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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
33
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-38944
Akero Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
81‑5266573
(I.R.S. Employer Identification No.)
170 Harbor Way, 3 Floor
South San Francisco, CA
(Address of Principal Executive Offices)
rd
94080
(Zip Code)
Registrant’s telephone number, including area code (650) 487‑6488
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
AKRO
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐
Accelerated Filer ☐
Non-accelerated Filer ☒
Smaller reporting company ☒
Emerging growth company ☒
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 pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $195,939,947 as of June 28, 2019 (based on a closing price of
$19.15 per share as quoted by the Nasdaq Global Select Market as of such date). In determining the market value of non-affiliate common stock, shares of the registrant’s
common stock beneficially owned by officers, directors and affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive determination for
other purposes.
As of March 6, 2020, the total number of shares outstanding of the registrant’s Common Stock was 28,607,913 shares.
Documents Incorporated by Reference:
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2020 annual meeting of
shareholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal
year end of December 31, 2019. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as
part of this Form 10-K.
Table of Contents
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
PART III
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16 Form 10-K Summary
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements which are made pursuant to the safe
harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). 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. All statements, other than statements of historical facts,
contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future
financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market
growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended
to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements include, among other things, statements about:
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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 agreement;
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;
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.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and
you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included
important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly in the “Risk
Factors” section, that could cause actual results or events to differ materially from the forward-looking statements
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that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers,
dispositions, collaborations, joint ventures or investments that we may make or into which we may enter.
You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed or
incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be
materially different from what we expect. We do not assume any obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by law.
NOTE REGARDING TRADEMARKS
Akero Therapeutics, Inc. is the owner of the AKERO trademark, as well as certain other trademarks, including
design versions of some of these trademarks. The symbols ™ and ® are not used in connection with the presentation of
these trademarks in this report and their absence does not indicate a lack of trademark rights. Certain other trademarks
used in this report are the property of third-party trademark owners and may be presented with or without trademark
references.
PART I
All brand names or trademarks appearing in this report are the property of their respective owners. Unless the context
requires otherwise, references in this report to “Akero,” the “Company,” “we,” “us” and “our” refer to Akero
Therapeutics, Inc. and its subsidiary.
Item 1. Business
Overview
We are a cardio-metabolic nonalcoholic steatohepatitis, or NASH, company dedicated to developing pioneering
medicines that restore metabolic balance and improve overall health. 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. Our lead product candidate, AKR-001, is an analog of fibroblast growth factor 21, or FGF21, which 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. 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, coupled with clinical results from other FGF21 analogs,
demonstrate AKR-001's potential to serve as a cornerstone for the treatment of NASH. We are currently conducting a Phase
2a clinical trial, the BALANCED study, which is evaluating AKR-001 in the treatment of NASH patients. We expect to
complete collection of data for the BALANCED main study week 12 primary endpoint, and report top-line results related
to reductions in liver fat, in the first quarter of 2020. Top-line results related to secondary endpoints, including safety and
tolerability as well as paired biopsies, will be reported in the second quarter of 2020. We also plan to expand the
BALANCED study to include an additional cohort of subjects with NASH who have compensated cirrhosis (F4), Child-
Pugh Class A, with study initiation expected 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.
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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 dosing once-weekly or once every two weeks, while
retaining the native biological activity of FGF21.
AKR-001 was 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, or non-HDL-C following once-weekly administration. In
the Phase 1b clinical trial, it was also observed that once-weekly 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, improvements in biomarkers of liver fibrosis, and improvements in histological measures have been
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 December
31, 2019, our patent portfolio relating to AKR-001 and other peptides included 125 issued patents and 32 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
Development Officer, Kitty Yale, led global clinical operations and management of Gilead’s oncology, HIV, inflammation
and liver disease trials. 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 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
closed enrollment for our Phase 2a clinical trial on December 16, 2019, which is assessing 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.
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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 Boehringer Ingelheim to manufacture new drug substance for future clinical trials and
support 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.
Develop, acquire or in-license product candidates that enhance our potential to become a leading metabolic
disease company. We are continually evaluating opportunities to build a robust pipeline of potential leading treatments for
metabolic diseases. Additional 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.
While there is a lack of scientific consensus on how best to characterize NASH pathogenesis, we believe there are
five core processes:
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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.
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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
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Figure 2—NASH pathogenesis: Oxidative stress and lipotoxicity induce hepatocyte death, local inflammation and
fibrosis
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 antioxidants. When the quantity of free radicals exceeds the capacity of antioxidants 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 TNF(cid:0), TGF(cid:0), 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, TNF(cid:0) and TGF(cid:0) 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(cid:0), 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 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.
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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
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
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
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 substantially 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 scrutinized by prescribing
physicians, as patients with NASH are already at increased risk for cardiovascular events.
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Figure 6 provides some examples of therapeutic approaches to NASH and potential limitations of these
therapeutic targets.
Figure 6—Selected NASH interventions under development
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 or once every other week 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 (cid:0)Klotho.
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 (cid:0)Klotho (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 (cid:0)Klotho 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 (cid:0)Klotho and FGFR.
Figure 7—FGF21's two-step receptor binding with (cid:0)Klotho 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 (cid:0)Klotho, 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 (cid:0)Klotho and FGFR1c/2c/3c,
which have tissue-dependent expression. Reproducing native FGF21's biology depends on retaining both binding affinity
to (cid:0)Klotho 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 (cid:0)Klotho, 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
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-serine 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 (cid:0)Klotho. 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
(cid:0)Klotho. Our patents include claims directed to an FGF polypeptide 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.
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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
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 in NASH or high-risk NAFLD patients evaluating four 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, to resolve NASH, and to reverse
fibrosis in patients with NASH, but also appears to increase LDL-C. Published nonclinical and clinical data suggest that
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 or previously tested FGF21 analogs.
Two other compounds are based on a monoclonal antibody, or mAb, designed to target only FGFR1c and its co-
receptor, βKlotho. Consistent with nonclinical data, preliminary clinical data in patients with NAFLD suggest that
administration of these FGFR1c-specific agonists 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
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
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·
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 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 PGC1(cid:0) and
NRF2, which induce expression of antioxidant enzymes that protect against oxidative stress by neutralizing free radicals.
PGC1(cid:0) 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 antioxidant 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 TNF(cid:0) and TGF(cid:0) 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.
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Figure 14—Potential Benefits of AKR-001 on NASH Pathogenesis
AKR-001 clinical development
Prior to our ongoing Phase 2a clinical trial, AKR-001 was 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 either equivalent to or greater 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 dosed our first patient for our Phase 2a
clinical trial on July 2, 2019 and administered the first dose to the last-enrolled patient on December 16, 2019. This trial,
the BALANCED study, is assessing 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 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.
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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 in T2D or NASH patients has ranged from six to 24 hours. The three-to-four-day half-
life of another FGF21 analog, which recently reported data from a Phase 1 single ascending dose study in healthy
volunteers, appears similar to the three-to-four-day half-life of AKR-001.
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
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.
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
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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 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)
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, including in the ongoing BALANCED study. In the Phase 1b clinical trial in
patients with T2D, significant 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
Figure 20 below provides the data underlying Figures 18 and 19, shown in units of mg/dL.
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Figure 20: Absolute change in metabolic and lipoprotein parameters at target dose range of 21mg-70mg QW
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 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
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.
Figure 24: Investigational product (IP)-related, treatment-emergent adverse events with two or more observations,
and IP-related withdrawals from treatment
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.
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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 body weight.
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.
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 or pharmacokinetics of AKR-001.
Ongoing Phase 2a clinical trial, the BALANCED study
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 were
incorporated into our final Phase 2a clinical trial protocol. The FDA cleared our IND on May 24, 2019. We dosed our first
patient in the BALANCED study on July 2, 2019, and we closed enrollment for the main part of the study on December 16,
2019. The final liver fat measurement for completion of the primary analysis at week 12 was taken on March 6, 2020. We
plan to expand the BALANCED study to include an additional cohort of subjects with NASH who have compensated
cirrhosis (F4), Child-Pugh Class A, or Cohort C, with study initiation expected in the second quarter of 2020.
The BALANCED main study is a multicenter, randomized, double-blind, placebo-controlled, dose-ranging trial in
biopsy-confirmed patients with NASH. We enrolled 80 total patients who were randomized to 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.
Figure 25 below illustrates key design elements of the BALANCED main study.
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Figure 25: Clinical Trial Design of BALANCED Main Study
The primary objective of the BALANCED main study 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 the BALANCED main study 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;
Evaluate the responder based on NAFLD Activity Score (NAS) system of subjects who had a decrease of ≥ 2
points in NAS with at least a 1-point reduction in either lobular inflammation or hepatocellular ballooning and
with no concurrent worsening of fibrosis stage; 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 of the BALANCED main study 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.
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We plan to report 12-week top-line results related to the primary endpoint—including change from baseline in
absolute liver fat and relative reduction in liver fat, as well as the proportion of patients who achieve at least a 30% relative
reduction in liver fat—in the first quarter of 2020. As indicated in Figure 25, the study remains blinded through an
additional four weeks of treatment to week 16. Safety and tolerability results will therefore be reported following
completion of treatment along with secondary endpoints, including biopsy results, which we plan to report in the second
quarter of this year.
We plan to expand the BALANCED study in Cohort C by enrolling thirty NASH subjects, demonstrated at
baseline by liver biopsy to have cirrhosis with a fibrosis score of 4, who will be randomized 2:1 to receive either 50 mg of
AKR-001 or placebo for 16 weeks. The selection of the 50 mg dose for this cohort is based on modeling of data from
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the Phase 1b trial in Type 2 diabetes as well as availability of drug product. The primary objective of this expansion Cohort
C is to assess safety and tolerability of treatment with AKR-001 in NASH patients at greatest risk of progressing to end-
stage liver disease. Additional objectives include evaluating the pharmacokinetics and pharmacodynamics of AKR-001,
changes in liver stiffness as measured by fibroscan, and non-invasive markers of fibrosis, including Pro-C3 and ELF.
Figure 26 below illustrates key design elements for Cohort C of the BALANCED study.
Figure 26: Clinical Trial Design for Cohort C of the BALANCED Study
Potential improvement of cardiovascular risk factors
We believe the effects observed following treatment with AKR-001 in clinical trials to date 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 27 below 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
reductions 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 27: 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 or obese insulin resistant subjects with NAFLD. In a
24-week placebo-controlled clinical trial, daily injections of an FGF19 analog in NASH patients were reported to be
associated with a 39% relative reduction in liver fat as measured by MRI-PDFF, compared with 13% for placebo. In
addition, 38% of patients treated with active drug were observed to have a ≥1 stage improvement in fibrosis score with no
worsening of NASH, compared with 18% for placebo. In a 16-week placebo-controlled clinical trial, daily and weekly
injections of a PEGylated FGF21 analog in NASH patients 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 fibrogenesis. A clinical trial evaluating a single injection of a mAb developed to mimic FGF21's effects on FGFR1c
and (cid:0)Klotho, but with no activity on FGFR2c and 3c, was reported in obese insulin resistant subjects with NAFLD to be
associated with a 37% relative reduction of liver fat on Day 36. A placebo-controlled clinical trial in NAFLD subjects
evaluating a different mAb FGF21 mimetic, also with activity at FGFR1c but not FGFR2c or FGFR3c, was reported to be
associated with up to a 38% relative reduction of liver fat at adequately tolerated doses after 12 weeks of treatment. The
pattern and magnitude of changes in plasma lipoproteins varied across these four analogs. The FGF19 analog and FGF21
mAbs substantially reduced plasma triglyceride and increased HDL-C in comparison to the PEGylated FGF21 analog.
Treatment with the FGF19 analog was associated with a nearly 50% placebo-corrected increase in LDL-C. This increase in
LDL-C is consistent with FGF19's potent agonism of FGFR4. Of the four FGF21 analogs tested in insulin resistant or type
2 diabetic subjects, three did not improve markers of insulin sensitivity or glycemic control, FGF19 analog, pegylated
FGF21 and one of the FGFR1c-specific mAbs, while one of the FGFR1c-specific mAbs did.
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 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 Good Manufacturing Practices, or 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. In August 2019 we made an additional payment of $2.5 million in
connection with dosing the first patient in our Phase 2a clinical trial, which was the first development milestone under the
license agreement. As additional consideration for the license, we are required to pay Amgen up to $37.5 million upon the
achievement of specified remaining clinical and regulatory milestones and aggregate milestone payments of up to $75.0
million upon the achievement of specific commercial milestones. No 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
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(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 property is critical to our business and we
strive to protect it through a variety of approaches, including by obtaining and maintaining patent protection in the United
States and internationally for our product candidates, novel biological discoveries, new targets and applications, and other
inventions that are important to our business. For our product candidates, we generally intend to pursue patent protection
covering compositions of matter, methods of making and methods of use, including combination therapies. As we continue
the development of our product candidates, we intend to identify additional means of obtaining patent protection that would
potentially enhance commercial success, including through claims covering additional methods of use and biomarkers and
complementary diagnostic and/or companion diagnostic related claims. As of December 31, 2019, we have licensed from
Amgen Inc. approximately 157 patents and pending patent applications in the U.S. and foreign jurisdictions, including 125
granted U.S. and foreign patents and 32 pending U.S. and foreign patent applications. There are currently no pending U.S.
provisional patent applications.
As of December 31, 2019, our patent portfolio relating to AKR-001 includes twelve issued U.S. patents, one
pending U.S. patent application, and issued and pending foreign counterpart patents in Europe, Asia, Canada, Australia,
and Mexico. Seven issued U.S. patents include claims directed to the AKR-001 product, the FGF21 polypeptide component
of the AKR-001 product, nucleic acids encoding the product and related polypeptides, polypeptide multimers, related
compositions, and methods of using AKR-001 to, e.g., treat diabetes, lower blood glucose in patients suffering from a
metabolic disorder, improve glucose tolerance, lower body weight, or reduce triglyceride levels in patients. These issued
U.S. patents are expected to expire in 2029. The pending U.S. patent application and related foreign counterparts are
directed to a method of treating a patient with excess bile acid; if issued, the resulting U.S. patent is expected to expire in
2036. The portfolio further includes five issued U.S. patents that are directed to related polypeptides and methods of use.
In addition to patents, we rely upon unpatented trade secrets and know-how and continuing technological
innovation to develop and maintain our competitive position. However, trade secrets and know-how can be difficult to
protect. We seek to protect our proprietary information, in part, by executing confidentiality agreements with our
collaborators and scientific advisors, and non-solicitation, confidentiality, and invention assignment agreements with our
employees and consultants. We have also executed agreements requiring assignment of inventions with selected scientific
advisors and collaborators. The confidentiality agreements we enter into are designed to protect our proprietary information
and the agreements or clauses requiring assignment of inventions to us are designed to grant us ownership of technologies
that are developed through our relationship with the respective counterparty. We cannot guarantee, however, that we have
executed such agreements with all applicable counterparties, such agreements will not be
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breached, or that these agreements will afford us adequate protection of our intellectual property and proprietary rights. For
more information, see "Risk factors—Risks related to our intellectual property."
Manufacturing and supply
We manage several external commercial manufacturing organizations, or CMOs, to develop and manufacture
AKR-001.
AKR-001 drug substance is manufactured by fermentation of a recombinant strain of the bacterium E. coli.
Product accumulates as insoluble particles (inclusion bodies) within the cells and is recovered by cell disruption, followed
by solubilization of the inclusion bodies, protein refolding and several chromatographic separation steps to yield product
with target quality attributes. We have an agreement with Boehringer Ingelheim Biopharmaceuticals GmbH, or Boehringer
Ingelheim, to manufacture GMP drug substance for future clinical trials and plan to enter into a future agreement for
commercial supply at the appropriate time. We have successfully manufactured AKR-001 drug substance at commercial
scale as an engineering run at Boehringer Ingelheim. Yield was comparable to the Good Manufacturing Practice
(GMP) drug substance originally manufactured by Amgen. Analysis of the drug substance produced by Boehringer
Ingelheim confirmed it met the same release specification as previously used for Amgen GMP drug substance. The
Company expects to release drug product produced in compliance with current GMP requirements by the fourth quarter of
2020.
We acquired approximately 475 grams of AKR-001 drug substance, or DS, as part of our license from Amgen,
divided into 10 one-liter bottles and stored in frozen storage at –30 degrees Celsius. We used this DS, which was
manufactured by Amgen in compliance with GMP, to prepare drug product for our Phase 2a clinical trial and to
conduct toxicology studies in rats and non-human primates to support our clinical program. GMP drug product was
manufactured for use in our Phase 2a clinical trial by Vetter Pharma International GmbH.
The new GMP drug product used for the BALANCED study is based on an Amgen platform formulation used in
the early stages of clinical development. It is stored as a frozen liquid until immediately before administration to trial
subjects. We plan to use this same frozen liquid formulation in a Phase 2b clinical trial. We have engaged a third party to
develop a new refrigerated liquid or freeze-dried, lyophilized formulation for use in Phase 3 clinical trials. The
development of a medical device is envisaged for convenient subcutaneous administration of the new drug product
formulation.
Sales and marketing
Successful marketing of a new drug for the treatment of NASH will require a targeted commercial infrastructure.
We expect to begin making plans for commercialization following completion of our Phase 2a clinical trial. We have
contracted with a third-party manufacturer, Boehringer Ingelheim, to support future 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 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.
Competition
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. We understand that a number of pharmaceutical companies, including AbbVie, Inc., Allergan
plc, AstraZeneca PLC/MedImmune LLC, Boehringer Ingelheim AG, Bristol-Myers Squibb Company, Inc., Eisai, Inc., Eli
Lilly and Company, 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., Cirius Therapeutics, Inc., CymaBay Therapeutics, Inc., 89bio, Inc.,
Enanta Pharmaceuticals, Inc., Galectin Therapeutics Inc., Galmed Pharmaceuticals Ltd., Genfit SA, Gilead Sciences, Inc.,
Intercept Pharmaceuticals, Inc., Inventiva Pharma SA, Madrigal Pharmaceuticals, Inc., MediciNova, Inc.,
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Metacrine, Inc., NGM Biopharmaceuticals, Inc., North Sea Pharmaceuticals, Terns Pharmaceuticals, Inc., and Viking
Therapeutics, 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. Many of our competitors have
established distribution channels for the commercialization of their products, whereas we have no such channel or
capabilities. 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.
Government Regulation
The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries,
extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export,
safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion,
marketing, post-approval monitoring, and post-approval reporting of biologics such as those we are developing. We, along
with third-party contractors, will be required to navigate the various nonclinical, clinical and commercial approval
requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or
licensure of our product candidates.
U.S. biological product development
In the United States, biological products are subject to regulation under the Federal Food, Drug, and Cosmetic
Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and
regulations. The process required by the FDA before a biological product may be marketed in the United States generally
involves the following:
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completion of nonclinical laboratory tests and animal studies performed in accordance with the FDA's Good
Laboratory Practice (GLP) regulation;
submission to the FDA of an investigational new drug application, or IND, which must become effective before
clinical trials may begin and must be updated annually or when significant changes are made;
approval of a clinical trial protocol and related documentation by an independent Institutional Review Board, or
IRB, or ethics committee at each clinical site before the trial may be initiated;
performance of adequate and well-controlled human clinical trials according to FDA's regulations commonly
referred to as Good Clinical Practices, or GCPs, and any additional requirements for the protection of human
research subjects and their health information, to establish the safety, purity and potency of the proposed biologic
product candidate for its intended use;
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preparation of and submission to the FDA of a Biologics License Application, or BLA, for marketing
authorization that includes substantive evidence of safety, purity, and potency from results of nonclinical testing
and clinical trials;
satisfactory completion of an FDA Advisory Committee review, if applicable;
a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological
product is produced to assess compliance with current Good Manufacturing Practices, or cGMPs, and to assure
that the facilities, methods and controls are adequate to preserve the biological product's identity, strength, quality
and purity;
potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the BLA in
accordance with any applicable expedited programs or designations;
payment of user fees for FDA review of the BLA (unless a fee waiver applies); and
FDA review and approval, or licensure, of the BLA to permit commercial marketing of the product for particular
indications for use in the United States.
Nonclinical and clinical development
Before testing any biological product candidate in humans, the product candidate enters the nonclinical testing
stage. Nonclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product biological
characteristics, chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of
the product candidate. The conduct of the nonclinical tests must comply with federal regulations and requirements
including GLPs.
Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a
request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of
an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes
results of the nonclinical tests, including animal and in vitro studies assessing the toxicology, pharmacokinetics,
pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls (CMC)
information; and any available human data or literature to support the use of the investigational product. An IND must
become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by
the FDA, unless the FDA places the clinical trial on a clinical hold within the 30-day time period. In such a case, the IND
may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions
before the clinical trial can begin. The FDA also may impose clinical holds on a biological product candidate at any time
before or during clinical trials due to, among other considerations, unreasonable or significant safety concerns, inability to
assess safety concerns, lack of qualified investigators, a misleading or materially incomplete investigator brochure, study
design deficiencies, interference with the conduct or completion of a study designed to be adequate and well-controlled for
the same or another investigational drug, insufficient quantities of investigational product, lack of effectiveness, or non-
compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing a clinical trial to
begin, or that, once begun, issues or circumstances will not arise that delay, suspend or terminate such studies.
Clinical trials involve the administration of the investigational product to healthy volunteers or patients under the
supervision of qualified investigators, generally physicians not employed by or under the study sponsor's control, in
accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their
participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives
of the study, dosing procedures, subject selection and exclusion criteria, and the parameters to be used in monitoring
subject safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events
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should occur. A separate submission to the existing IND must be made for each successive clinical trial conducted during
product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site
proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its related documentation
before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or
the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being
exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include
oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety
monitoring board, which provides authorization for whether or not a study may move forward at designated check points
based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable
safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the
reporting of ongoing clinical studies and clinical study results to public registries.
A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA
authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the
sponsor may submit data from the clinical trial to the FDA in support of a BLA. The FDA may accept a well-designed and
well-conducted foreign clinical study not conducted under an IND if the study was conducted in accordance with GCP
requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.
Clinical trials typically are conducted in three sequential phases that may overlap or be combined:
Phase 1—The investigational product is initially introduced into healthy human subjects. These studies are
designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in
humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. In the
cases of some products for severe of life-threatening diseases, especially when the product may be too inherently toxic to
ethically administer to healthy volunteers, the initial human testing is often conducted in the targeted patient population.
Phase 2—The investigational product is administered to a limited patient population with a specified disease or
condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side
effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning Phase 3
clinical trials.
Phase 3—The investigational product is administered to an expanded patient population to further evaluate
dosage, to provide significant evidence of clinical efficacy and to further test for safety, generally at multiple
geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the
investigational product and to provide an adequate basis for product approval or licensure and product labeling.
In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a
product is approved to gain more information about the product. These so called Phase 4 studies may be made a condition
to approval of the BLA.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all
clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical
trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA and the
investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in
vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious
suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety
report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also
must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after
the sponsor's initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed
successfully within any specified period, if at all. The FDA or the sponsor, acting on its own or based on a recommendation
from the sponsor's data safety monitoring board may suspend a clinical trial at any time on various grounds, including a
finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can
suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being
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conducted in accordance with the IRB's requirements or if the biological product has been associated with unexpected
serious harm to patients.
Concurrent with clinical trials, companies may complete additional animal studies and develop additional
information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the
product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of
consistently producing quality batches of the product candidate and, among other things, must develop methods for testing
the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product
candidate does not undergo unacceptable deterioration over its shelf life.
BLA submission and review
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements,
the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA
requesting approval to market the product for one or more indications. FDA approval of a BLA must be obtained before a
biologic may be marketed in the United States. The BLA must include all relevant data available from pertinent nonclinical
and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information
relating to the product's chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of
a BLA requires payment of a substantial application user fee to FDA, unless a waiver or exemption applies.
Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is
substantially complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete
or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must
be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA
accepts it for filing. Under the performance goals and policies implemented by the FDA under the Prescription Drug User
Fee Act, or PDUFA, for original BLAs, the FDA targets ten months from the filing date in which to complete its initial
review of a standard application and respond to the applicant, and six months from the filing date for an application with
priority review. In both standard and priority reviews, the FDA does not always meet its PDUFA goal dates, and the review
process is often significantly extended by FDA requests for additional information or clarification. This review typically
takes twelve months from the date the BLA is submitted to the FDA because the FDA has approximately two months to
make a "filing" decision. The review process and the PDUFA goal date may be extended by three months if the FDA
requests or the BLA sponsor otherwise provides additional information or clarification regarding information already
provided in the submission within the last three months before the PDUFA goal date.
Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA
reviews a BLA to determine, among other things, whether a proposed product is safe, pure and potent, for its intended use,
and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product's
continued safety, purity and potency. Further, the FDA may convene an advisory committee to provide clinical insight on
application review questions. The FDA is not bound by the recommendations of an advisory committee, but it considers
such recommendations carefully when making decisions.
Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is
manufactured. The FDA will not approve a product unless it determines that the manufacturing processes and facilities are
in compliance with cGMP requirements and adequate to assure consistent production of the product within required
specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure
compliance with GCP requirements. If the FDA determines that the application, manufacturing process or manufacturing
facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or
information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that
the application does not satisfy the regulatory criteria for approval.
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After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational
product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response letter.
An approval letter authorizes commercial marketing of the product with specific prescribing information for specific
indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except
that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may
issue the Complete Response letter without first conducting required inspections, testing submitted product lots, and/or
reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant
might take to place the BLA in condition for approval, including requests for additional information or clarification. The
FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or
information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may
entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the
BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A
REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to
have continued access to such medicines by managing their safe use, and could include medication guides, physician
communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other
risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the
development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if
compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the
marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor
the product's safety and effectiveness after commercialization, and may limit further marketing of the product based on the
results of these post-marketing studies.
Expedited development and review programs
The FDA has various programs, including Fast Track designation, breakthrough therapy designation, accelerated
approval and priority review, that are intended to expedite or simplify the process for the development and FDA review of
biologics that are intended for the treatment of serious or life-threatening diseases or conditions. These programs do not
change the standards for approval but may help expedite the development or approval process. To be eligible for Fast Track
designation, new biological products must be intended to treat a serious or life-threatening condition and demonstrate the
potential to address an unmet medical need for the condition. Fast Track designation applies to the combination of the
product and the specific indication for which it is being studied. The sponsor of a new biologic may request the FDA to
designate the biologic as a Fast Track product at any time during the clinical development of the product. One benefit of
Fast Track designation, for example, is that the FDA may consider for review sections of the marketing application for a
product that has received Fast Track designation on a rolling basis before the complete application is submitted.
Under the FDA's breakthrough therapy program, products intended to treat a serious or life-threatening disease or
condition may be eligible for the benefits of the Fast Track program when preliminary clinical evidence demonstrates that
such product may have substantial improvement on one or more clinically significant endpoints over existing therapies.
Additionally, the FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and
interactive communications to help the sponsor design and conduct a development program as efficiently as possible.
Any product is eligible for priority review if it treats a serious or life-threatening disease or condition and has the
potential, if approved, to provide a significant improvement in safety and effectiveness. The FDA will attempt to direct
additional resources to the evaluation of an application for a new biological product designated for priority review in an
effort to facilitate the review. Under priority review, the FDA's goal is to review an application in six months once it is
filed, compared to ten months for a standard review.
Additionally, a product may be eligible for accelerated approval (also referred to as Subpart E approval).
Biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that
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provide meaningful therapeutic benefit over existing treatments, as demonstrated by a surrogate or intermediate clinical
endpoint, may receive accelerated approval. Specifically, this means that they may be approved on the basis of clinical data
establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or
on the basis of an effect on an intermediate clinical endpoint other than survival or irreversible morbidity. As a condition of
approval, the FDA may require that a sponsor of a biological product receiving accelerated approval perform adequate and
well-controlled post-marketing confirmatory clinical trials. In addition, the FDA currently requires as a condition for
accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial
launch of the product.
Pediatric information
Under the Pediatric Research Equity Act, a BLA or supplement to a BLA must contain data to assess the safety
and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and
administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals
for submission of pediatric data or full or partial waivers. A sponsor who is planning to submit a marketing application for
a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of
administration must submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or, if there
is no such meeting, as early as practicable before the initiation of the Phase 3 of Phase 2/3 study. The initial PSP must
include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design,
age groups, relevant endpoints, and statistical approach, or a justification for not including such detailed information, and
any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from
pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A
sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be
considered based on data collected from nonclinical studies, early phase clinical trials, and/or other clinical development
programs.
Post-Approval requirements
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and
continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of
adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product.
After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject
to prior FDA review and approval. There also are continuing user fee requirements, under which FDA assesses an annual
program fee for each product identified in an approved BLA. Biologic manufacturers and their subcontractors are required
to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for ongoing compliance with cGMP, which impose certain procedural
and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are
strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being
implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose
reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers
must continue to expend time, money and effort in the area of production and quality control to maintain compliance with
cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if
problems occur after the product reaches the market. Later discovery of previously unknown problems with a product,
including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with
regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-
market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions
under a REMS program. Other potential consequences include, among other things:
·
·
restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market
or product recalls;
fines, warning letters or holds on post-approval clinical studies;
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·
·
·
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or
revocation of existing product approvals;
product seizure or detention, or refusal of the FDA to permit the import or export of products; or
injunctions or the imposition of civil or criminal penalties.
The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make
only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with
the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the
promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity,
warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available
products for uses that are not described in the product's labeling and that differ from those tested by us and approved by the
FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the
best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their
choice of treatments. The FDA does, however, restrict manufacturer's communications on the subject of off-label use of
their products.
U.S. patent term restoration and marketing exclusivity
Depending upon the timing, duration and specifics of the FDA approval of the use of our product candidates,
some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent
Term Restoration Act of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent
restoration term of up to five years as compensation for patent term lost during product development and the FDA
regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of
14 years from the product's approval date. The patent term restoration period is generally one-half the time between the
effective date of an IND and the submission date of a BLA plus the time between the submission data of a BLA and the
approval of that application. Only one patent applicable to an approved biological product is eligible for the extension and
the application for the extension must be submitted prior to the expiration of the patent. In addition, a patent can only be
extended once and only for a single product. The United States Patent and Trademark Office, or U.S. PTO, in consultation
with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may
intend to apply for restoration of patent term for one of our patents, if and as applicable, to add patent life beyond its
current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the
relevant BLA.
A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted,
adds six months to existing exclusivity periods, including some regulatory exclusivity periods tied to patent terms. This six-
month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the
voluntary completion of a pediatric study in accordance with an FDA-issued "Written Request" for such a study.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act, or collectively, the Affordable Care Act, signed into law in 2010, includes a subtitle called the Biologics Price
Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological
products that are biosimilar to or interchangeable with an FDA-approved reference biological product. To date, a number of
biosimilars have been licensed under the BPCIA, and numerous biosimilars have been approved in Europe. The FDA has
issued several guidance documents outlining an approach to review and approval of biosimilars.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and
the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a
clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product
must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient
and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be
alternated or switched after one has been previously administered without increasing safety risks or
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risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and
often more complex, structures of biological products, as well as the processes by which such products are manufactured,
pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.
Under the BPCIA, a reference biological product is granted four and 12 year exclusivity periods from the time of
first licensure of the product. FDA will not accept an application for a biosimilar or interchangeable product based on the
reference biological product until four years after the date of first licensure of the reference product, and FDA will not
approve an application for a biosimilar or interchangeable product based on the reference biological product until twelve
years after the date of first licensure of the reference product. "First licensure" typically means the initial date the particular
product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a
new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological
product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor,
predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological
product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery
device or strength, or for a modification to the structure of the biological product that does not result in a change in safety,
purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a
previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new
product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved,
warrants exclusivity as the "first licensure" of a biological product is determined on a case-by-case basis with data
submitted by the sponsor.
The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, recent
government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA,
some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result,
the ultimate impact, implementation, and impact of the BPCIA is subject to significant uncertainty.
Other U.S. healthcare and Data Privacy laws and compliance requirements
In the United States, our current and future operations are subject to regulation by various federal, state and local
authorities in addition to the FDA, including but not limited to, the Centers for Medicare and Medicaid Services, or CMS,
other divisions of the U.S. Department of Health and Human Services, or HHS (such as the Office of Inspector General,
Office for Civil Rights and the Health Resources and Service Administration), the U.S. Department of Justice, or DOJ, and
individual U.S. Attorney offices within the DOJ, and state and local governments. For example, our clinical research, sales,
marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the
Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and
Accountability Act, or HIPAA, and similar state laws, each as amended, as applicable.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and
willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in
kind, to induce or in return for purchasing, leasing, ordering, arranging for or recommending the purchase, lease or order of
any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The
term remuneration has been interpreted broadly to include anything of value. The federal Anti-Kickback Statute has been
interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers,
and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting
some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve
remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to
scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular
applicable statutory exception or regulatory safe harbor _does not make the conduct per se illegal under the federal Anti-
Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative
review of all of its facts and circumstances. Our practices may not meet the criteria for protection under a statutory
exception or regulatory safe harbor.
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Additionally, the intent standard under the federal Anti-Kickback Statute was amended by the Affordable Care
Act, such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order
to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or
services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes
of the federal False Claims Act, or FCA (discussed below).
The federal false claims and civil monetary penalty laws, including the FCA, which can be enforced by private
citizens through civil qui tam actions, prohibit any person or entity from, among other things, knowingly presenting, or
causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal government, including
federal healthcare programs, such as Medicare and Medicaid, knowingly making, using, or causing to be made or used a
false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false
statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government. A claim includes
"any request or demand" for money or property presented to the U.S. government. For instance, historically,
pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product
to customers with the expectation that the customers would bill federal programs for the product. Other companies have
been prosecuted for causing false claims to be submitted because of the companies' marketing of the product for
unapproved, off-label, and thus generally non-reimbursable, uses.
HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully
executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses,
representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit
program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense, and
knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any
materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits,
items or services. Like the federal Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain
healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute
or specific intent to violate it in order to have committed a violation.
Also, many states have similar, and typically more prohibitive, fraud and abuse statutes or regulations that apply to
items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
We may be subject to data privacy and security regulations by both the federal government and the states in which
we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health
Act, or HITECH, and their implementing regulations, as well as the California Consumer Privacy Act of 2018 (the
"CCPA"), impose requirements relating to the privacy, security and transmission of individually identifiable health
information. Among other things, HITECH makes HIPAA's privacy and security standards directly applicable to business
associates, independent contractors, or agents of covered entities, which include certain healthcare providers, health plans,
and healthcare clearinghouses, that receive or obtain protected health information in connection with providing a service on
behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil
and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce HIPAA and seek attorneys' fees and costs associated with
pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in
specified circumstances. For example, in California 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. Many of the state laws differ from each other in significant
ways and are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating
compliance efforts.
We may develop products that, once approved, may be administered by a physician. Under currently applicable
U.S. law, certain products not usually self-administered (including injectable drugs) may be eligible for coverage under
Medicare through Medicare Part B. Medicare Part B is part of original Medicare, the federal health care program that
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provides health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain
pharmaceutical products, that are medically necessary to treat a beneficiary's health condition. As a condition of receiving
Medicare Part B reimbursement for a manufacturer's eligible drugs, the manufacturer is required to participate in other
government healthcare programs, including the Medicaid Drug Rebate Program and the 340B Drug Pricing Program. The
Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate
agreement with the Secretary of HHS as a condition for states to receive federal matching funds for the manufacturer's
outpatient drugs furnished to Medicaid patients. Under the 340B Drug Pricing Program, the manufacturer must extend
discounts to entities that participate in the program.
In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the
government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are
not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates
required by government healthcare programs or private payors.
Additionally, the federal Physician Payments Sunshine Act, or the Sunshine Act, within the Affordable Care Act,
and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for
which payment is available under Medicare, Medicaid or the Children's Health Insurance Program (with certain exceptions)
report annually to CMS information related to certain payments or other transfers of value made or distributed to
physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, or to
entities or individuals at the request of, or designated on behalf of, physicians and teaching hospitals and to report annually
certain ownership and investment interests held by physicians and their immediate family members. Effective January 1,
2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as
physician assistants and nurse practitioners. In addition, many states also govern the reporting of payments or other
transfers of value, many of which differ from each other in significant ways, are often not pre-empted, and may have a
more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.
In order to distribute products commercially, we must comply with state laws that require the registration of
manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states,
manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of
business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree
of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology
capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation
requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports
with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or
register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain
physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit
certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer
protection and unfair competition laws.
Ensuring business arrangements with third parties comply with applicable healthcare laws and regulations is a
costly endeavor. If our operations are found to be in violation of any of the federal and state healthcare laws described
above or any other current or future governmental regulations that apply to us, we may be subject to penalties, including
without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment,
exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private "qui tam"
actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into
government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future
earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other
agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations,
any of which could adversely affect our ability to operate our business and our results of operations.
Coverage, pricing and reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we
may obtain regulatory approval. In the United States and in foreign markets, sales of any products for which we
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receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide
coverage and establish adequate reimbursement levels for such products. In the United States, third-party payors include
federal and state healthcare programs, such as Medicare and Medicaid, private managed care providers, health insurers and
other organizations. Adequate coverage and reimbursement from third-party payors are critical to new product acceptance.
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. Third-
party payors decide which therapeutics they will pay for and establish reimbursement levels. 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
therapeutic is:
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a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
We cannot be sure that reimbursement will be available for any product that we commercialize and, if coverage
and reimbursement are available, what the level of reimbursement will be. Coverage may also be more limited than the
purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Reimbursement may
impact the demand for, or the price of, any product for which we obtain regulatory approval.
Third-party payors are increasingly challenging the price, examining the medical necessity, and reviewing the
cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy.
Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with
branded drugs and drugs administered under the supervision of a physician. We may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition
to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or cost-
effective. Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a
time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-
effectiveness data for the use of our product on a payor-by-payor basis, with no assurance that coverage and adequate
reimbursement will be obtained. A third-party payor's decision to provide coverage for a product does not imply that an
adequate reimbursement rate will be approved. Further, in the United States, no uniform policy of coverage and
reimbursement for products exists among third-party payors. 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. Therefore, one payor's determination to provide coverage for a product does not assure that other
payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our investment in product development. If reimbursement
is not available or is available only at limited levels, we may not be able to successfully commercialize any product
candidate that we successfully develop.
Different pricing and reimbursement schemes exist in other countries. In the European Union, governments
influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health
care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and
negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain
reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the
cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies
to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs
has become intense. As a result, increasingly high barriers are being erected to the entry of new
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products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on
pricing within a country.
The marketability of any product candidates for which we receive regulatory approval for commercial sale may
suffer if third-party payors fail to provide coverage and adequate reimbursement. In addition, emphasis on managed care,
the increasing influence of health maintenance organizations, and additional legislative changes in the United States has
increased, and we expect will continue to increase, the pressure on healthcare pricing. The downward pressure on the rise
in healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other
treatments, has become very intense. Coverage policies and third-party reimbursement rates may change at any time. Even
if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory
approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Healthcare reform
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and
regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval
of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates
for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is
significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,
improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of
these efforts and has been significantly affected by major legislative initiatives.
For example, the Affordable Care Act has substantially changed healthcare financing and delivery by both
governmental and private insurers. Among the Affordable Care Act provisions of importance to the pharmaceutical and
biotechnology industries, in addition to those otherwise described above, are the following:
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an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription
drugs and biologic agents apportioned among these entities according to their market share in some government
healthcare programs that began in 2011;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program,
retroactive to January 1, 2010, to 23.1% and 13% of the average manufacturer price for most branded and generic
drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer
Price, or AMP;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
(increased to 70%, the current discount owed as of January 1, 2019 pursuant to the Bipartisan Budget Act of 2018,
or BBA) point-of-sale discounts, off negotiated prices of applicable brand drugs to eligible beneficiaries during
their coverage gap period, as a condition for the manufacturers' outpatient drugs to be covered under Medicare
Part D;
extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled
in Medicaid managed care organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid
coverage to additional individuals beginning in 2014 and by adding new mandatory eligibility categories for
individuals with income at or below 133% of the federal poverty level, thereby potentially increasing
manufacturers' Medicaid rebate liability;
expansion of the entities eligible for discounts under the 340B Drug Discount Program;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative
clinical effectiveness research, along with funding for such research;
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expansion of healthcare fraud and abuse laws, including the FCA and the federal Anti-Kickback Statute, new
government investigative powers, and enhanced penalties for noncompliance;
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated for drugs that are inhaled, infused, instilled, implanted, or injected;
requirements to report certain financial arrangements with physicians and teaching hospitals;
a requirement to annually report certain information regarding drug samples that manufacturers and distributors
provide to physicians;
establishment of the Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service
delivery models to lower Medicare and Medicaid spending; and
a licensure framework for follow on biologic products.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to
certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future.
For example, various portions of the ACA are currently undergoing legal and constitutional challenges in the Fifth Circuit
Court and the United States Supreme Court, and the Trump Administration has issued various Executive Orders which
eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax,
penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or
medical devices. Additionally, Congress has introduced several pieces of legislation aimed at significantly revising or
repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. We cannot
predict what affect further changes to the ACA would have on our business.
Additionally, 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 years 2019 and 2020 contain further drug price control measures that could be enacted during the
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. Further, the Trump administration released a "Blueprint",
or plan, to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug
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. HHS has
already started the process of soliciting feedback on some of these measures and, at the same, is immediately implementing
others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans
the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule
codified CMS’s policy change that was effective January 1, 2019. While 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 administrative measures to control drug costs. Individual states in the United
States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical 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.
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. Under certain circumstances, eligible patients can
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seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access
program. 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.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or
authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or
candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business
in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to
comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all
transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of
internal accounting controls for international operations.
Government regulations outside the United States
In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions
governing, among other things, research and development, clinical trials, testing, manufacturing, safety, efficacy, labeling,
packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological
products as well as authorization and approval of our products.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory
authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries.
Certain countries outside of the United States have a similar process that requires the submission of a clinical trial
application much like the IND prior to the commencement of human clinical trials. In the European Union, for example, a
Clinical Trial Application, or CTA, must be submitted for each clinical trial to each country's national health authority and
an independent ethics committee, much like the FDA and an IRB, respectively. Once the CTA is approved in accordance
with a country's requirements, the corresponding clinical trial may proceed. The requirements and process governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the
clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical
principles that have their origin in the Declaration of Helsinki.
Regulation in the European Union
In the European Union, medicinal products are subject to extensive pre- and post-market regulation by regulatory
authorities at both the European Union and national levels. To obtain regulatory approval of an investigational product
under European Union regulatory systems, we must submit a Marketing Authorization Application, or MAA. The
application used to submit the BLA in the United States is similar to that required in the European Union, with the
exception of, among other things, region-specific document requirements. The European Union also provides opportunities
for market exclusivity. For example, in the European Union, upon receiving marketing authorization, innovative medicinal
products generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data
exclusivity prevents regulatory authorities in the European Union from referencing the innovator's data to assess a generic
or biosimilar application. During the additional two-year period of market exclusivity, a generic or biosimilar marketing
authorization can be submitted, and the innovator's data may be referenced, but no generic or biosimilar product can be
marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will be considered by
the European Union's regulatory authorities to be an innovative medicinal product, and products may not qualify for data
exclusivity.
Pediatric development in the European Union
In the European Union, companies developing a new medicinal product must agree upon a Pediatric Investigation
Plan, or PIP, with the EMA, and must conduct pediatric clinical trials in accordance with that PIP, unless a waiver applies,
(e.g., because the relevant disease or condition occurs only in adults). The marketing authorization application for the
product must include the results of pediatric clinical trials conducted in accordance with the PIP,
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unless a waiver applies, or a deferral has been granted, in which case the pediatric clinical trials must be completed at a
later date. Products that are granted a marketing authorization on the basis of the pediatric clinical trials conducted in
accordance with the PIP are eligible for a six month extension of the protection under a supplementary protection
certificate (if any is in effect at the time of approval) or, in the case of orphan medicinal products, a two year extension of
the orphan market exclusivity. This pediatric reward is subject to specific conditions and is not automatically available
when data in compliance with the PIP are developed and submitted.
Post-approval controls in the European Union
The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an
individual qualified person for pharmacovigilance, who is responsible for oversight of that system. Key obligations include
expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs.
