ob