All new MAAs must include a risk management plan, or RMP, describing the risk management system that the
company will put in place and documenting measures to prevent or minimize the risks associated with the product. The
regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such risk-
minimization measures or postauthorization obligations may include additional safety monitoring, more frequent
submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies. RMPs and PSURs are
routinely available to third parties requesting access, subject to limited redactions.
All advertising and promotional activities for the product must be consistent with the approved Summary of
Product Characteristics, or SmPC, and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of
prescription medicines is also prohibited in the European Union. Although general requirements for advertising and
promotion of medicinal products are established under EU directives, the details are governed by regulations in each
European Union Member State and can differ from one country to another.
European data collection
The collection and use of personal health data in the European Union is governed by the provisions of the Data
Protection Directive, and as of May 2018 the General Data Protection Regulation, or GDPR. This directive imposes more
stringent requirements relating to the consent of the individuals to whom the personal data relates, the information provided
to the individuals, notification of data processing obligations to the competent national data protection authorities, and the
security and confidentiality of the personal data. The Data Protection Directive and GDPR also impose strict rules on the
transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of the
Data Protection Directive, the GDPR, and the related national data protection laws of the European Union Member States
may result in fines and other administrative penalties. The GDPR introduces new data protection requirements in the
European Union and substantial fines for breaches of the data protection rules, specifically fines are increased to levels of
up to 4% total worldwide annual turnover or up to €20 million (whichever is higher). The GDPR regulations may impose
additional responsibility and liability in relation to personal data that we process and we may be required to put in place
additional mechanisms ensuring compliance with the new data protection rules. We are subject to the GDPR if we have a
presence or "establishment" in the European Union or E.U. (e.g. E.U. based subsidiary or operations), when conducting
clinical trials with E.U. based data subjects (whether the trials are conducted directly by us or through a clinical vendor or
partner) or offering approved products or services (if relevant) to E.U. based data subjects (regardless of whether involving
our E.U. based subsidiary or operations). The GDPR regulations may be onerous and adversely affect our business,
financial condition, results of operations, and prospects.
European Union drug marketing
Much like the Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to
physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order, or use of
medicinal products is also prohibited in the European Union. The provision of benefits or advantages to physicians is
governed by the national anti-bribery laws of European Union Member States. Infringement of these laws could result in
substantial fines and imprisonment.
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Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover,
agreements with physicians often must be the subject of prior notification and approval by the physician's employer, his or
her competent professional organization, and/or the regulatory authorities of the individual European Union Member
States. These requirements are provided in the national laws, industry codes, or professional codes of conduct, applicable in
the European Union Member States. Failure to comply with these requirements could result in reputational risk, public
reprimands, administrative penalties, fines, or imprisonment.
Brexit and the Regulatory Framework in the United Kingdom
On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union (commonly
referred to as “Brexit”). Thereafter, on March 29, 2017, the country formally notified the European Union of its intention to
withdraw pursuant to Article 50 of the Lisbon Treaty. The United Kingdom formally left the European Union on January
31, 2020. A transition period began on February 1, 2020, during which European Union pharmaceutical law remains
applicable to the United Kingdom. This transition period is due to end on December 31, 2020. Since the regulatory
framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical
products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived
from European Union directives and regulations, Brexit could materially impact the future regulatory regime which applies
to products and the approval of product candidates in the United Kingdom. It remains to be seen how, if at all, Brexit will
impact regulatory requirements for product candidates and products in the United Kingdom.
Rest of world regulation
For other countries outside the European Union and the United States, such as countries in Eastern Europe, Latin
America, Middle East, or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing, and
reimbursement vary from country to country. Additionally, the clinical trials must be conducted in accordance with GCP
requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration
of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things,
fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, or
criminal prosecution.
Additional regulation
In addition to the foregoing, local, state and federal laws regarding such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and hazardous substances, including the
Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act,
affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and
radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the
environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We
believe that we are in material compliance with applicable environmental laws and that continued compliance therewith
will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect
our future operations. We may incur significant costs to comply with such laws and regulations now or in the future.
Employees
As of March 6, 2020, we employed 13 full-time employees, including seven in research and development and six
in general and administrative and one part-time employee. Five of our employees hold M.D. or Ph.D. degrees. We have
never had a work stoppage, and none of our employees is represented by a labor organization or under any collective-
bargaining arrangements. We consider our employee relations to be good.
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Corporate Information
We were incorporated under the laws of the state of Delaware on in January 2017 as Pippin Pharmaceuticals, Inc.
On May 16, 2018, we changed our name to Akero Therapeutics, Inc. Our mailing address and executive offices are located
at 170 Harbor Way, 3rd Floor, South San Francisco, California 94080 and our telephone number at that address is
(650) 487-6488. We maintain an Internet website at the following address: www.akerotx.com. The information on our
website is not incorporated by reference in this Annual Report on Form 10-K or in any other filings we make with the
Securities and Exchange Commission, or SEC.
Available Information
We make available on or through our website certain reports and amendments to those reports that we file with or
furnish to the SEC in accordance with the Securities Exchange Act of 1934, as amended. These include our annual reports
on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or
through our website free of charge as soon as reasonably practicable after we electronically file the information with, or
furnish it to, the SEC.
A copy of our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the
Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are posted on our
website, www.akerotx.com, under “Investors – Corporate Governance.”
The SEC maintains an Internet website that contains reports, proxy and information statements, and other
information regarding us and other issuers that file electronically with the SEC. The SEC’s Internet website address is
http://www.sec.gov.
Item 1A. Risk Factors.
In evaluating the Company and our business, careful consideration should be given to the following risk factors,
in addition to the other information set forth in this Annual Report on Form 10-K and in other documents that we file with
the SEC. Investing in our common stock involves a high degree of risk. If any such risks or uncertainties actually occur, our
business, financial condition or operating results could differ materially from the plans, projections and other forward-
looking statements included in this Annual Report, including in the foregoing Business section and later in the section titled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report
and in our other public filings and public statements. The trading price of our common stock could decline due to any of
these risks, and as a result, our stockholders may lose all or part of their investment. The risks described below are not
intended to be exhaustive and are not the only risks facing the Company. New risk factors can emerge from time to time,
and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects,
financial condition or results of operations.
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Risks related to our business, financial position, and need for additional capital
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 years ended
December 31, 2019 and 2018, we reported net losses of $43.8 million and $81.7 million, respectively. 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 December 31, 2019, we had an accumulated deficit of $130.3 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;
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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;
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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 development 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.
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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 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 and clinical trials of AKR-001. We have not yet demonstrated our ability to
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 currently in 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,
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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 contractors’ and
collaborators’, ability to:
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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;
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· maintain our rights under our existing license agreement with Amgen Inc., or Amgen, and any similar agreements
we may enter into in the future;
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.
·
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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 December 31, 2019, we had $136.4 million of cash, cash equivalents and short-term marketable securities,
which includes proceeds from our initial public offering, or IPO, of $95.5 million, net of underwriting discounts,
commissions and offering expenses. Any 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. The
assumptions underlying any estimate may prove to be wrong, and we could utilize our available capital
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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:
·
·
·
·
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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;
the cost and timing of manufacturing our product candidate for use in clinical trials;
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 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
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that AKR-001 will receive regulatory approval or be 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.
Clinical development of AKR-001 prior to the ongoing Phase 2a clinical trial was conducted in patients with type
2 diabetes, or T2D. We believe that the data from clinical trials of AKR-001 in patients with T2D support development of
AKR-001 for the treatment of patients with nonalcoholic steatohepatitis, or NASH. We did not conduct any of the
development of AKR-001 related to clinical trials in patients with T2D, 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 ongoing and any future clinical trials
may not be able to support continued development of AKR-001 in NASH. To the extent any of the 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. On July 2, 2019, we announced the dosing of the first patient in our Phase 2a clinical study of
AKR-001, which resulted in a $2.5 million milestone obligation under the Amgen Agreement. As additional consideration
for the license, we are required to pay Amgen remaining aggregate milestone payments of up to $37.5 million upon the
achievement of specified remaining 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.
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 the identification and potential development of
additional pipeline programs, but our resources are limited, and those that we have are geared towards
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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. As a company, our only experience with clinical
trials is our ongoing Phase 2a clinical trial, and we have not yet completed 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 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. We may be unable to design and
execute a clinical trial to support regulatory approval for a NASH therapy. 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. 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
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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 the drug substance (active pharmaceutical ingredient, or API) for our product
candidate under GMP conditions as a company. While we received a supply of AKR-001 drug substance from Amgen that
we believe provides sufficient quantities to complete our ongoing Phase 2a clinical trial, we have contracted with a third-
party manufacturer, Boehringer Ingelheim Pharmaceuticals GmbH, to make new drug substance to support future clinical
trials and for commercial sale, if approved. To date, transfer of the former Amgen drug substance manufacturing process to
our third-party contract manufacturer has been completed successfully at pilot scale. Our contract manufacturer may not be
able to 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;
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 in-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 and qualified process needed for pivotal clinical trials and commercial launch. These problems include
failure to meet target production costs and yields, failure to meet product release specifications, 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 finished 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.
We have entered into a contract with a formulation development company, Coriolis Pharma Research GmbH, 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 Phase 3 clinical development. We also plan to begin
development of a pen-type autoinjector for the new drug product formulation in advance of commercialization. There is no
assurance that we will be successful in developing a new drug product
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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 December 31, 2019, we had thirteen 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 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 incur significant costs and expend significant time and effort, as a result of operating as a public company,
and our management is required to devote substantial time to compliance initiatives and corporate governance
practices.
We incur significant legal, accounting and other expenses, and expend significant time and effort by management
and other personnel, to comply with the rules applicable to us as a public company. We will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, which will require, among other things, that we file with
the Securities and Exchange Commission (SEC), annual, quarterly, and current reports with respect to our business and
financial condition. Effective internal control over financial reporting is necessary for us to provide reliable financial
reports in a timely manner. As a public company, we are subject Section 404, or Section 404, of the Sarbanes-Oxley Act of
2002, or Sarbanes-Oxley, and the rules and regulations of Nasdaq. These regulations impose significant requirements on
public companies, including requiring establishment and maintenance of effective disclosure and financial controls and
changes in corporate governance practices. As a public company, we are now required to comply with the SEC’s rules that
implement Section 404 of the Sarbanes-Oxley Act, and are therefore required to make a formal assessment of the
effectiveness of our internal control over financial reporting for that purpose, 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.
Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act)
was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank
Act that require the SEC to adopt additional rules and regulations in these areas, such as “say on pay” and proxy access.
Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and
up to five years from the pricing of our IPO. We intend to take advantage of this new legislation but cannot guarantee that
we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected
expenses. Stockholder activism, the current political environment, and the current high level of government intervention
and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional
compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to substantially increase our legal and financial
compliance costs and to make some activities more time-consuming and costly. If these requirements divert the
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attention of our management and personnel from other business concerns, they could have a material adverse effect on our
business, financial condition, and results of operations. The increased costs will decrease our net income or 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. For
example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and
officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We
cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The
impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our
board of directors, our board committees, or as executive officers.
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.
If we fail to comply with these rules, including maintaining proper and effective systems of internal controls
over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected, and we could
be subject to sanctions or other penalties that would harm our business.
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. 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 identify any material weakness or significant deficiency, 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.
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. 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.
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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. 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 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 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 current and future clinical trials is critical to our success.
We may encounter delays in enrolling or be unable to retain a sufficient number of patients to complete our Phase 2a
clinical trial and may encounter delays in enrolling or be unable to enroll or retain a sufficient number of patients in any of
our future clinical 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.
Factors that may generally affect patient enrollment include:
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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 could 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. We understand that a number of pharmaceutical companies, including AbbVie, Inc., Allergan
plc, AstraZeneca PLC/MedImmune LLC, Boehringer Ingelheim AG, Bristol-Myers Squibb Company, Inc., Eisai, Inc., Eli
Lilly and Company, 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., Cirius Therapeutics, Inc., CymaBay Therapeutics, Inc., 89bio,
Enanta Pharmaceuticals, Inc., Galectin Therapeutics Inc., Galmed Pharmaceuticals Ltd., Genfit SA, Gilead
Sciences, Inc., Intercept Pharmaceuticals, Inc., Inventiva Pharma SA, Madrigal Pharmaceuticals, Inc., MediciNova, Inc.,
Metacrine, Inc., NGM Biopharmaceuticals, Inc., North Sea Pharmaceuticals, Terns Pharmaceuticals, Inc. and Viking
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Therapeutics, 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 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 currently rely, and expect to continue to 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.
Business or economic disruptions or global health concerns could seriously harm our development efforts and
increase our costs and expenses.
Broad-based business or economic disruptions could adversely affect our ongoing or planned research and
development activities. For example, in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan,
China, and has since spread to a number of other countries, including the United States. To date, this outbreak has already
resulted in extended shutdowns of certain businesses in the Wuhan region and has had ripple effects to businesses around
the world. Global health concerns, such as coronavirus, could also result in social, economic, and labor instability in the
countries in which we or the third parties with whom we engage operate. We cannot presently predict the scope and
severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage,
including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business, were to
experience shutdowns or other business disruptions, our ability to conduct our business in the
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manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global
health concerns such as this one could disproportionately impact the hospitals and clinical sites in which we conduct any of
our clinical trials, which could have a material adverse effect on our business and our results of operation and financial
condition.
Changes in tax laws could adversely affect our business and financial condition.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons
involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax
laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent
years, many such changes have been made and changes are likely to continue to occur in the future. For example, 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, included 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 the modification or repeal of many business deductions and credits
(including a reduction to 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’’). Future changes in tax laws could have a material
adverse effect on our business, cash flow, financial condition or results of operations. We urge investors to consult with
their legal and tax advisers regarding the implications of potential changes in tax laws 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, 2019, we had federal and state net operating loss, or NOL, carryforwards of $51.1 million and
$10.2 million, respectively, and federal and state research and development tax credit carryforwards of $1.1 million and
$0.2 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 experienced ownership changes on March
24, 2017 and on June 7, 2018 as a result of pre-IPO financing activities and we may experience ownership changes again in
the future, some of which may be 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 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
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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, in December 2018, the FDA 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:
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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
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 will be completed or any future 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:
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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
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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;
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.
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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;
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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.
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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, other than our ongoing Phase 2a clinical trial, 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.
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. Since its enactment, there
have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we
expect there will be additional challenges and amendments to the ACA in the future. For example, various portions of the
ACA are currently undergoing legal and constitutional challenges in the Fifth Circuit Court and the United States Supreme
Court, and the Trump Administration has issued various Executive Orders which eliminated cost sharing subsidies and
various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on
individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Additionally,
Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. It is unclear
whether the ACA will be overturned, repealed, replaced, or further amended. We cannot predict what affect further changes
to the ACA would have on 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
2029. 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 years 2019 and 2020 contain further drug price control measures that could be enacted during the
budget process or in other future legislation, including, for example, measures to permit Medicare
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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 May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a
type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that
was effective January 1, 2019. 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 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.
Additionally, in December 2019, the FDA issued a draft guidance document outlining a potential pathway for
manufacturers to obtain an additional National Drug Code, or NDC, for an FDA-approved drug that was originally
intended to be marketed in a foreign country and that was authorized for sale in that foreign country. The regulatory and
market implications of the draft guidance are unknown at this time. Proponents of drug reimportation may attempt to pass
legislation that would directly allow reimportation under certain circumstances. Legislation or regulations allowing the
reimportation of drugs, if enacted, could decrease the price we receive for any products that we may develop and adversely
affect our future revenues and prospects for profitability.
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. Under certain circumstances, eligible patients can seek treatment
without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. 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
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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:
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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 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.
Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain
non-physician providers such as physician assistants and nurse practitioners; 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
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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.
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 went 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. While there is currently an exception for protected health
information that is subject to HIPAA and clinical trial regulations, as currently written, the CCPA may impact some of our
business activities. 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.
In the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical
trials, we may be subject to additional privacy restrictions. The collection, use, storage, disclosure, transfer, or other
processing of personal data regarding individuals in the EU, including personal health data, is subject to the EU General
Data Protection Regulation, or GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and
imposes numerous requirements on companies that process personal data, including requirements relating to processing
health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing
information to individuals regarding data processing activities, implementing safeguards to protect the security and
confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-
party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including
the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including
potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private
right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial
remedies, and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR includes
restrictions on cross-border data transfers. The GDPR may increase our responsibility and liability in relation to personal
data that we process where such processing is subject to the GDPR, and we may be
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required to put in place additional mechanisms to ensure compliance with the GDPR, including as implemented by
individual countries. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost
of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be
subject to fines and penalties, litigation, and reputational harm in connection with our European activities. Further, the
United Kingdom’s exit from the EU, often referred to as Brexit, has created uncertainty with regard to data protection
regulation in the United Kingdom. In particular, it is unclear how data transfers to and from the United Kingdom will be
regulated now that the United Kingdom has officially left the EU.
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 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 continue development of AKR-001, or submit INDs or similar
applications for any future product candidates, 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 additional preclinical
studies and clinical trials. 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 studies and clinical trials will enable any future clinical trials to begin under a proposed protocol.
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
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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.
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 (also referred to as 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 trials;
refuse to approve pending applications or supplements to applications filed by us;
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.
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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
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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.
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:
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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
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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.
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 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.
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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 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, 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, 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
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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 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, 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
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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 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:
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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.
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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. A number of U.S. patents directed to various aspects of AKR-
001 will expire in 2029; we currently anticipate that a composition of matter patent will be eligible for patent term
extension to 2034. 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 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
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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.
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.
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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 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.
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
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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 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.
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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.
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.
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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.
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:
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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.
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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 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, patents directed to our proprietary technologies and our product candidates 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. A
number of U.S. patents directed to various aspects of AKR-001 will expire in 2029; we currently anticipate that a
composition of matter patent will be eligible for patent term extension to 2034.
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, all of which could
have a material adverse effect on our business, financial condition and results of operations.
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Risks related to our reliance on third parties
We rely and will continue to 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 depend and will continue to 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 rely heavily on third parties over the course of our clinical trials, and, as a result, 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 are 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 conduct our future clinical trials are not 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 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
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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:
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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.
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
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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 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.
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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 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
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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, 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:
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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:
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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 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.
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Risks related to our common stock
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 is likely to be 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 Annual Report on Form 10-K, these factors include:
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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;
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;
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· market conditions in the pharmaceutical and biotechnology sectors; and
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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.
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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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:
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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.
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 the IPO (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 $250.0 million measured on the last business day of our
second fiscal quarter, or our annual revenues are more than $100.0 million during the most recently completed fiscal year
and our voting and non-voting common stock held by non-affiliates is more than $700.0 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 companies. 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
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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.
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.
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 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:
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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;
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
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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 which became effective upon the effectiveness of our registration
statement designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of
actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers, or employees.
Our second amended and restated bylaws that became effective upon the effectiveness of our registration
statement 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.
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.
Item 1B. Unresolved Staff Comments.
None
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Item 2. Properties.
We lease office space where our corporate headquarters are located, which consists of 3,691 square feet located at
170 Harbor Way, South San Francisco, California. Our lease expires on February 27, 2021, subject to automatic renewals
for successive thirty (30) day periods.
On February 14, 2020, the Company entered into a seven-year lease agreement for 6,647 square feet of office
space in South San Francisco, California. Under the agreement, the Company is required to make $2.3 million in minimum
payments during the lease term, which does not automatically renew. The Company anticipates that it will assume
occupancy in June 2020. We believe our current office space is sufficient to meet our office needs until the expiration of the
leases, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms, if
required.
Item 3. Legal Proceedings.
From time to time, we may be involved in lawsuits, claims, investigations and proceedings, consisting of
intellectual property, commercial, employment and other matters which arise in the ordinary course of business. While the
outcome of any such proceedings cannot be predicted with certainty, as of December 31, 2019, we were not party to any
legal proceedings that we would expect to have a material adverse impact on our financial position, results of operations or
cash flow.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
On June 20, 2019 our common stock began trading on the Nasdaq Global Select Market under the symbol “AKRO”.
Prior to that time, there was no public market for our common stock.
Stockholders
As of March 6, 2020, there were 11 stockholders of record of our common stock. The actual number of holders of our
common stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but
whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not
include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash
dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to
fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of
our board of directors and will depend upon a number of factors, including our results of operations, financial condition,
future prospects, contractual restrictions, restrictions imposed by applicable law and other factors that our board of
directors deems relevant.
Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by
reference to Item 12 of Part III of this Annual Report.
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Issuer Purchases of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this Annual Report.
Recent Sales of Unregistered Securities
Set forth below is information regarding stock options granted and exercised by us during the period covered by
this Annual Report on Form 10-K that were not registered under the Securities Act. Included is the consideration, if any, we
received for such shares and options and information relating to the section of the Securities Act or the Securities and
Exchange Commission, under which exemption from registration was claimed.
Grants and Exercises of Stock Options under Equity Plans
During the period covered by this Form 10-K, we granted options to purchase an aggregate of 1,111,826 shares of
common stock, with exercise prices ranging from $6.36 to $7.01 per share, to directors, employees and consultants
pursuant to our 2018 Stock Option and Grant Plan, as amended (the “2018 Plan”). In 2019, 655,710, shares of common
stock were issued for gross proceeds of $0.4 million upon the exercise of stock options pursuant to the 2018 Plan.
From January 1, 2019 to our initial public offering on June 19, 2019, 487,933 shares of common stock were issued
by us in connection with the exercise of certain employee stock options for a total of $0.3 million, to officers of the
Company who render bona fide services under a written agreement, none of which services are in connection with the offer
and sale of securities in a capital-raising transaction and are exempt from registration under Rule 701 promulgated under
Section 3(b) of the Securities Act.
No underwriters were involved in the foregoing issuance of securities. The issuances of the securities described
above were deemed to be exempt from registration pursuant to Section 4(a)(2) of the Securities Act or Rule 701
promulgated under the Securities Act as transactions pursuant to compensatory benefit plans. The shares of common stock
issued upon the exercise of options are deemed to be restricted securities. All recipients either received adequate
information about us or had access, through employment or other relationships, to such information.
Use of Proceeds from our Public Offering of Common Stock
On June 19, 2019, our Registration Statement on Form S-1, as amended (Registration No. 333-231747) was
declared effective by the SEC for our initial public offering. At the closing of the offering on June 24, 2019, we sold
6,612,500 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to
862,500 additional shares of common stock, at a public offering price of $16.00 per share. The aggregate net proceeds to
us from the public offering, inclusive of the over-allotment exercise and after underwriting discounts and offering expenses,
were approximately $95.5 million. J.P. Morgan, Jefferies and Evercore acted as joint book-running managers for the
offering. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or
persons owning 10% or more of any class of our equity securities or to any other affiliates.
Information related to use of proceeds from registered securities is incorporated herein by reference to the “Use of
Proceeds” section of our initial public offering as described in our final prospectus dated June 19, 2019 and filed with the
SEC on June 20, 2019 pursuant to Rule 424(b)(4) of the Securities Act. There has been no material change in the planned
use of proceeds as described in our final prospectus.
Item 6. Selected Financial Data.
Information required by this Item is not applicable as we are electing scaled disclosure requirements available to
Smaller Reporting Companies with respect to this Item.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our financial statements and accompanying footnotes
appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and
analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and
strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.
See “Special Note Regarding Forward-Looking Statements.” Because of many factors, including those factors set forth in
Part 1, Item 1A, “Risk Factors” in this Annual Report on Form 10-K, our actual results could differ materially from the
results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do
not assume any obligation to update any forward-looking statements, whether as a result of new information, future events
or otherwise, except as required by law.
Overview
We are a cardio-metabolic nonalcoholic steatohepatitis, or NASH, company dedicated to developing pioneering
medicines that restore metabolic balance and improve overall health for NASH patients. 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. Our lead product candidate, AKR-001, is an analog of fibroblast growth factor 21,
or FGF21, which 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. 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, coupled with clinical results from other
FGF21 analogs, demonstrate AKR-001's potential to serve as a cornerstone for the treatment of NASH. We are currently
conducting a Phase 2a clinical trial, the BALANCED study, which is evaluating AKR-001 in the treatment of NASH
patients. We expect to complete collection of data for the BALANCED main study week 12 primary endpoint, and report
top-line results related to reductions in liver fat, in the first quarter of 2020. Top-line results related to secondary endpoints,
including safety and tolerability as well as paired biopsies, will be reported in the second quarter of 2020. We also plan to
expand the BALANCED study to include an additional cohort of subjects with NASH who have compensated cirrhosis
(F4), Child-Pugh Class A, with study initiation expected in the second quarter of 2020.
We were incorporated in January 2017 and 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 and the initial
public offering of our common 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 $43.8 million and $81.7 million for the years ended December 31, 2019
and 2018, respectively. 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 December 31, 2019, we had an accumulated deficit of $130.3 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.
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
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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 December 31, 2019, we had cash, cash equivalents and short-term marketable securities of $136.4 million.
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;
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.
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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 enrolled in clinical trials;
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.
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;
the ability to raise 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 products; 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, tax, regulatory, compliance, and director and officer insurance costs, as well as investor and public
relations expenses associated with maintaining compliance with exchange listing and SEC requirements.
Other income (expense), net
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 was 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 liability
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 the then
current fair value of $7.4 million, to the carrying value of the Series A preferred stock.
Other income (expense), net
Other income (expense), net consists primarily of interest income earned on our cash, cash equivalents and short-
term marketable securities.
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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, 2019, we had U.S. federal and state net operating loss carryforwards of $51.1 million and $10.2 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 carryforwards include $48.8 million, which may be carried forward indefinitely As of
December 31, 2019, we also had U.S. federal and state research and development tax credit carryforwards of $1.1 million
and $0.2 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.
Results of operations
Comparison of the years ended December 31, 2019 and 2018
The following table summarizes our results of operations for the years ended December 31, 2019 and 2018:
Year Ended
December 31,
2019
2018
$ Change
% Change
(in thousands, except percentages)
$
$
37,046
8,605
45,651
(45,651)
—
—
1,896
1,896
(43,755)
$
$
11,882
1,896
13,778
(13,778)
(62,150)
(5,765)
(21)
(67,936)
(81,714)
$
$
25,164
6,709
31,873
(31,873)
62,150
5,765
1,917
69,832
37,959
212 %
354 %
231 %
(231)%
*
*
*
*
46 %
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net:
Change in fair value of preferred stock tranche
obligation
Change in fair value of anti-dilution right liability
Other income (expense), net
Total other income (expense), net
Net loss
* Percentage change is not meaningful
Research and development expenses
The following table summarizes our research and development expenses incurred during the years ended
December 31, 2019 and 2018:
Research and development expenses:
Direct AKR-001 program expenses
Personnel and related costs
Total research and development expenses
Year Ended
December 31,
2019
2018
$ Change
% Change
(in thousands, except percentages)
$
$
33,978
3,068
37,046
$
$
10,894
988
11,882
$
$
23,084
2,080
25,164
212 %
211 %
212 %
Research and development expenses were $37.0 million for the year ended December 31, 2019, compared to
$11.9 million for the year ended December 31, 2018. Direct costs for our AKR-001 program increased $23.1 million during
the 2019 period, with $15.3 million related to third-party contract manufacturing, $11.3 million related to external
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CRO costs associated with our ongoing Phase 2a clinical trial, $2.0 million related to other third-party development studies
and $2.5 million was a clinical milestone paid to Amgen. The 2019 period did not include $8.0 million in one-time cash
and non-cash charges associated with the Amgen license that were incurred during the 2018 period. Personnel and related
costs increased $2.1 million during the 2019 period related to the hiring of personnel in our research and development
department.
General and administrative expenses
General and administrative expenses were $8.6 million for the year ended December 31, 2019 compared to $1.9
million for the year ended December 31, 2018. Increased personnel costs accounted for $3.4 million of the increase,
primarily due to hiring additional personnel in our general and administrative functions related to our growth in becoming a
public company. Legal, accounting, other professional service fees and rent increased $3.3 million, also related to our
growth in becoming a public company.
Other income (expense), net
Other income (expense), net for the year ended December 31, 2019 is comprised primarily of $1.9 million of
interest income from our cash, cash equivalents and short-term marketable securities. We did not record interest income for
the year ended December 31, 2018.
Other expense for the year ended December 31, 2018 was $67.9 million, consisting of $62.2 million and $5.8
million in expenses 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
From our inception through December 31, 2019, 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 redeemable convertible preferred stock
and common stock in our initial public offering. Through December 31, 2019, we had received gross proceeds of $196.3
million from sales of our redeemable convertible preferred stock and the initial public offering of our common stock. As of
December 31, 2019, we had cash, cash equivalents and short-term marketable securities of $136.4 million. We have
invested our cash resources primarily in liquid money market accounts and corporate debt securities.
On June 24, 2019, we completed an IPO, at which time we issued 6,612,500 shares of common stock, including
the exercise in full by the underwriters of their option to purchase up to 862,500 additional shares of common stock, at a
public offering price of $16.00 per share. We received $98.4 million, net of underwriting discounts and commissions, but
before deducting offering costs payable by the Company, which were $2.9 million
The following table summarizes our cash flows for the periods indicated:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash flows from operating activities
Year Ended
December 31,
2019
2018
(in thousands)
$ (35,627) $ (4,625)
(5,000)
85,007
$ (11,152) $ 75,382
(71,513)
95,988
Cash used in operating activities for the year ended December 31, 2019 was $35.6 million, consisting of a net loss
of $43.8 million, which was partially offset by non-cash charges of $1.8 million for stock-based compensation
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expense and net cash provided by changes in our operating assets and liabilities of $6.5 million. The change in operating
assets and liabilities was primarily due to a reduction in accrued expenses and other current liabilities of $7.4 million, of
which $6.1 million was due to the timing of payments to our clinical research organization, or CRO, and contract
manufacturing organization, or CMO, vendors and $1.3 million was related to employee compensation. These amounts
were partially offset by a $0.5 million increase in prepaid expenses and other current assets and a $0.4 million decrease in
accounts payable, both related to the timing of prepayments and payments to our CROs, CMOs and insurance vendors.
Cash used in operating activities for the year ended December 31, 2018 was $4.6 million, 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.
Cash flows from investing activities
Cash used in investing activities for the year ended December 31, 2019 was $71.5 million, consisting of purchases
of short-term marketable securities.
Cash used in investing activities for the year ended December 31, 2018 was $5.0 million, consisting of licensing
fees related to the acquisition of technology under the Amgen Agreement.
Cash flows from financing activities
Cash provided by financing activities for the year ended December 31, 2019 was $96.0 million, consisting of
$98.4 million of IPO proceeds, net of underwriting discounts and commissions, offset by $2.9 million of related offering
costs and $0.5 million in proceeds from the exercise of stock options and the issuance of employee stock purchase shares.
Cash provided by financing activities for the year ended December 31, 2018 was $85.0 million, primarily
consisting of proceeds from our issuances of Series A and Series B preferred stock, net of issuance costs of $0.4 million.
Funding requirements
Our primary uses of capital are, and we expect will continue to be, research and development services,
compensation and related expenses and general overhead costs. We expect to continue to incur significant expenses and
operating losses for the foreseeable future. In addition, with the closing of our IPO, we expect to incur additional costs
associated with operating as a public company. We anticipate that our expenses will increase significantly in connection
with our ongoing activities. 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 AKR-001 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 or trials 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
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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 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 other commitments
The following table summarizes our contractual obligations as of December 31, 2019:
Total
Less than 1
year
Payments due by period
1 to 3
years
(in thousands)
3 to 5
years
More than 5
years
Third-party contract research and manufacturing commitments
(1)
Operating lease commitments (2)
Total contractual obligations
$ 4,358 $ 4,358 $
402
322
$ 4,760 $ 4,680 $
— $
80
80 $
— $
—
— $
—
—
—
(1) Amounts reflect the non-cancelable purchase commitments under agreements with our external CROs and CMOs,
which we have engaged to conduct clinical and nonclinical development activities and clinical trials and to
manufacture clinical development materials.
(2) Amounts reflect minimum payments due under our operating lease for office space in South San Francisco, California
and our use agreement for office space in Cambridge, Massachusetts. The lease in South San Francisco was originally
due to expire in April 2019 with the option to renew on a month to month basis thereafter. In
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March 2019, we amended our lease agreement associated with our office space in South San Francisco, California,
extended the term of the lease to March 2021 and expanded the square footage of the existing leased office space.
On February 14, 2020, the Company entered into a seven-year lease agreement for 6,647 square feet of office space in
South San Francisco, California. Under the agreement, the Company is required to make $2.3 million in minimum
payments during the lease term. Minimum payments due as a result of the new lease agreement are excluded from the
table above.
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 $37.5 million
upon the achievement of specified remaining 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. The first clinical milestone, in
the amount of $2.5 million, was paid to Amgen in July 2019.
Critical accounting policies and significant judgments and estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in
the United States or GAAP. 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, 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 elsewhere in this Annual Report, 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.
Cash and cash equivalents
We consider all highly liquid investments with original maturities of three months or less at the time of purchase
to be cash equivalents. Cash equivalents, which consist primarily of amounts invested in money market accounts, are stated
at fair value.
Short-term marketable securities
We invest in short-term marketable securities, primarily money market funds, commercial paper, U.S. treasury
securities and corporate debt securities. We classify our short-term marketable securities as available-for-sale securities and
report them at fair value in cash equivalents or short-term marketable securities on the consolidated balance sheets
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with related unrealized losses included within accumulated other comprehensive loss on the consolidated balance sheets.
The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which
is included in other income (expense), net on the consolidated statements of operations and comprehensive loss. Realized
gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are
included in other income (expense), net. The cost of securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in other income (expense), net.
We regularly review all of our investments for other-than-temporary declines in estimated fair value. Our review
includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number
of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether we have the intent to
sell the securities and whether it is more likely than not that we will be required to sell the securities before the recovery of
their amortized cost basis. When we determine that the decline in estimated fair value of an investment is below the
amortized cost basis and the decline is other-than-temporary, we reduce the carrying value of the security and record a loss
for the amount of such decline.
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
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 all stock-based awards granted to employees and nonemployees based on the 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, on a straight-line basis. We account for forfeitures as they occur. We estimate the
fair value of stock option grants using the Black-Scholes option pricing model. Prior to our initial public offering, the
exercise price for all stock options granted was at the estimated fair value of the underlying common stock as determined
on the date of grant by our board of directors.
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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. We completed our IPO in June 2019 and accordingly, we lack sufficient company-specific
historical and implied volatility information for our shares traded in the public markets. Therefore, we estimate our
expected share price volatility based on the historical volatility of publicly traded peer companies and expect to continue to
do so until such time as we have adequate historical data regarding the volatility of our own traded share price. The
expected term of our stock options has been determined utilizing the "simplified" method for awards that qualify as "plain-
vanilla" options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time
of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is
based on the fact that we have never paid cash dividends on our common stock and do not expect to pay any cash dividends
in the foreseeable future. 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.
Compensation expense for purchases under the Employee Stock Purchase Plan is recognized based on the fair
value of the common stock estimated based on the closing price of our common stock as reported on the date of offering,
less the purchase discount percentage provided for in the plan.
Stock-based compensation expense was $1.8 million and $0.1 million for the years ended December 31, 2019 and
2018, respectively. As of December 31, 2019, we had $15.6 million of unrecognized stock-based compensation costs,
which we expect to recognize over a weighted-average period of 3.08 years.
We have not recognized, and we do not expect to recognize in the near future, any tax benefit related to stock-
based compensation expense as a result of the full valuation allowance on our deferred tax assets including deferred tax
assets related to our net operating loss carryforwards.
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 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
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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 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.
Income taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated
financial statements or in our tax returns. Deferred tax assets and liabilities are determined based on the difference between
the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for
income taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the
extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of the
deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense.
Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering
prudent and feasible tax planning strategies.
We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-
step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to
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determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is
deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to
recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount
that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes
the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related
net interest and penalties.
Utilization of our NOL carryforwards may be subject to a substantial annual limitation due to ownership changes
that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986,
as amended, or the Code, and similar state provisions. These ownership change limitations may limit the amount of NOL
carryforwards and other tax attributes that can be utilized annually to offset future taxable income and tax, respectively. In
general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions
over a three-year period resulting in an ownership change of more than 50 percentage points (by value) of the outstanding
stock of a company by certain stockholders. Since our formation, we have raised capital through the issuance of capital
stock on several occasions, which separately or combined with the purchasing stockholders’ subsequent disposition of
those shares, resulted in such ownership changes on March 24, 2017 and on June 7, 2018, or could result in ownership
changes in the future.
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.
Recent accounting pronouncements
See Note 2 to our consolidated financial statements included in Part I, Item 8, “Notes to Consolidated Financial
Statements,” of this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our
business.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS
Act), and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging
growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act
of 1933 for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until
such time as those standards apply to private companies. Section 107 of the JOBS Act provides that we can elect to opt out
of the extended transition period at any time, which election is irrevocable. We have elected to avail ourselves of this
exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or
revised accounting standards as other public companies that are not emerging growth companies.
As an emerging growth company, we intend to rely upon other exemptions and reduced reporting requirements
under the JOBS Act, including without limitation (i) providing an auditor’s attestation report on our system of internal
controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any
requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated
financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the
earlier of (a) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (b) the last
day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (c) the date
on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on
which we are deemed to be a large accelerated filer under the rules of the SEC.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information required by this Item is not applicable as we are electing scaled disclosure requirements available to
Smaller Reporting Companies with respect to this Item.
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Item 8. Financial Statements and Supplementary Data
AKERO THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
Report of Independent Registered Accounting Firm
Audited Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
116
117
118
119
120
121
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Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Akero Therapeutics, Inc. and subsidiaries (the
"Company") as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss,
redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows, for each of the two years in the
period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period
ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Parsippany, NJ
March 16, 2020
We have served as the Company's auditor since 2018.
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Akero Therapeutics, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Short-term marketable securities
Prepaid expenses and other current assets
Total current assets
Other assets
Total assets
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity
(Deficit)
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Other liabilities
Total liabilities
December 31,
2019
2018
$
$
64,788 $
71,612
1,649
138,049
69
138,118 $
$
947 $
8,422
9,369
23
9,392
75,975
—
1,156
77,131
20
77,151
1,373
969
2,342
—
2,342
Commitments and contingencies (Note 12)
Redeemable convertible preferred stock (Series A and B), $0.0001 par value; no shares
authorized, issued and outstanding as of December 31, 2019; 64,730,410 shares
authorized, issued and outstanding as of December 31, 2018; aggregate liquidation
preference of $0 and $96,358 as of December 31, 2019 and December 31, 2018,
respectively
Stockholders’ equity (deficit):
Common stock, $0.0001 par value, 150,000,000 shares authorized as of
December 31, 2019 and 75,000,000 shares authorized as of December 31, 2018;
28,567,837 and 238,986 shares issued and outstanding as of December 31, 2019 and
December 31, 2018, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity (deficit)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
$
—
124,728
3
259,049
(6)
(130,320)
128,726
138,118 $
—
36,646
—
(86,565)
(49,919)
77,151
The accompanying notes are an integral part of these consolidated financial statements.
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Akero Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net:
Change in fair value of preferred stock tranche obligation
Change in fair value of anti-dilution right liability
Other income (expense), net
Total other income (expense), net
Net loss
Accretion of redeemable convertible preferred stock to redemption value
Net loss attributable to common stockholders
Net loss per share attributable to common stockholders - basic and diluted
Weighted-average number of shares used in computing net loss per share
attributable to common stockholders, basic and diluted
Net loss
Net unrealized loss on marketable securities
Comprehensive loss
Year ended December 31,
2018
2019
37,046 $
8,605
45,651
(45,651)
—
—
1,896
1,896
(43,755)
—
(43,755) $
(2.90) $
11,882
1,896
13,778
(13,778)
(62,150)
(5,765)
(21)
(67,936)
(81,714)
(520)
(82,234)
(795.28)
15,070,728
103,403
(43,755) $
(6)
(43,761) $
(81,714)
—
(81,714)
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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Akero Therapeutics, Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share amounts)
Redeemable Convertible Preferred
Stock
Common Stock
Treasury Stock
Additional
Paid-In-
Other
Total
Comprehensive Accumulated Stockholders’
Shares
5,000,000
—
$
Amount
Shares
Amount
Shares
Amount
Capital
Loss
Deficit
Equity
(Deficit)
5,000
—
226,400 $
(75,467)
—
—
— $
75,467
— $
—
— $
—
— $
—
(4,564) $
—
(4,564)
—
Balances at December 31, 2017
Repurchase of founders’ stock
Issuance of treasury stock as
founders’ stock
Issuance of Series A redeemable
convertible preferred stock, net of
issuance costs of $216
Issuance of Series A redeemable
convertible preferred stock in
connection with Second Tranche
Closing, net of issuance costs of $4
Settlement of future purchase
obligation
Issuance of Series A redeemable
convertible preferred stock, in
settlement of anti-dilution right
liability
Issuance of Series B redeemable
convertible preferred stock, net of
issuance costs of $229
Extinguishment of call option liability
Exercise of stock options
Stock based compensation expense
Accretion of redeemable convertible
preferred stock to redemption value
Net loss
Balances at December 31, 2018
Conversion of convertible preferred
stock into common stock upon
closing of public offering
Issuance of common stock upon
closing of initial public offering, net
of issuance costs and underwriting
fees of $10,348
Issuance of restricted common stock
upon early exercise of stock options
Exercise of stock options
Vesting of restricted common stock
Issuance of common stock pursuant to
ESPP purchases
Stock-based compensation expense
Net unrealized loss on marketable
securities
Net loss
Balances at December 31, 2019
—
—
75,467
—
(75,467)
17,653,333
8,787
—
—
—
25,000,001
—
24,996
32,750
—
—
—
—
—
—
3,205,128
7,404
—
—
—
13,871,948
—
—
—
—
—
64,730,410
45,271
—
—
—
520
—
124,728
—
—
12,586
—
—
—
238,986
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
36,750
8
121
(233)
—
36,646
(64,730,410)
(124,728)
21,056,136
2
—
—
124,726
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(287)
(81,714)
(86,565)
—
—
—
—
—
—
36,750
8
121
(520)
(81,714)
(49,919)
—
124,728
—
—
—
—
—
—
95,453
—
130
240
85
1,770
—
—
—
—
—
—
—
—
—
$
—
6,612,500
—
—
—
—
—
—
—
—
491,207
164,503
—
4,505
—
—
—
28,567,837 $
1
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
—
—
95,452
—
130
240
85
1,770
—
—
— $
—
—
— $
—
—
259,049 $
(6)
—
(6) $
—
(43,755)
(130,320) $
(6)
(43,755)
128,726
The accompanying notes are an integral part of these consolidated financial statements.
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Akero Therapeutics, Inc.
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
Shares issued in connection with Amgen Agreement
Acquisition of technology in connection with Amgen Agreement
Issuance date fair-value of anti-dilution liability
Change in fair value of preferred stock tranche liability
Change in fair value of anti-dilution right liability
Net amortization of premiums and discounts on short-term investments
Changes in operating assets and liabilities:
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other current liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term marketable securities
Acquisition of technology in connection with Amgen Agreement
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Series A redeemable convertible preferred stock
Proceeds from issuance of Series B redeemable convertible preferred stock
Proceeds from issuance of common stock in initial public offering, net of issuance costs and
underwriting fees
Proceeds from the early exercise of stock options in exchange for restricted common stock
Proceeds from the exercise of stock options
Proceeds from the issuance of common stock pursuant to employee stock purchase plan
purchases
Payment of initial public offering costs
Payment of preferred stock issuance costs
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash and restricted cash at the beginning of the year
Cash, cash equivalents and restricted cash at the end of the year
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
INFORMATION:
Conversion of convertible preferred stock into common stock
Net unrealizable loss on marketable securities
Accretion of redeemable convertible preferred stock to redemption value
Issuance date fair value of preferred stock tranche obligation
Deferred offering costs included in accounts payable and accrued expenses and other current
liabilities
Shares issued in connection with Amgen Agreement
Settlement of future purchase obligation
Issuance of Series A redeemable convertible preferred stock in settlement of anti dilution
right liability
Extinguishment of call option liability
$
$
$
$
$
$
$
$
$
$
Year ended December 31,
2018
2019
$
(43,755) $
(81,714)
1,770
—
—
—
—
—
(104)
(507)
(426)
7,395
(35,627)
(71,513)
—
(71,513)
—
—
95,452
321
130
85
—
—
95,988
(11,152)
76,000
64,848 $
124,728 $
(6) $
— $
— $
— $
— $
— $
— $
— $
121
1,353
5,000
1,639
62,150
5,765
—
(1,059)
1,313
807
(4,625)
—
(5,000)
(5,000)
40,000
45,500
—
—
8
—
(52)
(449)
85,007
75,382
618
76,000
—
—
520
7,350
309
1,353
32,750
7,404
36,750
The accompanying notes are an integral part of these consolidated financial statements.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
1. Nature of the business and basis of presentation
Akero Therapeutics, Inc., together with its wholly owned subsidiary Akero Securities Corporation, (“Akero” or
the “Company”) is a clinical-stage biotechnology company dedicated to developing pioneering medicines that restore
metabolic balance and improve overall health for patients with nonalcoholic steatohepatitis, or NASH. 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. Our lead product candidate is AKR‑001, an analog of fibroblast
growth factor 21 (“FGF21”). We are currently conducting a Phase 2a clinical trial, the BALANCED study, which is
evaluating AKR-001 in the treatment of NASH patients.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology
industry, including, but not limited to, ability to secure additional capital to fund operations, completion and success of
clinical testing, compliance with governmental regulations, development by competitors of new technological innovations,
dependence on key personnel and protection of proprietary technology. AKR‑001 will require extensive clinical testing
prior to regulatory approval and commercialization. These efforts require significant amounts of additional capital,
adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug
development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product
sales.
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) and include the accounts of the Company after elimination
of all intercompany accounts and transactions. All adjustments necessary for the fair presentation of the Company’s
consolidated financial statements for the periods have been reflected.
Initial public offering
On June 24, 2019, Akero completed its initial public offering or IPO at which time the Company issued 6,612,500
shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 862,500
additional shares of common stock, at a public offering price of $16.00 per share. The Company received $98,394, net of
underwriting discounts and commissions, but before deducting offering costs payable by the Company, which were $2,942.
Upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock converted
into 21,056,136 shares of common stock (see Note 6). In connection with the completion of its IPO in June 2019, the
Company amended its certificate of incorporation to authorize the issuance of up to 150,000,000 shares of $0.0001 par
value common stock and 10,000,000 shares of $0.0001 par value preferred stock designated as undesignated preferred
stock.
Reverse stock split
On June 6, 2019, the Company effected a one-for-3.07418 reverse stock split of the Company’s common stock.
All common stock, stock options and per share information presented have been adjusted to reflect the reverse stock split
on a retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock. The
ratio by which shares of preferred stock are convertible into shares of common stock was adjusted to reflect the effects of
the reverse stock split.
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Liquidity
Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
In accordance with Accounting Standards Update (“ASU”) No. 2014‑15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern (Subtopic 205‑40), the Company has evaluated whether there are certain
conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a
going concern within one year after the date that the consolidated financial statements are issued.
Since its inception, the Company has funded its operations primarily with proceeds from sales of redeemable
convertible preferred stock and most recently with proceeds from the IPO. The Company has incurred recurring losses
since its inception, including a net loss of $43,755 and $81,714 for the years ended December 31, 2019 and 2018,
respectively. In addition, as of December 31, 2019, the Company had an accumulated deficit of $130,320. The Company
expects to continue to generate operating losses for the foreseeable future. As of March 16, 2020, the issuance date of these
consolidated financial statements, the Company expects that its existing cash, cash equivalents and short-term marketable
securities of $136,400 as of December 31, 2019, will be sufficient to fund its operating expenses and capital expenditure
requirements for at least 12 months from the issuance date of these consolidated financial statements. The Company
expects that it will require additional funding beyond this time to complete the clinical development of AKR‑001,
commercialize AKR‑001, if it receives regulatory approval, and pursue in-licenses or acquisitions of other product
candidates.
If the Company is unable to obtain funding, the Company will be forced to delay, reduce or eliminate some or all
of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely
affect its business prospects, or the Company may be unable to continue operations. Although management continues to
pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms
acceptable to the Company to fund continuing operations, if at all.
2. Summary of significant accounting policies
Use of estimates
The preparation of the Company's consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses
during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements
include, but are not limited to, the accrual of research and development expenses and the valuations of common stock,
preferred stock tranche obligation, anti-dilution right liability and the valuation allowance for deferred tax assets. The
Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that
it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there
are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become
known. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the time of
purchase to be cash equivalents. Cash equivalents, which consist primarily of amounts invested in money market accounts,
are stated at fair value.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Short-term marketable securities
The Company invests in short-term marketable securities, primarily money market funds, commercial paper, U.S.
treasury securities and corporate debt securities. The Company classifies its short-term marketable securities as available-
for-sale securities and reports them at fair value in short-term marketable securities on the consolidated balance sheets with
related unrealized losses included within accumulated other comprehensive loss on the consolidated balance sheets. The
amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is
included in other income (expense), net on the consolidated statements of operations and comprehensive loss. Realized
gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are
included in other income (expense), net. The cost of securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in other income (expense), net.
The Company regularly reviews all its investments for other-than-temporary declines in estimated fair value. This
review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the
number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company
has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the
securities before the recovery of their amortized cost basis. When the Company determines that the decline in estimated fair
value of an investment is below the amortized cost basis and the decline is other-than-temporary, the carrying value of the
security will be reduced and a loss will be recorded for the amount of such decline.
Restricted cash
As of December 31, 2019 and 2018, the Company was required to maintain separate cash balances of $40 and
$20, respectively, to collateralize corporate credit cards with a bank, which are classified within other assets (non-current)
on the consolidated balance sheets.
As of December 31, 2019 the Company was required to maintain a separate cash balance of $20 for the benefit of
the landlord in connection with the Company’s office space lease in South San Francisco, California (the “Lease”), which
is classified within other assets (non-current) on the 2019 consolidated balance sheet (see Note 12). As of December 31,
2018, the Company was required to maintain a separate cash balance of $5 for the benefit of the landlord in connection
with the Lease, which is classified within other current assets on the 2018 consolidated balance sheet.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
cash, cash equivalents and short-term marketable securities. Periodically, the Company maintains deposits in accredited
financial institutions in excess of federally insured limits. The Company deposits its cash investments in financial
institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not
believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking
relationships. At December 31, 2019 and 2018, all of the Company's cash, cash equivalents and short-term
investments were held at one accredited financial institution.
Deferred offering costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly
associated with in-process preferred stock or common equity financings as deferred offering costs until such financings are
consummated. After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of
redeemable convertible preferred stock or in stockholders' equity (deficit) as a reduction of additional paid-in
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
capital generated as a result of such offering. Should an in-process equity financing be abandoned, the deferred offering
costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and
comprehensive loss. As of December 31, 2019, the Company did not have any deferred offering costs. As of December 31,
2018, the Company recorded deferred offering costs of $361, which are classified within prepaid expenses and other
current assets on the 2018 consolidated balance sheet.
Segment information
The Company manages its operations as a single operating segment for the purposes of assessing performance and
making operating decisions. The Company's singular focus is developing and commercializing transformative treatments
for serious metabolic diseases, with an initial focus on NASH.
Research and development costs
Research and development costs are expensed as incurred. Research and development expenses consist of costs
incurred to discover, research and develop drug candidates, including personnel expenses, stock-based compensation
expense, third-party license fees and external costs including fees paid to consultants and clinical research organizations
("CROs"), in connection with drug product manufacturing, nonclinical studies and clinical trials, and other related clinical
trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical
trial material management and statistical compilation and analysis. Non-refundable prepayments for goods or services that
will be used or rendered for future 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.
Costs incurred in obtaining technology licenses are charged immediately to research and development expense if
the technology licensed has not reached technological feasibility and has no alternative future uses.
Research contract costs and accruals
The Company has entered into various research and development and other agreements with commercial firms,
researchers and others for provisions of goods and services. These agreements are generally cancelable, and the related
costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing
research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress
of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs.
Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.
Actual results could differ materially from the Company's estimates.
Patent costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as
incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and
administrative expenses.
Stock-based compensation
The Company measures all stock-based awards granted to employees and nonemployees based on the fair value
on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is
generally the vesting period of the respective award, on a straight-line basis. The Company accounts for forfeitures as they
occur. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Prior to our initial public offering, the exercise price for all stock options granted was at the estimated fair value of the
underlying common stock as determined on the date of grant by the Company’s board of directors.
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
the Company's expected dividend yield. The Company went public in June 2019 and accordingly, lacks sufficient
company-specific historical and implied volatility information for its shares traded in the public markets. Therefore, it
estimates its expected share price volatility based on the historical volatility of publicly traded peer companies and expects
to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price.
The expected term of the Company's stock options has been determined utilizing the "simplified" method for awards that
qualify as "plain-vanilla" options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in
effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected
dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect
to pay any cash dividends in the foreseeable future. The fair value of each restricted common stock award is estimated on
the date of grant based on the fair value of the Company's common stock on that same date.
Compensation expense for purchases under the Employee Stock Purchase Plan is recognized based on the fair
value of the common stock estimated based on the closing price of our common stock as reported on the date of offering,
less the purchase discount percentage provided for in the plan.
The Company classifies stock-based compensation expense in its consolidated statement of operations and
comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award
recipient's service payments are classified.
Preferred stock tranche obligation
The Company classified the preferred stock tranche obligation for the future purchase, and option to purchase,
Series A Preferred Stock (see Note 6) as a liability on its consolidated balance sheets as the preferred stock tranche
obligation was a freestanding financial instrument that required the Company to transfer equity instruments upon future
closings of the Series A Preferred Stock. The preferred stock tranche obligation 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.
In November 2018, in connection with the Company's issuance and sale of Series A Preferred Stock, the Company
satisfied its obligation to issue additional shares under the Second Tranche Closing. In December 2018, in connection with
the Company's issuance and sale of Series B Preferred Stock, the Company terminated the option to purchase Series A
Preferred Stock provided under the 2018 Series A Agreement (see Notes 3 and 6).
Anti-dilution right liability
The Company classified the anti-dilution right under its license agreement with Amgen Inc. ("Amgen") (see
Note 9) as a derivative liability on its consolidated balance sheets as the anti-dilution right represented a freestanding
financial instrument that required the Company 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 anti-dilution right liability was recognized as a
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
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 right
was satisfied in the fourth quarter of 2018.
In November 2018, in connection with the Company’s issuance and sale of Series A Preferred Stock, the Company
satisfied its anti-dilution right under the Amgen Agreement (see Notes 6 and 9).
Classification and accretion of redeemable convertible preferred stock
The Company has classified its redeemable convertible preferred stock outside of stockholders' equity (deficit)
because the shares contain certain redemption features that are not solely within the control of the Company. Costs incurred
in connection with the issuance of redeemable convertible preferred stock, as well as the recognition of the preferred stock
tranche obligation, are recorded as a reduction of gross proceeds from issuance. The net carrying value of redeemable
convertible preferred stock were accreted to their redemption values through a charge to additional paid-in capital or
accumulated deficit over the period from date of issuance to the earliest date on which the holders could, at their option,
elect to redeem their shares. In December 2018, in connection with the Company's issuance and sale of Series B Preferred
Stock, the Company terminated the redemption rights associated with the Series A Preferred Stock that allowed the holders,
at their option, to elect to redeem their shares at a specified date. Accordingly, the Company ceased accreting the net
carrying value of the Series A redeemable convertible preferred stock to the redemption value.
Comprehensive loss
Comprehensive loss includes net loss as well as other changes in stockholders' equity (deficit) that result from
transactions and economic events other than those with stockholders. Our comprehensive loss is comprised of net loss and
changes in unrealized gains and losses on our short-term marketable securities.
Income taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the
consolidated financial statements or in the Company's tax returns. Deferred tax assets and liabilities are determined based
on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are
recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be
recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is
more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established
through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future
taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by
applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be
evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax
position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit
to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest
amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes
includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the
related net interest and penalties.
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Net loss per share
Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The Company follows the two-class method when computing net loss per share as the Company has issued shares
that meet the definition of participating securities. The two-class method determines net loss per share for each class of
common and participating securities according to dividends declared or accumulated and participation rights in
undistributed earnings. The two-class method requires income available to common stockholders for the period to be
allocated between common and participating securities based upon their respective rights to receive dividends as if all
income for the period had been distributed.
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to
common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss
attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate
undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common
stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average
number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this
calculation, unvested restricted common stock and redeemable convertible preferred stock are considered potential dilutive
common shares.
The Company’s redeemable convertible preferred stock contractually entitles the holders of such shares to
participate in dividends but does not contractually require the holders of such shares to participate in losses of the
Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, such
losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to
common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share
attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is
anti-dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2019
and 2018.
Emerging growth company
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as
amended (the “JOBS Act”). Under the JOBS Act, companies have extended transition periods available for complying with
new or revised accounting standards. The Company has elected this exemption to delay adopting new or revised accounting
standards until such time as those standards apply.
Recently issued accounting pronouncements not yet adopted
In February 2016, the FASB issued ASU No. 2016‑02, Leases (Topic 842), subsequently amended by ASU 2018-
10, ASU 2018-11, ASU 2019-01 and ASU 2019-10 (collectively, “ASU 2016‑02”), which sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The
new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the
principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine
whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the
lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than
12 months regardless of their classification on the consolidated balance sheets. Leases with a term of 12 months or less may
be accounted for similar to existing guidance for operating leases today. The Company intends to utilize the modified
retrospective approach to adopting ASU 2016‑02 effective January 1, 2020. Further, the Company intends to utilize the
package of available practical expedients which allows it to i) not reassess whether any expired or existing contracts are or
contain leases; ii) not reassess the lease classification for expired or existing leases; and iii) not reassess the treatment of
initial direct costs for any existing leases. The Company is in the
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
process of completing a review of its existing lease agreements under ASC 842 and does not expect that the impact of the
adoption of ASU 2016-02 on its consolidated balance sheets will be material and does not expect the adoption to have a
material impact on its results of operations or cash flows. In February 2020 the Company entered into a new office lease
agreement (see Note 15). The Company is in the process of determining the impact on its consolidated financial statements
of the adoption of ASU 2016-02 related to this new lease.
In August 2018, the FASB issued No. ASU 2018‑13, Fair Value Measurement (Topic 820)—Disclosure
Framework (“ASU 2018‑13”), which improves the disclosure requirements for fair value measurements. For non-public
entities, ASU 2018‑13 is effective for annual reporting periods beginning after December 15, 2019, including interim
periods within those fiscal years. Early adoption is permitted for any removed or modified disclosures. The Company is
currently evaluating the impact that the adoption of ASU 2018‑13 will have on its consolidated financial statements.
3. Fair value of financial assets and liabilities
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the
following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered
unobservable:
·
·
·
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for
similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or
liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to
determining the fair value of the assets or liabilities, including pricing models, discounted cash flow
methodologies and similar techniques.
The following table summarizes our financial assets measured at fair value on a recurring basis as of December
31, 2019:
Money market funds
Commercial paper
U.S. treasury securities
Corporate debt securities
Fair Value Measurements as of December 31, 2019 Using:
$
$
Total
49,948 $
49,114
6,048
20,143
125,253
$
Level 1
Level 2
Level 3
49,948
—
6,048
—
55,996
$
$
—
49,114
—
20,143
69,257
$
$
—
—
—
—
—
At December 31, 2018, the Company did not have any financial assets or liabilities measured at fair value on a
recurring basis. The carrying values of the Company’s prepaid expenses and other current assets, accounts payable and
accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
In November 2018, in connection with the Company’s issuance and sale of Series A Preferred Stock under the
Second Tranche Closing, the Company satisfied its obligation to issue additional shares at 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 fair value of $32,750, to the carrying value of the Series A Preferred Stock. In
November 2018, in connection with the Company’s Second Tranche Closing, the Company issued 3,205,128 shares of
Series A Preferred Stock to Amgen for a total value of $7,404 satisfying its anti‑dilution obligation under the Amgen
Agreement. The Company reclassified the carrying value of the anti‑dilution right liability, equal to the then current fair
value of $7,404, to the carrying value of the Series A Preferred Stock.
In December 2018, in connection with the Company’s issuance and sale of Series B Preferred Stock, the Company
terminated the option to purchase Series A Preferred Stock provided under the 2018 Series A Agreement. The Company
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 $36,750, equal to the then current fair
value, within additional paid‑in capital in the statement of stockholder’s equity (deficit).
During the years ended December 31, 2019 and December 31, 2018, there were no transfers between Level 1,
Level 2 and Level 3.
Valuation of cash equivalents and short-term investments
Commercial paper and corporate debt securities were valued by the Company using quoted prices in active
markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy.
Valuation of preferred stock tranche obligation
The fair value of the preferred stock tranche obligation recognized in connection with the Company’s issuance of
Series A Preferred Stock in June 2018 (see Note 6) was determined based on significant inputs not observable in the
market, which represented a Level 3 measurement within the fair value hierarchy. The fair value of the liability was
estimated based on results of a third‑party valuation performed in connection with the June 2018 Series A issuance. The
Company determined that this valuation represented the fair value of the liability at the reporting date. The liability
included (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 Closing.
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 model, 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 of the underlying
shares of Series A Preferred Stock, the remaining contractual term of the preferred stock tranche obligation, 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 the preferred stock as of each
remeasurement date. The Company determined the fair value per share of the underlying preferred stock by taking into
consideration the most recent sales of preferred stock, results obtained from third‑party
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
valuations and additional factors that are deemed relevant. The Company has historically been a private company and lack
company‑specific historical and implied volatility information of its stock. Therefore, the Company estimated 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. The Company has estimated a 0% dividend yield
based on the expected dividend yield and the fact that the Company has never paid or declared dividends.
Valuation of anti‑dilution right liability
The fair value of the anti‑dilution right liability recognized in connection with the anti‑dilution provisions set forth
in the Company’s license agreement with Amgen (see Note 9) was determined based on significant inputs not observable in
the market, which represented a Level 3 measurement within the fair value hierarchy.
The fair value of the anti‑dilution right was estimated using a probability weighted scenario which considered 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 the 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.
The following table presents a roll forward of the fair values of the Company’s preferred stock tranche obligation
and anti‑dilution right liability for the year ended December 31, 2018, for which fair value is determined using Level 3
inputs:
Preferred stock
tranche
obligation
Anti‑dilution
right
liability
Balance as of December 31, 2017
$
— $
Initial fair value of anti‑dilution right liability in connection with Amgen license
agreement
Initial fair value of preferred stock tranche obligation in connection with the
issuance of Series A Preferred Stock
Change in fair value
Settlement of future purchase obligation
Settlement of anti‑dilution right liability upon issuance of Series A preferred stock
Extinguishment of call option liability
Balance as of December 31, 2018
$
—
7,350
62,150
(32,750)
—
(36,750)
— $
—
1,639
—
5,765
—
(7,404)
—
—
4. Short-term marketable securities
The following is a summary of short-term marketable securities presented on the Company’s consolidated balance
sheet as of December 31, 2019:
Money market funds
Commercial paper
$
Amortized
Cost
49,948 $
49,114
December 31, 2019
Gross
unrealized
gains
Gross
unrealized
losses
$
—
—
$
—
—
Fair
value
49,948
49,114
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
U.S. treasury securities
Corporate debt securities
Cash and cash equivalents
Short-term marketable securities
6,048
20,149
125,259
$
$
—
—
—
$
—
(6)
(6)
6,048
20,143
$ 125,253
$
53,641
71,612
$ 125,253
The Company did not have any short-term marketable securities as of December 31, 2018.
5. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
Accrued employee compensation and benefits
Accrued external research and development expenses
Accrued legal and professional fees
Other
December 31,
2019
1,606 $
6,361
370
85
8,422 $
$
$
2018
304
430
106
129
969
6. Redeemable convertible preferred stock
As of December 31, 2019 and 2018, 0 shares and 64,730,410 shares, respectively, of redeemable convertible
preferred stock were issued and outstanding and were classified outside of stockholders' equity (deficit) because the shares
contained redemption features that were not solely within the control of the Company.
Upon completion of the Company’s IPO on June 24, 2019, all outstanding shares of our Series A and Series B
redeemable convertible preferred stock (the “Preferred Stock”) were converted into 21,056,136 shares of common stock
and the related carrying value was reclassified to common stock and additional paid-in capital. Accordingly, there were no
shares of redeemable convertible preferred stock outstanding as of December 31, 2019.
In June 2018, the Company entered into a Series A Preferred Stock Agreement ("2018 Series A Agreement"),
which provided for a First Tranche Closing, Second Tranche Closing and a call option to purchase additional shares of
Series A Preferred Stock.
In June 2018, the Company completed its First Tranche Closing, and issued and sold 15,000,000 shares of
Series A Preferred Stock at a price of $1.00 ("2018 Series A Agreement Purchase Price") per share for aggregate proceeds
of $14,784, net of issuance costs of $216. Upon the execution of the Company's license agreement with Amgen (see
Note 9), the Company issued an additional 2,653,333 shares of Series A Preferred Stock to Amgen in June 2018 for a total
value of $1,353.
The Second Tranche Closing was contingent upon the achievement of the Second Tranche Closing Milestone
Event ("Milestone Event"), as reasonably determined by a majority of the Company's board of directors, prior to
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
December 31, 2019 or waiver of the Milestone Event through written elections by a majority of the purchasers of shares of
Series A Preferred Stock. Upon achievement or waiver of the Milestone Event, Amgen would be issued a number of
additional shares for no consideration provided that Amgen's total holdings equal ten percent (10%) of the total outstanding
and issued common stock of the Company on a fully diluted and as converted basis of the Second Tranche Closing.
Additionally, the 2018 Series A Agreement contained a call option such that, following the Second Tranche Closing, the
stockholders of Series A Preferred Stock have the right, but not the obligation, to purchase up to $20,000 of additional
shares of Series A Preferred Stock at any time prior to January 14, 2022 at a price equal to the 2018 Series A Agreement
Purchase Price.
The Company concluded that the rights to participate in the future issuance of Series A Preferred Stock met the
definition of a freestanding financial instrument that was required to be recognized as a liability at fair value as (i) the
instruments were legally detachable from the Series A Preferred Stock and (ii) required the Company to transfer equity
instruments upon future closings of the Series A Preferred Stock. Upon the First Tranche Closing, the Company recognized
a preferred stock tranche obligation of $7,350 with a corresponding reduction to the carrying value of the Series A
Preferred Stock.
Upon the First Tranche Closing in June 2018, the initial carrying value of the Series A Preferred Stock was
recorded at $8,787, equal to $15,000 of gross proceeds received by the Company and the fair value of $1,353 for the
issuance of shares to Amgen, reduced by accrued issuance costs of $216 and the fair value of the preferred stock tranche
obligation of $7,350.
Upon issuance of each tranche of Preferred Stock, the Company assessed the embedded conversion and
liquidation features of the securities and determined that such features did not require the Company to separately account
for these features. The Company also concluded that no beneficial conversion feature existed on the issuance date of each
tranche of Preferred Stock.
In November 2018, upon the waiver of the Milestone Event through written elections by a majority of the
shareholders of Series A Preferred Stock, the Company closed the second tranche of its Series A preferred financing
through the issuance and sale of an aggregate of 25,000,001 shares of Series A Preferred Stock, at an issuance price of
$1.00 per share, for proceeds of $25,000, before issuance costs of $4. In November 2018, in connection with the
Company's issuance and sale of Series A Preferred Stock, the Company satisfied its obligation to issue additional shares
under the Second Tranche Closing. Accordingly, the preferred stock tranche obligation associated with the future purchase
obligation was adjusted to fair value immediately prior to the issuance of the Series A Preferred Stock, and upon issuance
of the Series A Preferred Stock, the preferred stock tranche obligation associated with the future purchase obligation of
$32,750, equal to then current fair value, was reclassified to the carrying value of the Series A Preferred Stock.
In November 2018, pursuant to the terms of the Amgen Agreement, the Company issued an additional 3,205,128
shares of Series A Preferred Stock valued at $7,404 to Amgen upon completion of the Series A Second Tranche Closing,
satisfying its anti-dilution right under the Amgen Agreement.
In December 2018, the Company issued and sold 13,871,948 shares of Series B Preferred Stock, at an issuance
price of $3.28 per share, for proceeds of $45,500 before issuance costs of $229. In connection with the Company's issuance
and sale of Series B Preferred Stock, the Company terminated the option to purchase Series A Preferred Stock provided
under the 2018 Series A Agreement.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
As of December 31, 2018, redeemable convertible preferred stock consisted of the following:
Preferred
Preferred
stock
stock
issued and
authorized outstanding
50,858,462 50,858,462 $
13,871,948 13,871,948 $
64,730,410 64,730,410 $
Carrying
value
79,457 $
45,271 $
124,728 $
Series A Preferred Stock
Series B Preferred Stock
7. Stockholders’ equity (deficit)
Common stock
Liquidation
preference
50,858
45,500
96,358
Common stock
issuable upon
conversion
16,543,739
4,512,397
21,056,136
As of December 31, 2019 and 2018, the Company’s certificate of incorporation, as amended and restated,
authorized the Company to issue 150,000,000 shares and 75,000,000 shares of $0.0001 par value common stock,
respectively. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the
Company’s stockholders. The holders of common stock, voting exclusively and as a separate class, have the exclusive right
to vote for the election of directors of the Company. Common stockholders are entitled to receive dividends, as may be
declared by the board of directors. Through December 31, 2019, no cash dividends had been declared or paid.
On June 24, 2019, the Company completed its IPO at which time the Company issued 6,612,500 shares of
common stock, including the exercise in full by the underwriters of their option to purchase up to 862,500 additional shares
of common stock, at a public offering price of $16.00 per share. The Company received $98,394, net of underwriting
discounts and commissions, but before deducting offering costs payable by the Company, which were $2,942. Upon the
closing of the IPO, all outstanding shares of convertible preferred stock converted into 21,056,136 shares of common stock
(see Note 6). As of December 31, 2019 and December 31, 2018, there were 28,567,837 and 238,986 shares of common
stock issued and outstanding, respectively.
The following shares of common stock were reserved for issuance as follows:
Conversion of outstanding shares of preferred stock
Options outstanding under the 2018 Stock Option and Grant Plan
Options outstanding under the 2019 Stock Option and Incentive Plan
Options available for future grant
2019 Employee Stock Purchase Plan
Undesignated preferred stock
December 31,
2019
—
2,296,029
800,526
1,771,931
269,364
5,137,850
2018
21,056,136
1,839,913
—
1,219,461
—
24,115,510
As of December 31, 2019, the Company’s fourth amended and restated certificate of incorporation authorized the
Company to issue up to 10,000,000 shares of undesignated preferred stock, par value $0.0001 per share. There were no
undesignated preferred shares issued or outstanding as of December 31, 2019.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Restricted common stock
In March 2017, the Company issued an aggregate of 226,400 shares of restricted common stock under restricted
stock agreements with the founders. Pursuant to the terms of the agreements, the restricted common stock was initially
subject to a vesting schedule over a four-year period commencing in January 2017 and culminating in January 2021.
During the vesting period, the Company has the right to repurchase up to all unvested shares at the amount paid if the
relationship between the recipient and the Company ceases. Subject to the continued employment or other business
relationship with the Company, all of the restricted common stock becomes fully vested within four years of the date of
issuance.
In October 2017, 75,467 shares of restricted common stock were subject to repurchase by the Company when one
of the founders terminated his relationship with the Company. The Company repurchased the shares in March 2018 for an
immaterial amount and immediately reissued the shares to the remaining founders. In connection with the repurchase and
reissuance of the shares, the Company amended the restricted stock agreements with the remaining founders such that the
restricted common stock is now subject to a vesting schedule over a two-year period commencing in May 2018 and
culminating in May 2020.
The Company accounted for the acceleration of vesting under the amended restricted stock agreement as a
modification of the original awards and recognized the remaining unvested shares prospectively over the revised vesting
period. The grant date fair value of restricted stock vested during the years ended December 31, 2019 and 2018 was
insignificant.
In April, June and July 2019, the Company amended certain option grant agreements granted under the
Company’s 2018 Stock Option and Grant Plan to allow the holders the right to early exercise unvested options, subject to a
repurchase right held by the Company equal to the lesser of the original exercise price per share or the fair value of the
shares on the repurchase date. The unvested shares issued as a result of the early exercise are deemed restricted stock
pursuant to a restricted stock agreement and a vesting schedule identical to the vesting schedule of the original grant
agreement. The proceeds related to unvested restricted common stock are recorded as liabilities until the stock vests, at
which point they are reclassified to additional paid-in capital. Common shares issued for the early exercise of options are
included in issued and outstanding shares.
The following table summarizes restricted stock activity since December 31, 2017:
Unvested restricted common stock as of December 31, 2017
Shares vesting
Unvested restricted common stock as of December 31, 2018
Early exercise of unvested stock options
Shares vesting
Unvested restricted common stock as of December 31, 2019
Number of Shares
Grant-Date Fair
Value
226,400 $
(146,210)
80,190
491,207
(416,248)
155,149 $
—
—
—
0.65
0.65
0.65
As of December 31, 2019, there were 155,149 shares of unvested restricted common stock subject to repurchase,
consisting of 23,598 shares from unvested restricted common stock awards under restricted stock agreements with the
founders and 131,551 shares from the early exercise of stock options.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
8. Stock-based awards
2018 Stock option and grant plan
The Company’s 2018 Stock Option and Grant Plan (the “2018 Plan”) provided for the Company to grant incentive
stock options or nonqualified stock options, restricted stock awards and other stock-based awards to employees, directors
and consultants of the Company. The 2018 Plan was administered by the board of directors or, at the discretion of the board
of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at
the discretion of the board of directors, or its committee if so delegated.
The total number of shares of common stock that could have been issued under the 2018 Plan was 3,071,960
shares, of which 107,635 shares remained available for grant on June 18, 2019, the date that the Company’s 2019 Stock
Option and Incentive Plan (the “2019 Plan”) became effective. Upon the effectiveness of the 2019 Plan, the 107,635
remaining shares available under the 2018 Plan were transferred and became available for issuance under the 2019 Plan.
Shares of common stock underlying outstanding awards under the 2018 Plan that are forfeited, cancelled, held back upon
exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to
vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added to
the shares of common stock available for issuance under the 2019 Plan.
2019 Stock option and incentive plan
The 2019 Plan was adopted and approved by the Company’s board of directors in May 2019 and by the
Company’s stockholders in June 2019. The 2019 Plan became effective on June 18, 2019 and replaced the Company’s 2018
Plan on that date. The 2019 Plan allows the board of directors or the compensation committee of the board of directors to
make equity-based incentive awards to the Company’s officers, employees, directors or other key persons (including
consultants). The number of shares initially reserved for issuance under the 2019 Plan is 2,572,457, which includes the
107,635 shares transferred from the 2018 Plan, and shall be cumulatively increased on January 1, 2020 and each January 1
thereafter by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding
December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee
of the board of directors.
The 2019 Plan is administered by the board of directors or, at the discretion of the board of directors, by a
committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of
the board of directors, or its committee if so delegated, except that the exercise price per share of stock options may not be
less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may
not be greater than ten years. All incentive options granted to any person possessing more than 10% of the total combined
voting power of all classes of shares may not have an exercise price of less than 110% of the fair market value of the
common stock on the grant date. Stock options granted to employees, officers, members of the board of directors and
consultants will typically vest over a four-year period.
Shares that are expired, terminated, surrendered or canceled under the 2019 Plan without having been fully
exercised will be available for future awards.
2019 Employee stock purchase plan
The 2019 Employee Stock Purchase Plan (the “2019 ESPP”) was adopted and approved by the Company’s board
of directors in May 2019 and by the Company’s stockholders in June 2019. The 2019 ESPP became effective on June 18,
2019, at which time 273,869 shares were reserved for issuance. The 2019 ESPP provides that the number of shares
reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020 and
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
each January 1 thereafter through January 1, 2029, by the least of (i) 1% of the outstanding number of shares of the
Company’s common stock on the immediately preceding December 31, (ii) 410,803 shares or (iii) such number of shares as
determined by the compensation committee.
Stock option valuation
The assumptions that the Company used to determine the grant-date fair value of stock options granted to
employees, directors and consultants were as follows, presented on a weighted average basis:
Weighted average risk‑free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
Stock options
Year Ended December 31,
2019
2018
2.12 %
6.0
73.75 %
0 %
2.99 %
6.0
70.88 %
0 %
The following table summarizes the Company’s stock option activity since December 31, 2017:
Weighted-
Average
Exercise
Price per
Share
Weighted-
Average
remaining
contractual
term (years)
Number
of Options
Balance Outstanding, December 31, 2017
Options granted
Options exercised
Options cancelled
Balance Outstanding, December 31, 2018
Options granted
Options exercised
Balance Outstanding, December 31, 2019
Exercisable, December 31, 2019
Vested and expected to vest, December 31, 2019
— $
1,883,067
(12,586)
(30,568)
1,839,913
1,912,352
(655,710)
3,096,555 $
175,300 $
3,096,555 $
—
0.61
0.61
0.61
0.61
12.42
0.69
7.89
3.54
7.89
Aggregate
Intrinsic
Value
(000's)
—
— $
9.74
9.74
10,577
9.19 $
8.88 $
9.19 $
44,323
3,270
44,323
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the
stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than
the fair value of the Company’s common stock.
The weighted average grant-date fair value per share of stock options granted during the year ended December 31,
2019 was $8.34
Stock-based compensation
The Company recorded $1,770 in stock-based compensation expense for the year ended December 31, 2019, with
$485 classified as research and development expense and $1,285 classified as general and administrative expense in the
consolidated statements of operations and comprehensive loss. The Company recorded $121 in stock-based compensation
expense for the year ended December 31, 2018 , with $41 classified as research and development expense
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
and $80 classified as general and administrative expense in the consolidated statements of operations and comprehensive
loss.
As of December 31, 2019, total unrecognized compensation cost related to the unvested stock-based awards was
$15,584, which is expected to be recognized over a weighted average period of 3.08 years.
In April, June and July 2019, certain option holders early exercised options to purchase 491,207 shares of
common stock, at an average exercise price of $0.65 per share, for cash proceeds of $321 (See Note 7). Stock-based
compensation expense related to these options will continue to be recognized over the requisite service period of the
awards based on the grant-date fair value which was determined using the Black-Scholes option-pricing model.
9. Amgen license agreement
In June 2018, the Company entered into a license agreement (the “Amgen Agreement”) with Amgen pursuant to
which the Company was granted an exclusive license to certain patents and intellectual property related to a long-acting
FGF21 analog in order to commercially develop, manufacture, use and distribute FGF21 as a treatment for NASH and
other serious metabolic diseases. The Amgen Agreement provides the Company with exclusive global rights to the licensed
products and the right to grant sublicenses that cover AKR‑001 to third parties.
In exchange for these rights, the Company made in 2018 an upfront payment of $5,000 and issued 2,653,333
shares of Series A Preferred Stock with a fair value of $1,353 to Amgen. The total consideration transferred to Amgen
under the agreement of $6,353 is included within research and development expense in the consolidated statements of
operations and comprehensive loss for 2018. The Company accounted for the acquisition of technology as an asset
acquisition because it did not meet the definition of a business. The Company recorded the total consideration transferred to
Amgen as research and development expense in the consolidated statements of operations and comprehensive loss for 2018
because the acquired technology represented in-process research and development and had no alternative future use.
In addition, under the Amgen Agreement, Amgen was entitled to maintain a 10% ownership interest of the
outstanding shares of the Company’s common stock, on a fully diluted and converted basis, through the second closing of
the Company’s Series A Preferred Stock financing. The Company assessed the Amgen anti-dilution right and determined
that the right (i) met the definition of a freestanding financial instrument that was not indexed to the Company’s own stock
and (ii) met the definition of a derivative and did not qualify for equity classification. The anti-dilution right liability was
initially valued at $1,639 which the Company recorded as research and development expense in June 2018. Changes in the
fair value of the anti-dilution right liability continued to be recognized until the Company satisfied the obligation which
occurred in November 2018. The Company recognized expense of $5,765 within other expense in the consolidated
statements of operations and comprehensive loss for the year ended December 31, 2018, related to the change in fair value
of the anti-dilution right liability prior to its extinguishment in November 2018.
In November 2018, in connection with the second closing of the Company’s Series A Preferred Stock financing,
the Company issued 3,205,128 shares of Series A Preferred Stock to Amgen for a total value of $7,404 satisfying its anti-
dilution obligation under the Amgen Agreement. At the time, the Company reclassified the carrying value of the anti-
dilution right liability, equal to the then current fair value of $7,404, to the carrying value of the Series A Preferred Stock.
Under the Amgen Agreement, the Company made a milestone payment of $2,500 in connection with dosing the
first patient in our Phase 2a clinical trial and is obligated to make aggregate remaining milestone payments to Amgen of up
to $37,500 upon the achievement of specified clinical and regulatory milestones and aggregate milestone payments of up to
$75,000 upon the achievement of specified commercial milestones for all products licensed under the agreement.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Under the Amgen Agreement, the Company is obligated to pay Amgen tiered royalties ranging from a low to high
single-digit percentages on annual net sales of the licensed products, beginning on the first commercial sale of such
licensed products in each country and expiring on a country-by-country basis on the latest of (i) the expiration of the last
valid patent claim covering such licensed products in such country, (ii) the loss of regulatory exclusivity in such country,
and (iii) ten years after the first commercial sale of such licensed product in such country. The royalty payments are subject
to reduction under specified conditions set forth in the agreement.
The Company is solely responsible for all development, manufacturing, and commercial activities and costs of the
licensed products, including clinical studies or other tests necessary to support the use of a licensed product. The Company
is also responsible for costs related to the filing, prosecution and maintenance of the licensed patent rights.
The Amgen Agreement will remain in effect until the expiration of the royalty term in all countries for all licensed
products. The agreement may be terminated by either party with at least 90 days' notice in the event of material breach by
the other party that remains uncured for 90 days, by either party for insolvency or bankruptcy of the other party and
immediately by Amgen if the Company challenges the licensed patents. The Company may also terminate the agreement
with 90 days' written notice for discretionary reasons such as scientific, technical, regulatory or commercial issues, as
defined in the agreement.
During the year ended December 31, 2019, the Company recorded research and development expense of $2,500
related to the achievement of a clinical milestone, as specified in the agreement. During the year ended December 31, 2018,
the Company recorded research and development expense of $8,016 in connection with the Amgen Agreement, including
the upfront cash payment of $5,000, the fair value of $1,353 of shares of Series A Preferred Stock issued to Amgen, the fair
value of $1,639 for the issuance of the anti-dilution right liability and $24 of other research and development expenses.
10. Income taxes
During the years ended December 31, 2019 and 2018, the Company recorded no income tax benefits for the net
operating losses incurred or for the research and development tax credits generated in each period due to its uncertainty of
realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the
United States.
A summary of the Company’s current and deferred tax provision is as follows:
Current income tax provision:
Federal
State
Total current income tax provision
Deferred income tax benefit:
Federal
State
Total deferred income tax benefit
Change in deferred tax asset valuation allowance
Total provision for income taxes
138
Year ended December 31,
2019
2018
$
— $
24
24
(9,400)
688
(8,712)
(8,712)
$
24 $
—
—
—
(4,199)
(1,239)
(5,438)
(5,438)
—
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The $24 provision for income taxes for the year ended December 31, 2019 is classified within general and
administrative expense on the Consolidated Statements of Operations and Comprehensive Loss.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as
follows:
Federal statutory income tax rate
State income taxes, net of federal benefit
Research and development tax credits
Change in preferred stock tranche obligation
Change in deferred tax asset valuation allowance
Effect of Section 382 limitation
Effective income tax rate
Year Ended December 31,
2018
2019
21.0 %
(1.6)
1.9
-
(19.9)
(1.5)
(0.1)%
21.0 %
1.5
0.1
(16.0)
(6.6)
-
0.0 %
Net deferred tax assets as of December 31, 2019 and 2018 consisted of the following:
Deferred tax assets
Net operating loss carry forwards
Research and development tax credit carry forwards
License fees
Stock based compensation
Accruals, reserves and other
Total deferred tax assets
Deferred tax liabilities
Prepaid expenses
Total deferred tax liabilities
Net deferred tax assets
Valuation allowance
Total net deferred tax assets
December 31,
2019
2018
$
$
11,380 $
969
3,232
196
44
15,821
(309)
(309)
15,512
(15,512)
—
$
2,899
231
3,669
—
1
6,800
—
—
6,800
(6,800)
—
As of December 31, 2019, the Company had U.S. federal and state net operating loss carryforwards of $51,094
and $10,222, respectively, which may be available to offset future taxable income and begin to expire in 2037. The federal
net operating loss carryforwards include $48,757, which may be carried forward indefinitely. As of December 31, 2019, the
Company also had U.S. federal and state research and development tax credit carryforwards of $1,058 and $187,
respectively, which may be available to offset future tax liabilities and begin to expire in 2032. During the year ended
December 31, 2019, gross deferred tax assets, before valuation allowance, increased by $8,712, due primarily to the
operating loss incurred by the Company during that period.
Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit
carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code
of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could
occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset
future taxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from
transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than
50% over a three‑year period. The annual limitation is determined by multiplying the value of
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
the Company's stock at the time of such ownership change by the applicable long-term tax-exempt rate. Such limitations
may result in expiration of a portion of the NOL carryforwards before utilization. As of December 31, 2019, the Company
determined that ownership changes occurred on March 24, 2017 and June 7, 2018. As a result of the ownership changes,
approximately $2.2 million and $3.7 million of the NOLs will expire unutilized for federal and state purposes,
respectively. The ability of the Company to use its remaining NOL carryforwards may be further limited if the Company
experiences a Section 382 ownership change as a result of future changes in its stock ownership.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax
assets at each reporting period. In doing so, the Company has considered its history of cumulative net losses incurred and
its lack of commercialization of any products or generation of any revenue from product sales and has concluded that it is
more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation
allowance has been recorded against the net deferred tax assets as of December 31, 2019 and 2018.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2019 and 2018
related primarily to increases in net operating loss carryforwards and research and development tax credit carryforwards, as
follows:
Valuation allowance as of January 1,
Increases recorded to income tax provision
Decreases recorded as a benefit to income tax provision
Valuation allowance as of December 31,
$
$
2019
(6,800) $
—
(8,712)
(15,512) $
2018
(1,362)
—
(5,438)
(6,800)
As of December 31, 2019, the Company had gross unrecognized tax benefits of $237 which were derived during
the preceding twelve months, none of which if recognized, would reduce the effective tax rate in a future period, due to the
Company's full valuation allowance on U.S. net deferred tax assets. The Company’s policy is to record interest and
penalties related to income taxes as part of its income tax provision. As of December 31, 2019, the Company had not
accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s
consolidated statements of operations and comprehensive loss. For the year ended December 31, 2019, the Company will
file income tax returns in the U.S., California, Connecticut, Massachusetts, Maryland, New York, and Pennsylvania, as
prescribed by the tax laws of the jurisdictions in which it operates. The Company is subject to examination by federal and
state jurisdictions, where applicable. There are currently no pending tax examinations. The Company is open to future tax
examination under statute from 2017 to the present.
A reconciliation of the beginning and ending unrecognized tax benefits for the year ended December 31, 2019 is
as follows
Balance as of December 31, 2018
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Settlements
Lapse of statute of limitations
Balance as of December 31, 2019
140
$
$
2019
—
—
—
237
—
—
237
Table of Contents
Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
11. Net loss per share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows:
Numerator:
Net loss
Accretion of redeemable convertible preferred stock to redemption value
Net loss attributable to common stockholders, basic and diluted
Denominator:
Weighted average common shares outstanding, basic and diluted
Net loss per share attributable to common stockholders, basic and diluted
Year Ended December 31,
2018
2019
$
$
(43,755) $
—
(43,755) $
15,070,728
$
(2.90) $
(81,714)
(520)
(82,234)
103,403
(795.28)
The Company excluded 49,568 shares and 125,790 shares of restricted common stock, presented on a weighted
average basis, from the calculations of basic net loss per share attributable to common stockholders for the years ended
December 31, 2019 and 2018, respectively, because those shares had not vested.
The Company’s potentially dilutive securities, which include stock options, unvested restricted common stock and
redeemable convertible preferred stock, have been excluded from the computation of diluted net loss per share attributable
to common stockholders as the effect would be to reduce the net loss per share. Therefore, the weighted average number of
common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders
is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at
each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods
indicated because including them would have had an anti-dilutive effect:
Options to purchase common stock
Unvested restricted common stock
Redeemable convertible preferred stock (as converted to common stock)
12. Commitments and contingencies
Lease agreements
Year Ended December 31,
2019
2018
3,096,555
155,149
—
3,251,704
1,839,913
80,190
21,056,136
22,976,239
The Company entered into a use and occupancy agreement for office space in Cambridge, Massachusetts on
August 15, 2018, with Atlas Venture Life Science Advisors, LLC, a related party (See Note 13). The parties terminated the
agreement in September 2019.
In October 2018, the Company entered into a lease agreement for office space in South San Francisco, California.
In March 2019, the Company amended this lease agreement (the “First Amendment”) to extend the term of the lease and
expand the square footage of the existing leased office space. The First Amendment lease expires in March 2021. The
Company provided a security deposit of $20, which is included as a component of other assets (non-current) on the
Company’s consolidated balance sheets as of December 31, 2019 and 2018.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
In September 2019 the Company entered into an agreement to use office space in Cambridge, Massachusetts. The
agreement is for an initial six-month term with rolling six-month extensions.
The Company recognizes rent expense on a straight-line basis over the respective lease periods and has recorded
rent expense of $305 and $12 for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019,
total future minimum commitments due ender our leases are $401, of which $321 is due in 2020 and $80 is due in 2021.
Research and manufacturing commitments
The Company has entered into agreements with contract research organizations and contract manufacturing
organizations to provide services in connection with its nonclinical studies and clinical trials and to manufacture clinical
development materials. As of December 31, 2019, the Company had non-cancelable purchase commitments under these
agreements totaling $4,358.
Indemnification agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to
vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses
arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In
addition, the Company has entered into indemnification agreements with members of its board of directors and its
executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the
Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the
Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of
any indemnification claims and has not accrued any liabilities related to such obligations in its consolidated financial
statements as of December 31, 2019 or 2018.
Legal proceedings
The Company is not a party to any litigation and does not have contingency reserves established for any litigation
liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss
is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for
contingencies. The Company intends to expense as incurred the costs related to such legal proceedings if they should arise.
13. Related party transactions
Apple Tree Life Sciences, Inc.
During 2018, the Company issued 8,000,000 shares of Series A Preferred Stock and 880,568 shares of Series B
Preferred Stock to entities affiliated with Apple Tree Life Sciences, Inc. ("Apple Tree") and a principal of Apple Tree was
elected to the board of directors. The Company's founders, including the current Executive Vice President and Chief
Operating Officer and Chief Scientific Officer, were formerly employees of Apple Tree until April 2017. During the years
ended December 31, 2019 and 2018, the Company incurred fees for certain general and administrative services from Apple
Tree totaling $20 and $0, respectively. As of December 31, 2019 and 2018, the Company did not owe any amounts to
Apple Tree.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Atlas Venture Life Science Advisors, LLC
During 2018, the Company issued 10,666,667 shares of Series A Preferred Stock and 722,737 shares of Series B
Preferred Stock to entities affiliated with Atlas Venture ("Atlas") and a principal of Atlas was elected to the board of
directors.
During the years ended December 31, 2019 and 2018, the Company incurred fees for certain research and
development consulting services from Atlas totaling $0 and $23, respectively. In August 2018, the Company entered into a
use and occupancy agreement for office space in Cambridge, Massachusetts with Atlas (See Note 12). The parties
terminated the agreement in September of 2019. During the years ended December 31, 2019 and 2018, the Company
incurred fees under the use and occupancy agreement with Atlas totaling $22 and $8, respectively. As of December 31,
2019, the Company did not owe any amounts to Atlas. As of December 31, 2018, the Company owed $12 to Atlas, which
was included in accounts payable on the Company’s consolidated balance sheet.
Versant Venture Capital VI, L.P.
During 2018, the Company issued 10,666,667 shares of Series A Preferred Stock and 722,737 shares of Series B
Preferred Stock to entities affiliated with Versant Venture Capital VI, L.P. ("Versant") and a principal of Versant at that
time was elected to the board of directors. During the years ended December 31, 2019 and 2018, the Company incurred
fees for certain general and administrative services from Versant totaling $0 and $4, respectively. As of December 31, 2019
and 2018, the Company did not owe any amounts to Versant.
venBio Global Strategic Fund II, L.P.
During 2018, the Company issued 10,666,667 shares of Series A Preferred Stock and 722,737 shares of Series B
Preferred Stock to entities affiliated with venBio Global Strategic Fund II, L.P. ("venBio"). A principal of venBio served
on the Company’s board of directors from June 2018 to August 2019. During the years ended December 31, 2019 and
2018, the Company incurred fees for certain general and administrative services from venBio totaling $0 and $35,
respectively. As of December 31, 2019, the Company did not owe any amounts to venBio. As of December 31, 2018, the
Company owed $35 to venBio, which was included in accounts payable on the Company’s consolidated balance sheet.
14. Benefit plans
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code.
This plan covers all employees who meet minimum age and service requirements and allows participants to defer a portion
of their annual compensation on a pre‑tax basis. Matching contributions to the plan may be made at the discretion of the
Company’s board of directors. The Company did not make any matching contributions to the plan during the years ended
December 31, 2019 and 2018, respectively.
15. Subsequent events
The Company evaluated subsequent events through March 16, 2020, the date on which these financial statements
were issued.
On February 14, 2020, the Company entered into a seven-year lease agreement for 6,647 square feet of office
space in South San Francisco, California. Under the agreement, the Company is required to make $2.3 million in minimum
payments during the lease term. The Company anticipates that it will begin occupancy and commence the lease on or about
June 1, 2020.
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Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934, as amended, or Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and
communicated to management, including the principal executive officer (our Chief Executive Officer) and principal
financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure. In addition, the
design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is
required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act, as of December 31, 2019. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of December 31, 2019.
Remediation of Prior Material Weakness
A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control
over financial reporting such that it is reasonable possible that a material misstatement of the annual or interim consolidated
financial statements will not be prevented or detected on a timely basis. We previously identified and disclosed in our
Registration Statement on Form S-1 filed with the SEC on May 24, 2019, as well in our quarterly reports for June 30, 2019
and September 30, 2019, a material weakness related to a lack of segregation of duties associated with the design of our
internal controls.
During 2019, we implemented the following changes to our process to improve our internal controls over financial
reporting with respect to the segregation of duties as follows:
· We added finance personnel to the organization which has facilitated the proper segregation of duties in the
initiation of transactions, the recording of transactions, and the custody of assets. These personnel include a
Chief Financial Officer, a Controller and a Director of Financial Planning and Accounting;
· We implemented an accounting software system with the design and functionality to segregate incompatible
accounting duties; and
· We engaged a 3 party to assess and document the design of our internal controls over financial reporting
rd
including the evaluation of proper segregation of duties, and to identify and evaluate any weaknesses in our
information systems
These actions resulted in an improved internal control environment with enhanced segregation of duties that were
in place for a period of time to allow for our management to conclude, based on evidence obtained in validating the design
and implementation of these controls, that we have fully remediated this material weakness as of as of December 31, 2019.
Management’s Annual Report on Internal Control Over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding our internal
control over financial reporting or an attestation report of our independent registered accounting firm due to a transition
period established by rules of the SEC for newly public companies. Additionally, our independent registered accounting
firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to
Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act.
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Changes in Internal Control over Financial Reporting
We have described the changes that have had or are likely to have a material impact on internal control over
financial reporting in the above discussion “Remediation of Prior Material Weakness.”
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Except as set forth below, the information required by this item is incorporated by reference from our definitive
Proxy Statement to be filed with the SEC in connection with our 2020 Annual Meeting of Stockholders within 120 days
after the end of the fiscal year ended December 31, 2019.
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and
employees, including our principal executive officer and principal financial officer. The Code of Business Conduct and
Ethics is posted on our website at https://ir.akerotx.com/corporate-governance/governance-overview.
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or
waiver from, a provision of this Code of Business Conduct and Ethics by posting such information on our website, at the
address and location specified above and, to the extent required by the listing standards of The NASDAQ Global Select
Stock Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information.
Item 11. Executive Compensation.
The information called for by this item is incorporated by reference from our definitive Proxy Statement to be
filed with the SEC in connection with our 2020 Annual Meeting of Stockholders within 120 days after the end of the fiscal
year ended December 31, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information called for by this item is incorporated by reference from our definitive Proxy Statement to be
filed with the SEC in connection with our 2020 Annual Meeting of Stockholders within 120 days after the end of the fiscal
year ended December 31, 2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information called for by this item is incorporated by reference from our definitive Proxy Statement to be
filed with the SEC in connection with our 2020 Annual Meeting of Stockholders within 120 days after the end of the fiscal
year ended December 31, 2019.
Item 14. Principal Accounting Fees and Services
The information called for by this item is incorporated by reference from our definitive Proxy Statement to be
filed with the SEC in connection with our 2020 Annual Meeting of Stockholders within 120 days after the end of the fiscal
year ended December 31, 2019.
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Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1) The consolidated financial statements filed as part of this Annual Report on Form 10-K are listed in the
“Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.
2) No schedules are submitted because they are not applicable, not required or because information is
included in the consolidated financial statements or the notes thereto.
3) The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form
10‑K are listed in the Exhibit Index immediately preceding the signature page of this Annual Report on
Form 10‑K. The exhibits listed in the Exhibit Index are incorporated by reference herein.
Item 16. Form 10-K Summary
The Company has elected not to include summary information.
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Table of Contents
Item 6. Exhibits.
Exhibit
Number
3.1
3.2
4.1
4.2
EXHIBIT INDEX
Exhibit Description
Fourth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-38944) filed on June 24,
2019)
Second Amended and Restated Bylaws of the Registrant and the amendments thereto, as currently in
effect (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K (File
No. 001-38944) filed on June 24, 2019)
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s
Registration Statement on Form S-1/A (File No. 333-231747) filed on June 10, 2019)
Amended and Restated Investors' Rights Agreement among the Registrant and certain of its
stockholders, dated December 5, 2018 (incorporated by reference to Exhibit 4.2 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-231747) filed on May 24, 2019).
4.3*
Description of Securities
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
2018 Stock Option and Grant Plan, as amended, and form of award agreements thereunder
(incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (File
No. 333-231747) filed on May 24, 2019)
2019 Stock Option and Grant Plan, and form of award agreements thereunder. (incorporated by
reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-
231747) filed on June 10, 2019)
2019 Employee Stock Purchase Plan. (incorporated by reference to Exhibit 10.3 of the Registrant’s
Registration Statement on Form S-1/A (File No. 333-231747) filed on June 10, 2019)
2019 Senior Executive Cash Bonus Plan (incorporated by reference to Exhibit 10.5 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-231747) filed on May 24, 2019)
Form of Indemnification Agreement between the Registrant and each of its directors and executive
officers (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form
S-1 (File No. 333-231747) filed on May 24, 2019)
Form of Amended and Restated Employment Agreement for Executive Officers (incorporated by
reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-
231747) filed June 10, 2019)
Amended and Restated Employment Agreement for Andrew Cheng (incorporated by reference to
Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-231747) filed
June 10, 2019)
Amended and Restated Employment Agreement for William White (incorporated by reference to
Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-231747) filed on
June 10, 2019)
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Table of Contents
Exhibit
Number
10.9 **
10.10
Exclusive License Agreement, by and between the Registrant and Amgen Inc., dated June 7, 2018
(incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (File
No. 333-231747) filed on May 24, 2019)
Exhibit Description
Sublease Agreement between the Registrant and Trucode Gene Repair, Inc., dated October 23, 2018, as
amended by the First Amendment to Sublease Agreement, dated as of February 27, 2019 and the First
Amendment to Consent to Sublease Agreement dated as of March 12, 2019 (incorporated by reference
to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1 (File No. 333-231747) filed on
May 24, 2019)
10.11*
Amended and Restated Non-Employee Director Compensation Policy
10.12*
Office Lease between Gateway Center LP and the Registrant, dated as of February 14, 2020
21.1*
List of Subsidiaries of the Registrant
23.1*
Consent of Deloitte & Touche LLP, independent registered public accounting firm
24.1*
Power of Attorney (included on the signatures pages hereto)
31.1*
31.2*
32.1+
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
#
*
**
+
Indicates a management contract or any compensatory plan, contract or arrangement.
Filed herewith.
Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions.
The certifications furnished in Exhibit 32.1 hereto are deemed to be furnished with this Annual Report on Form 10-K
and will not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
except to the extent that the Registrant specifically incorporates it by reference.
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Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
Date: March 16, 2020
AKERO THERAPEUTICS, INC.
By:
/s/ ANDREW CHENG
Andrew Cheng, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Andrew Cheng, Jonathan Young,
and William White, and each of them, with full power of substitution and resubstitution and full power to act without the
other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the
name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to
this annual report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by
the following persons in the capacities indicated below and on the dates indicated:
Signature
Title
/s/ ANDREW CHENG
Andrew Cheng, M.D., Ph.D.
Chief Executive Officer, President
and Director (Principal Executive Officer)
/s/ WILLIAM WHITE
William White
/s/ KEVIN BITTERMAN
Kevin Bitterman, Ph.D.
/s/ SETH L. HARRISON
Seth L. Harrison, M.D.
/s/ JANE P. HENDERSON
Jane P. Henderson
/s/ MARK IWICKI
Mark Iwicki
/s/ GRAHAM WALMSLEY
Graham Walmsley, M.D., Ph.D
Executive Vice President, Chief Financial Officer
and Head of Corporate Development
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
149
Date
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
Description of the Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended+
Exhibit 4.3
The summary of the general terms and provisions of the registered securities of Akero Therapeutics, Inc.(“Akero,” “we,” or
“our”) set forth below does not purport to be complete and is subject to and qualified in its entirety by reference to our
Fourth Amended and Restated Certificate of Incorporation (our “certificate of incorporation”) and our Second Amended and
Restated By-laws (our “by-laws” and, together with our certificate of incorporation, our “Charter Documents”), each of
which is incorporated by reference as an exhibit to our most recent Annual Report on Form 10-K filed with the Securities
and Exchange Commission. We encourage you to read our Charter Documents and the applicable provisions of the General
Corporation Law of the State of Delaware (the “DGCL”) for additional information.
General
Our authorized capital stock consists of One Hundred Fifty Million (150,000,000) shares of common stock, par value
$0.0001 per share and Ten Million (10,000,000) shares of undesignated preferred stock, par value $0.0001 per share.
Common stock
The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the
stockholders. The holders of our common stock do not have any cumulative voting rights. Holders of our common stock are
entitled to receive ratably any dividends declared by our board of directors out of funds legally available for that purpose,
subject to any preferential dividend rights of any outstanding convertible preferred stock. Our common stock has no
preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.
In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in all
assets remaining after payment of all debts and other liabilities and any liquidation preference of any outstanding convertible
preferred stock.
Our common stock is listed on the Nasdaq Global Select Market under the trading symbol “AKRO.”
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.
Preferred stock
Our board of directors will have the authority, without further action by our stockholders, to issue up to 10,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights,
preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting, or the designation of, such series, any or all of which
may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power
of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon our
liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in
control of our company or other corporate action. No shares of convertible preferred stock are outstanding, and we have no
present plan to issue any shares of convertible preferred stock.
Registration rights
Certain holders of our common stock are entitled to rights with respect to the registration of these securities under the
Securities Act. These rights are provided under the terms of an amended and restated investors' rights agreement between us
and holders of our convertible preferred stock. The amended and restated investors' rights agreement includes demand
registration rights, short-form registration rights and piggyback registration rights. All fees, costs and expenses of
underwritten registrations under this agreement will be borne by us and all selling expenses, including underwriting
discounts and selling commissions, will be borne by the holders of the shares being registered.
Demand registration rights
Certain holders of our common stock are entitled to demand registration rights. Under the terms of the amended and restated
investors' rights agreement, we will be required, upon the written request of a majority of the holders of convertible preferred
stock, to file a registration statement and use best efforts to effect the registration of all or a portion of these shares for public
resale at an aggregate price of at least $10.0 million. We are required to effect only one registration pursuant to this provision
of the amended and restated investors' rights agreement.
Short-Form registration rights
Pursuant to the amended and restated investors' rights agreement, if we are eligible to file a registration statement on Form
S-3, upon the written request of at least 20% of these holders to sell registrable securities at an aggregate price of at least
$5.0 million, we will be required to use commercially reasonable efforts to effect a registration of such shares. We are
required to effect only one registration in any twelve-month period pursuant to this provision of the investors' rights
agreement. The right to have such shares registered on Form S-3 is further subject to other specified conditions and
limitations.
Piggyback registration rights
Pursuant to the amended and restated investors' rights agreement, if we register any of our securities either for our own
account or for the account of other security holders, the holders of these shares are entitled to include their shares in the
registration. Subject to certain exceptions contained in the amended and restated investors' rights agreement, we and the
underwriters may terminate or withdraw any registration initiated before the effective date of such registration in our sole
discretion.
Indemnification
Our amended and restated investors' rights agreement contains customary cross-indemnification provisions, under which we
are obligated to indemnify holders of registrable securities in the event of material misstatements or omissions in the
registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions
attributable to them.
Expiration of registration rights
The demand registration rights and short form registration rights granted under the investors' rights agreement will terminate
on the third anniversary of the completion of our initial public offering or at such time after this offering when the holders'
shares may be sold without restriction pursuant to Rule 144 within a three-month period.
Anti-Takeover effects of our certificate of incorporation and bylaws and Delaware law
Our certificate of incorporation and bylaws include a number of provisions that may have the effect of delaying, deferring or
preventing another party from acquiring control of us and encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts.
These provisions include the items described below.
Board composition and filling vacancies
Our certificate of incorporation provides for the division of our board of directors into three classes serving staggered three-
year terms, with one class being elected each year. Our certificate of incorporation also provides that directors may be
removed only for cause and then only by the affirmative vote of the holders of two-thirds or more of the shares then entitled
to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a
vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our
directors then in office even if less than a quorum. The classification of directors, together with the limitations on removal of
directors and treatment of vacancies, has the effect of making it more difficult for stockholders to change the composition of
our board of directors.
No written consent of stockholders
Our certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at
an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting. This
limit may lengthen the amount of time required to take stockholder actions and would prevent the amendment of our bylaws
or removal of directors by our stockholders without holding a meeting of stockholders.
Meetings of stockholders
Our certificate of incorporation and bylaws provide that only a majority of the members of our board of directors then in
office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be
considered or acted upon at a special meeting of stockholders. Our bylaws limit the business that may be conducted at an
annual meeting of stockholders to those matters properly brought before the meeting.
Advance notice requirements
Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of
candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures
provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at
which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less
than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. Our
bylaws specify the requirements as to form and content of all stockholders' notices. These requirements may preclude
stockholders from bringing matters before the stockholders at an annual or special meeting.
Amendment to certificate of incorporation and bylaws
Any amendment of our certificate of incorporation must first be approved by a majority of our board of directors, and if
required by law or our certificate of incorporation, must thereafter be approved by a majority of the outstanding shares
entitled to vote on the amendment and a majority of the outstanding shares of each class entitled to vote thereon as a class,
except that the amendment of the provisions relating to stockholder action, board composition, limitation of liability and
certificate of incorporation must be approved by not less than two-thirds of the outstanding shares entitled to vote on the
amendment, and not less than two-thirds of the outstanding shares of each class entitled to vote thereon as a class. Our
bylaws may be amended by the affirmative vote of a majority of the directors then in office, subject to any limitations set
forth in the bylaws; and may also be amended by the affirmative vote of a majority of the outstanding shares entitled to vote
on the amendment.
Undesignated preferred stock
Our certificate of incorporation provides for 10,000,000 authorized shares of preferred stock. The existence of authorized but
unissued shares of preferred stock may enable our board of directors to discourage an attempt to obtain control of us by
means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations,
our board of directors were to determine that a takeover proposal is not in the best interests of our stockholders, our board of
directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or
other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder
group. In this regard, our certificate of incorporation grants our board of directors broad power to establish the rights and
preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease
the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also
adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying,
deterring or preventing a change in control of us.
Choice of forum
Our bylaws provide that, unless we consent in writing to the selection of an alternative form, the Court of Chancery of the
State of Delaware (or, if the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware
or other state courts of the State of Delaware) will be the sole and exclusive forum for state law claims for (1) any derivative
action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty or other
wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (3) any action asserting a claim
against us, or any current or former director, officer, or other employee or stockholder, arising out of or pursuant to any
provision of the General Corporation Law of the State of Delaware or our certificate of incorporation or bylaws;
and (4) any action asserting a claim against us or any current or former director or officer or other employee governed by the
internal affairs doctrine. The choice of forum provision does not apply to any causes of action arising under the Exchange
Act or any other claim for which the federal courts have exclusive jurisdiction. Our bylaws also provides that any person or
entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and to
have consented to this choice of forum provision. It is possible that a court of law could rule that the choice of forum
provision contained in our bylaws is inapplicable or unenforceable if it is challenged in a proceeding or otherwise.
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.
Section 203 of the Delaware general corporation law
Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation
Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with
an "interested stockholder" for a three-year period following the time that this stockholder becomes an interested
stockholder, unless the business combination is approved in a prescribed manner. Under Section 203, a business combination
between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
(cid:0) before the stockholder became interested, our board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an interested stockholder;
(cid:0) upon consummation of the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of determining the voting
stock outstanding, shares owned by persons who are directors and also officers, and employee stock
plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or
(cid:0) at or after the time the stockholder became interested, the business combination was approved by our
board of directors and authorized at an annual or special meeting of the stockholders by the affirmative
vote of at least two-thirds of the outstanding voting stock which is not owned by the interested
stockholder.
Section 203 defines a business combination to include:
(cid:0) any merger or consolidation involving the corporation and the interested stockholder;
(cid:0) any sale, transfer, lease, pledge or other disposition involving the interested stockholder of 10% or more
of the assets of the corporation;
subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any
stock of the corporation to the interested stockholder;
(cid:0) subject to exceptions, any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation beneficially owned by the
interested stockholder; and
(cid:0) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity
or person.
AKERO THERAPEUTICS, INC.
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
Exhibit 10.11
The purpose of this Amended and Restated Non-Employee Director Compensation Policy of Akero Therapeutics,
Inc. (the “Company”), is to provide a total compensation package that enables the Company to attract and retain,
on a long-term basis, high-caliber directors who are not employees or officers of the Company or its subsidiaries.
In furtherance of the purpose stated above, the Company shall pay cash retainers to the members of its Board of
Directors (the “Board”) and the committees thereof as set forth below, such retainers to be (i) paid for the
directors’ general availability and participation in meetings and conference calls, (ii) paid quarterly in arrears and
(iii) pro-rated based on the number of actual days served by the director on the Board or applicable committee
during such calendar quarter or year.
Cash Retainers
Annual Retainer for Board Membership:
Annual Retainer for Non-Executive Chair of the Board:
Annual Committee Chair Compensation:
Audit Committee Chair:
Compensation Committee Chair:
Nominating and Corporate Governance Committee Chair:
Annual Committee Member Compensation:
Audit Committee member:
Compensation Committee member:
Nominating and Corporate Governance Committee member:
$40,000
$70,000
$15,000
$10,000
$8,000
$7,500
$5,000
$4,000
Note: Chair and committee member retainers are in addition to retainers for members of the Board of Directors.
Each non-employee director may elect to receive all or a portion of her or his cash compensation in the form of
unrestricted shares having a grant date fair value equal to the amount (or portion thereof) of such
compensation. Any such election (i) shall be made (x) for any continuing non-employee director, before the start
of the calendar year with respect to any cash compensation for such calendar year and (y) for any new non-
employee director, within 30 days of her or his election to the Board, (ii) shall be irrevocable with respect to such
calendar year and (iii) shall
1
automatically apply to the cash compensation for each subsequent calendar year unless otherwise revoked prior to
the start of such calendar year.
Equity Retainers
Initial Award: An initial, one-time stock option award (the “Initial Award”) of 26,000 shares will be granted to
each new non-employee director upon his or her election to the Board of Directors, which shall vest in equal
monthly installments over three years, provided, however, that all vesting shall cease if the director resigns from
the Board of Directors or otherwise ceases to serve as a director of the Company. The Initial Award shall expire
ten years from the date of grant, and shall have a per share exercise price equal to the Fair Market Value (as
defined in the Company’s 2019 Stock Option and Incentive Plan) of the Company’s common stock on the date
of grant. This Initial Award applies only to non-employee directors who are first elected to the Board of
Directors subsequent to the Company’s initial public offering.
Annual Award: On each date of the Company’s Annual Meeting of Stockholders following the completion of
the Company’s initial public offering (the “Annual Meeting”), each continuing non-employee member of the
Board of Directors, other than a director receiving an Initial Award, will receive an annual stock option award
(the “Annual Award”) of 13,000 shares, which shall vest in full upon the earlier to occur of the first anniversary
of the date of grant or the date of the next Annual Meeting; provided, however, that all vesting shall cease if the
director resigns from the Board of Directors or otherwise ceases to serve as a director, unless the Board of
Directors determines that the circumstances warrant continuation of vesting. Such Annual Award shall expire
ten years from the date of grant, and shall have a per share exercise price equal to the Fair Market Value (as
defined in the Company’s 2019 Stock Option and Incentive Plan) of the Company’s common stock on the date
of grant.
Expenses
The Company will reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in
attending meetings of the Board or any Committee.
Adopted May 3, 2019; effective as of June 19, 2019.
As amended on November 8, 2019.
2
601 GATEWAY BOULEVARD
OFFICE LEASE
Exhibit 10.12
This Office Lease (the “Lease”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the
“Summary”), below, is made by and between 601 & 651 GATEWAY CENTER LP, a Delaware limited partnership (“Landlord”), and
AKERO THERAPEUTICS, INC., a Delaware corporation (“Tenant”).
SUMMARY OF BASIC LEASE INFORMATION
DESCRIPTION
February 14, 2020.
601 Gateway Boulevard, South San Francisco, California,
containing 215,832 rentable square feet of space.
6,647 rentable square feet of space located on the third (3 ) floor of
the Building and commonly known as Suite 350, as further set forth
in Exhibit A to the Office Lease.
rd
TERMS OF LEASE
1.
Date:
2.
Premises
(Article 1).
2.1
2.2
Building:
Premises:
3.
Lease Term
(Article 2).
3.1
Lease Term:
Seven (7) years.
3.2 Lease Commencement Date:
3.3 Lease Expiration Date:
The earlier to occur of (i) the date upon which Tenant first
commences to conduct business in the Premises, and (ii) the date
upon which the Premises are Ready for Occupancy, which Lease
Commencement Date is anticipated to be June 1, 2020.
If the Lease Commencement Date shall be the first day of a calendar
month, then the day immediately preceding the seventh (7 )
anniversary of the Lease Commencement Date; or if the Lease
Commencement Date shall be other than the first day of a calendar
month, then the last day of the month in which
th
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[Akero Therapeutics, Inc.]
4.
Base Rent (Article 3):
the seventh (7 ) anniversary of the Lease Commencement Date
occurs.
th
Period During Lease Term
Lease Year 1*
Lease Year 2
Lease Year 3
Lease Year 4
Lease Year 5
Lease Year 6
Lease Year 7
Annual
Base Rent
299,115.00
308,088.48
317,331.12
326,851.08
336,656.52
346,756.32
357,159.00
$
$
$
$
$
$
$
Monthly
Installment
of Base Rent
24,926.25
25,674.04
26,444.26
27,237.59
28,054.71
28,896.36
29,763.25
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Monthly Base
Rental Rate
Per Rentable
Square Foot
3.75
3.86
3.98
4.10
4.22
4.35
4.48
*Notwithstanding the foregoing Base Rent schedule or any contrary provision of this Lease, but subject to the terms of Section 3.2,
below, Tenant shall not be obligated to pay Base Rent with respect to the Premises during the first (1 ) full calendar month of the Lease
Term.
st
5.
6.
7.
8.
9.
Base Year
(Article 4):
Tenant’s Share
(Article 4):
Permitted Use
(Article 5):
Letter of Credit
(Article 21):
Address of Tenant
(Article 28):
Calendar year 2020.
3.0797%.
General office use.
$107,953.86
rd
Akero Therapeutics, Inc.
170 Harbor Way, 3 Floor
South San Francisco, CA 94080
Attention: Controller
(Prior to Lease Commencement Date)
and
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601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
10. Address of Landlord
(Article 28):
11. Broker(s)
(Section 29.24):
Akero Therapeutics, Inc.
The Premises
Attention: Controller
(After Lease Commencement Date)
See Article 28 of the Lease.
Landlord: Cushman & Wakefield
Tenant: CBRE
12. Tenant Improvement Allowance (Exhibit B):
None. Landlord shall construct the Tenant Improvements pursuant
to the terms of the Tenant Work Letter, attached to this Lease as
Exhibit B.
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601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
ARTICLE 1
PREMISES, BUILDING, PROJECT, AND COMMON AREAS
1.1 Premises, Building, Project and Common Areas.
1.1.1 The Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set
forth in Section 2.2 of the Summary (the “Premises”). The outline of the Premises is set forth in Exhibit A attached hereto and each
floor or floors of the Premises has the number of rentable square feet as set forth in Section 2.2 of the Summary. The parties hereto agree
that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a
material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept
and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the
purpose of Exhibit A is to show the approximate location of the Premises in the “Building,” as that term is defined in Section 1.1.2,
below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises,
the precise area thereof or the specific location of the “Common Areas,” as that term is defined in Section 1.1.3, below, or the elements
thereof or of the accessways to the Premises or the “Project,” as that term is defined in Section 1.1.2, below. Except as specifically set
forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B (the “Tenant Work Letter”), Tenant shall accept the
Premises in its presently existing “as-is” condition and Landlord shall not be obligated to provide or pay for any improvement work or
services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability
of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease and the Tenant Work
Letter. Notwithstanding anything in this Lease to the contrary, Landlord shall deliver possession of the Premises to Tenant in good,
vacant, broom clean condition, with all Building Systems serving the Premises in good working order, and otherwise in substantially the
same condition as of the date hereof, except with all the Tenant Improvements constructed in accordance with the Tenant Work Letter. If
it is determined that any portion of the Building Systems serving the Premises were not in good working order on the delivery date, then
Landlord shall not be liable to Tenant for any damages, but as Tenant’s sole remedy, Landlord, at no cost to Tenant (and not as an
Operating Expense), shall promptly commence such work or take such other action as may be necessary to place the same in good
working order, and shall thereafter diligently pursue the same to completion.
1.1.2 The Building and The Project. The Premises are a part of the building set forth in Section 2.1 of the
Summary (the “Building”). The Building is part of an office project known as “Gateway Center.” The term “Project,” as used in this
Lease, shall mean (i) the Building and the Common Areas, (ii) the land (which is improved with landscaping, subterranean parking
facilities and other improvements) upon which the Building and the Common Areas are located, (iii) those certain other office buildings
located in the vicinity of the Building and known as 611 and 651 Gateway Boulevard, respectively, and the land upon which such office
buildings are located, and (iv) at Landlord’s discretion, any additional real property, areas, land, buildings or other improvements added
thereto outside of the Project.
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601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
1.1.3 Common Areas. Tenant shall have the non-exclusive right to use in common with other tenants in the
Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided,
from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas are collectively referred to
herein as the “Common Areas”). The Common Areas shall consist of the “Project Common Areas” and the “Building Common Areas.”
The term “Project Common Areas,” as used in this Lease, shall mean the portion of the Project designated as such by Landlord, which
Project Common Areas may include, from time to time, in Landlord’s sole discretion, a conference center and other amenities. The term
“Building Common Areas,” as used in this Lease, shall mean the portions of the Common Areas located within the Building designated
as such by Landlord. The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord
and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time. Provided the
same do not unreasonably interfere with Tenant’s use of or access to the Premises or materially increase the obligations or decrease the
rights of Tenant under this Lease, Landlord reserves the right to close temporarily, make alterations or additions to, or change the location
of elements of the Project and the Common Areas.
1.2 Rentable Square Feet of Premises and Building. For purposes of this Lease, “rentable square feet” in the Premises
and the Building, as the case may be, shall be calculated pursuant to Landlord’s then current method for measuring rentable square
footage. Landlord and Tenant hereby stipulate and agree that the rentable area of the Premises is as set forth in Section 2.2 of the
Summary and the rentable square feet of the Building is as set forth in Section 2.1 of the Summary.
ARTICLE 2
LEASE TERM
The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “Lease Term”)
shall commence on the “Lease Commencement Date,” as that term is set forth in Section 3.2 of the Summary, and shall terminate on
the “Lease Expiration Date,” as that term is set forth in Section 3.3 of the Summary, unless this Lease is sooner terminated as
hereinafter provided. For purposes of this Lease, the term “Lease Year” shall mean each consecutive twelve (12) month period during
the Lease Term; provided that the first Lease Year shall include any partial month at the commencement of the Lease Term. At any time
during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit C, attached hereto, as a confirmation
only of the information set forth therein, which Tenant shall execute and return to Landlord within ten (10) days of receipt thereof;
provided, however, Tenant’s failure to execute and return such notice to Landlord within such time shall be conclusive upon Tenant that
the information set forth in such notice is as specified therein.
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601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
ARTICLE 3
BASE RENT
3.1 Base Rent. Commencing on the Lease Commencement Date, Tenant shall pay, without prior notice or demand, base
rent (“Base Rent”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the
Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction
whatsoever. The Base Rent for the first full month of the Lease Term which occurs after the expiration of any free rent period shall be
paid at the time of Tenant’s execution of this Lease. If any Rent payment date (including the Lease Commencement Date) falls on a day
of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent
for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month
or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Rent. All other payments or
adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same
basis. Until notice of some other designation is given to Tenant in accordance with the provisions of Article 28 of this Lease, Base Rent
and all other charges shall be paid by remittance to or for the order of 601 & 651 Gateway Center LP by one of the following methods:
(i) By ACH Transfer & Direct Deposit.
Bank of America
345 Montgomery Street, Concourse Level #1499
San Francisco, California 94101
ABA# 121-000-358
Account: Boston Properties L.P. Operating Account
Account Number: 14993-06215
Amount: [fill in appropriate dollar amount]
Reference: [fill in Tenant Name and Tenant Number]
or
(ii) By Mail.
601 & 651 Gateway Center LP
P.O. Box 742841
Los Angeles, California 90074-2841
or
(iii) By Overnight Delivery.
Bank of America Lock Box Services
Lockbox LAC-742841
2706 Media Center Drive
Los Angeles, California 90065.
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601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
3.2 Abated Base Rent. Provided that Tenant is not then in default of this Lease beyond and applicable notice and cure
period expressly set forth in this Lease, then during the first (1 ) full calendar month of the Lease Term (the “Rent Abatement Period”),
Tenant shall not be obligated to pay any Base Rent otherwise attributable to the Premises during such Rent Abatement Period (the “Rent
Abatement”). Landlord and Tenant acknowledge that the aggregate amount of the Rent Abatement equals $24,926.25. Tenant
acknowledges and agrees that the foregoing Rent Abatement has been granted to Tenant as additional consideration for entering into this
Lease, and for agreeing to pay the rental and performing the terms and conditions otherwise required under this Lease. If Tenant shall be
in default under this Lease, and shall fail to cure such default within the notice and cure period, if any, permitted for cure pursuant to
terms and conditions of the Lease, or if this Lease is terminated for any reason other than Landlord’s breach of this Lease, then the dollar
amount of the unapplied portion of the Rent Abatement as of the date of such default or termination, as the case may be, shall be
converted to a credit to be applied to the Base Rent applicable at the end of the Lease Term and Tenant shall immediately be obligated to
begin paying Base Rent for the Premises in full.
st
ARTICLE 4
ADDITIONAL RENT
4.1 General Terms. In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay (i) “Tenant’s
Share” of the annual “Building Direct Expenses,” as those terms are defined in Sections 4.2.10 and 4.2.2 of this Lease, respectively,
which are in excess of the amount of Building Direct Expenses applicable to the “Base Year,” as that term is defined in Section 4.2.1 of
this Lease, and (ii) Tenant’s Share of “Capital Expenses,” as that term is defined in Section 4.2.9, below, pursuant to Section 4.6 of this
Lease; provided, however, that in no event shall any decrease in Building Direct Expenses for any “Expense Year,” as that term is
defined in Section 4.2.6 of this Lease, below Building Direct Expenses for the Base Year entitle Tenant to any decrease in Base Rent or
any credit against sums due under this Lease. Such payments by Tenant, together with any and all other amounts payable by Tenant to
Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the “Additional Rent,” and the Base Rent and the
Additional Rent are herein collectively referred to as “Rent.” All amounts due under this Article 4 as Additional Rent shall be payable
for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the
expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the
expiration of the Lease Term. Landlord may upon expiration of the Lease Term deliver to Tenant an estimate of any Base Rent,
Additional Rent or other obligations outstanding, and Landlord may either deduct such amount from any funds otherwise payable to
Tenant upon expiration or require Tenant to pay such funds immediately. Landlord shall make necessary adjustments for differences
between actual and estimated Additional Rent in accordance with Section 4.4, below.
4.2 Definitions of Key Terms Relating to Additional Rent. As used in this Article 4, the following terms shall have the
meanings hereinafter set forth:
4.2.1 “Base Year” shall mean the period set forth in Section 5 of the Summary.
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those terms are defined in Sections 4.2.3 and 4.2.4, below, respectively.
4.2.2 “Building Direct Expenses” shall mean “Building Operating Expenses” and “Building Tax Expenses”, as
Section 4.2.7 below, allocated to the tenants of the Building pursuant to the terms of Section 4.3.1 below.
4.2.3 “Building Operating Expenses” shall mean the portion of “Operating Expenses,” as that term is defined in
Section 4.2.8 below, allocated to the tenants of the Building pursuant to the terms of Section 4.3.1 below.
4.2.4 “Building Tax Expenses” shall mean that portion of “Tax Expenses”, as that term is defined in
4.2.5 “Direct Expenses” shall mean “Operating Expenses” and “Tax Expenses.”
4.2.6 “Expense Year” shall mean each calendar year in which any portion of the Lease Term falls, through and
including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense
Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant’s Share of
Building Direct Expenses and Capital Expenses shall be equitably adjusted for any Expense Year involved in any such change.
4.2.7 “Operating Expenses” shall mean all expenses, costs and amounts of every kind and nature which
Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security,
repair, replacement, restoration or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing,
Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating,
maintaining, repairing, replacing, renovating and managing the utility systems, mechanical systems, sanitary, storm drainage systems,
communication systems and escalator and elevator systems, and the cost of supplies, tools, and equipment and maintenance and service
contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any
governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a government mandated
transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the
Project as reasonably determined by Landlord (including, without limitation, commercial general liability insurance, physical damage
insurance covering damage or other loss caused by fire, earthquake, flood and other water damage, explosion, vandalism and malicious
mischief, theft or other casualty, rental interruption insurance and such insurance as may be required by any lessor under any present or
future ground or underlying lease of the Building or Project or any holder of a mortgage, trust deed or other encumbrance now or
hereafter in force against the Building or Project or any portion thereof); (iv) the cost of landscaping, decorative lighting, and relamping,
the cost of maintaining fountains, sculptures, bridges and all supplies, tools, equipment and materials used in the operation, repair and
maintenance of the Project, or any portion thereof; (v) the cost of parking area repair, restoration, and maintenance, including, without
limitation, resurfacing, repainting, restriping and cleaning; (vi) fees, charges and other costs, including management fees (or amounts in
lieu thereof), consulting fees (including, without limitation, any consulting fees incurred in connection with the
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procurement of insurance), legal fees and accounting fees, of all contractors, engineers, consultants and all other persons engaged by
Landlord or otherwise incurred by or charged by Landlord in connection with the management, operation, administration, maintenance
and repair of the Building and the Project; (vii) payments under any equipment rental agreements or management agreements (including
the cost of any actual or charged management fee and the actual or charged rental of any management office space); (viii) wages, salaries
and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of
the Project (other than a person generally considered to be higher in rank than the position of a person, regardless of title, who supervises
property managers that manage the Project and other projects of Landlord and affiliates of Landlord); (ix) costs under any instrument
pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance and replacement of all systems and equipment and
components thereof of the Project; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings,
ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing;
(xii) amortization (including interest on the unamortized cost at an annual interest rate determined by Landlord over the reasonable useful
life of the item in question) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and
repair of the Project, or any portion thereof; (xiii) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed
on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services
which do not constitute “Tax Expenses” as that term is defined in Section 4.2.8, below; (xiv) [Intentionally Omitted]; (xv) payments
under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by
the Project or related to the use or operation of the Project; and (xvi) all costs of applying and reporting for the Project or any part thereof
to seek or maintain certification under the U.S. EPA’s Energy Star® rating system, the U.S. Green Building Council’s Leadership in
Energy and Environmental Design (LEED) rating system or a similar system or standard. Notwithstanding anything to the contrary in
this Lease, the following items shall be excluded from Operating Expenses:
Expenses;
(a) any items included in or expressly excluded in subparts (i), (iii) or (a)-(d) of Section 4.2.8.3 from, Tax
(b) except as permitted pursuant to items (xii) and (xiii), above, principal or interest on indebtedness, debt
amortization or ground rent paid by Landlord in connection with any mortgages, deeds of trust or other financing encumbrances, or
ground leases of the Building or the Project;
I capital improvements and repairs to the Building or the Project, and capital repairs, capital equipment, and
capital tool, and rental payments and other related expenses incurred in leasing air conditioning systems, elevators or other equipment
ordinarily considered to be of a capital nature, except (i) equipment which is used in providing janitorial or similar services and which is
not affixed to the Building, and (ii) equipment rented to remedy or ameliorate an emergency condition (provided this exclusion I shall not
be deemed to limit or otherwise affect Capital Expenses allowed under this Lease);
financings, refinancings or sales of any interest in Landlord or of
(d) legal, auditing, consulting and professional fees and other costs paid or incurred in connection with
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Landlord’s interest in the Building or the Project or in connection with any ground lease (including, without limitation, recording costs,
mortgage recording taxes, title insurance premiums and other similar costs, but excluding those legal, auditing, consulting and
professional fees and other costs incurred in connection with the normal and routine maintenance and operation of the Building and/or
the Project);
I legal fees, space planner’s fees, architect’s fees, leasing and brokerage commissions, advertising and
promotional expenditures and any other marketing expense incurred in connection with the leasing of space in the Building (including
new leases, lease amendments, lease terminations and lease renewals);
(f) the cost of any items to the extent to which such cost is reimbursed to Landlord by tenants of the Project
(other than as a reimbursement of operating expenses), or other third parties, or is covered by a warranty to the extent of reimbursement
for such coverage;
of the Building for occupancy by any tenant of the Building or the Project;
(g) expenditures for any leasehold improvement which is made in connection with the preparation of any portion
(h) the cost of performing work or furnishing service to or for any tenant other than Tenant, at Landlord’s
expense, to the extent such work or service is in excess of any work or service Landlord is obligated to provide to Tenant or generally to
other tenants in the Building at Landlord’s expense;
(i) the cost of repairs or replacements incurred by reason of fire or other casualty, or condemnation, to the extent
Landlord actually receives proceeds of property and casualty insurance policies or condemnation awards or would have received such
proceeds had Landlord maintained the insurance required to be maintained by Landlord under this Lease;
amounts typically spent for such items in Class A office buildings of comparable quality in the South San Francisco geographic area;
(j) the cost of acquiring sculptures, paintings or other objects of fine art in the Building or the Project in excess of
(k) bad debt loss, rent loss, or reserves for bad debt or rent loss;
(l) unfunded contributions to operating expense reserves by other tenants;
Expense Year;
(m) contributions to charitable or political organizations in excess of $50,000.00 in the aggregate in any single
(n) expenses related solely and exclusively to the operation of the retail space in the Project;
(o) damage and repairs necessitated by the gross negligence or willful misconduct of Landlord Parties;
tenants of the Building or the Project;
(p) fees, costs and expenses incurred by Landlord in connection with or relating to claims against or disputes with
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(q) interest, fines or penalties for late payment or violations of Applicable Laws by Landlord, except to the extent
incurring such expense is caused by a corresponding late payment or violation of an Applicable Law by Tenant, in which event Tenant
shall be responsible for the full amount of such expense;
I the cost of remediation and removal of, or other cost that would not have been incurred by Landlord but for the
presence of, “Hazardous Substance,” as that term is defined in Section 5.2, below, in the Building or on the Project, provided, however,
that the provisions of this sub-item I shall not preclude the inclusion of costs with respect to materials (whether existing at the Project as
of the date of this Lease or subsequently introduced to the Project) which are not, as of the date of this Lease, deemed to be Hazardous
Substance under applicable laws but which are subsequently deemed to be Hazardous Substance under applicable laws (it being
understood and agreed that Tenant shall nonetheless be responsible under Section 5.2 of this Lease for all costs of remediation and
removal of Hazardous Substance to the extent caused by Tenant Parties);
(s) costs for the original construction and development of the Building and nonrecurring costs for the repair or
replacement of any structural portion of the Building made necessary as a result of defects in the original design, workmanship or
materials;
(t) costs and expenses incurred for the administration of the entity which constitutes Landlord, as the same are
distinguished from the costs of operation, management, maintenance and repair of the Building and/or the Project, including, without
limitation, entity accounting and legal matters;
the Project unless such wages and benefits are prorated on a reasonable basis;
(u) the wages and benefits of any employee who does not devote substantially all of his or her employed time to
(v) except as may be otherwise expressly provided in this Lease with respect to specific items, including, without
limitation, any management fee paid by Landlord, the cost of any services or materials provided by any party related to Landlord, to the
extent such cost exceeds, the reasonable cost for such services or materials absent such relationship in Class A office buildings of
comparable quality in the San Francisco financial district area;
(w) depreciation for the Building, except as permitted pursuant to items (xii) and (xiii), above; and
(x) reserves for future improvements, repairs, additions, etc.
If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be
included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by
Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would
reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such
tenant. If the Project is not at least one hundred percent (100%) occupied during all or a portion of the Base Year or any Expense Year,
Landlord may elect to make (and shall make with respect to the Base Year) an appropriate adjustment to the components of Operating
Expenses for such year to determine the amount of Operating Expenses
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that would have been incurred had the Project been one hundred percent (100%) occupied; and the amount so determined shall be
deemed to have been the amount of Operating Expenses for such year. Operating Expenses for the Base Year shall include market-wide
cost increases (including utility rate increases) due to extraordinary circumstances, including, but not limited to, Force Majeure, boycotts,
strikes, conservation surcharges, security concerns, embargoes or shortages (“Temporary Costs”), provided that for any Expense Year in
which such Temporary Costs are not included, the Base Year Operating Expenses shall be adjusted to remove such Temporary Costs. In
no event shall the components of Direct Expenses for any Expense Year related to Tax Expenses, Project utility, services, or insurance
costs, in the aggregate for each such category, be less than the components of Direct Expenses related to Tax Expenses, Project utility,
services, or insurance costs in the Base Year.
4.2.8 Taxes.
4.2.8.1 “Tax Expenses” shall mean all federal, state, county, or local governmental or municipal taxes,
fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without
limitation, real estate taxes, general and special assessments, transit taxes, business taxes, leasehold taxes or taxes based upon the receipt
of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property
taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal
property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without
regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership,
leasing and operation of the Project, or any portion thereof.
4.2.8.2 Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other
income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any
assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was
adopted by the voters of the State of California in the June 1978 election (“Proposition 13”) and that assessments, taxes, fees, levies and
charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse
removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further
recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses
shall also include any governmental or private assessments or the Project’s contribution towards a governmental or private cost-sharing
agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental
agencies; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises, the tenant improvements in
the Premises, or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to
the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises, or any portion thereof; (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any
document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and (v) All of the real estate taxes
and assessments imposed
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upon or with respect to the Building and all of the real estate taxes and assessments imposed on the land and improvements comprising
the Project.
4.2.8.3 If Tax Expenses for any period during the Lease Term or any extension thereof are increased after
payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities,
Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses included by Landlord as Building Tax
Expenses pursuant to the terms of this Lease. Notwithstanding anything to the contrary contained in this Section 4.2.8, there shall be
excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, transfer taxes, inheritance and
succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income
(as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and
(iii) any items paid by Tenant under Section 4.5 of this Lease. If the property tax assessment for the Project (or any portion thereof) (or
Tax Expenses) for the Base Year or any Expense Year does not reflect an assessment (or Tax Expenses) for a one hundred percent
(100%) leased, completed and occupied project (such that existing or future leasing, tenant improvements and/or occupancy may result
in an increased assessment and/or increased Tax Expenses), Tax Expenses shall be adjusted, on a basis consistent with sound real estate
accounting principles, to reflect an assessment for (and Tax Expenses for) a one hundred percent (100%) leased, completed and occupied
project. In addition, notwithstanding anything in this Lease to the contrary, neither Tax Expenses nor Operating Expenses shall include
and Tenant shall not be required to pay any portion of any tax or assessment expense or any increase therein (a) in excess of the amount
which would be payable if such tax or assessment expense were paid in installments over the longest permitted term; (b) imposed on land
and improvements other than the Project; (c) resulting from the improvement of any of the Project for the sole use of other occupants; or
(d) results from Landlord’s failure to timely pay taxes.
4.2.8.4 Notwithstanding anything to the contrary set forth in this Lease, the amount of Tax Expenses for
the Base Year and any Expense Year shall be calculated without taking into account any decreases in real estate taxes obtained in
connection with Proposition 8, and, therefore, the Tax Expenses in the Base Year and/or an Expense Year may be greater than those
actually incurred by Landlord, but shall, nonetheless, be the Tax Expenses due under this Lease; provided that (i) any costs and expenses
incurred by Landlord in securing any Proposition 8 reduction shall not be deducted from Tax Expenses nor included in Direct Expenses
for purposes of this Lease, and (ii) tax refunds under Proposition 8 shall not be deducted from Tax Expenses nor refunded to Tenant, but
rather shall be the sole property of Landlord. Landlord and Tenant acknowledge that the preceding sentence is not intended to in any
way affect (A) the inclusion in Tax Expenses of the statutory two percent (2.0%) annual increase in Tax Expenses (as such statutory
increase may be modified by subsequent legislation), or (B) the inclusion or exclusion of Tax Expenses pursuant to the terms of
Proposition 13. Notwithstanding anything to the contrary set forth in this Lease, only Landlord may institute proceedings to reduce Tax
Expenses and the filing of any such proceeding by Tenant without Landlord’s consent shall constitute an event of default by Tenant under
this Lease. Notwithstanding the foregoing, Landlord shall not be obligated to file any application or institute any proceeding seeking a
reduction in Tax Expenses. Notwithstanding the foregoing, upon a reassessment of the Building and/or the Project pursuant to the terms
of Proposition 13 (a “Reassessment”) occurring after the Base Year which results in a decrease in Tax Expenses, the component of Tax
Expenses for the Base Year which is attributable
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to the assessed value of the Building and/or the Project under Proposition 13 prior to the Reassessment (without taking into account any
Proposition 8 reductions) (the “Base Year Prop 13 Taxes”) shall be reduced, if at all, for the purposes of comparison to all subsequent
Expense Years (commencing with the Expense Year in which the Reassessment takes place) to an amount equal to the real estate taxes
based upon such Reassessment, and if thereafter, in connection with a subsequent Reassessment, the assessed value of the Building
and/or the Project under Proposition 13 shall increase, the current Base Year Prop 13 Taxes shall be increased for purposes of comparison
to all subsequent Expense Years (commencing with the Expense Year in which the Reassessment takes place) to an amount equal to the
lesser of the original Base Year Prop 13 Taxes and an amount equal to the real estate taxes based upon such Reassessment.
4.2.9 “Capital Expenses” shall mean all cost of capital repair, improvements or expenditures incurred by
Landlord in connection with the Project (A) which are principally intended to effect economies in the operation, cleaning or maintenance
of the Project, or any portion thereof, (B) that are required to comply with present or anticipated conservation programs, (C) which are
replacements or modifications of nonstructural items located in the Common Areas required to keep the Common Areas in good order or
condition, or (D) that are required under any governmental law or regulation, except for capital expenditures to remedy a condition
existing prior to the Lease Commencement Date which an applicable governmental authority, if it had knowledge of such condition prior
to the Lease Commencement Date, would have then required to be remedied pursuant to then-current governmental laws or regulations
in their form existing as of the Lease Commencement Date and pursuant to the then-current interpretation of such governmental laws or
regulations by the applicable governmental authority as of the Lease Commencement Date. In no event shall Capital Expenses include
any costs incurred by Landlord prior to or during the Base Year. The cost of Capital Expenses shall be amortized as set forth in Section
4.2.7(xii). Notwithstanding anything in this Lease to the contrary, “Capital Expenses” shall not include any expenses specifically
excluded from Operating Expenses.
4.2.10 “Tenant’s Share” shall mean the percentage set forth in Section 6 of the Summary. Tenant’s Share was
calculated by multiplying the number of rentable square feet of the Premises, as set forth in Section 2.2 of the Summary, by 100, and
dividing the product by the total number of rentable square feet in the Building.
4.3 Allocation of Direct Expenses.
4.3.1 Method of Allocation. The parties acknowledge that the Building is a part of a multi-building project and
that the costs and expenses incurred in connection with the Project (i.e., the Direct Expenses) should be shared between the tenants of the
Building and the tenants of the other buildings in the Project. Accordingly, as set forth in Section 4.2 above, Direct Expenses (which
consists of Operating Expenses and Tax Expenses) and Capital Expenses are determined annually for the Project as a whole, and a
portion of the Direct Expenses and Capital Expenses, which portion shall be determined by Landlord on an equitable basis, shall be
allocated to the tenants of the Building (as opposed to the tenants of any other buildings in the Project) and such portion shall be the
Building Direct Expenses and Capital Expenses for purposes of this Lease. Such portion of Direct Expenses and Capital Expenses
allocated to the tenants of the Building shall include all Direct Expenses attributable solely to the Building (and not any Direct
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Expenses and Capital Expenses attributable solely to other buildings) and an equitable portion of the Direct Expenses attributable to the
Project as a whole.
4.3.2 Cost Pools. Landlord shall have the right, from time to time, to equitably allocate some or all of the Direct
Expenses for the Project among different portions or occupants of the Project (the “Cost Pools”), in Landlord’s reasonable
discretion. Such Cost Pools may include, but shall not be limited to, the office space tenants of a building of the Project or of the Project,
and the retail space tenants of a building of the Project or of the Project. The Direct Expenses and Capital Expenses allocable to each
such Cost Pool shall be allocated to such Cost Pool and charged to the tenants within such Cost Pool in an equitable manner.
4.4 Calculation and Payment of Direct Expenses. If for any Expense Year ending or commencing within the
Lease Term, Tenant’s Share of Building Direct Expenses for such Expense Year exceeds Tenant’s Share of Building Direct Expenses
applicable to the Base Year, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, an
amount equal to the excess (the “Excess”).
4.4.1 Statement of Actual Building Direct Expenses and Payment by Tenant. Landlord shall give to Tenant
within four (4) months following the end of each Expense Year, a statement (the “Statement”) which shall state the Building Direct
Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of the Excess. Upon receipt of the
Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, within thirty
(30) days, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated
Excess,” as that term is defined in Section 4.4.2, below. If the amounts paid by Tenant during an Expense Year as Estimated Excess
exceed the Excess for such Expense Year, then such difference shall be reimbursed by Landlord to Tenant within thirty (30) days,
provided that any such reimbursement, at Landlord’s option, may be credited against the Rent next coming due under this Lease unless
the Lease Term has expired, in which event Landlord shall refund the appropriate amount to Tenant. The failure of Landlord to timely
furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4. Even
though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of
Building Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall immediately pay to
Landlord such amount. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term.
4.4.2 Statement of Estimated Building Direct Expenses. In addition, Landlord shall endeavor to give Tenant a
yearly expense estimate statement (the “Estimate Statement”) which shall set forth Landlord’s reasonable estimate (the “Estimate”) of
what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “Estimated
Excess”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the
amount of Building Direct Expenses for the Base Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not preclude Landlord from enforcing its rights to collect any Estimated Excess under this Article 4, nor shall Landlord be
prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary. Thereafter, Tenant
shall pay, with its next installment of Base Rent due at least thirty (30) days after delivery
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of such Statement, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the
last sentence of this Section 4.4.2). Such fraction shall have as its numerator the number of months which have elapsed in such current
Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished
(which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent
installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered
by Landlord to Tenant.
4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible.
4.5.1 Tenant shall be liable for and shall pay thirty (30) days before delinquency, taxes levied against Tenant’s
equipment, furniture, fixtures and any other personal property located in or about the Premises. If any such taxes on Tenant’s equipment,
furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of
Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal
property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of
the validity thereof but only under proper protest if requested by Tenant, Tenant shall within thirty (30) days after demand repay to
Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case
may be.
4.5.2 If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and
whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher
than the valuation at which tenant improvements conforming to Landlord’s “building standard” in other space in the Building are
assessed, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to
be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1, above.
4.5.3 Notwithstanding any contrary provision herein, Landlord may charge Tenant directly, and Tenant shall pay
prior to delinquency as Additional Rent (and not as a part of Direct Expenses) any (i) gross receipts or other rent tax or sales tax, service
tax, transfer tax or value added tax, business tax or any other applicable tax on the rent or services herein or otherwise respecting this
Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility and taxes or assessments due to
any type of ballot measure, including an initiative adopted by the voters or local agency, or a state proposition approved by the voters; or
(iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the
Premises.
4.5.4 Landlord may charge Tenant the estimated amount of taxes and other charges for which Tenant is directly
responsible pursuant to this Section 4.5 on a monthly basis, provided that Landlord shall reconcile the amount actually paid by Tenant
with the amount that Tenant should have paid, as part of Landlord’s Statement following the end of each Expense Year.
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4.6 Calculation and Payment of Capital Expenses. Notwithstanding any provision to the contrary contained in this
Lease, Tenant shall pay to Landlord, on a monthly basis. As Additional Rent and in addition to Tenant’s Share of Building Direct
Expenses, an amount equal to Tenant’s Share of all Capital Expenses incurred by Landlord for any Expense Year following the Base
Year; provided, however, any such Capital Expenses shall be amortized (including interest on the unamortized cost at an annual interest
rate reasonably determined by Landlord) over its useful life as Landlord shall reasonably determine, and Tenant shall only be obligated to
pay Tenant’s Share of such amortized amount; provided further, however, if Landlord reasonably concludes on the basis of engineering
estimates that a particular capital expenditure will effect savings in Operating Expenses, including, without limitation, energy related
costs, and that such projected savings will, on an annual basis (“Projected Annual Savings”), exceed the annual amortization therefor,
then and in such event the amount of amortization for such capital expenditure shall be increased to an amount equal to the Projected
Annual Savings; and in such circumstance, the increased amortization (in the amount of the Projected Annual Savings) shall be made for
such period of time as it would take to fully amortize the cost of the item in question, together with interest thereon at the interest rate as
aforesaid in equal monthly payments, each in the amount of 1/12 of the Projected Annual Savings, with such payment to be applied first
to interest and the balance to principal. The amount of Capital Expenses incurred by Landlord, as well as Tenant’s Share of such Capital
Expenses, shall be set forth on each Statement and each Estimate Statement delivered by Landlord to Tenant and Tenant shall pay
Tenant’s Share of such Capital Expenses at the same time and in the same manner as Tenant shall pay Tenant’s Share of Building Direct
Expenses.
th
ARTICLE 5
USE OF PREMISES
5.1 Permitted Use. Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and
Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior
written consent of Landlord, which may be withheld in Landlord’s sole discretion.
5.2 Prohibited Uses. Tenant further covenants and agrees that Tenant shall not use, or permit any of its employees,
agents, or contractors to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and
Regulations set forth in Exhibit D, attached hereto, or in violation of the laws of the United States of America, the State of California, or
the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having
jurisdiction over the Project, including, without limitation, any such laws, ordinances, regulations or requirements relating to hazardous
materials or substances, as those terms are defined by applicable laws now or hereafter in effect. Tenant shall not do or permit anything
to be done in or about the Premises which will in any way damage the reputation of the Project or materially obstruct or interfere with the
rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises to be used for any improper or
unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall comply with, and
Tenant’s rights and obligations under the Lease and Tenant’s use of the Premises shall be subject and subordinate to, all recorded
easements, covenants, conditions, and restrictions now or hereafter affecting the Project, provided the same do not
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unreasonably interfere with Tenant’s use of the Premises as permitted under this Lease. Except for small quantities customarily used in
business offices in compliance with applicable laws and its recommended uses, Tenant shall not cause or permit any “Hazardous
Substance,” as that term is defined below, to be used, stored, produced, generated or disposed of (into the sewage or waste disposal
system or otherwise) on or in the Premises by Tenant or Tenant’s agents, employees, contractors, assignees or sublessees, without first
obtaining Landlord’s written consent. Tenant shall immediately notify, and shall direct Tenant’s agents, employees contractors, invitees,
assignees and sublessees to immediately notify, Landlord of any incident in, on or about the Premises that would require the filing of a
notice under any federal, state, local or quasi-governmental law (whether under common law, statute or otherwise), ordinance, decree,
code, ruling, award, rule, regulation or guidance document now or hereafter enacted or promulgated, as amended from time to time, in
any way relating to or regulating any Hazardous Substance. As used herein, “Hazardous Substance” means any substance which is
toxic, ignitable, reactive, or corrosive and which is regulated by any local government, the State of California, or the United States
government. “Hazardous Substance” includes any and all material or substances which are defined as “hazardous waste,” “extremely
hazardous waste” or a “hazardous substance” pursuant to state, federal or local governmental law. “Hazardous Substance” also includes
asbestos, polychlorobiphenyls (i.e., PCB’s) and petroleum.
ARTICLE 6
SERVICES AND UTILITIES
6.1 Standard Tenant Services. Landlord shall provide the services specified below and on Exhibit F attached hereto, on
all days (unless otherwise stated below or in Exhibit F) during the Lease Term.
6.1.1 Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto,
Landlord shall provide heating, ventilation and air conditioning (“HVAC”) when necessary for normal comfort for normal office use in
the Premises from 7:00 A.M. to 6:00 P.M. Monday through Friday (collectively, the “Building Hours”), except for the date of
observation of New Year’s Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord’s
discretion, other locally or nationally recognized holidays (collectively, the “Holidays”). Tenant shall cooperate fully with Landlord at
all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection
of the HVAC, electrical, mechanical and plumbing systems.
6.1.2 Landlord shall provide electricity to the Premises (including adequate electrical wiring and facilities for
connection to Tenant’s lighting fixtures and incidental use equipment) for lighting and power suitable for the Permitted Use as reasonably
determined by Landlord, provided that Tenant’s electrical usage shall be subject to applicable laws and regulations. Tenant shall bear the
cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises.
toilet purposes in the Building Common Areas.
6.1.3 Landlord shall provide city water from the regular Building outlets for drinking, office kitchen, lavatory and
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6.1.4 Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building
Hours, shall have one elevator available at all other times, including on the Holidays, except in the event of emergency, and shall provide
nonexclusive, non-attended automatic passenger escalator service during Building Hours only.
6.1.5 Landlord shall provide nonexclusive freight elevator service subject to reasonable scheduling by Landlord.
6.1.6 Landlord shall provide customary weekday janitorial services to the Premises, except the date of
observation of the Holidays, in and about the Premises and customary occasional window washing services, each in a manner consistent
with other Class “A” office buildings located in the vicinity of the Project.
6.1.7 Subject to Landlord’s rules, regulations, and restrictions and the terms of this Lease, Landlord shall permit
Tenant to utilize its reasonable share of available existing Building risers, raceways, shafts and conduit to make connections to the
Premises, subject to Landlord’s commercially reasonable standard fees for such use.
Notwithstanding anything in this Lease to the contrary, if Landlord or any affiliate of Landlord has elected to qualify as a real estate
investment trust (“REIT”), any service required or permitted to be performed by Landlord pursuant to this Lease, the charge or cost of
which may be treated as impermissible tenant service income under the laws governing a REIT, may be performed by a taxable REIT
subsidiary that is affiliated with either Landlord or Landlord’s property manager, an independent contractor of Landlord or Landlord’s
property manager (the “Service Provider”). If Tenant is subject to a charge under this Lease for any such service, then, at Landlord’s
direction, Tenant will pay such charge either to Landlord for further payment to the Service Provider or directly to the Service Provider,
and, in either case, (i) Landlord will credit such payment against Additional Rent due from Tenant under this Lease for such service, and
(ii) such payment to the Service Provider will not relieve Landlord from any obligation under the Lease concerning the provisions of
such service.
6.2 Overstandard Tenant Use. Tenant shall not, without Landlord’s prior written consent, use heat-generating machines,
machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the
Premises, which may materially affect the temperature otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If Tenant uses water, electricity, heat
or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon
billing, the cost of such excess consumption, the reasonable, actual cost of the installation, operation, and maintenance of equipment
which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused
by such excess consumption; and Landlord may install devices to separately meter (or sub-meter) any increased use and in such event
Tenant shall pay the increased cost directly to Landlord, within thirty (30) days after demand, at the rates charged by the public utility
company furnishing the same, including the cost of such additional metering (or sub-metering) devices. In addition, in the event that
there is located in the Premises a data center containing high density computing equipment, as defined in the U.S. EPA’s Energy Star®
rating system (“Energy Star”), Landlord may require the installation in accordance
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with Energy Star of separate metering or check metering equipment, in which event (i) Tenant shall pay the costs of any such meter or
check meter directly to Landlord, on demand, including the installation and connectivity thereof, (ii) Tenant shall directly pay to the
utility provider all electric consumption on any meter, and (iii) Tenant shall pay to Landlord, as Additional Rent, all electric consumption
on any check meter within thirty (30) days after being billed thereof by Landlord, in addition to other electric charges payable by Tenant
under the Lease. In the event that Tenant purchases any utility service directly from the provider, Tenant shall promptly provide to
Landlord either permission to access Tenant’s usage information from the utility service provider or copies of the utility bills for Tenant’s
usage of such services in a format reasonably acceptable to Landlord. Tenant’s use of electricity shall never exceed the capacity of the
feeders to the Project or the risers or wiring installation. If Tenant desires to use heat, ventilation or air conditioning during hours other
than those for which Landlord is obligated to supply such utilities pursuant to the terms of Section 6.1 of this Lease, Tenant shall give
Landlord such prior notice, if any, as Landlord shall from time to time reasonably and uniformly establish as appropriate, of Tenant’s
desired use in order to supply such utilities, and Landlord shall supply such utilities to Tenant at such hourly cost to Tenant (which shall
be treated as Additional Rent) as Landlord shall from time to time reasonably and uniformly establish. Landlord shall have the exclusive
right, but not the obligation, upon Tenant’s request, to provide any additional services which may be required by Tenant, including,
without limitation, locksmithing, lamp replacement, additional janitorial service, and additional repairs and maintenance. If Tenant
requests any such additional services, the cost of such additional services will include Landlord’s standard fee for its involvement with
such additional services. Tenant shall pay to Landlord such cost of such additional services within thirty (30) days after being billed for
same.
6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise,
for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in
the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs,
replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at
the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty
whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or
delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or
relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under
any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without
limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or
utilities as set forth in this Article 6.
ARTICLE 7
REPAIRS
Landlord shall at all times during the Lease Term maintain in good condition and operating order the structural portions of the
Building, including, without limitation, the foundation, floor slabs, ceilings, roof, columns, beams, shafts, stairs, stairwells, escalators,
elevators, base building
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restrooms and all Common Areas (collectively, the “Building Structure”, and the Base Building mechanical, electrical, life safety,
plumbing, sprinkler and HVAC systems installed or furnished by Landlord (collectively, the “Building Systems”). Landlord shall also
maintain and repair the solar window film on the inside of the exterior Building windows, provided that if damage to such solar window
film is caused by Tenant, then Tenant shall pay the cost for any such repairs. Except as specifically set forth in this Lease to the contrary,
Tenant shall not be required to repair the Building Structure and/or the Building Systems except to the extent required because of
Tenant’s use of the Premises for other than normal and customary business office operations (which repairs shall be performed by
Landlord at Tenant’s cost and expense). Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures
and furnishings therein, and the floor coverings within the Premises, in good order, repair and condition at all times during the Lease
Term. In addition, subject to Section 10.3, Articles 11 and 13 of this Lease, Tenant shall, at Tenant’s own expense, but under the
supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and
adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for
damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, if Tenant fails to do so,
Landlord shall have the exclusive right, at Landlord’s option, but not the obligation, to make such repairs and replacements, and Tenant
shall pay to Landlord the cost thereof, including Landlord’s standard fee for its involvement with such repairs and replacements,
promptly upon being billed for same. Landlord may, but shall not be required to, enter the Premises, as provided in Article 27, below, at
all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment
located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-
governmental authority or court order or decree. Tenant hereby waives any and all rights under and benefits of subsection 1 of
Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in
effect.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 Landlord’s Consent to Alterations. Tenant may not make or permit its employees, agents or contractors to make any
improvements, alterations, additions, changes, or repairs (pursuant to Article 7 or otherwise) to the Premises or any mechanical,
plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “Alterations”) without first procuring the prior
written consent of Landlord to such Alterations, which consent shall be requested by Tenant in accordance with the terms and conditions
of this Article 8, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord
to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is
visible from the exterior of the Building. Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the
Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable. The construction of the
initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8.
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8.2 Manner of Construction. Landlord shall have the exclusive right, at Landlord’s option, but not the obligation, upon
Tenant’s request that Landlord perform such work, to make the Alterations at Tenant’s sole cost and expense. If Landlord elects to make
the Alterations pursuant to the immediately preceding sentence, then Tenant shall retain Landlord to construct such Alterations and
Landlord shall hold all applicable construction contracts. Prior to the commencement of construction of any Alterations or repairs,
Tenant shall submit to Landlord, for Landlord’s review and approval in its reasonable discretion, four (4) copies signed by Tenant of all
plans, specifications and working drawings relating thereto. Tenant, at its sole cost and expense, shall retain an architect/space planner
selected by Tenant, and reasonably approved by Landlord, to prepare such plans, specifications and working drawings; provided that,
Tenant shall also retain the engineering consultants reasonably approved by Landlord to prepare all plans and engineering working
drawings, if any, relating to the structural, mechanical, electrical, plumbing, HVAC, life safety and sprinkler work of the Alterations.
Tenant shall be required to include in its contracts with the architect and the engineers a provision which requires ownership of all
architectural and engineering drawings to be transferred to Tenant upon the substantial completion of the Alteration and Tenant hereby
grants to Landlord a non-exclusive right to use such drawings, including, without limitation, a right to make copies thereof. Tenant shall
cause each architect/space planner and engineer retained by Tenant to follow Landlord’s reasonable standard construction administration
procedures and to utilize the standard specifications and details for the Building (unless otherwise approved by Landlord), all as
promulgated by Landlord from time to time. Tenant and Tenant’s architect/space planner shall verify, in the field, the dimensions and
conditions as shown on the relevant portions of the “Base Building” plans, and Tenant and Tenant’s architect/space planner shall be
solely responsible for the same, and Landlord shall have no responsibility in connection therewith. In addition, at Landlord’s option,
Landlord may submit Tenant’s plans, specifications and working drawings to a third-party architect and/or engineer, selected by
Landlord, for their review, at Tenant’s sole cost and expense. Landlord’s review of plans, specifications and working drawings as set
forth in this Section 8.2, shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review
the same, for quality, design, compliance with applicable building codes or other like matters. Accordingly, notwithstanding that any
plans, specifications or working drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and
notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers,
and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or
errors contained in the plans, specifications and working drawings for the Alterations, and Tenant’s waiver and indemnity set forth in
Section 10.1 of this Lease, below, shall specifically apply to the plans, specifications and working drawings for the
Alterations. Following Landlord’s approval in its reasonable discretion of all plans, specifications and working drawings for the
Alterations, a contractor to construct the Alterations shall be selected by Tenant and reasonably approved by Landlord. Landlord shall
provide to Tenant an itemized statement of costs, as set forth in the proposed contract with such contractor Tenant shall approve and
deliver to Landlord the itemized statement of costs provided to Tenant in accordance with this Section 8.2, and upon receipt of such
itemized statement of costs by Landlord, Landlord shall be released by Tenant (i) to retain the contractor who submitted such itemized
statement of costs, and (ii) to purchase the items set forth in such itemized statement of costs and to commence the construction relating
to such items. Landlord hereby assigns to Tenant all warranties and guaranties by the contractor selected in accordance with this
Section 8.2 to
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construct the Alterations, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the
Alterations. In the event Tenant requests any Alterations in the Premises which require or give rise to governmentally required changes
to the “Base Building,” as that term is defined below, then Landlord shall, at Tenant’s expense, make such changes to the Base
Building. As used in this Lease, the “Base Building” shall mean the Building Structure and the Building Systems. In performing the
work of any Alterations for which Tenant is responsible, Tenant shall have the work performed in such manner so as not to unreasonably
obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to unreasonably obstruct the
business of Landlord or other tenants in the Project. Tenant shall not use (and upon notice from Landlord shall cease using) contractors,
services, workmen, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with the
workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. In addition to
Tenant’s obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to
be recorded in the office of the Recorder of the County in which the Project is located in accordance with Section 3093 of the Civil Code
of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager a reproducible copy of the
“as built” drawings of the Alterations in CAD format as well as all permits, approvals and other documents issued by any governmental
agency in connection with the Alterations.
8.3 Payment for Improvements. Tenant shall pay to Landlord within thirty (30) days after being billed for the same, all
costs related to the construction of the Alterations, including, without limitation, the following items and costs: (i) all amounts actually
paid by Landlord to any architect/space planner, engineer, consultant, contractor, subcontractor, mechanic, materialman or other person,
whether retained by Landlord or Tenant, in connection with the Alterations, and all fees incurred by, and the actual cost of documents
and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of all plans, specifications
and working drawings for the Alterations; (ii) all plan check, permit and license fees relating to construction of the Alterations paid by
Landlord; (iii) the cost of any changes in the Base Building when such changes are required by any plans, specifications or working
drawings for the Alterations (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost
to include all direct architectural and/or engineering fees and expenses incurred by Landlord in connection therewith; (iv) the cost of any
changes to the plans, specifications and working drawings for the Alterations or to the Alterations themselves required by all applicable
zoning and building codes and other laws and paid by Landlord; (v) sales and use taxes and Title 24 fees imposed on, assessed against or
paid by Landlord; (vi) Landlord’s standard fee in the amount of five percent (5%) of the hard cost of such Alterations for its involvement
with such Alterations; and (vii) all other costs incurred by Landlord in connection with the construction of the Alterations. Landlord, at
its option, may render bills to Tenant in advance of, or during, construction of the Alterations so as to enable Landlord to pay all costs
and expenses incurred by Landlord in connection with the Alterations (including, without limitation, costs of the contractor retained to
construct the Alterations) without advancing Landlord’s own funds. At Landlord’s election in its reasonable discretion, Tenant shall
deliver to Landlord prior to commencement of construction of the Alterations cash in an amount equal to all estimated costs related to the
construction of such Alterations, or such lesser amount as Landlord shall specify, to be held by Landlord and disbursed by Landlord for
costs related to the construction of the Alterations, as such costs are incurred. In the event that, after Tenant’s approval of a cost
proposal for the
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Alterations in accordance with Section 8.2, above, any revisions, changes or substitutions shall be made to the plans, specifications and
working drawings or the Alterations, any additional costs which arise in connection with such revisions, changes or substitutions or any
other additional costs shall be paid by Tenant to Landlord immediately upon Landlord’s request. Any surplus funds delivered by Tenant
and held by Landlord in connection with the Alterations shall be refunded to Tenant when all costs related to the construction of the
Alterations have been paid in full.
8.4 Construction Insurance. In the event that any Alterations are made pursuant to this Article 8, prior to the
commencement of such Alterations, Tenant shall provide Landlord with certificates of insurance evidencing compliance with the
requirements of Section 10.14 of this Lease, it being understood and agreed that all of such Alterations shall be insured by Tenant
pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Landlord may, in its reasonable discretion,
require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.
8.5 Landlord’s Property. All Alterations, improvements, fixtures, equipment and/or appurtenances which may be
installed or placed in or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of
Landlord (other than Tenant’s personal property and trade fixtures) at the expiration of the Lease Term, or the earlier termination thereof;
provided, however, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier
termination of this Lease, require Tenant, at Tenant’s expense, to remove any Alterations or improvements and to repair any damage to
the Premises and Building caused by such removal and return the affected portion of the Premises to their condition existing prior to the
installation of such Alterations or improvements; provided; however, that notwithstanding the foregoing, upon request by Tenant at the
time of Tenant’s request for Landlord’s consent to any Alteration or improvement, Landlord shall notify Tenant whether the applicable
Alteration or improvement will be required to be removed pursuant to the terms of this Section 8.5. If Tenant fails to complete such
removal and/or to repair any damage caused by the removal of any Alterations or improvements in the Premises and return the affected
portion of the Premises to their condition existing prior to the installation of such Alterations or improvements, prior to the expiration or
earlier termination of this Lease, then Rent shall continue to accrue under this Lease in accordance with Article 16, below, after the end
of the Lease Term after Landlord delivers written notice to Tenant of its failure to surrender the Premises in the required condition until
such work shall be completed, and Landlord shall have the right, but not the obligation, to perform such work and to charge the cost
thereof to Tenant. Except to the extent due to the gross negligence or willful misconduct or violation of this Lease by Landlord or its
agents, employees or contractors, Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost,
obligation, expense or claim of lien, including but not limited to, court costs and reasonable attorneys’ fees, in any manner relating to the
installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the
Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.
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ARTICLE 9
COVENANT AGAINST LIENS
Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials
furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and
against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys’ fees and costs) arising out of same
or in connection therewith. Tenant shall give Landlord notice at least five (5) business days prior to the commencement of any work on
the Premises which may give rise to a lien on the Premises, Building or Project (or such additional time as may be necessary under
applicable laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility. Tenant shall
remove any such lien or encumbrance by bond or otherwise within twenty (20) days after notice by Landlord, and if Tenant shall fail to
do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the
validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to
other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall
subject Landlord’s title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or
implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or
respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord’s option shall attach only
against Tenant’s interest in the Premises and shall in all respects be subordinate to Landlord’s title to the Project, Building and Premises.
ARTICLE 10
INDEMNITY AND INSURANCE
10.1 Tenant’s Indemnity.
10.1.1 Indemnity. To the maximum extent permitted by law, Tenant waives any right to contribution against the
“Landlord Parties,” as that term is defined in Section 10.13, below, and agrees to indemnify and save harmless the Landlord Parties from
and against all claims of whatever nature arising from or claimed to have arisen from (i) any act, omission or negligence of the “Tenant
Parties,” as that term is defined in Section 10.13, below; (ii) any accident, injury or damage whatsoever caused to any person, or to the
property of any person, occurring in or about the Premises from the earlier of (A) the date on which any Tenant Party first enters the
Premises for any reason or (B) the Lease Commencement Date, and thereafter throughout and until the end of the Lease Term and after
the end of the Lease Term for as long as Tenant or anyone acting by, through or under Tenant is in occupancy of the Premises or any
portion thereof; (iii) any accident, injury or damage whatsoever occurring outside the Premises but within the Project, where such
accident, injury or damage results, or is claimed to have resulted, from any act, omission or negligence on the part of any of the Tenant
Parties; or (iv) any breach of this Lease by Tenant. Tenant shall pay such indemnified amounts as they are incurred by the Landlord
Parties. This indemnification shall not be construed to deny or reduce any other rights or obligations of indemnity that a Landlord Party
may have under this Lease or the common law. Notwithstanding
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anything contained herein to the contrary, Tenant shall not be obligated to release or indemnify a Landlord Party for any claims to the
extent that any Landlord Party’s damages in fact result from any Landlord Party’s gross negligence or willful misconduct or violation of
this Lease.
10.1.2 Breach. In the event that Tenant breaches any of its indemnity obligations hereunder or under any other
contractual or common law indemnity: (i) Tenant shall pay to the Landlord Parties all liabilities, loss, cost, or expense (including
reasonable attorney’s fees) incurred as a result of said breach; and (ii) the Landlord Parties may deduct and offset from any amounts due
to Tenant under this Lease any amounts owed by Tenant pursuant to this section.
10.1.3 No limitation. The indemnification obligations under this Section shall not be limited in any way by any
limitation on the amount or type of damages, compensation or benefits payable by or for Tenant or any subtenant or other occupant of the
Premises under workers’ compensation acts, disability benefit acts, or other employee benefit acts. Tenant waives any immunity from or
limitation on its indemnity or contribution liability to the Landlord Parties based upon such acts.
to provide similar indemnities to the Landlord Parties in a form reasonably acceptable to Landlord.
10.1.4 Subtenants and other occupants. Tenant shall require its subtenants and other occupants of the Premises
10.1.5 Survival. The terms of this section shall survive any termination or expiration of this Lease.
10.1.6 Costs. The foregoing indemnity and hold harmless agreement shall include indemnity for all costs,
expenses and liabilities (including, without limitation, attorneys’ fees and disbursements) incurred by the Landlord Parties in connection
with any such claim or any action or proceeding brought thereon, and the defense thereof. In addition, in the event that any action or
proceeding shall be brought against one or more Landlord Parties by reason of any such claim, Tenant, upon request from the Landlord
Party, shall resist and defend such action or proceeding on behalf of the Landlord Party by counsel appointed by Tenant’s insurer (if such
claim is covered by insurance without reservation) or otherwise by counsel reasonably satisfactory to the Landlord Party. The Landlord
Parties shall not be bound by any compromise or settlement of any such claim, action or proceeding without the prior written consent of
such Landlord Parties.
10.2 Tenant’s Risk. Tenant agrees to use and occupy the Premises, and to use such other portions of the Building and the
Project as Tenant is given the right to use by this Lease at Tenant’s own risk. The Landlord Parties shall not be liable to the Tenant
Parties for any damage, injury, loss, compensation, or claim (including, but not limited to, claims for the interruption of or loss to a
Tenant Party’s business) based on, arising out of or resulting from any cause whatsoever, including, but not limited to, repairs to any
portion of the Premises or the Building or the Project, any fire, robbery, theft, mysterious disappearance, or any other crime or casualty,
any cyber attack affecting the Building systems or any computer systems in the Premises or the Building, the actions of any other tenants
of the Building or of any other person or persons, or any leakage in any part or portion of the Premises or the Building or the Project, or
from water, rain or snow that may leak into, or flow from any part of the Premises or the Building or the Project, or from drains, pipes or
plumbing fixtures in the Building or the Project. Any goods, property or personal effects stored
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or placed in or about the Premises shall be at the sole risk of the Tenant Party, and neither the Landlord Parties nor their insurers shall in
any manner be held responsible therefor. The Landlord Parties shall not be responsible or liable to a Tenant Party, or to those claiming
by, through or under a Tenant Party, for any loss or damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises or any part of the premises adjacent to or connecting with the Premises or any part of the Building or
otherwise. Notwithstanding the foregoing, the Landlord Parties shall not be released from liability for any injury, loss, damages or
liability to the extent arising from any gross negligence or willful misconduct of the Landlord Parties on or about the Premises or
Landlord’s violation of this Lease; provided, however, in no event shall the Landlord Parties have any liability to a Tenant Party based on
any loss with respect to or interruption in the operation of Tenant’s business. The provisions of this section shall be applicable until the
expiration or earlier termination of the Lease Term, and during such further period as Tenant may use or be in occupancy of any part of
the Premises or of the Building.
10.3 Tenant’s Commercial General Liability Insurance. Tenant agrees to maintain in full force on or before the earlier of
(i) the date on which any Tenant Party first enters the Premises for any reason or (ii) the Lease Commencement Date throughout the
Lease Term of this Lease, and thereafter for so long as Tenant is in occupancy of any part of the Premises, a policy of commercial
general liability insurance, on an occurrence basis, issued on a form at least as broad as Insurance Services Office (“ISO”) Commercial
General Liability Coverage “occurrence” form CG 00 01 10 01 or another ISO Commercial General Liability “occurrence” form
providing equivalent coverage. Such insurance shall include contractual liability coverage, specifically covering but not limited to the
indemnification obligations undertaken by Tenant in this Lease. The minimum limits of liability of such insurance shall be $5,000,000.00
per occurrence, which may be satisfied through a combination of primary and excess/umbrella insurance. In addition, in the event Tenant
hosts a function in the Premises, Tenant agrees to obtain, and cause any persons or parties providing services for such function to obtain,
the appropriate insurance coverages as determined by Landlord (including liquor liability coverage, if applicable) and provide Landlord
with evidence of the same.
10.4 Tenant’s Property Insurance. Tenant shall maintain at all times during the Lease Term, and during such earlier time
as Tenant may be performing work in or to the Premises or have property, fixtures, furniture, equipment, machinery, goods, supplies,
wares or merchandise on the Premises, and continuing thereafter so long as Tenant is in occupancy of any part of the Premises, business
interruption insurance and insurance against loss or damage covered by the so-called “all risk” or equivalent type insurance coverage
with respect to (i) Tenant’s property, fixtures, furniture, equipment, machinery, goods, supplies, wares and merchandise, (ii) the “Tenant
Improvements,” as that term is defined in the Tenant Work Letter, and any other additions, alterations and improvements which exist in
the Premises as of the Lease Commencement Date (excluding the Base Building) (the “Original Improvements”), and all alterations,
improvements and other modifications made by or on behalf of the Tenant in the Premises, and (iii) other property of Tenant located at
the Premises (the foregoing items in (i), and (iii), collectively “Tenant’s Property”). The business interruption insurance required by
this section shall be in minimum amounts typically carried by prudent tenants engaged in similar operations, but in no event shall be in
an amount less than the Base Rent then in effect during any Lease Year, plus any Additional Rent due and payable for the immediately
preceding Lease Year. The “all risk” insurance required by this section shall be in an amount at least equal to the full replacement cost of
Tenant’s Property.
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In addition, during such time as Tenant is performing work in or to the Premises, Tenant, at Tenant’s expense, shall also maintain, or shall
cause its contractor(s) to maintain, builder’s risk insurance for the full insurable value of such work. Landlord and such additional
persons or entities as Landlord may reasonably request shall be named as loss payees, as their interests may appear, on the policy or
policies required by subpart (ii), above. In the event of loss or damage covered by the “all risk” insurance required by this section, the
responsibilities for repairing or restoring the loss or damage shall be determined in accordance with Article 11 of this Lease, below. To
the extent that Landlord is obligated to pay for the repair or restoration of the loss or damage covered by the policy, Landlord shall be
paid the proceeds of the “all risk” insurance covering the loss or damage. To the extent Tenant is obligated to pay for the repair or
restoration of the loss or damage, covered by the policy, Tenant shall be paid the proceeds of the “all risk” insurance covering the loss or
damage. If both Landlord and Tenant are obligated to pay for the repair or restoration of the loss or damage covered by the policy, the
insurance proceeds shall be paid to each of them in the pro rata proportion of their obligations to repair or restore the loss or damage. If
the loss or damage is not repaired or restored (for example, if the Lease is terminated pursuant to Section 11.2 of this Lease, below), the
insurance proceeds shall be paid to Landlord and Tenant in the pro rata proportion of their relative contributions to the cost of the
leasehold improvements covered by the policy. The insurance required to be maintained by Tenant pursuant to this section may be
carried under blanket insurance policies covering the Premises and other properties owned or leased by Tenant or Tenant’s Affiliates, so
long as such policies comply with this Lease. The coverage provided by such policies shall at all times meet the requirements of this
Lease, without co-insurance.
10.5 Tenant’s Other Insurance. Tenant agrees to maintain in full force on or before the earlier of (i) the date on which any
Tenant Party first enters the Premises for any reason or (ii) the Lease Commencement Date, and thereafter throughout the end of the
Lease Term, and after the end of the Lease Term so long as Tenant is in occupancy of any part of the Premises (1) automobile liability
insurance (covering any automobiles owned or operated by Tenant at the Project); (2) worker’s compensation insurance as required by
Applicable Laws; and (3) employer’s liability insurance. Such automobile liability insurance shall be in an amount not less than One
Million Dollars ($1,000,000) for each accident. Such employer’s liability insurance shall be in an amount not less than One Million
Dollars ($1,000,000) for each accident, One Million Dollars ($1,000,000) disease-policy limit, and One Million Dollars ($1,000,000)
disease-each employee.
10.6 Requirements For Insurance. All insurance required to be maintained by Tenant pursuant to this Lease shall be
maintained with responsible companies that are admitted to do business, and are in good standing, in the jurisdiction in which the
Premises are located and that have a rating of at least “A” and are within a financial size category of not less than “Class X” in the most
current Best’s Key Rating Guide or such similar rating as may be reasonably selected by Landlord. All such insurance shall: (1) be
acceptable in form and content to Landlord; and (2) contain a clause requiring the insurer to provide Landlord thirty (30) days’ prior
written notice of cancellation or failure to renew. All commercial general liability, excess/umbrella liability and automobile liability
insurance policies shall be primary and noncontributory. No such policy shall contain any self-insured retention greater than $25,000.00
for property insurance and $25,000.00 for commercial general liability insurance. Any deductibles and such self-insured retentions shall
be deemed to be “insurance” for purposes of the waiver in Section 10.13 of this Lease, below. Landlord reserves the right from time to
time to require Tenant to obtain higher minimum amounts
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of insurance based on such limits as are customarily carried with respect to similar properties in the area in which the Premises are
located. The minimum amounts of insurance required by this Lease shall not be reduced by the payment of claims or for any other
reason. In the event Tenant shall fail to obtain or maintain any insurance meeting the requirements of this Article, or to deliver such
policies or certificates as required by this Article, Landlord may, at its option, on five (5) days’ notice to Tenant, procure such policies for
the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor.
10.7 Additional Insureds. The commercial general liability and auto insurance carried by Tenant pursuant to this Lease,
and any additional liability insurance carried by Tenant pursuant to Section 10.3 of this Lease, above, shall include Landlord, Landlord’s
managing agent, and such other persons as Landlord may reasonably request from time to time as additional insureds (collectively
“Additional Insureds”) with respect to liability arising out of or related to this Lease or the operations of Tenant. Such insurance shall
provide primary coverage without contribution from any other insurance carried by or for the benefit of Landlord, Landlord’s managing
agent, or other Additional Insureds. For the avoidance of doubt, each primary policy and each excess/umbrella policy through which
Tenant satisfies its obligations under this Section must provide coverage to the Additional Insureds that is primary and non-contributory.
10.8 Certificates Of Insurance. On or before the earlier of (i) the date on which any Tenant Party first enters the Premises
for any reason or (ii) the Lease Commencement Date, Tenant shall furnish Landlord with certificates evidencing the insurance coverage
required by this Lease, and renewal certificates shall be furnished to Landlord at least annually thereafter, and at least ten (10) days prior
to the expiration date of each policy for which a certificate was furnished. (Acceptable forms of such certificates for liability and
property insurance, respectively, are attached hereto as Exhibit G, however other forms of certificates may satisfy the requirements of
this Section.) Failure by the Tenant to provide the certificates or letters required by this Section shall not be deemed to be a waiver of the
requirements in this Section.
10.9 Subtenants And Other Occupants. Tenant shall require its subtenants and other occupants of the Premises to
provide written documentation evidencing the obligation of such subtenant or other occupant to indemnify the Landlord Parties to the
same extent that Tenant is required to indemnify the Landlord Parties pursuant to Section 10.1 of this Lease, above, and to maintain
insurance that meets the requirements of this Article, and otherwise to comply with the requirements of this Article, provided that the
terms of this Section 10.9 shall not relieve Tenant of any of its obligations to comply with the requirements of this Article. Tenant shall
require all such subtenants and occupants to supply certificates of insurance evidencing that the insurance requirements of this Article
have been met and shall forward such certificates to Landlord on or before the earlier of (i) the date on which the subtenant first enters
the Premises or (ii) the commencement of the sublease. Tenant shall be responsible for identifying and remedying any deficiencies in
such certificates or policy provisions.
10.10 No Violation Of Building Policies. Tenant shall not commit or permit its agents, employees or contractors to commit
any violation of the policies of fire, boiler, sprinkler, water damage or other insurance covering the Project and/or the fixtures, equipment
and property therein carried by Landlord, or do or permit anything to be done, or keep or permit anything to be kept, in the Premises,
which in case of any of the foregoing (i) would result in termination of any such
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policies, (ii) would adversely affect Landlord’s right of recovery under any of such policies, or (iii) would result in reputable and
independent insurance companies refusing to insure the Project or the property of Landlord in amounts reasonably satisfactory to
Landlord.
10.11 Tenant To Pay Premium Increases. If, because of anything done by Tenant or its agents, employees or contractors (or
its subtenant or other occupants of the Premises), the rates for liability, fire, boiler, sprinkler, water damage or other insurance on the
Project or on the property and equipment of Landlord shall be higher than they otherwise would be, Tenant shall reimburse Landlord for
the additional insurance premiums thereafter paid by Landlord which shall have been charged because of the aforesaid reasons, such
reimbursement to be made from time to time on Landlord’s demand.
10.12 Landlord’s Insurance.
10.12.1 Required insurance. Landlord shall maintain insurance against loss or damage with respect to the Building
on an “all risk” or equivalent type insurance form, with customary exceptions, subject to such deductibles and self-insured retentions as
Landlord may determine, in an amount equal to at least the replacement value of the Building. The cost of such insurance shall be treated
as a part of Operating Expenses. Such insurance shall be maintained with an insurance company selected by Landlord. Payment for
losses thereunder shall be made solely to Landlord.
10.12.2 Optional insurance. Landlord may maintain such additional insurance with respect to the Building and the
Project, including, without limitation, earthquake insurance, terrorism insurance, flood insurance, liability insurance and/or rent
insurance, as Landlord may in its reasonable discretion elect. Landlord may also maintain such other insurance as may from time to time
be required by a “Mortgagee,” as that term is defined in Section 18.2 of this Lease, below. The cost of all such additional insurance shall
also be part of the Operating Expenses, subject to the terms and condition of Section 4.2.7.
10.12.3 Blanket and self-insurance. Any or all of Landlord’s insurance may be provided by blanket coverage
maintained by Landlord or any affiliate of Landlord under its insurance program for its portfolio of properties, or by Landlord or any
affiliate of Landlord under a program of self-insurance, and in such event Operating Expenses shall include the portion of the reasonable
cost of blanket insurance or self-insurance that is equitably allocated to the Building.
10.12.4 No obligation. Landlord shall not be obligated to insure, and shall not assume any liability of risk of loss
for, Tenant’s Property, including any such property or work of tenant’s subtenants or occupants. Landlord will also have no obligation to
carry insurance against, nor be responsible for, any loss suffered by Tenant, subtenants or other occupants due to interruption of Tenant’s
or any subtenant’s or occupant’s business.
10.13 Waiver Of Subrogation. To the fullest extent permitted by law, and notwithstanding any term or provision of this
Lease to the contrary, the parties hereto waive and release any and all rights of recovery against the other, and agree not to seek to
recover from the other or to make any claim against the other, and in the case of Landlord, against all Tenant Parties, and in the case of
Tenant, against all Landlord Parties (including, but not limited to, each
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Additional Insured), for any loss or damage incurred by the waiving/releasing party to the extent such loss or damage is caused by or
results from a risk which is actually insured under any insurance policy required by this Lease or which would have been so insured had
the party carried the insurance it was required to carry hereunder without regard to the negligence of the entity so released. Tenant shall
obtain from its subtenants and other occupants of the Premises a similar waiver and release of claims against any or all of Tenant or
Landlord. In addition, the parties hereto (and in the case of Tenant, its subtenants and other occupants of the Premises) shall procure an
appropriate clause in, or endorsement on, any insurance policy required by this Lease pursuant to which the insurance company waives
subrogation so long as no material additional premium is charged for such waiver. The insurance policies required by this Lease shall
contain no provision that would invalidate or restrict the parties’ waiver and release of the rights of recovery in this section. The parties
hereto covenant that no insurer shall hold any right of subrogation against the parties hereto by virtue of such insurance policy.
The term “Landlord Party” or “Landlord Parties” shall mean Landlord, any affiliate of Landlord, Landlord’s
managing agents for the Building, each Mortgagee, each ground lessor, and each of their respective direct or indirect partners, officers,
shareholders, directors, members, trustees, beneficiaries, servants, employees, principals, contractors, licensees, agents or representatives.
For the purposes of this Lease, the term “Tenant Party” or “Tenant Parties” shall mean Tenant, any affiliate of Tenant, any permitted
subtenant or any other permitted occupant of the Premises, and each of their respective direct or indirect partners, officers, shareholders,
directors, members, trustees, beneficiaries, servants, employees, principals, contractors and agents.
10.14 Tenant’s Work. During such times as Tenant is performing work or having work or services performed in or to the
Premises, Tenant shall require its contractors, and their subcontractors of all tiers, to obtain and maintain commercial general liability,
automobile, workers compensation, employer’s liability, builder’s risk, and equipment/property insurance in such amounts and on such
terms as are customarily required of such contractors and subcontractors on similar projects. The amounts and terms of all such
insurance are subject to Landlord’s written approval, which approval shall not be unreasonably withheld. The commercial general
liability and auto insurance carried by Tenant’s contractors and their subcontractors of all tiers pursuant to this section shall name the
Additional Insured as additional insureds with respect to liability arising out of or related to their work or services. Such insurance shall
provide primary coverage . Such insurance shall also waive any right of subrogation against each Additional Insured. Tenant shall
obtain and submit to Landlord, prior to the earlier of (i) the entry onto the Premises by such contractors or subcontractors or (ii)
commencement of the work or services, certificates of insurance evidencing compliance with the requirements of this section.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly notify Landlord of any damage to the Premises
resulting from fire or any other casualty. If the Premises or any Common Areas necessary to Tenant’s use of or access to the Premises
shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment
or other matters beyond Landlord’s reasonable control, and subject to all
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other terms of this Article 11, restore the Base Building and such Common Areas. Such restoration shall be to substantially the same
condition of the Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building
codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed
desirable by Landlord, provided that access to the Premises and any common restrooms serving the Premises shall not be materially
impaired. Upon the occurrence of any damage to the Premises, upon notice (the “Landlord Repair Notice”) to Tenant from Landlord,
Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s
insurance required under item (ii) of Section 10.4 of this Lease, and Landlord shall repair any injury or damage to the Tenant
Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original
Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds
received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord
prior to Landlord’s commencement of repair of the damage. In the event that Landlord does not deliver the Landlord Repair Notice
within sixty (60) days following the date the casualty becomes known to Landlord, Tenant shall, at its sole cost and expense, repair any
injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant
Improvements and Original Improvements to their original condition. Whether or not Landlord delivers a Landlord Repair Notice, prior
to the commencement of construction, Tenant shall submit to Landlord, for Landlord’s review and approval, all plans, specifications and
working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be
liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage
or the repair thereof; provided, however, if such fire or other casualty shall have damaged the Premises or a portion thereof or Common
Areas necessary to Tenant’s occupancy, then Landlord shall allow Tenant a proportionate abatement of Rent during the time and to the
extent and in the proportion that the Premises or such portion thereof are unfit for occupancy for the purposes permitted under this Lease,
and are not occupied by Tenant as a result thereof, provided, however, if the damage or destruction is due to the gross negligence or
willful misconduct of Tenant or any of its agents, employees or contractors, then Tenant shall be responsible for any reasonable,
applicable insurance deductible (which shall be payable to Landlord upon demand) and there shall be no rent abatement. In the event
that Landlord shall not deliver the Landlord Repair Notice, Tenant’s right to rent abatement pursuant to the preceding sentence shall
terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Premises
assuming Tenant used reasonable due diligence in connection therewith.
11.2 Landlord’s Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to
rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such
termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty
(60) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause,
whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment,
repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such
repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or
ground lessor with respect to the
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Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate
the ground lease, as the case may be; (iii) at least $500,000.00 of the cost to repair the damage is not covered by Landlord’s insurance
policies or that portion of the proceeds from Landlord’s insurance policies allocable to the Building or the Project, as the case may be; or
(iv) the damage occurs during the last twelve (12) months of the Lease Term; or (vi) any owner of any other portion of the Project, other
than Landlord, does not intend to repair the damage to such portion of the Project; provided, however, that if such fire or other casualty
shall have damaged the Premises or a portion thereof or Common Areas necessary to Tenant’s occupancy and as a result of such damage
the Premises are unfit for occupancy, and provided that Landlord does not elect to terminate this Lease pursuant to Landlord’s
termination right as provided above, and either (a) the repairs cannot, in the reasonable opinion of Landlord’s contractor, be completed
within two hundred ten (210) days after the date of discovery of the damage, or (b) the damage occurs during the last twelve (12) months
of the Lease Term and will reasonably require in excess of sixty (60) days after the date of the damage to repair, Tenant may elect, no
earlier than sixty (60) days after the date of the damage and not later than ninety (90) days after the date of such damage, to terminate this
Lease by written notice to Landlord effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor
more than sixty (60) days after the date such notice is given by Tenant. Notwithstanding the foregoing, Landlord may not terminate this
Lease if Landlord actually intends to restore the casualty damage in the following one hundred eighty (180) days.
11.3 Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express
agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the
Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and
1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an
express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.
ARTICLE 12
NONWAIVER
No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed
thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a
waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this
Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding
breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a
waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter
accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord’s right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this
Lease shall in any way alter the length of the
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Lease Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease
Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the
commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the
payment of said Rent shall not waive or affect said notice, suit or judgment. No payment of Rent by Tenant after a breach by Landlord
shall be deemed a waiver of any breach by Landlord.
ARTICLE 13
CONDEMNATION
If the whole or any material part of the Premises or Building required for access to the Premises shall be taken by power of
eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or
street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction
or remodeling of any material part of the Premises or Building required for access to the Premises, or if Landlord shall grant a deed or
other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease
effective as of the date possession is required to be surrendered to the authority. If all or any portion of the Premises is taken, or if all
reasonable access to the Premises is substantially impaired, in each case for a period in excess of one hundred eighty (180) days, Tenant
shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall
not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord
shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim
available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon
expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses and relocation costs, so long as such claims do
not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is
payable separately to Tenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken,
and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure. Notwithstanding anything to the contrary
contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred eighty
(180) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such
taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the
Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfers. Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate,
encumber, or permit any lien to attach to, or otherwise transfer,
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this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law,
sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of
the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter
sometimes referred to individually as a “Transfer,” and, collectively, as “Transfers” and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a “Transferee”). If Tenant desires Landlord’s consent to any Transfer, Tenant
shall notify Landlord in writing, which notice (the “Transfer Notice”) shall include (i) the proposed effective date of the Transfer, which
shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a
description of the portion of the Premises to be transferred (the “Subject Space”), (iii) all of the terms of the proposed Transfer and the
consideration therefor, including calculation of the “Transfer Premium”, as that term is defined in Section 14.3 below, in connection with
such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation
pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the
agreements incidental or related to such Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer,
partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information
required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed
Transferee, nature of such Transferee’s business and proposed use of the Subject Space. Any Transfer made without Landlord’s prior
written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant
under this Lease after the expiration of any applicable notice and cure period expressly set forth in this Lease. Whether or not Landlord
consents to any proposed Transfer, Tenant shall pay Landlord’s review and processing fees, as well as any reasonable professional fees
(including, without limitation, attorneys’, accountants’, architects’, engineers’ and consultants’ fees) incurred by Landlord, not to exceed
Three Thousand Five Hundred and 00/100 Dollars ($3,500.00) for a Transfer in the ordinary course of business, within thirty (30) days
after written request by Landlord.
14.2 Landlord’s Consent. Landlord shall not unreasonably withhold its consent to any proposed Transfer of the Subject
Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding
consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold
consent to any proposed Transfer where one or more of the following apply:
quality of the Building or the Project, or would be a significantly less prestigious occupant of the Building than Tenant;
14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the
14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or instrumentality thereof;
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responsibilities to be undertaken in connection with the Transfer on the date consent is requested;
14.2.4 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the
space in the Project, or would give a tenant of the Project a right to then cancel its lease;
14.2.5 The proposed Transfer would constitute a breach by Landlord of its obligations under another lease for
14.2.6 Landlord has suitable space available and either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the
Project at the time of the request for consent, or (ii) is negotiating or has negotiated a letter of intent or other lease proposal with
Landlord to lease space in the Project, or (iii) has toured space in the Project with Landlord in the preceding six (6) months;
14.2.7 In Landlord’s reasonable judgment, the use of the Premises by the proposed Transferee would materially
increase the use of the space to more than a reasonable density of occupants per square foot of the Premises (which shall be based on
other tenants of the Project or of Comparable Buildings), or would require a material increase of services by Landlord unless Tenant
agrees to pay for the increased cost of providing such services;
occupying the Premises at any given time during the Lease Term; or
14.2.8 The proposed Transfer would result in the existence of, in the aggregate, more than three (3) subtenants
14.2.9 Any part of the rent payable under the proposed Transfer shall be based in whole or in part on the income or
profits derived from the Subject Space or if any proposed Transfer shall potentially have any adverse effect on the real estate investment
trust qualification requirements applicable to Landlord and its affiliates.
If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights
Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord’s consent, but not later than the
expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and
conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if
there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have
been entitled to refuse its consent to such Transfer under this Section 14.2, or (ii) which would cause the proposed Transfer to be
materially more favorable to the Transferee than the terms set forth in Tenant’s original Transfer Notice, Tenant shall again submit the
Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture, if any, under
Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that
Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under
this Article 14, their sole remedies shall be a suit for contract damages (other than damages for injury to, or interference with, Tenant’s
business including, without limitation, loss of profits, however occurring) or a declaratory judgment and an injunction for the relief
sought, and Tenant hereby waives the
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provisions of Section 1995.310 of the California Civil Code, or any successor statute, and all other remedies, including, without
limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on
behalf of the proposed Transferee. Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims,
damages, costs, expenses, causes of action and proceedings involving any third party or parties (including without limitation Tenant’s
proposed subtenant or assignee) who claim they were damaged by Landlord’s wrongful withholding or conditioning of Landlord’s
consent.
14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is
reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3,
received by Tenant from such Transferee. “Transfer Premium” shall mean all rent, additional rent or other consideration payable by
such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the
term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after first deducting the reasonable
expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises, or allowances in lieu thereof, in
connection with the Transfer, (ii) any free base rent reasonably provided to the Transferee in connection with the Transfer (provided that
such free rent shall be deducted only to the extent the same is included in the calculation of total consideration payable by such
Transferee), and (iii) any brokerage commissions in connection with the Transfer and (iv) legal fees reasonably incurred in connection
with the Transfer (collectively, “Tenant’s Subleasing Costs”). “Transfer Premium” shall also include, but not be limited to, key money,
bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of
fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by
Tenant to Transferee in connection with such Transfer. Landlord shall make a determination of the amount of Landlord’s applicable
share of the Transfer Premium on a monthly basis as rent or other consideration is paid by Transferee to Tenant under the Transfer. For
purposes of calculating the Transfer Premium on a monthly basis, Tenant’s Subleasing Costs shall be deemed to be expended by Tenant
in equal monthly amounts over the entire term of the Transfer.
14.4 Landlord’s Option as to Subject Space. Notwithstanding anything to the contrary contained in this Article 14,
Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any Transfer Notice, to (i)
recapture the Subject Space, or (ii) take an assignment or sublease of the Subject Space from Tenant; provided, however, that Landlord
hereby acknowledges and agrees that Landlord shall not have the right to recapture or take an assignment or sublease of the Subject
Space from Tenant hereunder with respect to, a sublease of less than the entire Premises for less than the remainder of the Lease Term
(for purposes hereof, a sublease shall be deemed to be for the remainder of the Lease Term if, assuming all sublease renewal or extension
rights are exercised, such sublease shall expire during the final twelve (12) months of the Lease Term). Such recapture or sublease or
assignment notice, shall cancel and terminate this Lease, or create a sublease or assignment, as the case may be, with respect to the
Subject Space as of the date stated in the Transfer Notice as the effective date of the proposed Transfer. In the event of a recapture by
Landlord, if this Lease shall be canceled with respect to less than the entire Premises, then (i) the Rent reserved herein shall be prorated
on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the
Premises; (ii) this Lease as so amended shall continue thereafter in full force
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and effect, and upon request of either party, the parties shall execute written confirmation of the same; and (iii) Landlord shall construct
or cause to be constructed a demising wall separating that portion of the Premises recaptured by Landlord from that portion of the
Premises retained by Tenant; provided that, Tenant hereby agrees that, notwithstanding Tenant’s occupancy of its retained portion of the
Premises during the construction of such demising wall by Landlord, Landlord shall be permitted to construct such demising wall during
normal business hours, without any obligation to pay overtime or other premiums, and the construction of such demising wall by
Landlord shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent, and Landlord shall
have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business
arising from the construction of such demising wall, nor shall Tenant be entitled to any compensation or damages from Landlord for loss
of the use of the whole or any part of its retained portion of the Premises or of Tenant’s personal property or improvements resulting from
the construction of such demising wall, or for any inconvenience or annoyance occasioned by the construction of such demising wall;
and provided further that, Tenant shall be responsible for, and shall pay to Landlord promptly upon being billed therefor, fifty percent
(50%) of all costs related to the construction of such demising wall, including Landlord’s standard fee for its involvement with such
demising wall. If Landlord declines, or fails to elect in a timely manner, to recapture, sublease or take an assignment of the Subject
Space under this Section 14.4, then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to
transfer the Subject Space to the proposed Transferee, subject to provisions of this Article 14.
14.5 Effect of Transfer. If Landlord consents to a Transfer, then (i) the terms and conditions of this Lease shall in no way
be deemed to have been waived or modified; (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a
Transferee; (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to
the Transfer in form and content reasonably acceptable to Landlord, including, without limitation, at Landlord’s option, a “Transfer
Agreement,” as that term is defined in this Section 14.5, below; (iv) Tenant shall furnish upon Landlord’s request a complete statement,
certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any
Transfer Premium Tenant has derived and shall derive from such Transfer; and (v) no Transfer relating to this Lease or agreement entered
into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any
liability under this Lease, including, without limitation, in connection with the Subject Space, and, in the event of a Transfer of Tenant’s
entire interest in this Lease, the liability of Tenant and such Transferee shall be joint and several. Landlord or its authorized
representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and
shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall,
within thirty (30) days after demand, pay the deficiency, and if understated by more than two percent (2%), Tenant shall pay Landlord’s
costs of such audit. Notwithstanding anything to the contrary contained in this Article 14, Landlord, at its option in its sole and absolute
discretion, may require, as a condition to the validity of any Transfer, that both Tenant and such Transferee enter into a commercially
reasonable separate written agreement directly with Landlord (a “Transfer Agreement”), which Transfer Agreement, among other
things, shall create privity of contract between Landlord and such Transferee with respect to the provisions of this Article 14, and shall
contain such terms and provisions as Landlord may reasonably require, including, without limitation, the following: (A)
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except to the extent expressly provided to the contrary in a sublease, such Transferee’s agreement to be bound by all the obligations of
Tenant under this Lease (including, but not limited to, Tenant’s obligation to pay Rent), provided that, in the event of a Transfer of less
than the entire Premises, the obligations to which such Transferee shall agree to be so bound shall be prorated on the basis of the number
of rentable square feet of the Subject Space in proportion to the number of rentable square feet in the Premises; (B) such Transferee’s
acknowledgment of, and agreement that such Transfer shall be subordinate and subject to, Landlord’s rights under Section 19.3 of this
Lease; and (C) Tenant’s and such Transferee’s recognition of and agreement to be bound by all the terms and provisions of this
Article 14, including, but not limited to, any such terms and provisions which Landlord, at its option, requires to be expressly set forth in
such Transfer Agreement. Upon the occurrence of any default by Transferee under such Transfer, Landlord shall have the right, at its
option, but not the obligation, on behalf of Tenant, to pursue any or all of the remedies available to Tenant under such Transfer or at law
or in equity (all of which remedies shall be distinct, separate and cumulative).
14.6 Occurrence of Default. Any Transfer hereunder, whether or not such Transferee shall have executed a Transfer
Agreement, shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any
Transfer, then Landlord shall have all of the rights set forth in Section 19.3 of this Lease with respect to such Transfer. In addition, if
Tenant shall be in default under this Lease beyond any applicable notice and cure period expressly set forth in this Lease, then Landlord
is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any Transferee to make all payments under or in
connection with a Transfer directly to Landlord (which payments Landlord shall apply towards Tenant’s obligations under this Lease)
until such default is cured. Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, beyond any
applicable notice and cure period expressly set forth in this Lease, without any need for confirmation thereof by Tenant. Upon any
assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under
this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this
Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter
accruing. In no event shall Landlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of
Landlord’s right to enforce any term of this Lease against Tenant or any other person. If Tenant’s obligations hereunder have been
guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.
14.7 Additional Transfers. For purposes of this Lease, the term “Transfer” shall also include (i) if Tenant is a partnership
or a limited liability company, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of
the partners, officers or members, as applicable, or transfer of fifty percent (50%) or more of partnership, ownership or membership
interests (as applicable), within a twelve (12)-month period, or the dissolution of the partnership or limited liability company without
immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded
through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant or (B) the sale or
other transfer of an aggregate of fifty percent (50%) or more of the voting shares of Tenant (other than to immediate family members by
reason of gift or death), within a twelve (12) month period, or (C) the sale of an aggregate of fifty percent
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(50%) or more of the value of the unencumbered assets of Tenant within a twelve (12)-month period other than pursuant to a
collaboration or joint venture agreement or (D) the sale of substantially all of the assets of Tenant. Tenant shall provide prompt written
notice to Landlord of any mortgage, hypothecation or pledge of an aggregate of fifty percent (50%) or more of the value of the
unencumbered assets of Tenant within a twelve (12) month period.
14.8 Deemed Consent Transfers. Notwithstanding anything to the contrary contained in this Lease, (A) an assignment or
subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common
control with, Tenant as of the date of this Lease), (B) a sale of corporate shares of capital stock in Tenant in connection with an initial
public offering of Tenant’s stock on a nationally-recognized stock exchange, (C) an assignment of this Lease to an entity which acquires
all or substantially all of the stock or assets of Tenant, (D) an assignment of the Lease to an entity which is the resulting entity of a
merger or consolidation of Tenant during the Lease Term, or I a deemed assignment under Section 14.7(ii)(B) or (C), shall not be deemed
a Transfer requiring Landlord’s consent under this Article 14 or be subject to Sections 14.3 or 14.4 of this Lease (any such assignee or
sublessee described in items (A) through (D) or Tenant under item I of this Section 14.8 hereinafter referred to as a “Permitted Non-
Transferee”), provided that (i) Tenant notifies Landlord at least thirty (30) days prior to the effective date of any such assignment or
sublease and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such transfer
or transferee as set forth above, (ii) Tenant is not in default, beyond any applicable notice and cure period, and such assignment or
sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, and (iii) such Permitted Non-Transferee shall be of a
character and reputation consistent with the quality of the Building, (iv) such Permitted Non-Transferee shall have a tangible net worth
(not including goodwill as an asset) computed in accordance with generally accepted accounting principles (“Net Worth”) at least equal
to the greater of (1) the Net Worth of Original Tenant on the date of this Lease, and (2) the Net Worth of Tenant on the day immediately
preceding the effective date of such assignment or sublease, and (v) no assignment relating to this Lease, whether with or without
Landlord’s consent, shall relieve Tenant from any liability under this Lease, and, in the event of an assignment of Tenant’s entire interest
in this Lease, the liability of Tenant and such transferee shall be joint and several. Landlord shall not have the right to recapture under
Section 14.4 of this Lease with respect to a Transferee that would qualify as a Permitted Non-Transferee but for the failure to meet the
requirements of clause (iv)(1) in the immediately preceding sentence. An assignee of Tenant’s entire interest in this Lease who qualifies
as a Permitted Non-Transferee may also be referred to herein as a “Non-Transferee Assignee.” “Control,” as used in this
Section 14.8, shall mean the ownership, directly or indirectly, of at least fifty-one percent (51%) of the voting securities of, or possession
of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity.
ARTICLE 15
SURRENDER OF PREMISES; OWNERSHIP AND
REMOVAL OF TRADE FIXTURES
15.1 Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease
Term shall be deemed to constitute an acceptance by
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Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to
the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of
this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other
surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at
the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any
or all such subleases or subtenancies.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of
this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good
order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and
repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant
shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, such items of furniture,
equipment, business and trade fixtures, free-standing cabinet work, movable partitions and other articles of personal property owned by
Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under
Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with the express or implied consent of
Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further
term, and in such case Rent shall be payable at a monthly rate equal to (i) one hundred fifty percent (150%) of the Rent applicable during
the last rental period of the Lease Term under this Lease during the first month of such holdover and (ii) two hundred percent (200%) of
the Rent applicable during the last rental period of the Lease Term under this Lease thereafter. Such month-to-month tenancy shall be
subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be construed
as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender
possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions
of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at
law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to
Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including
reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any
claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.
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ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an
estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E, attached hereto (or such other form
as may be reasonably required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any
exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or
Landlord’s mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of
all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such
purposes. At any time during the Lease Term, Landlord may require Tenant to provide Landlord with a current financial statement and
financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance
with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified
public accountant. Upon written request by Tenant, Landlord shall enter into a commercially reasonable confidentiality agreement
covering any financial statements disclosed by Tenant pursuant to this Article 17. Failure of Tenant to timely execute, acknowledge and
deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant
that statements included in the estoppel certificate are true and correct, without exception.
ARTICLE 18
MORTGAGE OR GROUND LEASE
18.1 Subordination. This Lease shall be subject and subordinate to all present and future ground or underlying leases of
the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building
or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all
advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust
deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior
thereto. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu
thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or
any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such
purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease,
provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as
Tenant timely pays the rent and observes and performs the terms, covenants and conditions of this Lease to be observed and performed
by Tenant within applicable notice and cure periods expressly set forth in this Lease. Landlord’s interest herein may be assigned as
security at any time to any lienholder. Tenant shall, within ten (10) days of request by Landlord, execute such further instruments or
assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such
mortgages, trust deeds, ground leases or underlying leases.
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Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election
to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure
proceeding or sale.
18.2 Notice to Lienholder or Ground Lessor. Notwithstanding anything to the contrary contained in Article 28, below, or
elsewhere in this Lease, upon receipt by Tenant of notice from any holder of a mortgage, trust deed or other encumbrance in force against
the Building or the Project or any part thereof which includes the Premises or any lessor under a ground lease or underlying lease of the
Building or the Project, or from Landlord, which notice sets forth the address of such lienholder or ground lessor, no notice from Tenant
to Landlord shall be effective unless and until a copy of the same is given to such lienholder or ground lessor at the appropriate address
therefor (as specified in the above-described notice or at such other places as may be designated from time to time in a notice to Tenant
in accordance with Article 28, below), and the curing of any of Landlord’s defaults by such lienholder or ground lessor within a
reasonable period of time after such notice from Tenant (including a reasonable period of time to obtain possession of the Building or the
Project, as the case may be, if such lienholder or ground lessor elects to do so) shall be treated as performance by Landlord. For the
purposes of this Article 18, the term “mortgage” shall include a mortgage on a leasehold interest of Landlord (but not a mortgage on
Tenant’s leasehold interest hereunder).
18.3 Assignment of Rents. With reference to any assignment by Landlord of Landlord’s interest in this Lease, or the Rent
payable to Landlord hereunder, conditional in nature or otherwise, which assignment is made to any holder of a mortgage, trust deed or
other encumbrance in force against the Building or the Project or any part thereof which includes the Premises or to any lessor under a
ground lease or underlying lease of the Building or the Project, Tenant agrees as follows:
18.3.1 The execution of any such assignment by Landlord, and the acceptance thereof by such lienholder or
ground lessor, shall never be treated as an assumption by such lienholder or ground lessor of any of the obligations of Landlord under
this Lease, unless such lienholder or ground lessor shall, by notice to Tenant, specifically otherwise elect.
18.3.2 Notwithstanding delivery to Tenant of the notice required by Section 18.3.1, above, such lienholder or
ground lessor, respectively, shall be treated as having assumed Landlord’s obligations under this Lease only upon such lienholder’s
foreclosure of any such mortgage, trust deed or other encumbrance, or acceptance of a deed in lieu thereof, and taking of possession of
the Building or the Project or applicable portion thereof, or such ground lessor’s termination of any such ground lease or underlying
leases and assumption of Landlord’s position hereunder, as the case may be. In no event shall such lienholder, ground lessor or any other
successor to Landlord’s interest in this Lease, as the case may be, be liable for any security deposit paid by Tenant to Landlord, unless
and until such lienholder, ground lessor or other such successor, respectively, actually has been credited with or has received for its own
account as landlord the amount of such security deposit or any portion thereof (in which event the liability of such lienholder, ground
lessor or other such successor, as the case may be, shall be limited to the amount actually credited or received).
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18.3.3 In no event shall the acquisition of title to the Building and the land upon which the Building is located or
the Project or any part thereof which includes the Premises by a purchaser which, simultaneously therewith, leases back to the seller
thereof the entire Building or the land upon which the Building is located or the Project or the entirety of that part thereof acquired by
such purchaser, as the case may be, be treated as an assumption, by operation of law or otherwise, of Landlord’s obligations under this
Lease, but Tenant shall look solely to such seller-lessee, or to the successors to or assigns of such seller-lessee’s estate, for performance
of Landlord’s obligations under this Lease. In any such event, this Lease shall be subject and subordinate to the lease to such seller-
lessee, and Tenant covenants and agrees in the event the lease to such seller-lessee is terminated to attorn, without any deductions or set-
offs whatsoever, to such purchaser-lessor, if so requested to do so by such purchaser-lessor, and to recognize such purchaser-lessor as the
lessor under this Lease, provided such purchaser-lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as
Tenant timely pays the rent and observes and performs the terms, covenants and conditions of this Lease to be observed and performed
by Tenant within applicable notice and cure periods expressly set forth in this Lease. For all purposes, such seller-lessee, or the
successors to or assigns of such seller-lessee’s estate, shall be the lessor under this Lease unless and until such seller-lessee’s position
shall have been assumed by such purchaser-lessor.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 Events of Default. The occurrence of any of the following shall constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part
thereof, when due, which failure is not cured within five (5) days after written notice from Landlord that said amount was not paid when
due, provided that if Tenant has previously received one (1) or more notices from Landlord during the immediately preceding twelve (12)
month period stating that Tenant failed to pay any amount required to be paid by Tenant under this Lease when due, then Landlord shall
not be required to deliver any notice to Tenant and a default shall immediately occur upon any failure by Tenant to pay any Rent or any
other charge required to be paid under the Lease when due; or
19.1.2 Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, in which
event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2, any failure by
Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such
failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is
such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently
commences such cure within such period and thereafter diligently proceeds to rectify and cure such default; or
19.1.3 Abandonment of the Premises by Tenant; or
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19.1.4 The failure by Tenant to observe or perform according to the provisions of Articles 5, 10, 14, 17 or 18 of
this Lease, or any breach by Tenant of the representations and warranties set forth in Section 29.35 of this Lease, or the failure by Tenant
to observe or perform any other provision, covenant or condition of this Lease which failure, because of the character of such provision,
covenant or condition, would immediately jeopardize Landlord’s interest, where such failure continues for more than two (2) business
days after notice from Landlord.
The notice periods provided in this Section 19.1 are in lieu of, and not in addition to, any notice periods provided by law.
19.2 Remedies Upon Default. Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to
any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option
to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or
demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if
Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter
upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any
part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the
following:
termination; plus
(i) The worth at the time of award of any unpaid rent which has been earned at the time of such
(ii) The worth at the time of award of the amount by which the unpaid rent which would have been
earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease
(iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by
Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom,
specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises
or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant;
and
permitted from time to time by applicable law.
(v) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be
The term “rent” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by
Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1(i) and 19.2.1(ii), above, the
“worth at the time of award” shall be computed by allowing interest at the rate set forth in Article 25 of this Lease, but in no
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case greater than the maximum amount of such interest permitted by law. As used in Section 19.2.1(iii) above, the “worth at the time of
award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue
lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject
only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant,
Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the
right to recover all rent as it becomes due.
19.2.3 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and
cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision
of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable
relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.
19.3 Subleases of Tenant. If Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in
this Article 19, then Landlord shall have the right, at Landlord’s option in its sole discretion, (i) to terminate any and all assignments,
subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises, in
which event Landlord shall have the right to repossess such affected portions of the Premises by any lawful means, or (ii) to succeed to
Tenant’s interest in any or all such assignments, subleases, licenses, concessions or arrangements, in which event Landlord may require
any assignees, sublessees, licensees or other parties thereunder to attorn to and recognize Landlord as its assignor, sublessor, licensor,
concessionaire or transferor thereunder. In the event of Landlord’s election to succeed to Tenant’s interest in any such assignments,
subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right
to or interest in the rent or other consideration receivable thereunder.
19.4 Efforts to Relet. No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting,
appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an
election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same
operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is
sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this
Lease.
ARTICLE 20
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping,
observing and performing all the other terms, covenants,
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conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease
Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements
hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other
covenant express or implied.
ARTICLE 21
LETTER OF CREDIT
21.1 Delivery of Letter of Credit. Tenant shall deliver to Landlord concurrent with Tenant’s execution of this Lease, as
protection for the full and faithful performance by Tenant of all of its obligations under this Lease and for all losses and damages
Landlord may suffer (or which Landlord reasonably estimates that it may suffer) as a result of any breach or default by Tenant under this
Lease, an unconditional, clean, irrevocable negotiable standby letter of credit (the “L-C”) in the amount set forth in Section 8 of the
Summary (the “L-C Amount”), in the form attached hereto as Exhibit H, payable in the City of San Francisco, California, running in
favor of Landlord, drawn on a bank (the “Bank”) reasonably approved by Landlord and at a minimum having a long term issuer credit
rating from Standard and Poor’s Professional Rating Service of A or a comparable rating from Moody’s Professional Rating Service (the
“Credit Rating Threshold”), and otherwise conforming in all respects to the requirements of this Article 21, including, without
limitation, all of the requirements of Section 21.2, below, all as set forth more particularly hereinbelow. Tenant shall pay all expenses,
points and/or fees incurred by Tenant in obtaining and maintaining the L-C. In the event of an assignment by Tenant of its interest in the
Lease (and irrespective of whether Landlord’s consent is required for such assignment), the acceptance of any replacement or substitute
letter of credit by Landlord from the assignee shall be subject to Landlord’s prior written approval, in Landlord’s reasonable discretion,
and the attorney’s fees incurred by Landlord in connection with such determination shall be payable by Tenant to Landlord within ten
(10) days of billing. Tenant shall have no right to voluntarily replace the L-C without Landlord’s prior written approval, in Landlord’s
sole and absolute discretion. Tenant shall be responsible for the payment of any and all costs incurred by Landlord relating to the review
of any replacement L‑C (including, without limitation, Landlord’s reasonable attorneys’ fees), which replacement is required pursuant to
this Section or is otherwise requested by Tenant, and such attorneys’ fees shall be payable by Tenant to Landlord within ten (10) days of
billing. If Landlord approves any replacement or substitute letter of credit, Landlord shall return the L-C then held by Landlord within
ninety-one (91) days following Landlord receipt of the replacement or substitute L-C tendered by Tenant.
21.2 In General. The L-C shall be “callable” at sight, permit partial draws and multiple presentations and drawings, and be
otherwise subject to the Uniform Customs and Practices for Documentary Credits (1993-Rev), International Chamber of Commerce
Publication #500, or the International Standby Practices-ISP 98, International Chamber of Commerce Publication #590. The L-C must
provide that presentation of a drawing under the L-C may be made by hand delivery, courier service, overnight mail, or facsimile. Tenant
further covenants and warrants as follows:
time and without notice to Tenant and without first obtaining
21.2.1 Landlord Right to Transfer. The L-C shall provide that Landlord, its successors and assigns, may, at any
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Tenant’s consent thereto, transfer (one or more times) all or any portion of its interest in and to the L-C to another party, person or entity,
regardless of whether or not such transfer is separate from or as a part of the assignment by Landlord of its rights and interests in and to
this Lease. In the event of a transfer of Landlord’s interest in the Building, Landlord shall transfer the L-C, in whole or in part, to the
transferee and thereupon Landlord shall, without any further agreement between the parties, be released by Tenant from all liability
therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said L-C to a
new landlord. In connection with any such transfer of the L-C by Landlord, Tenant shall, at Tenant’s sole cost and expense, execute and
submit to the Bank such applications, documents and instruments as may be necessary to effectuate such transfer, and Tenant shall be
responsible for paying the Bank’s transfer and processing fees in connection therewith.
21.2.2 No Assignment by Tenant. Tenant shall neither assign nor encumber the L-C or any part thereof. Neither
Landlord nor its successors or assigns will be bound by any assignment, encumbrance, attempted assignment or attempted encumbrance
by Tenant in violation of this Section.
21.2.3 Replenishment. If, as a result of any drawing by Landlord on the L-C pursuant to its rights set forth in
Section 21.3 below, the amount of the L-C shall be less than the L-C Amount, Tenant shall, within five (5) days thereafter, provide
Landlord with (i) an amendment to the L-C restoring such L-C to the L-C Amount or (ii) additional L-Cs in an amount equal to the
deficiency, which additional L-Cs shall comply with all of the provisions of this Article 21, and if Tenant fails to comply with the
foregoing, notwithstanding anything to the contrary contained in Section 19.1 above, the same shall constitute an incurable default by
Tenant under this Lease (without the need for any additional notice and/or cure period).
21.2.4 Renewal; Replacement. If the L-C expires earlier than the date (the “LC Expiration Date”) that is ninety-
one (91) days after the expiration of the Lease Term, Tenant shall deliver a new L-C or certificate of renewal or extension to Landlord at
least sixty (60) days prior to the expiration of the L-C then held by Landlord, without any action whatsoever on the part of Landlord,
which new L-C shall be irrevocable and automatically renewable through the LC Expiration Date upon the same terms as the expiring L-
C or such other terms as may be acceptable to Landlord in its sole discretion. In furtherance of the foregoing, Landlord and Tenant agree
that the L-C shall contain a so-called “evergreen provision,” whereby the L-C will automatically be renewed unless at least thirty (30)
days’ prior written notice of non-renewal is provided by the issuer to Landlord; provided, however, that the final expiration date
identified in the L-C, beyond which the L-C shall not automatically renew, shall not be earlier than the LC Expiration Date.
21.2.5 Bank’s Financial Condition. If, at any time during the Lease Term, the Bank’s long term credit rating is
reduced below the Credit Rating Threshold, or if the financial condition of the Bank changes in any other materially adverse way (either,
a “Bank Credit Threat”), then Landlord shall have the right to require that Tenant obtain from a different issuer a substitute L-C that
complies in all respects with the requirements of this Article 21, and Tenant’s failure to obtain such substitute L-C within ten (10) days
following Landlord’s written demand therefor (with no other notice or cure or grace period being applicable thereto, notwithstanding
anything in this Lease to the contrary) shall entitle Landlord, or Landlord’s then managing agent, to immediately draw upon the then
existing L- C in whole or in part, without notice to Tenant, as
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more specifically described in Section 21.3, below. Tenant shall be responsible for the payment of any and all costs incurred with the
review of any replacement L-C (including without limitation Landlord’s reasonable attorneys’ fees), which replacement is required
pursuant to this Section or is otherwise requested by Tenant.
21.3 Application of Letter of Credit. Tenant hereby acknowledges and agrees that Landlord is entering into this Lease in
material reliance upon the ability of Landlord to draw upon the L-C as protection for the full and faithful performance by Tenant of all of
its obligations under this Lease and for all losses and damages Landlord may suffer (or which Landlord reasonably estimates that it may
suffer) as a result of any breach or default by Tenant under this Lease. Landlord, or its then managing agent, shall have the right to draw
down an amount up to the face amount of the L-C if any of the following shall have occurred or be applicable: (A) such amount is due to
Landlord under the terms and conditions of this Lease, or (B) Tenant has filed a voluntary petition under the U. S. Bankruptcy Code or
any state bankruptcy code (collectively, “Bankruptcy Code”), or (C) an involuntary petition has been filed against Tenant under the
Bankruptcy Code, or (D) the Bank has notified Landlord that the L-C will not be renewed or extended through the LC Expiration Date
and Tenant has not provided Landlord with a replacement L-C that satisfies the requirements of this Article 21 within forty-five (45) days
prior to the expiration thereof, or I a Bank Credit Threat or Receivership (as such term is defined in Section 21.6.1, below) has occurred
and Tenant has failed to comply with the requirements of either Section 21.2.5, above, or Section 21.6, below, as applicable. If Tenant
shall breach any provision of this Lease or otherwise be in default hereunder or if any of the foregoing events identified in
Sections 21.3(B) through I shall have occurred, Landlord may, but without obligation to do so, and without notice to Tenant, draw upon
the L-C, in part or in whole, and the proceeds may be applied by Landlord (i) to cure any breach or default of Tenant and/or to
compensate Landlord for any and all damages of any kind or nature sustained or which Landlord reasonably estimates that it will sustain
resulting from Tenant’s breach or default, (ii) against any Rent payable by Tenant under this Lease that is not paid when due and/or
(iii) to pay for all losses and damages that Landlord has suffered or that Landlord reasonably estimates that it will suffer as a result of any
breach or default by Tenant under this Lease. The use, application or retention of the L-C, or any portion thereof, by Landlord shall not
prevent Landlord from exercising any other right or remedy provided by this Lease or by any applicable law, it being intended that
Landlord shall not first be required to proceed against the L-C, and shall not operate as a limitation on any recovery to which Landlord
may otherwise be entitled. Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the L-C, either prior to
or following a “draw” by Landlord of any portion of the L-C, regardless of whether any dispute exists between Tenant and Landlord as to
Landlord’s right to draw upon the L-C. No condition or term of this Lease shall be deemed to render the L-C conditional to justify the
issuer of the L-C in failing to honor a drawing upon such L-C in a timely manner. Tenant agrees and acknowledges that (a) the L-C
constitutes a separate and independent contract between Landlord and the Bank, (b) Tenant is not a third party beneficiary of such
contract, (c) Tenant has no property interest whatsoever in the L-C or the proceeds thereof, and (d) in the event Tenant becomes a debtor
under any chapter of the Bankruptcy Code, neither Tenant, any trustee, nor Tenant’s bankruptcy estate shall have any right to restrict or
limit Landlord’s claim and/or rights to the L-C and/or the proceeds thereof by application of Section 502(b)(6) of the U. S. Bankruptcy
Code or otherwise.
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21.4 Letter of Credit not a Security Deposit. Landlord and Tenant acknowledge and agree that in no event or
circumstance shall the L-C or any renewal thereof or any proceeds thereof be (i) deemed to be or treated as a “security deposit” within
the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a
“security deposit” within the meaning of such Section 1950.7. The parties hereto (A) recite that the L-C is not intended to serve as a
security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the
commercial context (“Security Deposit Laws”) shall have no applicability or relevancy thereto and (B) waive any and all rights, duties
and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.
21.5 Proceeds of Draw. In the event Landlord draws down on the L-C pursuant to Sections 21.3(D) or I, above, the
proceeds of the L-C may be held by Landlord and applied by Landlord against any Rent payable by Tenant under this Lease that is not
paid when due and/or to pay for all losses and damages that Landlord has suffered or that Landlord reasonably estimates that it will
suffer as a result of any breach or default by Tenant under this Lease. Any unused proceeds shall constitute the property of Landlord and
need not be segregated from Landlord’s other assets. Tenant hereby (i) agrees that (A) Tenant has no property interest whatsoever in the
proceeds from any such draw, and (B) such proceeds shall not be deemed to be or treated as a “security deposit” under the Security
Deposit Law, and (ii) waives all rights, duties and obligations either party may now or, in the future, will have relating to or arising from
the Security Deposit Laws. Landlord agrees that the amount of any proceeds of the L-C received by Landlord, and not (a) applied
against any Rent payable by Tenant under this Lease that was not paid when due, or (b) used to pay for any losses and/or damages
suffered by Landlord (or reasonably estimated by Landlord that it will suffer) as a result of any breach or default by Tenant under this
Lease (the “Unused L-C Proceeds”), shall be paid by Landlord to Tenant (x) upon receipt by Landlord of a replacement L-C in the full
L-C Amount, which replacement L-C shall comply in all respects with the requirements of this Article 21, or (y) within thirty (30) days
after the LC Expiration Date; provided, however, that if prior to the LC Expiration Date a voluntary petition is filed by Tenant, or an
involuntary petition is filed against Tenant by any of Tenant’s creditors, under the Bankruptcy Code, then Landlord shall not be obligated
to make such payment in the amount of the Unused L-C Proceeds until either all preference issues relating to payments under this Lease
have been resolved in such bankruptcy or reorganization case or such bankruptcy or reorganization case has been dismissed.
21.6 Bank Placed Into Receivership.
21.6.1 Bank Placed Into Receivership. In the event the Bank is placed into receivership or conservatorship (any
such event, a “Receivership”) by the Federal Deposit Insurance Corporation or any successor or similar entity (the “FDIC”), then,
effective as of the date such Receivership occurs, the L-C shall be deemed to not meet the requirements of this Article 21, and, within ten
(10) days following Landlord’s notice to Tenant of such Receivership (the “LC Replacement Notice”), Tenant shall replace the L-C with
a substitute L-C from a different issuer reasonably acceptable to Landlord and that complies in all respects with the requirements of this
Article 21. If Tenant fails to replace such L-C with a substitute L-C from a different issuer pursuant to the terms and conditions of this
Section 21.6.1, then, notwithstanding anything in this Lease to the contrary, Landlord shall have the right, at Landlord’s option, to either
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(i) declare Tenant in default of this Lease for which there shall be no notice or grace or cure periods being applicable thereto other than
the aforesaid ten (10) day period), in which event, Landlord shall have the right to pursue any and all remedies available to it under this
Lease and at law, including, without limitation, treating any Receivership as a Bank Credit Threat and exercising Landlord’s remedies
under Section 21.2.5, above, to the extent possible pursuant to then existing FDIC policy; or (ii) elect to increase the Base Rent due and
owing under the terms of this Lease pursuant to the terms and conditions of Section 21.6.2 of this Lease, below. Tenant shall be
responsible for the payment of any and all costs incurred with the review of any replacement L- C (including without limitation
Landlord’s reasonable attorneys’ fees), which replacement is required pursuant to this Section or is otherwise requested by Tenant.
21.6.2 FAILURE TO REPLACE L-C; LIQUIDATED DAMAGES. IN THE EVENT THAT TENANT FAILS
TO REPLACE THE L-C PURSUANT TO, AND WITHIN THE TIME PERIODS SET FORTH IN, SECTION 21.6.1 OF THIS LEASE,
ABOVE, THEN TENANT’S MONTHLY INSTALLMENT OF BASE RENT SHALL BE INCREASED TO ONE HUNDRED TEN
PERCENT (110%) OF ITS THEN EXISTING LEVEL DURING THE PERIOD COMMENCING ON THE DATE THAT OCCURS
TEN (10) DAYS FOLLOWING THE DATE TENANT RECEIVES THE LC REPLACEMENT NOTICE AND ENDING ON THE
EARLIER TO OCCUR OF (I) THE DATE SUCH REPLACEMENT L-C IS DELIVERED TO LANDLORD PURSUANT TO THE
TERMS OF SECTION 21.6.1, OR (II) THE DATE WHICH IS NINETY (90) DAYS AFTER THE DATE OF SUCH LC
REPLACEMENT NOTICE. IN THE EVENT THAT TENANT FAILS, DURING SUCH NINETY (90) DAY PERIOD FOLLOWING
THE DATE OF THE LC REPLACEMENT NOTICE, TO CAUSE THE REPLACEMENT L-C TO BE DELIVERED TO LANDLORD
PURSUANT TO THE TERMS OF SECTION 21.6.1, THEN TENANT’S MONTHLY INSTALLMENT OF BASE RENT SHALL BE
INCREASED TO ONE HUNDRED TWENTY-FIVE PERCENT (125%) OF ITS THEN EXISTING LEVEL DURING THE PERIOD
COMMENCING ON THE DATE WHICH IS NINETY (90) DAYS AFTER THE DATE OF SUCH LC REPLACEMENT NOTICE
AND ENDING ON THE DATE SUCH REPLACEMENT L-C IS DELIVERED TO LANDLORD PURSUANT TO THE TERMS OF
SECTION 21.6.1, PROVIDED, HOWEVER, THAT THE TOTAL AGGREGATE AMOUNT OF BASE RENT PAID BY TENANT IN
EXCESS OF THE AMOUNT OF BASE RENT THAT TENANT WOULD HAVE PAID HAD SUCH L-C REPLACEMENT FAILURE
NEVER OCCURRED SHALL IN NO EVENT EXCEED THE L-C AMOUNT. THE PARTIES AGREE THAT IT WOULD BE
IMPRACTICABLE AND EXTREMELY DIFFICULT TO ASCERTAIN THE ACTUAL DAMAGES SUFFERED BY LANDLORD
AS A RESULT OF TENANT’S FAILURE TO TIMELY REPLACE THE L-C FOLLOWING THE LC REPLACEMENT NOTICE AS
REQUIRED IN SECTION 21.6.1, AND THAT UNDER THE CIRCUMSTANCES EXISTING AS OF THE DATE OF THIS LEASE,
THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION 21.6.2 REPRESENT A REASONABLE ESTIMATE OF THE
DAMAGES WHICH LANDLORD WILL INCUR AS A RESULT OF SUCH FAILURE, PROVIDED, HOWEVER, THAT THIS
PROVISION SHALL NOT WAIVE OR AFFECT LANDLORD’S RIGHTS AND TENANT’S INDEMNITY OBLIGATIONS UNDER
OTHER SECTIONS OF THIS LEASE. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED
DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE
SECTION 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO LANDLORD PURSUANT TO
CALIFORNIA CIVIL CODE SECTION 1671.
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ARTICLE 22
SUBSTITUTION OF OTHER PREMISES
rd
Landlord shall have the right, not more than one time during the initial Lease Term (and not more than once during the Option
Term, if applicable), to relocate Tenant to other space (the “Relocation Space”) in the Project comparable to the Premises (e.g.
comparable finishes and configuration, same number of offices and conference rooms, comparable ceiling treatment, doors and
hardware), which Relocation Space shall be located on the third (3 ) floor or higher in the Project and all terms hereof shall apply to the
Relocation Space with equal force and effect, except as otherwise provided in this Article 22. To the extent Tenant request any upgrades
in the improvements located in such Relocation Space vis-à-vis the improvements then existing in the Premises (e.g., specialty finishes
such as glass, ceiling treatments, specialty lighting, built-in or custom cabinetry), Tenant shall pay to Landlord, promptly upon billing
therefor, all costs and expenses incurred by Landlord in connection with such upgraded improvements. In such event, Landlord shall
give Tenant not less than ninety (90) days prior notice of Landlord’s election to so relocate Tenant, and shall move Tenant’s effects to the
Relocation Space at Landlord’s sole cost and expense at such time and in such manner as to inconvenience Tenant as little as reasonably
practicable. Landlord shall reimburse Tenant for all actual out-of-pocket costs incurred by Tenant in connection with its move from the
Premises to the Relocation Space, including, without limitation, the cost to install new communications and computer lines (to the extent
not installed by Landlord as part of its installation of the tenant improvements in the Relocation Space), the cost to move and reconfigure
the cost of reasonable amounts of replacement
Tenant’s furniture from
stationery. Simultaneously with such relocation of the Premises, the parties shall immediately execute an amendment to this Lease (or, if
the Relocation Space is in a building of the Project other than the Building, Tenant shall execute a new lease with the owner of such
building, which shall be on substantially the same terms and conditions as this Lease, and Tenant and Landlord shall enter into a
termination of this Lease) stating the relocation of the Premises, and amending those Sections of the Summary, and replacing Exhibit A
to this Lease, as shall be necessary to accurately describe the Relocation Space (including, without limitation, the location and the
rentable area of the Relocation Space). In the event Tenant is relocated in accordance with this Article 22, and the rentable area of the
Relocation Space is not equal to the rentable area of the Premises, or if the Relocation Space is in a building of the Project other than the
Building and the rentable area of such other building is not equal to the rentable area of the Building, all amounts, percentages and
figures appearing or referred to in this Lease based upon such rentable area (including, without limitation, the amounts of the “Rent” and
the “Security Deposit,” as those terms are defined in Article 4 and Article 21 of this Lease, respectively, and “Tenant’s Share,” as that
term is defined in Section 4.2.10 of this Lease) shall be modified accordingly; provided, however, that notwithstanding the foregoing, (i)
in no event shall the rentable area of the Relocation Space be less than one hundred percent (100%) of the rentable area of the Premises;
and (ii) none of Tenant’s Base Rent, Tenant’s Share, or the Security Deposit, shall increase as a result of such relocation during the initial
Lease Term. Should Tenant refuse to permit Landlord to move Tenant to the Relocation Space, Landlord shall have the right to cancel
and terminate this Lease effective sixty (60) days from the date of Landlord’s election to relocate Tenant.
the Relocation Space, and
the Premises
to
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ARTICLE 23
SIGNS
23.1 Full Floors. Subject to Landlord’s prior written approval, in its sole discretion, and provided all signs are in keeping
with the quality, design and style of the Building and Project, Tenant, if the Premises comprise an entire floor of the Building, at its sole
cost and expense, may install identification signage anywhere in the Premises including in the elevator lobby of the Premises, provided
that such signs must not be visible from the exterior of the Building.
23.2 Multi-Tenant Floors. If other tenants can occupy space on the floor on which the Premises is located, Tenant’s
identifying suite entry sign and elevator lobby directory sign on the third (3 ) floor shall be provided by Landlord, at Tenant’s cost, and
such signage shall be comparable to that used by Landlord for other similar floors in the Building and shall comply with Landlord’s then-
current Building standard signage program.
rd
23.3 Prohibited Signage and Other Items. Any signs, notices, logos, pictures, names or advertisements which are
installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of
Tenant. Tenant may not install any signs on the exterior or roof of the Project or the Common Areas. Any signs, window coverings, or
blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the
exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion.
23.4 Building Directory. Tenant shall have the right, at Tenant cost, to have Tenant’s name entered into Landlord’s
directory in the lobby of the Building.
ARTICLE 24
COMPLIANCE WITH LAW
24.1 In General. Tenant shall not do anything or suffer its agents, employees or contractors to do anything in or about the
Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or
requirement now in force or which may hereafter be enacted or promulgated, including any such governmental regulations related to
disabled access (collectively, “Applicable Laws”). At its sole cost and expense, Tenant shall promptly comply with any Applicable
Laws which relate to (i) Tenant’s use of the Premises, (ii) any Alterations made by Tenant to the Premises, and any Tenant Improvements
in the Premises, or (iii) the Base Building, but as to the Base Building, only to the extent such obligations are triggered by Alterations
made by Tenant to the Premises to the extent such Alterations are not normal and customary business office improvements, or triggered
by the Tenant Improvements to the extent such Tenant Improvements are not normal and customary business office improvements, or
triggered by Tenant’s use of the Premises for non‑general office use (collectively, “Tenant’s Compliance with Laws
Obligations”). Tenant shall be responsible, at its sole cost and expense, to make all alterations to the Premises as are required to comply
with Tenant’s Compliance with Laws Obligations. The judgment of any court of competent jurisdiction or the admission of Tenant in
any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated
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any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant. Tenant shall promptly pay all fines,
penalties and damages that may arise out of or be imposed because of its failure to comply with the provisions of this
Article 24. Landlord shall comply with all Applicable Laws relating to the Base Building, provided that compliance with such
Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord’s failure to comply therewith
would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially
affect the safety of Tenant’s employees or create a significant health hazard for Tenant’s employees, or would otherwise materially and
adversely affect Tenant’s use of or access to the Premises. Landlord shall be permitted to include in Operating Expenses any costs or
expenses incurred by Landlord under this Article 24 to the extent not prohibited by the terms of Article 4 of this Lease, above. Tenant
hereby agrees to use reasonable efforts to notify Landlord if Tenant makes any Alterations or improvements to the Premises that might
impact accessibility to the Premises or Building under access laws. Landlord hereby agrees to use reasonable efforts to notify Tenant if
Landlord makes any alterations or improvements to the Premises that might impact accessibility to the Premises or Building under any
disability access laws.
24.2 Statutory Disclosure and Related Terms. For purposes of Section 1938(a) of the California Civil Code, Landlord
hereby discloses to Tenant, and Tenant hereby acknowledges, that to Landlord’s actual knowledge, the Premises have not undergone
inspection by a Certified Access Specialist (CASp). As required by Section 1938I of the California Civil Code, Landlord hereby states as
follows: “A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply
with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp
inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp
inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or
tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for
the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards
within the premises.” In furtherance of the foregoing, Landlord and Tenant hereby agree as follows: (a) any CASp inspection requested
by Tenant shall be conducted, at Tenant’s sole cost and expense, by a CASp designated by Landlord, subject to Landlord’s reasonable
rules and requirements; (b) Tenant, at its sole cost and expense, shall be responsible for making any improvements or repairs within the
Premises to correct violations of construction-related accessibility standards; and (c) if anything done by or for Tenant in its use or
occupancy of the Premises shall require any improvements or repairs to the Building or Project (outside the Premises) to correct
violations of construction-related accessibility standards, then Tenant shall reimburse Landlord upon demand, as Additional Rent, for the
cost to Landlord of performing such improvements or repairs. The terms of this Section 24.2 do not amend or reduce the obligations of
Landlord and Tenant set forth in this Lease regarding compliance with Applicable Laws and repair and maintenance of the Premises and
the Project, but apply solely to the obligations of Landlord and Tenant in connection with Tenant’s election to conduct a CASp inspection
hereunder.
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ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee (i) within
five (5) days after written notice from Landlord that said amount was not paid when due, or (ii) upon the date said amount is due, if
Tenant has previously received one (1) or more notices from Landlord during the immediately preceding twelve (12) month period
stating that Tenant failed to pay any amount required to be paid by Tenant under this Lease when due, then Tenant shall pay to Landlord
a late charge equal to six percent (6%) of the overdue amount plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure
to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall
be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder
which are not paid (A) within five (5) days after written notice from Landlord that said amount was not paid when due, or (B) upon the
date said amount is due, if Tenant has previously received one (1) or more notices from Landlord during the immediately preceding
twelve (12) month period stating that Tenant failed to pay any amount required to be paid by Tenant under this Lease when due, shall
bear interest from the date when due until paid at a rate per annum equal to the lesser of (x) the annual “Bank Prime Loan” rate cited in
the Federal Reserve Statistical Release Publication H.15(519), published weekly (or such other comparable index as Landlord and Tenant
shall reasonably agree upon if such rate ceases to be published) plus four (4) percentage points, and (y) the highest rate permitted by
applicable law.
ARTICLE 26
LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 Landlord’s Cure. All covenants and agreements to be kept or performed by Tenant under this Lease shall be
performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise
expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the
time allowed under Section 19.1.2, above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be
obligated to, make any such payment or perform any such act on Tenant’s part without waiving its rights based upon any default of
Tenant and without releasing Tenant from any obligations hereunder.
26.2 Tenant’s Reimbursement. Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to
Landlord the following sums (which sums shall bear interest from the date accrued by Landlord until paid by Tenant at a rate per annum
equal to interest at the rate set forth in Article 25 of this Lease, but in no case greater than the maximum amount of such interest
permitted by law), upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and
obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of
Section 26.1; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) subject
to Section 29.21, sums equal to all expenditures reasonably made and
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obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of
Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so
expended. Tenant’s obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.
ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable notice to Tenant (which notice, notwithstanding
anything to the contrary contained in Article 28 of this Lease, may be oral, and which notice shall not be required in the case of an
emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers or tenants, or to current or
prospective mortgagees, ground or underlying lessors or insurers; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair
the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and
equipment. In connection with the foregoing entries described in (i)-(iv), (x) employees of Landlord will sign in and wear a badge
provided by Tenant, and (y) Tenant shall be permitted the opportunity to cause a representative of Tenant to accompany Landlord during
any such entry (except in the case of emergency), provided that such representative of Tenant does not unreasonably interfere with or
delay Landlord exercising its rights or satisfying its obligations hereunder (collectively, the “Access Requirements”). Notwithstanding
anything to the contrary contained in this Article 27, Landlord may enter the Premises at any reasonable time to (A) perform services
required of Landlord, including janitorial service and access control personnel responding to calls/requests; (B) take possession due to
any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform. In
connection with the foregoing entries described in (A)-(C), employees of Landlord shall not be required to comply with the Access
Requirements. Landlord may make any such entries without the abatement of Rent and may take such reasonable steps as required to
accomplish the stated purposes. Landlord shall use commercially reasonable efforts to minimize interference with the conduct of
Tenant’s business in connection with such entries into the Premises. Tenant hereby waives any claims for damages or for any injuries or
inconvenience to or interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors
in the Premises, excluding Tenant’s vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord
shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the
Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. No provision of this Lease shall be
construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be performed
by Landlord herein.
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ARTICLE 28
NOTICES
All notices, demands, designations, approvals or other communications (collectively, “Notices”) given or required to be given
by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage
prepaid, return receipt requested (“Mail”), (B) delivered by a nationally recognized overnight courier, or (C) delivered personally. Any
Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 9 of the
Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set
forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed
given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the overnight courier delivery is made, or (iii) the date
personal delivery is made. Any Notice given by an attorney on behalf of Landlord or by Landlord’s managing agent shall be considered
as given by Landlord and shall be fully effective. As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or
delivered, as the case may be, to the following addresses:
Boston Properties Limited Partnership
Four Embarcadero Center
Lobby Level, Suite One
San Francisco, California 94111
Attention: Mr. Bob Pester
and
Boston Properties, Inc.
Prudential Center Tower
800 Boylston Street, Suite 1900
Boston, Massachusetts 02199-8103
Attention: General Counsel
and
Boston Properties Limited Partnership
Four Embarcadero Center
Lobby Level, Suite One
San Francisco, California 94111
Attention: Regional Counsel
and
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Allen Matkins Leck Gamble Mallory & Natsis LLP
1901 Avenue of the Stars, Suite 1800
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 Terms; Captions. The words “Landlord” and “Tenant” as used herein shall include the plural as well as the
singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or
individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions
of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles
and Sections.
29.2 Binding Effect. Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this
Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their
respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary
to the provisions of Article 14 of this Lease.
29.3 No Light, Air or View Rights. No rights to any view or to light or air over any property, whether belonging to
Landlord or any other person, are granted to Tenant by this Lease. Under no circumstances whatsoever at any time during the Lease
Term shall any temporary darkening of any windows of the Premises or any temporary obstruction of the light or view therefrom by
reason of any repairs, improvements, maintenance or cleaning in or about the Project, or any diminution, impairment or obstruction
(whether partial or total) of light, air or view by any structure which may be erected on any land comprising a part of, or located adjacent
to or otherwise in the path of light, air or view to, the Project, in any way impose any liability upon Landlord or in any way reduce or
diminish Tenant’s obligations under this Lease.
29.4 Modification of Lease. Should any current or prospective mortgagee or ground lessor for the Building or Project
require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way
materially and adversely change the rights and obligations of Tenant hereunder or interfere with Tenant’s use or operation of the
Premises, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are
reasonably required therefor and to deliver the same to Landlord within ten (10) days following a request therefor. At the request of
Landlord or any mortgagee or ground lessor, Tenant agrees to execute a short form of Lease and deliver the same to Landlord within ten
(10) days following the request therefor.
29.5 Transfer of Landlord’s Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its
interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, provided the assignee
assumes in writing all Landlord’s obligations hereunder arising after the date of such transfer, Landlord shall automatically be released
from all liability under this Lease accruing thereafter and Tenant agrees
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to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer and such transferee
shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of
any Security Deposit, and Tenant shall attorn to such transferee.
29.6 Prohibition Against Recording. Except as provided in Section 29.4 of this Lease, neither this Lease, nor any
memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf
of Tenant.
29.7 Landlord’s Title. Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained
shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.
29.8 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any
third party to create the relationship of principal and agent, partnership, joint enture or any association between Landlord and Tenant.
29.9 Application of Payments. If a default by Tenant exists beyond applicable notice and cure periods, Landlord shall
have the right to apply payments received from Tenant pursuant to this Lease then due hereunder, regardless of Tenant’s designation of
such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.
29.10 Time of Essence. Time is of the essence with respect to the performance of every provision of this Lease in which
time of performance is a factor, including, without limitation, the giving of any Notice required to be given under this Lease or by law,
the time periods for giving any such Notice and the taking of any action with respect to any such Notice.
29.11 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than
those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and
condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.
29.12 No Warranty. In executing and delivering this Lease, except as may be expressly set forth herein, Tenant has not
relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent
or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same
level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits
attached hereto.
29.13 Landlord Exculpation. The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under
this Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other
matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the lesser of the
amount of (a) the interest of Landlord in the Building or (b) the equity interest Landlord would have in the Building if the Building were
encumbered by third-party debt in an
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amount equal to eighty percent (80%) of the value of the Building (as such value is determined by Landlord), and any sales, rent or
condemnation or insurance (to the extent not used to repair damage to the Building) proceeds received by Landlord or the Landlord
Parties in connection with the Project, Building or Premises. Neither Landlord, nor any of the Landlord Parties shall have any personal
liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by,
through or under Tenant. The limitations of liability contained in this Section 29.13 shall inure to the benefit of Landlord’s and the
Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their
respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is
a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of
Landlord’s obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall
be liable under any circumstances for any indirect or consequential damages or any injury or damage to, or interference with, Tenant’s
business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss
of use, in each case, however occurring.
29.14 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto
affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and
cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this
Lease. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed
by the parties hereto.
29.15 Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the
exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the
fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in
the Building or Project.
29.16 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to
obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and
other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard
to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, a “Force Majeure”), notwithstanding anything to the
contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage
and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by
the period of any delay in such party’s performance caused by a Force Majeure, but shall not delay any of Tenant’s rent abatement or
termination rights set forth herein.
29.17 Waiver of Redemption by Tenant. Tenant hereby waives, for Tenant and for all those claiming under Tenant, any
and all rights now or hereafter existing to redeem by order or
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judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.
29.18 Tenant Parking. Tenant shall have the right to park up to twenty-two (22) automobiles (3.3 automobiles for every
1,000 rentable square feet in the Premises), free of charge, in the portions of the Common Areas designated by Landlord for vehicular
parking. Such parking shall be on an as available “first-come, first-served” basis which shall be in common with all other tenants of the
Project. Tenant’s continued right to use the Common Areas designated by Landlord for vehicular parking is conditioned upon Tenant
abiding by all reasonable rules and regulations which are prescribed from time to time for the orderly operation and use of the parking
facility, including any sticker or other identification system established by Landlord, and Tenant’s reasonable cooperation in seeing that
Tenant’s employees and visitors also comply with such rules and regulations. Landlord specifically reserves the right to change the size,
configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that
Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off
or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or
improvements. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have
all the rights of control attributed hereby to the Landlord. The parking rights granted to Tenant pursuant to this Section 29.18 are
provided to Tenant solely for use by Tenant’s own personnel and such passes may not be transferred, assigned, subleased or otherwise
alienated by Tenant without Landlord’s prior approval, except together with Transfers permitted under this Lease. Tenant may validate
visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to
visitor parking.
29.19 Joint and Several. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be
joint and several.
29.20 Authority. Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do
business in California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf
of Tenant is authorized to do so. Concurrently with Tenant’s delivery to Landlord of this Lease executed by Tenant, Tenant shall deliver
to Landlord satisfactory evidence of such authority.
29.21 Attorneys’ Fees. In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for
the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the
other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other
party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action
and shall be enforceable whether or not the action is prosecuted to judgment.
29.22 Governing Law; WAIVER OF TRIAL BY JURY. This Lease shall be construed and enforced in accordance with
the laws of the State of California. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT
HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF
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CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE
INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN
RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR
DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY
PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT
INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE
MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT
LAW.
29.23 Submission of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a
reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord
and Tenant.
29.24 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker
or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 11 of the
Summary (the “Brokers”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with
this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims,
demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect
to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or
agent, other than the Brokers, occurring by, through, or under the indemnifying party.
29.25 Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant
are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if
Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at
Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.
29.26 Project or Building Name and Signage. Landlord shall have the right at any time to change the name of the Project
or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord
may, in Landlord’s sole discretion, desire. Tenant shall not use the words “Gateway Center” or the name of the Project or Building or
use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the
business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.
29.27 Counterparts. This Lease may be executed in counterparts with the same effect as if both parties hereto had executed
the same document. Both counterparts shall be construed together and shall constitute a single lease.
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29.28 Intentionally Omitted. Tenant acknowledges that the content of this Lease and any related documents are
confidential information. Except as required by law, Tenant shall keep such confidential information strictly confidential and shall not
disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants.
29.29 Development of the Project.
29.29.1 Subdivision. Landlord reserves the right to further subdivide all or a portion of the Project provided the
same does not unreasonably interfere with Tenant’s use of or access to the Premises or materially increase the obligations or decrease the
rights of Tenant under this Lease. Tenant agrees to execute and deliver, upon demand by Landlord and in the form reasonably requested
by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from such subdivision.
29.29.2 The Other Improvements. If portions of the Project or property adjacent to the Project (collectively, the
“Other Improvements”) are owned by an entity other than Landlord, Landlord, at its option, may enter into an agreement with the
owner or owners of any or all of the Other Improvements to provide (i) for reciprocal rights of access and/or use of the Project and the
Other Improvements, (ii) for the common management, operation, maintenance, improvement and/or repair of all or any portion of the
Project and the Other Improvements, (iii) for the allocation of a portion of the Direct Expenses to the Other Improvements and the
operating expenses and taxes for the Other Improvements to the Project, and (iv) for the use or improvement of the Other Improvements
and/or the Project in connection with the improvement, construction, and/or excavation of the Other Improvements and/or the
Project. Nothing contained herein shall be deemed or construed to limit or otherwise affect Landlord’s right to convey all or any portion
of the Project or any other of Landlord’s rights described in this Lease.
29.29.3 Construction of Project and Other Improvements. Tenant acknowledges that portions of the Project
and/or the Other Improvements may be under construction following Tenant’s occupancy of the Premises, and that such construction
may result in levels of noise, dust, odor, obstruction of access, etc. which are in excess of that present in a fully constructed
project. Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such
construction. Landlord shall use commercially reasonable efforts to minimize interference with Tenant’s use of or access to the Premises
in connection with any such work or any Renovations.
29.30 Building Renovations. It is specifically understood and agreed that Landlord has no obligation and has made no
promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof and that no representations
respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically set forth herein or
in the Tenant Work Letter. However, Tenant hereby acknowledges that Landlord is currently renovating or may during the Lease Term
renovate, improve, alter, or modify (collectively, the “Renovations”) the Project, the Building and/or the Premises. Tenant hereby agrees
that such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Landlord
shall have no responsibility and shall not be liable to Tenant for any injury to or interference with Tenant’s business arising from the
Renovations, nor
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shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of
Tenant’s personal property or improvements resulting from the Renovations, or for any inconvenience or annoyance occasioned by such
Renovations.
29.31 No Violation. Tenant hereby warrants and represents that neither its execution of nor performance under this Lease
shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant
shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and
expenses, including, without limitation, reasonable attorneys’ fees and costs, arising from Tenant’s breach of this warranty and
representation.
29.32 Communications and Computer Lines. Tenant may install, maintain, replace, remove or use any electrical,
communications or computer wires and cables (collectively, the “Lines”) at the Project installed by or on behalf of Tenant in or serving
solely the Premises, provided that (i) Tenant shall obtain Landlord’s prior written consent, use an experienced and qualified contractor
approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable space
for additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord’s reasonable opinion,
(iii) the Lines therefor (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation,
and shall be surrounded by a protective conduit reasonably acceptable to Landlord, (iv) any new or existing Lines servicing the Premises
shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines,
Landlord may require that Tenant remove existing unused Lines previously installed by or on behalf of Tenant and repair any damage in
connection with such removal, and (vi) Tenant shall pay all costs in connection therewith. Landlord reserves the right to require that
Tenant remove any Lines installed by or on behalf of Tenant and located in or serving the Premises which are installed in violation of
these provisions, or which are at any time in violation of any laws or represent a dangerous or potentially dangerous condition. Landlord
further reserves the right to require that Tenant remove any and all Lines installed by or on behalf of Tenant and located in or serving the
Premises upon the expiration of the Lease Term or upon any earlier termination of this Lease.
29.33 Landlord’s Waiver of Security Interest in Tenant’s Personal Property. Landlord hereby acknowledges and agree
that any and all of Tenant’s movable furniture, furnishings, trade fixtures and equipment at the Premises (“Tenant’s Property”) may be
financed by a third-party lender or lessor (an “Equipment Lienor”), and Landlord hereby (a) subordinates any rights of Landlord to
Tenant’s Property to such Equipment Lienor, and (b) agrees to recognize the rights of any such Equipment Lienor, subject to and in
accordance with a commercially reasonable waiver agreement to be entered into by and between Landlord and the Equipment Lienor
following request by Tenant. Tenant shall pay all fees and/or expenses imposed upon or otherwise paid by Landlord to the Equipment
Lienor or otherwise expended by Landlord in connection with any such request (including, without limitation, reasonable attorney’s
fees).
29.34 No Discrimination. There shall be no discrimination against, or segregation of, any person or persons on account of
sex, marital status, race, color, religion, creed, national origin or ancestry in the Transfer of the Premises, or any portion thereof, nor shall
the Tenant itself, or any person claiming under or through it, establish or permit any such practice or practices of
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discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants,
sublessees, or vendees of the Premises, or any portion thereof.
29.35 Patriot Act and Executive Order 13224. As an inducement to Landlord to enter into this Lease, Tenant hereby
represents and warrants that: (i) Tenant is not, nor is it owned or controlled directly or indirectly by, any person, group, entity or nation
named on any list issued by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) pursuant to
Executive Order 13224 or any similar list or any law, order, rule or regulation or any Executive Order of the President of the United
States as a terrorist, “Specially Designated National and Blocked Person” or other banned or blocked person (any such person, group,
entity or nation being hereinafter referred to as a “Prohibited Person”); (ii) Tenant is not (nor is it owned or controlled, directly or
indirectly, by any person, group, entity or nation which is) acting directly or indirectly for or on behalf of any Prohibited Person; and (iii)
neither Tenant (nor any person, group, entity or nation which owns or controls Tenant, directly or indirectly) has conducted or will
conduct business or has engaged or will engage in any transaction or dealing with any Prohibited Person, including without limitation
any assignment of this Lease or any subletting of all or any portion of the Premises or the making or receiving of any contribution of
funds, goods or services to or for the benefit of a Prohibited Person. In connection with the foregoing, it is expressly understood and
agreed that (x) any breach by Tenant of the foregoing representations and warranties shall be deemed a default by Tenant under Section
19.1.4 of this Lease and shall be covered by the indemnity provisions of Section 10.1 above, and (y) the representations and warranties
contained in this subsection shall be continuing in nature and shall survive the expiration or earlier termination of this Lease.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.
“Landlord”:
601 & 651 GATEWAY CENTER LP,
a Delaware limited partnership
BY: GATEWAY CENTER GP LLC,,
a Delaware limited liability company,
its general partner
BY: GATEWAY PORTFOLIO MEMBER LLC,
a Delaware limited liability company,
its manager
BY: GATEWAY PORTFOLIO HOLDINGS LLC,
a Delaware limited liability company,
its manager
BY: ARE-SAN FRANCISCO NO. 83, LLC,
a Delaware limited liability company, its Managing
Member
BY: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
A Delaware limited partnership, its Managing
Member
By: ARE-QRS CORP.,
a Maryland corporation, its general partner
BY:
Name:
Title:
/s/ Allison Grochola
Allison Grochola
Vice President, RE Legal Affairs
[signatures continue of following page]
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“Tenant”:
AKERO THERAPEUTICS, INC.,
a Delaware corporation
/s/ Andrew Cheng
By:
Name: Andrew Cheng
Title: President and Chief Executive Officer
/s/ Jonathan Young
By:
Name: Jonathan Young
Title: Chief Operating Officer
PLEASE NOTE: THIS LEASE MUST BE EXECUTED BY EITHER (I) BOTH (A) THE CHAIRMAN OF THE BOARD, THE
PRESIDENT OR ANY VICE PRESIDENT OF TENANT, AND (B) THE SECRETARY, ANY ASSISTANT SECRETARY, THE
CHIEF FINANCIAL OFFICER, OR ANY ASSISTANT TREASURER OF TENANT; OR (II) AN AUTHORIZED SIGNATORY
OF TENANT PURSUANT TO A CERTIFIED CORPORATE RESOLUTION, A COPY OF WHICH SHOULD BE
DELIVERED WITH THE EXECUTED ORIGINALS.
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EXHIBIT A
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OUTLINE OF PREMISES
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EXHIBIT B
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TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the tenant improvements in the
Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises,
in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles
or Sections of "this Lease" shall mean the relevant portion of Articles 1 through 29 of the Office Lease to which this Tenant Work Letter
is attached as Exhibit B and of which this Tenant Work Letter forms a part, and all references in this Tenant Work Letter to Sections of
"this Tenant Work Letter" shall mean the relevant portion of Sections 1 through 5 of this Tenant Work Letter.
SECTION 1
CONSTRUCTION DRAWINGS FOR THE PREMISES
1.1 Tenant Improvements. Landlord and Tenant have approved the space plan for the Premises prepared by Brown
Reynolds Watford Architects, dated December 9, 2019, a copy of which is attached hereto as Schedule 1 (the “Space Plan”). Within five
(5) days of request of Landlord, Tenant shall cooperate in good faith with Landlord’s architects and engineers to supply such information
necessary to allow the Landlord’s architects and engineers to complete the architectural and engineering drawings for the Premises, and
the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all
applicable permits and in a manner consistent with, and which are a logical extension of, the Space Plan (collectively, the “Approved
Working Drawings”), which Approved Working Drawings shall include the Turnkey Scope of Work set forth on Schedule 1. Landlord
shall construct the improvements in the Premises (the "Tenant Improvements") pursuant to the Approved Working Drawings. All such
Tenant Improvements shall be completed to Landlord's "Building standard" condition in "Building standard" finishes to be designated by
Tenant, subject to availability, within three (3) business days following demand by Landlord. Tenant shall make no changes or
modifications to (i) the Space Plan or (ii) once completed, the Approved Working Drawings, without the prior written consent of
Landlord, which consent may be withheld in Landlord's sole discretion if such change or modification would directly or indirectly delay
the "Substantial Completion," as that term is defined in Section 4.1 of this Tenant Work Letter, of the Premises (unless Tenant agrees in
writing that the terms of Section 4.2 apply thereto) or increase the cost of designing or constructing the Tenant Improvements.
1.2 Common Areas. Notwithstanding anything set forth in this Tenant Work Letter to the contrary, Landlord shall, at
Landlord’s sole cost and expense, to the extent required in order to obtain a certificate of occupancy, or its legal equivalent, for the
Premises for general office use assuming a normal and customary office occupancy density, cause the Building Common Areas
(including the Base Building restrooms on the third (3 ) floor of the Building), to comply with applicable building codes and other
governmental laws, ordinances and regulations, which were enacted and enforced as of the date of this Lease.
rd
SECTION 2
TENANT CHANGES
In the event that after Tenant's execution of this Lease, any revisions, changes, or substitutions shall be made by Tenant to (i) the
Space Plan, (ii) the Approved Working Drawings (once the same are completed), or (iii) the Tenant Improvements or in the event that
Tenant requests revisions, changes, or substitutions which cause the Approved Working Drawings to not be a logical extension of the
Space Plan, or if Tenant requests finishes that are not "Building standard," then Landlord shall cause the Contractor to prepare a change
order for Tenant’s approval specifying the anticipated increased cost and delay in Substantial Completion as a result thereof for Tenant’s
approval (the “Change Order”) and any additional costs which arise in connection with such revisions, changes or substitutions shall be
paid by Tenant to Landlord immediately upon Landlord's request.
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SECTION 3
CONTRACTOR'S WARRANTIES AND GUARANTIES
Landlord hereby assigns to Tenant all warranties and guaranties by the contractor who constructs the Tenant Improvements (the
"Contractor") relating to the Tenant Improvements, and Tenant hereby waives all claims against Landlord relating to, or arising out of
the construction of, the Tenant Improvements; provided that prior to the expiration of such warranties and guaranties, Tenant's waiver
shall only be to the extent covered by such warranties and guaranties.
SECTION 4
COMPLETION OF THE TENANT IMPROVEMENTS;
LEASE COMMENCEMENT DATE
4.1 Ready for Occupancy. The Premises shall be deemed "Ready for Occupancy" upon the Substantial Completion of
the Tenant Improvements in the Premises and delivery of the Premises to Tenant in the condition required under Section 1.1.1 of the
Lease. For purposes of this Lease, "Substantial Completion" of the Premises shall occur upon the completion of construction of the
Tenant Improvements pursuant to the Approved Working Drawings, with the exception of any punch list items and any tenant fixtures,
work-stations, built-in furniture, or equipment to be installed by Tenant or under the supervision of Contractor. Landlord and Tenant
shall, promptly following completion of construction of the Tenant Improvements, jointly inspect the construction of the Tenant
Improvements to develop a reasonable and mutually agreed upon punch list.
4.2 Delay of the Substantial Completion of the Premises. Except as provided in this Section 4.2, the Lease
Commencement Date shall occur as set forth in the Lease and Section 4.1, above. If there shall be a delay or there are delays in the
Substantial Completion of the Premises or in the occurrence of any of the other conditions precedent to the Commencement Date, as set
forth in of the Lease, as a result of:
4.2.1 Tenant's failure to timely approve any matter requiring Tenant's approval;
4.2.2 A breach by Tenant of the terms of this Tenant Work Letter or the Lease;
4.2.3 Tenant's request for changes in the Approved Working Drawings;
4.2.4 Tenant's requirement for materials, components, finishes or improvements which are not available in a
commercially reasonable time given the anticipated date of Substantial Completion of the Premises, as set forth in the Lease, or which
are different from, or not included in, Landlord's standard improvement package items for the Building; or
after delivery of notice thereof from Landlord;
4.2.5 Any other acts or omissions of Tenant, or its agents, or employees that continue for more than one (1) day
then, notwithstanding anything to the contrary set forth in the Lease or this Tenant Work Letter and regardless of the actual date of the
Substantial Completion of the Premises, the date of Substantial Completion of the Premises shall be deemed to be the date the
Substantial Completion of the Premises would have occurred if no Tenant delay or delays, as set forth above, had occurred.
SECTION 5
MISCELLANEOUS
5.1 Tenant's Entry Into the Premises Prior to Substantial Completion. Provided that Tenant and its agents do not interfere
with Contractor's work in the Building and the Premises, Contractor shall allow Tenant access to the Premises at least seven (7) days
prior to the Substantial Completion of the Premises for the purpose of Tenant installing furniture, equipment or fixtures (including
Tenant's data and telephone equipment) in the Premises and any other purpose related to preparation for Tenant’s occupancy. Prior to
Tenant's entry into the Premises as permitted by the terms of this Section 5.1, Tenant shall submit a schedule to Landlord and Contractor,
for their approval, which schedule shall detail the timing and purpose of Tenant's entry. Tenant shall hold Landlord harmless from and
indemnify, protect and defend Landlord against any loss or damage
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to the Building or Premises and against injury to any persons caused by Tenant's actions pursuant to this Section 5.1, except to the extent
due to the gross negligence, willful misconduct or violation of this Lease by Landlord. Such entry shall be on all the terms of this Lease
except the obligations to pay Base Rent and Tenant Share of Direct Expenses and Capital Expenses.
5.2 Freight Elevators. Landlord shall, consistent with its obligations to other tenants of the Building, make the freight
elevator reasonably available to Tenant in connection with initial decorating, furnishing and moving into the Premises.
5.3 Tenant's Representative. Tenant has designated Jonathan Young as its sole representative with respect to the matters
set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of
the Tenant as required in this Tenant Work Letter.
5.4 Landlord's Representative. Landlord has designated Pete Back as its sole representative with respect to the matters set
forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the
Landlord as required in this Tenant Work Letter.
5.5 Intentionally Omitted.
5.6 Time of the Essence in This Tenant Work Letter. Unless otherwise indicated, all references herein to a "number of
days" shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice
of approval is given or the item is not delivered within the stated time period, at Landlord's sole option, at the end of such period the item
shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.
5.7 Tenant's Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of default as
described in the Lease, or a default by Tenant under this Tenant Work Letter, beyond any applicable notice and cure period expressly set
forth in the Lease, has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights
and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to cause Contractor to cease the construction of the
Premises (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such work
stoppage as set forth in Section 4 of this Tenant Work Letter), and (ii) all other obligations of Landlord under the terms of this Tenant
Work Letter shall be forgiven in each case until such time as such default is cured pursuant to the terms of the Lease.
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SPACE PLAN
-3-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
SCHEDULE 1 TO EXHIBIT B
SPACE PLAN
[attached]
SCHEDULE 1 TO
EXHIBIT B
-1-
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601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
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SCHEDULE 1 TO
EXHIBIT B
-2-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
TURNKEY SCOPE OF WORK
·
All millwork is excluded except for new lower cabinets at the break room (uppers priced as an alternate); existing rounded
floating counter top to remain; millwork at copier and where new stools shown do not exist (lowers were removed; as set forth
below with highlight of said area).
·
·
·
·
·
·
New walls are priced at ceiling height, not full height.
New carpet throughout and new VCT at breakroom priced at Building standard.
Includes new building required flood stop, chronomite, and waterproofing.
Assumes reuse of existing plumbing; no engineering included.
Pricing assumes no new VAVs; pricing assumes redistributing existing for new layout.
Operable partition to be Hufcor standard option and includes allowances for structural scope.
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SCHEDULE 1 TO
EXHIBIT B
-3-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
EXHIBIT C
601 GATEWAY BOULEVARD
NOTICE OF LEASE TERM DATES
Copy to:
Date:
To:
Office Lease
Re:
Dated:
Between: 601 & 651 GATEWAY CENTER LP, a Delaware limited partnership, Lessor or Landlord, and ______, a ______, Lessee or
Tenant
In accordance with the subject document we wish to advise you and/or confirm your tenancy of Suite _____ on the ____ floor of
[APPROPRIATE BUILDING] Gateway Boulevard, South San Francisco, CA 94080, and that the following terms and conditions are
accurate and in full force and effect:
Net rentable square feet
Lease commencement date
From
Base rent schedule
Rent checks are
Payable to:
To:
Mailed to:
Lease term
Lease expiration date
Monthly Rent:
$________
[APPROPRIATE ENTITY]
[APPROPRIATE ADDRESS]
All other inquiries to:
Boston Properties
Lobby Level, Suite One
Four Embarcadero Center
San Francisco, CA 94111
Telephone: 415-772-0700
415-982-1780
Fax:
If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease.
We request that you sign this letter where indicated below, confirming the information provided above, and return it to
our representative below within ten (10) days of receipt. A return envelope is provided. Our failure to receive your executed Notice
within such time period will indicate your acceptance that the information set forth is correct. A second letter is enclosed for your files.
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EXHIBIT C
-1-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
Boston Properties, L.P.
By: Lease Administrator's name
Lease Administration
Date
copy:Property Manager, Property Accountant
via: Certified Mail
Agreed to and Accepted:
By:
Its:
Date
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EXHIBIT C
-2-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
EXHIBIT D
601 GATEWAY BOULEVARD
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be
responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions
of any other tenants or occupants of the Project; provided, however, that Landlord will exercise good faith efforts (without any obligation
to place a tenant in default or commence litigation) to enforce the Rules and Regulations against other tenants and occupants of the
Project in a nondiscriminatory manner. In the event of any conflict between the Rules and Regulations and the other provisions of this
Lease, the latter shall control.
1. Signs. Except as specifically provided in this Lease to which these rules and regulations are attached, no
sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building or
on the Common Areas or other areas of the Project without Landlord’s prior written consent. Landlord may remove, at Tenant’s expense
and without notice, any sign installed or displayed in violation of this rule. All signs or lettering on doors and walls must be approved by
Landlord, and shall be printed, painted, affixed or inscribed or modified at Tenant’s expense by a person approved by Landlord. Without
Landlord’s written consent, Tenant shall not use the name of the Building or the Project in connection with or in promoting or advertising
the business of Tenant except as Tenant’s address. Landlord hereby agrees to provide Tenant with the Building’s standard graphics at the
entrance to the Premises and in the elevator lobby.
2. Window Treatments. Tenant shall not place anything against or near glass partitions or doors or windows
which may appear unsightly from outside the Premises. Tenant shall be held responsible for any damage to the glass coating within the
Premises. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or
used in connection with any window or door of the Premises, or placed on any windowsill, which are visible from the exterior of the
Premises, Tenant shall immediately discontinue such use.
3. Common Areas. The sidewalks, entrances, halls, corridors, elevators and stairways of the Building and the
Project shall not be obstructed or used as a waiting or lounging place by Tenant and the Tenant’s Parties. All entrance doors leading from
the Premises to the hallways are to be kept closed at all times. The outside areas immediately adjoining the Premises shall be kept clear
at all times by Tenant, and Tenant shall not place or permit any obstructions, garbage, refuse, merchandise or displays in such areas. The
halls, passages, exits, entrances, elevators, escalators and stairways are not open to the general public, but are open, subject to reasonable
regulations, to Tenant’s Parties. Landlord shall, in all cases, retain the right to control and prevent access thereto of all persons whose
presence in the judgment of Landlord would be prejudicial to the safety of the Project or any part thereof provided that nothing herein
contained shall be construed to prevent such access to persons with whom any tenant normally deals in the
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EXHIBIT D
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601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. Neither Tenant nor any Tenant Parties
shall go upon the roof of the Building.
4. Directory. The directory of the Building will be provided for the display of the name and location of tenants,
and Landlord reserves the right to exclude any other names therefrom. Tenant shall be allocated its pro rata share of lines on the
Building directory board in the main lobby.
Premises.
5. Cleanliness. Tenant shall not exhibit carelessness or indifference to the good order and cleanliness of the
6. Keys. Landlord will furnish Tenant, free of charge, with two keys to each exterior door lock in the
Premises. All duplicate keys shall be purchased only from Landlord. Landlord may charge a reasonable fee for any additional
keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on
any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys to all doors and pay Landlord for
any lost keys.
comply with Landlord’s instructions for their installation.
7. Security Devices. If Tenant requires telephonic, burglar alarm or similar services, it shall first obtain and
8. Freight Elevators. The Building service elevator shall be available for use by all tenants in the Building,
subject to such reasonable scheduling by Landlord. No equipment, materials, furniture, packages, supplies, merchandise or other
property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be
designated by Landlord. Tenant’s initial move-in and subsequent deliveries of bulky items, such as furniture, safes and similar items
shall be made after obtaining Landlord’s written consent and shall be made during the hours of 12:00 a.m. to 5:00 a.m. and 6:00 p.m. to
11:59 p.m., Monday through Friday, or at any time on Saturday or Sunday, unless otherwise agreed in writing by Landlord. Deliveries
during normal office hours shall be limited to normal office supplies and other small items. No deliveries shall be made which impede or
interfere with other tenants or the operation of the Building.
9. Floor Load. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square
foot which such floor was designed to carry and which is allowed by law. Prior to delivery of any heavy object to the Building, Tenant
shall notify Landlord of such object’s specifications and contemplated location in order that Landlord may take action to prevent
structural load damage to the Building. Landlord shall have the right to prescribe the weight, size and position of all equipment,
materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on such
platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant’s sole
cost and expense. Tenant shall be responsible for all structural engineering required to determine structural load. Business machines and
mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or to
any space therein to such degree as to be objectionable to Landlord or to any tenants in the Building, shall be placed and maintained by
Tenant, at Tenant’s sole cost and expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The
persons
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EXHIBIT D
-2-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of,
or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such
equipment or other property shall be repaired at the expense of Tenant.
10. No Waste. Tenant shall not use any method of heating and air conditioning other than that supplied by
Landlord. Further, Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the
most effective operation of the Building’s heating and air conditioning and to comply with any governmental energy-saving rules, laws
or regulations of which Tenant has actual notice. Tenant shall keep corridor doors closed.
Tenant, to change the name and address of the Building and/or any other part of the Project.
11. Building Identification. Landlord reserves the right, exercisable without notice and without liability to
12. Building Access. Landlord reserves the right to exclude from the Building between the hours of 12:00 a.m.
to 7:00 a.m. and 6:00 p.m. to 11:59 p.m., Monday through Friday, and on Saturday, Sunday and holidays, any person not having a
Building issue key and is not identified on the daily access list. Tenant shall be responsible for all persons for whom it requests passes
and shall be liable to Landlord for all acts of such persons. Landlord may prevent access to the Project or any part thereof in case of
invasion, mob, riot, public excitement or other commotion. Landlord may exclude or expel from the Project or any part thereof any
person who, in Landlord’s judgment, is intoxicated or under the influence of liquor or drugs or is in violation of any of the rules and
regulations of the Project. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the
Project or any part thereof of any person.
13. Building Security. Before Tenant and the Tenant Parties leave the Premises each day, Tenant shall (a) close
and lock the doors of its Premises, and (b) shut off all water faucets and other utilities. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.
14. Outside Services. Tenant shall not obtain for use on the Premises, towel or other similar services or accept
barbering or bootblacking service upon the Premises, except as such hours and under such regulations as may be fixed by
Landlord. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent such activities.
15. Lavatories. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any
purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose Tenant
Parties, shall have caused it.
Project or any part thereof.
16. Solicitation. Tenant shall not make any room-to-room solicitation of business from other tenants in the
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EXHIBIT D
-3-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
17. Electronic Devices. Tenant shall not install any radio or television antenna, loudspeaker or other devices on
the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
18. Trash Disposal. Tenant shall store all its trash and garbage within the Premises or in other facilities provided
by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued
from time to time by Landlord.
19. Prohibited Uses. The Premises shall not be used for (a) the keeping of any bicycles, motorcycles or animals
of any kind (except service animals to the extent access is required by Applicable Laws), or (b) lodging, or (c) for manufacturing of any
kind; nor shall the Premises be used for any illegal purpose. No cooking or heating of food is permitted on the Premises, excepting
therefrom microwave ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages. Such cooking and heating
devices and their use should be approved by Underwriters Laboratories in accordance with all applicable insurance regulations and
federal, state, county and city laws, codes, ordinances, rules and regulations. Tenant shall not install, maintain or operate upon the
Premises any vending machines without the written consent of Landlord, which consent shall not be unreasonably withheld.
20. Prohibited Equipment. Tenant shall not use in any space or in the public halls of the Project any hand truck
except those equipped with rubber tires and side guards or such other material- handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building.
regulations established by Landlord or any governmental agency.
21. Safety Procedures. Tenant shall comply with all safety, fire protection and evacuation procedures and
22. Premises Security. Tenant assumes full responsibility for protecting its space from theft, robbery and
pilferage, which includes keeping doors locked and other means of entry to the Premises closed and secure. Landlord shall not in any
way be responsible to Tenants or any Tenant Party, for any loss of property from the Premises or public areas or for any damage to any
property thereon to the extent provided in the Lease.
23. Building Management. Tenant’s requirements will be attended to only upon appropriate application to the
Building management office by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or
otherwise) to any office without specific instructions from Landlord.
24. Waiver. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or
any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the
Building.
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EXHIBIT D
-4-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease.
25. Integration. These Rules and Regulations are in addition to, and shall not be construed to in any way modify
26. Additional Regulations. Landlord reserves the right to make such other and reasonable rules and regulations
as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project of any part thereof
and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any
additional rules and regulations which are adopted and delivered to Tenant in writing.
employees, agents, clients, customers, invitees, licensees and guests.
27. Observance of Rules. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant’s
Common Areas appurtenant to the Project (such parking facilities being collectively referred to hereinafter as the “Parking Area”).
28. Parking Facilities. The following rules and regulations shall govern use of the parking facilities within the
28.1 Persons using the Parking Area shall obey all signs and shall park only in areas designated for
vehicle parking within painted stall lines. Tenant’s parking spaces shall be used only for parking vehicles no longer than full-sized
passenger automobiles. Tenant shall not permit any vehicle that belongs to or is controlled by Tenant, its agents, employees, invitees,
licensees and visitors, to be loaded, unloaded or parked in areas other than those designated by Landlord or its parking operator for such
activities. No maintenance, washing, waxing or cleaning of vehicles shall be permitted in the Parking Area. Unless otherwise instructed,
each person using the Parking Area shall park and lock his or her own vehicle. Neither Landlord nor its parking operator shall be liable
for damage to any vehicle, injury to any person or loss of any property, all of which risks are assumed by the person using the Parking
Area. Parking pursuant to this Lease is intended as a license only, and no bailment is intended or created hereby. Tenant shall abide by
those rules promulgated by Landlord which provide for tandem parking. No overnight or extended term storage of any vehicles or other
object shall be permitted.
28.2 Persons using the Parking Area shall comply with any parking identification system established by
Landlord or its parking operator. Such a system may include the validation of visitor parking, at the validation rate applicable to visitor
parking from time to time as set by Landlord or its parking operator. Parking stickers or other identification devices supplied by
Landlord shall remain the property of Landlord. Such devices shall not be transferable, and any such device in the possession of an
unauthorized holder may be retained by Landlord and declared void. Upon the loss or obliteration of a parking identification device,
Tenant shall pay such reasonable replacement charge as may be established by Landlord or its parking operator. Upon the termination of
parking privileges, all parking identification devices supplied by Landlord shall be returned to Landlord. Landlord may refuse the sale of
monthly stickers or other parking identification devices to any tenant or person and/or his agents or representatives who willfully refuse
to comply with these Rules and Regulations and all unposted city, state or federal ordinances, laws, or agreements. Loss or theft of
parking identification devices from automobiles must be reported to the garage manager immediately, and a lost or stolen report must be
filed by
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EXHIBIT D
-5-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
the customer at that time. Landlord may exclude any car from the parking facilities that does not have an identification device. Any
parking identification devices reported lost or stolen found on any unauthorized car will be confiscated and the illegal holder will be
subject to prosecution. Lost or stolen devices found by the purchaser must be reported to the parking facility office immediately to avoid
confusion.
28.3 The speed limit within all parking areas shall be five (5) miles per hour.
28.4 Landlord reserves the right to modify, redesign or redesignate uses permitted in the Parking Area or
any portion thereof, to relocate parking spaces from floor to floor, from one portion of the Parking Area to another or to reasonably
adjacent offsite locations, and to allocate parking spaces between compact and standard sizes from time to time, as long as the same
comply with applicable laws and ordinances. Reserved parking spaces shall be clearly and prominently marked as such by
Landlord. But neither Landlord nor its parking operator shall be liable or responsible for the failure of persons to observe such markings
or to obey other rules and regulations, agreements, laws or ordinances applicable to the Parking Area. Without limiting the generality of
the foregoing, Landlord shall not be obligated to tow any violator’s vehicle, or to declare a default under or terminate the lease of any
other tenant of the Building, on account of any such failure. If for any reason Landlord is unable to provide to Tenant all or any portion
of its parking spaces or Tenant is unreasonably denied access thereto during the initial term of this Lease or any renewal or extension
hereof, such fact shall not be a default by Landlord or permit Tenant to terminate this Lease, either in whole or in part, but Tenant’s
obligation to pay rental for any parking space which is not provided by Landlord shall be abated for so long as Tenant does not have the
use of such parking space, in full settlement of all claims that Tenant might otherwise have against Landlord by reason of Landlord’s
failure or inability to provide Tenant with such parking space.
Tenant shall be responsible for the compliance with all of the foregoing rules and regulations by Tenant and Tenant Parties. Landlord
may refuse to permit any person who violates any such rules and regulations to have access to the Project or any part thereof. Landlord
reserves the right from time to time to modify the rules and regulations set forth herein, including, without limitation, to adopt and
modify such rules and regulations applicable to the Parking Area, as it deems necessary for the proper operation.
811311.04/WLA
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EXHIBIT D
-6-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
EXHIBIT E
601 GATEWAY BOULEVARD
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned, as Tenant under that certain Office Lease (the "Lease") made and entered into as of , 20 by
and between , as Landlord, and the undersigned, as Tenant, for Premises on the ______________ floor(s) of the office
building located at , certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications
thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.
2. The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on
, and the Lease Term expires on ___________, and the undersigned has no option to terminate or cancel the Lease or to
purchase all or any part of the Premises, the Building and/or the Project.
3. Base Rent became payable on .
4. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as
provided in Exhibit A.
5. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession
agreements with respect thereto except as follows:
6. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent
have been paid when due through . The current monthly installment of Base Rent is $ .
7. To Tenant’s current actual knowledge, all conditions of the Lease to be performed by Landlord necessary to the
enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered
any notice to Landlord regarding a default by Landlord thereunder.
8. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except
the Security Deposit in the amount of $ as provided in the Lease.
9. To Tenant’s current actual knowledge, as of the date hereof, there are no existing defenses or offsets, or, to the
undersigned's knowledge, claims or any basis for a claim, that the undersigned has against Landlord.
10. If Tenant is a corporation, limited liability company, partnership or limited liability partnership, Tenant hereby
represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full
right and authority to execute and
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EXHIBIT E
-1-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.
11. There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any
state.
12. Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the
undersigned has not used or stored any hazardous substances in the Premises.
13. To Tenant’s current actual knowledge, all tenant improvement work to be performed by Landlord under the Lease has
been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to
the undersigned under the Lease in connection with any tenant improvement work have been paid in full.
The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or
prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements
contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a
condition of making such loan or acquiring such property.
Executed at on the day of , 20 .
"Tenant":
a
By:
By:
Its:
Its:
,
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EXHIBIT E
-2-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
EXHIBIT F
601 GATEWAY BOULEVARD
STANDARDS FOR UTILITIES AND SERVICES
located. Landlord may limit the number of elevators operating outside normal business hours.
1. Elevators. Provide non-attended passenger elevators to and from the floor(s) on which the Premises are
2. HVAC. On Monday through Friday, except holidays, from 7:00 a.m. to 6:00 p.m., ventilate the Premises and
furnish air conditioning or heating on such days and hours, in temperatures and amounts which in Landlord’s good faith judgment are
reasonably required for comfortable occupancy of the Premises under normal business operations. If Tenant requires air conditioning
during other hours, Landlord will furnish same through an access system provided to Tenant at the Premises, if available, or otherwise as
specified in a written request of Tenant delivered to the Building management office before noon on the preceding business day. For this
service Tenant will pay Landlord, upon receipt of Landlord’s statement, the charge at an hourly rate reasonably and uniformly
determined by Landlord from time to time, which is currently $266.97 for full HVAC and $126.92 for fans only per hour. Tenant agrees
that neither Tenant nor any Tenant Party shall at any time enter mechanical installations or facilities of the Building or adjust, tamper
with, touch or otherwise in any manner affect said installations or facilities. The cost of maintenance and service calls to adjust and
regulate the air conditioning system shall be charged to Tenant if the need for maintenance work results from either Tenant’s adjustment
of room thermostats or Tenant’s failure to comply with Landlord’s rules governing the temperature within the Premises.
determines in good faith to be reasonable and standard, including replacement of Building standard lights, bulbs and tubes.
3. Lighting. Furnish electric lighting for all public areas and special service areas of the Building as Landlord
4. Electrical Service. Subject to the limitation of this Paragraph 4, furnish electrical service to the Premises,
including providing and installing all Building standard replacement lighting tubes. If Tenant uses more electrical power than Landlord
in good faith considers reasonable or normal for office use, Tenant will pay Landlord on a monthly basis the cost of such excess power
consumed by Tenant. Consumption will be determined, at Landlord’s election, either (a) by a survey performed by a reputable consultant
selected by Landlord, or (b) through separate meters or submeters installed, maintained and read by Landlord at Tenant’s cost. For
purposes of this Paragraph 4 only, “month” and “monthly” shall mean any billing period used by the utility or other power provider
supplying electricity. All installations of electrical fixtures, appliances and equipment within the Premises other than normal office
equipment shall be subject to Landlord’s reasonable prior approval, and if they materially affect the temperature or humidity otherwise
maintained, Landlord may, at Tenant’s sole cost and expense (to be paid within (30) days after delivery of written demand supported by
invoices or other reasonably satisfactory evidence), install supplemental air conditioning units. Tenant’s use of electricity shall never
exceed Tenant’s share of the capacity of existing feeders to the Building or of the risers, wiring installations and transformers serving the
floor(s) containing the Premises. Landlord shall provide
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EXHIBIT F
-1-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
up to 3.5 watts per usable square foot (demand) of riser and floor panel electrical capacity averaged over the floor being serviced. Tenant
shall be allocated an approximate 2.0 watts per usable square foot for power and 1.5 watts per usable square foot for lighting. Any risers
or wiring necessary to meet Tenant’s excess electrical requirements will be installed by Landlord on Tenant’s request, at Tenant’s sole
cost and expense (to be paid in advance), but only if in Landlord’s good faith belief, they are necessary and will not cause damage to the
Building or a dangerous condition, entail excessive or unreasonable alterations, repairs or expense, or disturb other occupants.
5. Water. Provide toilet facilities, water for lavatory and toilet purposes, cold water for drinking and tepid
water for lavatory purposes, all at points of supply provided for general use of tenants in the Building and in the Premises through
fixtures installed by Landlord or by Tenant with Landlord’s consent.
6. Janitorial. Provide janitorial service to the Premises on business days and other cleaning services as
Landlord determines to be reasonably required. Tenant will pay Landlord the full cost attributable to any extraordinary janitorial or
cleaning services which the Premises may require.
7. Maintenance of Non-Building Standard Items. Maintenance and service costs necessary for non-building
standard items in the Premises shall be the responsibility of Tenant. As used in this paragraph, non-building standard items shall include,
without limitation, heat pumps, condenser pumps, sinks and associated drain pipes, faucets, hot water heaters, garbage disposals,
dishwashers, refrigerators, ice makers, air conditioning units, projection screens and associated wiring and switching, incandescent
downlight or wallwash fixtures and lamps, floor electrical outlets and power poles.
8. Security Services. Provide Building security personnel twenty-four (24) hours per day, seven (7) days per
week, fifty-two (52) weeks per year and a card access system which allows access to individual office floors twenty-four (24) hours per
day, seven (7) days per week, fifty-two (52) weeks per year, all of which shall be provided by Landlord in its sole and absolute
discretion. Notwithstanding Landlord’s providing security, Tenant waives any claim against Landlord with respect to any loss by theft or
any other damage suffered or incurred by Tenant in connection with any entry into the Premises or any other breach of security with
respect to the Premises or the Building, except due to the gross negligence or willful misconduct of Landlord or Landlord’s violation of
this Lease.
Landlord reserves the right to adopt reasonably, nondiscriminatory modifications and additions to these standards, which
Landlord shall promptly deliver to Tenant in writing.
811311.04/WLA
378421-00002/2-14-20/mem/mem
EXHIBIT F
-2-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
EXHIBIT G
ACCEPTABLE FORMS OF INSURANCE CERTIFICATE
811311.04/WLA
378421-00002/2-14-20/mem/mem
EXHIBIT G
-1-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
811311.04/WLA
378421-00002/2-14-20/mem/mem
EXHIBIT G
-2-
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER
EXHIBIT H
FORM OF LETTER OF CREDIT
ISSUE DATE:
ISSUING BANK:
SILICON VALLEY BANK
3003 TASMAN DRIVE
2ND FLOOR, MAIL SORT HF210
SANTA CLARA, CALIFORNIA 95054
BENEFICIARY:
601 & 651 GATEWAY CENTER LP
C/O BOSTON PROPERTIES LIMITED PARTNERSHIP
FOUR EMBARCADRO CENTER
LOBBY LEVEL, SUITE ONE
SAN FRANCISCO, CA 94111
ATTENTION: MR. BOB PESTER
APPLICANT:
AKERO THERAPEUTICS, INC.
400 TECHNOLOGY SQUARE
10TH FLOOR
CAMBRIDGE, MA 02139
AMOUNT: US$107,953.86 (ONE HUNDRED SEVEN THOUSAND NINE HUNDRED FIFTY THREE
AND 86/100 U.S. DOLLARS)
EXPIRATION DATE: FEBRUARY , 2021 (ONE YEAR FROM DATE THE LC IS ISSUED)
PLACE OF EXPIRATION: ISSUING BANK’S COUNTERS AT ITS ABOVE ADDRESS
DEAR SIR/MADAM:
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
3
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVBS IN YOUR FAVOR FOR
THE ACCOUNT OF THE APPLICANT EFFECTIVE IMMEDIATELY, FOR THE SUM NOT EXCEEDING ONE HUNDRED
SEVEN THOUSAND NINE HUNDRED FIFTY THREE AND 86/100 U.S. DOLLARS ($107,953.86) WHICH EXPIRES ON
AT OUR OFFICE AND AVAILABLE BY YOUR DRAFT(S) DRAWN ON US AT SIGHT IN THE FORM OF EXHIBIT
“A” ATTACHED AND ACCOMPANIED BY THE FOLLOWING DOCUMENTS:
1. THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENT(S), IF ANY.
2. BENEFICIARY’S DATED AND SIGNED STATEMENT, STATING ANY ONE OF THE FOLLOWING WITH INSTRUCTIONS
IN BRACKETS THEREIN COMPLETED:
“THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY, EITHER (A) UNDER THE LEASE (DEFINED BELOW), OR
(B) AS A RESULT OF THE TERMINATION OF SUCH LEASE, HAS THE RIGHT TO DRAW DOWN THE AMOUNT OF
USD(INSERT) IN ACCORDANCE WITH THE TERMS OF THAT CERTAIN OFFICE LEASE DATED FEBRUARY , 2020 BY
AND BETWEEN BENEFICIARY AND APPLICANT (OR THE SUCCESSOR-IN-INTEREST TO THE ORIGINAL TENANT OF
SUCH OFFICE LEASE), AS THE SAME MAY HAVE BEEN AMENDED (COLLECTIVELY, THE “LEASE”), OR SUCH AMOUNT
CONSTITUTES DAMAGES OWING BY THE TENANT TO BENEFICIARY RESULTING FROM THE BREACH OF SUCH
LEASE BY THE TENANT THEREUNDER, OR THE TERMINATION OF SUCH LEASE, AND SUCH AMOUNT REMAINS
UNPAID AT THE TIME OF THIS DRAWING.”
OR
“THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY HAS RECEIVED A WRITTEN NOTICE OF SILICON
VALLEY BANK’S ELECTION NOT TO EXTEND ITS STANDBY LETTER OF CREDIT NO. SVBSF(INSERT) AND LESS THAN
FORTY-FIVE (45) DAYS REMAIN PRIOR TO THE EXPIRATION OF SUCH LETTER OF CREDIT.”
OR
“THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF
LETTER OF CREDIT NO. SVBSF(INSERT) AS THE RESULT OF THE FILING OF A VOLUNTARY PETITION UNDER THE U.S.
BANKRUPTCY CODE OR A STATE BANKRUPTCY CODE BY THE TENANT UNDER THAT CERTAIN OFFICE LEASE
DATED FEBRUARY , 2020 BY AND BETWEEN BENEFICIARY AND APPLICANT (OR THE SUCCESSOR-IN-INTEREST TO
THE
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
4
ORIGINAL TENANT OF SUCH OFFICE LEASE), AS THE SAME MAY HAVE BEEN AMENDED (COLLECTIVELY, THE
“LEASE”), WHICH FILING HAS NOT BEEN DISMISSED AT THE TIME OF THIS DRAWING.”
OR
“THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF
LETTER OF CREDIT NO. SVBSF(INSERT) AS THE RESULT OF AN INVOLUNTARY PETITION HAVING BEEN FILED
UNDER THE U.S. BANKRUPTCY CODE OR A STATE BANKRUPTCY CODE AGAINST THE TENANT UNDER THAT
CERTAIN OFFICE LEASE DATED FEBRUARY , 2020 BY AND BETWEEN BENEFICIARY AND APPLICANT (OR THE
SUCCESSOR-IN-INTEREST TO THE ORIGINAL TENANT OF SUCH OFFICE LEASE), AS THE SAME MAY HAVE BEEN
AMENDED (COLLECTIVELY, THE “LEASE”), WHICH FILING HAS NOT BEEN DISMISSED AT THE TIME OF THIS
DRAWING.”
OR
“THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF
LETTER OF CREDIT NO. SVBSF(INSERT) AS THE RESULT OF THE REJECTION, OR DEEMED REJECTION, OF THAT
CERTAIN OFFICE LEASE DATED FEBRUARY , 2020 BY AND BETWEEN BENEFICIARY AND APPLICANT(OR THE
SUCCESSOR-IN-INTEREST TO THE ORIGINAL TENANT OF SUCH OFFICE LEASE), AS THE SAME MAY HAVE BEEN
AMENDED, UNDER SECTION 365 OF THE U.S. BANKRUPTCY CODE.”
PARTIAL DRAWINGS AND MULTIPLE PRESENTATIONS ARE ALLOWED.
NOTWITHSTANDING THE EXPIRATION DATE IDENTIFIED ABOVE IN THIS LETTER OF CREDIT, THIS LETTER OF
CREDIT SHALL BE AUTOMATICALLY EXTENDED FOR AN ADDITIONAL PERIOD OF ONE YEAR, WITHOUT
AMENDMENT, FROM THE PRESENT OR EACH FUTURE EXPIRATION DATE UNLESS AT LEAST 60 DAYS PRIOR TO THE
THEN CURRENT EXPIRATION DATE WE SEND YOU A NOTICE BY REGISTERED OR CERTIFIED MAIL OR OVERNIGHT
COURIER SERVICE AT THE ABOVE ADDRESS THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED BEYOND THE
THEN CURRENT EXPIRATION DATE. IN NO EVENT SHALL THIS LETTER OF CREDIT BE AUTOMATICALLY EXTENDED
BEYOND SEPTEMBER 1, 2027. IN THE EVENT WE SEND SUCH NOTICE OF NON-EXTENSION, YOU MAY DRAW
HEREUNDER BY YOUR PRESENTATION TO US OF YOUR SIGNED AND DATED STATEMENT STATING THAT YOU HAVE
RECEIVED A NON-EXTENSION NOTICE FROM SILICON VALLEY BANK IN RESPECT OF LETTER OF CREDIT NO. SVBSF
, YOU
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
5
ARE DRAWING ON SUCH LETTER OF CREDIT FOR US$ , LESS THAN SIXTY (60) DAYS REMAIN PRIOR TO
THE EXPIRATION OF THIS LETTER OF CREDIT AND YOU HAVE NOT RECEIVED A REPLACEMENT LETTER OF CREDIT
ACCEPTABLE TO YOU.
ALL DEMANDS FOR PAYMENT SHALL BE MADE BY PRESENTATION OF THE REQUIRED DOCUMENTS ON A
BUSINESS DAY AT OUR OFFICE (THE “BANK’S OFFICE”) AT: SILICON VALLEY BANK, 3003 TASMAN DRIVE, MAIL
SORT HF 210, SANTA CLARA, CA 95054, ATTENTION: GLOBAL TRADE FINANCE. AS USED IN THIS LETTER OF CREDIT,
"BUSINESS DAY" SHALL MEAN ANY DAY OTHER THAN A SATURDAY, SUNDAY OR A DAY ON WHICH BANKING
INSTITUTIONS IN THE STATE OF CALIFORNIA ARE AUTHORIZED OR REQUIRED BY LAW TO CLOSE.
NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THE ISP98 (AS HEREINAFTER DEFINED), IF THE
EXPIRATION DATE OR THE FINAL EXPIRATION DATE IS NOT A BUSINESS Day THEN SUCH DATE SHALL BE
AUTOMATICALLY EXTENDED TO THE NEXT SUCCEEDING DATE WHICH IS A BUSINESS DAY.
FACSIMILE PRESENTATIONS ARE ALSO PERMITTED. EACH FACSIMILE TRANSMISSION SHALL BE MADE AT: (408)
496-2418 OR (408) 969-6510; AND UNDER CONTEMPORANEOUS TELEPHONE ADVICE TO: (408) 450-5001 OR (408) 654-
7176, ATTENTION: GLOBAL TRADE FINANCE. ABSENCE OF THE AFORESAID TELEPHONE ADVICE SHALL NOT
AFFECT OUR OBLIGATION TO HONOR ANY DRAW REQUEST.
THIS LETTER OF CREDIT IS TRANSFERABLE IN WHOLE BUT NOT IN PART ONE OR MORE TIMES, BUT IN EACH
INSTANCE ONLY TO A SINGLE BENEFICIARY AS TRANSFEREE AND FOR THE THEN AVAILABLE AMOUNT, ASSUMING
SUCH TRANSFER TO SUCH TRANSFEREE WOULD BE IN COMPLIANCE WITH THEN APPLICABLE LAW AND
REGULATION, INCLUDING BUT NOT LIMITED TO THE REGULATIONS OF THE U.S. DEPARTMENT OF TREASURY AND
U.S. DEPARTMENT OF COMMERCE. AT THE TIME OF TRANSFER, THE ORIGINAL LETTER OF CREDIT AND ORIGINALS
OR COPIES OF ALL AMENDMENTS, IF ANY, TO THIS LETTER OF CREDIT MUST BE SURRENDERED TO US AT OUR
ADDRESS INDICATED IN THIS LETTER OF CREDIT TOGETHER WITH OUR TRANSFER FORM ATTACHED HERETO AS
EXHIBIT “B” DULY EXECUTED. APPLICANT SHALL PAY OUR TRANSFER FEE OF ¼ OF 1% OF THE TRANSFER
AMOUNT (MINIMUM US$250.00) UNDER THIS LETTER OF CREDIT BUT SUCH PAYMENT BY APPLICANT SHALL NOT
BE A CONDITION TO TRANSFER. EACH TRANSFER SHALL BE EVIDENCED BY EITHER (1) OUR ENDORSEMENT ON
THE REVERSE OF THE LETTER OF CREDIT AND WE SHALL FORWARD THE ORIGINAL OF THE LETTER OF CREDIT SO
ENDORSED TO THE TRANSFEREE OR (2) OUR ISSUING A REPLACEMENT LETTER OF CREDIT TO THE TRANSFEREE
ON SUBSTANTIALLY THE SAME TERMS AND CONDITIONS AS THE
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
6
TRANSFERRED LETTER OF CREDIT (IN WHICH EVENT THE TRANSFERRED LETTER OF CREDIT SHALL HAVE NO
FURTHER EFFECT).
IF DEMAND FOR PAYMENT IS PRESENTED BY 10 A.M. CALIFORNIA TIME AND CONFORMS TO THE TERMS AND
CONDITIONS OF THIS LETTER OF CREDIT, PAYMENT SHALL BE MADE BY ISSUING BANK TO YOU OF THE AMOUNT
SPECIFIED, IN IMMEDIATELY AVAILABLE FUNDS NO LATER THAN THE NEXT FOLLOWING BUSINESS DAY AFTER
THE DATE OF PRESENTMENT. IF DEMAND FOR PAYMENT IS PRESENTED BY YOU HEREUNDER AFTER THE TIME
SPECIFIED ABOVE, AND CONFORMS TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, PAYMENT
SHALL BE MADE TO YOU, OF THE AMOUNT OF SPECIFIED, IN IMMEDIATELY AVAILABLE FUNDS NO LATER THAN
THE SECOND BUSINESS DAY AFTER THE DATE OF PRESENTMENT.
WE HEREBY AGREE WITH THE BENEFICIARY THAT THE DRAFTS DRAWN UNDER AND IN ACCORDANCE WITH THE
TERMS AND CONDITIONS OF THIS LETTER OF CREDIT SHALL BE DULY HONORED UPON PRESENTATION TO US ON
OR BEFORE THE EXPIRATION DATE OF THIS LETTER OF CREDIT OR ANY AUTOMATICALLY EXTENDED EXPIRATION
DATE.
IF THE ORIGINAL AND/OR ANY AMENDMENTS THERETO OF THIS STANDBY LETTER OF CREDIT NO. SVBSF ARE
LOST, STOLEN OR DESTROYED, WE WILL ISSUE YOU A "CERTIFIED TRUE COPY" OF THIS STANDBY LETTER OF
CREDIT NO. SVBSF UPON OUR RECEIPT OF YOUR INDEMNITY LETTER. IF THE ORIGINAL OF THIS STANDBY
LETTER OF CREDIT IS MUTILATED, WE WILL ISSUE YOU A REPLACEMENT STANDBY LETTER OF CREDIT WITH THE
SAME NUMBER, DATE AND TERMS AS THE ORIGINAL UPON OUR RECEIPT OF THE MUTILATED STANDBY LETTER OF
CREDIT.
IF ANY INSTRUCTIONS ACCOMPANYING A DRAWING UNDER THIS LETTER OF CREDIT REQUEST THAT PAYMENT IS
TO BE MADE BY TRANSFER TO YOUR ACCOUNT WITH ANOTHER BANK, WE WILL ONLY EFFECT SUCH PAYMENT BY
FED WIRE TO A U.S. REGULATED BANK, AND WE AND/OR SUCH OTHER BANK MAY RELY ON AN ACCOUNT NUMBER
SPECIFIED IN SUCH INSTRUCTIONS EVEN IF THE NUMBER IDENTIFIES A PERSON OR ENTITY DIFFERENT FROM THE
INTENDED PAYEE.
THIS LETTER OF CREDIT IS SUBJECT TO THE INTERNATIONAL STANDBY PRACTICES (ISP98), INTERNATIONAL
CHAMBER OF COMMERCE, PUBLICATION NO. 590.
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
7
SILICON VALLEY BANK,
AUTHORIZED SIGNATURE
AUTHORIZED SIGNATURE
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
8
EXHIBIT "A"
SIGHT DRAFT
DATE:
REF. NO.
AT SIGHT OF THIS DRAFT
PAY TO THE ORDER OF US$
USDOLLARS
DRAWN UNDER SILICON VALLEY BANK, SANTA CLARA, CALIFORNIA, STANDBY
LETTER OF CREDIT NUMBER NO. DATED
TO: SILICON VALLEY BANK
3003 TASMAN DRIVE
SANTA CLARA, CA 95054
(BENEFICIARY'S NAME)
Authorized Signature
GUIDELINES TO PREPARE THE DRAFT
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
9
1. DATE: ISSUANCE DATE OF DRAFT.
2. REF. NO.: BENEFICIARY'S REFERENCE NUMBER, IF ANY.
3. PAY TO THE ORDER OF: NAME OF BENEFICIARY AS INDICATED IN THE L/C (MAKE SURE BENEFICIARY
ENDORSES IT ON THE REVERSE SIDE).
4. US$: AMOUNT OF DRAWING IN FIGURES.
5. USDOLLARS: AMOUNT OF DRAWING IN WORDS.
6. LETTER OF CREDIT NUMBER: SILICON VALLEY BANK'S STANDBY L/C NUMBER THAT PERTAINS TO THE
DRAWING.
7. DATED: ISSUANCE DATE OF THE STANDBY L/C.
8. BENEFICIARY'S NAME: NAME OF BENEFICIARY AS INDICATED IN THE L/C.
9. AUTHORIZED SIGNATURE: SIGNED BY AN AUTHORIZED SIGNER OF BENEFICIARY.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS DRAFT, PLEASE CALL OUR L/C PAYMENT SECTION AT
408-654-6274 OR 408-654-7716.
IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER __________________
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
10
DATE:
TO:
SILICON VALLEY BANK
3003 TASMAN DRIVE
SANTA CLARA, CA 95054
ATTN: GLOBAL TRADE FINANCE
STANDBY LETTERS OF CREDIT
GENTLEMEN:
EXHIBIT “B”
FORM OF TRANSFER FORM
RE: IRREVOCABLE STANDBY LETTER OF CREDIT
NO.
ISSUED BY
SILICON VALLEY BANK, SANTA CLARA
L/C AMOUNT:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
_________________________________________________________________________________________
(NAME OF TRANSFEREE)
_________________________________________________________________________________________
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF CREDIT UP TO ITS AVAILABLE
AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS TRANSFER.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF CREDIT ARE TRANSFERRED TO THE
TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO
ANY AMENDMENTS, WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR
HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECTLY TO THE TRANSFEREE WITHOUT NECESSITY OF ANY
CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO EITHER (1) ENDORSE THE
TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF
TRANSFER, OR (2) ISSUE A REPLACEMENT LETTER OF CREDIT TO THE TRANSFEREE ON SUBSTANTIALLY THE SAME TERMS AND
CONDITIONS AS THE TRANSFERRED LETTER OF CREDIT (IN WHICH EVENT THE TRANSFERRED LETTER OF CREDIT SHALL HAVE
NO FURTHER EFFECT).
SINCERELY,
SIGNATURE AUTHENTICATED
(BENEFICIARY’S NAME)
The name(s), title(s), and signature(s) conform to that/those on file with
us for the company and the signature(s) is/are authorized to execute this
instrument.
(SIGNATURE OF BENEFICIARY)
(NAME AND TITLE)
(Name of Bank)
(Address of Bank)
(City, State, ZIP Code)
(Authorized Name and Title)
(Authorized Signature)
(Telephone number)
[Type here]
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT. IF THERE IS ANY
DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION,
BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.
Applicant’s Authorized Signature
DATE
11
OFFICE LEASE
601 GATEWAY BOULEVARD
601 & 651 GATEWAY CENTER LP,
a Delaware limited partnership,
as Landlord,
and
AKERO THERAPEUTICS, INC.,
a Delaware corporation,
as Tenant.
811311.04/WLA
378421-00002/2-14-20/mem/mem
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
TABLE OF CONTENTS
PREMISES, BUILDING, PROJECT, AND COMMON AREAS
LEASE TERM
BASE RENT
ADDITIONAL RENT
USE OF PREMISES
SERVICES AND UTILITIES
REPAIRS
ADDITIONS AND ALTERATIONS
COVENANT AGAINST LIENS
INDEMNITY AND INSURANCE
DAMAGE AND DESTRUCTION
NONWAIVER
CONDEMNATION
ASSIGNMENT AND SUBLETTING
SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES
HOLDING OVER
ESTOPPEL CERTIFICATES
MORTGAGE OR GROUND LEASE
DEFAULTS; REMEDIES
COVENANT OF QUIET ENJOYMENT
SECURITY DEPOSIT
SUBSTITUTION OF OTHER PREMISES
SIGNS
COMPLIANCE WITH LAW
LATE CHARGES
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
ENTRY BY LANDLORD
NOTICES
MISCELLANEOUS PROVISIONS
ARTICLE 1
ARTICLE 2
ARTICLE 3
ARTICLE 4
ARTICLE 5
ARTICLE 6
ARTICLE 7
ARTICLE 8
ARTICLE 9
ARTICLE 10
ARTICLE 11
ARTICLE 12
ARTICLE 13
ARTICLE 14
ARTICLE 15
ARTICLE 16
ARTICLE 17
ARTICLE 18
ARTICLE 19
ARTICLE 20
ARTICLE 21
ARTICLE 22
ARTICLE 23
ARTICLE 24
ARTICLE 25
ARTICLE 26
ARTICLE 27
ARTICLE 28
ARTICLE 29
EXHIBITS
A OUTLINE OF PREMISES
B TENANT WORK LETTER
C FORM OF NOTICE OF LEASE TERM DATES
D RULES AND REGULATIONS
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
Page
4
5
6
7
17
18
20
21
25
25
31
33
34
34
40
41
42
42
44
46
47
52
53
53
55
55
56
57
58
811311.04/WLA
378421-00002/2-14-20/mem/mem
(i)
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
F STANDARDS FOR UTILITIES AND SERVICES
G ACCEPTABLE FORMS OF INSURANCE CERTIFICATE
H FORM OF LETTER OF CREDIT
811311.04/WLA
378421-00002/2-14-20/mem/mem
(ii)
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
Additional Rent
Alterations
Bank Prime Loan
Base Building
Base Rent
Base Year
Base Year Prop 13 Taxes
Brokers
Building
Building Common Areas
Building Common Areas.
Building Direct Expenses
Building Hours
Building Operating Expenses
Building Tax Expenses
Capital Expenses
Common Areas
Cost Pools
Direct Expenses
Estimate
Estimate Statement
Estimated Excess
Excess
Expense Year
Force Majeure
Gateway Center
Hazardous Substance
Holidays
HVAC
Landlord
Landlord Repair Notice
Lease
Lease Commencement Date
Lease Expiration Date
Lease Term
Lease Year
Lines
Mail
Notices
Operating Expenses
Original Improvements
Other Improvements
Premises
Project
INDEX
Page(s)
7
21
55
23
6
7
14
62
4
5
5
8
18
8
8
14
5
15
8
15
15
15
15
8
60
62
18
18
18
1
32
1
5
5
5
5
64
57
57
8
27
63
4
4
811311.04/WLA
378421-00002/2-14-20/mem/mem
(iii)
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
Project Common Areas
Proposition 13
Reassessment
Renovations
Rent
rentable square feet
Statement
Subject Space
Summary
Tax Expenses
Tenant
Tenant Work Letter
Tenant's Share
Tenant's Subleasing Costs
Transfer
Transfer Agreement
Transfer Notice
Transfer Premium
Transferee
Transfers
Page(s)
5
12
13
63
7
5
15
35
1
12
1
4
14
37
34
38
35
37
35
34
811311.04/WLA
378421-00002/2-14-20/mem/mem
(iv)
601 GATEWAY BOULEVARD
[Akero Therapeutics, Inc.]
SUBSIDIARIES
Subsidiary
Jurisdiction of Incorporation
Akero Securities Corporation
Massachusetts
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333‑232234 on Form S‑8 of our report dated
March 16, 2020 relating to the consolidated financial statements of Akero Therapeutics, Inc. appearing in this Annual
Report on Form 10‑K for the year ended December 31, 2019.
Exhibit Ex 23.1
/s/ Deloitte & Touche LLP
Parsippany, NJ
March 16, 2020
EXHIBIT 31.1
I, Andrew Cheng, certify that:
1.
I have reviewed this annual report on Form 10-K of Akero Therapeutics, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313);
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 16, 2020
/s/ ANDREW CHENG
Andrew Cheng, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
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EXHIBIT 31.2
I, William White, certify that:
1.
I have reviewed this annual report on Form 10-K of Akero Therapuetics, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313);
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 16, 2020
/s/ WILLIAM WHITE
William White
Executive Vice President, Chief Financial Officer and Head
of Corporate Development
(Principal Financial and Accounting Officer)
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Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
EXHIBIT 32.1*
In connection with the Annual Report of Akero Therapeutics, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2019 (the “Report”), the undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated: March 16, 2020
Dated: March 16, 2020
/s/ ANDREW CHENG
Andrew Cheng, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
/s/ WILLIAM WHITE
William White
Executive Vice President, Chief Financial Officer and Head
of Corporate Development
(Principal Financial and Accounting Officer)
* This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934.
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